REGENT SUMMIT (HONG KONG) LTD. v. SMART BUSINESS (ASIA) LTD.

1998, No. 138
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

(On appeal from HCMP 2451 of 1997)

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J U D G M E N T

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Rogers, J.A. :

1. This is an appeal from a reserved Decision of Madam Justice Yuen given on 1st May 1998 on a vendor and purchaser summons.

The facts

2. The Plaintiff was the purchaser of House No. 44, Windsor Park, Nos. 2-88 Ma Ling Path, Ka To, Sha Tin.

3. In early June 1997, a Mr. Cheung who was an estate agent employed by the firm of estate agents acting on behalf of the Defendant company, the owners of the house, showed the house to Mr. Lui Kit Chiu on 2 occasions, on the second of which Mr. Lui was accompanied by Mr Fan Cheung, Eric. Both Mr. Lui and Mr. Fan were directors of the Plaintiff company. There is no dispute between the parties that on those occasions Mr. Cheung told Mr. Lui and Mr. Fan that there had been additions and alterations to the building. There are 3 additions which, to my mind, are particularly relevant. The first related to an alteration to the front of the house. That alteration comprised the relocation of the front door to the western side of the living room and the enclosure of the yard next to the original front door by a brick work structure. It is difficult to see from the photocopies of the photographs included in the bundles as to exactly what had taken place. Suffice it to say that there is a dispute between the parties as to what was shown and described to Mr. Lui and as to whether he was made aware that the area enclosed by the brick work structure was part of the alterations.

4. Next, there was an alteration adjacent to the kitchen. This again included an addition to the area of the house by a brick addition. Again, Mr. Lui professed himself to be ignorant of the fact that the enclosure adjacent to the kitchen constituted an extension.

5. The last addition to the house was what has been described as "a metal utility room" at the top of the staircase.

6. There were other alterations to the house which included the conversion of the servant's room into part of the kitchen by knocking down the partition and the conversion of the servant's lavatory into a store room, but as far as this case is concerned, they are clearly less important.

7. Mr. Lui was apparently satisfied enough at the time with what he had seen and been told that he caused the Plaintiff to enter into a Provisional Sale and Purchase agreement on the 4th June 1998 when a sum of $1,000,000 was paid over. A formal Sale and Purchase agreement was signed on the 17th June when a further deposit of $980,000 was paid. The total of the deposits were 10% of the purchase price agreed for the property.

8. There is nothing remarkable about the Sale and Purchase agreement. The vendor was required to prove, show and give good title. Clause 18 of the Agreement provided that :

"Any requisition or objections in respect of the title shall be delivered in writing to the Vendor's Solicitors within 7 working days after receipt of the title deeds by the Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of this Agreement)."

9. For some reason, the Plaintiff was given the keys of the property on the 18th June. Although the Plaintiff thus appears to have had possession from that date, there is no suggestion that the Plaintiff or anybody else actually entered into occupation of the house. The next day, the Defendant's solicitors provided the Plaintiff's solicitors with copies of the title deeds and there followed a number of inconsequential requisitions as to title which were contained in a letter of the 27th June. Those requisitions were answered on the 15th July but it was soon after that the events that gave rise to the dispute between the parties began to arise.

10. The Plaintiff had applied to the Bank of Communications for a mortgage loan. On the 17th July, Memfus Wong Surveyors Limited provided the Bank with a valuation report in respect of the property. The valuation happened to coincide exactly with the price that the Plaintiff had agreed to pay for the house. However, the surveyor noted in the Report that the alterations to the front door, the brickwork enclosure nearby, the changes to the kitchen by the demolition of the servant's room and the change of user of the lavatory as well as the construction of the utility room on the roof. It is said at the end of that passage :

"Moreover is appeared that the aforesaid extension/addition works are unauthorized and illegal and they are liable to actions to be taken by the Building Authority."

11. During the course of what appears to have been a routine conversation between one of the Bank officers and the conveyancing clerk of the Plaintiff's solicitors some 8 days later this piece of news was communicated to the clerk. Clearly, this caused some concern and a copy of the Report was requested. The clerk apparently received a copy of the Report on the 26th July and after consulting the solicitor in charge, he informed the Plaintiff of the matter and said that more time would be needed to "clear up the problem".

