POLY TYPE INDUSTRIAL LTD v. CHOW OI WAN MONITA

DCCJ 2701/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2701 OF 2002

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JUDGMENT

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1. The Plaintiff claims against the Defendant for the return of the deposit paid under an agreement for sale and purchase entered on 31 January 2002 by the Plaintiff and the Defendant (hereinafter called "the said agreement") for the sale of a property situation at Flat G on 14th Floor, Wei King Building, 275 Chatham Road North, Kowloon (hereinafter called "the said unit").

2. Under the said agreement, completion was to take place on 13 March 2002. The purchase price agreed was $760,000. The completion date was postponed to 16 March 2002 at the request of the Defendant in February.

3. Title deeds were delivered to the Plaintiff's solicitors on 18 February 2002. On 23 February 2002, the Plaintiff's solicitors raised requisitions which were replied on 26 February 2002. Further requisitions on previous requisitions were raised and replied on 8 March 2002. On 12 March 2002, four days before the postponed date of completion, the Plaintiff instructed its solicitors to raise new requisitions. The Defendant failed to satisfy the Plaintiff's request for new requisitions relying on clauses 13 and 14 of the said agreement. The Plaintiff rescinded the said agreement. As a result, completion did not take place.

4. Under clause 13 of the said agreement, requisitions or objections to title have to be raised within seven working days of the receipt of title deeds delivered to the Plaintiff's solicitors. Under clause 19 of the said agreement, time is made of the essence. Relying on clause 20, the Defendant forfeited the deposit.

5. Clauses 13, 19 and 20 of the said agreement provides that:-

"Clause 13	Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within seven working days after the date of receipt of the title deeds to the Purchaser's Solicitors and further requisition or objection in respect of such requisition or objection previously raised as aforesaid shall be made in writing within seven (7) working days after the date of receipt the reply of the Vendor's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the Agreement) and if the Purchaser shall make and insist on any objection or requisition in respect of the title or otherwise which the Vendor shall be unable or (on the grounds of difficulty, delay or expenses or on any other reasonable ground) unwilling to remove or comply with the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his Solicitors not less than FIVE (5) working days' written notice to annul the sale hereof in which case, unless the objection or requisition shall have been in the meantime withdrawn, the sale hereof shall at the expiration of the notice be annulled and the Purchaser being in the event entitled to a return of the deposit paid hereunder in full forthwith but without interest, costs, or compensation."
"Clause 19	Time shall in every respect be of the essence of this Agreement."
"Clause 20	Should the Purchaser (other than due to the default of the Vendor) fail to complete the purchase in accordance with the terms and conditions herein contained the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine his Agreement by giving notice of termination in writing to the Purchaser or his Solicitors to such effect and the Vendor shall thereupon be entitled to re-enter upon the Property and repossess the same if possession shall have given to the Purchaser free from any right or interest of the Purchaser therein and the Vendor shall be entitled to forfeit the said deposit. Upon determination of this Agreement the Vendor may resell the Property either by public auction or by private contract or partly by one and partly by the other subject to such stipulations as the Vendor may think fit and any increase in price on resale shall belong to the Vendor. Without prejudice to the Vendor's right to recover the actual loss which may flow from the Purchaser's breach of this Agreement, on such resale any deficiency in price shall be made good and all reasonable expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages. On the exercise of the Vendor's right to determine this Agreement as aforesaid the Vendor shall have the right, if this Agreement shall have been registered at the Land Registry, to register at the Land Registry an instrument signed by the Vendor evidencing determination as aforesaid of the sale of the Property."

6. The Plaintiff, on the other hand, claims that the Defendant had failed to show good title and demands the return of the deposit under clauses 18 and 21 of the said agreement.

7. Clauses 18 and 21 of the said agreement are as follows:-

"18.	The Vendor shall prove show and give a good title to the Property in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap. 219) ("Ordinance") at his own expenses and shall at the like expense make and furnish to the Purchaser such deeds or documents of title and if such title deeds and documents do not relate exclusively to the property, the certified copy thereof as may be necessary to complete such title. The costs of verifying the title by inspection and examination including search fees shall be borne by the Purchaser who shall also if he requires certified copies of any documents in the Vendor's possession relating as well to the said premises as to other property retained by the Vendor pay the costs of such certified copies.
"21.	In the event of the Vendor failing to complete the sale in accordance with the terms hereof, all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be returned to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution."

The Facts

8. The Plaintiff's managing director and shareholder Mr. Cheung Kwok Choi admitted that he was an investor of residential properties in Hong Kong, and that he wished to purchase the said unit for his daughter's use. He also claimed that he had inspected the premises for about 10 minutes and he noticed that there were no partition walls dividing the dining room with the kitchen. But, at the time, he did not realise there were any problems with it. Neither did he realise that the walls between the kitchen and dining had been removed nor did the Defendant mention anything about it.

