TSANG KWOK HUNG FREDERICK v. CHING LAI TUEN

CACV 48/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 48 OF 2009

(ON APPEAL FROM DCCJ NO. 5411 OF 2007)

___________________________

BETWEEN

___________________________

___________________________

REASONS FOR JUDGMENT

___________________________

Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal by the defendant vendor from an order of Her Honour Judge Mimmie Chan dated 21 October 2008 granting summary judgment to the plaintiff purchaser under Order 86 rule 1 of the Rules of the District Court for the return of the deposit paid under a sale and purchase agreement, wasted costs and a declaration that the defendant had acted in breach of the agreement. At the conclusion of the hearing the appeal was dismissed with costs with reasons to be handed down.

Background

3.  The agreement related to the sale and purchase of Unit R-4 on the 9^th floor of Block 4 of Kwun Tong Industrial Centre (“the building”) for $2.3 million. Completion was scheduled to take place on 3 October 2007.

4.  On 27 September 2007, the plaintiffs’s solicitors received a notice (“the first notice”) from the Incorporated Owners of the building which, after referring to the impending sale and purchase of the property, set out the “problems” that needed to be dealt with. It read:

“-- Drainage of the toilet in the unit is connected to the public drainage in contravention of regulations

-- An aluminium window installed on the wall … in contravention of regulations.

If you have any enquiries, please contact Mr Yung of the Management Office …”

5.  They immediately wrote to the defendant’s solicitors in these terms:

“… we have just received a … notice/letter from The Incorporated Owners … that (i) the drainage from the toilet in the above property was not installed/connected at the designed location which should be rectified; and (ii) the window openings of the toilet were unlawful/unauthorized.  Unless you can show us with documentary evidence that the said matter has been duly approved by the Buildings Authority and other competent authorities, please advise us what steps your client would take to remove the irregularity at the sole costs of your client on or before completion and provide us with documentary evidence showing that the … [first notice] … [has] been complied with prior to completion … The irregularities aforesaid are title defects and encumbrances as they would attract potential lawsuit against owner for the time being of the above property …”

That letter also made reference to the fact that the sprinkler heads within the property had been installed in breach of regulations.

6.  The plaintiff’s solicitors received a second notice from the Incorporated Owners on 27 September 2007 (“the second notice”). Apart from reiterating the matters already identified in the first notice, it stated a third matter that needed to be addressed:

“… the fire sprinklers on the ceiling should be installed according to the relevant fire services regulations …”

7.  On 28 September 2007, the plaintiff’s solicitors sent the defendant’s solicitors a survey report with a covering letter in these terms:

“Your attention is particularly drawn in items 3.5 (page 4) of the survey report that the window pane and fame (sic) thereof are installed not in compliance with the relevant statutory requirements so that the same will affect the safety of the user of the above property that should be reinstated in order to comply with the relevant statutory requirements AND the toilet is an unauthorized addition (which is not shown on the approved building plan of the above property) so that it must be reinstated.”

8.  As in the proceedings below, the letters of 27 and 28 September will be referred to respectively as “the first requisition” and “the second requisition”.

9.  The issues before the judge were whether the first and second requisitions had been sufficiently answered and whether triable issues had been raised to the plaintiff’s claim that the defendant had failed to show a good title to the property. The judge held that good title had not been shown, that there was no arguable defence and that there was no other reason for trial. She granted summary judgment.

This appeal

10.  Mr Wong who appeared for the defendant sought to impugn the decision below on various grounds, the first of which was that the judge had erred in refusing to admit into evidence correspondence marked “without prejudice”. Suffice it to say that even if that were the case, it remains to be shown that the correspondence, if admitted in evidence, would have caused the judge to reach a different conclusion.

11.  In considering the merits of the substantive grounds of the appeal, where relevant, the “without prejudice” correspondence has been taken into consideration.

Requisitions

12.  Two points were taken: first, that the requisitions were not sufficiently formulated; and, second, in any event, they had been sufficiently answered by the defendant’s offers to have part of the purchase monies stakeheld.

13.  Mr Wong contended that the requisitions were not sufficiently precise and certain, the corollary of which must be that the defendant was unable to comprehend the subject matter of the requisitions.

14.  Having regard to the contents of the first and second notices and the first and second requisitions (set out in paragraphs 4-7 above) describing and identifying the unauthorised building works, it is difficult to understand in what way the requisitions were thought to be deficient in the sense that they were obscure or confusing. When pressed about this at the hearing, all Mr Wong could say was that they failed to identify the particular regulation(s) said to have been breached. Mr Wong referred to the supplemental survey report which identified the relevant statutory regulations in question but which had not been supplied to the defendant prior to completion. For example, in relation to the window and toilet, those were stated to be in contravention of section 24 of the Buildings Ordinance, Cap. 123.

15.  It is clear that at the relevant time the defendant’s solicitors were not under any illusion as to what the requisitions were about. They understood perfectly. That is apparent from their response by letter dated 28 September 2007. There was no complaint that the objection to title was not understood. Rather, the defendant “denied” that there were any illegal structures and offered to stakehold a sum of $50,000, inter alia, for the ‘repair’ of those structures.

