NATION GROUP DEVELOPMENT LTD. v. NEW PACIFIC PROPERTIES LTD.

CACV 160/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 160 OF 1999

(ON APPEAL FROM HCMP 471/1998)

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J U D G M E N T

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Hon Godfrey JA :

Introduction

1. This is an appeal from an order of Stone J. made on 29 April 1999, resolving a dispute between vendor and purchaser. The issue was in substance this : whether the vendor, having agreed to give a good title to the property, could do so notwithstanding the presence of (1) unauthorised building works on the underside (or soffit) of a canopy of which the vendor had the exclusive use, being building works which had, in fact, been put in place and were being enjoyed by persons other than the vendor; and (2) an unauthorised internal staircase. The judge found in favour of the purchaser on (1) and so held that the vendor had not been entitled to forfeit the purchaser's deposit when the purchaser refused as it did to complete the purchase. The vendor now appeals.

The facts

2. The building of which the property the subject of the sale forms part was developed in 1973. It is situated in Tsuen Wan, and is called "Cheong Wah Building". The Deed of Mutual Covenant affecting the building, dated 22 October 1973, allocated 12/228 undivided shares in the building to "Shops 12 and 13 and the 1st Floor and its Canopy and the Flat thereof" (being a canopy and flat roof which surround the building at first floor level). It is these 12/228 shares, and the right to the exclusive use of the premises allocated to them, which were the subject of the sale from the vendor to the purchaser. The sale was at a price of $65 m, and the purchaser duly paid deposits amounting in all to $10 m. The sale went off because the vendor was unable to show that the works under the canopy, and the internal staircase, were authorised building works; but, as to the internal staircase, the contract had provided that the purchaser was not "to raise any requisition in respect of the Staircase and any matter incidental thereto or arising therefrom."

The purchaser's case

3. As to the staircase, the purchaser accepts that it cannot object to the staircase itself as unauthorised but maintains that it can object to the hole in the floor slab through which the staircase passes. The judge appears to have had no difficulty in rejecting this absurd argument. Nor have I.

4. As to the works underneath the canopy, the purchaser claims and the judge found that the purchaser, if it had completed, would have been at risk of enforcement action in respect of these unauthorised works. Was the Judge right?

Conclusion

5. To test the purchaser's case, it is necessary to consider what precisely was comprehended in the allocation, to the undivided shares the subject of the sale to the purchaser, of the right to the exclusive use of "the First Floor and its Canopy and Flat Roof". In my opinion, this includes the right to the exclusive use of the floor and ceiling surfaces of the First Floor and of the air space between them; and of all the external surfaces of the canopy and flat roof. It does not include any right to any part of the structure of the building. The "owner" of the "First floor and its Canopy and Flat Roof" is "the owner" of these premises only to the limited extent I have mentioned; that "owner" is not the "owner" of the unauthorised building works affixed by others for their own enjoyment to the underside of the canopy, even though that "owner" is entitled to the exclusive use of the external surfaces of the canopy.

Result

6. Since the vendor was not "the owner" of the unauthorised building works affixed to the underside of the canopy, being works not constructed by the vendor and the benefit of which it did not enjoy, there is no reason why the vendor, or any purchaser from the vendor, should be the recipient of any notice from the building authority in respect of these works. The purchaser's objection to the title on this ground was fanciful. It was as ill-founded as its objection to the hole in the slab through which the internal staircase passes.

7. I would therefore allow this appeal, and set aside the judge's order. I would also order (subject to the provisions of Order 42 rule 5B(6) of the Rules of the High Court) that the costs of the vendor, here and below, be taxed (if not agreed) and paid by the purchaser to the vendor.

Hon Rogers JA :

8. I agree that this appeal should be allowed. I would add a few words in respect of the matters which were argued on the appeal.

The staircase and opening

9. It was the respondent's contention that the judge below was wrong to consider that there was nothing in the respondent's arguments in relation to the staircase and, in particular, the opening to the staircase.

