WIDELY SUCCESS (HK) LTD AND OTHERS v. HOLLYWOOD LAND LTD

DCCJ 5851/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5851 OF 2008

____________

J U D G M E N T

1.  This conveyancing dispute concerns 3 units in Wing Tuck Commercial Centre, Nos.13-17 Bonham Street West and Nos.177-183 Wing Lok Street, Hong Kong. The commercial building has 23 storeys. The 3 units are Units 9, 10 and 10A on the 17^th Floor. The formal sale and purchase agreements were concluded in 2008, but the deal was never completed. Both sides of the deal allege repudiation on the part of the other and claim reliefs consequential upon the termination of the agreements.

The sale and purchase agreements

2.  The Plaintiffs are 3 companies formed for property investment under the same control.  On 7 June 2008, the companies entered into 3 preliminary sale and purchase agreements with Hollywood Land (the Defendant) whereby Hollywood Landagreed to sell the 3 units respectively as follows:

(1)   Unit 9 to Widely Success (the 1st Plaintiff) at HK$1,202,650;

(2)   Unit 10 to Hing Fai (the 2^nd Plaintiff) at HK$1,742,000; and

(3)   Unit 10A to Highland (the 3^rd Plaintiff) at HK$1,500,800.

3.  On 27 June 2008, the parties entered into 3 formal sale and purchase agreements (collectively “the Agreements”) in respect of the 3 units respectively.

4.  The properties being sold and purchased (“the Properties”) are described in clause 1 the Agreements respectively in terms of the number of equal undivided shares in the land together with the sole and exclusive right to possess the respective units.

5.  In the case of Widely Success, it was 7, Hing Fai 9 and Highland 8 (or a total of 24) “equal undivided 2,422^nd parts or shares of and ALL THOSE pieces and parcels of ground registered in the Land Registry as The Remaining Portion of Inland Lot No.1073, The Remaining Portion of Inland Lot No.1728, The Remaining Portion of Inland Lot No.1761, The Remaining Portion of Section A of Inland Lot No.1760 and The Remaining Portion of Inland Lot No.1760 and of and in the messuages erections and buildings thereon known as “WING TUCK COMMERCIAL CENTRE (永樂商業中心)” (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT OFFICE UNIT NO. [9, 10 or 10A as the case may be] on the SEVENTEEN FLOOR of the Building SUBJECT to and with the benefit of the Deed of Mutual Covenant registered in the Land Registry by Memorial No.UB2384574 and re-registered by Memorial No.UB2431506 and the appurtenances thereto and all the estate right title interest property claim and demand whatsoever of the Vendor therein and thereto.”

6.  The Agreements contain, among others, the following identical terms:

Clause 7

“The Property is and will be sold on an “as is” basis.”

Clause 11

“Any requisitions or objection in respect of the title shall be delivered in writing to the Vendor’s solicitors as soon as practicable within seven (7) working days after the date of receipt of the relevant title deeds by the Purchaser’s solicitors otherwise the same shall be considered as waived (in this respect time shall be of the essence of this Agreement), and further requisitions on or objections of the Vendor’s reply to any requisition or objection previously raised by the Purchaser shall be raised within seven working days after the date of receipt of such reply (in this respect time shall be of the essence of this Agreement), failing which the same be deemd waived……”

Clause 12

“The Property is sold absolutely subject to …… And subject to and with the benefit of any Deed of Mutual Covenant(s) or Deed of Covenant(s) and/or the Sub-Deed of Mutual Covenant(s)/Sub-Deed of Covenant(s) (if any) and the Management Agreement (if and whether incorporated therein or otherwise) ……”

Clause 16

“The Vendor shall give a good title to the Property. The Vendor shall show and prove good title to the Property pursuant to Section 13 of the Conveyancing and Property Ordinance (Cap.219). The Vendor shall at his own expense prove his title to the Property and shall at like expense make and furnish to the Purchaser such certified, attested or other copies of any deeds or documents of title, wills and matters of public record as may be necessary to prove such title……”

Clause 17

“Time shall in every respect be of the essence of this Agreement.”

