PERFECT MANNER LTD. v. BERMUDA FAR EAST PROPERTIES LTD.

HCA002742/1998

HCA 2742/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2742 OF 1998

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BETWEEN
PERFECT MANNER LIMITED Plaintiff
AND
BERMUDA FAR EAST PROPERTIES LTD Defendant

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Coram: Hon Yuen J in Court

Date of Hearing: 6 September 2000

Date of Judgment: 6 September 2000

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J U D G M E N T

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1. This is an action begun by writ in which the Plaintiff seeks various declaratory reliefs and other types of relief stemming fromthe falling through of an agreement for the sale and purchase of a property.

2. The property in question is a townhouse on the Peak. The original layout of this townhouse, as per the plans approved by the BuildingAuthority, is as per a photograph which has been included in the bundle at p. 206. Basically, it shows that there is an area (referredto as a “utility area”) which is between the kitchen and the maid’s room. This utility area, according to the plans approved by theBuilding Authority and according to the assignment plan, should be open to the sky and not enclosed.

3. However, at the inspection made by a director of the Plaintiff before the provisional sale and purchase agreement was signed, thisutility area had been roofed over, and a wall with windows had been built adjacent to the flower beds, so that the utility area became,in effect, a room and it was being used as a laundry room with a washing machine and dryer. The area of the room was about 9 squaremetres.

4. There is before me a witness statement of Mr Lau Chu, the director of the Plaintiff who had undertaken the inspection. Mr Lau’s witnessstatement says that he had previously been living in a town house in Kowloon Tong and in a flat, and that in mid 1997, he was interestedin acquiring the captioned property. Mr Lau says that he was impressed by the property and also that he liked its layout which waspractical and suitable for his use.

5. He says that amongst the things that he liked about the property was the utility room that linked the maid’s room with the kitchen.He says that it was very nicely formed and was very spacious as a laundry room, being well-equipped with cabinets and other fittingsfor holding various laundry items. He says in his witness statement that the room provided a good covered area for laundry, similarto the house in Kowloon Tong where he was living at the time. He says that he was of the view that it was inconvenient and troublesomenot to have a properly covered laundry area and it was “a must” to him that there should be a properly covered laundry area whichwas indispensable for the proper enjoyment of a town house of this class of property.

6. After viewing the property, a provisional sale and purchase agreement was entered into. The date of the formal sale and purchaseagreement was 19 May 1997; the completion date was 15 January 1998.

7. There has been an order that Mr Lau’s witness statement, amongst other witness statements, stands as evidence-in-chief; no applicationhas been made before me today that he be cross-examined and therefore, I accept Mr Lau’s evidence as disclosed in his witness statement.

8. About a week prior to the scheduled completion date, an inspection of the property was undertaken by professional surveyors instructedby Mr Lau. The survey by David C Li Surveyors Ltd, showed that there were various aspects of the property which were different fromthe assignment plans. There were a total of six items in all, but the first item was the utility area which I have referred to.

9. In his report, the surveyor said that he suspected that the utility area was a significant unauthorized building works. However,that should be further confirmed with reference to the latest approved building plans, although at that stage, such approved buildingplans were not available. This led to correspondence between the solicitors for the Plaintiff (Purchaser) and the solicitors forthe Defendant (Vendor).

10. The Plaintiff’s solicitors wrote on 8 January 1998 that when the premises were checked against the assignment plans annexed to thefirst assignment, it was found that “whilst a roof slab which appeared to be of solid construction, possibly reinforced concrete,had been constructed over the utility area on the Ground Floor of the premises, the roof was shown to be uncovered on the assignmentplans, and secondly, that a solid wall, possibly reinforced concrete or brick wall, with windows and door openings which were notshown on the assignment plans had been constructed between the utility area and the courtyard to form an enclosed area”. The Plaintiff’ssolicitors consequently asked the Defendant’s solicitors to provide evidence to prove that the enclosure of the utility room hadbeen duly approved by the Building Authority and/or other relevant Government departments.

