JUMBO GOLD INVESTMENT LTD. v. WARREN YUEN CHEONG LEUNG AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CACV No. 113 of 1998

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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 concerning the adequacy of the response of the respondents/defendants ("the vendor") to the requisitions of the appellant/plaintiff ("the purchaser") as to title. It arises out of the judgment of Yeung J whereby he held that the requisitions of the purchaser had been satisfactorily answered, and that the respondent vendor had shown and proved good title.

2. The relevant facts are not in dispute and can conveniently be taken from the judgment appealed. The subject property was Flat C6 and car parking space No. C-6 of Block C of the Repulse Bay Mansions on Repulse Bay Road, Hong Kong ("the property"). By a sale and purchase agreement dated 30 August 1997 ("the Sale and Purchase Agreement"), the vendor agreed to sell and the purchaser agreed to purchase the property for $26.8 million. Block C like two other blocks, i.e. Blocks A and B, of the Repulse Bay Mansions was built upon land carved out of what was originally Rural Building Lot No. 168. That Lot was originally subject to the following covenant under the Government Lease by which it was originally granted, which accordingly applied to the three blocks:

"... in no case may the height of any building erected exceed Thirty-Five feet except with the consent of the Governor-in-Council."

3. The Occupation Permits (then known as Domestic Permits) in respect of the three blocks were issued on 28 May 1950 in respect of Block A, 5 September 1951 in respect of Block B and 28 June 1955 in respect of Block C. None of these Occupation Permits specified the number of storeys nor the height of the buildings. Block C, it is not in dispute, is a 6-storey block, and there is no dispute that its height exceeds 35 feet. Flat C6 is on the 6th floor. There is no direct evidence of whether Block C was originally built to its excess height or subsequently extended and if so, when.

4. In 1961 and 1964 by Memoranda of Modification, the Government lifted the height restrictions for a premium of $140,000 in respect of Block A and B. No such modification was made in respect of Block C.

5. The acquisition of Flat C6 in 1973 by the vendor, is the first clear evidence of the excess height of Block C but, of course, it gives no clue to when Block C reached that height.

6. In 1997, as indicated, the parties entered into the Sale and Purchase Agreement. Clause 7(a) provided:

"The Vendor shall give and prove good title to the Property at his own expenses shall as proof of his title to the Property, produce the Government Lease relating to the Property sold and other documents in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap. 219)..."

7. Subsequent to the signing of the Sale and Purchase Agreement, the purchaser's solicitors raised the following requisition by their letter of 4 September 1997:

"... It is noted that the said Deed of Mutual Covenants did not mention the number of storeys contained in Block C ... According to the restrictive covenants of the Crown Lease in respect of Rural Building Lot No. 168, no building erected on the lot shall exceed 35 feet except with the prior consent of the Government. Please therefore prove to us that such restrictive covenant had been complied with."

8. The vendor's solicitors replied on 15 September 1997. That part of their reply material to this appeal was in the following terms:

"3. It is your client's duty to verify this matter. In accordance with our information, Block C is 6 storeys (including the ground floor car port).

4. The correspondences between Government and the developer ... point to the fact that Government actively monitor the development of Blocks A, B and C in the Lot. Since the completion of Block C, two more modifications were also made by the Government, which modifications are also annexed Government Lease. It is therefore apparent that Government is aware of the situation.

Our clients do not have the required correspondences with Government consenting to the developer to build in excess of 35 feet, as in the forties and fifties most of the modifications were done by correspondences.

Even if Block C was in breach of the height restriction contained in the Government Lease, enforcement action of the Government, after a period of forty years, is highly remote."

The purchaser did not accept that. The purchaser insisted that the requisition had not been answered. Ultimately the purchaser took out its vendor and purchaser summons with the result that has already been mentioned.

The judgment

9. The judge reached his conclusions in the following way. He first dealt with the overlapping evidence with respect to whether the vendor had satisfactorily answered the purchaser's requisition. He referred to Mr Chong's submission on behalf of the vendor that in the light of clause 7(a) of the Sale and Purchase Agreement, s.13 of the Conveyancing and Property Ordinance, and the undisputed fact that Block C was in breach of the height restriction covenant, that the vendor must produce a letter of modification showing that the height restriction had been lifted or alternatively evidence from the Government that no enforcement action would be taken, in order to show good title. He rejected that submission, pointing out that there was no dispute that waiver (oral, written or inferred from conduct) could be a defence to breach of covenant. Noting that the vendor was not making a positive suggestion that the Government lease had been modified, although initially suggesting that the Government had actively monitored the development of the three blocks, he rejected the submission that the vendor had to produce documentary proof to satisfactorily answer the requisition or prove good title, which evidence might not exist. The vendor, he said, needed only to set out the background and circumstances leading to its waiver. These circumstances, he added, had been set out. He therefore held that the defendants had satisfactorily answered the requisition.

