JASMIN ENTERPRISES LTD. v. CHAN YUK HON

M.P. No. 4070 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. By an agreement for sale and purchase made on 16th October 1997, the Plaintiff as purchaser purchased and the Defendant as vendor sold Flat B on the 8th Floor of the building known as Fairview Court at Nos. 15 and 17 King Kong Street for the sum of $3,690,000. An initial deposit had already been paid to the Defendant in the sum of $110,700 and a further sum was paid under the sale and purchase agreement in the sum of $258,300 making a total sum of $369,000 paid by the Plaintiff to the Defendant as deposit and part payment of the purchase price.

2. The date of completion was fixed for 10th November 1997 and it was provided by Clause 9 of the agreement that time in every respect should be of the essence of the contract. Completion did not take place on 10th November 1997. The Plaintiff alleges against the Defendant that it failed to show a good title and that it failed to answer satisfactorily or sufficiently the requisitions that it had raised as to title and claims that it effectively rescinded the agreement and seeks, inter alia, repayment of the sums paid under the agreement. The Defendant alleges that it has shown a good title and counterclaims for, inter alia, a declaration that he has effectively rescinded the sale and that the deposit of $369,000 has been forfeited.

3. By Clause 12 of the agreement it was expressly provided that the vendor should give a good title to the property purchased. It has been held that there was a heavy burden on the vendor to prove title and that the purchaser was always entitled to proof of all matters of fact which were part of or affected the title. See Qualihold Investments Ltd. v. Bylax Investments Ltd. [1991] 2 HKC 589 and to the cases referred to by Keith J. in his judgment at 592-3. And the obligation to show good title includes the obligation to answer requisitions satisfactorily (Lo Shea Chung v. Lo Hung Biu [1997] 2 HKC 723 per Cheung J. at 734 A-C).

4. If requisitions are not answered satisfactorily, the vendor would have failed in its obligation to show good title and it does not matter if the vendor does in fact have good title. That was what happened in Active Keen Industries Ltd. v. Fok Chi Keong [1994] 2 HKC 67. I would also refer to what Litton J.A., (as he then was), said in that case at 78:

"Obviously, if a purchaser raises a substantial objection as to the vendor's title and there are facts within the vendor's knowledge which, if revealed, might meet the objection, and the vendor chooses to withhold that from the purchaser, the vendor clearly cannot on the day fixed for completion, turn round and say to the purchaser, 'Now I will both show you a good title and make you good title; you pay the balance of the purchase price today or I will rescind.' The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion."

5. Thus, it is clear that not only must the vendor answer requisitions satisfactorily, he must do so in good time before completion so that the purchaser is given reasonable time to consider the title of the vendor and his own position.

6. It is necessary to see what the requisitions were in this case and to see the answers given to the requisitions raised. The two relevant requisitions that were raised were contained in the letter dated 30th October 1997 from the Plaintiff's solicitors to the Defendant's solicitors and were Requisitions No. 2 and No. 4 in that letter.

7. Requisition No. 2 was in respect of the Government lease. It was pointed out that the Government lease stipulated that no building should be erected on the land thereby demised other than two houses of a European type. What was erected on the land was only one multi-storey building which was 22 storeys and it was alleged that there was a breach of the Government lease which rendered the title defective and asked for documentary proof of compliance of the Government lease. Requisition No. 4 was a request for proof of payment of Government rent up-to-date.

8. I turn to the relevant covenant in the Government lease. This is set out hereunder:

"And shall not nor will erect any building or buildings on the said piece or parcel of ground hereby demised or any part thereof other than two houses of a European Type...."

Counsel for the Defendant submitted that this meant that there was to be a maximum of two houses and that the erection of a multi-storey building would not be in breach of that covenant. He relied on an earlier covenant in the Government lease as to the requirement that within 24 months the lessee had to build one or more tenements for the sum of at least $18,000 and said that this meant that the reference to two houses in the covenant that I have set out was a reference to a maximum of 2 houses.

