SUN LAI FONG KELLER v. LEUNG WING KIT AND ANOTHER

HCMP 1066/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1066 OF 2007

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J U D G M E N T

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I.  INTRODUCTION

1.  The Vendors (Leung and Lau) agreed to sell a Yuen Long Property to Sun for $525,000.  Sun paid a total deposit of $52,500 for the Property.  The Vendors undertook to “give prove and show good title” in accordance with s.13 of the Conveyancing and Property Ordinance (Cap.219). 

2.  Completion was to have taken place on 30 April 2007.  But completion did not take place because, according to Sun, the Vendors failed to show a good title to the Property.  The Vendors, on the other hand, say that they have shown good title.  The question is who is right.

3.  The issue between the parties is narrow. 

4.  Among other requisitions as to title, Sun’s solicitors requested copies of any Certificate of Exemption, Certificate of Compliance, Occupation Permit, or “No Objection to Occupy” Letter issued by the Government in respect of the Building of which the Property forms part.

5.  The Vendors’ solicitors did not produce any such document.  They replied that, the Building having been constructed in about 1981, it was unnecessary to produce a document.  They doubted that any such document had ever been issued by the Government.  Nonetheless, they pointed out that, in the 26 years since its construction, the Government had never taken any enforcement action against the Building for transgression of any regulation.

II.  DISCUSSION

6.  The Building (including the Property) is situated in the New Territories.

7.  The Buildings (Application to the New Territories) Ordinance (Cap.322) came into effect in 1961.  The Buildings Ordinance (Application to the New Territories) Regulations came into effect at the same time.  Subject to certain exceptions stipulated in the 1961 Regulations, the 1961 Ordinance extended the application of the Buildings Ordinance (BO) to the New Territories. 

8.  One exception concerned buildings not exceeding 7.62 metres in height.  Under BO s.21, new buildings may only be occupied after the Building Authority has issued an occupation permit.  By the 1961 Regulations, buildings of less than 7.62 metres height were exempted from this requirement of an occupation permit.

9.  On 16 October 1987 the Buildings Ordinance (Application to the New Territories) Ordinance came into effect.  This repealed the 1961 Ordinance and 1961 Regulations subject to transitional provisions.  By those latter provisions, the 1961 Ordinance and 1961 Regulations continued to apply to any building which had been constructed or which was in the course of being constructed when the 1987 Ordinance came into effect.

10.  In the normal course of events, the Building (including the Property) might have qualified for the exemption allowed by the 1961 Ordinance and 1961 Regulations. 

11.  But there is evidence (namely, a letter dated 7 October 1996 from the District Lands Officer (Yuen Long)) that upon completion in 1981 the height of the Building exceeded the permitted limit of 7.62 metres.  By how much is unclear.  I must assume that the excess was significant.

12.  In consequence, the exemption in the 1961 Ordinance and 1961 Regulations could not apply.

13.  No action ever having been taken to rectify the situation, no document (whether in the form of a Certificate of Exemption, a Certificate of Compliance, an Occupation Permit, or a “No Objection to Occupy” Letter) was ever issued in respect of the Building (including the Property).  It is hardly surprising then that the Vendors could not produce any such document in answer to the requisition from Sun’s solicitors.

14.  In Wong On v. Lam Shi Enterprises Ltd. HCMP No. 2549 of 1995, 20 December 1995, Le Pichon J in a similar situation stated (at p.3):-

“Where a building is not exempt from s.21 of the Buildings Ordinance which imposes the requirement of an occupation permit, that occupation permit is a relevant and necessary document to prove title because in the absence of such a permit, there is the possibility of enforcement action by the Building Authority in respect of the building.  See Lui Kwok Wai v. Chan Yiu Hing [1995] 1 HKC 197.  In the absence of special factors, I am bound to hold that the Vendor’s title is defective because of the absence of occupation permits.”

15.  In Wong On the District Lands Officer (DLO) had issued a Letter of Toleration whereby, in consideration of a fee, an excess of 0.65% over the permitted height of a building would be tolerated over the life of that building. There was also a Letter of Compliance whereby the DLO certified that all positive obligations imposed on the grantee had been complied with to the DLO’s satisfaction.  On this basis, it was argued in Wong On that there was no real risk of enforcement action being taken by the Building Authority.