Clause 18

“Should the Purchaser fail (other than due to the Vendor’s default) to complete the purchase in accordance with the terms and conditions herein contained 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 and the Furniture and Appliances 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 all the said deposit or further deposits or instalments of the purchase price paid to the Vendor without prejudice to any other rights and remedies of the Vendor.”

Clause 32

“Each party hereto hereby warrants and represents to and undertakes with the other that the information specified in Schedule 5 hereto is in all respects accurate insofar as within the knowledge of such party.”

Clause 34

“The Vendor covenants with the Purchaser that the Vendor …… shall assign the Property to the Purchaser free from any encumbrance.”

Clause 38

“The Vendor shall allow the Purchaser and/or the Purchaser’s potential mortgagee and/or the surveyor(s) to inspect the Property once at reasonable time prior to the date of completion for the purpose of valuation …… The Purchaser shall also be entitled to have one final inspection of the Property immediately before actual completion to verify vacant possession.”

7.  Pursuant to the preliminary agreements and the Agreements, the Plaintiffs have paid Hollywood Land deposits in the respective sums of HK$175,012, HK$253,500 and HK$218,400 (or a total sum of HK$646,912).  Completion was due to take place on 5 December 2008.

The requisitions

8.  On 2 August 2008, Hollywood Land’s solicitors, Messrs H H Lau & Co (“HHL”), sent the title deeds and documents to the then solicitors for the Plaintiffs, Messrs Lau Chan & Ko (“LCK”).  After several exchanges, the correspondence between the solicitors for the two sides of the deal came to a halt in late August 2008.

9.  2 months later, on 3 November 2008, the Plaintiffs instructed their present solicitors, Messr Chan & Tsu (“CT”), in replace of LCK to handle the conveyancing.  Correspondence between the solicitors for the two sides of the deal resumed.  On 6 November 2008, HHL requested for the draft assignment and undertaking letter for completion from CT.

10.  On 25 November 2008, CT informed HHL that upon inspection, the Plaintiffs had discovered that the positions of the main doors to the Properties had been altered and become one single main door extending to and occupying the common area.  CT referred to an assignment plan and the deed of mutual covenant (“the DMC”).  The DMC provides that no part of the common area shall be obstructed, modified or encumbered or used for any business or private purpose.  CT’s letter concluded that:

“In the circumstances, the said Deed of Mutual Covenant has been breached and rendered the Vendor’s title to the Property defeasible. Please enlighten us whether the Vendor could assign a good title to the Property to the Purchaser on completion.”

[Emphasis added]

11.  The DMC was dated 16 March 1983 whereby the land and the Building were divided into the 2,422 equal undivided shares (as set out in its 1^st Schedule).  The number of shares allocated to Units 9, 10 and 10A were in line with those as now described in the Agreements.

12.  Clause 1 of the DMC defines “Building Common Areas” to include the entrances and halls, lift lobbies, staircases, walkways, corridors, external walls, landings and passages.  The restriction against obstruction, modification, encumbrance or use of any part of the common area is contained in clause 16(c) of the DMC.

13.  The assignment plan referred to by CT in their requisition was annexed to the assignment registered by Memorial No.3351977 (“the Assignment Plan”).  That was the first assignment of Units 9, 10 and 10A on 31 March 1987.

14.  By an assignment dated 18 April 2006, the 24 undivided shares together with the sole and exclusive possession of Units 9, 10 and 10A were assigned to Hollywood land.  The 3 units were defined as those particularly shown, coloured and marked in the Assignment Plan.

15.  When Hollywood Land agreed to sell the 3 units to the Plaintiffs, the units in fact existed as one unit without internal partitions.  Besides the area of the 3 units, an area (approximately 1.05 x 2.08 metres) joining the corridor was also enclosed as part of the unit (“the area in dispute”).  This formed the basis for the Plaintiffs’ requisition as to whether Hollywood Land has title in the area in dispute so enclosed to give and to assign to the Plaintiffs on completion.

