GOLDMEX LTD AND OTHERS v. EDWARD WONG FINANCE CO LTD

HCA 4788/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4788 OF 2001

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J U D G M E N T

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INTRODUCTION

1.  This is a trial on the issue of liability in respect of four actions for breach of an agreement for sale and purchase of property.  By four provisional agreements (the “Provisional Agreements”), all in similar terms and dated 8 September 2000, entered into between the Defendant as vendor and each of the four Plaintiffs separately as purchasers, the Defendant agreed to sell to each of the Plaintiffs a house in Tai Tam Road (the “Properties”).  The four houses together made up one development located on Rural Building Lot No 845 and known as 8 Tai Tam Road.  A deposit was paid in respect of each of the houses by the respective Plaintiff.  The total deposit paid was in the sum of $13.6 million.  As the parties failed to agree on the terms of the formal sale and purchase agreements, no formal sale and purchase agreements were subsequently signed.  At the material times, the Defendant was represented by Messrs W K To & Co (“WKT”) and the Plaintiffs were represented by Messrs Yen & Co (“Yen”).

2.  The Plaintiffs refused to complete the purchases on the ground that the Defendant failed to answer requisitions satisfactorily.  By a letter dated 24 October 2001 issued by WKT to Yen, the Defendant terminated the four Provisional Agreements and forfeited the deposits.  

3.  The Plaintiffs claim that the Defendant was in breach of the Provisional Agreements by failing to answer requisitions satisfactorily and to give good title to the Properties.  Five requisitions had been raised.  But at trial, the Plaintiffs only seek to rely on three of the requisitions.  They claim the return of the deposits, having abandoned their other claims.

4.  The Defendant raises two defences, namely:

(1) the requisitions were raised out of time and the Defendant was not obliged to answer them; and

(2) in any event, the requisitions had been satisfactorily answered.

5.  The issues raised in these four actions are (1) whether the requisitions were raised out of time and (2) if they were not, whether the requisitions had been satisfactorily answered. The Plaintiffs are related companies.  Hence, the four actions are tried together because of the common issues involved.

whether  REQUISITIONS  were  RAISED  OUT  OF  TIME

The issues

6.  In paragraphs 6 to 9 of the Defence, the Defendant pleaded that the Plaintiffs failed to raise requisitions within a reasonable time and that it was not obliged to answer them.  In paragraphs 7.2.3 and 8.3 of the Reply, the Plaintiffs pleaded that, if (which is not admitted) the requisitions were raised out of time, the Defendant had waived the right to refuse to answer them by answering them by letters dated 26 September 2001, 8 October 2001 and 20 October 2001.  Hence, the questions raised by these pleadings are:

(1) what was a reasonable time for the purpose of these sales and purchases within which requisitions may be raised; and

(2) whether WKT’s replies amounted to a waiver of the Defendant’s right not to answer requisitions.

Reasonable time – the law

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:  Thompson, Barnsley’s Conveyancing Law and Practice (4^th edn, 1996), p 353.  Indeed, Mr Lee, counsel for the Plaintiffs, conceded that it was an implied term of each of the Provisional Agreements that requisitions on title had to be raised within a reasonable time. 

8.  What is reasonable time 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 commonsense, 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.

9.  The reasons for the first three of these factors are self evident.  As for the third factor, it is difficult to set out all the circumstances which may have an effect on what is a reasonable time.  However, the conduct of the parties must to some degree have a bearing on what is reasonable in the circumstances.  Of course, where time is of the essence of the agreement, it is all the more important that requisitions should be timely raised so that the agreement could be brought to completion on the scheduled date.  As for the last factor, it is an extension of the third factor to allow for circumstances which may make an otherwise late requisition excusable. 

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 (Cap 219) 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.

Whether requisitions were raised within reasonable time

11.  Turning to the facts of the present case, the Provisional Agreements are silent as to when requisitions shall be made, but Clause 12 of the Provisional Agreements provided that time is of the essence of the contract.  What was a reasonable time has to be determined against this background.

12.  The parties entered into the Provisional Agreements on 8 September 2000.  They were unable to agree on the terms of the formal agreements to be signed.  On 30 June 2001, the parties agreed to complete the sales and purchases on 27 September 2001.  About two weeks later, on 12 July 2001, WKT delivered the first batch of title deeds and documents to Yen.  On 17 July 2001, WKT wrote to remind Yen to raise requisitions as quickly as possible.  They wrote:

“Meanwhile, we put on record that if you intend to raise any requisition on the Deed of Mutual Covenants and its related floorplans, you are requested to let us know as quickly as possible, as any such requisition cannot be dealt with overnight.  We do not wish to receive last minute’s requisition and simply put on record that our client will not defer the completion date because of any lateness in raising requisitions.”

