CHOW HAI PING, DAVID AND ANOTHER v. LEE ZZ JOSEPH, MARIE MADELEINE LEE AND ANOTHER

HCMP 2412/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2412 OF 2000

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JUDGMENT

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1. This is a Vendor and Purchaser Summons. The Plaintiffs were the purchasers of a flat and car parking space in a block of flats in the Mid-levels, Hong Kong Island. The Defendants were the vendors.

2. A Provisional Sale and Purchase Agreement was entered into between the parties on 14 March 2000 and a Formal Sale and Purchase Agreement was executed by the parties on 10 April 2000.

3. On 28 April 2000, the agreed completion date, the Plaintiffs ("the Purchasers") called an end to the agreement. This was accepted by the Defendants (" the Vendors") the same day. So much is common ground. The issue between the parties is whether the Purchasers were entitled to terminate the agreement by reason of (i) a Building Order and (ii) a Confirmatory Release.

Confirmatory Release

4. I shall deal with the issue of the Confirmatory Release first as it can be disposed of shortly. Indeed, counsel for the Purchasers did not seek to make any submissions on this issue although it was not abandoned.

5. The relevant facts are that in June 1993, the property (comprising one equal undivided 109th share in the lot together with the right to exclusive possession of Flat A on the 6th Floor of Block 1 and Car Parking Space No.6) was acquired by a company called Hayley Ltd. The property was mortgaged to the Hong Kong and Shanghai Bank.

6. On 8 June 1996, a Release was executed on behalf of the Bank in favour of Hayley Ltd. However, in the description of the property in the Release, the Car Parking Space was omitted. On the same day, the property was assigned to the Vendors.

7. On 8 June 1999, the Bank executed a Confirmatory Release, in favour of Hayley Ltd, in which it stated that in order to remove any doubt regarding the Car Parking Space, it confirmed that the mortgage had been released and discharged, and it discharged assigned released and confirmed unto Hayley Ltd the property free from the mortgage.

8. The Purchasers' solicitors considered that the Confirmatory Release should either have been back-dated to 8 June 1996 when the original Release was executed, or that it was necessary for Hayley Ltd itself to execute a Confirmatory Assignment of the Car Parking Space to the Purchasers.

9. The Vendors' solicitors reply dated 26 April 2000 was, in my view, a satisfactory answer. By the Confirmatory Release, the Bank removed all doubt as to whether it had retained any interest in the Car Parking Space: it had retained none. Its entire interest including the Car Parking Space had been released to Hayley Ltd which had assigned all its rights and interests in the property to the Vendors on 8 June 1996. It was not necessary for Hayley Ltd to execute a confirmatory assignment because it would be estopped from denying that the title to the entire property had been transferred to the Vendors by its assignment of 8 June 1996 (Cali Enterprises Ltd v Chongmark Ltd [1986] HKLR 816).

Building Order

10. The matter arises in this way. On 29 July 1999, the Building Authority wrote to the Incorporated Owners of Skyline Mansion stating that he was of the opinion that the slope behind the building (as shown on the plan attached to it) was liable to become so dangerous that it would collapse or be likely to collapse, thereby causing or be likely to cause a risk of injury to persons or damage to property.

11. In exercise of his rights under s.27A of the Buildings Ordinance, the Building Authority declared that the slope was liable to become dangerous and he ordered the Incorporated Owners to (a) appoint an Authorised Person within 2 months to co-ordinate the works and (b) investigate, analyse and report on the slope and submit remedial or preventive works proposals for his approval based on the results of the investigation within 9 months.

12. This is the order referred to by the parties as "the Building Order", although in terms it only required the owners to appoint an AP to investigate and submit proposals for remedial works if found to be needed.

13. The Building Order was registered against the property in the Land Office.

Contractual references to Building Order

14. This was disclosed and provided for in the Provisional Sale and Purchase Agreement signed by the parties on 14 March 2000, which provided at Clause 17 that "the Vendor shall at their expenses be responsible for all the discharge and compliance of the building order of government authority order No. DH90/HK/99C under section 27A(2) of the Building Ordinance (Memorial No.7853498) on or before 14th March 2001".

