Oriental Sharp Ltd v. Hong Kong Housing Authority and Another

HCA 8794/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8794 OF 2000

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BETWEEN

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Before : Hon A Cheung J in Court

Dates of Hearing : 4-8, 11-15 & 18 September 2006

Date of Judgment : 2 November 2006

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J U D G M E N T

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Background facts – PSPS in general

1.Housing is quite properly an important social and political issue in Hong Kong, and sometimes an intensely emotional one too.  The Hong Kong Housing Authority, a statutory body established in 1973 under the Housing Ordinance (Cap. 283), has been given the unenviable task and duty of securing the provision of housing and ancillary amenities to the general public of Hong Kong, particularly those belonging to the lower or lower-middle class of the society.  Demands are great and varied, and resources limited.

2.Apart from the provision of public rental housing in the form of public housing estates which houses approximately 2 million people, the Housing Authority has since 1977 implemented the Home Ownership Scheme (HOS), which was designed to enable lower-middle income families and public housing tenants to become home-owners.  Flats built by the Housing Authority were offered to them for purchase at affordable prices set at a discount from the market values of comparable units in developments developed by the private sector.

3.Since about 1978, HOS was supplemented by the Private Sector Participation Scheme (PSPS).  PSPS was a scheme similar to HOS but with the involvement of private sector developers.  The idea was to draw on private sector resources and experiences in the construction and sale of flats.

4.Since then, HOS and PSPS have served as the main vehicles of the Housing Authority in providing affordable means for the lower-middle income households to purchase their own flats.  The flats were offered for sale in phases.  In each phase of sale, invariably demand exceeded supply and phase after phase, a substantial over-subscription was recorded in the sale of HOS and PSPS flats.

5.Under both HOS and PSPS, applicants were divided into “green form” and “white form” applicants.  Basically, green form applicants were those who were domestic tenants in public rental housing estates of the Housing Authority and the Housing Society or authorised residents in temporary housing areas and cottage areas managed by the Housing Authority or prospective public rental housing tenants who held valid green form certificates.

6.All other applicants made their applications by standard “white forms” prepared and provided by the Housing Authority.

7.Over the years, details of the eligibility requirements of the applicants have changed from time to time to meet the changing needs and demands of the society.  However, the objective has always been to enable lower-middle income households to purchase their own flats at affordable prices.

8.According to the evidence that I accept, up to and including Phase 8A in 1985, as provided in the green forms and white forms, a purchaser selected by the Housing Authority was required to pay a deposit equivalent to 10% of the purchase price of the unit.  From Phase 8B in 1986 onwards, the green form purchasers and white form purchasers selected by the Housing Authority were require to pay to the Housing Authority 5% and 10% of the purchase prices of the units respectively as deposits.  Furthermore, since Phase 13C in about 1991, the forms had always contained a provision to the effect that the purchaser could withdraw from the purchase prior to payment of the balance purchase price and assignment, subject to the forfeiture of part or the whole of the deposit paid.

9.In a PSPS project, the Government invited tenders from private developers for the issue of a land grant in the form of a conditions of sale in respect of the relevant site.  The successful bidder paid the Government a premium for the land for development and undertook under the conditions of sale to develop the particular PSPS project on terms set out in the conditions of sale.

10.Essentially, since 1986 the conditions of sale required the developer to only sell the completed residential flats to those purchasers (called home-owners) to be nominated by the Housing Authority.  If the purchaser failed to sign the formal sale and purchase agreement with the developer after the nomination or failed to pay the balance purchase price and complete the sale and purchase with the developer, the conditions provided that the Housing Authority would re-nominate a new purchaser to take up the flat.  The conditions also provided that in case the flats could not be sold within a stipulated period of time, the Housing Authority would buy back the flats.

11.An important condition in the conditions of sale was that the developer would only receive proceeds of sale of the residential flats calculated at a fixed yet guaranteed rate ($X per square metre of saleable area), regardless of the actual prices of sale to the home-owners which were to be fixed by the Housing Authority.  In case of buyback, the same fixed rate would be used to calculate the buyback price.  It should be noted at the outset that the above arrangement was set out in the conditions of sale, a document executed between the Government and the private developer.  The Housing Authority was not a party to the conditions of sale.  Indeed it should be noted that, rather surprisingly, under a PSPS scheme, the Housing Authority and the private developer did not sign any formal document as such to set out their mutual rights and obligations under the PSPS project (leaving aside for the time being the conveyancing minutes and notes to be mentioned later).

12.The Housing Authority offered the residential flats constructed under a PSPS project for sale to eligible members of the public (the green form and white form applicants) by phases.  Sometimes a phase of sale would only include HOS flats from one or more than one project.  Sometimes, a phase would include both HOS and PSPS flats from different projects.  As mentioned, demand was always so great that invariably there was an over subscription.  Ballots had to be drawn in order to determine the eligible applicants’ priority.  Because of the discounted prices and other attractions and the resulting keen competition, successful applicants, in the words of one witness, often felt like a “mark-six winner”.  A successful applicant had to pay a nomination fee and sign a nomination agreement and a declaration with the Housing Authority.  The Housing Authority would then formally nominate the successful applicant as a home-owner to sign the formal sale and purchase agreement with the PSPS developer.  As between the developer and the home-owner, the nomination fee also served as the deposit paid under the formal agreement.  The balance purchase price was payable upon completion to the developer.

13.For obvious reasons, prior to the events forming the subject matter of this litigation, the “drop-out” rate of these successful applicants was relatively small.  In case of withdrawal, the Housing Authority would re-nominate another purchaser to sign the formal sale and purchase agreement with the developer.

14.Again for obvious reasons, until the events forming the subject of this litigation, there was never ever an occasion when a PSPS flat could not be resold and the Housing Authority had to buy back the flat at the guaranteed rate.

15.Under the conditions of sale, any surplus in proceeds of sale over the guaranteed price payable to the developer would go to the Housing Authority, whereas any deficiency would be borne and made up by the Housing Authority to the developer.

16.Because of the differences between the prices at which the units were sold to the public and the prices which the PSPS developer was entitled to receive from the project based on the guaranteed unit rate, and because of the fact that the purchasers were all nominated by the Housing Authority to which each of the purchasers paid a nomination fee equivalent to 5% or 10% of the purchase price, which was then regarded as the deposit paid under the formal sale and purchase agreement when it was signed pursuant to the nomination, there were quite elaborate provisions agreed between the Housing Authority and the developer in the form of conveyancing minutes or notes, dealing with the transfer of monies between the two and the final reconciliation account.  There were further provisions and arrangements dealing with re-nomination where the entire process of nomination, payment of nomination fee, and signing a formal sale and purchase agreement was repeated.

17.According to the evidence, at least as from 1988, the Housing Authority did not transfer the whole of the nomination fees received from the selected home-owners to the developer; instead, pro rata amounts, based on the same proportion between the guaranteed unit price and the average unit selling price, would be remitted to the developer upon signing of the agreements for sale and purchase.  The Housing Authority would retain the remaining portion.  All this was a matter of administrative convenience only.  The accounts would be reconciled and squared at the end of the day after completion of the project, based on the guaranteed unit price.

Charming Garden – a PSPS project

18.The Chevalier group of companies had extensive experience in PSPS projects.  Through different wholly owned subsidiary companies, the group had participated as developers in no less than seven PSPS projects between mid-1980s and mid-1990s.  In October 1995, the Chevalier group, through one of its wholly-owned subsidiaries, Oriental Sharp Limited, the plaintiff in this action, submitted a tender for the grant of Kowloon Inland Lot No. 11082 in Area 20, Mongkok West, Kowloon, a PSPS project.  The bid was successful and on 15 April 1996, the relevant Conditions of Sale was executed between the Government and the plaintiff for the grant of the land for development as a PSPS project.  The development was subsequently named Charming Garden.  The guaranteed unit rate stipulated in the Conditions of Sale was $15,000 per square metre.

19.Apart from the residential units which had to be sold as PSPS flats, the development also comprised commercial premises, car-parking spaces and a kindergarten which were to be built and sold by the developer as private development.

20.Charming Garden involved 3,908 residential flats, of over 195,000 square metres in total area.  2,648 units in Charming Garden Phase I were launched for sale under Phase 19A in June 1997 while 1,260 units in Charming Garden Phase II were made available for sale under Phase 19B in October 1997. 

21.In fact, there was another PSPS project involving the Chevalier group as private developer, known as Beverly Garden, which was put on sale in the same phases as Charming Garden.

22.Once again there were over subscriptions in the two phases, 10 times in Phase 19A and 8 times in Phase 19B.  Following standard procedure, starting from July 1997, the Housing Authority made a total of 3,908 nominations, out of which 2,648 nominations were made under Phase 19A and the remaining 1,260 nominations were made under Phase 19B. 

Events leading to litigation

23.Then a series of events happened that led, or are said to lead, to mass withdrawals of the nominated home-owners from the purchases and cancellations of the nominations or signed sale and purchase agreements.  A huge amount of nomination fees or deposits paid in respect of the nominations or the relevant sale and purchase agreements, totalling over $150 million, was involved in these withdrawal/cancellation cases.

24.These events included:

(1)	The announcement by the then Chief Executive in his first policy speech on 8 October 1997 that the Government would implement a new housing policy in which 85,000 residential units per year would be provided by public and private sectors to members of the society.  It was further stated in the policy address that the aim was to achieve a home ownership rate of 70% in 10 years.  The Government intended to make available the first batch of about 25,000 public rental housing flats for sale by 1998.  This would involve a huge increase in the supply of public housing.  It has been said in evidence that the announcement sent “shock waves” in the property market and that it was “widely believed” in the property market that they “greatly contributed to the crash of the Hong Kong property market” shortly thereafter.
(2)	The onset of the Asian financial crisis in late October 1997.  The crisis brought about extremely high interest rates that were unprecedented and caused a sharp downturn in economy and the collapse of the property market which had been booming in the period leading to the handover.
(3)	The announcement by the Housing Authority in December 1997 that, pursuant to the Chief Executive’s announced policy to provide 85,000 residential units per year, a new “Tenants Purchase Scheme” (TPS), would be implemented.  Under the scheme, the Housing Authority would offer to sell units in selected public rental housing estates to existing tenants in those estates at affordable prices.  On 22 December 1997, just 2 weeks after the announcement of the implementation of TPS, 6 public rental housing estates were selected as the first batch of flats to be sold under TPS.  In March 1998, another 18 rental housing estates were selected for sale under TPS.
(4)	In the 22 December 1997 announcement, the Hong Kong Housing Authority stated that those tenants in the 6 named public rental housing estates who (a) wished to purchase the relevant units, (b) before the announcement of TPS had already entered into nomination agreements or agreements for sale and purchase to purchase HOS or PSPS units but (c) had not yet executed the assignments to complete such purchases, would be allowed to rescind their purchases of HOS or PSPS units and to have full refund of the deposits or nomination fees from the Housing Authority (amounting to 5% of the purchase prices) provided that they undertook in writing to purchase their units under TPS within 1 year.
(5)	On 14 March 1998, TPS was extended to another 18 public rental housing estates.  The same policy of full refund of nomination fees/deposits was applicable.
(6)	In January 1998, the Housing Authority offered a flexible range of discount rates to TPS buyers to enhance its affordability and attraction.  In short, the flexible discount rates made the discounts given by the Housing Authority to a buyer of flat in terms of the purchase price more reflective of the actual market value at the time of purchase for that individual flat purchaser.  In February 1998, the Housing Authority implemented a new flexible discount rate policy for units to be sold under HOS and PSPS as well, whereby a purchaser in future could choose within a range of different discount rates for the purchase price of his unit.  The new policy, announced on 9 February 1998, did not have any retrospective effect and was not applicable to purchasers of units in previous phases, including Phases 19A and 19B under which Charming Garden was initially launched for sale, or where an agreement for sale and purchase had already been signed.
(7)	According to some newspaper reports, which the plaintiff relies on, the Housing Authority also represented or announced in February 1998 that purchasers of HOS or PSPS flats, who were holders of green form certificates awaiting allocation of public rental housing, would be allowed to retain their priority in the Housing Authority public rental housing allocation system even if they did not complete the sale and purchase of their HOS or PSPS units, notwithstanding previous policy to the contrary.  This alleged change in policy was denied by the Housing Authority at trial.

25.In about October 1997, the Housing Authority started receiving applications for withdrawal from nominations or agreements from nominated home-owners.  They comprised those who had not yet signed formal agreements for sale and purchase as well as those who had already signed such agreements in respect of units in Charming Garden.  The number of applications for withdrawal increased significantly in early 1998.

26.Many purchasers of residential units in Charming Garden as well as other HOS/PSPS projects, who had yet to complete their sale and purchase, took steps to pressurise the Government and Housing Authority to allow them to pull out of their deals.  There were demonstrations and petitions.  They were assisted by politicians and grass root organisations.  It cannot be doubted that a major reason for their actions was the sharp downturn in economy, the slump of the stock market and the significant drop in property prices starting since late October 1997.