16.  In my view, the objection based on the inadequacy of the requisitions is entirely misconceived and without merit. That it should have been advanced at all is somewhat surprising.

17.  The next matter is whether the requisitions had been adequately answered by the stakeholding offers.

18.  The relevant chronology is as follows. As noted above, in their letter of 28 September 2007, the defendant offered to stakehold a sum of $50,000 for the ‘repair’ of the illegal structures. The plaintiff rejected this offer on 29 September and at the same time indicated that he was prepared to compromise the matter by the deduction of $100,000 from the purchase price. This the defendant refused. On 2 October 2007, the defendant repeated her offer to stakehold $50,000 but the plaintiff wanted the $50,000 deducted from the purchase price and not stakeheld. On 3 October 2007, the defendant offered a deduction but only of $20,000 which the plaintiff did not find acceptable.

19.  The defendant sought to demonstrate the adequacy of the offer of $20,000 by referring to quotations obtained by the defendant for the necessary ‘repairs’. There is a quotation dated 29 September 2007 of $14,500 in respect of works relating to the window and the toilet. There is a further quotation dated 9 October 2007 for work relating to the sprinkler system for $8,130 but which included the supply of new sprinkler heads totalling $2,650. On the basis of these quotations, it was submitted that the cost of the necessary works was under $20,000 because the new sprinkler heads did not form part of the necessary ‘repairs’.

20.  It is to be noted that quotation of 29 September 2007 was never supplied to the plaintiff and the second of the quotations was only obtained after the completion date. Therefore, regardless of the correctness of the defendant’s position concerning the cost of new sprinkler heads, it is difficult to understand the basis of the assertion that the plaintiff should have accepted the offer. Without establishing the fact that the plaintiff knew or should have known that the $20,000 offered was sufficient for the remedial works, the defendant’s submission that the requisitions had been sufficiently addressed must fail.

Reasons for trial

21.  First, it was said that upon receipt of the first requisition, Mr Yung of the management office referred to in the first notice had made representations that the three “problems/suggestions” referred to in the first notice were not in contravention of the DMC but were mentioned “just for reference only”. Mr Wong made reference to a letter from the defendant’s solicitors of 29 September 2007 to the plaintiff’s solicitors recording a conversation with Mr Yung to that effect and suggested that it was necessary to have a trial so that Mr Yung could be cross-examined about that.

22.  There are considerable difficulties with the submission. It is relevant to note that the letter relied on was not a letter from the Incorporated Owners but from the defendant’s solicitors purporting to be a record of a conversation that, allegedly, had taken place. Not only was this matter never raised in the only affirmation filed on behalf of the defendant in these proceedings, Mr Yung’s position within the management office does not emerge from the papers at all. In any event, the defendant was supplied with a copy of the DMC and it cannot possibly be suggested that the defendant did not know that unauthorised building works would be a breach of the terms of the DMC or that she had acted on some kind of representation.

23.  The other reason for trial the defendant advanced relates to the sufficiency of the stakeholding offers. Apart from the offer of a deduction of $20,000, there was an offer to stakehold $50,000. The issue is whether, in those circumstances, the plaintiff was obliged to accept title.

24.  Mr Wong relied on Luk Ho Chang v Fook Man Finance Company Ltd [2006] 2 HKLRD 489 and Lam Mee Hing v Chiang Shu Yin [1995] 3 HKC 247 in support of his submission that there was such an obligation in law, that the stakeholding suggestion was a reasonable way to complete the title and, in any event, it was not appropriate to decide the question of law in summary judgment proceedings.

25.  Mr Jonathan Chang who appeared for the plaintiff submitted that there was no such obligation in law and on the facts. He submitted that while, in certain circumstances, stakeholding might offer a practical solution to the title problem, the present case was not such a case. Lam Mee Hing concerned liability in respect of works to be carried out by the incorporated owners in order to comply with a building order. The implications were purely monetary: they did not involve work having to be carried out in the property being purchased. All along, the vendor had been willing to be responsible for the apportioned costs and the evidence was that the apportioned costs could not exceed $100,000. On that basis, Yeung J (as he then was) refused to set aside the transaction and, instead, ordered that the sum of $100,000 be stakeheld to fortify the vendor’s undertaking to be responsible for the apportioned costs.

26.  The facts of the present case are very different. Not only was there no satisfactory or conclusive evidence prior to completion as to the cost of the remedial works, those works have to be carried out within the property in question after completion. In those circumstances, stakeholding could not be said to be a practical solution. I agree with Mr Chang that there was plainly no obligation at law on the plaintiff to accept either the offered deduction or the sum offered to be stakeheld.

27.  No grounds have been established to warrant a trial. In those circumstances, the judge was clearly right to have granted summary judgment. I would add that in my view this appeal should never have been brought.

Hon Barma J:

28.  I agree.