POON MEE KUEN v. CHAN HOR TONG AND ANOTHER

HCMP 1431/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1431 OF 2004

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REASONS FOR JUDGMENT

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1.  These are three Vendor and Purchaser Summonses in the three sets of proceedings.

2.  By order made on 8 October 2004 it was ordered that the three sets of proceedings be heard together.  The hearing took place on 4 January 2005.

3.  I gave judgment in favour of the plaintiff in the three sets of proceedings. 

4.  In respect of HCMP 1431 of 2004 (“MP 1431”) I gave judgment to the plaintiff for:

(1)  A declaration that the defendants have failed to answer satisfactorily requisitions made by the plaintiff by letters through her solicitors dated 28 April 2004, 5 May 2004 and 7 May 2004 in respect of the defendants’ title to the property, the subject matter of MP 1431;

(2)  A declaration that the defendants have wrongfully forfeited the initial deposit and further deposit paid pursuant to the Agreement between the parties in the total sum of HK$93,000 (“the Deposits”) and repudiated the Agreement and that the plaintiff has effectively rescinded the Agreement;

(3)  An order that the defendants do forthwith return the Deposits to the plaintiff;

(4)  An order that the defendants do indemnify the plaintiff the stamp duty in the sum of HK$100 paid by the plaintiff under the Agreement;

(5)  An order that the defendants do indemnify the plaintiff the estate agent’s commission in the sum of HK$9,300 if and insofar as the same becomes payable by the plaintiff;

(6)  An order that the defendants do pay the plaintiff damages for breach of the Agreement being the sum of HK$6,500 for the conveyancing legal costs including the costs of investigating title incurred and paid by the plaintiff;

(7)  Costs of the proceedings;

(8)  Interest on the Deposits at 1% above prime rate from 8 May 2004 to judgment and at judgment rate from date of judgment until payment;

(9)  A declaration that the plaintiff is entitled to a purchaser’s lien on the property for the return of the Deposits, the said conveyancing legal costs, together with interest on the Deposits and the costs of the proceedings.

5.  In respect of HCMP 1432 of 2004 (“MP1432”) I gave judgment to the plaintiff for :

(1)  A declaration that the defendants have failed to answer satisfactorily requisitions made by the plaintiff by letters through her solicitors dated 28 April 2004, 5 May 2004 and 7 May 2004 in respect of the defendants’ title to the property, the subject matter of MP 1431;

(2)  A declaration that the defendants have wrongfully forfeited the initial deposit and further deposit paid pursuant to the Agreement between the parties in the total sum of HK$88,000 (“the Deposits”) and repudiated the Agreement and that the plaintiff has effectively rescinded the Agreement;

(3)  An order that the defendants do forthwith return the Deposits to the plaintiff;

(4)  An order that the defendants do indemnify the plaintiff the stamp duty in the sum of HK$100 paid by the plaintiff under the Agreement;

(5)  An order that the defendants do indemnify the plaintiff the estate agent’s commission in the sum of HK$8,800 if and insofar as the same becomes payable by the plaintiff;

(6)  An order that the defendants do pay the plaintiff damages for breach of the Agreement being the sum of HK$6,500 for the conveyancing legal costs including the costs of investigating title incurred and paid by the plaintiff;

(7)  Costs of the proceedings;

(8)  Interest on the Deposits at 1% above prime rate from 8 May 2004 to judgment and at judgment rate from date of judgment until payment;

(9)  A declaration that the plaintiff is entitled to a purchaser’s lien on the property for the return of the Deposits, the said conveyancing legal costs, together with interest on the Deposits and the costs of the proceedings.

6.  In respect of HCMP 1433 of 2004 (“MP 1433”) I gave judgment to the plaintiff for :

(1)  A declaration that the defendants have failed to answer satisfactorily requisitions made by the plaintiff by letters through her solicitors dated 28 April 2004, 5 May 2004 and 7 May 2004 in respect of the defendants’ title to the property, the subject matter of MP 1431;

(2)  A declaration that the defendants have wrongfully forfeited the initial deposit and further deposit paid pursuant to the Agreement between the parties in the total sum of HK$75,000 (“the Deposits”) and repudiated the Agreement and that the plaintiff has effectively rescinded the Agreement;

(3)  An order that the defendants do forthwith return the Deposits to the plaintiff;

(4)  An order that the defendants do indemnify the plaintiff the stamp duty in the sum of HK$100 paid by the plaintiff under the Agreement;

(5)  An order that the defendants do indemnify the plaintiff the estate agent’s commission in the sum of HK$7,500 if and insofar as the same becomes payable by the plaintiff;

(6)  An order that the defendants do pay the plaintiff damages for breach of the Agreement being the sum of HK$6,500 for the conveyancing legal costs including the costs of investigating title incurred and paid by the plaintiff;

(7)  Costs of the proceedings;

(8)  Interest on the Deposits at 1% above prime rate from 8 May 2004 to judgment and at judgment rate from date of judgment until payment;

(9)  A declaration that the plaintiff is entitled to a purchaser’s lien on the property for the return of the Deposits, the said conveyancing legal costs, together with interest on the Deposits and the costs of the proceedings.