12. Mr. Lui then contacted Mr. Cheung of the Defendant's estate agents and said that an extension of 2 months was required. There is no dispute between the parties that this was requested and that there was a discussion between the parties using Mr. Cheung as an intermediary as to the terms on which such an extension would be granted. In effect, the Defendant wished the Plaintiff to pay the mortgage interest over the period and the Plaintiff was reluctant to agree to do so. By the time the parties might have agreed to mutually acceptable terms as to an extension, the solicitors correspondence had taken over and the possibility of an accommodation had evaporated.

13. On the 28th July, the Plaintiff's solicitors wrote to the Defendant's solicitors enclosing a copy of the 17th July survey and requested production of a "consent/approval from the Building Authority as to the aforesaid structural alterations". It need hardly be said that the time provided in Clause 18 of the Agreement for raising any requisition or objections in respect of the title had long since expired.

14. The next day, on the 29th July, the Defendant's solicitors replied denying that "the alterations and additions in question are illegal or require consent under the Buildings Ordinance". They were not specific as to the reason for so saying other than that it was alleged that "such decoration furnishing and/or other partitioning were commonplace in all domestic premises in Hong Kong". As an aside, it might be said that whatever truth there might be in that observation it did not render the alterations any less illegal or unauthorised. The letter went on however, to say that even if the alterations were illegal, because they were minor in nature the risk of any enforcement was so insubstantial that it did not affect the title.

15. By now however, the Plaintiff's advisers had been galvanised into action. Henry Chan Surveyors had apparently been instructed and had made a site inspection on the 27th July. They provided a letter dated the 30th July in which they pointed out that there was a roofed area, that by the kitchen, which extended some 45 sq. ft beyond the building line shown in the Assignment Memorial. The Plaintiff's solicitors passed on this piece of news to the Defendant's solicitors by their first letter of the 30th July together with a copy of the Henry Chan report and the assertion that there must be a consequential breach of Special Condition (7) in the New Grant relating to the property. Although the letter of the 30th July appears to indicate that the extension referred to in the Henry Chan report was the same as that in Memfus Wong's first Report, that does not seem to be the case and indeed, as recorded in the Decision below, the Judge treated those as referring to different extensions.

16. This was followed by a second letter of the same date in which the 2nd Report from Memfus Wong Surveyors Limited, also dated the 30th July, was enclosed. This report was entitled a valuation report and was addressed to the Plaintiff. It seems to have been anything other than a valuation. It outlines in perhaps the best detail the addition works and the alteration works which have already been referred to.

17. The first response was contained in a letter which was apparently faxed at 4.40 p.m. on the 30th July from the Defendant's solicitors. That disputed the "valuation report constituted conclusive evidence of the existence of such alteration in question". The solicitors disputed that there was a real and immediate risk of enforcement action by the Government and that the alterations and illegal structures would fall within the meaning of encumbrance. In that letter, the defendant's solicitors proposed that a vendor and purchaser summons be taken out.

18. There was a further letter on the same day from those solicitors which was apparently faxed at 7.23 in the evening referring to at least the first of the Plaintiff's solicitors' letters of that day. This later letter from the Defendant's solicitors again repeated the suggestion of a vendor and purchaser summons but went on to offer a sight of the surveyor's report which had been obtained by the Defendant. These matters could only be referable to an attempt to answer the points in the requisition raised by the Plaintiff.

19. The following day, there was a further exchange of correspondence between the solicitors. The Plaintiff's solicitors averred that the Defendant was in breach of contract in failing to prove good title and demanded the return of the deposit. The Defendant's solicitors said that the Plaintiff had failed to complete the contract and that the deposit was forfeited. Both sides threatened legal proceedings to follow. That they did.

20. The issues before the Judge were summarised by her as follows :-

(1) Had the Purchaser waived its right to raise requisitions by reason of the inspection?

(2) Was the requisition raised too late, or was the time-limit waived?

(3) Was there any substance in the requisition?

(4) Was it satisfactorily answered?

(5) Was the Purchaser entitled to rescind the Agreement?

(6) To what (if any) reliefs is the Purchaser entitled?

