ACTIVE KEEN INDUSTRIES LTD. v. FOK CHI KEONG

1993, No. 42
(Civil)

H E A D N O T E

Sale and purchase of flat in multi-storied building - Discrepancy between number of flats shown in occupation permit and on assignment plan - whether the purchaser had reasonably raised requisition on title - whether vendor had shown good title within reasonable time - Giant River v. Asie Marketing Ltd. [1990] HKLR 297 distinguished - Kok Chong Ho v. Double Value Developments Ltd. (Ct. of App., CA90/91, unreported) explained. Held:

Appeal allowed.

IN THE COURT OF APPEAL

1993, No. 42
(Civil)

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J U D G M E N T

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Litton, J.A.:

1. This appeal concerns the sale and purchase of Flat C on the 9th floor of Yuen King Building, No. 26-36, Sai Yeung Choi Street, Kowloon. This is a 12-storied composite building standing on the Remaining Portion of Section B of Kowloon Inland Lot No.1568. The site was developed in the early 1960s. The Occupation Permit dated 29th January 1964, issued under the provisions of s.12(1) of the Buildings Ordinance 1955, states:

2. The Deed of Mutual Covenant ("DMC"), regulating the rights and liabilities of the co-owners of the land and building inter se, is dated 21 March 1964. It states that the ground floor is divided into eight shops and the third to eleventh floors are divided into nine flats per floor, designated as Flats A to I as shown on a plan annexed thereto. In respect of each of the flats on the third to eleventh floors an undivided 1/180th share of the land and building has been allotted. Each owner of an undivided share is required under the DMC to pay his due proportion of the charges and liabilities attaching to the building, including "the re-building or reinstatement of the ... building or any part thereof in case of destruction or damage or condemnation by the Building or other competent Authority". This liability is, pursuant to Clause 4 of the DMC, proportionate to the owners' share of and in the land and building.

3. The first assignment of Flat C on the 9th floor of Yuen King Building took place on 16th July 1964. This was, of course, subject to the DMC. The assignment plan, indicating Flat c as one of nine flats on the 9th floor, was the same as the plan annexed to the DMC. 1/108th part or share of the land and building was assigned with the flat.

4. The contract which gave rise to the dispute in this case is an informal one in Chinese dated 18th September 1992 whereby the vendor agreed to sell the flat to the purchaser for HK$1,290,000. An initial deposit of HK$30,000 was paid and the agreement provided for the parties to sign a formal agreement for sale and purchase at a solicitor's office when a further deposit of HK$99,000 would be paid. Completion was agreed to take place on 25 October 1992.

5. The agreement, as translated, goes on to provide as follows:

6. On 24 September 1992 the vendor's solicitors sent to the purchaser's solicitor's the title deeds and documents. On 25 September 1992 the purchaser's solicitors wrote back and said that they had a number of queries before they were in a position to approve the draft Agreement for Sale and Purchase. Of relevance now is the following:

7. On receipt of this letter the vendor's solicitors passed the queries on to the solicitors who had prepared the Deed of Mutual Covenant back in March 1964 and to the firm who had acted for both parties to the first assignment in July 1964. These letters were copied to the purchaser's solicitors. No evidence was adduced in the court below as to whether these firms of solicitors gave any reply.

8. Time passed; no formal sale and purchase agreement came into being and the purchaser's solicitors were pressing for answers to their requisitions. By a letter dated 14 October 1992 the vendor's solicitors invoked the provisions of s.13 of the Conveyancing and Property Ordinance which, plainly, is not relevant in the present case but went on to say:

9. In reply, by a letter dated 15 October 1992, the purchaser's solicitors said this:

10. There was further correspondence between the parties. On 21 October 1992 the vendor's solicitors sent to the purchaser's solicitors an architect's "certificate" in these terms:

11. The architect does not say that he had examined the approved plans; he makes no reference to them and in no way deals with the concern of the purchaser's solicitors, namely, that on the available evidence there would appear to have been substantial unauthorised work done after the issuance of the occupation permit, resulting in additional units in Yuen King Building. It is difficult to imagine what purpose was thought by the vendor's solicitors to have been served by this certificate as far as this particular requisition is concerned.