7.  I indicated at the time that I gave judgment that I would give my reasons later.  This I now do.

8.  The plaintiff was desirous of purchasing a number of flats in Chungking Mansion in Tsim Sha Tsui, Kowloon in March 2004.  On 28 March 2004 she signed provisional sale and purchase agreements as purchaser with the registered owners of three flats in Chungking Mansion as vendors.

9.  MP 1431 is in respect of Flat E4, 14^thFloor.  The defendants are the registered owners and the vendors.  The plaintiff agreed to purchase this flat for HK$930,000 and paid an initial deposit of HK$27,900.  The plaintiff and the vendors entered into the formal sale and purchase agreement in respect of this flat on 8 April 2004 at which time the plaintiff paid a further deposit of HK$65,100 to the vendors making a total of HK$93,000 paid to the vendors as deposits.  It was agreed that completion would take place on or before 8 May 2004.

10.  MP 1432 is in respect of Flat D7, 17^thFloor.  The defendants are the registered owners and the vendors.  The plaintiff agreed to purchase this flat for HK$880,000 and paid an initial deposit of HK$26,000.  The plaintiff and the vendors entered into the formal sale and purchase agreement in respect of this flat also on 8 April 2004 at which time the plaintiff paid a further deposit of Hk$62,000 to the vendors making a total of HK$88,000 paid to the vendors as deposits.  It was agreed that completion would take place on or before 8 May 2004.

11.  MP 1433 is in respect of Flat A9, 17^thFloor.  The defendants are the registered owners and the vendors.  The plaintiff agreed to purchase this flat for HK$750,000 and paid an initial deposit of HK$20,000. The plaintiff and the vendors entered into the formal sale and purchase agreement in respect of this flat also on 8 April 2004 at which time the plaintiff paid a further deposit of HK$55,000 to the vendors making a total deposit of HK$75,000 paid to the vendors as deposit.  It was agreed that completion would take place on or before 8 May 2004.

12.  The three flats are in different blocks of Chungking Mansion.

13.  It is not disputed that each of the three flats was occupied by different tenants and that the flats would be sold with existing tenancies of different rooms.

14.  There is no dispute that the vendors have a duty not only to give good title but to show good title. 

15.  The duty to show good title includes a duty to answer requisitions satisfactorily and it does not matter whether the vendor did in fact have good title.  As Le Pichon J (as she then was) said in Lord Energy Ltd v Chen Paul [1997] 3 HKC 270 at page 281:

“  It has to be borne in mind that at the requisitions stage, the obligation is upon the vendors to show good title by satisfactorily answering requisitions irrespective of the vendors’ ability to pass good title on the date for completion.  See the Court of Appeal’s decisions in Kok Chong Ho v Double Value Development Ltd [1993] 2 HKLR 423 and Active Keen Industries Ltd v Fok Chi Keong [1994] 2 HKC 67 at 75-77, 86-87, [1994] 1 HKLR 396 at 404-405, 413.”

16.  The plaintiff’s case is the same in the three sets of proceedings.  The plaintiff’s case is that the vendors’ former solicitors have failed to satisfactorily answer requisitions on title and have thereby failed to show good title before completion.  That being so, the vendors have been in breach of their obligation to show good title and the plaintiff is entitled to and did effectively rescind the agreements. In the circumstances the plaintiff is entitled to the relief claimed.

The requisitions and answers

17.  On 20 April 2004 the plaintiff’s former solicitors Messrs Raymond T M Lau & Co. (“RTML”) received the title deeds in respect of the three flats from the defendants’ former solicitors Messrs Lau, Chan & Ko (“LCK”).

18.  By letter dated 26 April 2004 certain requisitions were raised by RTML.  However, these are not relevant to the proceedings and there is no need to set them out here.

19.  By letter dated 28 April 2004 RTML raised the requisitions which are relevant to the proceedings.

20.  In respect of Flat E4, 14^th Floor the letter stated :

“  We are instructed that the property is partitioned into 4 or more rooms (some of which are self-contained with individual water closets built therein) which is different from the original approved plan as shown and annexed to the Assignment Memorial No. 761436 (copy enclosed).  In this connection, we shall be obliged if you will provide us with documentary evidence showing that such alteration works have been duly approved by the Building Department or any competent authorities.”