9. Mr. Cheung claimed that he had left the details of the purchase to his solicitors after entering an agreement for sale and purchase on 19 January 2002 with the Defendant. That it was not until early March when he had a conversation with his friend that he was alerted to the fact that there may be a structural problem with an open kitchen created without the Building Authority's approval. It was not until 12 March 2002 that the Plaintiff's solicitor was instructed to raise requisition on the matter.

10. I shall set out below the relevant part of the Plaintiff's then solicitors Messrs. S.T. Poon and Wong's 12 March 2002 letter to the Defendant's solicitors Messrs. Solomon Chong & Co.:-

" We refer to the above property completion of which shall take place on 16/3/2002.

We are informed that the kitchen of the above property was removed and altered. Pursuant to Section 14 of the Buildings Ordinance, Cap. 123, it stipulates that no building works could be carried out without having first obtained the prior written consent of the Building Authority. If any building works other than those not involving structural alteration without such prior consent, enforcement action would be taken by the Building Authority pursuant to Section 24 of the Buildings Ordinance, Cap. 123.

Please let us have the Artichect's Certificate for our perusal before two working days prior to completion.

We hereby reserve our client's right to claim against your client."

11. In answer to which the Defendant replied on 13 March 2002:-

" We are instructed to deny the allegation made in your said letter. Our client has not made and is not aware of the alleged alteration having been made in the Property. Even if such alteration has in fact been made which is not admitted, your client should have been aware of the same when he inspected the Property before or at the time of signing of the Provisional Agreement. Please note Caveat Emptor. That being the case, your requisition on the alleged alteration for the first time is out of time.

We are instructed that our client has proven and given good title pursuant to the Agreement for Sale and Purchase which was confirmed by your Mr. Wu over the telephone call with our Ms. Cheng on 11/3/2002.

We are instructed that should your client refuses or fails to complete the sale and purchase on or before 16/3/2002, your client's deposits will be forfeited."

12. Mr. Cheung returned to the said unit for an inspection on 14 March 2002 to see if the Defendant had moved out of the said unit. He found she had moved most of her belongings but the two walls between the dining room and the kitchen had not been reinstated despite the requisition raised by the Plaintiff's solicitor. He was unhappy about the state of the said unit and through his solicitors requested the Defendant to reinstate the two walls. The Defendant refused to accede to the request.

13. The Plaintiff's solicitors then asked the Defendant's solicitors to produce an architect's certificate. The Defendant's solicitor letter in reply stated:-

" We reiterate that our client has proved and given good title. Your allegation on the alternation, even if it were true which is not admitted, would not assist your client as it was already there at the time your client inspected the Property for the first time. Our client has not done any building works of whatever nature to the Property since your client inspected the Property for the first time. If your client is to raise requisitions on the alleged alternation, it should have been done much earlier. By now, your requisition is, no doubt, out of time. The photos do not seem to show or prove anything. The case authorities cited by you appear to be inapplicable in the present case. Further, we are instructed that your client is allowed access to the Property on 14/3/2002 solely for the purpose of verifying the delivery of vacant possession on completion. Your request for an Architect Certificate is totally groundless and is hereby refused."

14. The Plaintiff refused to complete the sale on 16 March 2002 on the basis of the Defendant's failure to show and give a good title.

15. The Defendant Madam Chow claimed that Mr. Cheung knew of the 'open' kitchen when he first inspected the said unit on the evening of 19 January 2002 at 9 p.m. She further claimed that he had stayed in the said unit for 1/2 hour and had complained to her about the open plan kitchen, telling her it required renovation involving re-instatement of the walls.

16. It is Madam Chow's evidence that Mr. Cheung had told the estate agent Miss Cheung to ask her to accept a lower price for the said unit after the inspection. The reason he used for a lower price was the need to re-instate the walls between the kitchen and the dining room. Madam Chow insisted that the negotiation that night went on until the parties signed a provisional agreement at 1 - 2 a.m. after she agreed to sell the said unit at $760,000, $100,000 down from the original asking price of $860,000. She insisted the Plaintiff knew and accepted the open kitchen when it entered into the said agreement with her.

17. It is undisputed that the Defendant's solicitors sent the title deeds and relating documents to the Plaintiff's former solicitors Messrs. S.T. Poon & Wong on 18 February 2002. The Plaintiff raised a number of requisitions on 23 February 2002. These were answered by the Defendant on 26 February 2002. The Plaintiff raised further requisitions on the requisitions raised previously on 5 March 2002 to which the Defendant replied on 8 March 2002. It was not until 12 March 2002 that the Plaintiff raised the new requisition about the two walls in the kitchen. The Defendant refused to entertain the new requisition raised because it was out of time.