16.  CT’s requisition met with the HHL’s written refusal to answer on the ground that the requisition was raised outside the 7-working-day time limit under clause 11 of the Agreements. On 26 November 2008, HHL sent to CT the apportionment account with supporting documents.

17.  By letter to HHL dated 27 November 2008, CT argued that the 7-day limit only applied to requisition and objection to title.  However the requisition in question related to a term of the Agreements that Hollywood Land should assign the properties to the Plaintiffs free from encumbrance on completion.  Breach of the DMC would cause such an encumbrance.

18.  On the same day, HHL replied, without prejudice to the primary position that the requisition was raised out of time.  HHL denied any trespass of the common area.  They explained that the present setting of the units had existed since the 1980’s, and no complaint or warning from the incorporated owners or manager had ever been received.  There was therefore no real risk of action.

19.  By letter dated 28 November 2008, CT provided HHL with a copy of the Assignment Plan marking out the area in dispute.

20.  By letter to CT dated 2 December 2008, HHL pointed out that the Assignment Plan had been supplied to LCK in August 2008.  The Plaintiffs were said to have inspected the properties in June 2008.  Therefore the requisition should not have been raised outside the 7-day limit.  Nevertheless, HHL produced a copy of the approved building plan and suggested that the Properties were constructed in accordance with the approved plan.

21.  The approved plan was dated 9 October 1981 (“the Approved Plan”).  In the Approved Plan, each of the 5^th to the 18^th Floor of the building was invariably divided into 4 offices namely, A, B, C and D.  Office C covers the area of the present Units 9, 10 and 10A as well as the area in dispute.  In other words, the present setting of the Properties in the form of a single unit enclosing the area in dispute is actually in line with the Approved Plan.

22.  LHH argued that there was no breach of the DMC and their client’s title was not defeasible.  In support, LHH also produced a letter from the manager of the building dated 19 November 2008 confirming that there was no reparation or renovation to be done on the properties.  LHH further relied on clause 7 of the Agreements that the Properties were sold on an “as is” basis.

23.  By letter to HHL dated 3 December 2008, CT denied that the Plaintiffs had inspected the units in June 2008.  Even assuming that they had, they had not discovered the difference until their last inspection.  CT also denied that the letter from the manager of the building dated 19 November 2008 cast any light on whether the manager had knowledge about the breach of the DMC.  As to clause 7 of the Agreements, CT argued that the clause does not encompass the situation of the Properties being in breach of the DMC and thus attracting legal action by the owners and the manager.

24.  By the same letter, CT relayed the Plaintiffs’ instruction to request Hollywood Land to properly partition the existing single unit in accordance with the Assignment Plan. Alternatively, the Plaintiffs demanded that Hollywood Land produced a written confirmation from the manager of the building that there was no breach of the DMC.  Without prejudice to the above, CT tendered the draft assignment for HHL’s approval.

25.  On the same day, HHL put on record that the Plaintiffs inspected the properties on 7 June 2008 prior to entering into the preliminary agreements; and the last inspection took place on 1 December 2008, i.e., after the requisition had been raised.  Besides reiterating their client’s position, HHL argued that the Approved Plan identifies the common area of the building whereas the Assignment Plan does not.  The request for partitioning of the property in accordance with the Assignment Plan would not be entertained.  The request for written confirmation by the manager of the building was considered to be unreasonable and unfounded.  Nor was the confirmation necessary.

26.  On the following day, HHL returned the approved draft assignment to CT.

27.  5 December 2008 was the contractual completion date.  By letter to HHL on that day, CT reiterated their position and insisted on the requisition.  Deadline for answer was set at 11:00 am the following day.  A final inspection was requested.

28.  On the same day, HHL replied.  Apart from reiterating their previous answers, they expressed their client’s ability, readiness and willingness to complete.

29.  This was followed by CT’s letter on the same day.  CT put on record that Hollywood Land had refused to let the Plaintiffs and their architect to inspect the properties.  They also produced a letter dated 5 December 2008 from the manager of the building.  By that letter, the manager suggested that according to legal advice, certain part of the corridor on the 17^th Floor of the building had been trespassed by the occupier of the 3 units.  The incorporated owners were said to reserve its right to enforce the DMC.