21.  In respect of Flat D7, 17^thFloor the letter stated :

“  We are instructed that the property is partitioned into 7 or more rooms (some of which are self-contained with individual water closets built therein) which is different from the original approved plan as shown and annexed to the Assignment Memorial No. 846077 (copy enclosed).  In this connection, we shall be obliged if you will provide us with documentary evidence showing that such alteration works have been duly approved by the Building Department or any competent authorities.”

22.  In respect of Flat A9, 17^thFloor the letter stated :

“  We are instructed that the property is partitioned into 5 or more rooms (some of which are self-contained with individual water closets built therein) which is different from the original approved plan as shown and annexed to the Assignment Memorial No. 786409 (copy enclosed).  In this connection, we shall be obliged if you will provide us with documentary evidence showing that such alternation works have been duly approved by the Building Department or any competent authorities.”

23.  Although under the sale and purchase agreements requisitions should be raised seven days after receipt of title deeds, no point is taken in respect of the time when the requisition was made.  This was on 28 April 2004, one day after the seven days’ period.  LCK answered the requisitions by letters dated 4 May 2004 without any rejection on the ground of lateness.  That being so, there is a waiver on the non-compliance with the time restriction for raising the requisition (Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258). 

24.  The answer that was given was the same in respect of each of the three flats by letters dated 4 May 2004.  The answer given in respect of the relevant requisition was :

“  We are instructed that your client was fully aware of the present physical state before the signing of the Provisional Agreement for Sale and Purchase and had accepted the above property on an “as is” basis.  Please refer to Clause 22 of the formal Agreement for Sale and Purchase dated 8^th April 2004.”

25.  RTML responded in respect of each of the three flats by letters dated 5 May 2004 as follows :

“  We fail to see there is any express or implied covenant in Clause 22 of the Agreement between our respective clients which will relieve our client’s right from raising objections to any unauthorized and/or illegal alterations or structures existed in the property.  Since it was held in the case of Giant River Limited v Asia Marketing Limited that the existence of unauthorized structures existed in a property rendered the title defective.  We are (sic) therefore insist that you have to reply to our requisition before we can advise our client to complete the purchase.  You are reminded that our client should have a reasonable time before completion to consider whatever reply you may have and all our client’s rights in respect thereof and under the Agreement generally are hereby reserved.”

26.  LCK then replied to this by letters which were wrongly dated 7 April 2004 but which should have been dated 7 May 2004.  The reply was :

“  As the property is agreed to be sold to your client subject to several Tenancy Agreement relating to the different Rooms of and in the property.  Prior to the signing of the Provisional Agreement for Sale and Purchase and Formal Agreement for Sale and Purchase, your client has inspected the property and agreed that the property is and will be sold on an “as is” basis.  Further, we are of the view that the internal erection of the said rooms does not involve the structural alteration and therefore approval or consent given by Building Authority is not necessary.  Furthermore, we also note that several Building Orders have been issued against the property, in the circumstances, the Government has knowledge and aware the matter in question.  Also no new Building Order has been registered against the property up to date, and that the Building Authority has acquiesced in the existence of the erection of the rooms long-standing, so that they do not amount to defect in title and the risk of enforcement action is merely fanciful.  Please also refer to the case of Active Keen Industries Limited v. Fok Chi Keong (1992).  We therefore repeat that we are not obliged to deal with your queries herein as they do not affect the title of the property.

We trust that we have satisfactorily answered all your requisitions.  Please let us have your draft assignment and undertaking letter for our approval soonest possible.” 

27.  By letters dated 7 May 2004 RTML replied as follows :

“  We hereby repeat our previous view.

Regarding your allegation that “the internal erection of the said rooms do not involved (sic) the structural alteration and therefore approval or consent given by the Building Authority is not necessary”, we do not share your view.  On the contrary, we are of the view that the addition of the rooms (some of which are self-contained with individual water closets built therein) must involve drainage works and etc. and according to the Building Ordinance Cap. 123, approval of such building works from the Building Department is necessary.

Furthermore, we do not share your point of view that the Building Department has acquiesced the existence of the erection of the rooms long-standing by the existence of the Building Orders registered against the said property and the risk of enforcement action is merely fanciful.

We draw your attention that all such Building Orders only dealt with the common area or other part of the captioned Chungking Mansion and none of them dealt with the existing internal building works of the said property.  In this connection, the case of Active Keen Industries Limited you referred to is distinguished from the present matter.

