CHINA LINK CONSTRUCTION CONSULTANTS LTD v. LAU YUK AND OTHERS

DCCJ 3890/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.3890 OF 2005

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J U D G M E N T

Background

1. The subject matter of this action is a landed property situate at Lot No. 4970 in DD No. 51 (“the Property”).  Plaintiff was the purchaser and the Defendants the vendors.    

2. By a Memorandum of Sale and Purchase dated 4^th November 2004 (“the Memorandum”), the Property was sold to the Plaintiff in public auction from the Defendants for HK$4,100,000.  Completion was scheduled to take place on or before 6^th December 2004.  The Plaintiff paid HK$410,000 to the Defendants as deposit and HK$41,000 to the auctioneer as commission.

3. Solicitors for the Plaintiff raised requisitions in respect of the Defendants’ title.  In reliance on certain provisions in the Memorandum, solicitors for the Defendants asserted that the Defendants were not obliged to answer the requisitions raised and refused to answer.

4. The deposit was forfeited by the Defendants upon the lapse of the scheduled completion date.

5. The Plaintiff claims in this action for:-

(a)	a declaration that the Defendants do not have good title to sell or convey the title and interest of the Property;
(b)	a declaration that the Defendants have failed to answer satisfactorily or at all, the requisitions raised by the Plaintiff on their title to the Property;
(c)	the return of the deposit paid; and
(d)	damages.

6. The Defendants counterclaim for a declaration that the deposit paid by the Plaintiff to the Defendants under the Memorandum was forfeited.  They rely on some clauses in the Memorandum and allege that the Plaintiffs are precluded from raising requisitions on title.

Chronology of events

7. There were altogether 5 witnesses called by parties, 2 for the Plaintiff and 3 for the Defendants.  However, there was basically no dispute on material facts and I shall adopt the Chronology of Events prepared by the Plaintiff which is as follows:-

Date	Events
19.11.65	The Property was granted by the Government to (i) Lau Yuk On (1/3 share) (ii) Lau Fuk On (1/3 share) and (iii) D1 and Lau Kui Chiu (1/3 share).
27.5.71	By Succession to Property Memorial No. 167889, the following persons succeeded to 1/3 share in the Property held by Lau Yuk On as tenant-in-common in equal share:- (i) Lau Yat Kwong; (ii) D3; (iii) D5; and (iv) D6.
19.9.78	By a Deed of Gift, the 1/3 share in the Property held by Lau Fuk On was assigned to D4 and D2 as tenants-in-common in equal share.
1.12.83	By a Succession to Property Memorial 1/12 share in the Property held by Lau Yat Kwong was succeeded by D3, D5 and D6 as tenants-in-common.
18.12.03	By a memorandum of sale and purchase, the Property was sold to one Li Chau Hong through public auction by D1-D6 and Lau Kai Chiu, as the vendors, for HK$4.25 million (“the 1st Memorandum of Sale”).  Completion was supposed to take place on or before 19.1.04.
17.1.04	The 1st Memorandum of Sale was registered with Land Registry.
4.3.04	Lau Kai Chiu, as vendor, and D7, as purchaser, agreed to sell and purchase the former’s 1/6 share in the Property at HK$100,000 in a formal memorandum of sale and purchase (“the 2nd Memorandum of Sale”). Lau Kai Chiu, as vendor, and D7, as purchaser, executed an assignment whereby the former assigned 1/6 share in the Property to the latter for HK$500,000.
6.3.04	D1-D6 and Lau Kai Chiu, as vendors, and Li Chau Hong, as purchaser, completed the cancellation agreement to cancel the 1st Memorandum of Sale (“the Cancellation Agreement”).
30.3.04	The Assignment of 4.3.04 was registered in the Land Registry.
22.6.04	Lau Kai Chiu passed away.
4.11.04	By a Memorandum of Sale and Purchase dated 4th November 2004 (“the Memorandum”), the Property was sold to the Plaintiff in public auction from the Defendants for HK$4,100,000.  Completion was scheduled to take place on or before 6th December 2004.  The Plaintiff paid HK$410,000 to the Defendants as deposit and HK$41,000 to the auctioneer as commission.

The requisitions

8. The Government Grant of the Property contains the following express conditions:-

(e)

“The grantee shall not assign, underlet or part with possession of or otherwise dispose of the lot or any part thereof or any interest therein or, except with the prior consent of the District Commissioner, New Territories and in conformity with any conditions imposed by him, enter into any agreement so to do, or … unless and until he has in all respects observed and complied with these General and Special Conditions to the satisfaction of the District Commissioner, New Territories …” (“Special Condition 2(a)”) ; and

(f)

“No building at any time hereafter to be erected on the lot shall be occupied in any way…, until the said District Commissioner shall have given his consent in writing to the occupation of the building.”  (“Special Condition 16(d)”)

9. It is common ground that there has been no written consent for alienation or certificate of compliance in respect of the Property ever obtained from the District Commissioner.

10. As can be seen from the above chronology, the Property was once sold to Li Chau Hong in December 2003 but the sale was later on cancelled by consent.  As revealed in the evidence, the sale was cancelled because of a requisition raised by the solicitors of Li Chau Hong in respect of the breaches of the above conditions of Government Grant of the Property.

11. Solicitors of the Defendant raised the same requisition against the Plaintiffs.

12. Besides, it can be noted also that, before the Cancellation Agreement was executed, Lau Kai Chiu had purportedly sold and assigned his 1/6 share of the Property to the 7^th Defendant (“D7”).

