RESOURCES LEADER LTD v. HO NGO YING

HCA 2667/2018

[2023] HKCFI 1837

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2667 OF 2018

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J U D G M E N T

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Introduction

1.  This is the trial of the Action in respect of an aborted conveyancing transaction by reason of the existence of a number of alleged illegal structures in the property in question ie the premises known as Shop C on the ground floor (including 2 lavatories) of Tak Cheong Mansion, nos 41, 45 and 47 Chuen Lung Street, Tsuen Wan, New Territories (“Property”).

2.  The Property was acquired by the Defendant and her late husband Lai Ching Kau (“Lai”) in July 1971 as joint tenants. Lai passed away in 2017 and by way of survivorship the Defendant has become the sole legal and beneficial owner of the Property. At all material times, the Property or part thereof was rented out to enable the Defendant and Lai to receive rental income.

3.  In gist, the Plaintiff alleges that, in respect and by reason of the illegal structures,

(a)  the Defendant had failed to properly answer the requisitions raised by its solicitors;

(b)  the Defendant had failed to show and/or to give good title to the Property;

(c)  the Defendant has wrongfully repudiated the Preliminary Agreement for Sale and Purchase dated 14 July 2018 entered into by the Plaintiff as purchaser and the Defendant as vendor in respect of the Property (“Preliminary Agreement”);

(d)  the Defendant has wrongfully forfeited the deposits paid by the Plaintiff under the Preliminary Agreement.

4.  The Plaintiff therefore claims inter alia for the refund of the deposits in the sum of HK$3,568,000.

5.  On the other hand, the Defendant,

(a)  accepts the cockloft referred to below was an illegal structure;

(b)  denies she had failed to show and/or to give good title to the Property;

(c)  denies she was in repudiatory breach of the Preliminary Agreement;

(d)  alleges that it is the Plaintiff who was in repudiatory breach of the Preliminary Agreement for failing to pay the balance of the price on completion date in order to complete.

6.  The Defendant therefore counterclaims for a declaration that she had accepted the Plaintiff’s repudiation of the Preliminary Agreement and was entitled to forfeit the deposits. She also seeks the Writ herein be vacated from the Land Registry.

The Facts

7.  The basic facts are uncontroversial and the parties have submitted to this court an Agreed Chronology of Events. As for the requisitions and the answers, they are all recorded in contemporaneous correspondence exchanged between the parties’ solicitors.

8.  By the Preliminary Agreement, the Plaintiff agreed to purchase and the Defendant agreed to sell the Property at the price of HK$35,680,000.

9.  The Preliminary Agreement was a bilingual proforma agreement of the estate agency viz Centaline Property Agency Limited. It contained the following terms which are relevant to the present dispute between the parties:

(a)  The purchase price was HK$35,680,000 of which (a) a deposit of HK$1,000,000 was to be paid upon signing the Preliminary Agreement, (b) a further deposit of HK$2,568,000 was to be paid on or before 27 July 2018, and (c) the balance was to be paid upon completion on or before 31 October 2018. (clause 2)

(b)  Formal Agreement for the Sale and Purchase of the Property was to be signed on 27 July 2018. (clause 3)

(c)  Upon completion, the Defendant should deliver vacant possession of the Property to the Plaintiff. (clause 4)

(d)  The Property was sold to the Plaintiff on “as is” basis. (clause 6)

(e)  Clause 20, which provided for an additional term handwritten in Chinese as set out in the Schedule, stipulated that:

“買賣雙方知悉並同意該物業以現狀交易，買方知悉該物業內現有一自建閣樓，而該閣樓未經政府有關部門批核/批准興建。買方同意並接受不可以此為理由要求扣減樓價或拒絕交易。雙方同意簽訂本合約後至完成交易期間如該物業有任何維修或接到屋宇署發出的命令一概由賣方(業主)負責。”

A working translation supplied by the parties is as follows.

“Both the Purchaser and the Vendor acknowledge and agree that the property be transacted on an “as is” basis. The Purchaser acknowledges that there is a mezzanine floor[1] built in the property and the said mezzanine floor was built without seeking any approval from the relevant government department. The Purchaser agrees and accepts that it will not use this as an excuse to request for a deduction of consideration or turn down the transaction. Both parties agree that any maintenance of the property or order of the Buildings Department was issued after the signing of this agreement and until the completion of the transaction will be responsible by the Vendor.” (emphasis added)

(f)  The Preliminary Agreement superseded all prior negotiations, representation, understanding and agreements of the parties hereto. (clause 21)

10.  On 23 July 2018, the Defendant’s solicitors Messrs Christine FL Ip & Young (“Christine Ip”) sent a draft Agreement for Sale and Purchase and the title deeds and documents of the Property to the Plaintiff’s then solicitors Messrs Gary Mak, Dennis Wong and Chang (“Gary Mak”).

11.  By 27 July 2018, the Plaintiff had paid the Defendant a total of HK$3,568,000 as deposits. Nevertheless, the parties had failed to sign the Formal Agreement for the Sale and Purchase contemplated under the Preliminary Agreement.

12.  Between 31 July and 19 September 2018, the parties’ solicitors only exchanged 4 letters, the first being dated 31 July 2018 in which Gary Mak raised inter alia 2 requisitions on title which are relevant for the present purpose and which had been answered by Christine Ip. The 2 requisitions related to the following alleged illegal structures/UBWs[2] which the Plaintiff says rendered the Defendant’s title of the Property defective:

(a)  the cockloft, an agreed UBW;

(b)  the UBWs mentioned in the 2002 and 2006 Building Orders and the 2007 Letter of Withdrawal[3].

13.  After Christine Ip’s further answers to the requisitions in their letter dated 19 September 2018, no further requisitions were raised by Gary Mak until 22 October 2018, just 9 days before completion.

14.  On 20 October 2018 Mr Vincent Lam (“Lam”), a director of the Plaintiff, inspected the exterior of the Property.

15.  Then, by letter dated 22 October 2018, Gary Mak raised further requisitions said to be arising from Lam’s inspection. The letter stated:

“We are just instructed by our client that upon a recent visit to the Property, our client found that contrary to the representations made by the estate agency and/or your client at the inspection to the Property by our client prior to the signing of the Provisional Agreement for sale and purchase, a portion of the Property was in fact not included in the Building Plan submitted with the Building Authority. Our client has reason to believe this portion is an unauthorized/illegal structure. A copy of the photograph of the Property taken by our client with the suspected unauthorized/illegal structure/alteration marked in yellow colour is herewith enclosed for your/your client’s attention.

Our client is in the course of obtaining a report from a qualified surveyor in respect of the said unauthorized/illegal structure/alteration and we believe that such report could be made available to you shortly.

In the circumstances, your client is hereby demanded to clarify by return whether any alteration (contrary to the Building Plan) has been made to the said Property. If the answer is in affirmative [sic], please let us have the written approval from the Building Authority in relation to such alteration for our perusal and consideration as soon as possible.”

16.  On 24 October 2018, Christine Ip responded:

“We send you herewith copy of Ground Floor Plan and the First Floor Plan for your attention.

Kindly note that our client’s property include the area up to the boundary line highlighted in yellow. The shop “順發蔴雀水族” is within the said boundary line and underneath the Flat Roof of First Floor. The said shop“順發蔴雀水族”has been partitioned from Shop C and let out as an independent shop long time ago and is not an illegal structure. There is no structural alteration requiring any approval of the Building Authority.

You may confirm the position by comparing the measurements of the length (50’) and width (43’-2”) of the building as shown in the aforesaid two plans.

We look forward to receiving your report from a qualified surveyor soonest as the completion date will be on 31^st October 2018. All our client’s rights are hereby expressly reserved.”

17.  On 25 October 2018, the Plaintiff appointed Mr Warren Pau Wah Lung (“Pau”), an architect and an Authorised Person, to conduct a visual inspection of the exterior of the Property. On 26 October 2018, Pau prepared his report dated 26 October 2018 in which 8 alleged UBWs were identified.

18.  Under cover of a letter dated 26 October 2018, Gary Mak sent Pau’s report to Christine Ip by fax on 27 October 2018. The said letter dated 26 October 2018 enclosing a hard copy of Pau’s report was sent to and received by Christine Ip only on 29 October 2018. That was 2 days to completion.