We insist that you have not satisfactorily answered our requisitions.”

28.  By letters which were wrongly dated 8 April 2004, but which should have been dated 8 May 2004, LCK wrote as follows :

“  We hold on our view as mentioned in our letter of 7^th May 2004.  Further, we may add that such non-structural internal partitioning does not constitute any structural alteration and by virtue of Section 41(3) of Buildings Ordinance and it is unlikely that such partitioning walls will be compelled by the Building Authority to be demolished and restored to its original position.  Please note that up to now there is no any Building Order registered against the property, the risk of enforcement action is merely fanciful.

We trust that we have satisfactorily answered all your requisitions.  Please let us have your draft assignment and undertaking letter for our approval soonest possible.”

29.  This led to further letters by LCK, also wrongly dated 8 April 2004, but which should have been dated 8 May 2004, stating :

“  We hereby put on record that our client has proved good title to the above property but in breach of the Agreement, your client has failed to tender the said balance of purchase price and the said Assignment in the manner aforesaid.”

30.  RTML wrote back also on 8 May 2004 whereby they stated :

“  We reiterate our contention in our previous correspondence on your client’s failure to show, prove and give good title to the property.  In particular but without limitation, your client have failed to provide any surveyor architect report in support of your allegation that the partition, alteration and addition of the property and the drainage system therein is non-structural and is not enforceable by the Building Authority under the Buildings Ordinance.

Notwithstanding our client’s willingness and readilness (sic) to proceed with completion of the sale and purchase, we write to put on record that up to the moment of this letter, your client have (sic) failed to show and prove good title to the property.

In the circumstances as aforesaid, your client is required to return forthwith all the deposits and monies paid to your client under and in accordance with the Agreement for Sale and Purchase dated 8^th April 2004.”

Was there a waiver?

31.  It is not disputed that the floor plans annexed to the assignments of the three flats do not show the alterations to the flats as mentioned in the requisition letter dated 28 April 2004.  However, it was submitted by Mr. Hui, Counsel for the vendors, that during the inspection of the three flats the plaintiff should have seen the physical state of the flats and the partitions into rooms including the water closets in the rooms. She raised no objection or enquiry about this.  It was also submitted that during the visit, the estate agent asked the plaintiff whether she wished to see the floor plan but she said that was not necessary.  In the circumstances it was submitted that the plaintiff had waived her right to raise requisitions in respect of the alterations in the flats.

32.  The evidence shows that the plaintiff visited the three flats on 28 March 2004 together with the estate agent Mr. Chin of Midland Realty International Ltd.  The plaintiff in her 1^st affidavit states as follows :

“	4.	Around the middle of March 2004, I was looking for residential properties and it was the first time I tried to buy real property.  In the course of my contacts with the estate agents, one estate agent Mr. Chin of Midland Realty International Ltd. had introduced to me Chung King Mansion, Tsim Sha Tsui and arranged a visit for me.  Though I knew the building was famous to have many guesthouses, I had never been to its residential floors or units.
	5.	On 28th March 2004, Mr. Chin brought me to visit Flat E4 on 14th Floor, Flat D7 on 7th Floor and Flat A9 on 7th Floor in Chung King Mansions; together with Mr. Chin, there was a couple whom Mr. Chin introduced to me as Mr. and Mrs. Chan.  Now, I can no longer recall the order of my visits among these three units.  But, I do recall that these three units were of different blocks and we had to take the lift down to the lobby and take another lift to another unit.  One of the reason why I still have such recollection is that it was very inconvenient for me to travel between these units in such way because after a traffic accident in 1996 I had become disabled.
	6.	During my visit to these three units, I did not have any floor plan before me.  I remember each of these three units were (sic) partitioned into many rooms which could be accessed from the main door through a common corridor.  To the best of my recollection, there were 4 or more rooms in unit E4 on 14/F, 7 or more rooms in unit D7 on 17/F and 5 or more rooms in unit A9 on 14/F.  As now appeared in the Defendants’ Affirmation, my recollection is about right.
	7.	Among all these rooms inside these three units, I had taken a look into altogether three of them (which I cannot recall from which units).  Two rooms were vacant and not occupied by anyone so I was allowed to take a look.  Another room was at that time occupied by a Pakistan (sic) (my guess on his nationality) who had answered the door so I could have a peep.  Though I did not notice these three rooms had their own water closet, I was told by Mr. Chin or Mrs. Chan that some other rooms in these units had their individual water closet.”