18. The Plaintiff refused to complete on 16 March 2002. On 30 March 2002, the Defendant found another purchaser and eventually assigned the said unit to the new purchaser at $720,000 on 30 April 2002.

The Issues

19. The issues in the present action are:-

(i) Was the requisition raised on 12 March 2002 out of time?

(ii) Was good title shown?

The Law

20. On the issue of time for delivery of requisition, clause 13 of the said agreement stipulated that requisitions "shall be delivered in writing to the Vendor's Solicitors within seven days after the date of receipt of the title deeds to the Purchaser's solicitors and further requisitions or objection in respect of such requisition or objection previously raised as aforesaid shall be in writing seven working days after the receipt the reply of the Vendor's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the agreement)."

21. Farrand's Contract and Conveyance, 4th ed. at p. 121 said"-

" In other words, the position usually is that requisitions cannot be effectively raised out of time (see Cumberland Court (Brighton) Ltd v. Taylor [1964] Ch 29). To this prima facie position, however, there are three established exceptions; they are that requisitions may always be raised out of time:

(a) as to defects going to the root of the title (Want v Stallisbrass (1873) LR 8 Ex 175, Re Tanqueray-Willaume and Landau (1882) 20 Ch D 465) the nature of these has already been discussed (p 87: but essentially involved is the vendor's inability to convey what he has contracted to (see Re Brine and Davies' Contract [1935] Ch 388);

(b) as to matters of conveyance (Re Hughes and Ashley's Contract [1900] 2 Ch 595, Re Scott and Eave's Contract (1902) 86 LT 617); again these have already been discussed (p 92), but in effect they are defects in title removable by the vendor as of right (eg, a mortgage); also mention was made earlier that requisitions as to these matters need not be raised at all; and

(c) as to anything affecting the title not discoverable from the face of the abstract (Warde v Dixon (1858) 28 LJ Ch 315); this would apply, for example, where incumbrances (eg, restrictive covenants) emerge from the purchaser's own searches and enquiries elsewhere (see Re Haedicke and Lipski's Contract [1901] 2 Ch 666, at p 669) 2 My & Cr 207; cf Law Society's Digest, Opinion No 95 (a) in Fourth (Cumulative) Supplement)."

22. The position in the present case involves the first exception (a) above. Under the said agreement clause 13, the Plaintiff's new requisition was raised out of time. The exception in law is, if the defects go to the root of the title, then the Defendant would have to answer the new requisition even if it was out of time. If the defects do not go to the root of the title, the Defendant is entitled to insist on the time-table laid down in clause 13 of the said agreement and refuse to reply to the Plaintiff's new requisition.

23. Mr. Maurellet, counsel for the Plaintiff, referred me to the judgment of Deputy High Court Judge Woolley in Billion Best v. Armity Investment (HCMP 2263 of 1998), his judgment of 3 December 2001 was unreported. The defendant in that case claimed that the alterations were said to be so obvious that the plaintiff purchasers should have been put on enquiry as to whether they were illegal or not. The question raised in that case is one of due diligence.

24. The facts in the Billion Best case revealed that the plaintiffs in that case sought advice from the Buildings Department and received a reply from the Buildings Department that it would only take immediate action where there is obvious hazard to life or property. The property in question in the Billion Best case was a commercial property and the unauthorised work involved were in the cockloft, the canopy and the fire escape staircase. Deputy Judge Woolley followed the findings of the court in Giant River Ltd. v. Asia Marketing Ltd. [1990] 1 HKLR 297 where the unauthorised structures faced a risk of enforcement action by the Government was held to constitute a defect in titles. Deputy High Court Judge Cruden held in that case that mere knowledge of the existence of some of the unauthorised structures does not of itself operate to modify a contractual term. Before a purchaser's knowledge of the facts can prejudice his position he must also be aware of the legal consequences of those facts, and even his knowledge would not reduce the obligation of the vendor to show a good title on the date for completion.

25. I have been further referred by both sides to the case of Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285 where Penlington J.A. with reference to the case of Giant River and other authorities, said in p. 293 "I am satisfied that those authorities only go to the proposition that where a vendor, having used due diligence, is unaware of some defect in the vendor's title, the time limit imposed in the agreement does not run against him.

26. Deputy High Court Judge Woolley in the case of Billion Best para. 26 said:

" This is not a case where there is any evidence that the plaintiff had earlier knowledge but kept this in reserve until it was sure that the defendants could not remedy the situation. It was rather a case of the vendors having knowledge which they kept from the purchaser."