30.  In their reply, HHL suggested that CT had misled the manager into writing its letter dated 5 December 2008; and what was stated in that letter was uncertain.

31.  CT wrote further to reiterate their position and the requisition.  They also expressed their clients’ ability, readiness and willingness to complete the sale and purchase.

32.  After further correspondence, on 9 December 2008, HHL produced to CT a copy of an architect certificate.  The certificate says that upon inspection on the day before, the architect confirmed that the common area of the 17^th Floor is not being occupied, obstructed, modified, encumbered or used for any business or private purpose by Hollywood Land.

33.  By letter dated 12 December 2008, CT stated that Hollywood Land clearly had no title or was in no position to sell or to give good title to the Properties on an “as is” basis.  The completion date of 5 December 2008 had lapsed.  CT gave notice that Hollywood Land was in wrongful repudiation of the Agreements that the Plaintiffs thereby accepted.  The Agreements were therefore terminated.  CT demanded the return of the deposit in the total sum of HK$649,912.

34.  HHL replied by writing on the same day that the Plaintiffs failed to complete; and pursuant to clause 18 of the Agreements, Hollywood Land forfeited all the deposits paid.

The pleaded case

35.  In the light of the above background, the Plaintiffs contend that Hollywood has failed to show good title to the properties in breach of clauses 1, 16, 20 and 34 of the Agreements.  Further or alternatively, it is in breach of its common law duty to assign the properties free from encumbrances.  Further or alternatively, Hollywood Land’s representation that the Properties being sold included the area in dispute was false and made negligently or recklessly or made in breach of the duty of care owed to the Plaintiffs to make full and frank disclosure.

36.  The Plaintiffs claim for declaratory relief and the return of the deposits paid.  They also claim damages for the estate agency fees and wasted expenditure.

37.  On the contrary, Hollywood Land contends that as a result of the Plaintiffs’ repudiation, it is entitled to forfeit the deposits pursuant to clause 18 of the Agreements.  It also holds the Plaintiffs liable to pay the estate agency fee.  In exercise of its right under clause 19 of the Agreements, and to mitigate its loss and damage, Hollywood Land had placed the Properties for sale at an asking price of HK$3,848,300 and thus incurring a loss to the extent of the price difference. Hollywood Land claims declaratory relief and damages accordingly.

The issues

38.  The parties have filed a statement of the following agreed issues in dispute:

(1)    Whether Hollywood Land had prior to the completion date shown and had good title to the properties, namely, the 3 units together with the area in dispute;

(2)    Whether Hollywood Land has owned the area in dispute and been able to assign the same to the Plaintiffs upon completion;

(3)    Whether Hollywood Land had made misrepresentation and/or was in breach of the duty of care owing to the Plaintiffs to make full and frank disclosure in respect of the area in dispute;

(4)    Whether the Plaintiffs were entitled to make the requisition in respect of the area in dispute;

(5)    Whether the requisition was raised out of time;

(6)    Whether Hollywood Land had prior to completion date sufficiently and satisfactorily answered the requisition;

(7)    Whether the Plaintiffs or Hollywood Land was in repudiatory breach of the Agreements and what should be the appropriate remedy.

Title to the area in dispute [Issues (1) and (2)]

39.  At the time of the Agreements, the “as is” condition of the Properties was a single office, comprising Units 9, 10 and 10A as defined in the Assignment Plan (but without partition dividing the 3 units) as well as the area in dispute.  The setting and the area covered were in line with the Approved Plan.  However in the Assignment Plan, the area in dispute does not form part of the 3 units but joins the corridor area on the 17^th Floor in the Assignment Plan. This accord with the agreed expert evidence.

