MARK ALEXANDER TURNER AND ANOTHER v. HUNG HOK MAN

HCA 2387/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2387 OF 2004

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J U D G M E N T

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Introduction

1.  This action concerns a failed sale and purchase transaction in respect of a property known as House No.23, Greenpeak Villa, Lot No.1427 in D.D. 222, Sai Kung, New Territories, Hong Kong (“the Property”).  The Property is a small or “Ding” house held under the General and Special Conditions of New Grant No.6796 dated 24 August 1984 (“the New Grant”).

2.  The would-be purchasers were the Plaintiffs and the would-be vendor the Defendant.  The parties entered into a provisional sale and purchase agreement dated 4 December 2003 in respect of the Property (“the Provisional Agreement”) and then, subsequently, a formal agreement for sale and purchase dated 19 December 2003 (“the Agreement”).

3.  Under the Agreement, the Defendant agreed to sell and the Plaintiffs agreed to buy the Property at a price of HK$5,950,000.  An initial balance of $300,000 had been paid on the signing of the Provisional Agreement.  A further balance of HK$295,000 was paid on the signing of the Agreement.  The balance of the purchase price, in the sum of HK$5,355,000, was to be paid on or before the date of completion, which was stipulated in the Agreement to be 30 January 2004.

4.  For reasons that are addressed below, the sale was never completed.

Relevant provisions of the Agreement

5.  Clause 16.01 of the Agreement provided as follows:-

“Requisitions and objections (if any) 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 date of receipt of the title deeds and documents by the Purchaser’s Solicitors.  Every requisition or objection not so delivered shall be deemed to have been waived upon the expiration of the said 7 working days’ period.  Any further requisition on or objection to the Vendor’s reply to any requisition or objection previously raised by the Purchaser shall be raised within 7 working days after the date of receipt such reply by the Purchaser’s Solicitors otherwise the same shall conclusively deemed to have been waived.”

6.  Clause 16.02 of the Agreement provided as follows:-

“If the Purchaser shall make and insist on any objection or requisition which the Vendor shall be unable or unwilling (on the grounds of difficulty delay or expense or any other reasonable grounds) to satisfy or remove or comply with or if the title of the Vendor shall be defective the Vendor may (notwithstanding any intermediate attempt to remove or satisfy or comply with the same or intermediate dispute or negotiation or litigation in respect thereof) by not less than 5 days’ notice in writing to the Purchaser or his Solicitors to annul the sale in which case unless the objection or requisition shall have been in the meantime withdrawn the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to the forthwith return of all the deposit(s) paid hereunder but without compensation costs, and if, such return is made within 7 days, without interest and the Purchaser shall thereupon return to the Vendor all the title deeds and documents belonging to the Vendor in his possession in connection with this sale and neither party shall have any claim against the other hereon nor against the parties’ respective Solicitors and the parties hereto shall at their own costs and expense enter into and cause to be registered at the Land Registry or the appropriate New Territories Land Registry an Agreement for Cancellation.”

The Facts

7.  Following the execution of the Agreement, the parties corresponded in relation to the sale through their solicitors.  The Plaintiffs initially appointed Messrs Gary Mak, Dennis Wong and Chang (“GMDWC”) to act as their solicitors, whilst Messrs Li, Wong and Lam (“LWL”) acted for the Defendant.  As from about 9 February 2004, the Plaintiffs appointed Messrs Tai, Mak & Partners (“TMP”) to act for them in place of GMDWC.

8.  On 22 December 2003, GMDWC received the title deeds in respect of the Property from LWL.

9.  On 31 December 2003, GMDWC wrote to LWL raising four requisitions.  Only one of those requisitions is material for present purposes and it was in the following terms:-

“	1.	New Grant No.6796
		Special Conditions Nos.5 and 6 of the New Grant expressly prohibits any alienation of the property until issuance of the Certificate of Compliance and payment of additional premium to the Government.
		The Certificate of Compliance was issued on 25th January 1990, and additional premium was not paid until 5th July 1990, as shown by a District Lands Office Letter dated 5th July 1990 and registered in the Sai Kung New Territories Land Registry by Memorial No.169185 for removal of alienation restrictions.
		However, we noted that there had been an unauthorized alienation of the property prior to 5th July 1990, as disclosed in:-
		(a)	An (unregistered) Memorandum (of Sale) dated 9th February 1988 (copy enclosed);
		(b)	An (unregistered) Conditional Agreement (for Sale) dated 28th March 1990 (copy enclosed); and
		(c)	In an Assignment dated 5th July 1990 by Memorial No.163547 and re-registered by Memorial No.236792, the recital therein expressly disclosed that there had been a sale of the property by the Grantee prior to that dated (i.e. prior to 5th July 1990).
		As such, there was a breach of Special Condition 5 and 6, and title would be defective.
		Further, the giving of a Power of Attorney by the Grantee dated 28th May 1987 (copy enclosed), which is prohibited also by special condition 5, is itself also a breach of the special condition, making title defective.  Please clarify.”