27.According to evidence, purchasers of 946 residential units in Charming Garden, who were originally nominated by the Housing Authority to purchase those residential units, decided to withdraw from the purchases after signing the relevant agreements for sale and purchase (a total of 3,488 agreements had been signed out of 3,908 nominations).  849 of them were green form purchasers.  28 of them participated in TPS subsequently and had 5% of the purchase prices paid as deposits refunded by the Housing Authority in full.  The rest of them had their deposits forfeited.  The remaining 97 units involved white form purchasers.  The Housing Authority approved their applications for withdrawal and they signed cancellation agreements with the plaintiff.  The Housing Authority forfeited 5% of the purchase prices and refunded the remaining 5% purchase prices to these purchasers, which they paid by way of nomination fees to the Housing Authority when they signed the nomination agreements.

28.The withdrawals were effected by cancellation agreements signed between the developer and the purchasers.  The reason for signing the cancellation agreements, all sides agreed, was to facilitate the early re-nomination of new buyers and resale of the flats.  Without signing the cancellation agreements, the developer would have to wait until the contractual time fixed for completion before it could take steps to formally rescind the agreements after serving notices on the defaulting purchasers.  That would greatly delay the re-nomination process and resale of the flats concerned, particularly bearing in mind that PSPS flats were only sold by the Housing Authority in batches in one or more phases of sale, but not individually.

29.The Housing Authority made re-nominations for 904 units after the unsold flats were offered for resale in Phases 19C and 20A.  No re-nomination was made by the Housing Authority for the remaining 42 units, as there were no purchasers of those units in the subsequent two phases.

30.Apart from the 946 cases, there were another 420 cases which the plaintiff also complains about, where purchasers of residential units in Charming Garden who were originally nominated by the Housing Authority decided to withdraw from the purchases without signing the agreements for sale and purchase.

31.There were purchasers of 62 units who subsequently participated in TPS.  Each of them obtained a full refund of the 5% purchase price which had been paid as deposit.  There were another 341 units involving green form purchasers who did not participate in TPS.  Their deposits (5% of the purchase prices) were forfeited by the Housing Authority.

32.The remaining 17 units involved white form purchasers.  Each of them had 5% of the purchase price forfeited and the remaining 5% purchase price refunded by the Housing Authority.

33.The Housing Authority made re-nominations for 402 units after the unsold units were offered for resale in Phases 19C and 20A.  No re-nomination was made by Housing Authority for the remaining 18 units as no purchasers could be found.

34.In fact, apart from these 420 cases, there were another 5 cases not referred to by the plaintiff in this action which also concerned purchasers who failed to sign the formal sale and purchase agreements after having been nominated by the Housing Authority.

35.There were purchasers of 36 residential units who, without prior notification or application, simply did not proceed to complete their purchases after signing the agreements for sale and purchase, after the times for completion had arrived.  All but one of them were green form purchasers.  Their deposits – 5% of the purchase prices for the green form purchasers and 10% for the single white form purchaser – were forfeited.

36.The Housing Authority made re-nominations for 34 units which were resold under Phases 19C and 20A.  Two units remained unsold as no purchasers could be found.

37.Due to the downturn in the property market, when these flats were offered for resale in the subsequent two phases, the Housing Authority fixed lower prices.  However, this did not affect the amounts of purchase price received by the plaintiff as developer.  This was because the purchase prices received by the developer were calculated at the guaranteed unit rate of $15,000 per square metre, as had been expressly stipulated in the Conditions of Sale.

38.Moreover, for those flats which could not be resold because no new purchasers could be found within the time stipulated in the Conditions of Sale, they were bought back by the Housing Authority at the guaranteed unit rate of $15,000 per square metre.  Altogether there were a total of 62 units involved in the buyback. 

39.The total purchase prices of all the residential units in Charming Garden receivable by the plaintiff, calculated at the guaranteed unit rate of $15,000 per square metre, exceeded $2.9 billion.  As a matter of fact, the plaintiff did receive the guaranteed $2.9 billion odd from the sale of the flats to home-owners/buyback of the unsold units by the Housing Authority.

Plaintiff’s claim

40.In this action, the gist of the plaintiff’s claim against the Housing Authority relates to the forfeited nomination fees/deposits.  What actually happened at the end of the day was that the Housing Authority kept, in effect, all the nomination fees/deposits forfeited in all the withdrawal/non-completion cases, save and except those cases involving green form purchasers who subsequently took part in TPS, and cases involving white form purchasers who all had half of the 10% purchase prices paid as nomination fees refunded to them upon signing the relevant cancellation agreements.

41.The plaintiff contends that under the terms of the Conditions of Sale to which the Housing Authority was a “joint contractor” (so the plaintiff contends in pleadings), the plaintiff is entitled to the forfeited nomination fees/deposits (including those monies subsequently refunded to the home-owners).

42.Alternatively, the plaintiff argues that the Housing Authority is a trustee or fiduciary agent for the plaintiff in respect of the nomination fees/deposits, and it is under a fiduciary duty to account the same to the plaintiff.

43.Further or alternatively, the plaintiff says that there were various implied terms in the Conditions of Sale, and both the Government and the Housing Authority have acted in breach of those terms “by communicating pressure or persuasion or otherwise inciting, encouraging or procuring the 946 purchasers of units in Charming Garden not to complete their purchases, and/or had dealings with the said purchasers which the [Housing Authority] knew were inconsistent with the Plaintiff’s [agreements for sale and purchase with the purchasers]” (para. 27(1)(i) of the amended statement of claim), thereby causing loss and damage to the plaintiff.

44.Similar claims are made in respect of the 420 cases and 36 cases mentioned above.

45.Alternatively, the plaintiff contends that the Housing Authority is guilty of unlawful interference with the agreements for sale and purchase between the developer and the 946 home-owners.

46.The plaintiff also complains that, apart from the loss of the forfeited deposits, the withdrawal and re-nomination process and the resulting delay caused it loss in terms of increases in interest charges, management fees, Government rates and rents and other outgoings, which were all borne by the developer.  Delay in selling the residential flats also caused, it has been suggested, a corresponding delay in selling the car-parking spaces in Charming Garden.

47.The Government is likewise said to have breached the implied terms in the Conditions of Sale.  Further, the plaintiff claims that the Housing Authority has acted as the Government’s “agent” in the material events and transactions, and the Government is therefore “vicariously liable” for the Housing Authority’s wrong.

Trial on liability only

48.By an earlier order given by a master, the trial, which lasted 11 days, was only concerned with liability.

Special conditions 24 & 26

49.Although the Conditions of Sale, in the nature of a Government grant, was only executed between the Government and the plaintiff as developer, it is common ground between all parties that the relationship of the plaintiff and the Housing Authority is also governed by the relevant terms and conditions in the Conditions of Sale.  In particular, it is common ground that special conditions 24 and 26 of the Conditions of Sale govern, as a matter of contract, the relationship between the plaintiff and the Housing Authority, although the parties differ on how that contractual relationship arose.

50.Before I deal with that question, it is necessary to set out the two rather lengthy special conditions.  Special conditions 24 and 26 read:

“	(24)	(a)	(i)	The Hong Kong Housing Authority through the Director of Housing shall by notice in writing (hereinafter referred to as “a nomination”) given to the Purchaser [i.e. the developer/plaintiff], within a period of 12 months after the date on which the Purchaser obtains the consent of the Director under Special Condition No. (26)(b)(i) hereof, inform the Purchaser of the name, address and description of the person to whom any unit is to be sold by the Purchaser pursuant to these Conditions, and shall in such notice specify the address of the unit and the purchase price thereof.  Upon receipt of each such nomination the Purchaser shall, subject to these Conditions, but otherwise without any delay, enter into with each home-owner an agreement in a form approved by the Director under Special Condition No. (26)(b)(ii) hereof for the sale and purchase of the unit specified in such nomination. ... The Purchaser shall thereafter without any delay register each such agreement for sale and purchase in the Land Registry and shall not charge therefore by way of legal fees and conveyancing expenses any more than the normal scale fees charged for agreements for sale and purchase of a like nature and for a similar consideration.
			(ii)	Within the period of 12 months specified in sub-clause (a)(i) of this Special Condition, if a nomination in respect of a unit shall have been made by the Hong Kong Housing Authority, but the home-owner :-
				I.	fails to sign the agreement for sale and purchase or pay the deposit referred to in Special Condition No. (26)(b)(v) hereof, the Purchaser shall inform the Director of Housing thereof by notice in writing within 14 days of such failure whereupon the Hong Kong Housing Authority acting through the Director of Housing shall within four calendar months of such notification nominate another home-owner to purchase the unit in question; or
				II.	having paid the deposit, fails to pay the balance of the purchase price for the unit by the time specified for payment in the agreement for sale and purchase (the time for payment being due within the said period of 12 months), the Purchaser shall inform the Director of Housing thereof by notice in writing within 14 days of such failure whereupon the Hong Kong Housing Authority acting through the Director of Housing shall within four calendar months of such notification nominate another home-owner to purchase the unit in question and shall specify the purchase price at which such unit shall be purchased by the home-owner and in such event the Purchaser shall only be entitled to an amount equal to the purchase price (less the deposit paid by the original home-owner) which would have been payable by the original home-owner had the failure not taken place.
			(iii)	If the Hong Kong Housing Authority acting through the Director of Housing fails to make a nomination in respect of any unit in accordance with sub-clause (a)(i) of this Special Condition, or fails to make a further nomination in respect of any unit in accordance with sub-clause (a)(ii) of this Special Condition, sub-clause (b) of this Special Condition shall apply and in either event the Purchaser shall not make any claim or demand whatsoever, whether under these Conditions or common law, against the Government or the Hong Kong Housing Authority or the Director of Housing.
		(b)	After the expiry of the period of 12 months specified in sub-clause (a)(i) of this Special Condition, the Purchaser shall inform the Director of Housing by notice in writing of :-
			(i)	any unit in respect of which no nomination in accordance with sub-clause (a)(i) of this Special Condition shall have been made by the Hong Kong Housing Authority acting through the Director of Housing, within 28 days after the expiry of the said period of 12 months.
			(ii)	any unit in respect of which the Hong Kong Housing Authority acting through the Director of Housing, shall have failed to make a further nomination in accordance with sub-clause (a)(ii) of this Special Condition, within 28 days after the expiry of the said period of 12 months;
			(iii)	any unit in respect of which a nomination shall have been made in accordance with sub-clause (a)(i) or (a)(ii)I, of this Special Condition but the home-owner having paid the deposit referred to in Special Condition No. (26)(b)(v) hereof has failed to pay the balance of the purchase price for the unit by the time specified for payment in the agreement for sale and purchase (the time for payment being due after the expiry of the said period of 12 months), within 28 days of such failure.
			Any or all the units above referred to shall be purchased by the Hong Kong Housing Authority or its nominee from the Purchaser at the price fixed therefor in accordance with Special Condition No. (26)(b)(iv) hereof (but not the said price as may be varied under Special Condition No. (26)(c) hereof) less, in the event of the home-owner failing to pay the balance of the purchase money, the amount of the deposit paid by the home-owner, and in respect of such purchase the Purchaser and the Hong Kong Housing Authority or its nominee shall be deemed to have executed on the date of the expiry of the said period of 12 months an agreement for sale and purchase or any such unit or units in the form approved by the Director under Special Condition No. (26)(b)(ii) hereof, and all the provisions of the said form of agreement for sale and purchase shall then apply for all purposes governing the said sale and purchase in the same way as if it had been duly executed by the Purchaser as vendor and the Hong Kong Housing Authority or its nominee as purchaser in respect of each such unit or units …
			…
		(d)	The Purchaser shall, if called upon so to do by the Director of Housing, rescind any sale and purchase agreement entered into between the Purchaser and a home-owner who, in the opinion of the Director of Housing, has made any misrepresentation or false statement with a view to obtaining nomination as a home-owner, and the Government or the Hong Kong Housing Authority or the Director of Housing shall incur no liability to the Purchaser as a result of such rescission.  In addition to any other requirement of the Director under Special Condition No. (26)(b)(ii) hereof the Purchaser shall include in any sale and purchase agreement entered into between the Purchaser and a home-owner a clause in a form satisfactory to the Director to the effect that any information, statement or declaration, whether required by statute, or otherwise, made by the prospective home-owner with a view to obtaining nomination by the Hong Kong Housing Authority through the Director of Housing shall be deemed to be representations made to induce the Purchaser to enter into the sale and purchase agreement with him and that any misrepresentation, false statement or declaration made by the home-owner for such purpose shall entitle the Purchaser either at his own instance or when called upon so to do by the Director of Housing to rescind the said sale and purchase agreement with such home-owner and to recover from the home-owner all expenses incurred in relation to such sale and purchase agreement.  The Purchaser shall within 14 days after such rescission has taken effect inform the Director of Housing thereof by notice in writing and within 28 days of the notification the Director of Housing shall nominate another home-owner to purchase the unit in respect of which the agreement for sale and purchase has been rescinded and shall specify the sale price at which such unit shall be purchased by the home-owner, and in such event the Purchaser shall only be entitled to an amount equal to the purchase price (less the deposit paid by the original home-owner) which would have been payable for the unit by the original home-owner had the rescission not taken place.  If the Director of Housing fails to nominate another home-owner as aforesaid within the said period of 28 days, the unit in respect of which the agreement for sale and purchase had been rescinded shall be purchased by the Hong Kong Housing Authority or its nominee after the expiry of the period of 12 months specified in sub-clause (a)(i) of this Special Condition and at the price which would have been payable for the unit by the original home-owner had the rescission not taken place less the deposit paid by the original home-owner provided that the Hong Kong Housing Authority or its nominee shall not be obliged to take an assignment or pay the balance of the purchase price of the unit until the expiry of the period stipulated by the Purchaser to complete the development of the lot as stated in accordance with paragraph 3(d)(iv)(g) of the Tender Notice or any extension thereto which may be granted.
			…
	(26)	(a)	Except as hereinafter provided in this Special Condition the Purchaser shall not partition the lot or any part thereof nor assign, charge, mortgage, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon, or enter into any agreement so to do.
		(b)	The Purchaser may agree to assign or assign a unit or units but only :-
			(i)	subject to Special Condition No. (6)(e) hereof with the prior consent in writing of the Director and upon such conditions (including the payment of such fee) as he may impose or require;
			(ii)	in accordance with a scheme of conveyancing and management control incorporating agreements for the sale and purchase of undivided shares in the lot or a part or parts thereof (together with the right to the exclusive use and occupation of the units in the building or buildings, including the common parts thereof) followed by deeds of assignment, a deed or deeds of mutual covenant ... and a management agreement (which may be incorporated in and form part of the deed of mutual covenant), which scheme, including all conveyancing and other documents used therein or thereunder, shall be in such form and shall contain such provisions as the Director shall in wiring beforehand approve or require ...;
			(iii)	to the Hong Kong Housing Authority or its nominee or a home-owner;
			(iv)	at a sale price per unit which shall be fixed by the Director of Housing at his absolute discretion but which shall be such that the total sale price of all the units shall (subject to sub-clause (c) of this Special Condition) be calculated at the rate of HK$15,000.00 per square metre of their total saleable area; and
			(v)	on terms which, inter alia, require payment of the purchase price by way of a deposit of an amount equal to not less than 5% and not more than 10% of the purchase price, such deposit to be determined at the sole discretion of the Director of Housing to be notified to the Purchaser in the nomination referred to in Special Condition No. (24)(a) hereof to be paid on execution of the agreement for sale and purchase followed by the balance to be paid in a lump sum on execution of the deed of assignment of each such unit.
		(c)	In respect of each unit assigned or agreed to be assigned to a home-owner, the amount per square metre specified in sub-clause (b)(iv) of this Special Condition (hereinafter referred to as “the unit price”) may be varied by the Hong Kong Housing Authority at its absolute discretion as notified by the Director of Housing to the Purchaser provided that :-
			(i)	if the unit price is increased the Purchaser shall pay to the Hong Kong Housing Authority the amount of such increase in such manner and within such period as shall be determined by the Director of Housing in his absolute discretion; and
			(ii)	if the unit price is reduced the Hong Kong Housing Authority shall pay to the Purchaser the amount of such reduction in such manner and within such period as shall be determined by the Director of Housing in his absolute discretion;
			and made in the two stages hereunder :-
			(aa)	on the occasion of the execution of an agreement for sale and purchase in respect of the amount to be paid resulting from an increase or reduction in the amount of any deposit payable on the execution of such an agreement, and
			(bb)	on the occasion of the execution of the deed of assignment in respect of the amount to be paid resulting from an increase or reduction in the amount of balance of the purchase price payable, on the execution of such an assignment.
		…
		(f)	The Purchaser may after these Conditions have been complied with to the satisfaction of the Director assign any unit but only in accordance with the requirements of sub-clause (b) of this Special Condition.”