12. By letter dated 22 October 1992 the purchaser's solicitors reiterated their objection and said:

13. On 23 October 1992 the vendor's solicitors wrote again and said:

14. It is difficult to see how a distinction between "title" according to the provisional agreement" and "a good title" was going to assist in resolving the matter at hand. Pedantry of this kind, two days before the day fixed for completion, was simply going to exacerbate the situation and make meaningful dialogue even more difficult.

15. The situation at that time, seen from the vendor's point of view, might have been this:

16. For the vendor's solicitors in these circumstances to take a fairly robust stance is therefore understandable. On the other hand, they should have realised that, at that point, the purchaser's solicitors' concern was legitimate: from their point of view it is just possible (though unlikely) that the vendor's solicitors might have in hand material evidence which would either have confirmed the purchaser's concerns or dispelled them. The vendor's solicitors had, afterall, taken the trouble to write to the solicitors who had prepared the DMC and the first assignment: these had been copied to the purchaser's solicitors: Was there any reply? If so, what did they say? This would have been of interest to the purchaser's solicitors, and would have constituted proper answers to the requisition. The fact that those firms of solicitors did not bother to reply was also relevant information.

17. Instead of dealing, best they could, with the inquiry raised by the purchaser's solicitors - and to say, if that be the case, that they had no other facts or material at hand which could have elucidated the point - they put forward specious arguments and offered an architect's "certificate" which was quite meaningless. In their letter dated 23 October 1992 they went on to say:

18. This statement was hardly calculated to re-assure. The evidence, such as it was, indicated that there were indeed unauthorised works resulting in two additional flats on each floor: Which were the unauthorised flats, what works had been undertaken after the issuance of the occupation permit; these were questions which the vendors' solicitors probably could not have answered. A frank admission of ignorance would have been appropriate; a bland denial of the facts staring the parties in the face was wholly wrong. In the same letter they enclosed another architect's certificate: as meaningless as the last on the issue of the additional flats.

19. By the same letter they enclosed a copy of a letter dated 13 August 1992 from the Building Authority to the co-owners of the building: a letter which, as Godfrey J found, "demonstrated that the Building Authority was well aware of the arrangement of the upper floors of the building"

20. But the purchaser's solicitors were still not satisfied. They asserted that the two additional units were built after the building plans were approved. They said that such "additional building works" must be unauthorised structures. They went on to say, by a letter dated 23 October 1992, ".... Even if the subject premises is not one of the two additional tenements, which we do not know, the existence of unauthorised structure may render re-entry by the Crown to the whole building (see Kok Chong Ho v. Double Value Development Ltd.)."

21. It is important to pause here to examine in greater depth the situation seen from the purchaser's point of view. The recital of facts has, so far in this judgment, been pared to the bare-bones; it is necessary now to bring in two other matters of concern to the purchaser, since this bears directly upon the question of "unauthorised works".

(i) By letter dated 2 October 1992 the purchaser's solicitors pointed out to the vendor's solicitors that the existing bathroom and kitchen of Flat C appear to be unauthorised and asked if the alterations had been approved by the Building Authority. This was elaborated upon in further correspondence. It appears that the positions of the bathroom and kitchen had changed since the assignment plan attached to the first assignment of the flat in 1964 was drawn up. Change in the drainage system would have been involved.

(ii) There was an outstanding Building Order made by the Building Authority, directed to all the co-owners of Yuen King Building, requiring certain works to be done both to the external parts and common areas of the building and also to the individual units.

22. As regards (i) above, the purchaser's solicitors were eventually satisfied by an architect's certificate that the work was non-structural and required no consent of the Building Authority. As to (ii) above, this was satisfied by the production of the Building Authority's letter dated 13 August 1992, two days before the date fixed for completion, stating that the requirements in the Building order regarding the owner of Flat C, 9/F had been complied with.

23. This therefore left one requisition outstanding: the question of the additional units. In this regard, the vendor's solicitors were clearly not prepared to confront the problem face-on. In their letter of 14 October 1992 they said that there were no alterations to contravene the DMC, which was probably correct, but went on to say that there were no alterations to contravene "the building regulations", which was probably incorrect: or correct only to the extent that there were no unlawful alterations within the space constituting Flat C 9/F, but almost certainly incorrect as regards work done on the ninth floor as a whole. In their letter dated 22 October 1992, three days before completion, they said:

24. In the same letter they expressed exasperation with the purchaser and said:

25. In response, by letter of 23 October 1992, the purchaser's solicitors said:

26. By letter dated 24 October 1992 the vendor's solicitors offered a "second addition of an Architect Certificate for your information". This was, in terms of dealing with the question of the additional units, as meaningless as all the others. An impasse was reached. On 26 October 1992 the purchaser purported to rescind the contract.

