GREAT BILLION ENTERPRISES LTD v. PERFECT COUNT LTD

HCA 11181/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11181 OF 1998

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J U D G M E N T

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Background

1. By a Provisional Agreement for Sale and Purchase ("the Provisional Agreement") dated 9 October 1997 the Defendant ("Perfect Count") agreed to sell and Well Victory Enterprises Limited ("Well Victory") to buy Shop No. 4, Ground Floor, 2 O' Brien Road, Wanchai ("the Property") for $15,200,000. Under the Provisional Agreement, the purchase price was payable as follows:-

(1)	An initial deposit of $500,000 upon the signing of the Provisional Agreement;
(2)	A further deposit of $1,020,000 upon the signing of the Formal Agreement for Sale and Purchase; and,
(3)	The balance of $13,680,000 upon completion on or before 8 April 1998.

The Property was sold on an "as is" basis and subject to an existing tenancy. By Clause 3 of the Provisional Agreement, the Property was "to be sold to the Purchaser or its nominee(s), sub-purchaser(s) free from encumbrances".

2. The Provisional Agreement provided for payment of commission to Chung Sen Property Agency (Commercial) Limited ("Chung Sen") (the estate agent acting for both vendor and purchaser) as follows:-

"	9.	In consideration of the services rendered by the Agent, the Agent shall be entitled to receive HK$152,000 $138,000 from the Vendor and HK$52,000 from the Purchaser as commission.
	10.	If in any case either the Vendor or the Purchaser fails to complete the sale or purchase in this manner herein contained, the defaulting party shall compensate at once the Agent HK$204,000 as liquidated damages."

3. By a letter dated 14 October 1997 Messrs Edmond H C Wong & Co. ("EW") (the Defendant's then solicitors) a draft Agreement for Sale and Purchase to Messrs Yaddy Cheung & Co. ("YC") (Well Victory's solicitors). Subject to any amendment which YC might propose, EW requested that the draft be sent back engrossed with Well Victory's signature and a cheque for the further deposit.

4. By a letter dated 23 October 1997 EW sent 23 items of title deeds and documents relating to the Property to YC.

5. On 28 October 1997 YC returned the Agreement for Sale and Purchase "duly approved", although with some amendments marked in red. By another letter of the same date YC raised a number of requisitions as to title with EW.

6. By a fax dated 6 November 1997 to EW, YC sent a copy of a letter dated 13 October 1997 signed by Well Victory nominating and appointing the Plaintiff ("Great Billion") "to be the Purchaser and sign the Agreement for Sale and Purchaser of [the Property] or any subsequent Sub-Sale and Purchase Agreement and to take up the Assignment of [the property]." Well Victory's letter further declared that "the deposit paid by me/us under the Provisional Agreement ... was in fact money belonging to the said [Great Billion] and that henceforth all my/our interest and right in the said Provisional Agreement... should be vested to said Great Billion ... absolutely."

7. Well Victory and Great Billion are related companies. The beneficial interests behind Well Victory and Great Billion are the same, namely, Mr Mok Woon Kwong ("Mr Mok") and Mr Wallace Tung Wai Wa ("Mr Tung").

8. By a letter dated 6 November 1997 YC sent to EW duplicate copies of an Agreement for Sale and Purchase ("the Agreement") signed by Great Billion, together with a cheque for the further deposit of $1,020,000.