On 6 September 2001, WKT delivered the second batch of title deeds to Yen.  These were a sealed copy of amended Order Memorial No 8260019 and a sealed copy of re-re-amended statement of claim in respect of a pending litigation over the Properties.  No requisition was raised in respect of those documents.   Thus, for all intents and purposes, I consider the title deeds and documents as having been delivered on 12 July 2001.

13.  It was ten months after the signing of the Provisional Agreements that the title deeds and documents were delivered to Yen.  Mr Lee asserted that there was delay on the part of the Defendant to deliver the title deeds to the Plaintiffs.  In my view, this is irrelevant because for the purpose of determining what was a reasonable time to raise requisitions, time should start to run only upon the delivery of the title deeds.  In any event, the lateness in raising the requisitions had anything to do with the alleged delay in delivering the title deeds.  Usually, title deeds would be delivered after the execution of the formal sale and purchase agreement.  But in this case, as the parties could not agree on the terms of the formal agreements, they agreed to let the Provisional Agreements stand.  In the circumstances, the lateness in delivery of the title deeds and documents was a non-event.

14.  Yen did not raise any requisitions until 18 September 2001, nine days prior to the date of completion.  WKT objected to the lateness of the requisitions in their reply on 20 September 2001, but nevertheless answered them on 26 September 2001, i.e. one day before the scheduled date of completion.  That answer was given under protest and was not to be taken as any reflection of what the parties regarded as a reasonable time for raising requisitions.  Likewise, the Defendant’s indulgence in not insisting completion on the scheduled completion date has no bearing on this issue, especially as the extensions of time granted by the Defendant were all made without prejudice to the Defendant’s accrued rights.

15.  Time was of the essence of the contract.  Shortly after delivery of the title deeds and documents, WKT had reminded Yen of this and impressed upon Yen the need to raise requisitions as quickly as possible.  WKT had warned Yen that the Defendant would not defer completion because of the Plaintiff’s delay in raising requisitions.  There were two and half months between the date receipt of the title deeds and documents from WKT and the scheduled date of completion.  Yen had over two months to peruse the title deeds and documents and raise requisitions.  There is nothing to suggest that the title deeds and documents were particularly voluminous or complicated or difficult to check.  Yen offered no explanation why the requisitions were not raised earlier.

16.   At the material time, the property market was still falling as a result of the Asian financial crisis as was demonstrated by the substantial reduction in price at which the Properties were subsequently sold.  The requisitions were raised nine days prior to the date of completion in total disregard of a prior warning that requisitions should be raised as soon as possible.  The total lack of explanation for the lateness in raising the requisitions and, as I shall later demonstrate, Yen’s recalcitrant attitude in raising requisitions and the nature and number of requisitions raised suggest that the requisitions were made out of bad faith and that the Plaintiffs were simply looking for excuses to wriggle out of the contract.  They were no longer willing purchasers intending to see the transaction through to completion in terms of their bargain.  I am able to draw support for this inference from the dicta of Bokhary PJ in Mexon Holdings Ltd and Silver Bay International Ltd [2000] 1 HKLRD 935 at 944G where he said:

“Nor does the purchaser’s difficulties end there. It is not adequately explained why its requisition was as late as it was. One cannot rule it out as a real possibility that the purchaser was watching the property market for a time before deciding to raise its requisition.”

The lack of explanation for the lateness and the Plaintiffs’ conduct were such that there was no reason to allow them more than what is a usual period under normal circumstances for raising requisitions.

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.

Waiver – the law and the approach

18.  The legal effect of failing to raise requisitions within the time limit is that the Plaintiffs were deemed to have accepted the Defendant’s title: see Halsbury’s Laws of Hong Kong, vol 42, 4^th edn Reissue, para 174 at p 133.  Once time has run out, a purchaser is deemed to have accepted title.  The parties’ legal rights and obligations in this respect are crystallized. 