27. On 20 November 1992 the purchaser instituted proceedings in which the following reliefs were sought:

28. It is noteworthy that although the litigation is between the vendor and purchaser of only one domestic unit in Yuen King Building, the "discrepancy" which lies at the foundation of the declaration in para. (1) of the originating summons affects every owner of units on the 9th floor and, indeed, every owner of undivided shares in the land and building.

29. By his judgment dated 31 December 1992 Godfrey J dismissed the plaintiff's claims and declared that the requisitions and objections to the title of the flat mentioned in paragraph 1 of the prayer for relief had been sufficiently answered by the vendor.

Obligation to show good title

30. In the court below much reliance was placed by the purchaser on the judgment of this Court in Kok Chong Ho v Double Value Developments Ltd Civil Appeal No.90 of 1991 (5 December 1991, unreported). That was another case of "discrepancies" between the occupation permit and the plan annexed to the DMC and the recitals and descriptions therein. There the court held that, in the circumstances of that case, the purchaser's solicitor had made a reasonable requisition as to title; even if there was no real risk of enforcement proceedings by the Building Authority, the vendor was not entitled to specific performance if he had not satisfactorily answered the requisitions raised by the purchaser. The Court in allowing the purchaser's appeal held that the purchaser was entitled to rescind the agreement and recover the deposit. It is worth emphasizing that in Kok's case the vendor's solicitors contended that the flats had been authorized when plainly they had not and the question as to whether the Building Authority might take "enforcement action" was never raised by the vendor before the proceedings had begun: the court concluded (p.19) that "by the time the Agreement .... was rescinded .... it was too late for the vendor to rely on any evidence in support of exemption or relating to the enforcement practice of the Building Authority".

31. In Kok, the agreement sued upon was a formal one prepared by solicitors and this contained the standard clause with regard to requisitions and objections in respect of the vendor's title. A time limit for requisitions and objections was imposed and there was the usual provision that if the purchaser should insist on any requisition or objection which the vendor was unable or unwilling to remove the vendor was at liberty on giving not less than 7 days' notice to the purchaser to annul the sale. The obligation to answer requisitions was not expressly stated in the agreement but, within the context of the contractual arrangements, this was clearly implied. It was the failure to satisfactorily answer the query as regards the discrepancies between the occupation permit and the assignment plan that lies at the heart of the judgment in Kok's case.

32. In the present case, the Chinese agreement is completely silent on the question of objections and requisitions. The vendor simply warrants that he is the owner of the flat and has the right to sell the flat and warrants that the "title deeds and documents are clear and complete". The first question to be answered, in these circumstances, is this: Is there any obligation falling on the vendor to answer requisitions and objections at all? Or, to put it in a different way: Assuming that the vendor can, on the date fixed for completion, pass a good title to the purchaser, must he before completion show a good title? If so, how close to completion can this obligation be discharged?

33. Since the contract itself is silent on the matter, if there is such an obligation it could only arise by implication of law. In considering English case law in this area, considerable caution must be exercised. The conveyance of a small flat in Kowloon is a very different matter from the conveyance of a great estate in the shires of England. Title to land in England, which perhaps goes as far back in time as the Middle Ages, is often fraught with difficulty. An example can be found in Wyld v Silver (1963) Ch 243 where a purchaser found that he was restrained from building on his land which interfered with a legal but "ancient and outmoded" right to hold a fair on the land on Fridays in Whitsun Week in every year. In these circumstances, it is not surprising that the law should have developed in such a way as to impose an obligation on the vendor to answer requisitions and objections: that is to say, to bring forward facts and circumstances known to him which might be material to the title which he has contracted to pass to the purchaser on completion. For instance, in Horton v Kurzke [1971]1 WLR 769, land was sold with vacant possession but there was a claim made by a third party for an agricultural grazing right tenancy. Eventually, the claim was rejected by an arbitrator. But, before this rejection, the vendor served a notice to complete. Goff J. said, at p.772-C:

34. The vendor's title was eventually good but, in the meantime, was sufficiently doubtful not to be forced upon a purchaser.

