PEP ENTERPRISES LTD. v. AU KIN HUNG and Another

1997 No. M.P. 2764

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Defendants, by an Agreement for Sale, dated the 31st May 1997, contracted to sell to the Plaintiff company, Flat E on the 13th floor of a development known as Pak Lee Building, King's Road, Hong Kong.

2. On the 14th July, 1997 the Plaintiff's solicitors raised a requisition as to title by letter drawing attention to an apparent discrepancy between the Occupation Permit dated the 24th March 1961 which provided for 6 (European style) flats on the 13th floor whereas the plan annexed to the Assignment Memorial (dated 18th March 1963) and the Deed of Mutual Covenant (dated 15th September 1962) provided for 7 flats on each of the 3rd to the 13th floors. The permit referred to, provided for 7 flats on all floors except the 3rd and the 13th, which were limited to 6 units. The Plaintiff's solicitors' letter sought confirmation of the Building Authority's approval of the change from 6 to 7 flats on the 13th floor.

3. The Defendants' solicitors' reply by fax dated 23rd August 1997 was essentially in the form of a copy of a letter from F. Zimmern and Co. who had acted for the Defendants in their purchase of the flat in question in 1963. That letter stated important matters and as much as the solicitors concerned could be expected to know. The Defendants' solicitors relied upon it and could hardly be expected to know any more. Reference was made to two authorities and in particular to the Court of Appeal decision in Active Keen Industries Ltd. v. Fok Chi Keong (No. 42 of 1993) reported in 1994 1 H.K.L.R. at p. 396 (and in 1994 2 H.K.C. at p. 67) to which I will now turn.

4. In that case there was a similar discrepancy between the number of tenements provided for in the Occupation Permit (7) and that identified in the deed of mutual covenant (9). The number of residential floors was 9, and the discrepancy applied to each floor. In the case with which I am concerned there are 12 floors given over to residential units, 10 of which had 7 units, leaving only 2 with 6 units. The position facing the Court of Appeal was arguably more complex in that each floor appeared to have acquired 2 extra units.

5. There was a particular similarity between the two cases in that the first assignment of the flat in question in Active Keen was on the 16th July 1964, the occupation permit being dated 29th January 1964, meaning that the situation had existed at the time of the Court of Appeal's decision, for 29 years; the situation in the case under review had existed for almost 35 years. The proposed purchaser's solicitors raised a requisition virtually identical to that raised in this case.

6. The judgment of Litton, J.A., (as he then was) at page 78 of the H.K.C. report and page 405/406 of the H.K.L.R., dealt with how good title was shown and set out the facts known to the purchasers in that case. Applying that approach to the case I have to consider, they are these:

1. Flat E on the 13th floor was conveyed by the developer to the first purchaser in March 1963.

2. By that time, the individual shares in the land and building had been fixed as between the co-owners, and their rights and obligations were regulated by the DMC with reference to those undivided shares.

3. Once the flats were sold off by the developer, there was no way in which the internal partitions of the various floors could be changed. The DMC was, in practical terms immutable. There was therefore no practicable way in which the seven separate flats on the 3rd and 13th floors could be "altered" and made into six separate flats without the property rights of all the co-owners being radically affected.

4. If there had been alterations of the internal partitions, these must have occurred prior to the 12th September 1962 the date of the DMC, and before the first unit (and undivided share in the land and building) was assigned by the developer.

5. The powers exercisable by the Building Authority in relation to building works which might be thought to contravene the provisions of the Buildings Ordinance are known equally to both parties; they are not something peculiarly within the knowledge of the vendor.

7. In forwarding a copy of Zimmern's letter of 22nd August 1997 the vendors' solicitors were indeed stating all that was within their knowledge and specifically that "there is no real risk of enforcement action by the Building Authority in view of such long lapse of time as well as the fact that the subject property is only one of many units in a multi-storied development." The author stated his reliance upon the Court of Appeal's decision in Active Keen. This was a satisfactory answer to the requisition raised. It equated with the first scenario envisaged by Litton, J.A. at page 412-413 of the H.K.L.R. judgment which the Learned Justice of Appeal hoped would be the position generally adopted by solicitors following his judgment which was aimed at clarifying "this difficult branch of conveyancing law," and which, he hoped, would "lay to rest the problems caused by the discovery of 'discrepancies' between the occupation permits and assignment plans.

8. He echoed the words of Godfrey, J. (as he then was) at p.414, exhorting Hong Kong conveyancers "to put an end to the practice of magnifying difficulties which are really non-existent." - although he had some reservation as to the total applicability of that to that case, the Court of Appeal's decision now gives validity to the comment.

9. The decision in my view renders the requisition otiose. However, I can understand an ultra-cautious solicitor making such a requisition even though he is himself wholly aware, or can make himself wholly aware of the relevant facts. In that event however I am satisfied that the answer provided was a wholly satisfactory one. The vendor has in fact made good title. The summons is dismissed with costs to the Defendants. I further order that the purchaser complete the purchase of Flat E in accordance with the Sale and Purchase Agreement within 14 days from the date of this judgment. In the event of the Plaintiff failing to complete the purchase as aforesaid, there will be an order for assessment of the loss and damage sustained by the Defendants with interest thereon at the appropriate rates.

(Conrad Seagroatt)

Judge of the High Court