ACTIVE KEEN INDUSTRIES LTD v. FOK CHI KEONG

[An objection as to title based on non-compliance with the Buildings Ordinance will not be entertained if the court is satisfied that the vendor has sufficiently demonstrated to the purchaser that there is no real risk of enforcement proceedings]

1992, No. MP3761

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a vendor and purchaser summons. The plaintiff ("the purchaser") has taken an objection to the title deduced by the defendant ("the vendor") to the property the subject of the agreement between them, Flat C, 9/F Yuen King Building, 26 Sai Yeung Choi Street, Kowloon.

2. The contract is an informal contract in Chinese writing, dated 18th September 1992, whereby the vendor agreed to sell the property to the purchaser for HK$1,290,000. Completion was to take place on 28th October 1992. The vendor warranted that he was the owner of the property and had the right to sell it; and that the title deeds and documents were clear and complete.

3. The problem is a familiar one. The occupation permit for the building of which the property forms part (which is dated 29th January 1964) permits the occupation of each of the 3rd to 11th floors for 7 "tenements for domestic use". But the floor plans shown on the deed of mutual covenant relating to the building (which is dated 21st March 1964) and on the assignment of Flat C under which the vendor claims (which is dated 16th July 1964) show that each of these floors has in fact been divided into 9, not 7, units.

4. I had to consider just this sort of problem in Kok Chong Ho v. Double Value Developments Limited ("the Kok case") 1990 MP 2857, 19th December 1990, unreported. I took the view that the first issue in this sort of case was whether there was a real, rather than fanciful, risk of enforcement action. The question, I said, was one of fact and degree; and of common sense. If there was a real risk, then the court would not force the title upon the purchaser. In the Kok case, it was plain on the evidence that the "additional" units had existed for 30 years. The Building Authority was aware of the position and had seemed quite uninterested in taking any steps about it. I thus came to the conclusion that there was, theoretically, the possibility of enforcement proceedings in the Kok case, but that that possibility was so remote and so unlikely to eventuate that the vendor was entitled to say that it should be ignored.

5. I take the same view about the present case. In the present case, substantial works have been done on the property, pursuant to an order of the Building Authority made on 10th July 1991, and the vendor had supplied the purchaser with a copy of a letter dated 13th August 1992 from the Building Authority to the co-owners of the building which makes it abundantly plain that the Building Authority is fully aware of the division of the residential floors of the building into 9 units.

6. The Kok case was the subject of an appeal, heard on 1st and 12th November 1991 by a Court of Appeal the members of which were the Hon Sir Derek Cons, V.-P., Clough and Nazareth, JJ.A. On 5th December 1991 Clough, J.A. gave the judgment of the Court of Appeal. The Court of Appeal did not find it necessary to determine whether or not I was right in holding that the vendor had shown a good title by showing that there was no real risk of enforcement proceedings. The Court of Appeal preferred to express no view on that issue but to assume, without deciding, that I was right.

7. In these circumstances, I am not inhibited by the Kok case from coming to the same conclusion in this case as that to which I came in the Kok case, that is to say, that there is no real risk here of enforcement proceedings by the Building Authority, and therefore no valid objection on this ground to the vendor's title. However, the matter does not end there; because the Court of Appeal differed from me in my treatment of this issue as the first issue in the case. In the view of the Court of Appeal, the first issue in the case was whether or not the purchaser's objection to the title had been satisfactorily answered by the vendor. This being a decision of the Court of Appeal, I have "to venerate and obey, even without fully comprehending" : compare In re Holt's Settlement (1969] 1 Ch.100, per Megarry J, at p. 110F.

8. I shall therefore proceed to consider the present case on the footing that, however unrealistic the objection may be, the first issue I have to decide is whether the vendor has satisfactorily dealt with it. In relation to an objection which has no substance, this exercise presents considerable difficulties. Is it enough for the purchaser to say: "There is no substance in the vendor's objection"? If there is nothing the purchaser can usefully add, I would hold that it is enough. Certainly, a sufficient answer to the vendor's objection would have been this: "You will see from the deed of mutual covenant dated 21st March 1964, and from the assignment to the vendor's predecessor in title dated 16th July 1964, that the building of which this property forms part was laid out in its present. arrangement some 28 years ago. The Building Authority is aware of the position, and has raised no threat of enforcement proceedings. In the premises, the purchaser's objection is without substance".

9. So I have to examine what answer the vendor did give here to the purchaser's objection, and consider whether, properly understood, the vendor did in fact say that. The history is as follows.