35. All the leading textbooks on the subject show that, in an "open" contract - that is to say, a contract formed by agreement which stipulates for nothing more than the parties, the property and the price - a number of conditions are implied, one of which is that the vendor will show a good title. For instance, see Emmet on Title, paragraph 2.072, Barnsley's Conveyancing Law and Practice (3rd Ed) p.245-6, Williams On Title (4th Ed) p.565. See also Link Brain v. Fujian Finance [1990]2 HKLR 353 at 368B.

36. Whilst I expressed hesitation in the course of the hearing of this appeal on this point, I am satisfied that even though the Chinese agreement is wholly silent on the question of objections and requisitions as to title, there is an obligation on the vendor to show a good title. This obligation arises by necessary implication from the contract itself. This accords with common-sense. Were the law otherwise, the purchaser might be left in the position of having to make a snap decision on the day fixed for completion, on scanty information, as to whether to complete or not. It follows that this obligation falling on the vendor to properly answer requisitions and inquiries, if reasonably raised by the purchaser, must be discharged within a reasonable time, to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed.

How is good title shown?

37. The question: how is good title shown? is not capable of an answer in the abstract. It depends upon the matter at hand. In this case, the facts known to the purchaser's solicitors, even before the letter dated 13 August 1992 from the Building Authority was received indicating that the Authority was aware of the division of each of the residential floors into nine units, were these:

38. I shall, later on in this judgment, consider what action the Building Authority might realistically have taken with regard to the internal partitions of the 9th floor, assuming that it should, some 28 years after the event, have taken it into its head to insist upon compliance with the approved plans: accepting for this purpose that such evidence as exists, slender though it may be, does suggest that the approved plans show only seven flats on each floor.

39. Obviously, if a purchaser raises a substantial objection as to the vendor's title and there are facts within the vendor's knowledge which, if revealed, might meet the objection, and the vendor chooses to withhold that from the purchaser, the vendor clearly cannot, on the day fixed for completion, turn round and say to the purchaser: "Now I will both show you a good title and make you good title; you pay the balance of the purchase price today or I will rescind." The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion.

40. But assume the objection to have no substance. In such a case, as Godfrey J. remarked, this presents considerable difficulties. Is it enough for the vendor to say: "there is no substance in the purchaser's objection"? The judge answered this question as follows:

41. In my judgment the judge's approach must in principle be correct. If the matter was self-evident, the purchaser's solicitor cannot insist upon a fuller reply. But the vendor's solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed. A requisition as to title is not an occasion for the parties' solicitors to bandy propositions of law: each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: although, obviously, if one party can persuade the other to his own point of view on the law, so much the better. In this case, the purchaser's solicitors, in their letter of 22 October 1992 stated that according to the decision in Giant River v. Asie Marketing Ltd. (supra) "the existence of unauthorized structures renders the title of a property defective". If they had paused to consider the proposition, they would have realized that, stated in such wide terms, it must be wrong. Were it otherwise there can be no sale and purchase of flats in buildings where there are illegal structures on the roof, or where there are unauthorized balconies. As will be seen later, Giant River is concerned with the title to a self-contained house standing within its own grounds and wholly distinguishable from situations of co-ownership in a multi-storied building.

42. The purchaser's solicitors also spoke of the risk of "enforcement action" by the Building Authority against the owners. What can this possibly have meant?

Risk of enforcement action

43. No evidence was put before the judge as to what the approved plans actually showed: although, apparently, on 23 October 1992 a Mr. Chong of the Building Ordinance Office told the vendor's solicitors that the approved building plans showed only seven flats on each floor.

44. Part V of the Buildings Ordinance, as it now exists - it has been substantially amended since 1964 - exempts building works other than drainage works not involving the structure of any building from approval by the Building Authority. As regards drainage works carried out in an existing building, this can be done if such works do not involve the structure of the building, altering any man-hole, septic tank etc. Conceivably, the construction of two additional flats on each floor, if that is what took place, or the rearrangement of seven flats into nine flats, involved no breach of the Buildings Ordinance. But that would have been most unlikely. It is difficult to imagine the construction of two additional flats on each of the floors of this multi-storied building without substantially involving the structure of the building. Also the additional flats (18 in all) would probably have overloaded the manholes if additional works in that regard were not undertaken.