27. Mr. Chong, for the Defendant, referred me to the judgment of Recorder K. Kwok S.C. in the case of Essence Star Limited v. Mai Jian Bo where Mr. Recorder Kwok S.C. found for the vendor and held that:-

" The question about the partition wall between the two washrooms was one which with due diligence could and should have been made much earlier than 16 December 1997 which was 2 days before the completion date."

28. Recorder K. Kwok S.C. adopted the dictum of Stone J. in Wong Man Kit Raymond v. Chan Nam Fan (HCMP 4391 of 1997) the judgment of 18 May 1998:-

"I do not intend in this judgment to investigate the proposition that this deviation from plan would raise enforceability problems from the Building Authority such as to constitute a blot on title. Suffice it to say that on the assumption that it does, I do not accept that a clear and obvious matter which goes to the root of the Vendor's title can, in effect, be clasped to the Purchaser's breast for opportunistic use in any subsequent emergency - and in this context, perhaps, there can be no greater emergency in the eyes of the Hong Kong speculator than the fall of the property market subsequent to purchase. It follows, therefore, that in my judgment a problem going to root of title does not, as Mr Chain contended, serve in itself to render the provisions of Clause 10 (a) otiose. To the contrary. In my view the time limit in Clause 10 (a) fails to bite only in those circumstances where the problem with title could not have been discovered within the relevant contractual period for the raising of requisitions."

Findings

29. I find the Plaintiff's Mr. Cheung to be a shrewd investor of residential properties in Hong Kong. He admitted that had in the past either through the Plaintiff or in his own name purchased a number of properties. 4 - 5 properties previously owned by the Plaintiff had all been sold by 1997. In his own witness statement, he admitted he would look out for properties of good value. He further admitted that the Defendant's property was considered a good bargain. The Defendant, on the other hand, admitted that she was in need of quick cash due to her own financial difficulties. Clearly the Plaintiff had an advantage over the Defendant when the Defendant wanted a quick sale and could not afford to wait for a more generous offer from other potential purchasers. She had bought the said unit in 1999 for $990,000.

30. I accept the evidence of Madam Chow that on 19 January 2002, when Mr. Cheung inspected the premises, he made some comments about the 'open' kitchen. Further, Mr. Cheung complained of the expense involved in reinstating the two partition walls of the kitchen and he used this to persuade the Defendant to lower her asking price of $860,000 and eventually reached an agreement at $760,000.

31. Mr. Cheung obviously knew of the demolished kitchen walls. As an experienced investor of residential properties in Hong Kong, he knew of the risks involved. He exploited the opportunity and beat the asking price down by $100,000 in only a few hours on 19 January 2002. On the other hand, he waited until 12 March 2002, 7 1/2 weeks later and four days before completion to raise the matter of the two missing partition walls of the kitchen with the Defendant's solicitors. He said he was dissatisfied with the un-reinstated walls in the kitchen when he inspected the said unit again on 14 March 2002. There were no evidence either in court or by letter produced on his behalf requesting the reinstatement of the kitchen walls. The only evidence came from Madam Chow who said there was such a request made after the completion date had past and Mr. Cheung called her about the sale.

32. I am convinced that Mr. Cheung's concern on 12 March 2002 was not whether there was good title shown by the Defendant, his concern was that Madam Chow should reinstate the two walls at her expense.

33. I find it difficult to accept that under these circumstances, the Defendant can be said to have failed to alert the Plaintiff on the open kitchen. It was plain to anyone walking into the said unit to notice the open kitchen. It was obviously known to the Plaintiff at inspection on 19 January 2002. It is not something that the Defendant had kept to herself for the Plaintiff had used it as a reason to make the Defendant accept a lower offer price for the said unit. It was employed by the Plaintiff as a bargaining point, he cannot turn round 7 1/2 weeks later and pretend he did not understand the legal consequences if he failed to raise requisitions over it within the time limit under clause 13 of the said agreement.

34. Clearly, the new requisition was raised out of time. If not for Madam Chow's postponement of completion date from 13 March to 16 March 2002, the new requisition would have been raised only one day before the completion date.

35. The burden is on the Plaintiff to show that the defect has gone to the roots of the title, e.g. by showing that the two partition walls were structural walls and consequently Ss. 14 and 24 of the Buildings Ordinance had been infringed. There is no such evidence before me. For this reason, I find the Plaintiff has failed to discharge the burden. With full knowledge of the condition of the kitchen, it is obvious that he knew he could reinstate the kitchen quite easily, just as he said he was dissatisfied that it was not reinstated by the Defendant on 14 March 2002. He was getting what he bargained for. And he refused to complete for his own personal reasons using the new requisition as an excuse.

36. I therefore find for the Defendant and dismiss the Plaintiff's claim. Costs nisi to the Defendant to be taxed if not agreed. Defendant's own costs to be taxed in accordance with legal aid regulation.