10. The purchaser's objection was raised by a letter dated 25th September 1992 from the purchaser's solicitors to the vendor's solicitors, and repeated on 12th October 1992.

11. On 14th October 1992, the vendor's solicitors replied, taking the point that the occupation permit was over 15 years old. This was no answer to the objection. They also relied on the deed of mutual covenant, which had recited that the upper floors of the building had been divided into 9 flats, and they invited the purchaser to assume that the recital was correct, by virtue of s. 13(3) of the Conveyancing and Property Ordinance, Cap. 219. This also was no answer. They added that they were instructed that the 9th floor was self contained for domestic use and was fit for occupation and there was no alteration to contravene the deed of mutual covenant or the building regulations.

12. On 15th October 1992, the purchaser's solicitors pointed out that there was no evidence whatsoever suggesting that alterations of the property did not contravene any building regulation. They refused to accept that the objection had been satisfactorily answered.

13. On 19th October 1992, the purchaser's solicitors asked for satisfactory answers by 12 noon on 20th October 1992.

14. On 22nd October 1992, the purchaser's solicitor once again reiterated their objection.

15. On 23rd October 1992, the vendor's solicitors sent to the purchaser's solicitors a copy of the letter dated 13th August. 1992 from the Building Authority to the co-owners of the building; demonstrating that the Building Authority was well aware of the arrangement of the upper floors of the building, and also a copy of a letter dated 23rd October 1992 from an architect in which he confirmed that in his opinion the internal arrangements in the subject premises were non-structural.

16. But the purchaser's solicitors were still not satisified. They inferred that the two additional units were built after the building plans were approved. They said that if such "additional building works" (as they called them) had not been approved by the Building Authority before they commenced, they must be unauthorised structures.

17. An impasse had been reached; and on 26th October 1992 the purchaser purported to rescind the contract. On 20th November 1992, the purchaser instituted these proceedings, claiming a declaration that the objection to the title raised by the purchaser's solicitors in respect of the discrepancies in the occupation permit, the deed of mutual covenant, and the floor plan annexed to the assignment concerning the number of tenements on the 9th floor of the building had not been satisfactorily answered by the vendor; a declaration that a good title to the property had not been shown in accordance with the agreement; and an "order" (sic) that the purchaser was entitled to annul the agreement and to the return of its deposit (of $30,000, which had been paid to the vendor on 18th September 1992).

18. In my judgment, the purchaser's objection to the title was satisfactorily answered by the vendor, when on 23rd October 1992 the vendor provided the purchaser with a copy of the letter dated 21st August 1992 from the Building Authority 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 vendor, by doing so, was telling the purchaser that there was no substance in the purchaser's objection to the title. The fact that the vendor additionally urged in favour of the title a number of bad points cannot, in my judgment, fairly be held against him. The crux of the matter was that there was no serious risk of enforcement proceedings in this case and that the vendor so told the purchaser. This seemed to me self-evident in the Kok case, which is why I did not think it necessary to condescend to give reasons for my conclusion that the requisition in that case had been satisfactorily answered. I have in this case explained my reasons for coming to my conclusion, and so, I hope, followed the guidance provided by the Court of Appeal in the Kok case.

19. It would make the practice of conveyancing much easier in Hong Kong if those instructed to act for vendors. could be brought to realise that it is in their own interests, and their clients' interests, to consider for themselves, as soon as they are instructed, what matters may come to the notice of a purchaser when his solicitors investigate the title. (These will often be matters not appearing from the title deeds, a bundle of which is so frequently sent, without any prior thought, by the vendor's solicitors to the purchaser's solicitors at the commencement of the transaction) Forewarned is forearmed. If the vendor's solicitor investigates his client's title with the same care that he would adopt if he were investigating the title on behalf of the purchaser, many if not most of the problems which arise in these vendor and purchaser summonses could easily be avoided. And if those instructed to act for purchasers could be brought to realise that they would serve their clients better by exercising their common sense rather than by exhibiting their zealousness, matters would be still further improved. The time has come for Hong Kong conveyancers to put an end to the practice of magnifying difficulties which are really non-existent, a practice which frequently operates to keep apart a vendor and purchaser themselves eager to conclude their bargain, as Younger J. pointed out in North v. Loomes (1919) 120 LT 533, at p. 536.

20. I will declare that the purchaser's objection to the title has been sufficiently answered, and I make an order nisi that the vendor is to have his costs of these proceedings.