19.  On 30 October 2018, Christine Ip replied to Gary Mak, stating they had just instructed their expert to prepare a report in reply to Pau’s report regarding the alleged UBWs and proposed to extend the completion date to 30 November 2018. Immediately on the same day, Gary Mak rejected the proposed extension of the completion date to 30 November 2018.

20.  On completion date ie 31 October 2018, the Plaintiff did not pay the balance of the purchase price and the parties did not complete the sale and purchase transaction.

21.  On 1 November 2018, Christine Ip wrote to Gary Mak denying all of the Plaintiff’s allegations and forfeited the deposits paid by the Plaintiff.

22.  On 2 November 2018, Gary Mak wrote back to Christine Ip alleging the Defendant had failed to show, prove and give good title to the Property and was in breach of the Preliminary Agreement. They demanded for the return of all deposits paid by the Plaintiff and an indemnity against the Plaintiff’s loss.

23.  On 5 November 2018, Christine Ip replied to confirm the Defendant’s acceptance of the Plaintiff’s repudiation of the Preliminary Agreement.

Issues

24.  In Active Keen Industries Limited v Fok Chi Keong [1994] 1 HKLR 396 at 404-5; 409 per Litton JA (as he then was), it was reiterated that there was an implied obligation on the vendor to show good title and to answer requisitions reasonably raised on title within a reasonable time before completion as well as an obligation to give good title on completion. This is well established and not disputed by the Defendant.

25.  Although the parties have submitted a lengthy agreed list of issues (“Agreed List”), the two primary issues which call for determination by this court, as is usual in this type of cases and as evident from the parties’ Closing, are as follows:

(a)  Did the Defendant show good title to the Property and answer requisitions reasonably raised prior to the scheduled completion date on 31 October 2018?

(b)  Was the Defendant able to give good title to the Property on the scheduled completion date?

26.  The other issues mentioned in the Agreed List are really sub-issues of the two primary ones and they will be discussed at the appropriate juncture in so far as may be necessary.

Deliberation

Showing good title and answering requisitions reasonably raised within a reasonable time

Cockloft Requisition

27.  According to the Defendant, the Property is about 20 feet high and it is not in dispute that a cockloft had been constructed by the Defendant’s husband at the upper part of the Property. The area of the cockloft was almost the entire surface area of the Property. The cockloft was accessible from the level of a side street through a metal door via a concrete staircase - there was no need to access it through Shop C as such.

28.  In her witness statement, Madam Chan of the Plaintiff acknowledged that she had inspected part of Shop C (but not the cockloft[4]) on 12 July 2018 together with the estate agent (“Yeung”) who told her about the cockloft and that it was an illegal structure.

29.  Further, apart from Clause 20 of the Preliminary Agreement, Madam Chan had also signed a Confirmation letter to Centaline Property Agency Limited (“Confirmation Letter”) which expressly stated that: -

“該物業有閣仔或閣樓，但入住許可證沒有顯示；經紀無法核實該物業的閣仔或閣樓的合法性，及已解釋購買或租賃該物業而其閣仔或閣樓屬違建築工程的風險（如︰政府行使收回土地權、物業的安全問題、物業可遭封閉及銀行拒絕就購買該物業提供融資）” (“Cockloft Clause”) (emphasis added)

30.  Both experts agree that the cockloft and the staircase which gave access to it are UBWs.

31.  The Cockloft Requisition was first raised in a letter dated 31 July 2018. In requisition 2, Gary Mak asked for an Architect Certificate with the plan for identification of the cockloft annexed thereto for proof that the erection of the said cockloft did not require the approval of the Building Authority and Fire Services Department and did not contravene the Buildings Ordinance, Fire Services Ordinance and Fire Services Regulations.

32.  Christine Ip replied by letter dated 5 September 2018 in which they relied on Clause 20 of the Preliminary Agreement.

33.  The solicitors then exchanged their views on the law and the effect of Clause 20 by letters dated 11 and 19 September 2018.

34.  In their 11 September 2018 letter, Gary Mak asserted that Clause 20 of the Preliminary Agreement would not bind the Plaintiff to accept illegal works which constituted a breach of the DMC, the Government Grant or Lease etc without stating what the potential breaches were. The relevant passage is this:

“It is trite law that whenever there is illegality, e.g. illegal alterations or structures in the property, we are of the view that the mere present [sic] of the “Chinese clause” in the agreement for sale and purchase does not bind the purchaser to accept the illegal works such being a breach of DMC, a breach of the Building Ordinance and other relevant regulations, and therefore a breach of the relevant Government Grant or Lease and goes to the root of title too. See. e.g. Regent Summit (Hong Kong) Limited v Smart Business (Asia) Limited [1998] 2HKC 718, Giant River Limited v Asia Marketing Limited [1990] 1HKLR 297. We maintain our requisitions.”(emphasis added)

35.  But what exactly were the breaches of the DMC, the Government Grant or Lease that Gary Mak were trying to requisition? There was no indication from the letter itself or Mr Lam’s Closing. It seems to this court that Gary Mak were just taking a scattered gun approach and expecting Christine Ip not to be able to answer it. That, in this court’s view, is not a proper requisition and Christine Ip were not obliged to answer it.

36.  The situation is not dissimilar in nature with what confronted DHCJ Yeung SC (as he then was) in Continental Zone Limited v More Glory International Limited unrep, HCMP 446 of 2012, 18 April 2013. In that case the requisition was in these terms: “Please take instructions from your client and advise us whether there is/are any unauthorized or illegal structure(s) or alteration(s) of and in the Property”. The learned Deputy Judge concluded the requisition was not a proper one.

37.  DHCJ Yeung SC’s reasons for coming to that conclusion can be found in [28] of his Judgment:

“I refer to the wording of Requisition 16. It made no reference to any plan, approved or otherwise. It was not supported by any expert report. It in fact did not even refer to any particular structure. In effect, it simply requested the Defendant to make a confession as to the existence of any illegal structure. In my view, it lacked the specificity and precision to qualify as a proper requisition. The Defendant was not obliged to answer it.” (emphasis added)

38.  This court entirely agrees. Similarly, Chow J (as he then was) also agreed with it in Join Union Investment Ltd v China Tree Investment Ltd [2006] 2 HKLRD 901 at [88].

39.  In this court’s view, if a requisition on title is not sufficiently specific and precise so as to enable a vendor’s solicitors to give a sufficiently specific and precise answer within the time constraint of a conveyancing transaction, there is no obligation on the vendor’s solicitors to answer it. On any view of the matter, the requisition about the cockloft that Gary Mak said they maintained in their 11 September 2018 letter was not properly raised. Anyway, Christine Ip had answered it in their 20 September 2018 letter when they repeated their reliance on Clause 20. The matter was not taken any further afterwards by the solicitors in correspondence.

40.  In his Closing, Mr Cheung for the Defendant submits that Clause 20 prevents the Plaintiff from raising any objection to the existence of the cockloft and that it would bind the Plaintiff to complete the sale and purchase despite its existence. In this regard, Mr Cheung submits that the wording of Clause 20 is clear that (i) the Plaintiff acknowledged that the cockloft was built without any approval from the relevant government department; and (ii) the Plaintiff had agreed and accepted that the same could not be used as an excuse not to complete the transaction. This court agrees. The fact that the cockloft was constructed without the necessary government ie the Building Authority’s (“BA”) approval had already been made known to the Plaintiff before the Preliminary Agreement and it is entirely reasonable to think that was precisely why Clause 20 was inserted into it.

41.  On the other hand, the reply of Mr Lam for the Plaintiff is that Clause 20 did not mention about any possible breach of the DMC or the Government Grant or Lease. The Defendant cannot seek to rely on it to refuse answering requisition whether the construction of the cockloft was in breach of the DMC or the Government Grant or Lease.