40.  Mr Lin for the Plaintiffs referred to Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFA 279 (at 290E-F, per Litton PJ) for the starting point: The proprietary right of a co-owner in a multi-storey building is the right to an undivided share in the land and building.  Prima facie the owner is entitled to exert rights of possession to every part of the building, in common with his co-owners – the unit of possession.  It was by the deed of mutual covenant and the deed of assignment that the rights of exclusive possession to individual parts of the building are marked out as between the co-owners.

41.  No plan was annexed to the DMC in the present case.  Under clause 2 of the DMC, “plans” mean the approved plans.  Mr Tsui for Hollywood Land submitted that being the only plan available at the time of the DMC, the Approved Plan dictates what the common areas are.  Since it was part of Office C in the Approved Plan, the area in dispute could not be common area.

42.  I do not agree.  The division and allocation of the undivided shares in the land and the building were specified at the same time when the common areas were defined.  Notwithstanding the division of 4 office units in the Approved Plan, the DMC did divide each of the 5^th to the 18^th Floor into various units as set out in the 1^st Schedule, including Units 9, 10 and 10A.  The definition of “Unit” or “Units” under clause 2 of the DMC confirms that.  The undivided shares were allocated in respect of each unit as specified in the 1^st Schedule, not the 4 office units in the Approved Plan.

43.  Pursuant to clause 3(b) of the DMC, the common areas were deemed to be those for the benefit of the owners of the building which areas may subject to the DMC be used by each owner in common with all other owners and occupiers.  Such common areas, pursuant to clause 1(b), include the entrances and halls, lift lobbies, staircases, walkway, corridors, external walls, landings and passages.

44.  Section 2 of the Building Management Ordinance, Cap.344 (“BMO”) provides that ‘common parts’ means the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and, unless so specified or designated, those parts specified in Schedule 1 including walls enclosing passageways, corridors and staircases.

45.  It is the DMC that defines the owners and their respective rights and privileges to various parts of the building.  The 1^st owners and the 2^nd owner entered first into the DMC whereby the 2^nd owner’s right was defined to be 7 undivided shares in the building together with the full and exclusive right to occupy Unit 1 on the 7^th Floor (according to clauses 2 and 3).  Unit 1 on the 7^th Floor forms merely part of Office A according to the Approved Plan.  The respective rights of the 1^st owners and the 2^nd owner could only be referable to the DMC, not the Approved Plan.  The fact that no plan was annexed to the DMC illustrating the unit does not change that.

46.  Units 9, 10 and 10A were first assigned by the 1^st Assignment dated 31 March 1987 whereby a total of 24 equal undivided shares allocated in respect of the 3 units under the DMC were assigned to Hollywood’s predecessor in title together with the sole and exclusive right privilege to hold, use, occupy and enjoy the 3 units as “more particularly” shown and coloured in the Assignment Plan.

47.  By the Assignment dated 18 April 2006, the same 24 equal undivided shares together with the same right and privilege in respect of the 3 units “as more particularly” shown and coloured in the Assignment Plan were assigned to Hollywood Land.

48.  The consistent delineation of the 3 units, in respect of which the 24 equal undivided shares were allocated, that had been assigned eventually to Hollywood Land leaves no doubt as to the exact properties that Hollywood Land had.  The Approved Plan is irrelevant or in any event prevailed over by the Assignment Plan in case of inconsistency in this respect.

49.  Mr Lin cited, and I agree, that Eastwood v Ashton [1915] AC 900 (at 919-920, per Lord Wrenbury); Neilson v Poole (1969) 20 P&CR 909 (per Megarry); Wigginton & Milner Ltd v Winster Engineering Ltd [1978] 1 WLR 1462 (at 1471, per Buckley LJ) are the authorities in support.

50.  Mr Lin also relied on Incorporated Owners of Cheong Wang & Cheong Wai Mansion v Government of the HKSAR [2001] 1 HKLRD 483 in support of his contention that all the owners should in the circumstances of this case be entitled to the area in dispute as a common area.  I agree.

51.  I find that at all material times, Hollywood Land had, and still has, no title in the area in dispute to give to the Plaintiffs.  The fact that Hollywood Land acquired the 3 units in the state as a single Office C in the Approved Plan does not change that.