10.  On 26 January 2004, LWL responded to GMDWC and provided the following reply to that requisition:-

“Please note that the signing of Agreement for Sale and Purchase and/or Power of Attorney does not contravene Special Conditions 5 and 6, as the said Conditions prohibit the alienation of the land, which means the ‘legal estate in land’.  Not until an assignment or mortgage is executed will the said Special Conditions be invoked.”

11.  On 27 January 2004, GMDWC again wrote to LWL and made the following point in respect of LWL’s response to that requisition:-

“We disagree.  It is undoubted that in law an agreement for sale and purchase, once entered into, is already a disposition of an interest in land, since interest in land includes equitable interest in land and not just a legal estate.  …”

12.  On 28 January 2004, LWL further responded to GMDWC in respect of the requisition that had been raised as follows:-

“Please note that the necessary premium has been paid and a Modification Letter has been issued by the District Lands Office, Sai Kung regarding Special Conditions 4, 5 & 6 of the government grant.  By virtue of the said payment and modification, the said Special Conditions have been deleted and of no further effect.  In this sense, even if there should have been any breach of the said Conditions (which is not admitted), there is no further risk of enforcement that could be taken by the government against the Property or the owner thereof.  As such, your requisition requires no further answer.”

13.  On 28 January 2004, GMDWC reverted to LWL on that response as follows:-

“Please note that it is expressly stated in the Modification Letter dated 5th July 1990 that the Modification is with effect only from the date of the said Letter.  As such, any pre-existing breach will not and cannot be deemed to have been waived by the said Modification Letter.  After all, the Modification Letter does not say that the pre-existing breach is deemed waived.

Further, there is no evidence before us at all that the breach in question has been brought to the specific attention of the Government and the latter has acquiesced in the same.  The argument of estoppal [sic] or ‘no risk of enforcement’ is therefore not sustainable.”

14.  I shall refer to the requisition addressed in the correspondence set out in paragraphs 9 to 13 above as the First Requisition.

15.  On 5 February 2004, LWL wrote to GMDWC and stated:-

“… we are instructed, which we hereby do, to give you notice pursuant to clause 16.02 of the formal Agreement dated 19 December 2003 that our client is unable and/or unwilling (according to the said clause) to satisfy or comply with your outstanding requisitions.  In this regard, unless you shall withdraw all your requisitions by 10 February 2004, the said Agreement dated 19 December 2003 shall be annulled in accordance with the said clause 16.02.

Kindly therefore let us know if your client is prepared to withdraw the requisitions accordingly.”

16.  Shortly after TMP were instructed to act on behalf of the Plaintiffs in place of GMDWC, Mr Chong Ting Kin, a senior conveyancing clerk employed by TMP, telephoned Mr Clifton Wong, a partner of LWL.  In that telephone conversation, Mr Chong told Mr Wong that, notwithstanding the notice in LWL’s letter of 5 February 2004 (“the Clause 16.02 Notice”), the Plaintiffs would not withdraw the requisitions raised by GMDWC and asked Mr Wong to withdraw the Clause 16.02 Notice as he would need more time to look at the title documents.  Mr Chong also informed Mr Wong that the Plaintiffs would be raising further requisitions.

17.  On 10 February 2004, TMP duly wrote to LWL raising four further requisitions, only the first two of which are material for present purposes.  TMP also responded to the notice in LWL’s letter of 5 February 2004.  So far as material, their letter stated:-

“We refer to your letter dated 5th February 2004 addressed to our client’s former solicitors, Messrs. Gary Mak, Dennis Wong & Chang and the telephone conversation between your Mr. Wong and our Mr. Chong on 9th February 2004.
We would like to raise the following further requisitions:-
1.	We note from the letter from District Lands Office, Sai Kung dated 13-9-1995 that no Certificates of Exemption for the above lot have ever been issued.  We take the view that according to Sections 5 and 6 of the Building Ordinance (Application to the New Territories) Ordinance, the Director of Lands is required to issue the certificates of exemption in respect of building works, site formation works and drainage works in the New Territories for a building to be built by any person and to be used for non-industrial purposes.  In the absence of the said certificates of exemption, Building Ordinance applies to the Lot and an occupation permit or the approval to the building plans by the Building Authority is required in order to prove title.  Please let us have the relevant occupation permit for our perusal.
2.	Please let us have the consent and approval by the District Lands Officer for the opening of side window to prove compliance of Special Condition 9 of the New Grant No.6796.
…
We shall be grateful if you kindly withdraw your rescission notice given on 5th February 2004 and take your client’s instructions to postpone the completion of sale and purchase on or before 24th February 2004 in order to deal with the requisitions on title.”