10. I pause here to say that the foregoing conclusion could only be warranted if the circumstances were such as to establish that the Government had lifted the restriction or waived it. There was no evidence going directly to either alternative, and it will be necessary to return to address them.

11. The judge then turned to whether the defendants had shown or proved a good title to the property. He had rightly observed that his foregoing conclusion did not mean that the vendor had shown or proved such title. He continued:

"...In order to show and prove a good title, the defendants must established beyond a reasonable doubt that there is no risk of the Government taking any enforcement action in respect of the covenant on the height restriction. If the defendant cannot so satisfy the court, the court will not force the title on the plaintiff.

There is no dispute that the Occupation Permit in respect of Block C of the Repulse Bay Mansions was issued in June 1955. The Occupation Permit described the building as 'one apartment block' with no indication as to the number of storeys. On the other hand, there is no basis to assert that more storeys were added to the building since 1955, which is most unlikely.

In any event, at the latest, the said property has been in existence since 1973 when Lap Heng Co. Ltd. assigned the said property to the defendants' predecessor-in-title.

There had never been any indication nor suggestion that the Government would take enforcement action in respect of the covenant on the height restriction.

The question of risk of enforcement is a question of fact and degree and of common sense as Godfrey J. put it in Kok Chong Ho Wong Mui v. Double Value Developments Ltd. H.C.M.P 2857 of 1990.

I have repeatedly asked myself the question that in the light of the background of the case whether there is any real risk and not fanciful risk of enforcement action being taken against the said property. The answers are invariably negative.

On the evidence before me, I am satisfied to the required standard that the defendants have shown and proved a good title to the said property."

Before I leave the foregoing reasons for the judge's conclusions, I have to record my reservations about the judge's view that there was no basis to assert that more storeys were added to the building since 1955 which he thought most unlikely. Likewise, I have to say that it is difficult on the basis of the evidence mentioned to see why the answers should be in the negative. However, these are matters to which I shall have to return, particularly given the submissions made to this Court.

The competing submissions

12. These followed their general thrust below. Mr Chong's main point is that there having been a breach of the height restriction, a bare assertion by the vendor that Government has waived it is insufficient. Mr Johnson Lam ,for the vendor, refutes that contention. He seeks to rely upon a number of submissions ancillary to the vendor's main ground before us, i.e. waiver. I turn now to address those submissions.

When height restriction exceeded

13. As already indicated, there is no direct evidence identifying the time when the height restriction was exceeded. It is not a point of crucial importance. Mr Lam makes three submissions in relation to it. First, that the height restriction must have been exceeded at the time Block C was first constructed. If that is not accepted, he submits, it would have been exceeded by 1964 when the height restrictions applying to Blocks A and B were fully lifted. If this too is not accepted, he submits, then quite clearly upon the undisputed and plain evidence of the assignment of a 6th floor flat to the vendor, the height restriction had been breached by the time of that transaction, i.e. 1979.

14. Turning to his first submission, he stresses that the Occupation Permit does not show how many storeys there were. Also from photographs exhibited, Blocks A and C clearly adjoined each other. Their similar height would be as apparent as a disparity of a few floors would be conspicuous, so that any extension of the height of Block C would be unlikely. I suppose that does suggest, if only just, that an extension of Block C to increase its height subsequent to its construction is unlikely to have taken place. Even if that is so, such an inference must be displaced by the following consideration. The Buildings Ordinance at the time the Occupation Permits and modification memoranda were issued or executed, made provision for certification of compliance by authorised architects and for entry and inspection by the Building Authority in ss 137 and 148. Upon the presumption of regularity, therefore, Block C must be presumed to have been inspected and the only inference must be that it did not contravene Building Regulations by exceeding the permitted height. As I have said, the point is not crucial and I do not propose to canvass it further.