51.Whilst I will return to a more detail construction of the relevant provisions in due course, a quick reading of these two special conditions would reveal various special features that concern not only the Government as the grantor, but also the Housing Authority.  Amongst others, those special features include:

(1)	A general restriction on alienation except as provided in special condition 26: condition 26(a).
(2)	The developer may only sell or agree to sell the residential units to the Housing Authority, its nominee or a home-owner: condition 26(b)(iii).
(3)	The Housing Authority shall within a period of 12 months after the Director of Lands’ written consent to the developer’s entering into agreements for sale and purchase, nominate home-owners for the purchase of the residential units: condition 24(a)(i).  (The Director gave his consent by letter dated 31 January 1998.)
(4)	The developer may only sell the residential units to home owners so nominated by the Housing Authority:
	(a)	at prices to be fixed by the Director of Housing at his absolute discretion, such that the total sale price of all the units shall be calculated at the rate of $15,000 per square metre of their total saleable area: condition 26(b)(iv); or
	(b)	at such other varied prices as the Housing Authority at his absolute discretion may fix: condition 26(c).
(5)	In case of such variation in price either above or below the rate of $15,000 per square metre, the surplus in price (as compared with $15,000 per square metre) or, as the case may be, the deficiency in price, shall be paid by the developer to the Housing Authority, or in the latter case, by the Housing Authority to the developer: condition 26(c)(i) and (ii).
(6)	The agreements for sale and purchase signed between the developer and individual home-owners shall provide that a deposit between 5% and 10% of the purchase price, to be determined at the sole discretion of the Director of Housing, be paid upon signing the agreement and the balance be paid upon execution of the assignment: condition 26(b)(v).
(7)	The agreements for sale and purchase and other conveyancing documents shall be in such forms and shall contain such provisions as the Director of Lands shall approve or require in advance: conditions 24(a) and 26(b)(ii).
(8)	The Housing Authority has an obligation to re-nominate a new home-owner within 4 months of notification by the developer in either of the following two situations:
	(a)	If the originally nominated home-owner fails to sign the agreement for sale and purchase or pay the deposit: condition 24(a)(ii)I; or
	(b)	The originally nominated home-owner, having paid the deposit, “fails to pay the balance of the purchase price for the unit by the time specified for payment in the agreement for sale and purchase”, provided that the time for payment shall become due within 12 months after the Director of Lands’ consent for the developer’s entering into agreements for sale and purchase: condition 24(a)(ii)II.
(9)	In the event of a re-nomination pursuant to the last mentioned scenario (as per condition 24(a)(ii)II), as between the developer and the Housing Authority, the deposit paid by the originally nominated home-owner who did not complete the sale and purchase, thus triggering the re-nomination obligation in the first place, shall belong to the Housing Authority: condition 24(a)(ii)II.
(10)	The Housing Authority has an obligation to buy back a residential unit from the developer under three situations:
	(a)	Where no nomination is made within 12 months: condition 24(b)(i);
	(b)	Where no re-nomination is made under the two situations described in sub-paragraph (8) above: condition 24(b)(ii); or
	(c)	Where the failure of the nominated home-owner to pay the balance purchase price in completion of the sale and purchase takes place outside the 12 months period counting from the Director of Lands’ consent (in which event the Housing Authority has no right or obligation to make a re-nomination): condition 24(b)(iii).
(11)	In case of any such buyback, the buyback price shall be calculated at the rate of $15,000 per square metre less, in the event of the nominated home-owner failing to pay the balance purchase price, the deposit already paid by the home-owner to the developer upon signing the agreement for sale and purchase: condition 24(b).
(12)	Apart from the above, in case of a home-owner making any misrepresentation or false statement to the Housing Authority with a view to obtaining nomination as a home-owner, the Housing Authority may call upon the developer to rescind the agreement for sale and purchase signed with that home-owner.  Following rescission, the Housing Authority has to nominate a new home-owner within 4 months to buy the unit.  As between the Housing Authority and the developer, in case of a successful re-nomination/resale, the deposit paid by the originally nominated home owner shall belong to the Housing Authority.  In case the Housing Authority does not make any re-nomination, it has to buy back the unit from the developer at the rate of $15,000 per square metre less the amount of deposit already paid: condition 24(d).
(13)	Apart from the buyback obligation on the part of the Housing Authority, the developer has no claim or demand whether under the Conditions of Sale or common law, against the Government, the Housing Authority or the Director of Housing, in respect of any failure to nominate or re-nominate a home-owner : condition 24(a)(iii).
(14)	The developer may, after compliance with the Conditions of Sale, assign the residential units, but only in accordance with the requirements of condition 26(b): condition 26(f).  (The Director’s consent for executing assignments was given by letter dated 10 June 1998.)

Contractual relationship between the Housing Authority and the plaintiff

52.As mentioned, the parties are in agreement that the provisions in special conditions 24 and 26 govern the relationship between the Housing Authority and the developer, as a matter of contract.

53.As to how that contract came into being, as observed, the Housing Authority and the developer never signed a written contract between themselves.  It should also be noted that prior to 1986, the Housing Authority played a lesser role in PSPS projects, in that it was the Government, rather than the Housing Authority, which had the obligations regarding nomination, re-nomination, the guaranteed unit rate and buyback.  Those obligations were set out in the relevant conditions of sale executed between the Government and the developer.  The formation of contract between the Government and the developer under those circumstances was uncontroversial, and the lack of any formal contract signed between the Housing Authority and the developer less of a problem.

54.However, since 1986 when the Housing Authority took up those obligations regarding nomination, re-nomination, the guaranteed unit rate and buyback in PSPS projects, the absence of a written contract signed between the Housing Authority and the developer gave rise to the present question as to the mode and manner by which the “contract” between the Housing Authority and the developer was formed.

– Counsel’s submissions –

55.Ms Audrey Eu SC, leading counsel for the Housing Authority, Mr TM Lee with her, contended with much force that the contract was in the form of a “collateral contract”.  She submitted that the modern approach of the courts is to see whether on the totality of the evidence, viewed objectively, the parties have intended that the substance of the collateral contract should form part of the basis of the legal relationship between them: Bank of China (Hong Kong) Ltd v. Fung Chin Kan [2003] 1 HKLRD 181, 198-199, paras. 55-57 (per Litton NPJ).  She submitted that the earliest time when the collateral contract was made between the Housing Authority and the developer would be the time when the Government accepted the developer’s tender and granted the land to the developer.

56.Leading counsel elaborated that on the part of the developer, when tendering for the land, it knew full well that it was tendering for the land for a PSPS project to be administered by the Housing Authority.  This was plain from the terms of the tender notice and conditions of sale, which the developer must have studied carefully before putting in the tender.  On the evidence, including the oral evidence given by Mr Lo Siu Hon, formerly manager of the property division of the Chevalier group in charge of the Charming Garden project and many previous PSPS projects of the group, the plaintiff well knew that it was tendering for a PSPS project.  As discussed above, the Conditions of Sale contained typical PSPS provisions regarding restriction on sale, nomination, re-nomination, buyback, the guaranteed unit price and so forth.

57.On the part of the Housing Authority, there can be no dispute, particularly on the oral evidence given by Ms Yu Yan Oi, senior estate surveyor of the Housing Department and Ms Ting Wan Sin, formerly of the Home Ownership Centre running PSPS as well as HOS projects, that the Charming Garden project was a PSPS project, and through the tender and land grant procedures administered by the Government, the Housing Authority invited private developers to participate in the particular PSPS project.

58.Furthermore, it is common ground that both sides intended to create a binding legal relationship between them in relation to the PSPS project.

59.Ms Eu therefore submitted that when the Government accepted the developer’s tender and granted the land to the developer, the Housing Authority, whether by holding out or by acting through the Government, must have undertaken the obligations and contingent liability under special conditions 24 and 26 towards the developer to make nomination of home-owners, to buy back any unsold flats and to see that the developer would get its remuneration for the flats at the guaranteed unit rate of $15,000 per square metre of saleable area of the flats.

60.Alternatively, Ms Eu submitted that what the parties did after the grant of land to the developer would give rise to a collateral contract between the Housing Authority and the developer, such as by making the agreement as evidenced by the conveyancing minutes and conveyancing notes, by the parties jointly putting up the flats for sale under PSPS, by the Housing Authority nominating home-owners to p4rchase the flats and by the developer selling the flats to the home-owners nominated by the Housing Authority under PSPS.

61.Indeed, collateral contract is also an alternative basis on which the plaintiff argues that there was a contractual relationship between itself and the Housing Authority.  As mentioned earlier, the primary basis, at least on pleadings, of the plaintiff is that the Housing Authority was a “joint contractor” in the Conditions of Sale.  But to be fair to Mr John Griffiths SC, Mr C W Ling with him, representing the plaintiff at trial, by the time of final submission, his main contention on this aspect of the case was also that there was a collateral contract between the two parties.  Mr Griffiths argued that the collateral contract should have been formed at the time when the Government accepted the plaintiff’s tender and granted the land to the plaintiff.  He submitted that that was much more consistent with the evidence given than the alternative case of Ms Eu, i.e. that the collateral contract was only formed subsequently after the execution of the Conditions of Sale, by reason of the parties’ conduct in implementing the PSPS project.