42.  In Join Union Investment Ltd, a case concerning the existence of an unauthorized cockloft and the vendor’s entitlement to forfeit the deposits paid by the purchaser, Chow J (as he then was) expressed the law as follows:

“56. Ms Lau argues that a vendor of land is also under a general implied obligation to “make full and frank disclosure to the [purchaser] of any defect in title or incumbrance over title which the [vendor] was aware” (ie, the first implied term contended for). On the other hand, Mr Suen argues that, in relation to this duty of disclosure, only “actual knowledge” of the defect or incumbrance on the part of the vendor is relevant. Both submissions assume that the vendor is under a general, stand alone, duty to make disclosure of defects in title. It does not seem to me that this is the right way of looking at the vendor’s duty in the context of a sale and purchase of land in Hong Kong.

…

60. In the context of a simple contract for the sale and purchase of land in Hong Kong, the vendor’s duty, in general, is to prove and give a good title. It is not a defence for the vendor to say that he did not have knowledge of any defects in title at the time of the making of the contract. The issue of knowledge becomes relevant, however, when the vendor seeks to rely on a contractual provision limiting the title to be proved or given. In such a case, the proper inquiry is whether, upon the true construction of the limitation provision, it is intended to apply to the relevant defect in title notwithstanding the vendor’s knowledge of it at the time of the making of the contract: see the judgment of Lord Hoffmann in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 299:

‘On the question of the cocklofts I agree with Litton P.J. that clauses 18(e) and 19 preclude the purchaser from basing any objection to title on this ground. Miss Eu submitted that there was a rule of equity which prevented a vendor, as a matter of law, from relying on such clauses in a case in which he knows or ought to know of a defect in title. I think that is putting the matter far too broadly. Contracts for the sale of land are not exceptions to the principle that parties have freedom of contract and may agree to whatever terms they like. What the cases show is that the courts will be very reluctant to construe such a term as enabling the vendor to mislead the purchaser. As is stated in Farrand, Contract and Conveyance (4^th ed.) at p. 93, such conditions are ‘subject to the overpowering principle that the vendor must not mislead the purchaser in any way; this means that a sufficient indication of the risk must be given before the contract is made…’

61. There is no general rule that only “actual knowledge” of the relevant defect in title on the part of the vendor is relevant to this inquiry. Whether the vendor will be debarred from relying on a contractual provision limiting the title to be proved or given by reason of actual, or some lesser degree of, knowledge of the defect in title would depend on the true construction of the contractual provision in question.” (emphasis added)

43.  In the present case, there is no question of the Defendant misleading the Plaintiff - the existence of the cockloft and its nature as an illegal structure/UBW was mentioned in Clause 20, in the Cockloft Clause of the Confirmation Letter and expressly mentioned by Yeung to Madam Chan when they inspected the Property on 12 July 2018 prior to the Preliminary Agreement. On a true construction of Clause 20, its language is reasonably clear ie the Plaintiff had agreed and accepted that the existence of the cockloft (without limitation as to whatever the illegality or the breaches its existence might trigger) could not be used as an excuse not to complete the transaction. Hence, even if the cockloft might have contravened some provisions of the DMC or the Government Grant or Lease which Gary Mak and Mr Lam had not been able to identify, the Plaintiff was still under an obligation to complete.

44.  The only matter not specifically mentioned in Clause 20 was the staircase leading to the cockloft but the staircase was also not specifically mentioned in any of the Plaintiff’s requisitions. By definition, a cockloft or a mezzanine floor involves the construction of access to it from the ground level. Gary Mak could have raised a requisition on whether the staircase existed and whether it was built without the necessary approval. But they had not. As a matter of common sense, if there was a cockloft built without the necessary approval, there must be access to it which would in all probabilities also have been built without the necessary approval. In these circumstances, it is wholly unnatural and indeed unreal to construe Clause 20 as covering only the cockloft but not the staircase which gives accessibility to the cockloft.

45.  For these reasons, this court is of the view that the reference to Clause 20 by Christine Ip is a sufficient answer to the Cockloft Requisition. It precludes the Plaintiff from basing any objection to title on the existence of the cockloft and the staircase as a means of access to it. This requisition has been adequately dealt with. Further, the Plaintiff cannot refuse to complete on the ground that the Defendant has failed to give a good title to the Property.

Requisition on the UBWs mentioned in the 2002 and 2006 Building Orders and the 2007 Letter of Withdrawal

46.  In the letter dated 31 July 2018, Gary Mak asked for a certified copy of Order Memorial No 1527348 dated 29 November 2002 (“2002 Building Order”) and a certified copy of Letter of Withdrawal Memorial No 07082400460893 dated 25 July 2007 (“2007 Letter of Withdrawal”). (requisitions no 3(e) and (g))

47.  By a letter dated 5 September 2018, Christine Ip provided to Gary Mak copies of (i) the 2002 Building Order (ii) a Superseding Order Memorial No 06122802090034 dated 24 November 2006 (“2006 Building Order”) and (iii) the 2007 Letter of Withdrawal in respect of requisitions no 3(e) and (g).

48.  The 2002 Building Order was issued under section 24(1) of the Buildings Ordinance, Cap 123 (“BO”) and required the demolition of 2 canopies attached to the external wall of the Property at the rear and the side which had been built without the prior approval of the building plans and consent for the commencement of building works of the BA under section 14 of BO. The 2006 Building Order, also issued under section 24(1) of BO, required the demolition of (i) shopfront structure together with canopy attached to the external wall at the side of the Property and (ii) cooling tower supporting frame attached to the external wall at the rear of the Property which had been built without the approval and consent of the BA. The 2002 Building Order was said to be substituted/superseded by the 2006 Building Order.

49.  In the 2007 Letter of Withdrawal, the BA referred to the 2006 Building Order and said:

“As the building works have been modified, I am prepared to withhold further enforcement action for the time being, and withdraw my Order.

You should ensure that no further unauthorized building works are carried out lest prosecution action would be initiated against you under section 40 of the Buildings Ordinance. Should circumstances so require in future, I may issue a new order for the removal of the aforesaid unauthorized building works.” (emphasis added)

50.  By letter dated 11 September 2018, Gary Mak responded by stressing that the 2007 Letter of Withdrawal could not be regarded as a letter of compliance as there was no confirmation that the 2002 and 2006 Building Orders had been duly complied with. It stated that:

“Further it is clearly stated in the said Letter that the Buildings Authority only exercised its discretion to withhold further enforcement of the Order for the time being but not waiving its rights to enforce the same. The warning requesting the complete removal of all unauthorized building works contained therein further indicated that the Orders has not been duly complied with and enforcement action might attract in future. Accordingly, the owner’s obligation has not been discharged and the risk of enforcement is still subsisting. Title is therefore affected.

Please let us have the documentary evidence such as an effective letter of compliance to prove that the said orders have been duly complied with and no further action whatsoever would be taken by the Building Authority in connection therewith for our perusal.”(emphasis added)

51.  By letter dated 19 September 2018, Christine Ip relied on the 2007 Withdrawal Letter as showing the 2006 Building Order no longer affected title to the Property and challenged Gary Mak to produce an authority to counter that proposition. To quote from that letter:

“… please give legal authority to support your assertion that a Building Order in respect of which the Building Authority had already issued a formal Letter of Withdrawal, is an instrument that still affect title.”

52.  In this regard, Mr Lam is being disingenuous in describing Christine Ip’s answer in his Closing as that “the 2006 Building Order had been complied with”. That was not what Christine Ip had said, as shown in the above quotation.

53.  The matter concerning the 2006 Building Order was not taken any further afterwards by the solicitors in correspondence.

54.  In correspondence as well as Mr Lam’s Closing, the Plaintiff relies heavily on the decision of Yuen J (as she then was) in Heung Sui Kei & Anr v Benefit Charter Ltd [1999] 3 HKC 543 as showing the 2007 Letter of Withdrawal was not evidence of compliance of the 2006 Building Order, that there was a real risk of enforcement action by the BA and good title had not been shown.

55.  In this court’s view, a proper reading of Heung Sui Kei will show the Plaintiff’s heavy reliance on it is unjustified since the circumstances of that case, as well as the issues argued there, are very different from the present one.

56.  The relevant facts of Heung Sui Kei can be found at p 545C to 548B as follows:

“The Plaintiffs are the purchasers of a house in Shatin from the Defendant under an Agreement for Sale and Purchase in June 1997 (“the Agreement”). Completion was delayed for nearly a year, to 16 June 1998.