15. Mr Lam's second submission is that Government officers would have visited Blocks A and B at the time of the modification negotiations and would certainly have become aware of the increased height of Block C at the time. That conclusion does not seem to me to necessarily follow. It is far from clear why Government officers could not have approved the modification on paper. Nor is it clear why they should not have assumed that in due course there would be similar negotiations and modifications in relation to Block C. Finally, it cannot be assumed or concluded upon the evidence that Block C had been extended by 1964.

16. Turning to Mr Lam's third submission, upon the evidence it does seem that the only safe conclusion is to treat Block C as having been extended by 1979. That, at least upon its face, would appear to entitle one to the conclusion that if Government were aware at that time of the breach, the 20 or more years during which they did not enforce the restriction could lead to the inference that there was no real risk of it being enforced. But why the Government should have had notice of the breach in 1979 is not clear.

17. It is here that Mr Lam's reliance upon Attorney General of Hong Kong v Fairfax [1997] HKLRD (PC) 243 at 245 primarily comes into play, in particular the following passage:

"Before their Lordships, the Crown contended that Fairfax had to prove that the Crown had knowledge of the developments in breach of covenant before any question of abandonment by the Crown can be presumed. A man cannot acquiesce in conduct of which he is ignorant. Whilst their Lordships accept that proof of such knowledge is essential, there is here overwhelming proof. It is true that Fairfax was unable to lead evidence showing specifically that any relevant servant or department of the Crown was aware of what was going on."

Their Lordships in the case then went on to point out that the whole area surrounding the property in that case had been transformed into an area of high density high rise buildings. It would take, they said, compelling evidence which was lacking to rebut the inference that everyone concerned with the land was well aware that it was not being used for villas. It was upon that basis that their Lordships accepted that there was proof of knowledge of the breach. There is nothing of that sort here. The case does not assist Mr Lam.

18. What is clearly required upon Fairfax, is that there must be "proof of such knowledge" i.e. of the breach, before Government can be taken to have waived the relevant requirement. Proof, I apprehend to mean anything that goes to prove the proposition, be it fact, evidence or argument. There is nothing that could be regarded as proof, in that sense, of knowledge of the breach as far as I can see in this case.

19. The judge viewed the question of risk of enforcement as a question of fact, degree and of commonsense upon the authority he cited. However, approaching the fact upon the basis of commonsense does not bring me any closer to his conclusion. Moreover, I feel bound to say that within the limits of its essential quality, commonsense must embrace commercial reality. But the latter too does not seem to me to go very far in filling the void in any proof of the requisite knowledge on the part of the Government. As to the detailed implications of the several points I have touched upon, I agree with the very thorough analysis made by Stock J with whose judgment I agree.

20. The plaintiff's requisition was not answered. The correspondence between the Government and the developer do not, in my view, point to Government having actively monitored the development of Blocks A, B and C in respect of the height restriction or generally. It was not the purchaser's duty to verify the compliance with the covenant imposing the height restriction of 35 feet. Nor was the bare averment, that after a period of 40 years enforcement of the height restriction by the Government was highly remote, a proper answer to the requisition and the problem it revealed.

21. It follows from the foregoing that the judge was wrong in his conclusion that the defendants had satisfactorily answered the requisition raised by the plaintiff in connection with the height restriction covenant and also that the vendor had shown and proved to the required standard a good title to the property. I would accordingly allow the appeal and make the declarations sought by the purchaser, with an order nisi that the respondents/defendants pay the appellant/plaintiff's costs of the appeal and below.

Liu JA:

22. I adopt the facts set out in the judgment of the Vice-President.

23. An answer to a requisition disclosed that the building (the property) had stood on Block C of Repulse Bay Mansions for over 40 years. That was not challenged. The vendors (respondents) were under no duty to deal with any features without a requisition. The Domestic Permit for the property was issued in 1955. The property was described in the Domestic Permit as "one apartment block C on Lot No. 168". It does not specify the structural height of the property. Ex facie, the Domestic Permit refers to the existing property in its entirety, and the purchaser (appellant) has never questioned the Domestic Permit as one issued for the property or the premises (Flat 6 and Car Parking Space C-6) in the Agreement for Sale and Purchase as having been lawfully occupied under it. It must be assumed that the property had been properly inspected as required by law for the issuance of the Domestic Permit. It has not been suggested that Flat 6 and Car Parking Space C-6 ever escaped assessments by the Rating and Valuation Department.