– My view –

62.I agree with Ms Eu’s primary analysis of the legal position.  In other words, I find that viewed objectively, the evidence as a whole pointed to the formation and existence of a collateral contract between the Housing Authority and the plaintiff.  As regards the time of formation of contract, I agree with Mr Griffiths that the evidence supported the formation of a contract at the time when the Government granted the land to the developer.  This was also Ms Eu’s primary submission.

63.As regards the suggestion that the Housing Authority was a joint contractor under the Conditions of Sale, I do not find the contention attractive at all.  For one thing, the Conditions of Sale did not say that the Housing Authority was a joint contractor.  The parties were expressly stated to be the Government and the developer only.  Secondly, under the PSPS project and the Conditions of Sale, the Housing Authority and the Government had very different roles to perform.  At least under the Conditions of Sale, the role of the Housing Authority was very limited.

64.In short, I do not think the analysis that the Housing Authority was a joint contractor fits well with the facts and evidence at all.  I reject the argument.

65.Having said all this, I must put the above discussion in context.  As has been mentioned more than once, it is common ground that there was a contractual relationship between the developer and the Housing Authority, and special conditions 24 and 26 were binding on the two of them as a matter of contract.  Apart from arguments over implied terms and the conveyancing minutes/conveyancing notes, and leaving aside the question of factual matrix for the time being, it was not suggested by any party that there were any other material contractual provisions or terms governing the relationship between the two parties.

66.In those circumstances, the mode and manner in which the accepted contractual relationship between the Housing Authority and the developer came into being is, in a significant sense, rather academic.  As will be seen, the question does not really play any material part in resolving the crucial differences between the parties.

– Formality requirement –

67.A second point to note, before I move on to the next topic, is this.  Although Mr Griffiths briefly mentioned in final submission the formality requirement in section 3 of the Conveyancing and Property Ordinance (Cap. 219) and the fact that part of the contents of the collateral contract between the Housing Authority and the developer affected land (such as the buyback provisions), no party pleaded or took any point on the enforceability of the terms of the collateral contract for want of evidence in writing.  No such issue arose.  In those circumstances, I need mention it no more.

Principles of construction

68.I now turn to the construction of the two special conditions with a view to resolving the parties’ differences regarding who was entitled to the forfeited deposits following the massive withdrawals by the nominated home-owners from the Charming Garden project and other related questions.

69.The general legal principles on construction of contract were not in dispute.  Indeed both the Housing Authority and the plaintiff urged the Court to take into account and pay special attention to the factual matrix of the case in construing the special conditions, in determining whether there were implied terms as contended for by the plaintiff and in deciding the legal status, if any, of the conveyancing minutes/conveyancing notes.

70.Leading modern cases on interpretation of contracts, including Prenn v. Simmonds [1971] 1 WLR 1381, Reardon Smith Line Ltd v. Hansen-Tangen [1976] 1 WLR 989, Mannai Investment Co. Ltd v. Eagle Star Life Assurance Co. Ltd [1997] AC 749, Investors Compensation Scheme Ltd v. West Bromwich Building Society Ltd [1998] 1 WLR 896 and the local case of Jumbo King Ltd. v. Faithful Properties Ltd [1999] 3 HKLRD 757, were cited to the Court.

71.For the purpose of this judgment, I think the oft-quoted passage from Lord Hoffmann’s judgment in Investors Compensation Scheme at pp. 912F to 913F would suffice as a good summary of the law:

“	But I think I should preface my explanation of my reasons with some general remarks about the principles by which contractual documents are nowadays construed.  I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 W.L.R. 1381, 1384–1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 W.L.R. 989, is always sufficiently appreciated.  The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life.  Almost all the old intellectual baggage of “legal” interpretation has been discarded.  The principles may be summarised as follows.
	(1)	Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
	(2)	The background was famously referred to by Lord Wilberforce as the “matrix of fact.” But this phrase is, if anything, an understated description of what the background may include.  Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
	(3)	The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent.  They are admissible only in an action for rectification.  The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life.  The boundaries of this exception are in some respects unclear.  But this is not the occasion on which to explore them.
	(4)	The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.  The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax:  see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.
	(5)	The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.  Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:
		“	if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.” ”

Factual matrix – past PSPS practices and policies

72.As regards the factual matrix that the Court should take into account, the parties were in agreement that the fact that what was involved was a PSPS project must be fully borne in mind.  However, beyond that, the plaintiff was most hostile to the Housing Authority’s attempt to “import” the policies and practices of the present and previous PSPS projects, including the use of the green and white forms, sale brochures, nomination agreements, declarations, conveyancing minutes and notes and so forth, as part of the factual matrix.

– Housing Authority’s contention –

73.In this regard, I think Mr John Griffiths had over-put the Housing Authority’s real case in his closing submission – para. 25 – i.e. that the Housing Authority was attempting to import all these matters as terms into the collateral contract.  I think all Ms Eu tried to do was to argue that they were relevant and indeed formed an important part of the factual matrix that the Court must consider.

74.It is true that at one stage of her final submission, particularly bearing in mind paragraph 17 of her written closing submission, Ms Eu appeared to argue that the respective rights and obligations of the Housing Authority and developer were clear not only from conditions 24 and 26 of the Conditions of Sale, but also from the past policies and practices of PSPS and the conveyancing minutes/conveyancing notes.  However, as Ms Eu developed her argument, it was apparent to me – if I have not misunderstood her ultimate position – that she restricted herself exclusively to conditions 24 and 26 of the Conditions of Sale as containing the relevant contractual terms for the determination of the entitlement to the forfeited deposits.  As far as the policies and practices of PSPS and the conveyancing minutes/notes were concerned, important though they were, they merely formed part of the factual matrix that the Court should take into account in construing the relevant terms in the Conditions of Sale.

75.In any event, even if I am wrong in understanding counsel’s submission, it will be seen in due course in this judgment that this distinction does not really matter at the end of the day.

76.Instead of going into all these policies and past practices in general – and in this regard, the oral evidence called dealt with in great detail these past practices and policies as well as the forms, agreements, sale brochures, conveyancing minutes and notes used, it would be more fruitful to concentrate on what Ms Eu tried to extract from all this and the counter position of Mr Griffiths.

77.In essence, Ms Eu’s objective in referring to the policies and practices of the present and past PSPS projects was to establish two main points.

78.First, it has always been the case in PSPS (and indeed in HOS) that home-owners could not be forced to complete their purchases and they could always withdraw from their purchases at any time after nomination but before completion, subject to forfeiture of nomination fees – at the time of sale of the Charming Garden flats at an amount equivalent to 5% of the purchase price.

79.Secondly and to a lesser extent, Ms Eu sought to extract from the past policies and practices the proposition that under PSPS, the forfeited deposits always went to the Housing Authority, but not the developers, save with one exception (the Kornhill MTR project) where the special provisions in the relevant Government grant dictated a different result.  I should point out immediately, in relation to this second point, that Ms Eu accepted in her oral final submission that this latter point turned more on the proper construction of special conditions 24 and 26 rather than on the past policies and practices of PSPS.  I will come back to this in due course but deal with the first point now.

– Home-owners’ right to “opt out” prior to completion –

80.An important part of the factual matrix, Ms Eu submitted, was the home-owners’ right to withdraw or “opt out” after nomination (but before completion).  She contended from the evidence adduced that such had always been the case since the launch of PSPS.  For that purpose, oral evidence was called and voluminous documents concerning past PSPS projects were adduced as evidence to prove counsel’s point.

81.A convenient starting point is the Housing Ordinance, which by its schedule restricts the resale of HOS/PSPS flats and provides for the buyback of those flats by the Housing Authority from a home-owner within the first few years of the original purchase.  Basically, the resale restrictions in the schedule require that within a certain period (currently 5 years) after a HOS/PSPS flat has first been sold, the purchaser who no longer wants his flat must offer to assign the flat back to the Housing Authority at a certain price, namely (a) during the first few years (currently being the first two years), at the original purchase price; and (b) during another few years thereafter (currently being the third to fifth years), at a price to be assessed by the Director of Housing.  Only if the Housing Authority should decline the offer could the purchaser otherwise re-sell the flat in the open market subject to payment of a premium.  Since June 1997, a purchaser may during the period, instead of offering to assign the flat back to the Housing Authority, offer the flat for sale in the HOS secondary market to those otherwise eligible for purchasing HOS/PSPS flats without payment of a premium.

82.According to the evidence, which I have no difficulty accepting, HOS and PSPS housing are a form of subsidised housing.  If a particular home-owner no longer wishes to retain a flat, it is in the interest of the Housing Authority as well as the home-owner for the home-owner to return the flat to the Housing Authority at the original price, so that the flat can be made available by the Housing Authority to another person in need of housing provision.  On the other hand, the restriction on the home-owner to only resell the flat to the Housing Authority within the initial few years would ensure that the flat is not acquired for any speculative purpose and will only be occupied by the targeted classes of people for whom the flats were constructed in the first place.

83.To the Housing Authority, it was important that the HOS/PSPS flats would end up not only with those for whom they were developed, but also with those who really wanted them as their homes.  That was why when purchasers of HOS/PSPS flats offered to return their flats back to the Housing Authority shortly after the flats had been assigned to them, the Housing Authority, in practice, would always accept the offer and take up the assignment, and then put up the flat for re-sale in the subsequent phases of HOS/PSPS.  That would ensure that ultimately, the flats would end up with those users who were eligible for HOS/PSPS flats and who genuinely wanted the flats as their homes.

84.From the perspective of the purchaser, the result would be that shortly after the purchase had been completed, he could withdraw from the purchase and assign the flat back to the Housing Authority.  If the purchaser did so shortly after the flat had been assigned to him, he would not suffer any loss on the price of the flat (even in a falling market), as the Housing Authority was required to accept the assignment back at the same price, although he would probably incur some losses, such as expenses payable by him under the Ordinance and legal costs or bank charges.

85.According to the evidence that I accept, in practice, the Housing Authority has always accepted all offers to assign back unwanted flats shortly after they were taken up by purchasers.

86.That being the case, according to the evidence, the same logic applies even to the pre-assignment stage.  In other words, even before the completion of sale and purchase, if, for whatever reason, a nominated home-owner did not want to proceed with the transaction and take up the flat, he was allowed to withdraw from the nomination and give up the flat, so that the Housing Authority could offer the same flat to another person in need of housing.

87.According to the evidence, it has always been the policy and practice of the Housing Authority to allow purchasers to withdraw from their purchases even before completing the transactions, but with part of or the whole of the deposits or nomination fees paid forfeited to the Housing Authority.  To hold the purchasers who no longer wanted the flats to their contracts until after completion time had arrived would only serve to delay the re-sale of the flats and cause unnecessary conveyancing expenses and mortgage charges.  It would not do the Housing Authority, the purchasers or the PSPS developer any good.

88.That, in essence, was the rationale behind the rule that allowed a nominated home-owner to withdraw from the transaction after nomination but before completion.

89.However, also according to the evidence, to discourage people from applying for HOS or PSPS flats without serious thinking and withdrawing from successful applications/nominations afterwards, a nomination fee was required to be paid upon signing the nomination agreement (which would become the deposit under the agreement for sale and purchase), and in case of withdrawal, the nomination fee or a part of it would be forfeited or retained by the Housing Authority as administration fee (leaving aside the question of who, as between the Housing Authority and the developer, would be entitled to the forfeited or retained nomination fee/deposit, for the time being).  In earlier years, the amount of nomination fee/deposit forfeited/retained used to be 50% of the nomination fee.  In latter years (i.e. since Phase 17B in 1995), the amount of forfeiture was 5% of the purchase price.  In other words, white form applicants, who had to pay a 10% nomination fee would have 5% forfeited and the remaining 5% returned to them if they should withdraw; whereas for green form applicants, who only had to pay a 5% nomination fee, the whole nomination fee would be forfeited if they should withdraw.

90.That this was the position throughout was well borne out by the green forms and white forms used over the years, the previous nomination agreements and declarations, and the past practices of the Housing Authority in dealing with applications to withdraw.

91.According to the evidence, the Housing Authority invariably accepted applications to withdraw from nominations, and in most cases the nomination fees or a part of them would be forfeited, whereas when compassionate grounds existed or hardship was demonstrated, the Housing Authority would waive forfeiture.

92.It is true that over the years, the exact wordings used in these documents and forms did change slightly.  But the essence remained the same.  The Housing Authority did allow applicants to withdraw from nominations subject to forfeiture of the nomination fees or part of them, and when compassionate grounds or hardship could be demonstrated, the Housing Authority would waive forfeiture.

93.Indeed the sale brochure prepared by the plaintiff for Charming Garden, the contents of which were approved by the Housing Authority, provided expressly that if a home-owner did not complete the purchase after nomination, the nomination would be cancelled and the Housing Authority would forfeit 5% of the purchase price out of the nomination fee.

94.It is also noteworthy that so far as the previous PSPS projects which the Chevalier group was involved in are concerned, which started in 1985 with Chevalier Garden sold under Phases 8C and 9B, there were 331 cases in total in which home-owners, after nomination, did not complete the sale and purchase.  Out of them, there were 177 cases which involved the home-owners’ withdrawing after signing the formal sale and purchase agreements.  In all those cases, cancellation agreements were subsequently signed.  Over $14 million was involved by way of nomination fees/deposits.  Out of it, about $7.5 million was forfeited.  The forfeited monies all went to the Housing Authority, rather than the relevant developers.