9. The Agreement contained the following provisions (among others):-

(1)	(Clause 3)
	"Completion shall take place at the offices of [EW] ... when the residue of the purchase money shall be fully paid and the Vendor and all other necessary parties (if any) will execute a proper assignment or assurance in favour of the Purchaser or his nominee or nominees, sub-purchaser or sub-purchasers of the Property ... free from all incumbrances."
(2)	(Clause 4)
	"Time shall in every respect be of the essence of this Agreement."
(3)	(Clause 10)
	"All requisition or objection in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 working days after the receipt of the title deeds by the Purchaser's Solicitors otherwise the same shall be deemed to be waived (time being in this respect of the essence of the contract)...."
(4)	(Clause 13)
	"(a) If from any cause whatever (other than the default of the Vendor and except as provided by Clause 10 hereof), the balance of purchase price shall not be fully paid on or before the day fixed for completion the Vendor may (without being obliged to tender an Assignment to the Purchaser) forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or his solicitors to such effect and the Vendor shall thereupon be entitled to re-enter upon the Property and repossess the same if possession shall have been given to the Purchaser free from any right or interest of the Purchaser therein and the Vendor shall be entitled to forfeit the deposit and all other deposit money paid hereunder to the vendor absolutely.
	(b) Upon determination or rescission of this Agreement pursuant to any provision herein, the Vendor may resell the Property either as a whole or in lots and either by public auction or by private contract or partly by one and partly by the other subject to such conditions and stipulation as to title or otherwise as the vendor may think fit. Any deficiency arising from such resale and all expenses attending the same or any attempted resale shall be made good and paid by the Purchaser as and for liquidated damages, and any increase in price realized by any such resale shall belong to the Vendor. This clause shall not preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor's rights under this Agreement or otherwise.... This clause shall not prevent the Vendor from recovering, in addition to liquidated damages
(5)	(Clause 14)
	"If the Vendor shall, for any cause whatever (other than the default of the Purchaser), neglect or fail to complete the sale in accordance with the terms hereof then the deposit and other deposit money paid hereunder shall be returned to the Purchaser who shall also be entitled to recover from the Vendor such further damages (if any) over and above the deposit and other deposit money so paid as aforesaid as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor."
(6)	(Clause 19(a))
	"The Property is sold subject to and with the benefit of the existing monthly tenancy thereof/the terms and conditions contained in the Tenancy Document (a copy of which has been furnished to the Purchaser on or before the signing of this Agreement and he shall be deemed to have full notice of all the contents thereof) and particulars of such tenancy are set out in Part IV of the Second Schedule hereto."
(7)	(Clause 21)
	"The Purchaser acknowledges that he has been invited to inspect the Property or has caused it to be inspected on his behalf and that he is entering into this Agreement on the basis of such inspection and of the terms hereof and not in reliance on any representation or warranty whatever written oral expressed or implied made by or on behalf of the Vendor. The Purchaser purchases with full knowledge of the physical condition of the Property and takes it as it stands."
(8)	(Clause 22)
	"In particular but without prejudice to the generality of Clause 21 hereof, the Property is and will be sold on an 'as is' basis. No warranty is given by the Vendor on any of the following matters, namely:-
	(a) the fittings and finishes or the installations and appliances (if any) incorporated in the Property or in the Building of which the Property forms part;
	(b) the physical state and condition of the Property or of the Buildings or of the building complex or of the said fittings, finishes, installations or appliances;
	(c) the composition of the Building or building complex or the nature or manner of its construction."
(9)	(Clause 27)
	"This Agreement sets out the full agreement between the parties hereto and supersedes all prior engagements arrangements agreements and contracts whether oral or in writing whatsoever between the parties hereto. No other warranties or representations have been made or given by the Vendor to the Purchaser relating to the Property and if any warranty or representation has ben made the same are hereby waived."

10. By letter dated 26 November 1997 EW replied to YC's requisitions of 28 October 1997. Not satisfied with the response, YC wrote to EW on 27 November 1997 seeking certain documents. At the end of its letter, YC wrote: "We reserve our right to raise further requisitions in due course." EW replied to YC by letter dated 27 November 1998 stating that the documents sought were unnecessary to show Perfect Count's title. EW concluded: "We trust that all your requisitions have been satisfactorily answered and that good title to the said property has been proved." On 30 December 1997 EW sent a copy of the subsisting tenancy agreement in respect of the Property to YC, as had been promised in EW's letter of 26 November 1997.

11. On 16 February 1998 Great Billion executed a Sub-sale Agreement ("the Sub-sale Agreement") for the Property between itself and Regal Winner Limited ("Regal Winner"). The Sub-sale Agreement provided for the sub-sale of the Property to Regal Winner by Great Billion for a consideration of $14,800,000. According to the contract an initial deposit of $1,800,000 had previously been paid and the balance of $13,000,000 was payable upon completion on 8 April 1998.