Under clause 7.2 of the Agreement, the Vendor was obliged to show give and prove a good title.

The Defendant was itself at the time of the Agreement a recent purchaser of the house from Christopher Mak Hon Fai and Mayo Lam Kwok Chu (“Mak and Lam”). The Defendant’s agreement with Mak and Lam was made in April 1997 and the assignment was in June 1997.

The Demolition and Reinstatement Order (“the s.24 Order”)

In October 1995, an Order under s.24(1) of the Buildings Ordinance had been served by the Building Authority on Mak and Lam in respect of the property.

This order stated that the Building Authority was aware that building works had been carried on in the property without approval and consent under s.14 of the Buildings Ordinance. The building works were said to comprise structures at the car port and on the main rooftop.

The owners were ordered to “demolish and remove the said building works ... and to reinstate that part of the building so affected by the said building works in accordance with plans approved by the Building Authority. ...” The demolition and reinstatement works were ordered to commence within 30 days, and to be completed within 60 days, of the date of the Order (10 October 1995).

This Order (No. C0441/95/NT) was registered in the Land Registry under Memorial No. 836777.

Defendant’s Agreement with former owners

In the Defendant’s agreement with Mak and Lam, the latter “undertake to discharge the Order No.C0441/95 at [their] own cost and expense and to provide documentary proof of such discharge to the [Defendant] on or before 20 May 1997".

Land Registry Search

Reverting to the Agreement here, the Plaintiffs Solicitors’ search of the Land Registry in August 1997 revealed that in the section of the search entitled “Deeds Pending Registration”, there was a “Letter of Compliance by Building Department” dated 17 April 1997 delivered on 20 May 1997 by Memorial No. 948744. Copies of documents in this section of the search are not available for inspection by the general public.

Requisitions

Although the Agreement was made in June 1997, the title deeds were not delivered to the Plaintiffs’ solicitors until 27 May 1998. On 3 June 1998, within time, the Plaintiffs’ solicitors raised requisitions with the Defendant’s solicitors as follows:-

“2. Pursuant to Clause 34 of the Sale and Purchase Agreement M/N 941568 [between Mak and Lam and the Defendant], it is expressly provided that the Vendor thereof undertakes to discharge the Order No.C0441/95 at his own costs and expense. Please let us have certified copy of the relevant Letter of Compliance from the Building Authority evidencing that the said Order has been fully discharged for our perusal before completion.

...

4. To complete the chain of title to the property, please let us have certified true copy of the following title deeds and documents for our perusal before completion:-

a) Letter of Compliance M/N 948744.

...

Please let us have plain copy of the same for our approving title pending upon your production of certified copy of the same”.

So what was being sought was evidence of the discharge of the s.24 Order, and the “Letter of Compliance” by the Building Authority delivered under Memorial No. 948744, which could reasonably assumed to be the same document, as the Land Registry search had revealed only one Order by the Building Authority requiring compliance.

Answer

There was no substantive reply from the Defendant’s solicitors until the afternoon of 15 June 1998, the day before completion date.

Their letter said:-

‘... we send you herewith a copy Letter of Compliance dated 15^th April 1997 in respect of the Building Order No. C 0441/95/NT and registered by Memorial No.836777, and we are arranging the original to be submitted to the Land Registry for registration. In this regard, we undertake to send you a certified copy of the said Letter of Compliance upon receipt of the same from the Land Registry.

In those circumstances, we trust all your requisitions have been sufficiently answered and dealt with ...’

What was enclosed was a copy of a letter in Chinese from the Building Authority to Mak and Lam dated 15 August 1997.

…More important are the contents of the letter. It is worth quoting in full:…

‘I refer to my Order No. A 0441/95/NT which was served on you on 10 October 1995 in connection with unauthorized building works which had been carried out at the above premises. I note that modifications have been carried out to the said building works, and having taken into consideration the circumstances, I am prepared to withhold further enforcement of my order for the time being. However, I may consider issuing a new order for the complete removal of all unauthorized building works in future should changes in circumstances so require.

Order No. C 0441/95/NT is hereby withdrawn’.

I should add that the term `Letter of Compliance’ does not appear anywhere on the Building Authority’s letter itself, nor does it appear in the Buildings Ordinance - it was apparently the description used by the party delivering the document for registration under Memorial No. 948744.

The obvious question that comes to mind is whether that can really be regarded as a letter of “compliance”, which was the description of the document delivered under Memorial No. 948744. Did it say that the Order had been complied with, or did it say that the owner of the property remained under an obligation to remove such of the unauthorized building works specified in the Order as had not been ‘modified’?

Plaintiffs’ solicitors’ query on letter

The Plaintiffs’ Solicitors wrote to the Defendant’s Solicitors on the same day, amongst other things, that :-

‘the Letter issued by the Buildings Department on 15^th April 1997 is not a proper letter of compliance as it merely stated that the Building Authority is prepared to withhold further enforcement order for the time being having taken into account of certain modifications [which] have been carried out to the unauthorized building works. However, it goes without saying that the Building Authority may consider issuing a new order for the complete removal of all unauthorized building works in future should changes in circumstances so require. By the reason aforesaid, it is crystal clear that the said Letter has not evidenced full compliance as required under Order No. C0441/95/NT and registered by Memorial No. 836777 (`the said Order’) as it is only a temporary waiver to the breaches as contained in the said Order. Please let us have a certified copy of a Confirmation Letter and/or a Letter of Compliance evidencing that the aforesaid Order has already been duly discharged for our perusal before completion’.” (emphasis added)

57.  On these facts, the learned Judge reasoned at p 550E - I as follows:

“Partial demolition or partial reinstatement, in circumstances where the Building Authority continues to regard the remaining works as unauthorised and to hold alive the threat of enforcement (albeit not immediate), cannot be said to be “compliance” with the Order.

Applying that analysis to the present case, I am of the view that the Plaintiffs’ Solicitors were right when they refused to accept the Building Authority’s letter as evidencing compliance with the s.24 Order or as the “Letter of Compliance” which they were asking for.

What the letter showed was that the Order had been withdrawn. It is in my view a complete misnomer to call that letter a “Letter of Compliance”, i.e. to say that the Order had been complied with, which was what the Plaintiffs had been led to expect by the description of the document delivered for registration, and which the Defendant did nothing to correct.

It is clear from the rest of the letter that some unauthorised building works remained at the property, which the Building Authority knew about and could take enforce action against. If all the unauthorized building works had been made good and the property reinstated, there would be no reason for the Building Authority to have exercised his discretion to only ‘withhold further enforcement of my order for the time being” and to leave a warning of “the complete removal of all unauthorized building works.’ (my emphasis).

Thus, where the Order had not been “complied” with, where the letter from the Building Authority showed that there remained on the property unauthorized building works which the Building Authority has not forgiven, for which the owner’s obligation of removal remains under threat of enforcement sometime in the future, it cannot be said that good title has been shown.” (emphasis added)

58.  Lastly, at p 551C-E, the learned Judge, after referring to and differing from Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258, concluded:

“…The point is that the Order evidenced that there were unauthorized building works on the property; although the order may have been withdrawn, unauthorized building works remained on the property which the Building Authority knew about and on which (the Building Authority has stated) he is only “withholding” action “for the time being”. I do not see why it is said that there is no risk of enforcement, or that the risk is negligible. I fail to see how such a title could be forced on an unwilling purchaser.”

59.  The gist of Heung Sui Kei can be summarized in this way.

60.  First, what was being sought by the purchaser’s solicitors in that case was the so-called “Letter of Compliance” by the Building Authority delivered under Memorial No 948744, as revealed in the Land Registry search, to complete the chain of title to the property. There was in fact no such document.

61.  Second, in response, the vendor’s solicitors produced a letter from the BA suggesting the s 24 Order had been withdrawn but, as evidenced from the letter itself, there remained on the property some unauthorized building works which the BA had not forgiven, for which the vendor’s obligation of removing them remained under threat of enforcement sometime in the future.

62.  Third, in these circumstances, the learned Judge came to the ultimate conclusion that there was such a risk of enforcement which could not be regarded as negligible and hence title could not be forced on an unwilling purchaser.