24. On Lot No. 168 were erected three blocks, Block A in 1950, Block B in 1951 and Block C in 1955. In the Government Grant, Lot No. 168 was subject to, inter alia, a 35-foot height-restriction covenant:

"And except with the consent of the Governor-in-Council, (the grantee) will not erect more than eight houses on the said piece or parcel of ground and will not erect any building on the said piece or parcel of ground other than houses of a European type and the design of the exterior elevations and the disposition thereof shall be subject to the special approval of the said Director (of Public Works) and in no case may the height of any building exceed Thirty-Five feet except with the consent of the Governor-in-Council". (Emphasis supplied).

25. On the undisputed assertion that the property has been erected for over 40 years, the Domestic Permit is good evidence that the design of the exterior elevations must have been noted without objection by the Director of Public Works. Design of exterior elevation is inextricably tied to structural height. It is inconceivable that the purchaser in this case could rationally argue that Government had been less knowledgeable as to the over 35-foot building height of the property.

26. There is also documentary proof that at least Flat C and Car Parking Space C-6 are not recent additions because these were sold as early as 1973.

27. The purchaser demanded proof of a given consent of the Governor-in-Council for a structural height above 35 feet. None was produced. The question before Yeung, J. was whether there was any real risk, not a fanciful one, of Government enforcement of the height-restriction covenant. In cases such as this, concrete proof of Government's knowledge and attitude is often not easy to find. In a Vendor and Purchaser Summons under s. 12 of the Conveyancing and Property Ordinance, the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title. It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned. Conveyancing practice must be geared to uphold bargains. In most cases, unless the obvious commercial reality is shaken by compelling contra-indications, the court would more readily conclude beyond reasonable doubt that risk of Government intervention is remote. Some support may be derived from what Lord Brown-Wilkinson said in AG of Hong Kong v. Fairfax Limited, [1997] HKLRD 243 at p. 246C. This is often more true in the Hong Kong scenario where the volatile property market focuses on hard facts of life.

28. In this case, no one in the conveyancing sector would doubt that the Government was aware of the height-restriction breach for many years in the past. This is good evidence of abandonment of the right to enforce this restrictive covenant for height. The judge rightly concluded that there was no real risk of enforcement.

29. Block A and Block B secured a lifting of the same restrictive covenant in 1961, but it is not to say that these Blocks had not been similarly positioned to claim a contended abandonment of the 35-foot height-restriction. We know not the reasons for seeking, no doubt, a swift modition. The structural design of all three blocks, Block A, Block B and Block C in close proximity is similar. What happened in 1961 might well have served as an oblique reminder to the Government of the breach also on Block C, but there is no direct evidence. The significance lies not in what Government knowledge could be inferred from the modifications granted in 1961 but in Government's continued inaction towards Block C. In 1961, height restriction was likewise lifted for the Remaining Portion of Lot 168 on which a high rise building has been erected. The Government could perhaps be expected to become familiar with the existence on Block C of a non-conforming structure in the course of departmental inspections of the progress and completion of the high rise Repulse Bay Towers on the Remaining Portion of Lot 168, but this is peripheral. Whatever impact on Block C the 1961 grant of modifications carries, nothing known in this case seems to militate against the above rationale for assessing the risk of Governmental enforcement as regards that block by reference to the Domestic Permit and the 40-year old property.

30. The vendors disclosed all the material facts within their knowledge in advancing their understanding and contentions. Nothing was concealed. In fact, the vendors were exhaustive in answering the requisition raised. Whether or not the facts disclosed would prove a good title was a matter for the judge, but the requisition had been, in my view, satisfactorily answered.

31. Insofar as Part II of the First Schedule to the Conveyancing and Property Ordinance is or may be relevant to the passing of a good title by the vendors in their assignment for completing the sale and purchase of the property, it is submitted that the vendors could not, as beneficial owners, discharge their liability under the statutory implied covenant for title in the sense that they are now knowingly suffering the height-restriction covenant to be continually breached. Even assuming the 35-foot restrictive covenant imposes a continuing liability, it would pose no real risk of enforcement by reason of its reasonably clear abandonment by the Government. This is part and parcel of the risk issue and calls for no separate consideration.