12. Great Billion and Regal Winner are also related companies, the same persons (Mr Mok and Mr Tung) being beneficially entitled to both companies. Mr Mok (who gave evidence at trial on behalf of Great Billion) explained that the reason for the sub-sale to Regal Winner was that it was easier for the latter (because of its track record) to raise finance with banks. The amount of $14,800,000 had been used in the Sub-sale Agreement because the market had fallen since the signing of the Provisional Agreement and (apart from having an auspicious sound in Chinese) the lower price reflected the bank's valuation. Mr Mok further said that, despite his acknowledgement of having received the initial deposit of $1,800,000 at the end of the Sub-sale Agreement, no money actually changed hands and the whole transaction simply reflected an internal arrangement between Great Billion and Regal Winner.

13. The Sub-sale Agreement contained the following provisions (among others):-

(1)	(Clause 5(a))
	"Any requisition or objection in respect of title shall be delivered in writing to the Sub-Vendor's solicitors on or before whichever is the earliest of the following dates:-
	(i) 7 days before the Completion Date; or
	(ii) within 7 working days after the receipt of the title deeds by the Purchaser's Solicitors. The Purchaser shall be deemed to have accepted the Sub-Vendor's title if requisition or objection on title is not delivered to the Sub-Vendor's solicitors within the times stipulated above."
(2)	(Clause 15)
	"Time shall in every respect be of the essence of this Agreement."
(3)	(Clause 19)
	"The Sub-Vendor is selling as Confirmor and will accordingly give only the usual limited covenant that he has not encumbered.
(4)	(Clause 23)
	"It shall be a condition that before completion shall take place, the Vendor shall allow the Purchaser to enter the property once and to cause an inspection to be made thereon. The Vendor shall also facilitate the inspection of the Property once by the surveyors of the Purchaser's potential Mortgage Bank upon reasonable prior notice being given to the Vendor."

14. On about 17 February 1998 Great Billion changed its solicitors from YC to Messrs Wing-Sum Lo & Co. ("WSL").

15. By letter dated 30 March YC acting on behalf of Regal Winner asked EW to arrange with Perfect Count for Regal Winner's intended mortgagee bank to inspect the Property for the purposes of a valuation. On 1 April 1998 WSL made a similar request to EW for Regal Winner's bank to be allowed to see the Property.

16. EW replied to the requests for inspection by letter dated 1 April 1998. EW noted that the Property having been sold subject to an existing letting, Perfect Count had "encountered difficulties in making arrangements with the tenant for the inspection of the above property". EW also stated:-

".... Our clients are not obliged to make arrangements for the inspection of the above property as requested.

In the circumstances, we are instructed by our clients to inform you that your clients' request cannot be acceded to."

17. By letter 4 April 1998 WSL again asked EW for inspection, but on a different basis:-

"Please be informed that the Purchaser and our own client now request for inspection of the above property to clarify the illegal structures within the subject property. Kindly arrange same on an urgent basis, otherwise our client would not be able to complete the purchase of the above property on scheduled time i.e 8/4/1998."

The alleged illegal structures were a "canopy" and "cockloft" identified in a survey report ("the Kwan Report") dated 3 April 1998 which WSL had received from YC. That report had been prepared by Mr Terence Kwan ("Mr Kwan") (a Chartered Surveyor working for Ong's Strategic Surveyors) on the instruction of Regal Winner. A copy of the Kwan Report was sent to EW under cover of WSL's 4 April 1998 letter.

18. The Kwan Report stated as follows:-

"We refer to your instruction to carry out a survey report of [the Property].

Since you are not able to arrange a site inspection for us, we cannot take site measurements or comment on the internal conditions of the subject property. However, there appears to have certain illegal structures appertaining to the subject property namely:-

1)	A cockloft was constructed above the entire ground floor. This cockloft is accessible via an internal staircase at the rear part of the shop.
2)	A canopy was projected about 3 ft. from the shop at a height of about 9 ft. above the pavement area. A split-type air-conditioner was installed inside the projected canopy.

The above structures may be subject to a Building order from the Building department. In view of the said unauthorised or illegal structures within the subject property, we advise you to consult your solicitor whether you should go ahead with the acquisition or not.

We also remind you that premises with illegal structures are difficult to obtain finance and may lead to title defects. In the mean-time, should a site inspection is available in future, please fell free of contact the undersigned anytime."

19. By letter dated 7 April 1998 to WSL, EW replied:-

"We refer to your letter of the 4th April 1998 enclosing therewith a copy of [the Kwan Report].