18.  I shall refer to these two requisitions raised in TMP’s letter dated 10 February 2004 as the Further Requisitions.

19.  On 12 February 2004, LWL replied to TMP in respect of the Further Requisitions as follows:-

“We refer to our letter to you of 10 February 2004.
Before we are to reply to your side letter, we have to make it clear that pursuant to our letter addressed to Messrs. Gary Mak, Dennis Wong & Chang (‘the said firm’) dated 5 February 2004, our client has the right to annul the sale and purchase herein by 10 February 2004 in accordance with clause 16.02 of the formal Agreement dated 19 December 2003.  Further, pursuant to clause 16.01 of the said formal Agreement, your client’s right to raise requisition/further requisition on title of the Property has lapsed.  In this regard, we have no obligation to treat your further queries as stipulated in your said letter as valid requisitions and thus we are not bound to give any reply.  Without prejudice to the above position, we wish to give the following comments to your queries:
1.	It should be noted that the government grant in respect of L1427 in DD222 was granted in 1984.  According to the records and papers, it is possible that the existing house has been erected and completed before October 1987, in which case no certificates of exemption in respect of the works will be required.  In any event, as per the confirmation from the District Lands Office, Sai Kung (‘DLO’) dated 13 September 1995, the DLO obviously knows of the situation that no such certificate has been issued.  As over 7 years have lapsed, no enforcement action has ever been taken by the DLO against the Property.  It could therefore draw the inference that the government should have acquiesced to the said situation and any risk of enforcement action is therefore fanciful.
2.	As certificate of compliance has been duly issued, the DLO must have satisfied with all conditions of the government grant and the Property.  As such, the opening of side windows must have been approved by the DLO.
	…
We trust that your queries have been satisfactorily answered.  We must emphasize that nothing herein contained shall constitute a waiver of our client’s right under the said formal Agreement as aforementioned.  On a without prejudice basis, as your client still elects to purchase the Property, we shall be grateful if you could arrange for completion thereof by 13 February 2004, failing which we shall treat your client as having repudiated the said formal Agreement.  All our client’s rights are hereby reserved.”

20.  On 13 February 2004, TMP wrote to LWL in respect of the Further Requisitions in the following terms:-

“We refer to your letter dated 12th February 2004.
1.	It should be noted that the Certificate of Compliance of the building was issued on 25th January 1990.  We believe that the construction works were carrying on after the enactment of the Buildings Ordinance (Application to the New Territories) Cap. 121 in 1987.  In this respect, kindly let us have the evidence to show such construction works were carrying on before October 1987 otherwise application for an occupation permit or the approval to the building plans by the Building Authority is required to prove title.
2.	Regarding the openings made in the building in question, we disagree with your view that the issue of the Letter of Compliance would exonerate the grantee’s liability under Special Condition 9 of the New Grant No. 6796 to obtain prior written approval of the District Letter.  Please refer to the case Kwok Siu Wing v. Modern Park Limited (HCA 11922 of 1998) wherein the court ruled that the production of the consent for side-window is necessary for completion of title deeds.  Therefore, please let us have the relevant consent and approval by the District Lands Officer for the opening side-window to complete the chain of title.”

21.  On 13 February 2004, LWL wrote to TMP, referring to their letter of 12 February 2004 (see paragraph 19 above) and subsequent telephone conversations between Mr Chong and Mr Wong, stating:-

“We are given to understand that you are not satisfied with our replies as set out in our said letter.  However, as per the second paragraph thereof, we trust that we have made it sufficiently clear that we are under no duty or obligation to give any reply to your ‘requisitions’ made on 10 February 2004 as the time for raising requisitions has lapsed.  In this regard, should your client consider necessary, he should clarify all the issues by his own means and at his own expense.

Without prejudice to the above position, and as requested by your client, our client is prepared to extend the date of completion for a further seven (7) days from the date hereof.  If your client shall fail to complete the purchase of the Property by 20 February 2004, our client shall have no alternative but to treat your client as having repudiated the formal Agreement dated 19 December 2003.

If it is your client’s instruction to proceed with the sale and purchase herein, kindly let us have your draft completion undertaking and assignment for our approval at your earliest convenience.

Meanwhile, all our client’s rights under the said formal Agreement are expressly reserved.”

22.  On 14 February 2004, TMP replied to LWL, stating:-

“We are now unable to contact our clients to take instructions in the above matter.  We shall revert to you on next Monday.

In the meantime, please clarify your position whether you will answer the outstanding requisitions raised by our clients’ then solicitors Messrs. Gary Mak, Dennis Wong & Chang if the completion of sale and purchase is being postponed so as to enable us to advise our client on the above matter.”

23.  On 16 February 2004, TMP wrote to LWL to indicate they were instructed that the Plaintiffs and the Defendant had agreed the completion of the sale and purchase of the Property be postponed until 20 February 2004.  As regards the requisitions, TMP stated:-

“In the meantime, we shall be most grateful if you would clarify whether you will answer the outstanding requisitions including but not limited to the requisitions raised by our clients’ previous solicitors, Messrs. Gary Mak, Dennis Wong & Chang.  If you failed to answer adequately the said outstanding requisitions, the transaction in respect of the above property shall be fallen through and in these circumstance, our clients shall be entitled to be refunded in full all the deposits paid to your client by our clients in respect of the said transaction.”

24.  On 19 February 2004, TMP wrote chasing for a reply to their outstanding requisitions and putting on record their view that good title to the Property had not yet been proved.