10. The Third Schedule of the Sale and Purchase Agreement provided as follows :-

"THE THIRD SCHEDULE ABOVE REFERRED TO

1. Notwithstanding anything hereinbefore contained to the contrary, ....

(ii) In respect of Property (2), the Purchaser acknowledge the existence of a staircase in Shop 12 leading up internally to the First Floor. The Purchaser specifically agree not to raise any requisition in respect of the Staircase and any matter incidental thereto or arising therefrom."

11. Initially, the points taken by the respondent were that that clause was ineffective to protect the purchaser in this case because, in the first place, it did not contain a full disclosure of any defect in title; secondly, it covered only requisitions on the title and did not cover the duty to give good title; thirdly, it related to the staircase and not to the opening in the floor of the first floor to which the staircase led and fourthly, it was an objection which related to the root of title.

12. In the course of argument, it became clear that the only point which was being pursued was that in relation to the opening in the floor and ceiling. Any concession in this respect by the respondent was, in my view, inevitable. The wording of the contract and, in particular, the Third Schedule specifies precisely the staircase referred to and there can be no question that it is properly identified.

13. In my view, Mr Chan, SC, on behalf of the appellant, must be correct when he says that the words "not to raise any requisition" plainly refer to a requisition as to title. If the purchaser is barred from raising objection on the particular aspect of the title, it must follow that the purchaser cannot complain that the title offered was not a good title because of that aspect of which he was barred from raising objections. Whereas, no doubt, the clause could have been more fully drafted, any addition of words relating to objecting to title would only, so to speak, be "to add belt to braces", rather than to cure a specific defect.

14. Clause 24 of the Agreement provides that the provisions of the Third Schedule should prevail over the other provisions of the Agreement; that must therefore include clause 15(a) which relates to title. The clause thus varied the vendor's obligation as to title.

15. The argument that remained was that whatever was said in the Third Schedule of the Agreement relates merely to the staircase and not to the opening in the ceiling of the ground floor and floor of the first floor to which that staircase led. In my view, Godfrey JA's judgment does more than justice to this argument. The hole in the ceiling and floor is part of the staircase construction. The very wording of sub-clause (ii) refers to the staircase leading up to the first floor. If there were no hole in the ceiling, the staircase would only lead up to the ceiling of the ground floor. In my view, the opening in the ceiling and floor is part and parcel of the construction of the staircase and one does not even have to go on to consider the words "incidental thereto" in sub-clause (ii).

16. The last point that any unauthorised construction such as the staircase and the opening of the ceiling and floor would constitute a defect going to the root of title is, in my view, quite untenable. On the basis that there may be interference to quiet possession because of action by the Building Authority, an objection as to title can be raised in respect of unauthorised building works in certain circumstances. That, however, is, except in exceptional circumstances, an objection as to title but it is not an objection which goes to root of title. It can only be an objection which goes to root of title if there is some question that title to property has not been passed. That is simply not the position here.

17. In my view, the judge rightly rejected the respondent's arguments in this respect.

The canopy objection

18. The requisition in paragraph 4 of the plaintiff's solicitors' letter of 11 December 1997 related to unauthorised structures which were attached to the flat roof and canopy of the first floor. The photographs included with that letter showed structures which were apparently both above and below the canopy and on the flat roof. There is no dispute that thereafter, the structures which were on the flat roof and on top of the canopy were removed. Therefore, the question which remained was whether the purchaser was entitled to complain about unauthorised structures which were attached to the underneath of the canopy. This surface has been referred as the soffit. The plaintiff complains, in particular, of the presence of cocklofts, air-conditioning units, advertising signs and light boxes which were attached to the soffit. The objection which the judge upheld was that the items were attached to the soffit in breach of the Buildings Ordinance, Cap.123.

19. It seems to me that the first and simple answer was that the soffit was not part of the premises which the defendant owned, in the sense of having the right to exclusive possession, and it was not part of the property which the defendant undertook to assign to the plaintiff.

20. The first assignment, dated the 28 December 1976, related to an assignment of the property :-

"... Together with the right to the exclusive use occupation and enjoyment of ALL that the entire first floor and its Canopy and the Flat Roof thereof of the said Building as shown and coloured Pink on the Plan hereto annexed (hereinafter referred to as 'the said Floor')."