By your said letter, you, for the first time, raised requisitions on the alleged unauthorised structures in the property, namely

(1)	A cockloft was constructed above the entire ground floor. The cockloft is accessible via an internal staircase at the rear part of the shop.
(2)	A canopy was projected about 3 ft. from the shop at a height of about 9 ft. above the pavement area. A split-type air-conditioner was installed inside the projected canopy.

(collectively called 'the structures') as alleged in the said Survey Report.

Pursuant to clause 10 of the Agreement for Sale and Purchase dated 6th November 1997 ('the Agreement'), it is agreed that all requisitions or objections of the title or otherwise should be delivered 7 working days after the receipt of the title deeds by the Purchaser's solicitors otherwise the same should be deemed to be waived. The Vendor's title would be deemed to have been accepted and satisfied by the Purchaser. Time is being in this respect of the essence of the contract.

As a matter of fact, your client has inspected the property before the execution of the Agreement, and confirmed this under clause 21 of the Agreement. In the premises, your client well knew that the structures as alleged existed at the time of such inspection.

Upon receipt of the title deeds and documents of the property by [YC] on behalf of your client on about 23rd October 1997, [YC] should have raised requisitions on the structures within the requisition period. However, their failure to do so within the stipulated time of requisition means that our client's title would be deemed to have been accepted and satisfied by your client.

We are well aware that the Purchaser would be bound by the time limit even in respect of matters going to the root of title if he knew the possible defect but failed to raise the appropriate requisition within the time limit prescribed. (Tread East Ltd v. Hillier Development Ltd [1993] Civ App No.209/92).

In the premises, your recent requisition on the structures is raised out of time, and therefore will not be entertained."

20. By letter of the same date to EW, WSL suggested that completion be "postponed to 7 working days after the alleged illegal structure has been clarified". To this proposal, EW responded on 8 April 1998 in part as follows:-

"We hereby reiterate that the decision in Giant River as quoted was somewhat qualified by The Court of Appeal in [Trend East]. We have already reminded you of the decision in Trend East in our previous letter to you. In brief, the purchaser would be bound by the time limit even in respect of matters going to the root of title if he knew of the possible defect but failed to raise the appropriate requisition within the time limit prescribed.

In reply to paragraph 3 of the letter from [YC], as aforesaid, we remind you of the general rule of contract that a vendor is under no duty to disclose material facts to a prospective purchaser, and this applies to contracts for the sale of land.

Further, our client has no contractual duty to allow your client to inspect the property before completion since no such duty is imposed in the Agreement for Sale and Purchase dated 6th November 1997.

We hereby deny the allegations made in the last paragraph of the letter from [YC], and put you to strict proof thereof.

Since our client has discharged his duty to prove good title to the property, you are required to send us your draft Letter of Undertaking for our approval without delay, and complete the sale and purchase today as scheduled."

The reference to a letter from YC reflected the fact that, at the time of writing between WSL and EW, a parallel correspondence was going on between YC and WSL, wherein YC was pressing WSL to be allowed to inspect the Property to "clarify" the existence of any illegal structures and WSL was refusing any inspection on the ground of late requisition. YC's letters to WSL were copied by WSL to EW in an effort to persuade EW to agree to an inspection of the Property and postponement of completion.

21. Completion did not take place on 8 April 1998. Perfect Count now alleges that Great Billion had wrongfully failed to complete. Perfect Count has thus treated Great Billion's deposit of $1,520,000 as forfeited. In turn Great Billion alleges that Perfect Count was at fault in repudiating the Agreement by denying an inspection. Further, WSL on behalf of Great Billion wrote to YC as Regal Winner's lawyers:-

"We are instructed that your client failed to pay the balance of purchase price and to complete the purchase of the captioned property in accordance with the terms and conditions of the said [Sub-sale] Agreement and has therefore wrongfully repudiated the same.

In the premises, we are instructed that our client hereby exercised its right to rescind the said Agreement and to forfeit all the deposit paid by your client.

Please return all the title deeds and documents forwarded by [EW] to you under their cover letters dated 23rd October 1997, 26th November 1997 and 30th December 1997 as soon as possible."

22. By this action Great Billion claims the return of its deposit and $52,000 paid by it to Chung Sen. Perfect Count counterclaims for the difference between the purchase price of the Property and its market price on the date of completion, but giving credit for the deposit forfeited.