11. The Vendor’s solicitors’ response was to say that they “did not admit” that the approval by the Building Authority was necessary.This was followed by another letter from the Defendant’s solicitors which said that they were “not suggesting that the roof slaband the wall were illegal structures”. They said that their view was that “the structures were such that the Building Authority wouldnot have disapproved of if notified or informed”.

12. However, what they then carried on to do was to cause the structure to be demolished immediately prior to the scheduled completiondate, and on the day before the scheduled completion date, authorized persons instructed by the Defendant certified that the layoutof the property tallied with the assignment plan which was attached thereto.

13. The Purchaser’s solicitors did not consider those to be satisfactory answers to the requisitions. The Plaintiff did not accept thatthe property with the open utility area would be substantial compliance or substantial performance of the agreement which he hadentered into, and therefore the contract was put an end to and these proceedings were begun.

14. As to whether the enclosure and the covering of the utility area was contrary to the Buildings Ordinance or otherwise, there is now a report by Mr Lai Hoi Leung, who is an Authorized Person, who says that he has inspected the approvedsite plans, plot ratio calculation drawing and site coverage drawings. He has referred to the Building Planning Regulations 19, 20 and 21 and he says that it is clear that, according to the Buildings Ordinance and Regulations, the enclosure of the utility area was an illegal structure, the erection of which had not been authorized underthe relevant statutory provisions.

15. There is no contrary evidence before me from any Authorized Persons. Mr Edward Chan SC, who appears for the Defendant, has concededas a primary fact that the Defendant was at all times aware that there was no approval from the Building Authority for the coveringand the enclosure of the utility area.

16. In the circumstances set out above, I am prepared to make a declaratory order in terms sought by the Plaintiff. If the requisitionswere late, the delay in raising them had clearly been waived by the Defendant’s provision of purported answers to the requisitions.

17. As far as the purported answers were concerned, the answer was not that “this structure was not approved, but nevertheless, the Vendorcould give good title”, even though it was clear that the property had always been in the possession of this Defendant and even though,as I have said, there is now a concession as to a primary fact that the Defendant was aware that no approval from the Building Authorityfor the enclosure of the utility area had been obtained.

18. Given these two significant facts namely, (1) that the Defendant had always been in possession of this property and (2) that theDefendant was aware that no approval from the Building Authority had been obtained for the enclosure of this utility area, I takethe view that there has been a sufficient lack of candour on the part of the Defendant’s solicitors to amount to a failure to answerthe Plaintiff’s requisitions, see Active Keen Industries v. Fok Chi Keung [1994] 1 HKLR 396.

19. As far as the Defendant’s demolition of the offending structure was concerned, I am satisfied that on the basis of Mr Lau’s witnessstatement, which is now evidence-in-chief, that as a result of the demolition of that covered utility area, he would not be gettingsubstantial performance of the property that he had agreed to purchase. See Goldful Way Development Ltd v Wellstable Development Ltd [1998] 4 HKC 679.

20. Further, the Defendant did not give the Plaintiff sufficient time to consider its position before calling an end to the agreement.

21. In the circumstances, I will make the declaratory order sought, that is, I will give the Plaintiff a declaration that the Plaintiffis entitled to rescind the agreement by reason of the Defendant’s failure to prove and give good title in that (a) the Defendanthas failed to answer the requisitions in the letters dated 8 and 10 January 1998 from the Plaintiff’s solicitors and (b) that theutility room was an authorized building work.

22. I will also make an order in terms of para. 5 save that the amount of money there has already been paid into Court, so that I wouldin effect order that the sum paid into Court, with interest thereon, be paid out to the Plaintiff. I will give an order that damagesfor breach of contract be assessed by a master. There will be interest on all sums claimed. I have not been addressed in relationto the rate of interest and if the parties wish, they can come back later with liberty to apply to argue on the rate of interest.

23. The counterclaim is dismissed with costs and the Plaintiff is to have the costs in this action.

(Maria Yuen)
Judge of the Court of First Instance
High Court

Representation:

Miss Audrey Eu, SC and Mr Horace Wong, instructed by Johnson, Stokes & Master, for the Plaintiff

Mr Edward Chan, SC and Mr Nelson Miu, instructed by Hobson & Ma, for the Defendant