95.It is true that the Housing Authority, in the application forms for withdrawal, did ask the withdrawing home-owners the reasons for their decisions.  But according to the evidence which I accept, this was merely done for the purpose of information collection.  Invariably, according to the evidence, the Housing Authority would approve the applications for withdrawal.  In hardship cases, the Housing Authority would also waive the forfeiture of deposits.

96.Despite suggestion to the contrary, I have no difficulty in finding, on the documentary as well as oral evidence adduced at trial, that in PSPS projects, home-owners were always allowed to withdraw from nominations subject to forfeiture of part or whole of the nomination fees.  They would not be forced to complete the sale and purchase – indeed that would be quite meaningless because immediately after completion, the purchasers would have the right, as provided in the schedule to the Housing Ordinance, to resell the flats at the same prices to the Housing Authority.  In particular, I have no difficulty in accepting in entirety the oral evidence given by the Housing Authority’s witnesses on how PSPS projects were operated in the past.  Documents such as the green forms and white forms were documents printed in large number and freely available to the general public.  Whilst I accept the plaintiff’s witnesses’ evidence that they had no say in the wordings of those forms, there can be no doubt that the Chevalier group, as an experienced PSPS developer, must have been fully aware that under those forms, the home-owners were allowed to withdraw from the nominations subject to forfeiture of the nomination fees.

97.Ms Eu submitted, and I agree, that the different provisions in the agreements for sale and purchase signed by the nominated home-owners with the developer, which provided for the forfeiture of the entire deposit and did not specifically exclude specific performance against the purchaser, did not contradict the proposition that the home-owners had a right to withdraw subject to forfeiture of deposits.  It is true that the formal agreements for sale and purchase were based on a pro forma agreement approved by the Director of Lands.  However, it is important to note that there was no entire agreement clause in the formal agreement.  In particular, it did not say that it superseded any representations or promises made by the developer in the sale brochure.  Nor did it supersede or replace any representations or promises made in the green forms or white forms prepared by the Housing Authority.  The sale brochure was printed by the developer and distributed to the potential buyers.  In the absence of an entire agreement clause in the formal agreement, the same must be read subject to or together with the promises or representations made in the sale brochure.

98.As for the green forms and white forms, although they were prepared or distributed by the Housing Authority, but from the perspective of the applicants, the Housing Authority was quite clearly representing the developer in promising them that they could withdraw from the transactions prior to completion subject to forfeiture of 5% of the purchase price.  By allowing the Housing Authority to make the representations in the green forms and white forms, the developer cannot be heard subsequently to say that no such promises had been made to the green form and white form applicants and they must be held to the strict terms of the sale and purchase agreements.

99.Ms Eu submitted in final submission that the sale and purchase agreement should be read subject to a collateral contract to the effect that the home-owner could withdraw from the transaction before completion subject to forfeiture of deposit as had been represented in the green form or (as the case may be) white form and sale brochure.  She relied on Bank of China (Hong Kong) Ltd v. Fung Chin Kan, supra, at pp. 199F to 200C.

100.I agree with her submission.

101.That said, this does not per se decide the outcome of the dispute over the forfeited deposits.  The first proposition put forward by Ms Eu, based on the past practices and policies of PSPS, only went to the extent that a home-owner has always enjoyed the right to withdraw or opt out from the purchase after nomination, subject to forfeiture of a fixed amount of the nomination fees/deposit.  That is a matter between the Housing Authority/developer on the one hand and the home-owner on the other.  It deals with their relationship inter se.  But it does not bear on the all-important question of who is entitled to the forfeited nomination fees/deposit, as between the Housing Authority and the developer.

 – Housing Authority’s right to keep the forfeited deposits –

102.That is the subject of the second proposition which Ms Eu sought to derive from the past practices and policies of PSPS.  In other words, Ms Eu submitted that as another important part of the factual matrix, it had always been the case that the forfeited nomination fees/deposits belonged to the Housing Authority, as opposed to the developer.

103.On this second question I accept, on the evidence adduced, that as a matter of what actually happened in the past and leaving aside the only exception in the Kornhill project, the Housing Authority had always kept the forfeited nomination fees/deposits to the exclusion of the developers – including those belonging to the Chevalier group.

104.However, as a matter of documents used, the position is not that entirely clear.  The various versions of the green forms and white forms did have different wordings in this regard.  Some versions provided for forfeiture to the Housing Authority, whereas other versions did not specify who would retain the forfeited nomination fees.

105.As mentioned above, for instance, the pro forma contract approved by the Government actually provided for forfeiture of the deposit to the developer as vendor.

106.The conveyancing minutes and conveyancing notes did seem to suggest that the forfeited deposits would go to the Housing Authority instead of the developer.  But all witnesses who have given evidence on these minutes and notes said that they were not meant to vary the parties’ contractual entitlement, if any, to the forfeited deposits.  In other words, none of them were saying that the conveyancing minutes or notes would provide an independent answer to the question of entitlement to the forfeited deposits.  The conveyancing minutes or notes did not constitute a variation of or a supplemental agreement to the contract between the Housing Authority and the developer.

107.Ms Eu, in final submission, accepted that her reliance on past policies and practices of PSPS as part of the factual matrix was mainly in relation to the first proposition discussed above, namely that home-owners had always had the right to withdraw or “opt out” from the transactions after nomination subject to forfeiture of nomination fees/deposits. 

108.In relation to the second proposition, namely that as between the Housing Authority and the developer, the Housing Authority had always been entitled to the forfeited deposits, counsel accepted that, beyond what had actually happened, the past practices and policies of PSPS (including the documents used) were a less certain guide. 

109.Indeed counsel’s submission on the Housing Authority’s entitlement to the forfeited deposits was based essentially on the construction of contract, rather than the past practices and policies as such.

Plaintiff’s claim to the forfeited deposits based on contract – construction of special conditions 24 and 26

110.I would now turn to the construction of the contract between the Housing Authority and the plaintiff, and construe it in light of PSPS as its background, in order to determine the entitlement to the forfeited deposits in the withdrawal cases.

(1) The 420 cases

111.As mentioned above, there were 420 cases where the home-owners, after nomination by the Housing Authority, failed to sign the formal agreements for sale and purchase with the plaintiff. 

112.These cases clearly fall within condition 24(a)(ii)I which provided for the re-nomination by the Housing Authority within 4 calendar months of notification of default in signing the agreement for sale and purchase by the nominated home-owner.  In all these cases, the home-owners had paid the requisite nomination fees (upon signing the nomination agreements with the Housing Authority).

113.Condition 24(a)(ii)I did not, nor did any other provisions in the two conditions, specify that the nomination fees so paid belonged to the Housing Authority.

114.However, it is difficult to think of any other possible answer.  Such nominated home-owners did not sign any formal agreements with the developer, and did not therefore have any contractual relationship with the developer.  What they had failed to do was to sign the formal agreements for sale and purchase, as per the nomination agreements they had signed with the Housing Authority.

115.The nomination fees that were forfeited were paid to the Housing Authority.  The nomination agreements provided for their forfeiture to the Housing Authority in case of failure to sign the formal agreements.

116.As far as the flats were concerned, the Housing Authority were obliged to make a re-nomination, failing which it was obliged to buy back the flats at the guaranteed unit rate.

117.As a matter of fact, the majority of the flats involved were sold upon the Housing Authority’s re-nominations.  The remaining flats were bought back by the Housing Authority.

118.In those circumstances, Ms Eu submitted that the developer could have no claim to the forfeited nomination fees.

119.Mr Griffiths never made any concession relating to the 420 cases.  However, he did not advance any real arguments, whether in his opening or final submission, in relation to the forfeited nomination fees in the 420 cases either.

120.I agree with Ms Eu that the plaintiff has no contractual claim to the forfeited nomination fees, whether pursuant to the collateral contract between the plaintiff and the Housing Authority or as the vendor/developer of the flats in Charming Garden.

(2) The 36 cases

121.As regards those 36 cases where the nominated home-owners, after signing the agreements for sale and purchase with the plaintiff, failed to pay the balance purchase prices or complete the sale and purchase with the plaintiff, without ever applying to the Housing Authority for withdrawal from the transactions, the situation is covered squarely by condition 24(a)(ii)II.  The provisions stipulated that the Housing Authority had to re-nominate a new home-owner to take up the flat and most importantly for our present purpose, the provisions provided specifically that the developer “shall only be entitled to an amount equal to the purchase price (less the deposit paid by the original home-owner) which would have been payable by the original home-owner had the failure not taken place” (emphasis added).

122.In other words, the forfeited deposit paid by the original home-owner belonged to the Housing Authority, not the developer.

123.In my judgment, the plaintiff can have no contractual claim to the forfeited deposits in those 36 cases.

(3) The 946 cases

124.That leaves the 946 cases where the nominated home-owners applied to the Housing Authority to withdraw from the transactions after signing the formal agreements for sale and purchase with the plaintiff.  The Housing Authority, acting consistently with its past policies and practices, approved all these applications for withdrawal, and as a result the plaintiff “had no practical choice” (as per its case) but entered into cancellation agreements with these home-owners.  The cancellation agreements all provided expressly for the forfeiture of the entire deposits paid to the developer.  But in fact, for white form applicants, only half of the deposits were forfeited with the remaining half refunded by the Housing Authority.  For the green form applicants, who only paid 5% of the purchase prices as deposits, the entire deposits were forfeited.  The only exception comprised those green form applicants who participated in TPS – the entire deposits were refunded by the Housing Authority to them.

– Counsel’s arguments on the 946 cases –

125.The plaintiff claims that it is entitled to the forfeited deposits (including those monies refunded by the Housing Authority).  The plaintiff’s case is essentially that the matter is governed by the formal agreements for sale and purchase signed between the plaintiff and the home-owners as well as the cancellation agreements also signed between them.  Both agreements have been vetted by the Government.  The formal agreement provided for forfeiture of the deposit upon default by the purchaser (clause 16).  The cancellation agreement provided for forfeiture of the deposit upon cancellation of the formal agreement.

126.To meet the counter argument that the above two documents only dealt with the relationship between the developer and home-owner, but does not answer the question of who is entitled to the forfeited deposit as between the Housing Authority and the developer, Mr Griffiths argued that as between the latter two, the matter is entirely covered by the collateral contract in this sense:  The collateral contract, leading counsel submitted, was completely silent on the forfeited deposits, and this being the case, the Housing Authority can point to no contractual provisions whereby it could make a claim to the forfeited deposits.  There is, therefore, nothing between the Housing Authority and the developer to disturb the “prima facie” position regarding the forfeited deposits that has been dictated by the terms of the formal agreements for sale and purchase and the cancellation agreements, the terms of which, put at the lowest, the Housing Authority was fully aware of.

127.In particular, Mr Griffiths argued that condition 24(a)(ii)II did not apply to the 946 cases.  First, the provisions there only applied to the situation where the time for completion had arrived and the home-owner had failed to pay the balance purchase price and complete the sale and purchase.  Here, the completion time was yet to arrive, but the home-owner had, in anticipatory breach of contract, evinced an intention not to proceed further with the transaction.

128.Secondly, Mr Griffiths submitted, basing his argument on a distinction first drawn by Ms Susan Lee, the developer’s solicitor in the Charming Garden project, that the provisions in question  (i.e. condition 24(a)(ii)II) only applied to a case of rescission following failure of a purchaser to pay the balance purchase price and complete the sale and purchase when the time for completion had arrived.  The provisions had no application to a case of cancellation – via the cancellation agreement signed between the developer and the purchaser whereby the formal agreement was “cancelled” and was “deemed to be null and void and of no further effect”.  There was simply no “default” in such situation and therefore the provisions did not bite. (For the same reason, Ms Susan Lee asserted that the understanding or agreement reached in the conveyancing meeting as evidenced by the conveyancing minutes regarding rescission cases and entitlement to the forfeited deposits in those cases did not apply to cancellation cases.)

129.Ms Eu, as indicated above, countered that the formal agreement for sale and purchase must be read subject to a collateral contract between the developer and the home-owner.  It must be read as part of the whole PSPS.  Furthermore, it did not govern the relationship between the Housing Authority and the developer as such.  As regards the cancellation agreement, the Housing Authority did not approve its contents.  More importantly, counsel submitted that according to the evidence, the Housing Authority and the plaintiff both agreed that the cancellation agreements were to be entered into on a without prejudice basis, i.e. without prejudice to their respective contentions regarding entitlement to the deposits to be forfeited.  Accordingly, the terms of the cancellation agreement could not affect the Housing Authority’s entitlement to the forfeited deposits under the collateral contract between the Housing Authority and the plaintiff.

130.Most importantly, Ms Eu argued that entitlement to the forfeited deposits under the 946 cases was governed by condition 24(a)(ii)II.  She argued that (1) the provisions covered not only cases of default at the time of completion, but also cases of withdrawal after nomination but prior to completion; and (2) that the provisions covered not only rescission, but also cancellation.