Discussion

Inspection

23. Mr Mui (who appeared for Great Billion) submitted that the latter had an implied right to inspect the Property under the Agreement. He argued that such right was exercisable because there were grounds for believing that there were illegal structures on the Property or, alternatively, because of the long interval between the signing of the Provisional Agreement in October 1997 and completion in April 1998. Even though the Agreement was silent about such right to inspect, it was (Mr Mui said) reasonable, necessary and posed no inconvenience to anyone (including the Property's tenant) to imply a term to that effect.

24. Mr Mui sought to support his case by reference to Twinkle Step Investment Ltd v. Smart Investment Industrial Ltd [1999] HKLRD 521, where the Court of Final Appeal was prepared to imply a right of access to premises at or immediately before completion for the purpose of ascertaining whether a vendor is delivering vacant possession on completion. But there Ching PJ stressed (at 528F-G) that the Court's decision was confined to where vacant possession was to be given upon completion and should not be taken as endorsing the existence of any implied right of access to premises for purposes wider than that. That question of a wider right did not arise in Twinkle Step and so the Court of Final Appeal "[did] not intend to decide more than we must" (see 524I, 528G). Here, the sale of the Property being expressly subject to an existing tenancy, Twinkle Step does not significantly assist Mr Mui.

25. More fundamentally, a term will not be implied if it would be inconsistent with an express term of a contract (Chitty on Contracts (28th ed.), Vol. I, §13-009). It is difficult to see how a right of access to the Property for carrying out an inspection can be implied in light of Clauses 21 and 22 of the Agreement. By those express terms Great Billion acknowledged that, prior to entry into the Agreement, it had been afforded an opportunity to inspect the Property and was entering into the purchase with "full knowledge of the physical condition of the Property" and taking the latter "as it stands".

26. Mr Mui submits that Clauses 21 and 22 have no impact on his proposed implied term because Great Billion never carried out any detailed, "formal" inspection of the Property before signing the Agreement and (in any event) "anything could have happened" to the condition of the Property in the long run- up to completion.

27. The 2 structures which Mr Mui claims occasioned "suspicion" on the part of his client were the canopy outside the Property and the cockloft inside. I consider the nature of these structures in detail below. For now, I assume in Great Billion's favour that the structures were arguably unauthorised or illegal. Even then, Mr Mui cannot imply the existence in April 1998 of a right to inspect the Property to see whether the structures were legal or illegal.

28. The structures have existed as part of the Property since late 1988, long before Perfect Count bought the Property in February 1991. The evidence for this is as follows:-

(1)	There are letters passing between the Mass Transit Railway Corporation ("MTRC") (the manager of the building where the Property is situate) and Tenrich Development Limited ("Tenrich") (Perfect Count's predecessor in title) in 1988 relating to the installation of split-level air-conditioning for the Property. Tenrich sought MTRC's approval for an installation whereby condenser units would be positioned outside the Property but concealed by louvres so as to match the building façade, while other parts making up the air-conditioning system would be suspended from the Property's ceiling and concealed by what the correspondence variously call a "false ceiling" and "cockloft". By letter dated 21 October 1998, MTRC stated that it had "no objection in principle to the proposed installation" provided that certain conditions were followed.
(2)	Madam Wan Po Lin, a director of Perfect Count, stated in Court that the structures were already in place when Perfect Count bought the Property.

29. It follows that an inspection carried out before execution of the Provisional Agreement or the Agreement would have revealed a canopy outside the Property concealing an air-conditioning unit and a false ceiling or cockloft inside the Property concealing other parts of the air-conditioning system.

30. Mr Mok, who gave evidence for Great Billion, acknowledged that he had taken a look at the Property before signing the Provisional Agreement. He said that he went to the Property with Mr Simon Yip Wing Wai ("Mr Yip") (the estate agent). The Property being leased at the time to a fashion boutique, Mr Mok walked in as if he were a shop customer. But as he had been told by Mr Yip not to maintain a "high profile" during the visit, Mr Mok only took a quick look at the premises and did not (in Mr Mok's words) "carry out a post-mortem examination". He stood in the middle of the shop for approximately 30 seconds and noticed that there were 3 or 4 customers at that time. He said that his main concern was to ascertain "human flow" and "pedestrian direction". Mr Yip did not enter the Property but stayed at the entrance.

