Developer loses appeal for HK$200m from Housing Authority

PUBLISHED : Wednesday, 23 January, 2008, 12:00am
UPDATED : Wednesday, 23 January, 2008, 12:00am

A developer has failed in its bid to claim about HK$200 million it says it is owed by the Housing Authority from a building contract affected by the Asian financial crisis.

The Court of Appeal dismissed as lacking 'any semblance of merit' an appeal by Oriental Sharp, a subsidiary of developer Chevalier Development, against a lower court's ruling that it was not entitled to additional income from working with the Housing Authority on a joint project.

The company had entered into a Private Sector Participation Scheme (PSPS) contract with the government in 1996 to develop in two stages 3,908 residential flats at a complex to be known as Charming Garden.

The scheme was designed to provide flats at less than market prices to selected candidates who would hold on to the units for a fixed period and not sell them without a penalty.

A deposit of between 5 and 10 per cent, also known as a nomination fee, was paid to the authority for the right to buy one of the discounted units.

The return for Oriental Sharp was fixed at HK$15,000 per square metre, with the government making up any shortfall or pocketing any surplus from the sale price.

The agreed price for the flats was set at HK$40,000 per square metre but the 1997 Asian financial crisis threw the real estate market into a nosedive. In the end, however, the company received the HK$15,000 per square metre owed for each flat, either from sale to the public or from the government purchasing them itself. But the firm also claimed the deposits paid to the authority by 946 nominated buyers who had reneged on their purchases. The deposits totalled about HK$200 million.

The Court of First Instance rejected that claim in November 2006, finding that the PSPS contract provided that the authority would retain the deposits in the event that a nominated buyer refused to follow through on a sales agreement for one of the flats.

Oriental Sharp had challenged that decision, claiming that the provisions the previous judge relied on were inapplicable to the situation as it unfolded 10 years ago.

The Court of Appeal disagreed, noting there had been no breach of contract by the buyers because they had always had the option of forfeiting their deposit if they chose against the purchase.

'I consider that [Oriental Sharp's] claim must be fundamentally unsound because the [company] cannot demonstrate that it suffered any damage,' court vice-president Anthony Rogers said. 'The [developer] was only entitled to HK$15,000 per square metre; and that it received whether the units were purchased by nominated home owners or by the defendant.'

Mr Justice Rogers, Mrs Justice Doreen Le Pichon and Mr Justice Anselmo Reyes dismissed the appeal and ordered the company to pay the costs of the hearing.