52.  It follows that there was no way Hollywood Land could fulfil its contractual obligation to give a good title to the area in dispute on completion pursuant to clause 16 of the Agreements.  This constituted a defect in the title in the Properties that Hollywood Land purported to convey by the Agreements: see Green Park Properties Ltd v Dorku Ltd (2001) 4 HKCFAR 448 (at 453, per Litton, NPJ).

Whether a good title has been shown and proved [Issues (4); (5); and (6)]

53.  Completion was scheduled to take place about 6 months after the Agreements.  HHL supplied the title deeds to LCK in early August 2008.  The correspondence between the parties then came to halt by the end of the same month.  By then, the 7-day time limit for raising requisitions under clause 11 of the Agreements (above) had lapsed.

54.  The correspondence resumed only after the Plaintiffs had instructed CT to take over the handling of the conveyancing in early November 2008.  The requisition as to the title to the area in dispute was raised by CT’s letter dated 25 November 2008.

55.  When the Plaintiffs agreed to purchase the Properties, the fact that the 3 units existed as a single office should be readily apparent.  According to the controlling shareholder and director of the Plaintiffs, Chuk, the discrepancy between the Properties being sold and the Assignment Plan did not come to his notice until Friday, 22 November 2008.  That was when he was planning the refurbishment of the Properties.  On the following Monday, 25 November 2008, he raised the requisition through CT.

56.  The challenge by Hollywood Land was not so much against Chuk’s above explanation.  Hollywood Land argued that the matters raised in the requisition should have been known by Chuk from the previous inspection of the Properties and the title deeds.  In my view, Chuk’s actual failure to notice the discrepancy was neither improbable nor unreasonable.  I accept his evidence in this respect.

57.  Before a purchaser’s knowledge of the facts can prejudice his position, he must also be aware of the legal consequences of those facts; and even this knowledge would not reduce the obligation of the vendor to show and to give a good title on the date of completion.  A requisition that goes to the root of the title is not excluded by a term purporting to limit the time for making the requisition: see Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297.

58.  Mr Tsui for Hollywood Land referred to Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109.  The final court (at 115, per Litton, PJ) explained the two hurdles that the purchaser has to overcome before the court would intervene into the vendor’s reliance on the agreed time limit for raising requisition.  The court will consider (1) whether the purchaser had raised sufficient doubts concerning the vendor’s title, such that it could reasonably have said that the title which the vendor was proposing to convey on completion was not a good title; and (2) whether the alleged defect raised in the requisition was of such nature and extent that, in law, the time limit in the agreement could be disregarded, or be deemed to be inoperative.

59.  In explaining the above hurdles, his Lorship acknowledged (at 118A-C) that there are undoubtedly cases where a clause restricting inquiries into the vendor’s title had been held not to be a bar to relief when the purchaser discovered from other sources that the proffered title was worthless.  Only that in Mexon Holdings Ltd, the court found that the so-called defect went nowhere near the root of title; and therefore the juridical basis of such approach did not need to be examined.

60.  The Plaintiffs are contending precisely that the problem they raised was of such nature and extent that this goes to the root of title so that the time limit for raising requisition under clause 11 should not operate against them.

61.  Mr Lin submitted that in question is not merely whether there was a blot or defect in the title, but whether Hollywood Land had title to the area in dispute that it purported to sell and convey.  The requisition regarding the area in dispute must go to the root of the title.  The contractual time limit for raising requisition does not operate against the Plaintiffs to such extent.  I agree.

62.  As discussed above, the area in dispute forms part of the corridor within the definition of common area under clauses 1(b) and 3(b) of the DMC.  This amounted to prima facie breach of the restriction against obstruction, modification, encumbrance or use of any part of the common area under clauses16(c) of the DMC.

63.  Pursuant to section 34I of the BMO, no owner may convert any part of the common parts of the building to his own use; or this would be deemed to be breach of the DMC.