45. Assume therefore that the "alterations", whatever they were, involved contraventions of the Buildings Ordinance. What "enforcement action" can the Building Authority conceivably take which might affect the title to Flat C on 9/F?

46. Under s.24(1) of the Buildings Ordinance, where there has been such contravention, the Building Authority may by order in writing require -

47. S.24(2) requires an order made under subsection (1) to be served upon the owner of the building or of the building works.

48. It is impossible, by simply looking at the assignment plan in this case, to determine what might have been the "building works" forming the subject of an order served under s.24(2). It seems curious that since this dispute began, neither side has gone to the Buildings Ordinance Office to ask for inspection of the approved plans. I appreciate that, had such a request been made, the plans would not have been immediately available for inspection as they would have been stored away long ago in a warehouse. But, as indicated in the vendor's solicitors' letter of 23 October 1992, such plans do exist and Mr. Chong of the Buildings Ordinance Office has seen them.

49. One thing, however, is certain : whatever the nature of the alterations, any remedial work would have involved every owner of the 9/F. Each owner, under the DMC, has exclusive possession of his particular unit and no demolition removal or alteration by an owner to comply with an order served on him under s24(2) of the Buildings ordinance could have been effected without trespass upon his neighbour. It is difficult to see how, in these circumstances, an order can lawfully be made under the provisions of s24(1), since under subsection (2) it must be served either upon the "owner of the building" - para. (a), meaning all the co-owners of Yuen King Building - or, under para. (aa) "the owner thereof" meaning the owner of the building works. This contemplates that, in practical terms, the owner or owners can comply with the order made under subsection (1). They may not be able to do so in this case.

50. This, however, is not the end of the matter. The argument for the purchaser, as I understand it, proceeds thus: s24(3) of the Buildings Ordinance provides that if an order made under subsection (1) is not complied with, the Building Authority is empowered to remove the unauthorised works and, under subsection (4) the cost of the works carried out under subsection (3) may be recovered from the person upon whom the order had been served under subsection (2). Thus, as the argument runs, even if the alterations did not in any way directly affect Flat C on the 9/F, so long as the building order is served on all the co-owners and the requirements of the order were not complied with, it is quite possible for the cost of removal to be imposed upon the owner of Flat C.

51. If this were the position, the question I would pose is simply this: How does this in any way affect the title to Flat C? It must be remembered that this is not a case where there has been an order or "other instrument in writing" made by the Building Authority registered against the property under the provisions of section 5 of the Land Registration Ordinance, Cap. 128. Section 33(9) of the Buildings Ordinance provides for the memorial of a certificate made by the Building Authority under subsection (1) to be registered in the Land Office against the title of any flat, charging the property with the apportioned cost of the remedial works ordered to be effected by the co-owners under section 24(1). Needless to say, no such certificate has been registered against Flat C. If, at the end of the day, the only possible disadvantage that the purchaser of Flat C might suffer is a personal claim for an apportioned part of the cost under s.33(1) of the Buildings Ordinance, is this an encumbrance on the title to the flat?

Good title

52. It must not be forgotten that, ultimately, what we are concerned with in this case is the obligation to show a good title and, on completion, to make a good title. The expression "a good title" is incapable of a precise definition in English law, for the historical reasons which I have earlier endeavoured to explain. As Fletcher-Moulton LJ has wryly remarked:

53. As stated in Barnsley's Conveyancing Law and Practice 3rd edition at p.246:

54. It is said by counsel for the purchaser in this case that where the Building Authority might, in the exercise of its power under s.24(4) of the Buildings Ordinance, seek to recover part of the cost of demolishing unauthorized building works from a co-owner, this constitutes an "encumbrance" upon the property. I do not agree. The expression "encumbrance" in relation to land invariably means some claim to the property or charge which could be imposed upon the property. See for instance, Romer J in Jones v. Barnett [1899]1 Ch 611 at 620: "In Wharton's Law Lexicon, I find 'incumbrance' defined as being 'a claim, lien or liability attached to property' ......".