131.Ms Eu’s argument was premised on the evidence adduced at trial that invariably in the past, when a home-owner applied, after nomination and signing a formal agreement, to the Housing Authority to withdraw from the transaction, the Housing Authority would approve the application and inform the developer’s solicitors about the withdrawal.  In such an event, the developer had two choices, one of which was wholly unattractive.  The unattractive choice was to wait until completion time to see if the home-owner would really default in making payment of the balance purchase price.  If he did, then the developer would have to send notices to the defaulting purchaser, and it was only after the expiry of the notices that the developer could formally rescind the agreement.  It was only then that the developer could notify the Housing Authority pursuant to condition 24(a)(ii)II to re-nominate a new home-owner within four months, failing which the Housing Authority would have to buy back the flat.  According to the evidence, that was a possible but wholly unattractive choice.  It had no appeal whatsoever to the developer or the Housing Authority.  It delayed the resale of the flat and thus the receipt of the purchase price, and increased finance charges.  It delayed the sale of the flat to another home-owner who genuinely required it for housing purpose.

132.The second choice, which according to the evidence was adopted without exception, was that the developer would enter into a cancellation agreement with the withdrawing home-owner to cancel the formal agreement.  After signing the cancellation agreement, the flat could immediately be put up for resale in the next phase of sale of HOS and PSPS flats.  That would be to the mutual benefit of the Housing Authority and the developer.

133.As mentioned above, in relation to the past PSPS projects involving the Chevalier group, there were 137 cases of withdrawal where a formal agreement for sale and purchase had been signed.  In all those 137 cases, cancellation agreements were signed so as to facilitate the immediate re-nomination/resale of the flats concerned.

134.The good commercial sense of the arrangement is easy to see.  I have no difficulty in accepting the relevant evidence. 

135.Based on such evidence, Ms Eu argued and this was the main plank of her argument in the case, that condition 24(a)(ii)II, on its proper construction in light of the factual matrix, covered the case of withdrawal prior to the time for completion via signing a cancellation agreement.  The signing of a cancellation agreement simply brought forward the rescission of the transaction.  In the words of one witness, it was simply an “administrative act” to implement the rescission/withdrawal by the nominated home-owner from the transaction.  Put another way, it was a simplified form of rescission.

136.Under those circumstances, Ms Eu argued that the case of cancellation fell squarely within condition 24(a)(ii)II.  Since condition 24(a)(ii)II provided that in case of rescission and re-nomination/resale, the forfeited deposit belonged to the Housing Authority, in the case of cancellation/re-nomination, the same result must follow.  The forfeited deposit must belong to the Housing Authority.  Likewise, for those cases where no re-nomination could be made within time following cancellation and the unsold flats were bought back by the Housing Authority, they are covered by condition 24(b)(ii) and the forfeited deposits must also belong to the Housing Authority.

137.Put another way, it would be wholly illogical and out of line with the intention behind condition 24(a)(ii)II, counsel argued, that the Housing Authority should lose the benefit of the forfeited deposit if, instead of letting the developer wait until completion time for the actual default by the home-owner to pay the balance purchase price to take place (in which event upon re-nomination and resale the Housing Authority would get the forfeited deposit), it should agree with the developer that it could enter into a cancellation agreement with the withdrawing home-owner prior to completion, with a view to facilitating the quick re-nomination/resale of the flat to the mutual benefit of both sides.

138.Ms Eu further argued that her construction must be correct because if the case of cancellation were not covered by condition 24(a)(ii)II, it would not be covered by any other provisions in the special conditions, in which event the Housing Authority would have neither the right nor obligation to re-nominate a new home-owner for the flat.  Nor would the Housing Authority have any obligation to buy back the same flat.  It would therefore wholly defeat the purpose behind building the PSPS flats.  From the standpoint of the developer, since it could not sell the flat to any outsider, the absence of any re-nomination/buyback provisions applicable to a case of cancellation would mean that the developer would be stuck with the flat.

139.Ms Eu pointed to the evidence that as a matter of fact, after the cancellation agreements were signed in the 946 cases, the plaintiff as developer did call upon the Housing Authority to make re-nominations, which the Housing Authority duly did.  Furthermore, when some of those flats could not be resold within the time stipulated, the developer called upon the Housing Authority to buy them back, which again the Housing Authority did.  Throughout, the developer relied on condition 24(a)(ii)II in requiring the Housing Authority to make re-nominations and to buy back the unsold flats.  Counsel argued that this illustrated quite conclusively that the construction of condition 24(a)(ii)II she put forward was wholly consistent with the parties’ own understanding.

140.Mr Griffiths answered all these arguments by contending that cancellation brought about advantages not only to the developer but also to the Housing Authority.  There was no logical reason why, given that the Housing Authority also benefited from the cancellation arrangement, it could not, as a sort of price for that benefit, lose the right to the forfeited deposit it would otherwise have got if the developer had waited until completion time before rescinding the agreement and calling upon the Housing Authority to make a re-nomination.  The cancellation arrangement benefited the Housing Authority in terms of early receipt of its share of the balance purchase price and the consequential reduced likelihood of having to buy back any unsold flats.

141.As regards the Housing Authority’s obligations to make a re-nomination and buy back any unsold flats, Mr Griffiths’ answer to the lack of any express provisions to cover the case of cancellation (as per his construction of the conditions) was that there were implied terms regarding re-nomination and buyback in cancellation cases as a matter of “common sense”.  Such implied terms were, counsel submitted, crucial to the integrity of the Conditions of Sale because otherwise, the developer who could not sell to any purchaser except the Housing Authority and its nominee would be encumbered with any unsold units at the end of the day which it could not sell or occupy.

142.On the other hand, Mr Griffiths submitted that it was not necessary, under those implied terms, to further imply a provision to the effect that the developer should be deprived of its prima facie entitlement to the forfeited deposit under the agreement for sale and purchase and the cancellation agreement, in order to give business efficacy to the relevant special conditions.

143.Mr Griffiths therefore argued that there was no inconsistency between his construction of condition 24(a)(ii)II and the requirement for re-nomination/buyback.

144.Ms Eu pointed out in her submission that according to the plaintiff’s financial estimate which it put forward as part of its tender documentation, the residential flats in Charming Garden were expected to make a loss of $3.8 million and the whole project (including the non-residential part) was estimated to generate an overall profit of not more than $19 million.  Yet, counsel emphasised, the plaintiff is now contending that it is entitled to the forfeited deposits in the total sum of almost $107 million (for the 946 cases alone), which significantly exceeds the plaintiff’s estimated overall profit in the Charming Garden project.

145.Mr Griffiths countered in his final submission that if one were to look at the total investment of the plaintiff in the project and the losses such as increase in finance charges that the withdrawals and re-nominations brought about, the claim of the plaintiff to the forfeited deposits would look much more reasonable than the picture portrayed by Ms Eu would superficially suggest.

– My view on the 946 cases –

146.I agree with Ms Eu that the formal agreement for sale and purchase could not by itself govern the entitlement to the forfeited deposit as between the Housing Authority and the developer.  I also agree that the cancellation agreements, which were entered into on a without prejudice basis, do not decide the issue in question.

147.As to the proper construction of condition 24(a)(ii)II, I find force in Ms Eu’s argument.  The obvious intention in a default/rescission situation was that the Housing Authority should be entitled to keep the forfeited deposit.  What the developer would get was a re-nomination and a new home-owner who would have to pay the full purchase price to buy the flat.  Out of the full purchase price, the developer would receive its share of proceeds calculated at the guaranteed unit rate as per condition 26(b)(iv) and (c).

148.In a case where the nominated home-owner defaulted in paying the balance purchase price and completing the sale and purchase, both the Housing Authority and the developer would suffer in terms of delay in receiving the balance purchase price and the resale of the flat.  There was an increased risk of the Housing Authority being required to buy back the unsold flat, particularly if the contractual time for completion should fall outside the twelve months’ period counting from the date of the Director of Lands’ consent for signing sale and purchase agreements (in which case the Housing Authority could not make a re-nomination but must buy back the flat: condition 24(b)(iii)).

149.Condition 24(a)(ii)II expressly provided that in such a situation, notwithstanding the respective losses of and disadvantages to the Housing Authority and the developer, the forfeited deposit should go to the Housing Authority.

150.That being the case, why should there be a different provision regarding the benefit of the forfeited deposit if both sides should agree, for their mutual benefit, or as a sort of loss mitigation measure, that there should be a cancellation agreement signed with the home-owner who was intending not to complete the sale and purchase, so as to enable the flat to be resold (via re-nomination) as soon as possible?  Why should entitlement to the deposit be changed from the Housing Authority to the developer in such a case?  

151.If no mechanism was available for the purchasers to withdraw from the purchases early, the re-nomination/re-sale procedure could only be initiated after the time when the sale should have been completed.  Unlike sale of private flats by private developers, neither the Housing Authority nor the developer could simply sell the unwanted flats to any purchasers who happened to be interested in those flats.  The flats would have to be resold in the upcoming phases for HOS/PSPS flat sale, which would only be undertaken once every few months on average.  On the other hand, if the purchasers were allowed to withdraw early, the re-sale could possibly (and according to the evidence, in fact often would) take place in the upcoming phase of sale which possibly could take place even before the time when the original sale should have been completed.  Quite plainly, that was to the benefit of both the Housing Authority and the developer.

152.It would be, therefore, very strange that in the case of cancellation, the developer should suddenly be entitled to get the 5% or 10% purchase price paid by the home-owner as nomination fee/deposit.  The amount of nomination fee/deposit was proportional to the purchase price fixed not by the developer, but by the Director of Housing.  The developer had no say at all.  Yet it should be noted that the developer’s case is not that it is entitled to a pro rata amount of the nomination fee/deposit by way of forfeiture.  It is not saying that it should get part of the nomination fee in the same proportion as the guaranteed unit rate of $15,000 bears to the actual unit selling price of the particular flat in question or the average selling price per square metre fixed by the Director of Housing at his discretion.  The developer’s case is that it is, in the event of cancellation, entitled to the whole of the nomination fee/deposit.

153.Yet, the developer has to accept, because there are express provisions to that effect (condition 24(a)(ii)II), in case of a purchaser failing to pay the balance purchase price and complete the sale and purchase after the time for completion has arrived, the nomination fee/deposit belongs to the Housing Authority, but not the developer.

154.The cancellation arrangement was, on the evidence, simply a device to, as it were, short-cut the rescission process that would otherwise take a relatively long period of time to complete before which the flat could not be re-sold. 

155.The cancellation arrangement had been around for a long time, as the history of PSPS has demonstrated.  In construing condition 24(a)(ii)II, one must take that into account as part of the factual matrix.

156.If the construction put forward by Ms Eu should appear to be straining the actual wording used in condition 24(a)(ii)II to some extent, the contra argument of Mr Griffiths, which necessitates the implication of (unpleaded) terms as important as re-nomination and buyback into the collateral contract between the Housing Authority and the developer, would seem to be even more unnatural and artificial.  One would have thought that for matters as material as re-nomination and buyback, they would have been covered comprehensively in the special conditions.  The fact that under Mr Griffiths’ construction, one should need to imply obligations into the special conditions so as to require the Housing Authority to re-nominate home-owners and buy back any unsold flats in cases of cancellation casts a serious doubt on the correctness of Mr Griffiths’ construction.

157.Without the suggested implied terms, the obstacle to Mr Griffiths’ construction is that the Housing Authority has no right nor obligation to re-nominate or buy back, a proposition so extraneous to the whole object and intention of PSPS that neither side suggested that it should be the result.  For after all, the developer is the last person on earth who should be stuck with a PSPS flat.

158.Condition 26(b)(iv) which provided for the guaranteed unit rate of $15,000 per square metre would also tend to support Ms Eu’s contention.  Under that provision, the developer would get the guaranteed unit rate, regardless of the actual prices at which the flats were sold to the home-owners.  At least as a matter of theory, a flat could have been sold at below the guaranteed unit price.  In a sense, the developer in a PSPS project was nothing more than a builder of the flats and agent of the Housing Authority in marketing them.  At the end of the day, it received a fixed reward for its work and labour, with the Housing Authority shouldering the risk of fluctuations in market prices.  As a matter of fact, after the onset of the Asian financial crisis, the prices of flats in Charming Garden had been adjusted downward from $40,000/$42,000 per square metre by a total of 11 times, when they were resold in Phase 19C and Phase 20A, which took place in March/April 1998 and November/ December 1998 respectively.  The Housing Authority received a total sum of $345 million less out of the sale of the flats involved.  On the other hand, the plaintiff, as developer, received the same total purchase prices calculated at the guarantee rate of $15,000 per square metre out of the sale/resale/buyback of the flats in Charming Garden, leaving aside the question of entitlement to the forfeited deposits.  From this perspective, the risk of the falling market fell entirely on the Housing Authority, as Ms Eu had lost no time to point out to the Court during final submission.  The forfeited deposits, although huge in aggregated amount, paled into insignificance beside the cuts in price in the subsequent re-nomination/resale procedures. 