15. The Building Order was the subject of debate between the parties' solicitors in the drafting of the Formal Sale and Purchase Agreement. The Agreement as executed provided at clause 30 under "Special Terms":-

"without waiving affecting or diminishing any of the Purchaser's right or [of] requisition on the Building Order (Memorial No.7853498) hereinafter mentioned under Clause 8 hereof, the parties agree that the Vendor shall deposit a sum with the Vendor's solicitors as stakeholders on completion which sum shall be sufficient for all the discharge and compliance of the Building Order of government authority order No. DH90/HK/99C under section 27A(2) of the Building Ordinance (Memorial No.7853498) on or before 14th March 2001".

16. Clause 8 contained the usual covenants as to title and provided for the delivery of requisitions.

17. Clause 1 provided for the sale and purchase of the property free from encumbrances. It was sought to be argued on behalf of the Vendors that the words "free from encumbrances" were added to qualify the words "the Chattels" only. Looking at the place where the insertion mark was added, I cannot accept that argument, especially when there were no chattels to be sold in any event.

18. However, in clause 4(b), the parties agreed that on completion, the Vendors would execute a proper assignment to the Purchasers free from encumbrances "subject as herein mentioned".

19. Clause 12 provides for notices affecting "the Land" by which was presumably meant the entire lot. This provided for rescission of the agreement in the event of resumption.

20. As for notices affecting "the Property", by which was meant the Vendors' share and exclusive possession of the flat and car parking space, the Vendors warranted and declared in Clause 12(c) that they had not received and were not aware of any outstanding notice or order requiring them to repair, demolish or reinstate any part of the property. An option was given for the Purchasers to rescind if it were to be discovered that there was such a notice or order, or if one were to be served before completion.

21. As for notices affecting "the Building", which was defined as Skyline Mansion, Clause 12 (d) provided that "subject to clause 30 hereof", the Vendors warranted and declared that they were not aware of any outstanding notice or order requiring the Vendors as one of the co-owners of the Building to effect repair renovation or maintenance to any common part of the Building or the estate of which the Building formed part or contribute to the costs of the works. If it were to be discovered that such notice or order existed prior to the date of the agreement, or if one should be served before completion, the costs of such repair renovation or maintenance or such contribution were to be borne by the Vendors.

Purchasers' objection to title

22. By a letter dated 29 March 2000 (which the Purchasers rely upon as their requisition), the Purchasers' solicitors referred to the minutes of a meeting of the Incorporated Owners, according to which it was said that it would take one month to complete the site investigation work and half a month to carry out the laboratory test (i.e. after the scheduled completion date), and only by then would the owners be able to know what remedial works would be required. The solicitors quoted that part of the Order referring to the slope being (in the opinion of the Building Authority) so dangerous that it would collapse or be likely to collapse, thereby causing or be likely to cause a risk of injury to persons or damage to property, and said that they were therefore "not able to satisfy [themselves] that [the Vendors] may show and give a good title to the above properties". They said that their further concern was whether the slope was stable enough for stabilization work and remedial work to be carried out without affecting the safety of the occupants and whether the building would not [sic] be liable to be declared dangerous.

23. This was followed by correspondence, including a letter dated 5 April 2000, in which the Vendors' solicitors referred the Purchasers' solicitors to clause 17 in the Provisional Sale and Purchase Agreement, saying it followed that completion could not be postponed or rescinded by reason of the existence of the Building Order.

24. There followed further correspondence. On 26 April 2000 (2 days before completion), the Purchasers' solicitors wrote to the Vendors' solicitors asking about the amount to be stakeheld. They asked for a written estimation of the costs of the repair work and if that could not be agreed upon, they said they would advise the Purchasers to postpone completion until the completion of the site investigation works or to retain a sum of $400,000 first and to review the sum later.

