WAH YING PROPERTIES LTD. v. SOUND CASH LTD.

1993, No.A4248

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H E A D N O T E

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SALE OF LAND - VENDOR'S OBLIGATION TO SHOW A GOOD TITLE - EFFECT OF ORDERS ISSUED BY THE BUILDING AUTHORITY REGISTERED AGAINST THE PROPERTY - WHETHER PROPERTY INCUMBERED AT TIME OF THE ASSIGNMENT

1993, No.A4248

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Background

1. The Defendant was the former registered owner of the property situated at Nos.79, 81, 83 and 85 Queen's Road East, Wanchai, Hong Kong ("the property"). It acquired the property in 1989. By an Order dated 14th January 1983, the Building Authority ordered the predecessors in title of the Defendant to carry out remedial work in respect of the earth-retaining structure of the property. The Order was registered in the Land Office on 10th June 1987. By another Order dated 13th August 1987, the Building Authority further required the other predecessors in title of the Defendant to carry remedial work in respect of a earth-retaining structure on the property. The Order was registered in the Land Office on 15th February 1988.

2. By an agreement dated 4th May 1992 ("the Agreement") the Defendant agreed to sell the property to the Plaintiff. Clause 16 of the Agreement provided that,

"The purchaser acknowledges that the property is now an open site and the purchaser shall not raise any requisition as to the existence of any notice or order from any government or other competent authority requiring the vendor to demolish the property or any othergovernment requiring repair work to be carried out in respect of the property or any part of the building, if any, under the provisions of the Buildings Ordinance (Cap.123)."

3. Clause 9A of the Agreement provided that the vendor shall show good title in accordance with section 13 and paragraph 9 of Part A of the Second Schedule to the Conveyancing and Property Ordinance, Cap.219.

4. By an Assignment dated 30th June 1992 the property was assigned by the Defendant to the Plaintiff.

5. The Plaintiff on 30th November 1992 sold the property to Portwealth Properties Limited ("Portwealth").

6. In respect of the remedial work referred to in the two Orders the Defendant did not carry out the remedial works and they were carried out by the Building Authority. By a demand note dated 10th December 1992 the Hong Kong Government demanded payment of HK$398,836.99 being the apportioned charge and cost of the remedial work carried out by the Building Authority on the property. The demand was made against the Defendant. The Defendant did not pay the amount. By a Certificate issued under s.33(1) of the Building Ordinance, the Building Authority certified that the cost of the work caused by the Building Authority to be carried out amounted to HK$398,836.99 and the Defendant was liable for that sum. The Certificate was registered in the Land Office on 3rd May 1993.

7. The Building Authority by a letter dated 14th January 1994 informed the Plaintiff's solicitors that it would not vacate the Certificate from the Land Office unless they were prepared to settle the amount due on the Certificate.

8. By a letter dated 20th May 1994, Portwealth demanded the Plaintiff to settle the amount due to the Building Authority. The letter stated that it will "hold the Plaintiff directly responsible for all losses arising from delays or any other consequence arising from your failure to settle the demand note".

Nature of the action

9. The Plaintiff by this action claims that the Defendant had failed to show a good title to the property and that the property was not free from incumbrance by reason of the two Orders issued by the Building Authority on 14th January 1983 and 30th August 1987 respectively and the consequential demands by the Building Authority.

10. Although this is an action brought after the completion of the sale of the property, the Plaintiff as the purchaser is still entitle to sue on the covenants for title, (see para.359 of Halsbury's Laws of England, Vol.42, 4th Ed.).

11. The sale and purchase agreement expressly provided that the Defendant was required to show a good title in respect of the property. According to the case of Re Stirrup's Contract [1961]1 WLR499, the vendor must show beyond doubt that he is in possession of the estate and that he is in a position to convey it without any blot or possibility of litigation to the purchaser. The standard of proof beyond reasonable doubt has been confirmed by the House of Lords and applied in Hong Kong.

Was the property incumbered on the date of the assignment?

12. The only issue in this case is whether on 30th June 1992 when the Defendant assigned the property to the Plaintiff, the property was incumbered. On that date, there were two Orders issued by the Building Authority and registered against the property. The two Orders were issued under s.27A of the Building Ordinance ("the Ordinance"). Under s.27A(1) of the Ordinance if the Building Authority was of the opinion that any earth-retaining structure has been rendered so dangerous that it will collapse or likely to collapse, the Building Authority may by order in writing serve on the owner of the land requiring the owner to carry out the remedial work as specified in the order. Under s.27A(3) where the owner failed to comply with he requirement imposed under the order, the Building Authority may carry out the remedial work and it may recover the costs thereof from the owner.