159.Furthermore, the special conditions also provided that even in a case of buyback due to the Housing Authority’s failure to nominate any home-owner at all (condition 24(b)(i)), all that the developer would receive from the Housing Authority was the guaranteed price: condition 24(a)(iii) and (b).  There would be no compensation for any delay in receipt of money or additional financial charge.  And in the case of buyback after the originally nominated home-owner had failed to pay the balance purchase price resulting in his deposit being forfeited (condition 24(b)(iii)), condition 24(b) expressly provided, in effect, that the forfeited deposit should belong to the Housing Authority.

160.All this tends to show that the intention of the special conditions was simply to pay the developer a fixed price, calculated at $15,000 per square metre.  All losses such as increased finance charges due to delay in selling the flats or a total failure to sell the flats (i.e. the buyback situation) would have to be absorbed by the developer without any compensation.  Indeed, condition 24(a)(iii) said so in terms – “[the developer] shall not make any claim or demand whatsoever, whether under these Conditions or common law, against the Government or the Hong Kong Housing Authority or the Director of Housing” for failure to nominate/re-nominate, thus resulting in a buyback situation.  Given that sort of intention or thinking as evinced by those express provisions, it would be a surprising result indeed if the same special conditions should, upon proper construction, leave the benefit of the forfeited deposit to the developer in case of cancellation.

161.Ms Eu submitted that PSPS had been in operation for many years, and there had been numerous cases of withdrawal after signing the agreements for sale and purchase but before completion.  Counsel submitted that it was totally unreal to suggest – as the plaintiff had done at one stage – that the 946 cases were “unforeseen” ones and therefore they should not be covered by the provisions in the Conditions of Sale.

162.For my part, either the cancellation cases are covered by condition 24(a)(ii)II or they are not.  The fact that there were 946 cases is, in my view, neither here nor there.  To be fair, Mr Griffiths in his final submission did not really premise his submissions on the supposedly “unforeseen” aspect of the withdrawal cases. 

163.For the above reasons – including the submissions of Ms Eu which I, after careful consideration, accept in preference to the competing submissions of Mr Griffiths, I conclude that on the proper construction of the special conditions in question, condition 24(a)(ii)II applies also to a case of cancellation.  In other words, in case of cancellation, the forfeited deposit also belongs to the Housing Authority.

164.That being a special contractual provision in the collateral contract between the Housing Authority and the developer governing, on its proper construction, entitlement to the forfeited deposit in case of cancellation it must override the so-called “prima facie” entitlement of the developer to the forfeited deposit under the formal agreement for sale and purchase and cancellation agreement signed between the developer and the home-owner.

165.In short, in the 946 cases, like the other two types of cases, the forfeited deposits belong to the Housing Authority as opposed to the plaintiff.

– An alternative way of analysing the 946 cases –

166.An alternative way to analyse the 946 cases, which would lead to the same result, is as follows.  Assume in the plaintiff’s favour that on its proper construction condition 24(a)(ii)II only covers a case of actual default/rescission after arrival of the contractual time for payment, but not a case of cancellation.  The cancellation agreements were entered into on the express understanding between the Housing Authority and the plaintiff that the same would not prejudice their respective claims to entitlement of the forfeited deposits.  Their agreed basis was that the entitlement would be determined in accordance with the Conditions of Sale, i.e. special conditions 24 and 26.

167.What does that mean?  In my judgment, the without prejudice basis means that the cancellation arrangement, which, according to the evidence and my finding, was resorted to as a practical means to mitigate the parties’ losses resulting from the home-owner’s withdrawal and a shortcut to the lengthy rescission process (pending which the unit affected could not be put up for resale), should not prejudice the entitlement of either the Housing Authority, or alternatively the developer, to the forfeited deposit as per conditions 24 and 26.

168.In other words, in order to find out whose entitlement it was to the forfeited deposit under conditions 24 and 26, one should notionally ignore the cancellation arrangement – i.e. as if the cancellation agreement had not been signed. 

169.Put another way, one should notionally put oneself back to the situation where no cancellation agreement had been signed with the home-owner and the home-owner had been left to default in making payment of the balance purchase price after the arrival of the contractual time for completion and payment.  In such a case, obviously, the specific provisions in condition 24(a)(ii)II would have bitten provided that it should have happened within twelve months of the Director of Land’s consent, and the Housing Authority would have had the obligation to re-nominate a new home-owner and the further obligation to buy back the flat if it could not be re-sold within time.  Alternatively, if the contractual time for completion should have fallen outside the twelve months period, there would have been no question of a re-nomination but the Housing Authority would have to buy back the flat.  In either case, the deposit would have belonged to the Housing Authority as per condition 24(a)(ii)II or 24(b)(iii).

170.In my view, that is the correct way to understand the without prejudice basis upon which the parties agreed to have the cancellation agreements signed between the developer and the withdrawing home-owners.  On that basis, the entitlement to the forfeited deposits is clear.  The situation is governed, notionally, by condition 24(a)(ii)II or alternatively condition 24(b)(iii); in either case the forfeited deposits belong to the Housing Authority.

171.That is the same result as the one that I have already arrived at via construction of condition 24(a)(ii)II.

– Conclusion on the 946 cases –

172.Either way, the plaintiff is not entitled to the forfeited deposits in the 946 cases.

173.Likewise, any ancillary claim of the plaintiff based on contract to the refunded deposits, i.e. the 5% deposits refunded to the white form purchasers and the 5% deposits refunded to those green form applicants who had opted for joining TPS, must also fail.

– Rejection of the estoppel argument –

174.Incidentally, the alternative analysis described above also deposes of an argument run by Ms Eu as a fall-back position in case the plaintiff’s narrower construction of condition 24(a)(ii)II should be preferred by the Court.  Ms Eu has argued that because the plaintiff had, pursuant to the re-nomination and buyback provisions in condition 24, required the Housing Authority to re-nominate new home-owners to buy the flats involved in the 946 cases and eventually to buy back the unsold flats, the plaintiff is estopped from denying that those 946 cases fell within condition 24(a)(ii)II. 

175.In my judgment, the re-nomination and buyback requests followed the cancellation agreements, which were entered into, as mentioned above, on a without prejudice basis.  According to my interpretation of the without prejudice basis, the parties’ respective rights and positions were to be viewed as if there had been no cancellation.  Regarded in that light, the 946 cases were simply equivalent to cases of actual default/rescission, and should be dealt with as if they were covered by condition 24(a)(ii)II (or condition 24(b)(iii)) and the obligations to re-nominate and/or buyback thereunder.  In short, the plaintiff’s reliance on condition 24(a)(ii)II (or condition 24(b)(iii)) in requiring the Housing Authority to make re-nominations and/or buy back the unsold flats was simply pursuant to the without prejudice basis.

176.In the circumstances, I do not think there can be any place for an estoppel argument.

177.However, this does not matter, given the main conclusions that I have already reached.

Plaintiff’s claim to the forfeited deposits based on fiduciary duty

178.As accepted by Mr Griffiths in his opening, the plaintiff’s claim to the deposits based on breach of fiduciary duty stands or falls with that based on contract.  For the reasons explained above, that cause of action also fails. 

Plaintiff’s claim based on implied terms

179.As regards the implied terms relied on by the plaintiff, they have been pleaded in paragraph 8B of the amended statement of claim, which reads:

“	Further to the express General and Special Conditions of the Contract the 2nd Defendants were subject to further obligations, implied as a matter of law and as a matter of necessary implication to give business efficacy to the Contract;
	(1)	to act reasonably and exercise reasonable endeavours to procure the lst Defendant timeously to locate and nominate suitable purchasers of the units;
	(2)	to cooperate with and assist the Plaintiff to sell the units to suitable purchasers and not to discourage, obstruct or delay the sales of units to suitable purchasers, (and thereby inhibit the optimum reasonably achievable cash flow to the Plaintiff arising from deposits received and payments made upon completion of sales to suitable purchasers);
	(3)	to procure the 1st  Defendant;
		(i)	to take such actions on their part as were needed or the proper fulfilment of the contractual terms; and
		(ii)	not to discourage, obstruct or delay the sales of units to suitable purchasers.
	(4)	consistent with the obligations and objectives above, to fix the sales prices at affordable prices at a discount from the free market value having regard to prevailing market conditions.  The Contract contemplated that if the property market fell the selling price of units could be reduced if necessary (where appropriate with the agreement of the Plaintiff) to below HK$15,000 per square metre saleable.”

– Counsel’s arguments on the implied terms –

180.Mr Griffiths submitted in final submission that the terms were implied to give business efficacy to the Conditions of Sale.  He submitted that under the express terms of the relevant conditions, the process of nomination and re-nomination was to take place according to a very tight timetable so as to ensure that the units would be sold off as soon as possible, to the mutual benefit of the plaintiff and the Housing Authority.  The timetable would inevitably be derailed if sales were intentionally discouraged, obstructed or delayed by the Housing Authority.

181.Mr Griffiths recognised that condition 24(a)(iii) in terms exempted the Housing Authority and the Government from liability as long as the Housing Authority bought back any units which should remain unsold after the 12 months period.  However, in the absence of clear language, counsel submitted, such an exemption clause should not be extended to cases of deliberate breaches of implied duty.

182.Mr Nelson Miu, appearing for the Government, submitted, quite correctly, that for a term to be implied, it must be reasonable and equitable; it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; it must be so obvious that “it goes without saying”; it must be capable of clear expression and it must not contradict any express term of the contract: DP Refinery (Westernpoint) Pty Ltd v. Shire of Hastings (1978) 52 ALJR 20, 26 (per Lord Simon), quoted by Ribeiro PJ in Kensland Realty Ltd v. Whale View Investment Ltd [2002] 1 HKLRD 87, 106I to 107B.

183.Counsel submitted that the suggested implied terms were not necessary to give business efficacy to the contract.  It provided for a guaranteed price and stipulated periods of nomination, re-nomination and buyback.  He submitted that whilst everyone wanted to see the flats marketed and sold as quickly as possible, it does not mean that it was necessary to imply the suggested terms into the contract in order to make that happen.  The various stipulated periods in the conditions took care of the parties’ intention and agreement.

184.Mr Miu also criticized the suggested implied terms as being vague and not capable of clear expression, a criticism shared by Ms Eu in her final submission relating to the implied terms.

185.Ms Eu also added that it would be surprising to hear anyone complain about the Housing Authority trying to obstruct sale of flats in Phases 19A and 19B, given its statutory duty to provide housing.

– My view on the implied terms –

186.I agree with Ms Eu and Mr Miu. 

187.In my view, given the clear time frame set out in the relevant conditions, there was no scope for implying the suggested terms into the conditions.  They were simply unnecessary.  Under the framework provided by the conditions, the bottom-line was that the Housing Authority would buy back any unsold flats at the guaranteed unit rate.  Condition 24(a)(iii) specifically excluded any liability on the part of the Government or the Housing Authority for not making any nomination or re-nomination save and except to buy back the unsold flats as per condition 24(b).

188.It should also be noted that the Government’s policy on housing as well as the market situation may change from time to time.  The indefinite freezing of construction and sale of HOS and PSPS flats in 2003 due to the then social and economic situation is a prime example of a change in Government policy in response to prevailing condition.  In those circumstances, it would be wholly inappropriate to imply any terms into the two conditions to the effect that the Government or the Housing Authority must make nominations timeously or not delay the sale of the units, so as not to “inhibit the optimum reasonably achievable cash flow to the plaintiff”.  Broader considerations are at stake. 

189.It is therefore wholly unnecessary, in order to make the contract workable, to imply the suggested terms into the contract.  The protection to the developer in cases of such changes in political or economical situation was always the ultimate buyback obligation on the part of the Housing Authority at the guaranteed unit rate within the stipulated time.

190.To imply any terms into the conditions so as to impose a duty on the part of the Government or the Housing Authority “not to discourage obstruct or delay the sale of units to suitable purchasers” is not only unnecessary to make the relevant contracts work, it will also serve to confuse matters by introducing vague and ill-defined obligations into the contract.  For instance, the term “optimum reasonably achievable cash flow” is, in my view, as uncertain as it is unworkable. 

191.Without the suggested implied terms, the contract was still effective and workable.

192.The fact that the plaintiff did not make the profit that it had hoped and anticipated to make when it tendered for the project is not a good reason for implying the terms.  It knew from the outset that the bottom-line was for the Housing Authority to buy back the unsold flats at the guaranteed unit rate and it knew the time frame that would trigger the operation of the buyback obligation.

193.As I said, I reject the plaintiff’s case based on implied terms against the Government and the Housing Authority respectively.

Plaintiff’s claim based on wrongful interference with contracts

194.As regards wrongful interference with contracts, the parties had no dispute that the elements of the tort are: (1) either direct interference or indirect interference coupled with the use of unlawful means, (2) knowledge of the relevant contract, (3) intention to interfere with contract, (4) special damage and (5) absence of justification for the interference.  Greig v. Insole [1978] 1 WLR 302, 332.