25.  On 20 February 2004, in the absence of any reply from LWL, TMP wrote to LWL stating:-

“In repudiatory breach of the Agreement, your client has failed to and/or wrongfully refused to answer the outstanding requisitions and has failed to prove or give a good title to the above property by 5:00 p.m. on 20th February 2004 in accordance with the Agreement or at all.

We are instructed by our client to give your client through your firm this notice, which we hereby do, that our client hereby accept your client’s repudiation of the Agreement.  We hereby demand your client to return forthwith (and in any event not later than 27th February 2004, 5:00 p.m.) to us to receive on our client’s behalf the deposit of HK$595,000.00 paid by our client to your client under the Agreement.  Our client also hereby expressly reserves all its rights to claim against your client for all the loss and damages which our client may suffer as a result of your client’s repudiation as aforesaid.”

26.  On 27 February 2004, TMP wrote again to LWL demanding repayment of the deposits in the sum of HK$595,000 and threatening legal proceedings against the Defendant if these were not refunded to the Plaintiffs.

27.  On 3 March 2004, TMP wrote to LWL giving final notice that unless the Defendant refunded the deposits to the Plaintiffs, the Plaintiffs would institute proceedings for their recovery.

28.  Despite further chasing letters from TMP to LWL dated 4 March 2004 and 11 March 2004 the Defendant did not repay the deposits to the Plaintiffs.

29.  These proceedings were commenced by writ issued in the District Court on 16 March 2004.  By consent, the proceedings were transferred to the Court of First Instance of the High Court by order dated 2 October 2004.

Overview of the Plaintiffs’ claim and the Defendant’s counterclaim

30.  The Plaintiffs claim that the Defendant failed to show a good title to the Property and failed satisfactorily to answer the First Requisition and the Further Requisitions.

31.  Accordingly, the Plaintiffs seek declarations that the Agreement has been rescinded and that they have been discharged from any further performance or obligation thereunder.  They also seek the return to them of the deposits paid by them to the Defendant in the total sum of HK$595,000 and damages for breach of the Agreement.

32.  For her part, the Defendant contends that the First Requisition raised by the Plaintiffs was withdrawn as a condition of the Defendant herself agreeing to withdraw the Clause 16.02 Notice served by her solicitors.

33.  However, the Defendant also says that in any event, her solicitors satisfactorily answered the First Requisition raised by the Plaintiffs.

34.  The Defendant contends that the Further Requisitions raised by the Plaintiffs were raised out of time and so she was not obliged to answer them.  She says that her solicitors did in fact satisfactorily answer the Further Requisitions in any event.

35.  The Defendant says that the completion date was extended by mutual agreement of the parties but that, notwithstanding this extension, the Plaintiffs failed to complete the purchase of the Property.  She contends that the Plaintiffs’ failure to complete the purchase was a repudiatory breach of the Agreement which she was entitled to accept and thereupon forfeit the deposits paid by the Plaintiffs.

36.  Accordingly, the Defendant contends she is not liable to the Plaintiffs on their claim and, on the contrary, counterclaims against the Plaintiffs for a declaration she is entitled to forfeit the deposits paid by the Plaintiffs.

The Issues

37.  The following issues fall to be considered:-

(1)	Was the First Requisition withdrawn by the Plaintiffs as a condition of the Defendant withdrawing the Clause 16.02 Notice?
(2)	If the First Requisition was not withdrawn, was it satisfactorily answered by the Defendant?
(3)	Were the Further Requisitions raised out of time or was the Defendant obliged to answer them?
(4)	If the Defendant was obliged to answer the Further Requisitions, did she do so satisfactorily?
(5)	What was the effect of the Clause 16.02 Notice?
(6)	Was the Defendant in breach of the Agreement in failing to show a good title to the Property by failing to answer the requisitions raised by the Plaintiffs or were the Plaintiffs in breach of the Agreement in failing to complete?
(7)	What is the appropriate relief?

Issue 1: Was the First Requisition withdrawn?

38.  In support of the Defendant’s contention that the First Requisition was withdrawn by the Plaintiffs, Mr Matthew Chong, counsel for the Defendant, relies on the TMP letter of 10 February 2004.  He submitted that the fact that in that letter the Plaintiffs requested the Defendant to withdraw her Clause 16.02 Notice must mean that the Plaintiffs accepted the Defendant’s condition for such withdrawal.

39.  Mr Chong developed this submission along these lines.  Following the service of the Clause 16.02 Notice, the Defendant was ready to annul the sale and return the deposits to the Plaintiffs.  However, she did not do so but instead withdrew her Clause 16.02 Notice and forfeited the Plaintiffs’ deposits when they later did not complete the Agreement.  The only reason this happened was because the TMP letter of 10 February 2004 amounted to a withdrawal of the First Requisition. 

40.  Mr Chong also submitted that the Plaintiffs, having changed solicitors and having been advised that the First Requisition had not been satisfactorily answered, it would only be logical for them to accept the annulment of the Agreement unless they were prepared to withdraw the First Requisition.