31. The only other occasion when Mr Mok visited the Property was in April 1998, long after the Agreement was signed, very close to the completion date. He walked back and forth around the shop entrance and took a brief look lasting less than a minute. He noticed that the head room at the end of the shop was "a bit lower" than the front and saw a staircase at the back leading to a lavatory. He estimated the head room at the shop rear to be between only 7 and 7 1/2 feet and surmised that it was likely that there was an unauthorised cockloft in the Property. Finally, Mr Mok said that, from the entrance of the shop, he could see a wall at the other end of the shop.

32. I note in passing that Mr Shum, who appeared for Perfect Count, invited me to disbelieve Mr Mok's evidence of having inspected the premises. But I accept Mr Mok's evidence as I have just summarised it.

33. Given that Great Billion through Mr Mok had only once looked at the Property and then merely cursorily before signing the Agreement, Mr Mui submits that Clauses 21 and 22 cannot be construed as precluding an implied right to inspect. I disagree. Whether or not Great Billion made use of the chance to inspect mentioned in Clause 21 and the degree to which (if it did inspect) Great Billion carried out a detailed or superficial examination, must have been matters for Great Billion alone to decide. There is no reason why Clause 21 should be construed differently depending upon whether, before signing the Agreement, Great Billion decided to make a superficial or detailed examination.

34. I am equally unconvinced by Mr Mui's contention that, since anything could happen in the period before completion, it would be reasonable to imply a term allowing inspection to check the canopy and cockloft. The latter structures already existed when the Agreement was signed. As I discuss below, neither canopy nor cockloft constituted a latent defect or illegality within the Property. By Clause 21 Great Billion must be treated as having inspected both structures and satisfied itself as to their propriety before signing the Agreement. It is not possible to import here an implied term that, despite Clause 21, just before completion Great Billion had a right to re-examine what it had already been given a chance to inspect.

35. Finally, on this head, I note that I do not accept Mr Mui's proposition that reasonableness and the fact that no one (not even the tenant in occupation) would have been inconvenienced by an inspection, are by themselves sufficient reason to imply the right to inspect for which he contends.

36. For the above reasons, I reject Mr Mui's submission that there was an implied right to inspect the Property for the purpose of determining whether the cockloft and canopy were illegal structures.

Illegality

37. Assume that I am wrong and there was an implied right to inspect for illegal structures.

38. Even then Mr Mui must still show that, had Great Billion exercised any such right, on the balance of probability it would have found illegal structures, the existence of which would have prevented Perfect Count from giving good title in the Property. In other words, I disagree with Mr Mui's suggestion that the mere denial of access by a vendor when the purchaser says that he "suspects" illegal structures in the premises, constitutes without more a repudiatory breach. Mr Mui also needs to show that Great Billion's "suspicion" was more than fanciful, such that there was a significant likelihood of actually discovering illegal structures on the Property if an inspection had taken place.

39. Mr Mui told me on Day 1 of the trial that Great Billion now accepts that the canopy was not an illegal structure. The dispute was therefore confined to the cockloft. Pressed for his case on that structure, Mr Mui was unable to say whether or not the cockloft was illegal. The illegality or otherwise of the cockloft was irrelevant (Mr Mui responded), since Great Billion's case was that reasonable suspicion of illegality (even if unfounded as a matter of fact) was enough.

40. At the rear of the shop is a staircase leading to a lavatory. Great Billion accepts that the staircase and lavatory are authorised structures. What Great Billion complains about is that from the top of the staircase a person would have access not just to the lavatory but also to the cockloft. This, Mr Mui claimed, showed that the cockloft was in use as an extra, unauthorised floor.

41. But the evidence is all one way that the canopy and cockloft were authorised, legal structures. Buildings Ordinance (Cap. 123) s. 41(3) provides that:-

"Building works other than drainage works, ground investigation in the scheduled areas or site formation works not involving the structure of any building may be carried out in any building without application to or approval from the Building Authority."

There is no evidence that the cockloft involved or affected the structure of the building in which the Property was situate.