55. The underlying facts in this case are unclear but, generally speaking, there are two possible situations where the Building Authority might take action affecting buildings in multiple ownership, and the question is whether such action can result in encumbrances against the title of individual flats: (1) where the Building Authority seeks to exercise its powers under s.24 of the Ordinance with regard to unauthorised works in common ownership; (2) the Building Authority seeks to exercise those powers with regard to unauthorised works belonging to individual owners. As regards the first, an order served on all the owners under s.24(2) would in law be effective, and could bring in its train the consequence that, eventually, the apportioned cost of removal is charged against the title of the individual owners under s.33(9). This would then constitute an encumbrance. But as regards the second, how could the exercise of power under s.24 affect the owners of individual flats in the building apart from the owner of the unauthorised works?

56. Whatever the unlawful alterations might have been, resulting in the nine flats on each floor of Yuen King Building, the "works" must have passed into the ownership of the individual owners of the flats a very long time ago. It is difficult to see how the title of the owner of Flat C could be affected by any thing done by the Building Authority, unless Flat C itself could be the target of an order made under s.24(1). This situation is to be contrasted with that in Giant River Ltd. v. Asie Marketing Ltd. (1990)1 HKLR 297. That case did not concern any co-owners of property. It concerned a detached house, No. 66 Black's Link, standing within its own grounds. Three basement floors, a roofed-over inner court and balconies had been constructed by a previous owner without approval by the Building Authority and were liable to be ordered to be demolished under s24. The risk of "enforcement action" was of immediate concern to the owner. No-one else was involved. He was not being asked to tear down someone else's walls and partitions; "enforcement action", if taken, would have impinged upon his right of occupation of the house. It was a blot on the title to the property to that extent. No such circumstance seems to exist in the present case. The position would have been different if the Building Authority had issued a certificate under section 33(8) and registered a memorial thereof under subsection (9) against Flat C 9/F in relation to work done under s.24(3). A possibility that, sometime in the future, the owner of Flat C 9/F might have to share with the other co-owners the cost arising out of something done to the building does not affect the title to the flat: no more than if, for instance, the lifts should fail and the co-owners had to share the cost of repair or replacement.

57. In the course of argument by counsel, the test was formulated in this way: "Are the facts and circumstances of the case so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance?"

58. This test is taken from the oft-cited case of M.E.P.C. Ltd. v. Christian-Edwards [1981] AC 205 at 220 C-D and adopted by this court in Kan Wing-yau v. Hong Kong Housing Authority [1988]2 HKLR 187 at 194E. A glance at the facts of those cases will demonstrate that the "incumbrance" in issue was an assertion of an adverse claim to the property by a third party. In M.E.P.C. Ltd. v. Christian -Edwards, the contract to sell a freehold property in London was made in 1973 and the question was whether the rights under an earlier contract, allegedly made in 1912, to buy the property for a fraction of the price must have been abandoned long before that date. In Kan Wing-yan, the question was whether an assignment of the property made fourteen years prior to the contract was lawfully executed: if not the title had not effectively passed.

59. The facts of the present case are wholly different. The Building Authority had no claim of right, legal or equitable, by way of charge or anything else, to Flat C 9/F.

60. This brings me back to the Kok case referred to earlier in this judgment. There, the purchaser had contracted to buy a flat on the ground floor of No. 51 Seymour Road, a building which straddled Caine Road and Seymour Road. It appears that, some time in the past, two flats had been constructed, within an area shown in the approved plans as "children's playground", without the Building Authority's approval. The deed of mutual covenant showed, as in this case, that if the additional two flats were unauthorised, the wrong had occurred shortly after the issuance of the occupation permit. Between the co-owners of the building, the right of the owners of the additional flats to exclusive possession of the space formerly marked as "children playground" was acknowledged and undivided shares in the land and building had been allocated to those two flats. On the question of enforcement by the Building Authority this is what the Court of Appeal in Kok said (at p.19):

61. It is difficult to see what the court had in mind when it referred to "satisfactory evidence" being obtained either from an authorized person or from an officer of the Building Authority. What powers the Building Authority can lawfully exercise is a pure question of law. The purchaser is in as good a position to form a judgment on that matter as the vendor once he has in his possession the same facts as the vendor. The general practice of the Building Authority is not something peculiarly within the knowledge of the vendor.