21. On the face of the matter, that would give the right to the assignee to occupy those areas. It would not, for example, give the assignee the right to occupy the under-surface of the first floor, that would be the roof of the ground floor area. It seems to me that no assistance can be derived by the plaintiff from a consideration of the plans. These are two dimensional and only show the top surface of the areas. If any other surface or area were intended to be conveyed, it would have been necessary to have plans of those areas or at least cross-sectional areas.

22. When the Deed of Mutual Covenant is considered, it can be seen that clause 4(l)(ii) prohibits any of the owners from erecting or affixing any signboard, sunshade, bracket, fitting or thing to the exterior of the building or to the common areas within the said building or any part thereof without the written consent of the manager. If it had been intended that the soffit or the canopy was conveyed to the assignee of the first floor, then the rights that he would have acquired by reason of that soffit, seem to me to be questionable in the least. Whereas the top surface of a structure can at least be stood upon, the soffit can be used for nothing except for attaching items.

23. Whereas one is reluctant to apply common sense to matters relating to contracts between parties, particularly where matters of conveyancing documents and law are concerned, it could be said to be at least surprising if the soffit of the first floor canopy had been conveyed to the owner of the first floor who thus had control over whether, for example, lights or signboards could be attached to the soffit. Such lights and signboards would almost invariably relate to the shop premises on the ground floor to which that part of the soffit were adjacent. To suggest that the owner of the first floor had exclusive control over what was done in respect of signs which would be taken as relating to the shop premises on the ground floor and to lighting arrangements, which could affect only the shop on the ground floor and its exterior, would be to produce a remarkable result.

24. In my view, Godfrey JA's analysis in this respect must be correct.

25. Mr Griffiths SC for the respondent made great play in the course of argument as to the possibility of a notice under section 24 of the Buildings Ordinance being served upon the owner of the first floor by reason of the items attached to the canopy. In my view, Mr Chan, on behalf of the appellant, is correct when he says that the owner of the first floor would not be the owner of the building works. The offending structures were presumably owned by the owners of the ground floor premises. It seems to me that the only notices which could be served under the Buildings Ordinance would be against the owners of the structures, who would also be the owners of the ground floor premises which they served, possibly the owners of the ground floor premises, and possibly the incorporated owners, as the persons responsible for of the whole building. In this respect, I consider that it is unnecessary to make a definitive determination about the construction of Section 24 and the definition section of the Buildings Ordinance. There would, it seems to me, to be no justification in the Building Authority to serve a notice on the owner of the first floor individually. The liability that the owner of the first floor might have would be to contribute ultimately to any remedial work. In this respect, there would be no defect in title with respect to the first floor: see Active Keen Industries Limited v. Fok Chi Keong [1994] 1 HKLR 396.

26. Mr Griffiths argued that the Building Authority would be liable to serve notices on everybody, including his clients. The short answer to that seems to me to be that if they wrongly served it upon the first floor owner, the notice would be invalid.

27. The remaining point taken by Mr Griffiths on behalf of the respondent was that the items attached to the soffit made the canopy unsafe.

28. In my view, clause 17(b) of the Agreement is an answer to that. The purchaser was deemed to accept in all respects the existing physical state, condition and finishes of the property. That, therefore, makes the physical state of the building a matter of which, it seems to me, the plaintiff could not complain. Furthermore, the evidence of structural insecurity of the canopy was, in my view, no more than conjecture. Apart from the reference to the amended Practice Note No.173 to Authorized Persons and Registered Structural Engineers issued in June 1995 by the Buildings Department, there is nothing to show that the canopy is, in fact, unsafe other than speculation. It was not established by the evidence that there was structural instability.

29. In my view, the plaintiff's objection in respect of the unauthorised items attached to the canopy should fail.

30. I would also allow the appeal accordingly.

Hon Keith JA :

31. For the reasons given by Godfrey JA and Rogers JA, I agree that this appeal should be allowed, and that the orders proposed by Godfrey JA should be made.