63.  The decision of Yuen J (as she then was) was followed by Reyes J in Sunny Shine Investment Ltd v Eve International Enterprise Ltd [2008] 5 HKLRD 619. Like Yuen J, Reyes J was of the view that a letter of withdrawal could not be treated as a letter of compliance when the threat of enforcement action against the remaining unauthorised structures in the property was expressed in the letter of withdrawal. Hence, Reyes J rejected the argument, on the facts of that case, there was no significant risk of enforcement action by the BA.

64.  This court of course agrees with the learned Judges that a letter of withdrawal is not the same as a letter of compliance. But the ultimate conclusion in the above cases was that, on the facts, there was such a risk of enforcement which could not be regarded as negligible and hence title could not be forced on an unwilling purchaser.

65.  It should be obvious that risk of enforcement action by the authorities in any particular case is fact sensitive. Ultimately, the question of risk of enforcement is a question of fact and degree and of common sense: Kok Chong Ho v Double Value Developments Ltd. unrep, HCMP 2857 of 1990, 19 December 1990, Godfrey J at p 6.

66.  In Jumbo Gold Investment Ltd v Yuen Cheong Leung and Another [1999] 3 HKLRD 825, the issue was whether in respect of an established breach of a building covenant, there was a real as opposed to a fanciful risk of enforcement action by the authorities. As Liu JA, in a dissenting judgment, put it at 833D‑G:

“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 (Cap 219), 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.” (emphasis added)

67.  Though Liu JA gave the dissenting Judgment in the Court of Appeal in that case, the majority’s decision was reversed on appeal by the Court of Final Appeal: (2003) HKCFAR 52.

68.  Further, Liu JA’s approach aforesaid was not faulted by the Court of Final Appeal: (2003) HKCFAR 52. In this respect, at 60D-G, Litton PJ remarked:

“In my judgment the notion that there was a real risk of enforcement in the circumstances of this case is fanciful: Yeung J’s conclusion, supported by Liu JA in the Court of Appeal, is unquestionably correct. In a case like this, where as Liu JA said, ‘concrete proof of Government’s knowledge and attitude is … not easy to find’, the court must look at the larger picture. Nazareth VP, with respect, took far too narrow an approach: He thought that, to show good title, the vendors must show ‘proof of knowledge, i.e. of the breach of covenant’ before the government could be taken to have waived the height restriction in this case. As mentioned earlier, on the available material before the judge, it might well have been open to him to make the finding that the Director had, with knowledge of the breach, waived the restriction, or allowed a modification in some way. He did not do so, and took the safer course of asking the broader question: Is there a real risk of enforcement by the government? As to this, there could only be one answer.” (emphasis added)

69.  The circumstances of the present case are very different from those in Heung Sui Kei.

70.  First, there was never a so-called “Letter of Compliance” registered in the Land Registry in respect of which Gary Mak were entitled to seek production. The only document registered was the 2007 Letter of Withdrawal. This letter was sought by Gary Mak on 31 July 2018 as part of their requisitions and which was duly produced by Christine Ip. It was only on 11 September 2018 that Gary Mak asked for a letter of compliance, knowing there was no such thing registered in the Land Registry, citing Heung Sui Kei. The concern expressed in that letter was not that they need the document to complete the chain of title, but simply that there would be no real risk of further action by the BA in connection with the 2006 Building Order.

71.  Second, the BA in the 2007 Letter of Withdrawal did not threaten to take action in relation to the 2 UBWs named in the 2006 Building Order as such. It threatened prosecution action if “further unauthorised building works are carried out”. Admittedly, albeit not in so many words, it did convey the impression that no further action would be taken in connection with the 2 UBWs named in that Order. In Heung Sui Kei, the threat to take enforcement action was in relation to those UBWs covered by the s 24 Order which still remained on the property.

72.  Third, and most importantly, there was a time gap of almost 11 years between the 2007 Letter of Withdrawal and the Preliminary Agreement and there is no suggestion that in the meantime the BA has changed its mind and taken or threatened to take further enforcement action in relation to the 2 UBWs named in the 2006 Building Order. On the other hand, in Heung Sui Kei, the s 24 Order was served in October 1995, the so-called Letter of Compliance was said to be dated 17 April 1997 and the sale and purchase agreement between the purchaser and the vendor was entered into in June 1997, albeit completion was postponed to June 1997. With such a short time gap in between, and the threat contained in the so-called Letter of Compliance, it was not unreasonable for the purchaser to be concerned about the risk of enforcement action by the BA.

73.  Heeding the advice of Liu JA, this court does not consider it should be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in the matters requisitioned. In these circumstances, guided by reasonably robust common sense in light of the commercial or in this case administrative reality, this court is of the view that any perceived risk of enforcement action by the BA in relation to the 2006 Building Order would not be a real risk.

74.  This requisition has been adequately dealt with. Further, this court is of the view that notwithstanding the 2 UBWs, the Defendant is able to give a good title to the Property.

8 alleged UBWs identified by Pau

75.  As stated earlier, on 26 October 2018, Pau prepared his report dated 26 October 2018 in which 8 alleged UBWs were found. As set out in para 3 of the report, the 8 UBWs were:

(a)  Illegal extension of shop front facing the lane by 225 mm in width, thus the extended portion is illegally encroached onto the public pavement;

(b)  Stepping platform extending 500-900 mm in width and of 150-200 mm high was found along the 2 frontage encroaching onto the public pavement of the access road and the rear lane;

(c)  A metal door for access to the illegal cockloft of the Property was found swinging outward to the public pavement obstructing the nearby pedestrian;

(d)  Dilapidated metal canopy projecting 900 mm was found on the external wall at the rear lane frontage;

(e)  A storage shed was found on the pedestrian pavement;

(f)  A metal frame of abandoned signage was found on the external wall of the rear lane frontage;

(g)  The approved male toilet cubicle required for Shop C as shown on the approved plan was converted for shop use;

(h)  By looking into the interior part of the Property through the windows, an illegal cockloft was also found.

76.  At the trial, the Plaintiff only focused on 6 of alleged UBWs identified in Pau’s report - the one concerning the storage shed was abandoned while the illegal cockloft was dealt with as a separate subject. Nevertheless, it is strange to say the least that Pau saw fit to include the cockloft as part of his “findings” when it had already been brought to the Plaintiff’s attention even before the Preliminary Agreement.

77.  Gary Mak sent Pau’s report to Christine Ip by fax on 27 October 2018 under cover of their letter dated 26 October 2018. However, it was only on 29 October 2018, 2 days before completion, that a legible copy of Pau’s report was sent to Christine Ip. The letter stated:

“To support our client’s contention expressed in P’s letter of 22^nd October 2018, we enclose herewith a copy Inspection Report to the Property made by PAUS Architects Building Maintenance Consultants Ltd. dated 26^th October 2018 which duly confirmed that numerous illegal building works including an illegal extension of the shop front facing the lane were found in the Property during PAUS’s inspection on 25^th October 2018.

No doubt, those illegal/unauthorized structures/alterations render the title to the Property defective and our client is not obliged to complete its purchase of the Property in terms of the Provisional Agreement for sale and purchase made by the parties dated 14^th July 2018.” (emphasis added)

78.  The important point to note is that Gary Mak had already formed a view that the Plaintiff did not have to complete the purchase of the Property. No reasonable opportunity was given to Christine Ip to investigate the so-called illegal structures and to answer the requisitions and no attempt was made to ascertain whether the Defendant was prepared to remove or rectify the alleged UBWs, if they were indeed UBWs. That reinforces this court’s strong suspicion that the Plaintiff was simply trying to find an excuse to wriggle out of the Preliminary Agreement: cf Goldmex Ltd v. Edward Wong Finance Co Ltd [2006] 2 HKLRD 795 at [16].

79.  As a matter of legal analysis, the first and foremost question here is whether the requisitions raised in Gary Mak’s letter dated 26 October 2018 were raised within time and if not whether the Plaintiff itself was in breach of the Preliminary Agreement.

80.  At para 4.2 of the Amended Defence and Counterclaim, the Defendant has pleaded the following term of the Preliminary Agreement, implied as a matter of law and/or to give business efficacy to the Preliminary Agreement:

“4.2. The Plaintiff shall raise requisitions within a reasonable time upon the receipt of title documents from the Defendant and/or within a reasonable time before the Completion Date.”