62. It was apparently not argued on behalf of the vendor in Kok's case that the question of the enforcement powers of the Building Authority was not a question of "evidence" from any authorized person or any one else. If one looked at the position in Kok's case as a pure question of law: How could the owner of the ground floor of No. 51 Seymour Road have been required to demolish the partition walls of the two flats on the floors below? This could never have been achieved without a gross violation of the rights of those owners and breach of the terms of the DMC. In these circumstances, the word "owner" in s24(2) could only have meant the owner of the "offending flat" and not the owner of the ground floor flat, contracted to be sold. The point was not argued in Kok's case, and the case turned on a question of fact, or mixed law and fact: the "practice" of the Building Authority, in such circumstances, which was only raised after the originating summons had been taken out by the purchaser.

63. In my judgment, Kok's case, upon ultimate analysis, provides only slender guidance in the circumstances of the present case. In Kok's case the vendors proved in the proceedings that they had a good title. Godfrey J so held, and this finding was left undisturbed by the judgment of the Court of Appeal. The purchaser in this case appeared to think that Kok's case justified the conclusion that the vendor's title was bad, but that plainly is wrong. If Kok's case is authority for anything, it is authority for the proposition that the presence of illegal structures in another part of the multi-storied building in which the flat to be sold is located does not per se render the title of the flat-owner defective.

Conclusion

64. Here, the purchaser's solicitors had plainly over-reacted, but they were nevertheless faced with a real problem. The "discrepancy" between the occupation permit and the assignment plan prima facie indicated that unauthorised structures have been erected on the 9/F some time in the past. Whilst that did not by itself mean necessarily that there was a blot on the title to the flat (and they were wrong to think that the decision in Giant River led to that conclusion) nevertheless Kok's case suggested that in such a situation it was reasonable to raise queries with the vendor's solicitors. It is just possible that those solicitors could have provided satisfactory answers. In these circumstances the purchaser could not reasonably have remained silent. So they pointed out the discrepancy and asked for clarification. Instead of being frank and open with the purchaser's solicitors, the vendor's solicitors adopted a defensive and unhelpful attitude. They asserted that there were no breaches of "the building regulations" and maintained this stance throughout.

65. The judge held that the purchaser's objection to the title was satisfactorily answered by the vendor when on 23 October 1992 (two days before the day fixed for completion and not before) the vendor provided the purchaser with the letter from the Building Authority dated 13 August 1992 (mistakenly referred to in the judgment at p.6 as "21st August 1992") which "disclosed that the Building Authority was well aware of the arrangement of the upper floors of the building into 9 flats on each floor (which, of course, had been the position for 28 years)". The judge then went on to say:

66. If the vendor had acknowledged the facts and said: "there is no serious risk of enforcement proceedings" I would have no difficulty in agreeing with his conclusion. But is that what happened? Can the "bad points" taken by the vendor's solicitors be ignored?

67. It is important to bear in mind that the letter of 13 August 1992 from the Building Authority was produced to deal with a different requisition: that relating to a building order dated 10 July 1991 which had been registered against all the units in Yuen King Building. The production of that letter by the vendor's solicitors on 23 October 1992 disposed of that requisition, but as regards the requisition in issue the solicitors said:

68. What is the purchaser to make of that? One can envisage two possible scenarios. (1) The purchaser's solicitors confidently brushing aside the "bad points" and saying to their client: "We know all the facts there are to know about this property. Despite what the other side says, there were undoubtedly unauthorised structures erected back in 1964 resulting in two additional flats on each floor. We don't know what those building works were; the other side won't tell us, or can't tell us. But whatever they were there can be no enforcement action by the Building Authority which could affect the title to Flat C. You can accept the conveyance with confidence, and will in turn be able to pass a good title if you are inclined to sell". Or, (2) those solicitors saying to their client: "your case is very similar to Kok's case. Here, as in Kok's case, the vendor is denying, contrary to the evidence presently available, that the "extra flats" are unauthorised. The Court of Appeal there held that the vendor had not discharged his contractual duty of showing a good title; we cannot advise you in this case that the vendor has discharged his contractual duty as our inquiries have not been properly answered; we do not know whether there are facts relevant to this issue still within the knowledge of the vendor which he has not revealed; the late disclosure of the letter of 13 August 1992 from the Building Authority does not inspire confidence. In these circumstances you have the right to rescind, whether or not, ultimately, the vendor can demonstrate to the court that he has a good title".

69. In an ideal world, the stance summarised in (1) above would have been the proper one to take. But, given Kok's case and the vendor's solicitors' unhelpful responses, to expect the purchaser's solicitors to have given such robust advice, at such short notice, would have been expecting too much.