9. Counsel also relied on concessions made by the Government in two cases, namely Wong Bei-nei v. Attorney-General [1973] HKLR 582 and Hang Wah Chong Investment Co. Ltd. v. Attorney-General Civil Appeal No. 84 of 1978 (Judgment dated 31st October 1979). The concessions were to the effect that a block of flats can be included in the term "residential premises" and "dwelling house". I do not see how the concessions made in those cases can assist the Defendant at all. The concessions were only made for the particular cases where the Crown leases were different and it cannot be said that by so conceding the Government has accepted that in all Government leases the erection of a 22 storeys multi-storey building as is the case here is equal to a house of a European type. I agree with the Plaintiff's counsel's submission that the case of Kimber v. Admans [1900] 1 Ch. 412 must be viewed in the context of what the particular structure or building the court was considering in that case. That was a two-storey house in that case, unlike the situation in Rogers v. Hosegood [1900] 2 Ch. 388 and certainly unlike the situation here. Each case must be decided on its own facts and one has to bear in mind that in 1934 when the Government lease was executed, it is doubtful whether there were any 22 storeys multi-storey buildings existing in Hong Kong. I also do not see how the earlier covenant requiring the lessee to build one or more tenements within 24 months for at least $18,000 can assist the Defendant in the construction of the covenant in question. It is clear in my view that the proper construction is that only two houses are to be erected and the erection of one house would be in breach of the covenant. But none of this matters anyway on the facts of this case because as will emerge later in my judgment, when answering the requisitions the Defendant's solicitors seemed to have accepted that the covenant in question required two houses to be erected and they were seeking to argue that two houses could combine together to form one multi-storey building.

10. Dealing with the Requisition No. 2, the reply from the Defendant's solicitors by a letter dated 4th November 1997 was that:

"The approval of the Director as stipulated in the Crown lease is evidenced by issuance of Occupation Permit No. H130/85."

It is not clear to me what this meant and neither could counsel for the Defendant clarify this. The Plaintiff's solicitors did not regard this as a satisfactory answer and said as much in their letter dated 7th November 1997. Counsel for the Defendant accepted that it was not satisfactorily answered.

11. By a letter dated 7th November 1997, the Defendant's solicitors then said that there was no breach of the Crown conditions and referred to an authority. This contention was disputed by the Plaintiff's solicitors and in one of their letters dated 8th November 1997, the point was made that in any event the Government lease stipulated for two houses of European style to be erected on the land and as there was only one multi-storey building on the land there was a breach of the Government lease. In their reply also by letter dated 8th November 1997, the Defendant's solicitors replied to the effect that two houses may combine to form one multi-storey building. They never took the point as was taken here before me that on a construction of the covenant, it was permissible to erect one multi-storey building as only one house was required to be erected. By a letter dated 10th November 1997, the Defendant's solicitors' contentions were disputed by the Plaintiff's solicitors. I agree with the Plaintiff's solicitors' contention that it is inconceivable that two houses are equivalent to one multi-storey building containing some 46 shops and apartments.

12. In their letter dated 10th November 1997 the very date fixed for completion, the Defendant's solicitors reiterated their earlier letter of the 8th November 1997 thereby maintaining the view that two houses may combine to form one multi-storey building. They also said that the occupation permit was issued and that the Government must have been aware of the fact of the development of the lot into a multi-storey building. It was said that it was not realistic for Government that it did not know of the development and the Government must be taken as having abandoned its right to enforce the relevant covenant. This was the first time that it was asserted that Government must be taken as having abandoned its right to enforce the relevant covenant and it was made at the date of completion. The Plaintiff was not, in my view, given reasonable time at all to consider his position. In any event, this was a bare assertion of abandonment. No facts were revealed as to why it was said that Government must be taken as having abandoned its right and certainly no evidence was produced. What is the Plaintiff's solicitors supposed to do with this bare assertion given on the very date of completion?

13. It was argued before me that in the case of Attorney-General v. Fairfax Ltd. [1995] 2 HKC 617, there was an abandonment found by the Court of Appeal where there was a 40 years lapse by the Government. I would observe that this was a case that was decided on the facts of that case and notwithstanding that there was a lapse of 40 years which the Court of Appeal said the proper inference to be drawn was that there was 'notorious and avowed acquiescence' by the landlord, the Government saw fit to litigate on that issue.