81.  At para 12.3(b) of the Amended Defence and Counterclaim, it was pleaded that the Plaintiff was in breach of contract in that it had failed to raise the illegal structures requisition within a reasonable time before the Completion Date and/or within 14 days before the Completion Date.

82.  Mr Cheung submits that what is reasonable time to raise requisitions is a question of fact to be determined having regard to all the circumstances of the case.

83.  In Goldmex Ltd, a case where no formal sale and purchase agreements were signed, DHCJ To observed that:

“7. The Provisional Agreements contain no provision as to the time within which requisitions may be raised. Where a contract is silent on this point, requisitions must be delivered within a reasonable time, see: Barnsley’s Conveyancing Law and Practice (4^th edn, 1996), p 353…

8. What is reasonable time to raise requisitions is a question of fact to be determined having regard to all the circumstances of the case. In answering this question, one must start with the state of mind of a willing purchaser and a willing vendor, both possessed of reasonably robust common sense, both intending to see the transaction through to completion in terms of their own bargain. In that state of mind, the factors to be considered are primarily:

(1) the time when the title deeds and documents were delivered to the purchaser;

(2) the scheduled date of completion;

(3) all the circumstances, including the conduct of the parties as regards the requisitions; and

(4) the reasons for making what is on the face a late requisition.

…

10. Guidance as to what is a reasonable time may also be sought from conveyancing practice and the Conveyancing and Property Ordinance (Cap 219). It has always been accepted by the conveyancers that requisitions should be raised no later than fourteen days before the date of completion. It has therefore been accepted that reasonable time is anytime which is fourteen days prior to the date of completion. This is such a well established practice that it has found its way into Condition 7(1) in Part A of the Second Schedule to the Conveyancing and Property Ordinance which provides:

‘Any requisition or objection in respect of title shall be delivered in writing to the vendor’s solicitors as soon as practicable after delivery of the title deeds, and, in any event, not later than 14 days prior to the date of completion.’

The covenants and conditions in the Second Schedule may be incorporated into a sale and purchase agreement by virtue of section 36 of the Ordinance. Though in the present case, this condition has not been so expressly incorporated into the Provisional Agreements, it provides a convenient starting point as to what is a reasonable time.” (emphasis added)

84.  In Goldmex Ltd, the requisitions were raised less than 14 days prior to completion date. At [17], the learned Judge explained his conclusion as follows:

“17. In the circumstances, a willing purchaser intending to see the transaction through to completion would have exercised due diligence in checking the title deeds and documents and would have raised requisitions within two months of their delivery, leaving WKT with the usual period of two weeks to answer the requisitions. I therefore find that requisitions should have been raised within a period of two months of delivery to Yen of the title deeds and documents by WKT. In other words, requisitions shall be raised not later than fourteen days prior to the date of completion. It is plain that the requisitions were raised out of time.”

85.  Similarly, in Profit World Trading Ltd v. Ho So Yung [2010] 3 HKLRD 705 at [35], Bharwaney J also held the same view about the reasonable time to raise requisitions by a purchaser:

“35. It is trite law that, in the absence of an express provision stipulating a time within which to raise requisitions, there is an implied term that requisitions are to be raised within a reasonable time. It has been a well established practice in Hong Kong that requisitions be raised no later than 14 days before completion so much so that the practice has been replicated in Condition 7(1) in Part A of the Second Schedule to the Conveyancing and Property Ordinance … In my judgment, a reasonable time within which to raise requisitions in the present case was no later than 14 days before the date of completion.”[5]

86.  In the present case,

(a)  the title deeds and documents were delivered to Gary Mak on 23 July 2018;

(b)  the completion date was 31 October 2018;

(c)  after the exchange of 4 letters between the solicitors from 31 July to 19 September 2018, there were no further requisitions on title.

87.  The inspections of the exterior of the Property by Lam and Pau on 20 and 25 October 2018 were totally unexplained on the evidence. Lam was not called as a factual witness for the Plaintiff even though he is a director and it was he who allegedly suspected the existence of further illegal structures on the Property. If the Plaintiff had wanted to, the two could have inspected the exterior of the Property even before the Preliminary Agreement was entered into. Indeed, according to the testimony of the Defendant, which is not challenged, she welcomed and allowed the Plaintiff and/or its representatives to inspect and examine the Property.

88.  In these circumstances, having considered the above, especially the unexplained conduct of the Plaintiff in making the last minute inspection of the exterior of the Property and its complete lack of explanation for its lateness in raising the requisitions, this court has no hesitation in ruling that the Plaintiff’s requisitions must be raised at least 14 days before the completion date.

89.  In making this ruling, this court has not ignored Mr Lam’s Closing at paras 21 to 25, in particular para 24 in which he cited Regent Summit (H.K.) Limited v Smart Business (Asia) Limited [1998] 2 HKC 718 and other cases where requisitions were raised very shortly prior to the completion dates but the purchasers still succeeded. But every case is ultimately decided on its own facts. As there is no analysis by Mr Lam as to why those cases supported the proposition that in the present case a reasonable time can be less than 14 days before completion, all this court need to say is that it is not persuaded by Mr Lam. [6]

90.  In these circumstances, the requisitions raised by Gary Mak by their letters dated 22 and 26 October 2018 were clearly out of time.

91.  The legal effect of failing to raise requisitions within the time limit is that the Plaintiff is deemed to have accepted the Defendant’s title - the parties’ legal rights and obligations in this respect are crystallized: Goldmex Ltd at [18].

92.  The next question is whether there had been waiver of the lateness of the Plaintiff’s requisitions by Christine Ip. In the summary of Mr Lam’s Closing as further elaborated in his Closing itself, the matters he relied on as constituting waiver are as follows:

(a)  The Defendant has answered some of the Plaintiff’s requisitions - a reference to Christine Ip’s letter dated 24 October 2018 in reply to Gary Mak’s letter dated 22 October 2018.

(b)  The Defendant promised to further answer the Plaintiff’s requisitions by instructing her expert to prepare a report in reply and suggested to postpone the completion date by 1 month to 30 November 2018 - a reference to Christine Ip’s letter dated 30 October 2018.

(c)  In neither letter did Christine Ip complain about the Plaintiff’s requisitions were out of time.

93.  As noted by Chow J (as he then was) in Join Union Investment Ltd at [91], there was at one time a strict approach taken that any answer to a requisition raised out of time would amount to a waiver of the time limit unless the answer is accompanied by a clear statement that it is without prejudice to the vendor’s right to reject the requisition on the ground of lateness. This strict approach can be seen in a judgment of the late Jerome Chan J in Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258 at 267.

94.  However, the law has moved on and Ultra Eternal Ltd was not followed by Mr Recorder Ribeiro SC (as he then was) in Big Foundation Development Ltd v Wong Shu Kei unrep, HCMP 4536 of 1997, 16 June 1998. At pp 7-8 of his Judgment, the learned Recorder observed that:

“…In my view, the burden rests on the party alleging that the time limit is waived to show that this has unequivocally been done. The other party does not shoulder the burden of expressly excluding a waiver, whether by having to add express words preserving what is already his right by contract or otherwise. Solicitors should not be placed at risk of waiving their clients' rights as a result of a response given purely as a matter of courtesy, in the absence of a clear and unequivocal waiver.” (emphasis added)

95.  In Goldmex Ltd at [22], DHCJ To expressed his preference for the new approach when he stated:

“22. I respectfully prefer the approach of Mr Recorder Ribeiro SC. As a matter of principle, the burden of proving a waiver must be on the party alleging that the time limit has been waived. A waiver is not to be lightly inferred from the mere fact that a vendor answers a requisition made out of time. It is wrong in principle to cast the burden on the party answering the requisition to show that a waiver has been excluded by using any form of expression. A waiver is not to be inferred especially in the face of clear language to the contrary. Furthermore, answering a requisition is also what a willing vendor possessed of robust common sense would do to help to ease the mind of the purchaser if he has a good answer to the requisition. Such practice should be encouraged rather than to be discouraged by any unduly cautious approach.” (emphasis added)

96.  After referring to the above, Chow J (as he then was) summed up the legal position in Join Union Investment Ltd at [94] that the general principle is that waiver of a contractual right by conduct requires proof of some clear and unequivocal act by a party which is consistent, and consistent only, with an intention by that party to waive the right in question.