19.  However, in practice, a vendor faced with a late requisition would have to consider its rights and decide what to do at that point of time.  Three options are available.  Firstly, he may insist on his right not to answer the late requisition.  If he does so, he runs the risk in the event that if he was wrong about the requisition being made out of time, he would be in breach of the duty to answer requisition even though he had a good answer to offer.  Secondly, he may choose to answer the requisition, in which event he is deemed to have waived his right not to answer.  He runs the risk that if he is unable to answer the requisition, he loses his right, which he otherwise has, to insist that the purchaser should accept the title.  Thirdly, he may answer the requisition on a without prejudice basis.  In my view, the third option is to be preferred, provided that in answering the requisition, the vendor makes it very clear that he was doing so on a without prejudice basis.  It secures for the vendor the benefit of being able to take advantage of the purchaser’s failure to raise requisition within time.  It protects the vendor from the risk of being in breach of his duty to answer requisition when he has a good answer to give.  

20.  In Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258 at 267B-C, Jerome Chan J advised the following approach to a requisition which was possibly raised out of time:

“It is advisable that solicitors should avoid answering out-of-time requisition ‘as a matter of courtesy’. Any reply to such invalid requisitions, if not accepted as a properly raised requisition, should only be ‘answered’ subject to very clear statement that such answer was to be wholly without prejudice to the rejection of such requisition on ground of lateness. Such a warning can also be found in Emmet on Title (19^th Ed) para 5080.”

21.  However, in Big Foundation Development Limited and Wong Shu Kei, HCMP4536/97 (16/6/1998), Mr Recorder Ribeiro SC (as he then was) took a slightly different view.  He held at p 7:

“In my judgment, the AYC reply did not waive the Defendant’s right to rely on the time limit for raising requisitions under the Agreement. On the contrary, it expressly stated: “As the requisition period has expired already, you are not entitled to raise and we will not entertain the requisition.” Far from waiving it, this was an express assertion of that right.  No one could have been misled by such language.

…

…

In any event, the paragraphs in AYC’s reply fell far short of the unequivocality required for a waiver of their client’s contractual rights. If, contrary to the construction I have adopted, the second and third paragraphs of AYC’s reply do constitute answers to the purported requisition, I would nevertheless respectfully decline to follow the approach suggested obiter in the Ultra Eternal case. I would hold that notwithstanding the giving of such answers, the clear express refusal to entertain the requisition precluded any waiver. 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 client’s rights as a result of a response given purely as a matter of courtesy, in the absence of a clear and unequivocal waiver.”

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.

Whether the answers constituted waiver

23.  Yen first raised the requisitions on 18 September 2001 which was only nine days before the scheduled date of completion.  Immediately, WKT objected to the lateness of the requisitions.  WKT wrote to Yen in their letter dated 20 September 2001 as follows:

“We regret to note that you are now raising substantial requisitions on the title deeds and documents which had been delivered to you for more than two months ago. Although there is no express provision stipulating the time limit for your client to raise requisition on title under the relevant Provisional Agreements for sale and purchase all dated 8^th September 2000 (“the Provisional Agreements’) entered into between our respective clients, we take the view that your clients should always act in good faith and raise requisition on title through your goodselves within reasonable time after your receipt of the title deeds and documents in respect of the above property.  We cannot think of any good reason or explanation for you to raise requisitions on the title deeds and documents after such a long period of time and our client is very suspicious about the motive of your clients in this respect.  Indeed, we have given you similar warning about lateness in raising requisition earlier and you simply did not respond positively by that time.  We are of the view that your client is simply trying to make up excuses for not completing.  Given the fact that no requisition on title was raised by you for more than two months after your receipt of the title deeds and documents in respect of the above properties, we take the view that all your requisitions on title set out in your letter under reply can be regarded, in equity, as raising out of timeandyour clients shall be deemed to have waived their rights to raise any requisitions on title on the ground of laches or undue delay.  As such, our client shall not be obliged to answer any of your requisitions set out in your letter under reply or at all.  We hereby also expressly reserve our client’s rights to draw the court’s attention to the aforesaid unconscionable act of your client if our client deems necessary.” (With emphasis added)

24.  In a follow up letter dated 24 September 2001 WKT stated their position as follows:

“We are instructed to put on record that we never said that we would not answer your requisitions set out in your letter dated 18^th September 2001. We simply pointed out in our letter to you dated 20^th September 2001 that our client was not obliged to answer any of your requisitions set out therein on the ground of laches or undue delay. We further write to put on record that our client is now still considering its position and in the event and even if our client elects to answer your said requisitions, such reply is to be given only totally without prejudice to our client’s contention that the requisition had been raised out of time and to our client’s right to object now and subsequently to your said requisitions on the ground that they were being raised out of time and any supply of answer in relation thereon shall not be construed as a waiver of our client’s right to object to the same on the aforesaid ground or generally.” (With emphasis added)