33.  It is not disputed that some of the rooms had their own water closets and that in the floor plans none of the rooms as shown therein had their own water closets.  There is no doubt that there were alterations made to the three flats which are not shown in the floor plans annexed to the assignments.

34.  In the evidence filed on behalf of the vendors the point is made that during the visit by the plaintiff the estate agent had asked the plaintiff whether she wanted to have a look at the floor plan.  The plaintiff replied that it was not necessary as she would look at the actual circumstances of the property by herself.  This evidence is denied by the plaintiff.  In my view, even if I accept the evidence filed on behalf of the vendors in this respect, that does not assist the vendors in showing that there was a waiver on the part of the plaintiff to raise the requisition. 

35.  In Regent Summit (Hong Kong) Ltd v Smart Business (Asia) Ltd  [1998] 2 HKC 718 it was held that the fact that the plaintiff was aware of the alterations could not be regarded as a waiver of its right to raise requisitions on title, or as an act implying acceptance of title in that respect.  Before a purchaser’s knowledge of facts could prejudice his legal position, he must also be aware of the legal consequences of those facts.  Yuen  J (as she then was) said at page 725 :

“  In my judgment, the purchaser has not waived its right to raise requisitions arising from the extensions simply because its representatives had been told about the alterations when they inspected the property before entering into a provisional sale and purchase agreement.”

36.  And at page 726 she said :

“  In the present case, the purchaser was told about the alterations during the inspections of the property before it agreed to purchase it, but there is insufficient satisfactory evidence that the purchaser had been told, or were aware, of the effect of those alterations on the title of the property.  In Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297 at 313, it was held, applying Peyman v Lanjani [1985] 1 Ch 457, that before a purchaser’s knowledge of facts can prejudice his legal position, he must also be aware of the legal consequences of those facts.

Consequently, in the absence of satisfactory evidence that the purchaser’s representatives had been told, or were aware, of the legal consequences of the alterations, the fact that the plaintiff entered into the agreement cannot be regarded as a waiver of its right to raise requisitions on the title, or in other words, as an act showing acceptance of title in that respect.”

37.  It is plain that before a purchaser’s knowledge of facts can prejudice his legal position, he must also be aware of the legal consequences of those facts. 

38.  There is no evidence at all that the plaintiff was told or was aware of the effect of the alterations in the three flats on the title of the property.  That being so, in my judgment there has been no waiver of the right to raise the requisition on the part of the plaintiff.

Clause 22

39.  Although in the letters from the LCK the vendors relied on Clause 22 of the formal sale and purchase agreement, Mr. Hui made it plain that he was no longer relying on Clause 22.  In my view he was right to make the concession as Clause 22 does not assist the vendors.

40.  Clause 22 simply provides that :

“  The Property is and will be sold on an “as is” basis.”

41.  The “as is” clause was for the protection of the vendor in that the vendor would not need to improve the property (Leung Wing Fai v Onlink Investments Ltd [2000] 1 HKLRD 725.  

42.  In All Ports Holdings Ltd v Grandfix Ltd [2001] 2 HKLRD 630 it was held that a provision for sale of property on an “as is” basis and a reference to its physical state and condition did not mean it extended to illegal structures.  If a vendor relied upon the terms of the contract to shift the risk of any defect in title to the purchaser, the language must clearly do so.  

43.  It is plain that Clause 22 does not have the effect of shifting the risk of any defect in title to the purchaser.  Mr. Hui was, therefore, right to make the concession.

Was there acquiescence by the Building Authority?

44.  The assertion that the Building Authority had “acquiesced in the existence of the erection of the rooms long standing” is without merit.  The evidence shows that the Building Orders all related to the common areas or other parts of Chungking Mansion and were not in relation to the individual flats, the subject matter of the three sets of proceedings.  There is no evidence that the Building Authority ever knew of the alterations to the flats and hence the vendors are unable to show that the Building Authority have ever acquiesced in the alterations.

Did the vendors satisfactorily answer the requisitions?

45.  It is clear from the answers given by LCK that they simply stated that the internal erection of the rooms were non-structural internal partitioning.  However, they failed to provide evidence like for instance, an architect’s or a surveyor’s report, in support of the same.  They simply repeated their denials that the alterations were non-structural without providing any evidence whatsoever to show that was the case.  That is simply not good enough and in my judgment there was a failure to satisfactorily answer the requisitions.

46.  In my judgment the vendors failed to satisfactory answer the requisitions and they thereby failed to show good title. The plaintiff was entitled to and did effectively rescind the formal sale and purchase agreements.  She was entitled to the relief claimed and I therefore gave judgment to the plaintiff as set out above in paragraphs 4 to 6.