25. After a period of initial misunderstanding as to whether what was to be retained was the sum of $400,000 or a part thereof, the Vendors' solicitors wrote to the Purchasers' solicitors shortly before 2:00 p.m. on completion day agreeing to the retention of the sum of $400,000 as stakeheld money until the actual figure was available. The Vendors also offered to extend completion to the next day.

Termination of the agreement

26. However, later that afternoon, without responding to the offer of an extended completion, the Purchasers terminated the agreement saying that they were "not agreeable to withdraw the requisition on the Building Order before [they] have the opportunity to review their position with reference to the site investigation report". The Purchasers asserted that the Vendors had failed to prove a good title and demanded the return of deposits.

27. The termination was accepted by the Vendors later that day.

Requisition(s)

28. First, it is disputed between the parties whether the Purchasers had raised one or two requisitions relating to the slope. Counsel for the Purchasers submitted that there were two requisitions: one on the encumbrance posed by the Building Order and the other on the existence of a dangerous slope. Counsel for the Vendors submitted that there was only one requisition and no question was asked: the Purchasers were only objecting to title by reason of the registration of the Building Order.

29. It is not clear from the correspondence from the Purchasers' solicitors whether there were two requisitions or one, and in this regard, it would have been better if they had enumerated the questions being raised. In this Judgment, I shall deal with both issues raised by counsel for the Purchasers.

Building Order

30. Counsel for the Purchasers submitted that the existence of the Building Order, which had been registered against the property, constituted an encumbrance when the Purchasers had agreed to purchase the property "free from encumbrances".

31. It is correct that clause 1 provided that the Purchasers shall purchase the property free from encumbrances, but clause 4(b) provided that the assignment would be free from encumbrances "subject as herein mentioned". Clause 12(d) provided that it should be "subject to clause 30", and clause 30 disclosed the Building Order and provided for the Vendors' payment of a sum to stakeholders.

32. In my view, it is clear from the Sale and Purchase Agreement that even if the Building Order constituted an encumbrance, the Purchasers had contracted to take the property subject to that encumbrance as provided in the Agreement, clause 1 being qualified by the other clauses in the Agreement when they are read together (Forbes v Git and others [1922] AC 256).

33. If the parties had not contracted on that basis, it is difficult to see how they contemplated completing on 28 April 2000 when the date in Clause 30 was well after that date. Clearly the parties agreed that title would pass before the Building Order was discharged. Therefore even if it was an encumbrance, it was one which the Purchasers had agreed to accept.

Dangerous slope

34. The Purchasers further submitted that they had a separate objection to title in that, apart from the Building Order, they might have a potential liability in the future to contribute to repairs to a slope that the Building Authority thought was dangerous.

35. Counsel for the Purchasers had to accept however that there was, apart from the Building Order, no actual liability at the time of the agreement to purchase, unlike the situation in the Sun Hing Building case (Chi Kit Co Ltd v Lucky Health International Enterprise Ltd [2000] 3 HKCFAR 268, 282). The Building Authority had ordered an investigation to be undertaken but that investigation had not been completed and the results were not known at the time. It could not be said that there was already a significant or substantial risk that the Building Authority would require further works to be done.

36. Accordingly, I find that the Purchasers were not entitled to terminate the agreement when they did. The Vendors had already agreed to their demand to have a sum of $400,000 stakeheld in satisfaction of Clause 30. Nothing remained to be done as far as the agreement between them was concerned, and in any event the Vendors had extended the completion date by a day. It was not suggested by the Purchasers that they needed any more time. It may be that the Purchasers, had they thought about the matter a little more carefully when they were made aware of the Building Order at the time of the Provisional Sale and Purchase Agreement, would have preferred not to have entered into it, but the fact remains that they did.

Order

37. In the circumstances, I would dismiss the Originating Summons (as amended) and would give an order nisi that the costs follow the event, i.e. that the Plaintiffs do bear the Defendants' costs of the proceedings.