41.  I reject the Defendant’s contention that the First Requisition was withdrawn.

42.  In my view, far from indicating that the First Requisition was being withdrawn, the TMP letter of 10 February 2004 made it very clear that the Plaintiffs considered it to be outstanding and that they required it to be answered properly:-

(1)	The letter expressly stated that TMP wanted to raise “the following further requisitions” (my emphasis), which requisitions could only have been “further” to the requisitions already raised, which included the First Requisition;
(2)	The letter did not say that TMP wanted to raise alternative requisitions, which might have been more appropriate if the Plaintiffs were withdrawing the First Requisition;
(3)	The final paragraph of the letter invited LWL to withdraw the Clause 16.02 Notice, which would only have been necessary if the Plaintiffs themselves had not already by then withdrawn the First Requisition: this is because, on the terms of LWL’s letter of 5 February 2004, the Clause 16.02 Notice would not take effect if the First Requisition was withdrawn by the Plaintiffs;
(4)	It would make little sense for the Plaintiffs to withdraw the First Requisition but to raise further requisitions as to the Defendant’s title: if they were concerned about title, it was to be expected that they would want all their requisitions on title to be answered; and
(5)	The final sentence of the letter sought a postponement of the completion date “in order to deal with the requisitions on title”: these were not expressed to be limited to the requisitions raised in the letter itself but were expressed to be requisitions on title in general, which would naturally include any requisitions on title that had by then been raised, specifically the First Requisition.

43.  The oral evidence is also consistent with the conclusion that the First Requisition was not withdrawn.  In his oral evidence, the 1^st Plaintiff, Mr Mark Turner, denied that the Plaintiffs withdrew the requisitions raised by GMDWC.  More specifically, Mr Chong of TMP gave oral evidence concerning his telephone conversations with Mr Wong of LWL.  Mr Chong stated categorically that there was never any withdrawal of the requisitions raised by GMDWC in those conversations.  Instead, Mr Chong made it clear that he told Mr Wong that the Plaintiffs were reserving their rights in respect of the GMDWC requisitions.  Mr Wong was not called to give contrary evidence for the Defendant.  I accept the evidence of both Mr Turner and Mr Chong that the Plaintiffs did not give instructions to TMP to withdraw the GMDWC requisitions.

44.  Finally, I would add that the evidence does not support the Defendant’s case that the Clause 16.02 Notice was withdrawn as a result of the Plaintiffs withdrawing the GMDWC requisitions.  In particular, the letter from LWL to TMP of 12 February 2004 was at pains to reiterate the Defendant’s asserted right to annul the Agreement in accordance with Clause 16.02.  If the Defendant was withdrawing her Clause 16.02 Notice in return for the Plaintiffs’ withdrawal of the GMDWC requisitions, it would have made no sense for LWL to write in these terms.

45.  In the circumstances, I find that the First Requisition was not withdrawn by the Plaintiffs.

Issue 2: Was the First Requisition satisfactorily answered?

46.  It was not in issue between the parties that, in a sale and purchase of property, a vendor’s obligation is not only to give a good title to the property at completion but also, at an earlier stage, to show a good title by satisfactorily answering requisitions properly raised by the purchaser.

47.  In the context of the First Requisition, it is necessary to set out Special Condition 6 and General Condition 8 of the New Grant.

48.  Special Condition 6 provided as follows:-

“	6.	(a)	The grantee expressly warrants, represents and declares that he is entitled to this grant by way of exchange at a concessionary premium.
		(b)	The grantee, having obtained this grant by way of exchange at a concessionary premium, notwithstanding that these Conditions have been certified as complied with to the satisfaction of the said District Lands Officer shall not, except with the prior written consent of the said District Lands Officer and on such conditions as may be imposed by him (including the payment of such fee as may be required by him) assign, mortgage, charge, underlet (other than at a rack rent without taking a fine and for a term not exceeding five years without any option for renewal), part with the possession of the lot or any part thereof or any building or buildings thereon or any interest therein or enter into any agreement so to do and then only in favour of
			(i)	any person who at the sole discretion of the said District Lands Officer would be entitled to a exchange on concessionary terms as at the date of the application for such consent or,
			(ii)	any person other than a person referred to in sub-clause (b)(i) of this Special Condition subject always to the payment by the grantee to the Government of Hong Kong of an additional premium equivalent to the difference between the amount of premium (if any) paid by the grantee to the Government at the date of this Agreement and the full market value of the lot as at the date of the application to the said District Lands Officer for consent such value to be determined by the said District Lands Officer whose decision shall be final and binding upon the grantee; provided that this sub-clause (b)(ii) shall apply only to the first assignment, mortgage, charge, underletting or parting with possession or any agreement so to do in favour of such a person within five years of the date of a letter from the said District Lands Officer certifying that these conditions have been complied with to his satisfaction and on payment of such additional premium this sub-clause (b)(ii) shall no longer apply.”

49.  General Condition 8 provided as follows:-

“

8.