64.  According to Hollywood Land, the present setting of the Properties had existed since the 1980’s and no complaint or warning from the incorporated owners or the manager had been received.  There was no real risk of legal action and its title was indefeasible.  Hollywood Land also relied on a letter dated 19 November 2008 from the manager of the building.

65.  I do not find that the above was a sufficient and satisfactory answer.  The manager could not have expressly or impliedly granted to any owner the right to contravene the provisions of the DMC.  It is not only the right but duty of the incorporated owners and the manager to enforce the DMC.  They were not only entitled to but also bound to take proceedings to enforce the DMC: see The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11 (at p.13, per Godfrey JA).  There was no suggestion that the owners had actually resolved to condone the contravention.

66.  As to the letter dated 19 November 2008 from the manager, this was in fact the same letter supplied and enclosed with HHL’s letter dated 26 November 2008.  The manager was asked to confirm if there was any outstanding or potential liability arising out of compliance with Government orders or building repair and renovation.  Clearly the letter was obtained from the manager under the pretext of the apportionment account.  This did not serve as the manager’s confirmation that there was no breach or there would not be enforcement of the DMC.

67.  The stance of the incorporated owners and the manager is in fact the opposite.  By letter dated 5 December 2008, the manager informed CT that the solicitors for the incorporated owners had advised that “certain part of the corridor being common part has been trespassed” by the occupier of the Properties.  The incorporated owners “always” reserve the right to enforce the DMC.

68.  Eventually, and after the scheduled completion date, HHL produced an architect’s certificate from Michael W K Yuen dated 9 December 2008.  Upon his inspection of the Properties on the day before, the architect certified, in his opinion, that the common area of the 17^th Floor of the building was not being occupied, obstructed, modified or encumbered or use for any business or private purpose by Hollywood Land; and there was no breach of the DMC.  Yet the one-sentence written opinion of the architect hardly resolved the issue that is not only factual but also legal.

69.  Whether there may be basis for contending that it is not equitable for the court to exercise its discretion to grant any injunctive relief, in the event of enforcement action by the owners or the manager, the fact remains that the risk of litigation exists.  The risk of litigation is not fanciful.  This amounts to an encumbrance on the very title that the Plaintiffs were purchasing.  In the circumstances, there was no way Hollywood Land could have assigned the Properties, inclusive of the area in dispute, free from encumbrance.  The requisition has not been sufficiently and satisfactorily answered.

Misrepresentation [Issue (3)]

70.  The Plaintiffs also claims on the basis of misrepresentation.  Mr Lin relied on the case of Green Park Properties Ltd v Dorku Ltd [2000] 4 HKC 538 (CA).  The issue in that case was misrepresentation on the part of the vendor as to whether a rear yard formed part of the property being sold.  In the present case, Hollywood Land actually agree to sell the Properties on an ‘as is’ basis, which therefore included an area to which it has no title.  The issue becomes whether Hollywood had title to give to the Plaintiffs as agreed.

71.  However, insofar as the area in dispute was contractually not part of the Properties being sold (for instance, by reference to the Assignment Plan), there is the issue of whether Hollywood Land had misrepresented that the area in dispute formed part of the Properties was being sold to the Plaintiffs.

72.  Given the physical layout of the Properties that included the area in dispute, I find that the impression given to the Plaintiffs must be that the Properties being sold included the area in dispute.  If they in fact did not, this amounted to misrepresentation as to the exact property being sold on the part of Hollywood Land: see Green Park Properties Ltd (above) at 542F-I.

73.  Chuk confirmed in his evidence that had the area in dispute not formed part of the Properties being sold, the Plaintiffs would not have entered into the Agreements.  He described the odd shape of the entrance area to the Properties without the area in dispute.

74.  Attempt was made during the trial to cast doubt on the materiality of what Chuk said to the Plaintiffs’ decision to enter into the Agreements.  Reference was made to the decision to hold the 3 units separately by the 3 Plaintiffs respectively.  It was suggested that the Plaintiffs would have dealt with the Properties in the form of 3 units separately; and therefore the area in dispute would have had to be a common entrance in any event.  Chuk denied the suggestion and explained that to hold the 3 units through different entities was a commercial decision. 

