LAM MEE HING AND ANOTHER v. CHIANG SHU YIN

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. This is a Vendor and Purchaser Summons taken out under Section 12 of the Conveyancing and Property Ordinance, Cap. 219.

2. By a Chinese Provisional Agreement for Sale and Purchase dated 21st of March 1995 (the said Agreement), the Plaintiffs, Lam Mee Hing and Leung Hing Wah (hereinafter called the Purchaser) agreed to buy from the Defendant Chiang Shu Yin (hereinafter called the Vendor) the premises known as Apartment B2 on the 8th Floor, Block B together with Car Parking Space No. C31 of the Kingsford Garden, 202-216 Tin Hau Temple Road, Hong Kong (hereinafter called the said premises) at the price of HK$8,020,000.

3. An initial deposit of $250,000 was paid by the Purchaser to the Vendor upon the signing of the said Agreement. The signing of the Formal Sale and Purchase Agreement was to take place on or before 3rd April 1995 when a further deposit of $552,000 had to be paid making a total deposit of 10% of the purchase price. Completion was to take place on or before 30th of August 1995.

4. The title deeds and other documents relating to the said premises were sent to the Purchaser's solicitors on the 22nd May 1995 and by a letter dated 25th May 1995, the Purchaser's solicitors raised a number of requisitions.

5. For the purpose of the present proceeding, the only relevant matter was 2 Building Orders by the Building Authority, one dated 16th August 1991 (the First Building Order) and one dated 28th of February 1995 (the Second Building Order).

6. The First Building Order was registered in the Land Office on 6th of September 1991 by Memorial No. 4965783 against the said premises and the Second Building Order was registered on 13th April 1995, about 3 weeks after the said Agreement was signed.

7. Both Building Orders concerned the slope behind Block C and D of the Kingsford Garden which slope was a common part under the Deed of Mutual Covenant of the Kingsford Garden.

8. The First Building Order was sent to all the co-owners of the Kingsford Garden and it set out the following:

9. The requirement under the First Building Order had in fact been complied with.

10. The Second Building Order was addressed to the Incorporated Owners of the Kingsford Garden and it set out the following:

"I am of the opinion that the natural, formed or man-made land ...... has been rendered so dangerous that it will collapse or be likely to collapse, either totally or partially, and thereby cause risk or injury to persons or damage to property. In exercise of the powers vested in me by section 27A of the Buildings Ordinance, I hereby declare that such natural, formed or man-made land is dangerous. I hereby order you as the owner of the land and/or person who under the terms of a Crown lease is under an obligation to maintain the land to carry out, within a period commencing not later than 28th May 1995 and expiring on 26th October 1995 the following works:- Carry out the slope remedial works in accordance with the proposals approved by the Building Authority. All works specified in this order shall be carried out to such standard acceptable to the Building Authority and in compliance with regulations."

11. The requirement under the Second Building Order had not been complied with in that no remedial works had commenced on or before 28th May 1995.

12. In response to the requisitions raised by the Purchaser's solicitors, the Vendor's former solicitors adopted the following stance:

13. It was the Purchaser's case that the Vendor had not answered the requisitions which were reasonably raised within a reasonable time and that the 2nd Building Order was an encumbrance on the said premises and by failing to discharge the Building Order, the Vendor had not shown a good title. Mr. Law, on behalf of the Purchaser argued that if the Incorporated Owners of the Kingsford Garden failed to carry out the required remedial works to the slope in question and the Building Authority found it necessary to carry out such remedial works, the said premises was liable to be charged with the entire costs of such remedial works under the Building Ordinance.

14. Mr. Law further argued that by failing to maintain the slope in question, there had been a breach of the Conditions of Sale in question in that the slope had not been maintained at all times in good and substantial repair and condition and the Crown was entitled to re-enter and take back possession of the lot and the building and the Vendor's title over the said premises was therefore defective.

15. The Purchaser therefore seek to annul the said Agreement and asked for the return of the 10% deposit paid to the Vendor.

16. Mr. Mok, on behalf of the Vendor argued that the registration of the 2nd Building Order did not constitute an encumbrance on the said premises as it was only a potential liability and such liability would not materialise until certain events occurred and therefore there was no present defect to the Vendor's title over the said premises.

17. The suggestion was that the liability would only materialise if the Incorporated Owners failed or refused to carry out the remedial works to the slope and the Building Authority carried out such work pursuant to Section 27A(3) of the Building Ordinance and then tried to recover the costs of such remedial works by registering the certificate of apportioned costs against the title of individual owners under Section 33 of the Building Ordinance.

