FAN KING NANG DIONYSUS AND ANOTHER v. LEE YIN LING AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

NO. 3091 OF 1997

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JUDGMENT

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1. This is a vendor and purchaser summons brought by the Plaintiff purchasers who seek the usual declarations as to requisitions and rescission, and orders for the return of their deposits and for the costs of investigating title. The dispute centres around the proper construction of a Special Condition in what was then a Crown grant.

2. By a Provisional Sale and Purchase Agreement dated 12th March 1997, the Plaintiffs agreed to buy from the Defendants the whole of Lot 634 DD256, and the house which had been built on it, in Sai Kung. The agreed price was $8.36 m. and completion on or before 19th April 1997. The parties signed a formal agreement on 10th April which stipulated that the property was sold subject to the provisions in the Crown grant, required the vendor to prove a good title and made time of the essence. A further deposit of $586,000 was paid, bringing the total deposit to the conventional 10% or $836,000.

3. At that time, both parties were represented by solicitors other than those whom they retain in these proceedings. It appears that the Defendants' solicitors sent the title deeds and documents to the Plaintiffs' solicitors on 2nd April. The deeds contained the root of title which is new grant no. 6805 (exchange) under which possession of the lot was given to the grantee at an annual rental of $20 and on a premium of $400. It was dated 21 st September 1984. It contained the following Special Condition.

4. In the letter dated 10th April, the Plaintiffs then solicitors raised a number of requisitions of which seven related to the grant. Six of those requisitions were answered to the satisfaction of the Plaintiffs. In particular, it was shown that the District Lands Officer had given his certificate of satisfaction as required by Special Condition 6(b) on 14th March 1988, and the grantee having agreed in December 1993 to sell the property to the Defendants, no question of the payment of a premium under Special Condition 6(b)(ii) arose. The requisition which remains outstanding was

"Under Special Condition 6(b), the Grantee shall not, notwithstanding that the Conditions of the New Grant have been complied with to the satisfaction of the District Lands Officer, except with the prior written consent of the District Lands Officer, assign the land or any building erected thereon. Please therefore let us have the certified true copy of the relevant written consent for our perusal."

5. The Defendants' solicitors replied on 17th April and in answer to that outstanding requisition said:

"Since compliance (dated 14th March 1988) has been issued, and the agreement for the sale of the building erected on the concerned land was made more than 5 years after issuance of the said compliance, Special Condition 6(b)(ii), according to the wording thereof, should cease to apply. In this point, we like to draw your attention that the Sub-sub Condition (ii) would have to be read in conjunction with Sub-Condition (b) of Special Condition 6. That is to say, if the first sale or the agreement therefor is made 5 years after the issuance of compliance, no consent is required."

6. By a further letter of the same date, the Defendants' solicitors also said:

"We strongly maintain our view. However, to further elaborate on the issue, please be advised that the restriction on alienation does hinge on whether the Grantee would sell within 5 years from the date of the Compliance. In our case, the Grantee did sell after the pre-requisite period of 5 years, therefore no consent was required. Look what we have said in our previous letter of 17th April 1997, Sub-Condition (b) should be read in conjunction with Sub-Sub-Condition (ii)."

7. The following day, the Defendants' solicitors gave what they described as "further assistance" in respect of this requisition and said:

"If Sub-Sub-Condition (ii) and Sub-Condition (b) of Special Condition 6 of the New Grant No. 6805 are to be read severally or separately, that is, even if the Grantee shall sell the land out after 5 years from the date of compliance that no additional premium is to be payable the Grantee will still need the written consent from the District Lands Office, in line 9 of Sub-Sub-Condition 6(b)(ii), the relevant clause should have been written as "this Sub-Sub-clause (ii)". Now that what is meant to be inapplicable, and as was clearly put down in black and white, is "this Sub-clause (b)(ii)", meaning that if the Grantee shall sell after the pre-requisite period of 5 years, the provision in Sub-clause (b) and Sub-Sub-clause (or Condition as we have all along written and put) (ii) shall not apply. Further if the genuine case of the restriction on alienation is in line with your interpretation of Sub-clause (b)(ii), each and every assignment will have to be consented in writing by the District Lands Office notwithstanding that additional premium is not payable on the ground that such assignment is made outside the scope of the said 5 years' period. Please comment."

8. On the same day, the Plaintiffs' solicitors put their position thus

"We do not aware on what basis you would maintain your view.

9. Special Condition 6(b) read as follows:-

10. In the meantime, a measure of common sense had for once prevailed in a conveyancing transaction. The Defendants' solicitors on 11th April wrote to the District Lands Office seeking clarification amongst other things as to whether consent was required and, if so, seeking a copy of such consent. Then on 19th April, it was agreed either to postpone completion until 14 days after the reply from the District Lands Office on the basis that either consent was not required or had or would be given; alternatively if consent had not and would not be given, then the agreement would be rescinded and the deposits returned.

11. The District Lands Officer replied on 14th May. His reply, to say the least, was unhelpful. It being confined to the statement that

"As you are employed as professional solicitors, you are in a better position to advise your client according to the Conditions of New Grant No. 6805 and the Certificate of Compliance."

12. That reply put the cat among the pigeons. There was some intermittent correspondence until, on 14th August, the Defendants' solicitors gave notice to complete on 5th September.