75.  It was also suggested that the area in dispute was a pretext for the Plaintiffs’ request for reduction of the purchase prices under the Agreements as a result of the adverse market situation.  Arora, the director and majority shareholder of Hollywood Land, stated that the Plaintiffs had also asked to reduce the purchase prices.

76.  In court, Chuk explained that the estate agent, Mr Chan, had raised the idea of ascertaining whether Hollywood Land would consider reducing the purchase prices.  But he denied that the Plaintiffs made such request to Hollywood Land.  In court, Arora also confirmed that it was the estate agent, Mr Chan, who informed him of the Plaintiffs’ request for reduction in the purchase prices.  Without the evidence of the estate agent, there is no evidential basis for holding the Plaintiffs to be bound by what the agent might have said to Hollywood Land.

77.  In any event, Chuk denied that and confirmed in his evidence in court that the Plaintiffs would proceed only if the problems raised in the requisition could be resolved. Indeed, without prejudice to the requisition, the Plaintiffs tendered the draft assignment to HHL for approval on 3 December 2008.  The Plaintiffs had also extended the deadline for answer and demanded a final inspection before completion.

78.  On balance, I accept Chuk’s evidence.  I find that the Plaintiffs must be taken to have believed that they were paying for the Properties inclusive of the area in dispute.  This was operative on Chuk’s mind.  On the basis that Hollywood Land did not contract to sell the Properties inclusive of the area in dispute, the representation by Hollywood Land was false.  The misrepresentation has become actionable.

Breach and remedies [(7) above]

79.  By letter dated 9 December 2008, HHL gave final notice to complete on or before 5 pm on 12 December 2008.  Yet by the various letters dated 5 December 2008, CT reiterated the stance of the Plaintiffs.  For reasons that Hollywood Land had no title or was in no position to give good title to the Properties on an “as is” basis; and to assign the Properties free from encumbrances on completion, CT, by letter dated 12 December 2008, gave notice to accept Hollywood Land’s repudiation of the Agreements and to terminate the Agreements.  For reasons explained above, I find that Hollywood Land was in breach and the Plaintiffs were entitled to do so.

80.  Clause 20 of the Agreements provides:

“In the event of the Vendor failing to complete the sale of the Property in accordance with the terms hereof, all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be forthwith returned to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser my sustain by reason of such failure on the part of the Vendor ……”

81.  In view of the above finding, I find that the Plaintiffs are entitled to the return of the deposit paid in respect of the 3 units in the total sum of HK$646,912.  Arora confirmed in court that the Properties have been let to tenant.  It is only fair that upon proof of the misrepresentation, the Plaintiffs should be entitled to damages in the same amount as the deposit.

82.  As far as other damages are concerned, the Plaintiffs claim the amount of estate agency fees (discounted) in the sum of HK$88,909 and wasted expenses in the sum of HK$20,000.  I accept both items have become wasted as a result of the deal that was never completed.

Order

83.  I make the following order:

(1)   Declaration that good title to the Properties have not been shown and proved by Hollywood Land in accordance with the Agreements;

(2)   Declaration that Hollywood Land was in breach in that it failed to assign the title to the Properties free from encumbrances;

(3)   Declaration that the Plaintiffs have accepted Hollywood Land’s wrongful repudiation of the Agreements and that the same were terminated on 12 December 2008;

(4)   Order that Hollywood Land do return to the 1^st, and 2^nd and the 3^rd Plaintiffs deposit paid under the Agreements in the sum of HK$175,012, HK$253,500 and HK$218,400 respectively;

(5)   Hollywood Land do pay the 1^st, the 2^nd and the 3^rd Plaintiffs further damages in the sum of HK$108,909;

(6)   The counterclaim is dismissed.

84.  I make a nisi order that Hollywood Land do pay the Plaintiffs’ costs of this action, to be taxed, if not agreed.  For the avoidance of doubt, I certify the engagement of counsel.  The costs order shall become absolute, in the absence of any application to vary in 14 days.