14. Although in this case the risk of Government re-entry for breach of that covenant is not great, nonetheless there is a risk. In my judgment, the purchaser should not have to endure that risk of litigation and the purchaser's solicitors were entitled, in my judgment, to take the stand that they did. They were entitled to be cautious. I find that the requisition was not answered satisfactorily and it does not matter whether in fact good title has been shown.

15. Turning to Requisition No. 4, the purchaser's solicitors asked for proof of payment of Government rent up-to-date. The stand taken by the Defendant's solicitors was that it was the purchaser's burden to prove the outstanding Government rent and unless the contrary was proved they were not prepared to entertain that request. That was not a particularly helpful attitude that was adopted but as counsel for the Defendant submitted it was done on principle and that unless there was some reason to suspect that Government rent had not been paid this was not a proper requisition. Of course, the Plaintiff's solicitors could have easily checked the matter of whether or not Government rent was outstanding. This could have been done by completing a simple enquiry form from the Treasury on payment of a fee of $60.

16. The obligation on the vendor is to show good title. If Government rent had not been paid, that would be a ground for forfeiture of the Crown lease in which case good title could not be shown. If there was some reason to suspect that the Government rent was not paid then the Plaintiff was certainly entitled to require proof. However, it has not been shown to me that there was any reason to suspect non-payment of Government rent. I accept the submission made by counsel for the Defendant that in the circumstances of the case this was not a proper requisition.

17. By a letter dated 11th November 1997, the Plaintiff's solicitors gave notice to the Defendant's solicitors that the agreement was rescinded and required the Defendant to refund the deposits paid. In my judgment, the Plaintiff has effectively rescinded the agreement. I will hear counsel on the orders that I should make.

[After hearing submission]

18. I grant a declaration in the terms of Paras. (i) and (ii) of the prayer for relief, namely,

(i) a declaration that the Plaintiff was entitled as against the Defendant to reasonable proof that Fairview Court at Nos. 15 and 17 King Kwong Street aforesaid ("the said Building") and the said Property are not unlawfully erected on The Remaining Portion of Section A of Inland Lot No. 3209 and The Remaining Portion of Inland Lot No. 3209 ("the Leased Land") in breach of the Government Lease dated 26th January 1934; and

(ii) a declaration that the Defendant has failed to provide any reasonable proof that the said Building and the said Property are not unlawfully erected on the Leased Land in breach of the Government Lease.

19. I also grant a declaration that in the circumstances of the case, the Defendant, as the vendor of the said Property under an Agreement for Sale and Purchase dated 16th October, 1997 (hereafter called "the said Agreement") has:

(a) failed to answer satisfactorily and sufficiently the requisition and objection numbered 2 raised by the Plaintiff in respect of the title to the said Property under the letter dated 30th October, 1997 issued by the Plaintiff's solicitors;

(b) failed to show a good title to the said Property in accordance with the said Agreement.

20. I also grant a declaration that the Plaintiff has effectively rescinded the said Agreement, and a declaration that, upon the rescission of the said Agreement, the Defendant shall return to the Plaintiff the sum of $369,000 being the amount of deposit and part payment paid by the Plaintiff to the Defendant pursuant to the said Agreement together with interest at 10% per annum from 11th November 1997 to date of judgment and thereafter at judgment rate.

21. I also order that the Defendant do pay to the Plaintiff the said sum of $369,000 together with interest at 10% per annum from 11th November 1997 to to-day and thereafter at judgment rate. I also grant a declaration that the Plaintiff is entitled to a lien on the said Property for the said deposit in the total sum of $369,000 and interest as aforesaid.

22. I give liberty to the Plaintiff to apply to me for further declarations and orders in the absence of agreement with the Defendant.

23. I order that the costs of the action are to be paid by the Defendant to the Plaintiff. The counterclaim is dismissed with costs to the Plaintiff.

(Arjan H. Sakhrani)

Judge of the Court of First Instance