97.  In light of the above, it is clear to this court that Mr Lam’s argument on waiver is untenable.

98.  First, Christine Ip’s letter dated 24 October 2018 has been referred to earlier in this Judgment. For ease of discussion, Christine Ip’s letter dated 24 October 2018 is repeated below.

“We send you herewith copy of Ground Floor Plan and the First Floor Plan for your attention.

Kindly note that our client’s property include the area up to the boundary line highlighted in yellow. The shop “順發蔴雀水族” is within the said boundary line and underneath the Flat Roof of First Floor. The said shop “順發蔴雀水族” has been partitioned from Shop C and let out as an independent shop long time ago and is not an illegal structure. There is no structural alteration requiring any approval of the Building Authority.

You may confirm the position by comparing the measurements of the length (50’) and width (43’-2”) of the building as shown in the aforesaid two plans.

We look forward to receiving your report from a qualified surveyor soonest as the completion date will be on 31^st October 2018. All our client’s rights are hereby expressly reserved.” (emphasis added)

99.  While Christine Ip did try to ease the concern of Gary Mak that a portion of the Property was suspected to be an UBW or illegal structure, this court does not see that reply as a clear and unequivocal act by a party which is consistent, and consistent only, with an intention to waive the Defendant’s right to object to the requisition on the ground of lateness. On the contrary, Christine Ip had expressly reserved the Defendant’s rights at the end of the letter.

100.  Next, Christine Ip’s letter dated 30 October 2018. For ease of discussion, the letter is quoted below.

“We refer to your letter of 26^th October 2018 which was received by us on 29^th October 2018.

We just instructed our expert and are waiting our expert’s report in reply to your expert’s report in respect of your client’s alleged unauthorized / illegal structure/alteration as stated therein.

In this connection, we propose to extend the date of completion of the sale and purchase as specified in the Provisional Agreement for Sale and Purchase dated 14^th July 2018 from 31^st October 2018 to 30^th November 2018.

Kindly take your client’s instructions and revert to us at your earliest convenience. Save and except as aforesaid, all the terms contained in the said Provisional Agreement shall remain unchanged and in force full.

All our client’s rights are hereby expressly reserved.” (emphasis added)

101.  That letter is even further removed from being a clear and unequivocal waiver. Christine Ip merely informed Gary Mak that an expert had been engaged to prepare a report and requested an extension of the completion date by 1 month - there was no attempt to respond to the 8 alleged UBWs in Pau’s report as such. Further, Christine Ip reminded Gary Mak that all terms under the Preliminary Agreement remained in force and expressly reserved the Defendant’s rights.

102.  To conclude, this court is of the view that the 24 October 2018 letter, in so far as it purported to answer the Plaintiff’s requisition, is consistent with being given as a matter of courtesy, or realistically, what a willing vendor’s solicitors possessed of robust common sense would do to help to ease the mind of the purchaser. That is not sufficient to constitute a clear and unequivocal waiver. As for the 30 October 2018 letter, there was no attempt to answer the requisitions in Gary Mak’s 26 October 2018 requisitions at all.

103.  For these reasons, this court rules that there was no waiver by the Defendant that the Plaintiff’s requisitions dated 22 and 26 October 2018 were out of time.

Conclusion

104.  To conclude, this court is of the view that the Defendant had sufficiently answered the requisitions which the Plaintiff was reasonably entitled to raise within a reasonable time and has shown a good title to the Property.

Giving good title to the Property

105.  This can be dealt with relatively briefly in light of the above discussions.

Cockloft and its access by the staircase

106.  While this is admittedly an illegal structure, this court is of the view that Clause 20 of the Preliminary Agreement is a complete answer.

The UBWs mentioned in the 2002 and 2006 Building Orders and the 2007 Letter of Withdrawal

107.  For reasons given in paras 65 to 74 above, this court is of the view that there is no real risk of enforcement action by the BA in relation to 2 UBWs mentioned in the 2006 Building Order and the Defendant is able to give a good title to the Property.

The 6 remaining alleged UBWs identified by Pau

108.  The short answer is that since the requisition raised on the basis of Pau’s report of 26 October 2018 was way out of time, the Plaintiff was deemed to have accepted title to the Property: Goldmex Ltd at [18].

109.  In addition, this court would like to make a number of points in explaining why the Plaintiff is not entitled to rescind the Preliminary Agreement on the basis of these alleged UBWs.

110.  First, the inspection by Pau on 25 October 2018 was of the exterior part of the Property. This kind of inspection could have been done anytime by the Plaintiff’s surveyor, even before the Preliminary Agreement was entered into. In fact, Madam Chan Yuen Sun, the mother of the Plaintiff’s directors and shareholders, confirmed in her statement that on 12 July 2018 she had inspected the outside of the Property with Yeung, the estate agent. If the Plaintiff’s surveyor had also done so around that time in July 2018, and if Gary Mak had raised the requisition on the said UBWs at a much earlier stage, the Defendant would have had time to carry out her own investigation and, if necessary, to carry out remedial action prior to completion.

111.  In the witness statement of the Defendant at para 27, she stated that she was prepared to arrange for qualified persons to remove or rectify the 6 UBWs if the Plaintiff had given reasonable notice to her and its objection to them prior to completion. This court accepts the genuineness of the Defendant’s stated intention as there was no challenge to what she said by the Plaintiff.

112.  Further, the unchallenged evidence of the Defendant’s expert Simon Cheung Wai Sum (“Cheung”) is that removal or reinstatement works of these alleged UBWs were relatively simple and straight-forward and not expensive. For instance, the costs of removing the metal canopy would be about HK$8,000 and the costs of removing the metal frame of abandoned signage would be about HK$5,500. Although no figures of the costs involved in relation to the other UBWs were given by Cheung, it is unlikely that they would be high in comparison with the value of the Property which was over HK$35 million.

113.  Having carefully considered the expert evidence and other related materials including photos of the UBWs and floor plans, this court accepts that the UBWs could be removed and/or reinstated without difficulty and at no great expense. Even for the more substantial UBW ie the male toilet cubicle which had been converted to a shop, it is just a cubicle and its size can be ascertained by comparing it to the entire Shop C in the floor plan annexed to Pau’s 26 October 2018 report[7]. The floor area of Shop C is under 550 sq ft[8]and it appears the cubicle should be less than 10% of the area of Shop C.

114.  In Great Billion Enterprises Ltd v Chan Lin Ying unrep, HCA 9158 of 1998, 7 February 2003, C Chu J (as she then was), the learned Judge observed at [46] and [50] as follows:

“The giving of good title

46. It is settled law that the existence of unauthorized structures or alterations or breaches of the Buildings Ordinance does not necessarily constitute an encumbrance to title. A title will only be defeasible if there is a real risk of the Building Authority taking enforcement action in respect of the structure or alteration or breach: Active Keen Industries Ltd v. Fok Chi Keong [1994] 1 HKLR 396, 407; Spark Rich (China) Ltd v Valrose Ltd (1999) CACV 249/1998.

…

Right to rescind

50. Even assuming that there was a real risk of enforcement action, the plaintiff will still have to demonstrate that the defect in title could not be remedied or the risk could not be removed in time for completion. This is because the plaintiff had chosen to rescind the Agreement forthwith, without going through the process of raising requisitions, contrary to conveyancing practice, and without waiting for completion. As Stock JA pointed out in Gladson China Ltd v. Lam Alexander Chun June & Anor (2001) CACV 291/2000, it cannot be the case that a purchaser’s right to rescind will arise by the mere existence of an unauthorized structure, regardless of the willingness and ability of the vendors to put the matter right: see also Ip Cho Sau v Leung Kai Cheong (2000) HCMP 1288/1998.” (emphasis added)

115.  It was owing to the Plaintiff’s extremely late requisition, in breach of an implied term of the Preliminary Agreement, that the Defendant was unable to take remedial action about the 6 alleged UBWs. In these circumstances, this court is of the view that the Plaintiff should be precluded from taking advantage of its own wrong in asserting the right to rescind the Preliminary Agreement and not to complete, assuming the alleged UBWs were indeed UBWs which affect title to the Property: Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at [91] - [97] (per Ribeiro PJ).