21. The Judge decided the first 5 questions in the Plaintiff's favour and granted the following relief to the Plaintiff. She granted a declaration that the Defendant had failed to show good title in accordance with Clause 8 of the Sale and Purchase agreement. She granted a declaration that the Plaintiff was entitled to rescind the Agreement and a declaration that the Plaintiff was entitled to the return of the deposit and a lien on the property until the return of the deposit had been effected together with interest and costs.

The first ground of Appeal

22. At the commencement of the hearing before the Judge, the Judge herself raised the question as to the conflict on affidavit in relation to whether the Plaintiff's directors had been told that the alterations were illegal. The Judge asked the Plaintiff's Counsel what he proposed to do about it and specifically whether cross-examination was going to be requested. After a short discussion, it was agreed by Counsel for both parties that the hearing would continue without cross-examination.

The Plaintiff's Counsel said : "Well, that is certainly the Plaintiff's position. We rely on the affidavit."

Court : "So I can proceed, can I, simply on the basis of the affidavit evidence and give such weight as I deem proper?"

The Plaintiff's Counsel : "Yes."

Court : "Is that right, Mr. Liang (the Defendant's Counsel)?"

Mr. Liang : "Yes."

23. It might be said in parenthesis at this stage that where a Judge raises the question of giving such weight as he or she deems proper without indicating what that is, alarm bells might well ring in the minds of Counsel. However, the matter proceeded, as the Judge was entitled to proceed with it.

24. At the commencement of her judgment, the Judge said :

"Both parties have not sought cross-examination of those deponents on their affirmations. In the absence of cross-examination, I can give little weight to those disputed facts, and I have approached the case on the basis only of the common fact that there had been inspections of the Property by the Purchaser's representatives, and that alterations had been drawn to their attention."

25. The only possible criticism of that passage could be the use of the words "little weight". If for the word "little" there had been substituted the word "no" there could, in my view, be no possible criticism of this passage. But turning to the Decision of the Judge on this aspect, it is clear that the Judge did not attempt to decide the disputed questions on affidavit. She simply held that the party who was seeking to rely on the disputed allegation had failed to make out its case. 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, 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."

26. Mr. Aiken, S.C. who appears on behalf of the Defendant/Appellant in this Court but did not appear below, very properly conceded that no criticism could be levelled in respect of the Judge's approach in this passage.

27. In relation to affidavit evidence which is disputed, it could be said that each case must depend on its own facts. A Judge must consider fully what is said on affidavit. The law is not blind: simply because something is said on affidavit, it does not necessarily mean that it must be accepted, but the scope for disbelieving what is said on affidavit is extremely limited. Where facts are simply contradicted by one side against the other, it is usually impossible for a Court to decide where the truth of the matter lies without cross-examination. This case was just such a case and the Judge very properly approached the matter on the basis that there was insufficient satisfactory evidence on the part of the party who was required to prove the particular matter being alleged.

28. In my view, the first ground of appeal therefore fails.

The second ground of Appeal

29. The second matter arises because as has been indicated, the requisitions were raised late. In respect of that, the Judge said :

"The short answer to this argument is that even if the requisition was too late, the Vendor's then solicitors had waived its right to insist on the time-limit by answering (or purporting to answer) the requisition (Emmet on Title 19th ed. Paragraph 5.080)."

30. The question which must be decided is whether the correspondence shows that the Defendant had in reality thrown away its right to rely upon the lateness of the requisition. Had it, in effect, evinced its intention not to rely on the lateness.

31. It seems to me that it is not merely the second paragraph of the first letter of 30th July in which the question of the alterations is addressed in terms which are clearly not satisfactory, which demonstrates this intention; it is more particularly the suggestion that the matter should be referred to the Court under a vendor and purchaser summons, and in the second letter of the 30th July, the offer to provide the Defendant's surveyor's report which were, in my view, only referable to an attempt to answer the requisition rather than reliance upon the lateness. It might also be added that there is no suggestion in the correspondence that the Defendant was taking the point on lateness and relying on that point.

32. In my view, therefore, this appeal should be dismissed.

Godfrey, J.A. :

33. I agree.

Mortimer, V-P :

34. I also agree that the appeal must be dismissed for the reasons given by Rogers, J.A. I can add nothing useful of my own.

35. In those circumstances the appeal is dismissed.

36. Costs will follow the event.