13. I should mention here that one of the arguments advanced on behalf of the Plaintiffs by Mr. Wong, albeit not very strongly, was that that period of 21 days notice was unreasonable, having regard to the length of time that completion had been postponed and the period originally allowed for the Plaintiffs to arrange financing between the date of the Provisional Sale and Purchase Agreement and the original date of completion. The new date for completion was before the down turn in the property market in October last year. No evidence was advanced on behalf of the Plaintiffs as to why they could not make financing arrangements within 3 weeks. For my part, I do not find 3 weeks to be unreasonable and, as I observed to counsel, it has often been said, during the course of vendor and purchaser summonses in this court that a purchaser could have made alternative financial arrangements even on the date of completion if the vendors' solicitors had made it clear completion could not be delayed. I find nothing in this point.

14. The position then is this. The Plaintiffs assert that the words "Sub-clause (b)(ii) shall no longer apply" at the end of Special Condition 6 mean only para. (ii) itself. The words of Sub-clause (b) which require prior written consent remain in force. The Defendants argue that both Sub-clause (b) and para. (ii) no longer apply so that, upon the expiry of 5 years from the certificate of compliance, no prior written consent to the disposal of the property by the grantee is necessary.

15. Mr. Wong's argument ran thus. Condition 6(b) contains a general prohibition against the grantee disposing of the property unless he has obtained the prior written consent of the District Lands Officer, a consent which, if it is forthcoming at all, may be given on certain conditions. There is then a further qualification, namely that even with the necessary consent, the property can only be disposed of in favour of a person who falls within para. (i) or (ii). Para. (ii) permits the disposal of the property to any other person but only if the grantee pays the appropriate premium to the Government as calculated by the District Lands Officer in accordance with the prescribed formula. But that condition is itself subject to the proviso that "this Sub-clause (b)(ii)" (which plainly refers to what has gone before) is only to apply to a disposal within 5 years of the certificate of compliance. The premium where required having been paid, "Sub-clause (b)(ii) shall no longer apply".

16. According to Mr. Wong, the effect is that, upon a disposal after 5 years, there is no requirement for the payment of a premium. Those final words however confine the effect to para. (ii). They do not affect the body of sub-clause (b), namely the requirement for consent, a consent which may, whenever it is given, be girded with conditions.

17. As I have already observed, the words "provided that this Sub-clause (b)(ii)" refer to the first part of para. (ii). But looking at the paragraph as a whole, it is also clear that, to make any sense, the final words of para. (ii) must be similarly restricted. I have difficulty in seeing how they can be extended to encompass the prohibition contained in (b).

18. If the Plaintiffs are right then, until the original grantee disposes of the property, he is subject to the control of the District Lands Officer, however long after his grant the subsequent disposal may be. As Mr. Wong pointed out, the District Lands Officer may impose conditions. On the other hand, if the Defendants' argument is correct then, after the expiry of 5 years, while there will be no fetter upon disposal by the grantee to the class of person contemplated by para, (ii), there will still remain the impediment of prior consent in relation to the class of person falling within para. (i).

19. That impediment is perhaps more apparent than real. Obviously, after 5 years, the grantee could sell to anyone without it being necessary for the District Lands Officer to launch an inquiry as to whether the proposed purchaser was a person falling within para. (i).

20. Mr. Chain for the Defendants asked why paras, (i) and (ii) were included at all if the Plaintiffs' construction is correct. He said that under sub-clause (b), consent would always be required and could be buttressed by any conditions which the District Lands Officer thought appropriate. It is therefore odd and unnecessary for the Special Condition to provide for particular eventualities. If the object of Special Condition 6(b) is to ensure that the grantee always obtains consent, there would be no need for special qualifications.

21. As far as that point is concerned, I am with Mr. Wong in finding that para. (ii) is not redundant. It provides a clear and unequivocal basis for the District Lands Officer to require payment of a premium and for the calculation of that premium.

22. In my view, the intention of the draftsman of Special Condition 6 was twofold. First, to ensure that the District Lands Office retained general control over the manner in which the concessionary grantee disposed of the property given to him on such favourable terms. Secondly, and more explicitly, to ensure that the grantee did not make an unjustified profit from his disposal of the property. I believe the true construction of 6(b) is to be found in the following formulation:

"The grantee may, with the prior written consent of the District Lands Officer who may impose such conditions as he sees fit, dispose of the property to either (i) a person entitled to concessionary terms or (ii) any other person provided that where the disposal to any other person falls within 5 years of the certificate of compliance, the grantee shall pay to the Government an additional appropriate premium."

23. I find therefore that the Plaintiffs are correct in their assertion that the prior written consent of the District Lands Officer to the assignment by the grantee to the Defendants was required, notwithstanding that more than 5 years had elapsed since the certificate of compliance.

24. It is accepted by the Plaintiffs that the declarations which they seek are now otiose because the property has already been disposed of to another purchaser. They no longer seek those declarations. In the circumstances, I give judgment for the Plaintiffs and order that the Defendants return the deposit to the Plaintiffs. I also order that the Defendants pay the Plaintiffs the costs of investigating title, such costs to be assessed by a Master if not agreed.

25. I make an order nisi that there should be interest at the rate of 9% on the deposits from 19th September 1997 (when the Plaintiffs' solicitors formally asserted a wrongful repudiation of the agreement by the Defendants) and the date of this judgment. Interest thereafter at the rate prescribed by the Chief Justice until payment.