The fulfillment by the grantee of his obligations under these Conditions shall be a condition precedent to the grant or continuance of the tenancy, and in the event of any default by the grantee in complying therewith such default shall be deemed to be a continuing breach and the subsequent acceptance by or on behalf of the Crown of any Crown rent or rates or other payment whatsoever shall not (except where the Crown has notice of such breach and has expressly acquiesced therein) be deemed to constitute any waiver or relinquishment or otherwise prejudice the enforcement of the Crown’s right of re-entry for or on account of such default or any other rights, remedies or claims of the Crown in respect thereof under these Conditions which shall continue in force and shall apply also in respect of default by the grantee in the fulfillment of his obligations under these Conditions within any extended or substituted period as if it had been the period originally provided.”

50.  The title deeds of the Property showed an obvious prima facie breach of the New Grant.  By a Memorandum dated 9 February 1988 and a Conditional Agreement dated 28 March 1990, the grantee, through its attorney, entered into agreements for the sale and purchase of premises built on the lot covered by the New Grant.  This was before the deletion of Special Conditions 4, 5 and 6 of the New Grant following the payment of an additional premium on 5 July 1990.

51.  The GMDWC letter of 31 December 2003 raised a legitimate requisition in respect of the unauthorised alienation of the lot by the grantee.

52.  The answer provided by LWL by its letter of 26 January 2004 was, in my view, misconceived.  On a plain reading, Special Condition 6 not only prohibits the alienation of any interest in the lot but also prohibits the grantee from entering into any agreement to do so.  The Memorandum and Conditional Agreement were therefore both expressly prohibited by Special Condition 6.

53.  When GMDWC pressed the First Requisition, LWL responded in their letter of 28 January 2004 that, because of the modification of the New Grant, no enforcement action could be taken by the Government.

54.  In my view, this further answer was also misconceived for the reason set out in GMDWC’s letter of the same date: the Modification Letter dated 5 July 1990 was stated to take effect only from its date and did not amount to a waiver of any pre-existing breach.

55.  Mr Sean Fang, counsel for the Plaintiffs, submitted that, bearing in mind the Defendant’s duty to prove her title so that the Court could be satisfied beyond reasonable doubt that the Plaintiffs would not be at risk of re-entry by the Government (per Kan Wing Yau & Anor. v. Hong Kong Housing Authority [1988] 2 HKLR 187), what the Defendant could and should have done was to seek confirmation from the District Lands Office that enforcement action would not be taken in respect of the unregistered Memorandum and Conditional Agreement.

56.  I agree.  This would have been a simple and appropriate way to respond to the First Requisition and would have put any doubts over the Defendant’s title to rest.  Instead of doing so, however, the Defendant purported to annul the sale by serving the Clause 16.02 Notice.  On her evidence, both in her witness statement and in her oral testimony, she explained that, since property prices were rising at the time and she was very busy, she was not prepared to waste further time and costs in dealing with the Plaintiffs in respect of the Property but preferred to sell it to someone else instead.  Be that as it may, as a matter of law, she was obliged satisfactorily to answer the requisitions raised.  That, so far as the First Requisition was concerned, she did not do.

57.  I therefore conclude on this issue that the First Requisition was not satisfactorily answered by the Defendant.

58.  My conclusion on this issue is ultimately sufficient to dispose of this matter.  However, for the sake of completeness and in case I am wrong in concluding that the First Requisition was not satisfactorily answered, I shall briefly state my conclusions on the other issues.

Issue 3: Were the Further Requisitions raised out of time or was the Defendant obliged to answer them?

59.  Under Clause 16.01 of the Agreement, requisitions were to have been raised by the Plaintiffs within 7 working days after the date of receipt of the title deeds by the Plaintiffs’ solicitors.  As noted above, the title deeds were received by GMDWC, as the solicitors for the Plaintiffs, on 22 December 2003.

60.  Plainly, the Further Requisitions, which were raised on 10 February 2004, were raised more than 7 working days after 22 December 2003.

61.  Prima facie, therefore, the Further Requisitions were deemed by operation of Clause 16.01 of the Agreement to have been waived on the expiration of the 7 working days’ period.

62.  Mr Fang contended, in reliance on Giant River Ltd. v. Asie Marketing Ltd. [1990] 1 HKLR 297, that a requisition that goes to the root of title may be raised out of time.  He submitted, relying on Century Legend Ltd. v. Chu Chung Shing Investment Co. Ltd. (unreported, HCMP 606/1998, 2.8.99, Beeson J) that a potential title defect that gives rise to possible Government re-entry is one that goes to the root of title.

63.  For his part, Mr Chong prayed in aid the Court of Appeal judgment in Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285 in support of the proposition that a purchaser may only make requisitions out of time where the requisitions go to the root of title and where the requisition could not have been expected to have been raised within time by the exercise of due diligence.

64.  Mr Chong submitted that the Further Requisitions were both requisitions which could and should, by the exercise of due diligence by the Plaintiffs and their solicitors, have been raised within time.