32. The judge came to a right conclusion. In this appeal, the parties could not be affected by redevelopment potential. I would dismiss this appeal with an order nisi for costs against the purchaser.

Stock J:

33. This court is required to address a familiar question. The question is whether in respect of an established breach of a building covenant, there is a real as opposed to a fanciful risk of enforcement action by the authorities. If it is established that there is no real risk - and the burden for showing that rests with the vendor - then (absent other impediments) a good title is shown. If that is not shown, then the courts will not force the risk upon an unwilling purchaser.

34. Whether there is or is not a real risk depends, of course, on the facts of the case. Where there is evidence that the Government has, for many years, been aware of a breach and has taken no enforcement action in respect of it that, depending on nature of the covenant and its breach, may very well be ample ground for holding that the risk of enforcement action is remote.

35. I endorse, without reservation, the sentiment that the question of real risk must be approached with a healthy dose of common sense; and that the facts must be assessed in the round, abjuring invitations to a scholarly examination of straightforward fact. But that said, there must be an evidential basis upon which a conclusion can properly be drawn that there is no such risk, and in my judgment the fact, on its own, that a building has been standing for 20 or 30 or more years does not without more entitle one to say that the Government has known of a breach and has acquiesced in it.

36. It does not seem controverted by the vendor in this case that the mere establishment of a breach and inaction by the Government is, by itself, not enough to show that there is unlikely to be enforcement action taken. There is an additional element which must be demonstrated, and that is that the Government was aware of the breach. That awareness or knowledge may be demonstrated quite easily in many cases and in one or more of a host of ways; and I do not contend that it is necessary to prove it by direct evidence. t is a fact which the courts, applying common sense, can infer. But inferences cannot be drawn from mere assertion. There must be fact or facts which give rise to the inference.

37. What are the central facts in this case? The buildings are in close proximity in Repulse Bay, Hong Kong Island. We have photographs of two of them, Blocks A and C. Block B has been demolished. There is nothing remarkable about the standing blocks. They are not high-rise buildings; they are blocks of flats which are but several storeys high. There is no evidence, one way or the other, whether they stand out from the neighbouring surroundings or whether, on the other hand, they are blocks surrounded by much higher constructions or whether they stand in isolation.

38. The domestic or occupation permit for Blocks A and B were issued in 1950 and 1951 respectively. Neither shows the height of the building to which it refers. The occupation permit for Block C was issued in 1955. It, too, makes no reference to height, either expressly or by implication.

39. There is no evidence before this court, nor was there any before the learned judge at first instance, about the height of the building, Block C, in 1955. One inference which might be drawn - though of course not necessarily the only inference - is that the very issue of the occupation permit should lead one to presuppose that in 1955 the building did not then exceed 35 feet nor did it then exceed five storeys (the latter because by reason of the provisions of the Buildings Ordinance then in force there was prohibited the erection of any domestic building exceeding five storeys. The building has in fact six storeys now).

40. In 1961, there was executed a memorandum of modification or variation of the terms of the Crown Lease in relation to Blocks A and B. But none was executed in relation to Block C. The 1961 modification recites the then current height restriction and states that "the Lessees have requested that the said covenants [as to height] should be modified so as to permit multi-storey redevelopment of the said remaining portions." For a premium of $140,000, the modification was granted and a covenant substituted specifying the maximum roofed over area for buildings between four and 20 storeys. There was a further modification in 1964. But, again, that did not relate to Block C.

41. It is suggested by the vendor in correspondence between the parties that "the Government actively monitored the development of Blocks A, B and C" and it would appear that they contended that the fact of these modifications suggest such monitoring. I am prepared to assume or infer that when the modifications were sought in 1961 and 1964, the Government was then aware of the features and height of Block C. Now, if the Government was aware in 1955, or in 1961, or in 1964 that Block C was higher than 35 feet, then of course inactivity for all those years until now means, as a matter of common sense, that the likelihood of enforcement action hereafter is fanciful, not least because modifications were readily granted in 1961 lifting the height restriction in relation to the other buildings. But the fact is that there is simply no evidence - one way or the other - about the height of Block C either in 1961 or in 1964, or for that matter in 1955. We do not know, because there is no evidence about it, whether Block A and Block B were rebuilt or made higher. Nor do we know, for there is no evidence about it, whether before the modification to the lease, they were higher than their permitted levels. And if there is an inference to be drawn from the fact of the modifications, why is not the more reasonable inference that, since the owners of Blocks A and B went to the trouble in 1961 of securing permission for development which otherwise would have been in breach of the covenant, neither Blocks A or B were previously in breach and therefore Block C was also unlikely to have been in breach at that date? Whilst it may be that that was not the scenario, on what footing does one say that the converse was the case, namely, that Block C was already, at that date, in breach of the height restriction? All we know is that when, some years later in 1973 the present premises were first assigned, the building Block C must have been more than 35 feet high.