13. The other requisition raised by the Defendant’s solicitors was that before the execution of the Cancellation Agreement, as the title of the Property was passed to Li Chau Hong under the 1^st Memorandum of Sale, there could be no valid title of the Property held by Lau Kai Chiu for assignment.  Hence, the assignment of Lau Kai Chiu’s shares to D7 was invalid and D7 could then have no rights to sell those shares to the Plaintiff.

Limitation/Exemption Clauses

14. As submitted by Mr. Chong, counsel for the Plaintiff, the Defendants basically relied only on Clauses 15(b) and 17 of the Conditions of Sale of the Memorandum as their defence as pleaded under the Defence and Counterclaim.

15. Clause 15(b) provides that

“[t]he muniments of title of the property in the Vendor’s possession may be inspected at any time prior to the sale during business hours at the office of the Vendor’s Solicitors.  No objections or requisition in respect of the title to the Property shall be raised by the intended purchasers or the Purchaser after the signing of this Memorandum of Agreement.  The Purchaser hereby declares that the Purchaser having been provided with the opportunity to inspect all documents of title to the Property whether or not he has inspected the same shall be deemed to purchase with full notice of the contents thereof and declares that he accepts the Vendor’s title to the Property without further enquiry or requisition.”   

16. Clause 17 provides that :

“[for] the avoidance of doubt, the Purchaser shall not make any objection or requisition on title on the ground (i) that there is failure of production by the Vendor of Occupation Permit, Certificate of Compliance, Certificates of Exemption in respect of Drainage Works, Site Formation Works and Building Works and documents of similar nature or any of them and (ii) that any deed or instrument of title affecting the Property purchased by him was executed under a Power of Attorney, but shall assume without enquiry that at the time of execution of such deed or instrument of title the Grantor of such Power of Attorney was alive and that the Power of Attorney was in full force and effect and unrevoked and that the Grantee or his substitute thereunder had full power and authority to execute the deed or document of title.  And the Purchaser shall not call for the original certified or other copies of the Power of Attorney or make any requisition or raise any objection in respect thereof.”

17. Mr. Chong submitted that the above clauses only restricted the Plaintiff’s rights to raise certain requisitions but not rendered the Plaintiff agreeing to accept a defective title.  Since the same requisition has been raised before the Defendants must be aware of the breaches of the conditions of the Government Grant and shall disclose such defect to the Plaintiff.  Unless the vendor had made full and frank disclosure of the defects in title, no limitation clause purporting to restrict the purchaser’s rights to receive good title should be enforceable.  The limitation clause should also be in very clear terms to restrict such rights.  Jumbo King Ltd v Faithful Properties Ltd [1999] 4 HKC 707.

18. I agree with Mr. Chong.  Clause 15(b) relates mainly to inspection of documents of title.  The general limitation to raise requisition hides at the middle of the paragraph and shall be interpreted as limiting the purchaser’s rights to raise requisitions in respect of the documents of title provided for inspection.  In any event, the clause does not go so far as to diminish the vendors’ duty to provide a good title.

19. Clause 17 is more specific in its terms.  However, as submitted by Mr. Chong, it was not sufficient to constitute a disclosure of the breaches or apparent breaches of the conditions of grant.  Although it did mention the failure of production by the vendor of the certificate of compliance, it did not specifically address to the fact that no written consent for alienation or certificate of compliance had ever been obtained or issued.

20. Mr. Lim, counsel for the Defendants, sought to argue that there is no real risk of re-entry by the government and hence the lack of a certificate of compliance shall not be a “blot” on the title.  With respect, this line of defence was not pleaded anywhere in the Defence and Counterclaim and the Defendants should not be entitled to run this argument at this stage.  Moreover, there was simply insufficient evidence adduced by the Defendants to prove that the risk of re-entry was not real.  This court would have to speculate the policy of the government without the relevant evidence available for consideration.

21. On the issue of whether the D7 possessed the beneficial interest to sell or assign to the Plaintiff, Mr. Lim submitted that the assignment executed between Lau Kai Chiu and D7 was in escrow and as the Defendants had indicated that they were prepared to sign any statutory declarations or deed of rectification or confirmation if necessary, D7 shall have sufficient interest to pass title.

22. I do not think this argument can assist the Defendants.  At the time of the assignment of the shares to D7 by Lau Kai Chiu, there was no cancellation agreement yet.  There was no equitable right possessed by Lau Kai Chiu capable of forcing Li Chau Hong to convey the interest on the Property back to himself at the time of the assignment.  The assignment was simply void.  Besides, Lau Kai Chiu was passed away and there was no probate or letter of administration granted in respect of his estate.  The undertaking of the Defendants to rectify would not be sufficient without joining also the estate of Lau Kai Chiu and all the beneficiaries thereto.

Damages

23. Mr. Lim sought also to rely on clause 20 of the Memorandum to limit the damages to the refund of the deposit.  However, it was never pleaded in the Defence and Counterclaim for this defence and I am of the view that the Defendants cannot rely on it at this stage.

Conclusion    

24. Accordingly, I order that judgment be entered against the Defendants for :-

(a)	a declaration that the Defendants do not have good title to sell or convey the title of the Property to the Plaintiff;
(b)	a declaration that the Defendants have failed to answer satisfactorily the requisitions raised by the Plaintiff on the Property;
(c)	the refund of HK$410,000 to the Plaintiff;
(d)	damages in the amount of HK$52,020; and
(e)	interests on items (c) and (d) above at judgment rate from the date of Writ until payment.

25. The Counterclaim of the Defendants be dismissed.

26. I can see no reason why costs should not follow the event and I make an order nisi that costs of this action and Counterclaim be to the Plaintiff to be taxed if not agreed, with certificate of 1 counsel.  This order nisi shall become absolute after 14 days from the date of handing down of this judgment.