CHAN CHIK SUM v. GREAT PEARL INDUSTRIES LTD.

IN THE COURT OF APPEAL

1996, No. 181
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This is yet another appeal arising from a property sale and purchase dispute. This time it is whether the purchaser's requisitions were properly made and answered, that is disputed. The requisitions were as to whether certain alterations to the property concerned were duly authorised. Deputy Judge Aiken QC in the proceedings below found for the vendor, Chan Chik-sum, who was the plaintiff. The purchaser, Great Pearl Industries Limited, who was the defendant, now appeals to this Court.

2. The facts are these. The parties entered into a Sale and Purchase Agreement ("the Agreement") on 25th July 1994. The property was House 61, Golden Bamboo Road East, Fairview Park, Yuen Long ("the Property"). It is a semi-detached house on an estate comprised of many similar houses. The dispute concerns iron gates, gate posts, railings and a planter wall (collectively referred to below and before us as "the railings"). The railings around the property are similar to those of many other houses on the estate. The purchase price of the property was HK$3.3 million. A deposit of $230,000 had to be paid in two instalments, and was duly paid. The date for completion was 30th December 1995. The purchaser was granted a licence to occupy the property from 1st July to 29 December 1995. Clause 19 of the Agreement provided:

3. The following chronology taken in the main from the judgment, outlines the material events and their sequence:

1994

1995

1996

4. Upon the competing submissions, the first question that has to be addressed is whether the requisitions were properly raised. The Deputy Judge held that the requisitions were not properly raised because first, they were unreasonably late and also in breach of the time provision in clause 19; and second, that when analysed, the subject matter of the requisitions do not constitute sufficient difficulty because neither the DMC nor the regulations were in fact broken.

5. As to the requisition itself, its imprecise nature, with its confusing and repeated use of "and/or" is apparent from its text. The excuse given for this is that such was the way in which the surveyor cast his advice. That does not begin to explain the purchaser's solicitors' failure to state precisely and clearly what it was they wanted in clarification of the vendor's title. The statement that they "were instructed that approval would be required" simply abrogated their duty to ascertain the legal position; moreover, the requisition was obscure and confusing. Some consideration given to the Buildings Ordinance and Regulations in the course of the hearing before us served only to demonstrate the obscurity of what the requisition was directed to.

6. From the affidavits put in and the submissions made on behalf of the purchaser, it appears that the requisitions were made upon the written advice of a surveyor, Mr David Chan, given on 20th December (some 10 days before the completion date in the Agreement). What he wrote to the purchaser's solicitors was "please review and advise whether we could request the vendor to confirm that the 7 feet high gate posts as installed is or not approved by the Estate Management". It was apparently only upon the strength of that request from the surveyor that the purchaser's solicitors felt able to say that the purchaser "insists that there has been a breach of the deed of mutual covenant and/or the approval plan of the property". Months later, presumably for the purposes of providing expert evidence at the trial, the purchaser consulted its architect who, on 15th July, gave it as his opinion that the railings are "structural elements given in the meaning of the Buildings Ordinance/Regulations" and "require the Building Authorities' approval prior to their erection". Whatever is meant by "structural elements" has never been explained. It was no wonder, therefore, that the Deputy Judge preferred the opinion of the vendor's expert, also an architect, that the railings were not non-structural works for which no approval was required, and made the finding that the railings were "non-structural and so required no approval".

7. Reverting then to the first issue, it is difficult therefore to resist the conclusion that the requisitions were not properly raised in the sense that they were materially confusing and obscure. However, that point not having been taken in that sense below, I proceed to address those points that were taken.

8. The judge disposed of the issue upon two bases. First, that the purchaser did not raise the requisitions either within a reasonable time before the completion date or within the time prescribed by clause 19 of the Agreement. Those findings are, in my view, plainly right, notwithstanding that the title deeds were provided later than the Deputy Judge supposed. However, it was sought on behalf of the purchaser to circumvent those findings by the contention before us that the requisitions went to the root of title, and could, therefore, be raised at any time. However, I am unable to accept that submission as I am persuaded neither that the railings were structural works (which might have gone to the root of title) nor that the purchaser was not in a position to discover the matter in good time, given that the director involved was in occupation of the premises for nearly six months before raising the requisitions two days before the completion date in the Agreement (see Hillier Development Ltd v Tread East Ltd [1993] HKC 285, 292-293).

9. The second basis upon the Deputy Judge rejected the requisitions as having been properly made was that they did not relate to a sufficient difficulty because neither the DMC or the regulations were in fact broken. The nature of his reasons has already been indicated. The manifest presence of railings around other houses on the estate plainly entitled him to regard them as a non-existing difficulty. Moreover, the Deputy Judge could not have been unaware that deeds of mutual covenant in Hong Kong ordinarily contain powers and concomitant duties on the part of management to act against unauthorised structures. So that the confirmation of the Estate Management Office that the DMC had not been breached would give rise to a fair inference that there had not been a breach of regulations.

10. In referring to non-existent difficulties, the Deputy Judge was no doubt adopting the expression of Godfrey J (as he then was) in Active Keen Industries Limited v Fok Chin-keong [1994] 1 HKLR 396. I endorse again the disapproval in that case both by Godfrey J and the Court of Appeal of purchasers' solicitors magnifying difficulties which in reality are non-existent.

11. In both respects, therefore, I am satisfied that the Deputy Judge was right in finding that the requisitions were not properly raised. It is, therefore, not necessary to address the second issue identified by the judge, i.e. whether the requisitions were properly answered. But since the judge went on to deal with it and find for the vendor, I propose to touch upon it briefly.

12. Plainly, insofar as the requirements of the DMC were concerned, the requisitions were answered satisfactorily. Indeed, the purchaser has not sought to pursue that aspect of the requisitions. However, on the assumption that the requisitions satisfactorily raised the question of approval required by the Buildings Regulations, it has to be said that, as Mr Yau for the vendor conceded, this was not answered. But, as I have already indicated, to the extent that the Buildings Ordinance and Regulations were canvassed before the Court, it did not appear that there was any necessity for approval. There is, therefore, no basis upon which to question the judge's finding that no prior approval was required under the regulations. In the result, the vendor's failure to show proof of approval under the Buildings Ordinance could not avail the purchaser.

13. It follows, therefore, that the appeal must be dismissed. I would at the same time make an order nisi that the vendor is to have his costs of the appeal to be taxed if not agreed.

Bokhary, J.A.:

14. I agree. And I would add this. Even assuming that there was material on the basis of which the purchaser could have formulated a proper requisition here, I am of the view that no properly formulated requisition has actually been raised. The requisitions in question are insufficiently precise to be effective.

15. Formalism has no place in these matters. But there is a world of difference between formalism and necessary precision.

16. Requisitions on title must be formulated with reasonable precision if they are to be effective. The importance of such precision is well illustrated by the decision of this Court in Active Keen Industries v. Fok Chi-keong [1994] 1 HKLR 396. There the vendor had a good marketable title. But it was held that the purchaser was entitled to rescind and recover its deposit because the vendor had failed properly to answer a requisition.

17. As Litton JA pointed out (at p 413) in the course of his even more than typically illuminating judgment, there are cases, rare as they may be, in which a vendor has a good title but nevertheless fails to show one. If requisitions on title were treated as effective even though they are not at least reasonably precise, they would become a snare for vendors and a means of destroying bargains.

18. I, too, would dismiss this appeal.

Sears J:

19. I also agree.