18. The scenario envisaged by Mr. Mok in his argument clearly was recognised. In Active Keen Industries Ltd. v. Fok Chi Keong [1994] 2 HKC 67, Litton J.A. had the following to say at p. 82:

"......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 its 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?"

19. We are, of course, not dealing with a certificate of apportioned costs under section 33(1) of the Building Ordinance. We are dealing with an order under section 27A of the Building Ordinance to the effect that certain common part of a building has been rendered so dangerous that it will collapse or be likely to collapse, either totally or partially, and thereby cause risk of injury to persons or damage to property and that the Incorporated Owners of the building had been ordered to carry out the remedial works within a stipulated time. The order had been registered with the Land Office and the issue was whether such an order constituted encumbrance to the individual units of the building.

20. "Encumbrance" simply meant some claim to the property or charge which could be imposed upon the property.

21. Was the 2nd Building Order in question not a claim or charge which could be imposed upon the said premises?

22. The 2nd Building Order could only lead to one of the two possible consequences: (1) the Incorporated Owners complied with the order and carried out the remedial works; failing which (2) the Building Authority in the exercise of its power under s.27A(3) of the Building Ordinance carried such remedial works. In either event, expenses would have to be incurred and owners of the individual units would be liable for a share of the expenses either under the Deed of Mutual Covenant or s.33 of the Building Ordinance. Such shares of the expenses could be attached or charged against the title of the individual unit again either under the Deed of Mutual Covenant or the relevant provisions of the Building Ordinance.

23. The liability arising out the 2nd Building Order was not a potential one. It was real and subsisting and could be a claim or charge imposed on the said premises. The only thing 'potential' about it was that the actual amount involved was not known as the remedial works had not been carried out.

24. Deputy Judge Cheung, as he then was, decided in Wah Ying Properties Ltd v Sound Cash Ltd. [1994] 1 HKC 786 that the registration of the certificate under s.33(9) of the Building Ordinance would only impose a potential liability, but such potential liability constituted an encumbrance on the property as the remedial works had been completed.

25. I am content to rest my decision on the basis that the 2nd Building Order itself constituted an encumbrance on the said premises and unless discharged could cause a blot or possibility of litigation to the Purchaser. Perhaps that was the reason why the 2nd Building Order was allowed to be registered with the Land Office against the said premises.

26. On the other hand, despite the able argument of Mr. Law, I do not accept that there was any real risk of the said premises being charged with the entire costs of the remedial works to the slope in question. I accept Mr. Mok's suggestion that on the proper interpretation of the Building Ordinance and the Deed of Mutual Covenant as well as the provisions of the Building Management Ordinance, the extent of the liability of the owner of the said premises arising out of the 2nd Building Order pertaining to the remedial works to the slope would be limited to 1/147th of the costs of the works.

27. Technically, one could argue as Mr. Law seek to argue that as the slope in question had not been maintained in good and substantial repair and condition and under the relevant provision of the Conditions of Sale, the Crown was entitled to re-enter and take back possession of the building in question.

28. The Government, through the Building Authority had started the mechanism of ordering the Incorporated Owners of the Kingsford Garden to comply with the provisions of the Building Ordinance and on the evidence, there was no risk at all that the Crown would re-enter the building in question. One was entitled to assume that the Government would act in a reasonable and responsible manner.

29. The suggestion that the said premises could be charged with the entire costs of the remedial works or that the Crown would re-enter in my view was illusory and should be disregarded altogether.

30. The encumbrance on the said premises arising out of the 2nd Building Order could be discharged by the Vendor agreeing to be responsible for the apportioned costs of the necessary remedial works.

31. In fact throughout the negotiation between the parties, it had been made clear that the Vendor was at all time willing to be responsible for such apportioned costs. There was in fact purported provisions on such matter in the proposed formal Sale and Purchase Agreement.

32. By a late affirmation of Mr. Shun Lok Nin, an authorised person filed 2 days before the hearing on behalf of the Vendor, it transpired that tenders for the remedial works in question had been obtained in May 1995 and the tendered sum ranged from the lowest of about $2.8 million to the highest of just over $7 million. It appeared that the Incorporated Owners had decided to carry out the remedial works and application to the Building Authority had been made for an extension of time to complete such works. The apportioned costs to the said premises could not exceed $100,000.

33. Such information should have been disclosed to the Purchaser earlier when the requisitions were raised. But on the facts of the case, the Vendor's failure to do it was perhaps understandable and in any event not a sufficient reason to annul the transaction in question.

34. Having considered the entire background of the case, I am satisfied that it will be just to make the following orders:-

35. I am satisfied that it is a proper case to order the Vendor to pay the Purchaser the costs of this application to be taxed if not agreed. The order nisi on costs is to be made absolute 7 days after the handing down of this judgment.