42. What has been described for convenience at trial as a "cockloft" is in reality little more than a false ceiling concealing ducts and other parts of the Property's air-conditioning system. The air-conditioning ducts and parts are suspended from the Property's actual ceiling and covered by a false ceiling for aesthetic reasons. Mr Ng Chi Chai ("Mr Ng"), a Registered Structural Engineer and Authorised Person, who gave evidence on behalf of Perfect Count, told how he had stood on a table to poke behind a panel of the false ceiling and see what lay above. His investigation revealed duct work from the rear of the shop to a condenser unit installed on top of the canopy at the front of the shop and hidden from view by louvres running along the Property's upper front façade.

43. Madam Wan admitted that some space above the false ceiling had been used for storage. That space seems to have been the portion of the false ceiling closest to the staircase. I do not think that such use of the area above the false ceiling suffices to render the whole structure illegal. Indeed, there is no evidence that the false ceiling was strong enough to support the weight of any persons using the area above as extra floor space.

44. My conclusion as to the legality of the cockloft is supported by the correspondence mentioned above by which MTRC authorised (having confirmed that it had no objection to) the installation of a false ceiling in the Property. Before the transaction with Great Billion, no one had complained about the cockloft/false ceiling. Nor had the Building Authority ever asked for its demolition.

45. There is simply no basis for the allegation that the cockloft was an illegal structure. The alleged "suspicion" that illegal structures existed on the Property was no more than fanciful.

46. Mr Mui went further in his submissions on the nature of the cockloft. Because Perfect Count did not draw attention to the existence of the cockloft, Great Billion (Mr Mui said) could not be expected to know of the cockloft's illegal nature. The illegality posed by the cockloft was asserted to be "latent", not being discernible on reasonable inspection. I reject such submission. Not only because the "cockloft" was an authorised structure, but also because the existence of the cockloft/false ceiling would have been plain upon cursory inspection of the Properties.

47. There is evidence both from Mr Ng and Mr Kwan that the false ceiling was apparent from a cursory (in Mr Kwan's case 3 minute) examination of the premises. Mr Kwan, for example, said in Court that he knew that there was a cockloft because the headroom of at the back of the Property was obviously lower than that in front. Mr Kwan also mentioned that, standing at the bottom of the staircase, he noticed 2 "openings", one leading into the lavatory and another to the void above the cockloft. Far from being latent, the cockloft should have been apparent even on a cursory inspection of the Property, such as that conducted by Mr Mok before signing the Provisional Agreement.

48. Mr Mui latched onto a sentence in a Valuation Report ("the Valuation Report") dated 9 February 2002 prepared by Mr Sat Wei Ling ("Mr Sat") of Memfus Wong Surveyors Limited on instructions from Perfect Count's solicitors:-

"In calculating the RZA [Reduced 'Zone A' Area], we have adopted 1/10 of Zone A value to the subject cockloft to reflect the inconvenience in passing the beams although the cockloft is not an approved structure except for the lavatory."

That, Mr Mui suggested, amounted to an admission by Perfect Count that the cockloft was an illegal structure. But such conclusion would be to read too much in a sentence. The basis on which Mr Sat, a surveyor as opposed to a structural engineer or architect, decided that the cockloft was not authorised is unclear. It is unknown for instance whether Mr Sat was aware of the correspondence with the MTRC to which I have referred. It was open to Mr Mui to ask Mr Sat to clarify the basis of the statement, but Mr Mui instead chose not to cross-examine Mr Sat at all. In the circumstances, especially in light of the evidence that I have discussed, I do not feel that I can attach great weight to Mr Sat's opinion as to the cockloft being unauthorised.

49. I note that throughout his submissions Mr Mui distinguished between the words "cockloft" and "false ceiling". Whereas "false ceilings" were authorised structures, "cocklofts" were not shown on building plans and constituted unauthorised additional floors to buildings which were thus inherently illegal. Mr Mui went so far as to suggest that any use of the word "cockloft" by Perfect Count in its documents was strongly supportive of Great Billion's "suspicions".

50. In assessing whether a structure is legal or illegal, I am not inclined to deduce much from loose usage of the word "cockloft" or "false ceiling" by one or other party. A more rigorous, objective approach is to obtain a precise idea of the history and function of the structure complained of, whatever term (whether "cockloft" or "false ceiling") is used as a convenient, shorthand description of the structure, and then to evaluate whether and (if so) how the structure offends against the Buildings Ordinance and Regulations or any other applicable guidelines.