16.  Le Pichon J rejected this argument.  She held that the Letter of Toleration from the DLO did not amount to a waiver by the Building Authority. There was nothing to show that the Building Authority had delegated its statutory functions to the DLO.  At best the DLO could only be said to have been acting for the Government in its capacity as landlord, not as agent of the Building Authority.

17.  Le Pichon J concluded (at pp.7-8):-

“It is in these circumstances that the test in MEPC Ltd. v. Christian-Edwards [1981] AC 205 at 220 is to be applied, namely whether it can be said that it is beyond reasonable doubt that the Purchaser would not be at risk of enforcement action being taken. I am asked so to conclude, based on the limited extent of this transgression and the fact that a premium had been paid for the contravention.  But I do not see how I can be satisfied that it is beyond reasonable doubt that the Purchaser would not be at risk in the absence of any evidence that in circumstances such as the present, it is not the practice of the Building Authority to take any enforcement action. Had such evidence been adduced, it would have been a different matter. Here, it is to be noted that enforcement action need not necessarily take the form of a demolition order which might appear to be a drastic response.  Contravention of s. 21(1) of the Buildings Ordinance is an offence punishable by a fine: see s.40 of the Buildings Ordinance. In the absence of evidence as to when occupation in contravention of s.21 began or when the same came to the notice of the Building Authority, there is no basis for concluding that any prosecution was time-barred as at the date for completion. There is therefore potential liability. If the Building Authority should decide, for whatever reason, to take action, it would be within its rights.  The corollary is that the owner could be faced with a potential claim.  Whilst it may be true that the chances of this happening are not high, this does not mean that it is in the ‘beyond reasonable doubt’ category.  To fall into that category, something more is required and that is what is lacking in this case.  As it does not, the Vendor has failed to show it has good title.”

18.  There is less in the way of special circumstances relied upon in this case than in Wong On.

19.  The Vendors merely rely here on the absence of any enforcement action by the Building Authority over 26 years.  There is no evidence as to the Building Authority’s practice on whether or not (say) to impose a fine where (despite absence of an occupation permit) a building has been occupied for years.  Nor is there any evidence as to when (if at all) the Building Authority first became aware of the excess in the Property’s height. There is no serious suggestion that the Building Authority is time-barred from now bringing an enforcement action.

20.  In that light, upon application of Wong On, the answer to the question here is clear. Although the chances of an enforcement action may not be high, that does not mean that the standard of “beyond reasonable doubt” in MEPC Ltd. has been met. The Vendors cannot have answered the requisition adequately by maintaining that it was unnecessary to produce an occupation permit or similar document.  The Vendors here thus failed to show good title.

21.  Ms. Karen Ma (appearing for the Vendors) draws my attention to Forever Business Ltd. v. Long Surplus International Investments Ltd. [2007] 2 HKLRD 700 (CA).  In that case there was an absence of an occupation permit.  However, the Court held that good title had been shown.  Ms. Ma invites me to do the same.

22.  But, as Yeung JA stressed in his judgment, there were several special factors in Forever Business.  Those were the following (at §71):-

“(1)  The building concerned was likely to be erected in or before 1947;

(2)  It is likely that the Building Authority had lost the records of the building concerned just as they had lost the records of most properties in Hong Kong completed during the pre-war and immediate post-war period;

(3)  The Building Authority had approved structural changes to part of the building as early as 1964 and must therefore be aware of the construction and occupation of the building;

(4)  The Government lease in respect of the building concerned was extended in 1988; and

(5)  There has never been any action or threat of action for the non-availability of an occupation permit and/or for enforcement action for such non-availability for 43 to 60 years.”

23.  Forever Business is distinguishable from the present situation.  In the former, a substantially longer period of at least 40 years had passed without any enforcement action having been taken.  More importantly, there were circumstances from which one could infer that the Building Authority had condoned the absence of an occupation permit.

24.  I see nothing inconsistent between the approach in Forever Business and that stated by Le Pichon J in Wong On.  I do not think that Forever Business assists the Vendors here.

25.  I note that in Forever Business the Court of Appeal recommended (at §§13 and 95) that, at the time of agreement, a vendor who is aware that his property is not covered by an occupation permit should, if only out of prudence, disclose such fact to a purchaser.  This simple measure would obviate a dispute (such as the present one) which might arise when the purchaser discovers that there is no occupation permit.

III.  CONCLUSION

26.  There will be a Declaration that the Vendors have failed to show good title.  The deposit of $52,500 must be returned to Sun.  I will now hear the parties on costs and any other consequential orders.