13. Under s.33(1), the Building Authority may issue a certificate certifying the cost due and the names of the persons liable therefor. Under s.33(9), at any time before such cost and interest accrued thereon has been wholly recovered, a memorial of the certificate issued by the Building Authority may be registered in the Land Registry against the title of the property.

14. Upon the registration of the memorial of the certificate, two legal consequences will arise. Firstly, the cost and the interest accrued shall be recoverable by action in the court from any person who from such Land Registry register then or thereafter appears to be the owner of the property (s.33(9)(a)). Secondly, the cost and the interest accruing shall constitute a first charge on the property which shall give the Building Authority the same powers and remedies as if he were a mortgagee under a mortgage by deed in common form having power of sale and lease and of appointing a receiver (s.33(9)(b)).

15. In respect of the second legal consequence, it is subject to the proviso under s.33(9) that the charge shall be void and no liability shall accrue against a bona fide purchaser or mortgagee of the premises for valuable consideration who, subsequent to the completion of the works specified in the certificate and before the registration of the memorial, has acquired and registered an interest in the property charged.

16. In the present case, the certificate under s.33(1) was issued on 19th March 1993 and was registered on 3rd May 1993. Under this certificate the Building Authority stated that it had carried out the remedial work under s.27A(3) from 31st March 1991 to 28th February 1992. The certificate further provided that the Defendant who was the owner of the property at the date of the completion of the said work was liable for the cost incurred by the Building Authority in the remedial work.

17. Mr Chain, counsel for the Defendant, argued that as of the date of the assignment namely, 30th June 1992, there was no incumbrance on the land. The certificate was only registered on 3rd May 1993. Before the date of the registration, the Plaintiff had already sold the property to Portwealth. Under s.33(9) the charge shall take effect upon the registration of the Certificate. In any event the charge has no effect against a bona fide purchaser who subsequent to the completion of the works and before the registration of the memorial of the certificate had acquired and registered an interest in the property. As both the Plaintiff and Portwealth purchased the property subsequent to the completion of the work and before the registration of the memorial of the certificate, the charge had no effect against both the Plaintiff and Portwealth.

18. Although by virtue of the proviso to s.33(9) the charge has no effect against the Plaintiff and Portwealth, the registration of the memorial of the certificate has an effect against Portwealth who was and still is the registered owner of the property when the certificate was registered. Under s.33(9)(a) the Building Authority may proceed by action to recover from Portwealth the amount of the cost.

19. Mr Thomson, counsel for the Plaintiff, argued that the property was in fact incumbered and the Defendant should have disclosed the completion of the remedial work to the Plaintiff. He relied on the case of In re Allen & Drisroll's Contract [1904]2 Ch.226 in support of his contention that the incumbrance takes effect on the completion of the work on28th February 1992. This case concerns the construction of s.257 of the Public Health Act 1875. The section provided that,

"Where any local authority have incurred expenses for the repayment whereof the owner of the premises for or in respect of which the same are incurred is made liable under this Act or by any agreement with the local authority, such expenses may be recovered, together with interest at a rate not exceeding ?5 per annum, from the date of service of the demand from the same until payment thereof, from any person who is the owner of such premises when the works are completed for which such expenses had been incurred, and until recovery of such expenses and interest, the same shall be a charge on the premises in respect of which they were incurred-"

The Court of Appeal held that the charge under the section arose upon the completion of the works. Vaughan Williams L.J. held that,

"In my opinion there was no liability, inchoate or otherwise, until the local authority had completed the works."

As the case turns on the construction of the English statutory provisions which were differently worded from that of s.33(9), it would not assist the Plaintiff in advancing its argument.

20. Section 33(9) was considered by the Court of Appeal in Sinobrain Industrial Ltd. v. Mok Kam Ming (Civ. App. No.47 of 1992). In that case the Plaintiff entered into a sale and purchase agreement with the Official Receiver to purchase a property. In the agreement for the purchase of the property it was expressly provided that the property was to be sold subject to the orders of the Building Authority registered in the Land Office by two memorials and any other orders that may be issued by the Building Authority. It was also provided that the purchaser was to pay all the costs and expenses for the discharge of the order. The Plaintiff in turn entered into a subsale and purchase agreement with the Defendant subject to the terms and conditions set out in the principal agreement. Under this subsale agreement, the Plaintiff warranted that one of the memorials had been discharged and complied with. The Plaintiff also undertook to be responsible for all costs and expenses. The Plaintiff acted as the confirmor in the sale to the Defendant.

21. The vendor insisted to insert a term to the assignment which stated that,

"And subject also to two orders by the Building Authority registered in the Land Office by Memorials No... and... respectively."

