Consultation Paper on the Sales Description of Uncompleted Residential Properities Bill ("the Bill")


SALES DESCRIPTIONS OF UNCOMPLETED RESIDENTIAL PROPERTIES BILL ("THE
BILL")


Introduction

1. Generally, the proposals contained in the Bill are to be welcomed.
Implementation of the Law Reform Commission’s report which was issued
in April 1995 is long overdue.

2. The following aspects of the Bill, however, require further consideration
and possibly revisions.


Date of Sale Completion

3. Whilst the term "date of sale completion" is defined in s.2(1),
this term does not actually appear in the other parts of the Bill.


Developer

4. The word "developer" is defined in s.2(1) as meaning "the
person who -

    1. owns the legal or equitable title to any residential property
      in the development on the date of public sale of residential properties
      in the development;
    2. commissions the contractor to build the development; and
    3. sells, offers to sell or accepts offer to purchase such residential
      properties in a public sale,





and for the purposes of this definition, a person who
owns the legal or equitable title to any undivided share in
land on which a development is or is to constructed carrying
with it the exclusive right to occupy or use a residential
property in the development shall be regarded as owning the
legal or equitable title to such property
".




5. This is a cumbersome definition. It appears that (a), (b) and
(c) in the definition are cumulative requirements all of which must
be satisfied before a person constitute a developer. But it may be
that the person who is properly regarded as being the developer will
not qualify under all three requirements. For instance, the owner
of the site may be a certain subsidiary company in a large group whilst
the person whose commissions the contractor to build the development
may be a different subsidiary in the same group. We would have thought
it would be better to make these requirements separate so that anyone
who fits any of the three requirements would fall within the scope
of "developer".

6. If this suggestion is accepted, s.6 would also have to be re-worked.
This section refers to a "contract between the developer of a development
and a purchaser of an uncompleted residential property in the development
for the sale of that uncompleted residential property". The word "developer"
is used as defined. If the 3 parts of the definition of "developer"
are to be separate requirements, then in a case where the individual
or company selling a development is not the owner of the development
or did not commission the construction of the same, the "contract"
mentioned in s.6 would only exist between the individual or company
selling the development (but not the other individuals or companies
also within the definition of "developer") and the purchaser.

7. Alternatively, since the Bill is for the protection of purchasers,
it would appear that its object could be achieved simply by making
a person who sells an uncompleted residential property in a public
sale responsible for compliance with the measures contained within
the Bill.

8. The word ‘an’ seems to have been omitted before the word ‘offer’ in
subsection (c) of the definition. Alternatively, the word "offer"
should be replaced with the word "offers".


Punishment and Penalties

9. The word "similar" before the word "officer" in s.15(1) seems
to be unnecessary. What matters is that an officer of a corporate
developer who contributed to the corporate developer’s commission of
an offence under ss.5(4) or 11(4) should not himself escape criminal
sanction. Whether his office is similar to those of a director, manager
or secretary is beside the point and may encourage immaterial arguments.

10. The fines which are provided for by various sub-sections in the
Bill are appropriately large. We note that imprisonment is available
in the case of obstruction of an authorized officer in the exercise
of his powers, which may appear harsh, but that in the case of this
and other offences a defence of due diligence is provided for.


Civil Remedies

11. The Law Reform Commission proposed that a breach of the legislation
should constitute a statutory tort. For reasons which are unexplained
in the Consultation Paper, this recommendation has not been followed.

12. The main deficiency here is that the contents of the brochure
mandated by Part I of Schedule I give rise to no civil remedy if there
are not complied with. Section 6 of the Bill, which deals with the
effect of information in the sales brochure, does not mention the
information set out in Part I of Schedule I. It says that the information
set out in Part II of Schedule I shall be representation of fact,
thus giving rise to an action in misrepresentation if that information
is false. It also says that the information provided pursuant to Part
III of Schedule I (which concerns fittings and finishes) shall be
implied as terms of the sale and purchase agreement, that is opening
the way to an action for breach of contract if that information is
false. There is nothing specifically about the information provided
under Part I of Schedule I. There nearest that s.6 comes the dealing
with that is that ss.(4) provides that that section shall not prejudice
any right of, or remedy available to, a purchaser of any uncompleted
residential property arising otherwise under that section. The trouble
with this is that nowhere else in the Bill is there anything about
the statutory tort.

13. It is proposed that the information set out in the sale brochure
as a result of Part II of Schedule I will be representations of fact
with the result that a disappointed purchaser would have an action
in misrepresentation, not in tort imposed by the statute. The purchaser
will be presumed to have been induced by the misrepresentation to
have entered into the contract.

14. Misrepresentation will work in respect of most of the matters
set out in Part II of Schedule I, that is to say, information relating
to land use, open areas, utilities and installations, conditions of
the government leases, slope maintenance and financial arrangements.
This is because these things will have been arranged and will be in
place at the time that the flats are marketed. The same cannot necessarily
be said of the deed of mutual covenant, however, which is also the
subject of Part II.

15. It seems to us this manner of providing a civil remedy is decidedly
inferior to that recommended by the Law Reform Commission. The contents
of a sales brochure pertaining to an uncompleted flat are necessarily
promises concerning the flat and the development when completed. Accordingly,
it would be artificial to decree that they shall be representations
of fact and the Bill does not do so. It would be more natural to provide
that failure to comply with the promises in the brochure shall be
breaches of an implied term in the agreement for sale and purchase,
giving rise to an action in breach of contract. But the Bill does
not do this either, expect in respect of fittings and finishes, the
subject-matter of Part III of Schedule I.

16. Unless the administration is able to give a cogent technical
reason as to why misrepresentation is a better cause of action than
breach of statutory tort, we think that the Law Reform Commission
proposal should be followed.

17. Finally and incidentally, the Consultation Paper in its explanations
of the main proposals at paragraph 18 on page 6 states that the information
to be provided shall be representations of fact and that this will
facilitate purchasers to pursue contractual remedies for inaccurate
information. But misrepresentation is not a contractual matter, rather
a pre-contractual one, and actually misrepresentation is an action
in tort.

Dated 11th August 2000

Hong Kong Bar Association