65.  In my view, Mr Chong is correct in this submission.  The matters with which the Further Requisitions are concerned could, in my judgment, have been raised within 7 working days of the delivery of the title deeds to the Plaintiffs’ solicitors.  In the case of the first of the two Further Requisitions, the need to raise the question of whether certificates of exemption for the lot were required was a requisition that was an obvious inquiry to make in respect of the Property.  As for the second of the two Further Requisitions, the possibility there might have been a breach of Special Condition 9 of the New Grant because of a side window and the need to raise a requisition as to whether the side window had been authorised is a question that could have been raised on behalf of the Plaintiffs by their solicitors simply asking the Plaintiffs if they had inspected the Property and seen any side windows. 

66.  I am fortified in the view I have reached in the preceding paragraph by the fact TMP raised the Further Requisitions on 10 February 2004, one day after they were instructed by the Plaintiffs.  Although not decisive on this question, it seems to me that the Plaintiffs’ submission that the Further Requisitions could not have been raised within 7 working days notwithstanding the exercise of due diligence does not sit well with the actual time taken by TMP to raise them.

67.  Although LWL addressed the Further Requisitions in their letter of 12 February 2004, they made it very clear that their doing so was without prejudice to their contention that the requisitions were out of time by reason of Clause 16.01 of the Agreement.  There was no waiver of the Defendant’s right to rely on Clause 16.01 of the Agreement and, in the circumstances, the Further Requisitions having been raised out of time, the Defendant was not obliged to answer them.

Issue 4: If she was obliged to answer the Further Requisitions, did the Defendant do so satisfactorily?

68.  As noted above, the Further Requisitions concerned two matters: (i) whether certificates of exemption for the lot were required, and (ii) whether the side windows were authorised.

69.  As to the first matter, I agree with Mr Fang’s submission that TMP raised a legitimate requisition as to the absence of certificates of exemption. 

70.  The response from LWL to this requisition in their letter of 12 February 2004 was essentially a speculative answer, namely that it was possible the existing house on the lot had been erected and completed before October 1987 (when the Buildings Ordinance (Application to the New Territories) Ordinance came into effect) so that no certificates of exemption would be required.

71.  Mr Fang submitted this answer was not satisfactory because it was equally possible the house was built on the lot after October 1987: in this context, he referred to the point made by TMP in their follow-up letter of 13 February 2004 that the certificate of compliance was only issued on 25 January 1990, indicating that the building works might well have been carried out after October 1987.  Mr Fang submitted that it would have been a simple matter for the Defendant to refer the question of whether certificates of exemption were required to the District Lands Officer, as indeed LWL did after the sale fell through.

72.  As to the second matter, it is clear from Special Condition 9 of the New Grant that the construction of windows and openings, save in the front or rear of the building, required the consent and approval of the District Lands Officer.  This requisition was properly raised.

73.  The response from LWL to this requisition in their letter of 12 February 2004 was also speculative.  They referred to fact that a certificate of compliance had already been issued and so surmised that the District Lands Officer must have been satisfied that all conditions of the Grant had been complied with and must have approved the opening of any side window.

74.  Mr Fang submitted this answer was not satisfactory because the certificate of compliance in respect of the Property merely states “that all the positive obligations imposed on the Grantee of the [Lot] have been complied with …”, whereas Special Condition 9 is a negative obligation.

75.  Mr Chong submitted that there was no evidence that there was a side window, the opening of which required the approval of the District Lands Officer.  I do not accept this submission: if there was in fact no side window, this would have been the response one would have expected LWL to give to this requisition.  The fact that this was not LWL’s answer provides a basis for inferring that there was a side window.

76.  Mr Chong also submitted that the issue of the certificate of compliance showing that the District Lands Officer had examined the Property and was satisfied all positive obligations had been complied with made it fanciful to suggest that the Government would take enforcement action in respect of any side windows.  I do not think this follows at all.  There is no evidence the Government was aware of the existence of any side windows.  It was confirmed by the District Lands Officer after the sale fell through that no consent for any side window opening had been issued.  It was by no means clear as things stood in February 2004 that no enforcement action would be taken.

77.  I agree with Mr Fang’s submissions as to the inadequacy of the Defendant’s responses to both of the Further Requisitions.  Had the Defendant been required to answer them, I would have concluded that she did not answer them satisfactorily.

Issue 5: What was the effect of the Clause 16.02 Notice?

78.  I can deal with this issue briefly because Mr Chong accepted, on behalf of the Defendant, that the Clause 16.02 Notice served on 5 February 2004 was not effective since the Defendant would not be regarded as having acted reasonably in serving the notice in the face of the requisitions raised by GMDWC.

79.  This was also the Plaintiffs’ position and, accordingly, it was common ground that the Clause 16.02 Notice was ineffective to annul the Agreement.

80.  Instead, as I understood him, Mr Chong submitted that the relevance of the Clause 16.02 Notice was its withdrawal by the Defendant because the Plaintiffs had withdrawn the requisitions raised by GMDWC.