22. The Plaintiff accepted the insertion of this term but the Defendant objected to this insertion. The sale was not completed and the Plaintiff forfeited the Defendant's deposit. The Plaintiff took out an Order 14 application seeking a declaration that the Plaintiff had validly rescinded the subsale and purchase agreement between the Plaintiff and the Defendant. Leonard J. gave judgment to the Plaintiff. On appeal, the Court of Appeal held that,

"It was argued on behalf of the defendant that the plaintiff was not entitled to require that the amendment be inserted in the draft deed of assignment as the words were intended to impose a charge on the land in circumstances where, in law, no such charge existed. They were surplusage which the defendant was entitled to insist should not be included in the deed."

"Bearing in mind that this is an Order 14 matter we are prepared, in all the circumstances, to rest our decision on the basis that it is arguable that the defendant was entitled to insist that the words be not included in the deed and to refuse to complete by signing a deed in which they were incorporated."

23. The judgment referred to the decision of Leonard J. who held that,

" The memorials related to an order to do work which had now been done, plus a letter confirming that such was the case. All the memorials do is give notice that a situation exists where the Building Authority may issue a Certificate under s.33(1) certifying the cost, naming the persons liable therefor and apportion such cost among them, whereupon the money is recoverable from these persons as a debt due to the Crown. By s.33(9), if a memorial of the Certificate is registered against the title, the cost with interest shall be a first charge on the premises or land. But that is subject to an important proviso:

'Provided that the charge shall be void and no liability shall accrue under this subsection against a bona fide purchaser or mortgagee of the premises or land for valuable consideration who, subsequent to the works as specified in the Certificate and before the registration of the memorial thereof, has acquired and registered an interest in the premises or land to be charged.'

The assignment in the amended form would have given to the defendant what he had contracted to take, i.e. a title free from incumbrances. Even if there was by virtue of s.33, a potential future charge on the land, there was no charge yet. A potential as opposed to an actual statutory liability is not an incumbrance - In Re Allen & Drisroll's Contract [1904] Ch.226."

24. Although the registration of the certificate would only impose a potential liability, I am of the view that such a potential liability in fact constitute an incumbrance on the property. In this respect, I shall refer to the case of Rignall Development Limited v. Halil[1987]3 All ER170. The Defendant was the owner of a house which he had purchased knowing it to be subject to a charge relating to an improvement grant which had been paid to her predecessor in title. The charge was registered in the register of local land charges and could be removed on payment being made to the local authority. The Defendant put the property up for auction and the Plaintiff agreed to purchase it under a contract incorporating the National Conditions of Sale (20 Ed.), Condition 11 of which provided that the purchaser shall be deemed to have made local searches and enquiries and to have knowledge of all the matters that would be disclosed thereby and shall purchase subject to such matters. Special Condition 5 provided that,

"The property is also sold subject to any matters which might be disclosed by a search and/or enquiries of the relevant local authority either at the date of sale or at the date of completion and (whether or not he has carried out any such search and/or enquiries) the purchaser shall be deemed to buy with full notice and knowledge of such matters, and shall not raise any objection thereon or requisition relating thereto."

25. The Plaintiff did not search the local land charges register before the auction and was unaware of the charge. When the Plaintiff did discover the charge it refused to complete and the Defendant served a notice to complete. The Plaintiff subsequently obtained the removal of the charge and indicated that it was willing to complete, but the Defendant then refused to complete unless the Plaintiff paid interests on the purchase price from the date of notice to complete. The Plaintiff sought a declaration that the Defendant had not been entitled to serve the notice to complete because, having regard to the charge, she had not been able to show good title.

26. Millett J. held that the Defendant had failed to show a good title to the property. At page 174 he said that,

"It is, however, a well-established rule of equity that, if there is a defect in title or incumbrance of which the vendor is aware, the vendor cannot rely on conditions such as those in the present case unless full and frank disclosure is made of its existence. The leading authority is Nottingham Patent Brick & Tile Company v. Butler (1885)15 QBD261. Wills J. said (at 271):

`The Fourth Condition provides that the property is sold subject to any matter or thing affecting the same, whether disclosed at the time of the sale or not. Such a condition, however, does not relieve the vendor from the necessity of disclosing any incumbrance or liability of which he is aware, but simply protects him if it should after wards turned out that the property is subject to some burden or right in favour of a third party of which he is unaware... It would be nothing short of a direct encouragement to fraud if the vendor were at liberty by a condition of this kind to sell to a purchaser as an absolute and unburden freehold a property which he knew to be subject to liabilities which would materially reduce its market value ... - In honesty and in law alike he was bound to give the purchaser full and fair information what it was that he had for sale, and it was inviting him to buy, and having failed to do so, he cannot insist upon the bargain procured by the suppression of material facts affecting the nature of the subject of sale. I entirely acquit the Defendant of anything like intentional misconduct, but in the preparation of the particulars of sale he unfortunately relied upon his solicitor, who, as I cannot help believing, was under the mistaken impression that he could better the position of the vendor by abstaining from making himself acquainted with the contents of the earlier deeds in his possession, and open to his perusal."