51. For the above reasons, I reject Mr Mui's contention that Great Billion had any reasonable grounds for suspecting the existence of an illegal structure in the Property.

Loss of right to make requisitions as to title

52. Even if he were right that Perfect Count's failure to address its "suspicions" as to illegal structures could enable Great Billion to treat the Agreement as rescinded, Mr Mui must still overcome a difficulty in Clause 10 of the Agreement. That provides that requisition ought to be raised within 7 working days after the receipt of title deeds by the purchaser's solicitors. If requisitions are not raised within that period, the right to raise requisitions will be deemed waived.

53. The short point is that Great Billion raised its "suspicions" too late. Mr Shum points out that a copy of the Tenancy Agreement (to which the Agreement was subject) was forwarded to YC (then still acting for Great Billion) on 30 December 1997. By that date all relevant title deeds to the Property (the Tenancy Agreement being the only one outstanding at the time) would definitely have been in Great Billion's hands. It follows that the time limit for raising requisitions would have elapsed by mid-January 1998. No requisitions were raised by Great Billion as to alleged illegal structures until April 1998. On any view, Mr Shum argues the right to make requisitions about the canopy and cockloft, even if the latter were illegal, must have been waived.

54. The law on time limits to requisitions is well-established. For example, in Wise Mark Technology Ltd v. Wincombe Holdings Ltd [2001] 1 HKC 404, Deputy Judge Poon succinctly summarised the operative principles thus (at 412D-F):-

"It had been held in Giant River v. Asie Marketing Ltd [1990] 1 HKLR 297 that requisitions which go to the root of the of the title may be raised even after the contractual period for doing so has expired. However, where a purchaser should, having used due diligence, be aware of a potential title defect, he must raise his requisitions within the time limit and may not, simply by virtue of the fact that the alleged defect goes to the root of title, raise the requisitions out of time: Hillier Development Ltd v. Tread East Ltd [1993] 1 HKC 285...."

55. Applying those principles here, I agree with Mr Shum. Given that neither the cockloft nor canopy here constituted latent structures, any requisitions about such structures ought to have been raised within the time limit prescribed by Clause 10. In failing to raise requisitions in timely fashion, Great Billion lost the right to rescind the Agreement on the basis that Perfect Count did not address its "suspicions".

56. Mr Mui sought to escape from the consequences of Clause 10 by suggesting that Perfect Count had waived Great Billion's obligation to comply with Clause 10. Mr Mui argued that waiver occurred by reason of EW's letters to WSL of 7 and 8 April 1998 mentioned above. But it is impossible for me to read into either letter any waiver (express or implied) by EW of Perfect Count's right to insist on strict compliance with Clause 10. I reject Mr Mui's contention of waiver.

57. For the above reasons, I find that Great Billion was not entitled to make requisitions about the canopy and cockloft after mid-January 1998.

Damages

58. It follows from my conclusions that, in failing to complete on 8 April 1998, Great Billion repudiated the Agreement. Perfect Count was therefore entitled to treat Great Billion's deposit as forfeited and to seek further damages.

59. The measure of Perfect Count's loss is the difference between the purchase price of the Property and its market price on the date of breach, here the date of completion (8 April 1998). As to the Property's value on the latter date, there is the unchallenged evidence in the Valuation Report that the open market value of the Property, subject to the then existing tenancy, was $10,700,000. The measure of damages is thus $4,500,000 ($15,200,000 less $10,700,000). Perfect Count must, however, give credit for Great Billion's forfeited deposit ($1,520,000). Subtracting the deposit from $4,500,000 leaves an outstanding amount of $2,980,000.

Conclusion

60. Great Billion's claim fails and is dismissed.

61. Perfect Count succeeds on its Counterclaim. I award damages of $2,980,000 to Perfect Count with interest thereon at 1% over prime from 10 September 1998 (when the Counterclaim was made) to date of judgment and thereafter at the judgment rate. As requested by Mr Shum at the end of the trial, I also make a direction that the lis pendens which Great Billion registered in the Land Registry against the Property under Memorial Nos. 7575296 and 8880990 (relating to the Writ and Amended Writ respectively) be vacated.

62. Finally, I make an Order Nisi that Perfect Count is to have its costs of the action (including the Counterclaim) to be taxed if not agreed.