– Counsel’s arguments on the tortious claim –

195.Mr Griffiths submitted that in each of the 946 cases, where cancellation agreements had been signed, interference took the form of inducing a wrongful breach of contract.  The purchaser committed an anticipatory breach of contract when he announced his intention to withdraw from the purchase by inter alia, submitting a withdrawal application form.  He complained that the unilateral changes of policy, the approval of the withdrawal applications and the partial or total refund of deposits, all amounted to direct interferences on the part of the Housing Authority with the plaintiff’s contractual rights vis-à-vis the home-owners who had signed agreements for sale and purchase with the plaintiff.

196.Mr Griffiths submitted that the Housing Authority was clearly aware of the terms of the agreements for sale and purchase which followed the standard form prescribed.

197.As far as intention is concerned, the test is objective and does not require a “desire to injure”.

198.So far as justification is concerned, it was argued that there was no justification for the Housing Authority’s action even if it were simply following announced Government policies.

199.Ms Eu raised a number of arguments to counter the plaintiff’s claim.  As I see it, the most important argument is that there simply was no actionable breach resulting from the alleged interference/inducement.  The home-owners of Charming Garden, like all other home-owners in previous HOS and PSPS schemes, had the right to opt out from the nominations and agreements, even after signing of the agreements for sale and purchase.  The only sanction was the forfeiture of the nomination fees/deposits (or part thereof).

200.In the 946 cases, that was precisely what the home-owners had done. 

201.Furthermore, the forfeited deposits belonged to the Housing Authority, counsel argued – quite correctly as determined above.  Any waiver of forfeiture or refund of deposits was a matter between the Housing Authority and the withdrawing home-owners.  It did not cause the plaintiff as developer any loss.

202.In short, Ms Eu submitted that there was no breach, nor was there any loss.

203.Mr Griffiths countered that this argument was tantamount to saying that anyone has a right to breach a contract provided he is willing to pay damages.  He quoted Lord Lindley in South Wales Miners’ Federation v. Glamorgan Coal Co. Ltd [1905] AC 239, 253:

“To break a contract is an unlawful act, or, in the language of Lord Watson in Allen v. Flood, “a breach of contract is in itself a legal wrong.”  The form of action for such a wrong is quite immaterial in considering the general question of the legality or illegality of a breach of contract.  Any party to a contract can break it if he chooses; but in point of law he is not entitled to break it even on offering to pay damages.  If he wants to entitle himself to do that he must stipulate for an option to that effect.”

204.In reply, Ms Eu referred the Court toEmerald Construction Co. Ltd v. Lowthian [1966] 1 WLR 691, 701C-F, 704A-D; Cutsforth v. Mansfield Inns Ltd [1986] 1 WLR 558, 563D-E; White v. Riley [1921] 1 Ch 1, 16, 25-26, 32-33; Club Duluxe Ltd v. Club Metropolitan Ltd [1995] 2 HKLR 69, 72, 76 and 78; Greig v. Insole, supra, at p. 333D-G and D. C. Thomson & Co. Ltd v. Deakin [1952] Ch 646, 702.  Ms Eu submitted that these cases showed that there is no intention to procure a breach if the intention is for the contract to be determined lawfully within its terms and there can be no tort if no breach results.

– My view on the tortious claim: no actionable breach or loss –

205.In my view, the key to resolving the differences lies in the last sentence quoted above from Lord Lindley’s judgment in South Wales Miners’ Federation, where his Lordship said that in point of law a party to a contract is not entitled to break it even on offering to pay damages; if he wants to entitle him to do that “he must stipulate for an option to that effect”.

206.In Wong Lai-fan v. Lee Ha [1992] 1 HKLR 125, the Court of Appeal had to interpret the true meaning of a so-called “Centaline” clause in a provisional agreement for sale and purchase of property then widely used in estate agents’ agreements.  Having referred to various passages in Sir Edward Fry’s classic work on The Specific Performance of Contracts, 6^th ed. (1921), Chapter 3, the Court of Appeal concluded that the Centaline clause, which stipulated for the payment of a so-called double compensation by the vendor to the purchaser if the vendor did not wish to proceed with the sale, provided an alternative mode of performance by the vendor, namely payment of the double compensation, in which event no specific performance of the contract could be ordered.

207.In my judgment, the essential question has been set out at p. 65 of Sir Edward Fry’s work:

“	S.S.140.	… where a contract is substantially performed by the payment of a sum of money, the Common Law remedy being adequate, Equity will not interfere.  Hence, in cases where there is added to the contract a clause for the payment of a sum of money in the event of non-performance, the question arises whether the contract will be satisfied by the payment or whether it will not.  In the former case, Equity will not interfere; in the latter, it may.
	S.S. 141.	The question always is, What is the contract?  Is it that one certain act shall be done, with a sum annexed, whether by way of penalty or damages, to secure the performance of this very act?  Or is it that one of two things shall be done at the election of the party who has to perform the contract, namely, the performance of the act or the payment of the sum of money?  If the former, the fact of the penal or other like sum being annexed will not prevent the Court’s enforcing performance of the very act, and thus carrying into execution the intention of the parties: if the latter, the contract is satisfied by the payment of a sum of money, and there is no ground for proceeding against the party having the election to compel the performance of the other alternative.”

208.In my view, so far as the contract between the plaintiff and an individual home-owner is concerned, given what I have found and decided above, the contract is really one providing for two alternative modes of performance on the part of the purchaser, namely to pay the balance purchase price and complete the sale and purchase, or alternatively to  withdraw from the contract and have 5% of the purchase price forfeited to the Housing Authority.  According to my findings based on the past practices and policies of PSPS, neither the developer nor the Housing Authority would, in that event, have any additional remedy, including specific performance or a claim for damages, against the withdrawing purchaser.

209.In those circumstances, in the words of Lord Lindley, the purchaser has “stipulated for an option” to opt out of the contract by having 5% of the purchase price forfeited to the Housing Authority.  In terms of Sir Edward Fry’s work, the home-owner has contracted to perform the contract in one of two ways, namely payment of the balance purchase price and complete the sale and purchase or forgoing of 5% of the purchase price by way of forfeiture.

210.That being the case, as a matter of substance, when the purchaser elected to withdraw from the transaction and have 5% of the purchase price forfeited, he committed no actionable breach of contract for the purpose of the tort of interference. 

211.It is true that in the evidence, words like “default”, “forfeiture” have been used in connection with the purchaser’s opting out of the transaction by given up 5% of the purchase price, thereby suggesting that he has committed a breach of contract.  However, that, in my view, is not crucial for our present purpose.  It should be noted that in Wong Lai Fan itself, the Centaline clause actually said that should the vendor “fail to complete the sale”, the vendor shall immediately “compensate” the purchaser with a sum equivalent to the amount of the initial deposit as “liquidated damages” together with the refund of the initial deposit.  Furthermore, in such an event where the vendor “fails to complete the sale and purchase”, “the defaulting party” – i.e. the vendor, shall “compensate” the estate agent a stipulated amount of money as “liquidated damages”.  All this use of words that suggested that the vendor was in wrongful breach of contract by refusing to complete but offering to pay a double compensation did not prevent the Court of Appeal from concluding, upon the proper construction of the contract and the Centaline clause, that the contract provided for an alternative mode of performance.

212.In my judgment, at the end of the day, it may well be a matter of semantics with no real significance whether to label the party opting for the alternative mode of performance as acting in breach of contract or not. 

213.I have not lost sight of the fact that what was in issue in Wong Lai Fan was whether the purchaser could sue for specific performance of contract against the vendor – a question of relief, rather than whether the vendor was acting in wrongful breach of contract – a question of liability.  However, the way in which the Court of Appeal resolved the dispute suggested that in such a case, there was no breach of contract at all (a liability question). 

214.But in any event, it is, as I said, a question of semantics.  For the purpose of the tort of inducing a breach of contract/wrongful interference with contract, there has to be a breach which, in my judgment, goes beyond a technical one, a “breach” which gives rise to a real remedy in favour of the innocent party.  Just like what happened in Wong Lai Fan, whether one calls the vendor a defaulting party in wrongful breach of contract is neither here nor there.  The reality was that apart from the double compensation that he had offered to pay (which constituted the alternative mode of performance in the first place), he was not obliged to pay the innocent purchaser any damages.  Nor could he be specifically compelled to perform the contract.  Whether technically speaking, he has committed a breach is neither here nor there. 

215.In my judgment, for there to be an actionable tort of inducement/interference, the breach of contract must be something more than a technical breach in the sense described above.  I should point out, for the sake of completeness, that I am not here dealing with the situation where the “contract-breaker” (who has succumbed to the inducement or interference) has failed to render performance of contract in either of the alternative ways provided.  Rather, I am only focusing on the situation where he has opted for the alternative mode of performance and has duly done his part as required by it.

216.My conclusion on that last-mentioned situation is fortified by the requirement that in order to be actionable, the interference/inducement must result in special damage.  That is another element of the tort. 

217.In the case of a technical breach that I have just described, there simply is no actionable special damage resulting from the technical breach.  The innocent party cannot sue the wrongful party for any substantial relief.  It would therefore be most surprising if he could turn around and sue the third party who has, ex hypothesi, wrongfully interfered with the contract or induced the breach in question, for any loss that he may have suffered as a matter of fact by reason of the breach of contract – which is not actionable against the contract-breaker.

218.For all these reasons, there was no (actionable/substantial) breach and an essential element of the tort that Mr Griffiths relied on is missing.  The plaintiff’s tortious claim must fail. 

219.Likewise, there was no (actionable/substantial) special damage.  And for that reason also, the tortious claim must fail.

– Causation of loss –

220.Insofar as may be necessary, I would further find that save for those minority cases involving green form applicants who had withdrawn from the transactions and entered into TPS transactions and enjoyed a full refund as a result, the plaintiff’s tortious claim must also fail for want of proof of causation. 

221.In summary, according to the information provided in the applications for withdrawal, out of the 946 cases, only 50 purchasers withdrew from or did not proceed to complete their purchases solely because of the introduction of TPS or the flexible discount rate policy.  Eventually, only 28 green form applicants joined the TPS. 

222.Out of the 420 cases, only 71 purchasers withdrew from or did not proceed to complete their purchases solely because of the introduction of TPS or the flexible discount rate policy.

223.In relation to proof of causation, save for the exception mentioned, I simply wish to express my agreement with Ms Eu’s submission. 

224.However, for those green form applicants who took part subsequently in TPS, I do find that the plaintiff has established the necessary causal link.  Regardless of what reasons they gave in the withdrawal applications, common sense would dictate that the Housing Authority’s announcement that they would get a full refund of their nomination fees if they should enter into TPS as per the announced conditions must have played a significant role in their decisions to withdraw.  Of course, only those green form applicants who applied to withdraw after the announcement was made can be regarded as having been affected by the announcement.

225.As regards the flexible discount rates policy, regardless of whether it had any influence on the withdrawing home-owners’ decisions to withdraw, I simply do not accept the plaintiff’s underlying premise for its tortious claim.  The Housing Authority was and is fully entitled to announce whatever new policy relating to housing it sees fit to pursue.  The policy did not have any retrospective effect (unlike the TPS policy which would involve a full refund).  In those circumstances, I totally fail to see how the plaintiff could complain that the new policy gave future applicants/home-owners in future PSPS/HOS projects a better treatment than that offered to home-owners of Charming Garden.  I fail to see how that could constitute a tort.

226.As regards the retaining of priority, I find on the evidence before me that no such policy was implemented or announced by the Housing Authority.  The plaintiff’s reliance on various newspaper cuttings was simply insufficient to prove the alleged announcement of policy.

– Conclusion on the tortious claim –

227.For all these reasons, I also reject the plaintiff’s claim based on tort. 

Conclusion on the Plaintiff’s claim against the Housing Authority

228.In conclusion, the plaintiff’s claim against the Housing Authority wholly fails.

Conclusion on the Plaintiff’s claim against the Government

229.Also, for reasons explained above, the plaintiff’s claim against the Government based on implied terms must also fail. 

230.I wish to add that to the extent that the plaintiff’s claim against the Government is based on the allegation that the Housing Authority was the Government’s agent and therefore the Government is vicariously liable for the wrong committed by the Housing Authority, that claim must also fail as I have concluded that the Housing Authority has committed no wrong. 

231.I need not further lengthen this judgment by dealing with the plaintiff’s argument that the Housing Authority acted as the Government’s agent in the material events.

Outcome

232.I therefore order that the action by the plaintiff against the Housing Authority and the Government be dismissed. 

233.I also make a costs order nisi that the plaintiff pay to the Housing Authority and the Government respectively their costs of the action, to be taxed if not agreed.  Unless an application to vary the costs order nisi is made within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14-day period. 

234.Lastly, I would like to thank counsel for their assistance.

Mr John Griffiths SC & Mr C W Ling, instructed by Messrs Fan & Fan, for the plaintiff

Ms Audrey Eu SC & Mr T M Lee, instructed by Messrs Woo, Kwan, Lee & Lo, for the 1^st defendant

Mr Nelson Miu, instructed by the Department of Justice, for the 2^nd defendant