116.  Second, in Join Union Investment Ltd at [106], Chow J (as he then was) cited with approval a passage from Mr Recorder Ribeiro SC in Big Foundation Development as follows:

“106. What title defect would go to the root of title was also considered by Mr Recorder Ribeiro SC in Big Foundation Development. At pages 5 to 6 of his judgment, the learned Recorder stated as follows:-

‘It is common ground (in my view, obviously correctly) that not every unauthorized structure goes to the root of title. Whether or not it does so depends on the nature and extent of the unauthorized structure, the risk of enforcement action that it poses and the likely consequences of any such enforcement action, including risk of the property becoming encumbered or subject to re-entry by the Government: see, e.g., Chan Chik-sum v Great Pearl Industries Ltd [1997] 1 HKC 27 at 32; Ji Shan International Investment Ltd v Resources Main Enterprises Ltd & Anr (Unreported, 30^th March 1998), Civ App No 213 of 1997, at p 11.

As Mr Raymond W.S. Chan appearing for the Defendant pointed out, in the authority cited by the Plaintiff, there was ample evidence that extremely extensive unauthorized structures had been built on the property in question, consisting of three lower basements, the inner court and certain balconies, all forming part of the property (Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297 at 300E-F). Plainly, where there is only a minor unauthorized structure which is readily capable of being removed and the property reinstated, the defect does not per se go to the root of title.’” (emphasis added)

117.  Judging from the letter dated 26 October 2018, Gary Mak and the Plaintiff had already decided that the Plaintiff would not complete the purchase of the Property. It seems to this court they had done so without seriously considering whether there was a real risk of the BA taking enforcement action in respect of the alleged UBWs and whether the existence of the alleged UBWs went to the root of title.

118.  Take the shopfront extension as an example.

119.  In Pau’s report of 26 October 2018 at para 3.2(a), he described this as an illegal extension of shopfront facing the lane by 225 mm in width and encroached onto the public pavement. At para 4.1 of that report, Pau asserted that under the current policy of the BA, this was subject to enforcement action for removal or required to be reinstated in accordance with the Approved Plan.

120.  In fact, in the Joint Expert Statement dated 13 May 2020 (“Joint Report”) of Pau and Cheung, Pau’s opinion was that the extension was an UBW under section 24(2A) of the BO but whether the BA would enforce the removal of the UBW depended on its applicable Enforcement Policy. The then current one was said to be item 3.1 in Appendix I of the Revised Enforcement Policy April 2011 (“2011 Policy”) which was to serve a Demolition Order on existing shopfront extensions projecting more than 300mm. Cheung’s opinion in the Joint Report was that the extension is not actionable under the 2011 Policy because the extension did not exceed 300mm. There is thus no significant difference between the 2 experts on the Enforcement Policy of the BA at the relevant time which pointed to there being no real risk of enforcement action against the shopfront extension.

121.  This court has also considered the relevant parts of Mr Lam’s Closing in order to find out the grounds on which he submits there was a real risk of enforcement action by the BA[9] in relation to the shopfront extension. All Mr Lam submits at paras 49 - 52 are that (i) the shopfront extension was an illegal structure / UBW; (ii) Cheung accepted under cross-examination that the shopfront extension was caught by section 24(2A) of the BO; and (iii) as a bare assertion, because the shopfront extension was caught by section 24(2A) of the BO, it rendered title of the Property defective.

122.  Even assuming the shopfront extension was an actionable UBW, one still has to consider the risk of enforcement action by BA. Given the 2011 Policy and the fact that the shopfront extension did not exceed 300mm, this court is wholly unpersuaded that there was a real risk of enforcement action by the BA or that the existence of the shopfront extension went to the root of the title.

123.  Take the stepping platforms as another example. As between Mr Lam and Mr Cheung, what divides them is whether there is a real risk of enforcement action by the BA which would affect title to the Property. In relation to that, there is little clue in Mr Lam’s Closing at paras 53-4 to explain why there was a real risk of enforcement action by the BA so as to justify his assertion that title to the Property was thus defective.

124.  By contrast, in Mr Cheung’s Closing at para 57, he refers this court to Section 6 of EB Division Manual Part II, Instruction No 20 at point 6 which states that:

“6. Raised ground platforms, ramps and steps extending from shopfronts onto the pavements and public streets constitute unauthorized occupation of government land/public street and are therefore exempted from the provisions of the BO by virtual of BO s41(1)(ba) and (c). Enforcement of these on-street structures, irrespective of whether they are affixed to or detached from the shops, is under the jurisdiction of LandsD, pursuant to the Land (Miscellaneous Provisions) Ordinance (Cap. 28). In the event of enforcement by LandsD, there has been an agreement between LandsD and HyD that the Highways Department will assist by removing the unauthorized platform and reinstating the pavement.” (emphasis added)

125.  In Pau’s 2^nd report dated 18 February 2020, there is no dispute as to the applicability of Section 6 of EB Division Manual Part II, Instruction No 20 point 6. In other words, there is no risk of enforcement action by the BA at all.[10]

126.  As for the other UBWs, on the question of real risk of enforcement action, one can find this general statement in Mr Lam’s Closing at para 64 which this court does not find particularly helpful:

“Real risk of enforcement action

64. … In light of the Building Authority’s commitment to tightening up enforcement action since April 2011 [A175 to 177 and A180 to 182] with a view to safeguarding public safety, and taking into account of the growing awareness and legitimate expectation of the general public that there should not be any further tolerance for building works that were carried out without the approval or permission from the government, it is clear that the illegal structures / UBWs erected at the property in question are liable to a real risk of enforcement action by the Building Authority.”

127.  As submitted by Mr Cheung, on this issue, one should take into account inter alia (i) the nature, scope and size of the UBWs, (ii) how long the UBWs have been in existence, (iii) whether the BA was aware of them and whether any enforcement action has been threatened in the past.

(a)  On (i), it seems to this court reasonably clear that the metal door, metal canopy and metal frame are really minor contraventions. Even the conversion of the male toilet cubicle can be regarded likewise given its small size and the ease with which it can be reinstated.

(b)  On (ii), the Defendant’s testimony is that the metal door for access to the staircase and the cockloft was there for at least 40 years and the conversion of the male toilet cubicle took place in around 1971 shortly after the Defendant and her husband purchased the Property. Her testimony is not challenged. As for the metal canopy and metal frame, while there is no clear evidence as to exactly when they came into existence, according to Cheung’s assessment of their external appearance, they would have been in existence a long time ago.

(c)  On (iii), the UBWs were all observed by Pau from an inspection of the exterior of the building in question. If so, they would in all probabilities have been observed by the BA a long time ago. According to the Defendant’s testimony, the BA had inspected the Property for unlawful works many times but except the 2002 and 2006 Building Orders issued under section 24 of BO, it had not raised any issue of UBWs with her husband, her son or herself. No further Building Order under section 24 of BO has been issued after the 2011 Policy, according to the land search record.

128.  All in all, this court is not satisfied that there is a real risk of enforcement action by the BA in respect of the 6 remaining UBWs. Even assuming there were such a risk, this court is satisfied that they cannot possibly be regarded as encumbrance to the title of the Property: cf Great Billion Enterprises Ltd at [45], let alone defects which go to the root of the title: Join Union Investment Ltd at [107].

129.  That is dispositive of the issue of giving good title to the Property in favour of the Defendant.

Disposition and costs order nisi

130.  The Plaintiff’s claim is hereby dismissed.

131.  There shall be a declaration that the Defendant is entitled to forfeit the deposit and the further deposit in the total sum of HK$3,568,000 paid under the Preliminary Agreement.

132.  There shall also be an Order that a sealed copy of the Writ of Summons herein registered at the Land Registry with Memorial No 18111400370015 be vacated upon the expiration of 28 days from the date hereof or upon further Order.

133.  On an nisi basis, costs of the Action, including costs of the Counterclaim, be to the Defendant (including all costs reserved), to be taxed if not agreed, and paid by the Plaintiff forthwith, certificate for counsel.

134.  Liberty to apply.