42. Mr Lam, on behalf of the Respondent, refers to Attorney General of Hong Kong v. Fairfax [1997] HKLRD 243, at page 245 :-

"Before their Lordships, the Crown contended that Fairfax have to prove that the Crown had knowledge of the developments in breach of covenant before any question of abandonment by the Crown can be presumed. A man cannot acquiesce in conduct of which he is ignorant. Whilst their Lordships accept that proof of such knowledge is essential, there is here overwhelming proof. It is true that Fairfax was unable to lead evidence showing specifically that any relevant servant or department of the Crown was aware of what was going on. But it must be borne in mind that this case is not concerned simply with what has been going on on the property belonging to Fairfax, Nos.9 and 10 Hing Hong Road. The Crown is relying on a single covenant which applies to the whole of Inland Lot 757. Therefore, conduct by the Crown inconsistent with the continuing reliance upon the covenant by the Crown in relation to all parts of Inland Lot 757 is relevant to the question whether the Crown has abandoned the covenant. Accordingly the question is whether the Crown was aware of the wholesale development of the whole of Lot 757 which has taken place over the years.

In the absence of any explanation, the only possible inference from the fact that over a period of 40 years multi-storey blocks had been built over virtually the whole of Lot 757 is that everyone, including the Crown, must have been aware of those facts. An area of 2.5 acres has been transformed into an area of high density high rise building. It would take compelling evidence, which is lacking, to rebut the inference that everyone concerned with that land was well aware that it was not being used for villas. As Leonard J. said in the Court of Appeal :

'The suggestion that the Crown as landlord did not know of the development is unrealistic.'"

(I have added the emphasis.)

43. Mr Lam seeks to draw comfort from the fact that in that case the court was prepared to draw an inference, categorising it as the only possible inference, from the fact that the blocks had stood for over 40 years at an "excessive" height, that the Government must have been aware of the breach. But those passages tell us no new point of principle. They show no more than an example of facts from which an obvious inference arises; a contract in that particular case of land intended to be used for villas but now conspicuously transformed into an area thick with high rise buildings. Those are simply not the facts of this case. And the key feature of those passages for present purposes is that "proof of such knowledge is essential".

44. I turn then to the approach of the learned trial judge. The judge noted that :

"In 1955 the occupation permit in respect of Block C was issued. The occupation permit described the building as one apartment block with no indication as to the number of storeys or otherwise as to height. On the other hand, there is no basis to assert that more storeys were added to the building since 1955 which is most unlikely."

I have, with much respect, some reservation about the validity of that approach. It seems to me that the very fact of the breach of the height restriction, taken together with the applications for modification of Blocks A and B, suggests that there may have been additions after 1955. The learned judge continues :

"In any event the said property has been in existence since 1973 when Lap Hing Co. Ltd. assigned the said property to the Defendant's predecessor in title. There had never been any indication or suggestion that the Government would take enforcement action in respect to the covenant on the height restriction. The question of risk of enforcement is a question of fact and degree and of common sense.

On the evidence before me, I am satisfied to a required standard that the Defendants have shown and proved a good title to the said property."

45. The accuracy of the findings there revealed, of long inactivity by the Government, is beyond any reasonable debate. But none of these comments by the judge expressly addresses the question of knowledge, although no doubt it may well be asserted that the judge is in effect saying that of course the Government must have known. Where I beg to differ is in my opinion that there is not shown a sufficient evidential basis in this case for such a finding.