70. It must be a rare case indeed where a vendor has in fact a good title and yet fails to show a good title. In my judgment this is such a case. The judge had, in my view, made too much of the letter of 13 August 1992 from the Building Authority - produced by the vendor's solicitors at the last moment to deal with a different requisition, that relating to the Building Order, not to the one in issue in this case. In any case, it came far too late.

71. The judge was correct when he concluded that there was no real risk of enforcement action by the Building Authority which could affect the title to the flat but was, in my judgment, wrong to hold that the requisition, properly raised, had been satisfactorily answered. If the vendor had responded in a straight-forward manner in the way articulated by the judge so that the purchaser could be reasonably confident that all relevant facts had been revealed by the vendors that would have been a different matter. But that is not what happened. The contractual duty to answer requisitions properly is not an onerous one. All that is required of the vendor is candour and commonsense. The purchaser is not an adversary. The parties have already arrived at an agreement and, normally, it is as much in the purchaser's interest as it is in the vendor's that completion should take place. A good title, or a good marketable title, does not mean a perfect title. If there are, or might be, blemishes upon it, these should be faced squarely. The vendor failed to do so in this case and in consequence failed in his contractual duty to deal with the requisition properly.

72. This is not to say that the purchaser did not, in this case, also at times over-react: such as, for instance, by suggesting in the letter of 23 October 1992 that the presence of two additional flats on each floor could "render re-entry by the Crown to the whole building": a suggestion expressly disavowed by his counsel at the hearing before us.

73. Hopefully this decision will lay to rest the problems caused by the discovery of "discrepancies" between occupation permits and assignment plans. The situation of a property in the sole ownership of the vendor - such as the Giant River case - is very different from that of a property in multiple ownership where, some considerable time in the past, spaces shown in the approved plans as common areas have been enclosed (usually by the original developer) and sold off as individual units. In the latter case the powers of enforcement of the Building Authority can be directed at the owners of those offending units, but not at owners of other units in the same building. Generally-speaking, therefore, the title of the other flat-owners would not be affected by the presence of "illegal structures" within the same building.

74. In conclusion, I would echo the words of the judge, who is highly experienced in these matters, when he said:

75. I differ from the judge on a narrow point. Here the difficulty facing the purchaser's solicitor was not "non-existent", even though, if he had sat down and really analysed the situation in depth, as I have attempted to do in this judgment, he might have concluded, upon the inadequate information he had, that the purchaser ran no real risk in accepting the title. But, in the busy life of a solicitor, this is the counsel of perfection. Much the safer course was to raise the requisition and the purchaser's solicitor cannot be criticized for thinking that this court's decision in the Kok case encouraged him to do so: albeit at the end of the day, that decision turns on a far narrower point than the solicitor thought it did.

76. I would, in conclusion, allow the appeal, discharge the judge's orders, and hold that the purchaser was in terms of para. 3 of the originating summons entitled to rescind the agreement and recover from the vendor the deposit of $30,000 on account of the vendor's failure to properly answer the requisition. It is not necessary to make the declarations in terms of para. 1 of the originating summons, but, for the avoidance of doubt, I would make a declaration to the effect that the vendor had, on the evidence before the court, a good marketable title to the property.

77. As to the costs this is not an easy matter and we should hear counsel further on this point.

Nazareth, J.A.:

78. The judgment in Kok's case correctly pointed to the potential liability in terms of legal principle that flows from ownership of undivided shares in a building, notwithstanding each owner's exclusive rights to particular space therein. But, as is not in question, there may, in particular circumstances, be no real risk that such liability will be enforced, thus disposing of that liability as a possible defect in title.

79. I agree with my Lord Litton J.A., and the judge below, that there is no real risk that the Building Authority will take enforcement action. That conclusion rests to a significant extent upon the Building Authority's letter of 13 August 1992, which, I agree with my Lord, was provided to the purchasers too late to meet the vendor's contractual obligations.

80. I would for those reasons concur in my Lord's decision to allow the appeal and in the orders he proposes. Likewise I would also associate myself with his endorsement of the judge's exhortation that the time has come for Hong Kong conveyancers to cease magnifying difficulties that are really non-existent and that frequently keep apart parties themselves eager to conclude their bargain.

Power, V.-P.:

81. I agree and have nothing to add.