Millett J. at page 175 further held that,

"In answer to this, it was submitted on behalf of the defendant that the conditions of grant did not create an incumbrance or burden on the property, but only a personal liability on the owner. But the grant is repayable on demand by the owner for the time being of the property, so that the potential liability binds successive owners of the property affected (which is why it is required to be registered) and in my judgment that is enough ... It was for the defendant to show a good title to the property free from the risk that repayment of the grant might be demanded from the plaintiff, and she failed to do so."

At page 178, he held that,

"Here, the defendant, through her solicitor, knew of the existence of the entry on the register; she could have procured its removal by repaying the grant if necessary; and the question is whether her failure to disclose what she knew prevents her from relying on the express terms of the contract. I cannot think that a vendor who knew of the existence of a registered charge, and who deliberately deceived the purchaser by telling him that there was no such charge, or that it was not registered, could escape liability for fraud by claiming that by virtue of s. 198 the purchaser must be taken to have had actual notice of the truth. Similarly, I am not prepared to hold that a vendor who knows of a registered charge, and who wishes to make the sale subject to it, is exonerated by s. 198 from his obligation to make full and frank disclosure of its existence before he can take advantage of the appropriate condition of sale."

27. Although on 30th June 1992 which was the date of the Assignment of the property to the Plaintiff the certificate had not yet been issued or registered, the remedial work had been completed and unless the Defendant discharged the cost of the remedial work, the statutory scheme under s.33(9) would eventually come into operation. The Defendant did not disclose that the remedial work had been carried out. The Defendant argued that there was no evidence to show that it had knowledge of the completion of the remedial work or that it was in possession of the property during the time of the carrying out of the remedial work. With respect, such evidence should come from the Defendant rather than from the Plaintiff. It was also argued by the Defendant that there was no evidence showing the attitude of Portwealth towards the orders imposed on the property by the Building Authority and it may well be that Portwealth accepted the two orders without any challenge. The Assignment between the Plaintiff and Portwealth did not provide that the property was sold subject to the two orders. In any event, Portwealth is now demanding the Plaintiff to discharge the cost to the Building Authority. While the charge imposed by virtue of the registration of the memorial of the certificate has no effect against both the Plaintiff and Portwealth, the registration certainly has an effect on Portwealth who is currently the registered owner of the property. It is rendered liable to repay the cost to the Government because by virtue of s.33(9)(a) the Government may recover such cost against it by way of an action. The Government has refused to vacate the charge unless it is prepared to discharge the cost. Portwealth is now demanding the Plaintiff to be responsible for the payment of the cost. The Plaintiff now has to resort to litigation to resolve the dispute. As of 30th June 1992 there was a risk that repayment of the cost of the remedial work might be demanded from the Plaintiff. It was for the Defendant to show a good title to the property free from that risk and without the possibility of litigation to the Plaintiff. In my view, it had failed to do so. Clause 16 of the Agreement would not be effective to limit the Defendant's obligation to the giving of a good title. It had not disclosed that the remedial work had by then completed. Before the Assignment the Plaintiff's solicitor had conducted a search of the land register and he was aware of the two orders. However, he was not aware that the Building Authority had carried out the remedial work required under the two orders.

28. The defence of waiver was relied upon by the Defendant in the Defence. However, this was not pursued upon at the trial and in the light of In re Gloag and Miller's Contract [1883] Ch.D Vol.XXIII 320 and Rignall it is not a defence which is available to the Defendant.

29. I am satisfied in the circumstances that the Plaintiff is entitled to succeed in its claim. It was accepted by the parties that if I am to rule in favour of the Plaintiff, the only order 1 need to impose is an order directing the Defendant to pay the sum of HK$398,836.99 and all outstanding interest accrued thereon and take at its own cost all such other steps as may be required to remove the said incumbrance. I shall so order accordingly.

30. Mr Chain further argued that the matter should not be proceeded with by way of an action. There was not much dispute as far as evidence is concerned and the Plaintiff could deal with the matter, for example, by way of an application under Order 14A and he asked me to take this into account in considering the question of cost.

31. It is true that the matter before me can be dealt with by an application under Order 14A and the evidence in this case is not controverted. However, no objection was lodged by the Defendant towards the mode of the proceedings prior to the hearing. I do not consider that it is appropriate not to grant the Plaintiff the full cost of the action. In the circumstances, I shall order that cost nisi of this action be granted to the Plaintiff.