46. In response to the paragraph which says that there is no basis to assert that more storeys were added to the buildings since 1955 and that such an event is most unlikely, there is evidence that an occupation permit was issued in 1955, so one is, I believe, equally entitled to assume that in 1955 when this building was first occupied, it did not contravene the height restriction; and if that be a reasonable inference, then it would follow that there must since have been a change, authorised or unauthorised. It is simply not shown what the height was in 1955, whether there had since been a change, whether that change was brought to the attention of anyone within the Government, and I have already alluded to the inference which might be drawn from the fact that in 1961 there was a modification permitted to neighbouring buildings in the same development but none has been extended to this building, namely, the possible inference that in 1961 the building with which we are concerned did not breach the covenant. In my judgment, the evidence fails to show awareness by the Government of the breach and that being so, it seems to me difficult to say that there is a sufficient evidential basis upon which to conclude beyond doubt that the risk of enforcement action is fanciful.

47. It is then asserted by Mr Lam, on behalf of the vendor, that it is too late for the purchaser to take this point, because it was never suggested by the purchaser's solicitors in correspondence that the building may have changed since the issue of an occupation permit. Had that been suggested, says Mr Lam, the vendor could have made the specific inquiry and answered the point.

48. The purchaser put its requisition in this way :

"According to the restrictive covenant of the Crown Lease in respect of rural Building Lot No.168, no building erected on the lot should exceed 35 feet except with the prior consent of the Government. Please therefore prove to us that such restrictive covenant has been complied with."

The answer put forward was that the Government actively monitored the development of Blocks A, B and C and since the completion of Block C, two more modifications were made. The suggestion implicit in that answer is that when the modifications were made in 1961, Block C was then in its height in breach of the covenant. The answer goes on to say that the Government has been inactive in relation to the breach for over 40 years, so there, too, is implicit the assertion that the breach took place in the 1950s when the building was first constructed. In the face of these assertions, the purchaser stated that the mere fact of modifications in 1961 to the other blocks did not entitle an inference to be drawn that the Government had consented to modifications or breach in respect of Block C.

49. The requisition proffered by the purchaser was in its ultimate effect directed at a clear point which was this : please show that the height infringement was known to the Government and that the Government with that knowledge has acquiesced. It was then for the vendor to answer that requisition and to show good title in that regard in particular. It is not for the purchaser then to specify all the avenues to be explored by the vendor to answer the particular requisition satisfactorily.

50. It is said that the occupation permit was issued in 1955 and that it is clear from the letters sent by the vendor's solicitors in response to the requisition that they were asserting all along that the building had been unchanged for 40 years; in other words that Block C in 1998 was the same in height as Block C in 1955, and that that assertion was never questioned by the purchaser; and that they have, in other words, not raised a requisition in that regard, and must by virtue of the terms of the sale and purchase agreement be precluded now from doing so.

51. Clause 8 of the sale and purchase agreement provides as follows :

"Any requisitions or objections in respect of the title shall be delivered in writing to the Vendor's solicitors within seven working days after the 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 the agreement)."

52. I take the view that the point made by the purchaser is misconceived. The requisition which I have set out and which was raised by letter dated 4 September 1997 was raised within time. If an answer to that requisition was given which did not then satisfy the purchaser, the requisition thus made as to the specified suspected encumbrance on title remained extant. It is true that the purchaser did not say in terms "prove to us that the property was indeed higher than 35 feet in 1955", but the fact that they suspected that the encumbrance had never been waived is self-evident from a reading of the papers. By letter dated 24 September 1997, for example, the purchaser's solicitors wrote :-

"The fact that there had been modifications do not draw inference that the necessary consent of the Government to modify the height restriction in respect of the subject section is not required."

This seems to me to leave the question open as to when height may have exceeded the permitted level. But, be that as it may, the point is that there was a requisition raised about this very suspected encumbrance, and that is all that the contract required. The failure to take up one specific aspect of the answer then provided is not a failure to make a requisition. The requisition had already been made. It was a requisition about a suspected encumbrance; and the answer as a whole did not satisfy the purchaser's solicitors. There is no contractual requirement to make requisitions in relation to answers provided to earlier requisitions.

53. In the event, it remains the case that the essential proof of knowledge, to which the Privy Council referred in Attorney General of Hong Kong v. Fairfax Ltd., is absent. In my judgment, good title has not been shown, and I would allow this appeal, and make the declarations which the purchaser seeks, with an order nisi that the respondents shall pay the appellant's costs of the appeal and below.

Nazareth V-P:

54. By a majority the appeal is allowed, the declarations sought by the purchaser are made and there will be an order nisi that the appellant is to have its costs of the appeal