81.  For the reasons set out above, however, I have rejected the contention that those requisitions were withdrawn.  I have also rejected the contention that the Clause 16.02 Notice was in fact withdrawn by the Defendant.  On the contrary, as I have said above, I find that it was not withdrawn.  Had it been effective, the Clause 16.02 Notice would have brought the Agreement to an end and obligated the Defendant to repay the deposits paid to her by the Plaintiffs.  This did not happen.  Instead, the transaction continued up to the extended completion date for the sale of the Property and the point when (as explained below) the Plaintiffs accepted the Defendant’s repudiatory breach of the Agreement.

Issue 6: Was the Defendant in breach of the Agreement in failing to show a good title to the Property by failing to answer the requisitions raised by the Plaintiffs or were the Plaintiffs in breach of the Agreement in failing to complete?

82.  In the light of my conclusions above, it follows that the Defendant was in breach of the Agreement in that she failed to show a good title to the Property by failing to answer the First Requisition satisfactorily.  This was a repudiatory breach of the Agreement, which the Plaintiffs accepted by TMP’s letter of 20 February 2004.

83.  It also follows that the Plaintiffs were not obliged to complete the sale and purchase of the Property.

Issue 7: The appropriate relief

84.  In the circumstances, the Plaintiffs are entitled to declarations that the Defendant failed to answer the First Requisition satisfactorily and that the Agreement has been rescinded and that they have been discharged from any further performance or obligations thereunder.

85.  The Plaintiffs also seek a declaration that they are entitled to the return of the deposits paid by them in the total sum of HK$595,000 together with interest thereon to which, in the light of my conclusions, they must be entitled.

86.  The Plaintiffs also claim damages for breach of the Agreement.  These have not been particularised in the Plaintiffs’ pleadings, which simply claims that these are “to be assessed”.  Mr Fang therefore submitted that the appropriate relief, if the Plaintiffs were successful in their claim, would be to direct that damages be assessed by a Master.  Mr Chong, on the other hand, submitted that it would be inappropriate to direct damages to be assessed separately because the Plaintiffs had never sought a split trial and therefore should have proceeded to prepare for a trial of all issues in the action, including the quantum of any damages they alleged they had suffered as a result of any breach of the Agreement by the Defendant.

87.  I do not think it would be inappropriate to make the direction urged on me by Mr Fang.  It is true there was no direction for a split trial but, in my opinion, this does not mean that it is not open to the Court to direct an assessment of the damages suffered by the Plaintiffs as a result of the Defendant’s breach of the Agreement.  The Plaintiffs plead in the Statement of Claim that they have suffered loss and damage “including the costs of investigating the Defendant’s title and other expenses incurred by the Plaintiffs in and about the sale and purchase of the Property”.  The assessment exercise should be limited to the quantification of these items of costs and expenditure that the Plaintiffs may have incurred.  This is simply a matter of quantification of these pleaded items of loss and damage (as opposed to an inquiry into what heads of loss and damage may have been sustained) and I do not see any good reason not to direct that the quantum of the damages suffered by the Plaintiffs as a result of the Defendant’s breach of the Agreement be assessed by a Master.

Conclusion and costs

88.  The Plaintiffs’ claim succeeds and there will be declaratory relief in the terms described above.

89.  The Plaintiffs are entitled to the return to them of the deposits in the sum of HK$595,000 together with interest thereon (which will run from the dates on which the various elements of that total sum were paid by the Plaintiffs to the Defendant).

90.  I direct that the Plaintiffs’ damages be assessed by a Master.

91.  The Defendant’s counterclaim is dismissed.

92.  As to costs, Mr Fang invited me, relying on Town Planning Board v. Society for Protection of the Harbour Ltd (No.2) (2004) 7 HKCFAR 114, to order that the Plaintiffs be entitled to tax their costs on a higher scale than the normal party and party basis.  Mr Fang submitted that the Defendant had acted in a selfish manner and in total disregard of her own contractual duties in declining or failing to answer satisfactorily the requisitions raised.  He pointed to the fact that the Defendant prayed in aid her own unreasonableness to argue that the Clause 16.02 Notice was invalid.

93.  Having considered Mr Fang’s submissions on costs, I do not think it is right to order that the Plaintiffs’ be entitled to tax their costs on a higher scale.  As matters stood at the trial, the contest between the parties was whether the Defendant had failed to show a good title by properly answering requisitions raised by the Plaintiffs (as the Plaintiffs contended) or whether the Plaintiffs had failed to complete the Agreement (as the Defendant contended).  Although I have found the Defendant did not satisfactorily answer the First Requisition, she did provide an answer through her solicitors, albeit one that I have concluded was insufficient.  I have concluded that she was right in her contention that the Further Requisitions were out of time.  I do not think the serving of the abortive Clause 16.02 Notice is so unusual a feature as to justify a higher scale of taxation of the Plaintiffs’ costs.  I would add that the circumstances in Town Planning Board v. Society for Protection of the Harbour Ltd (No.2) which were relied upon in justification of the indemnity basis of taxation were very different to those pertaining in the present case.

94.  I therefore make an order nisi that the Defendant pay the Plaintiffs the costs of the action to be taxed on a party and party basis, if not agreed.