25.  In subsequently answering the requisitions, WKT stated at the outset their letter dated 26 September 2001 as follows:

“Without prejudice to our client’s rights to object now and subsequently to your requisitions set out in your said letter on the ground that they had been raised out of time and without prejudice to our client’s position that it has no obligation to reply to the same…”  (With emphasis added)

At the end of the letter, they stated that:

“Last but not least, we must reiterate our client’s position that the aforesaid answers to your requisitions shall not be construed as a waiver of our client’s right to object to the same on the ground that it had been raised out of time or on any ground whatsoever generally and our client’s position that our client is not obliged to answer the same in any way.” (With emphasis added)

26.  Again, in their letter dated 27 September 2001, WKT stated that :

“Without prejudice to our previous contention in this matter including your lateness in raising the requisitions on title in this matter, we write to remind you that the completion date for the sale and purchase of the above properties has been agreed between our respective clients and is now scheduled to be held today.”  (With emphasis added)

27.  WKT demanded completion on 10 October 2001 via their letter dated 28 September 2001. By a letter dated 3 October 2001, Yen raised further requisitions.  In answering the requisition in their letter dated 8 October 2001, WKT again stated at the outset that:

“… further without prejudice to our client’s right to object to your requisitions set out in your letter dated 18^th September 2001 on the grounds of laches or undue delay as well as your further requisitions set out in your said letter which was raised only after the scheduled completion date …”  (With emphasis added)

At the end of that letter, WKT reiterated that:

“Last but not least, we must reiterate our client’s position that the aforesaid answers to your further requisitions shall not be construed as a waiver of our client’s right to accept your client’s repudiatory breach of the Provisional Agreements and object to your further requisitions on the ground that they had been raised after the scheduled completion date or on any ground whatsoever generally and shall be without prejudice to our client’s position that our client is not obliged to answer the same in any way. We hereby also remind you of the contents of our letter to you dated 28^th September 2001.”  (With emphasis added)

28.  The sale did not complete on 10 October 2001. By a letter dated 15 October 2001, WKT demanded the Plaintiffs to complete the sale on 18 October 2001.  On 15 October 2001 and again on 18 October 2001, Yen raised further requisitions.  On 20 October 2001, WKT further answered the requisitions.  WKT stated at the outset of that letter:

“Without prejudice to our client’s position that your client had committed a repudiatory breach of the Provisional Agreements all dated 8^th September 2000 (“the Provisional Agreements”) entered into between our respective clients and further without prejudice to our client’s right to object to your requisitions set out in your letter dated 18^th September 2001 on the grounds of laches or undue delay as well as your further requisitions set out in your letter dated 3^rd October 2001, 15^th October 2001 and 18^th October 2001 respectively which were raised only after the scheduled completion date…”  (With emphasis added)

At the end of the letter they repeated that:

“Last but no least, we must reiterate our client’s position that the aforesaid answers to your further requisitionsshall not be construed as a waiver of our client’s right to accept your clients’ repudiatory breach of the Provisional Agreements and object to your further requisitions on the ground that they had been raised after the scheduled completion date or on any ground whatsoever generally and shall be without prejudice to our client’s position that our client is not obliged to answer the same in any way. We hereby also remind you of the contents of our letter to you dated 15^th October 2001.”  (With emphasis added)

29.  From the above correspondence, it is clear that WKT’s stance from the moment they received Yen’s first requisition was that the requisitions were raised out of time and WKT were not obliged to answer them.  They repeated their stance in each and every one of their subsequent correspondences.  In their letter dated 26 September 2001 in answering the requisition and in their letters dated 27 September 2001 and 8 October 2001 in further answering the further requisitions, WKT stated both at the beginning and at the conclusion of those letters after answering the requisitions that the answers were made without prejudice to the Defendant’s right to object to the late requisition and not to be construed as a waiver of the Defendant’s right not to answer them.

30.  The Plaintiffs sought to rely on the facts that WKT applied for a copy of the Occupation Permit on 19 September 2001 and wrote to the Buildings Department on 20 September 2001 as evidence of waiver.  Firstly, such facts have not been pleaded in the Reply as constituting waiver.  Secondly and in any event, they are irrelevant because these were acts done before the Defendant elected whether to answer the requisitions (and if so, on what basis) and before WKT informed Yen of such decision.  It is trite law that there is no waiver by election unless the election has been communicated to the other party in clear and unequivocal terms or by conduct to such effect: see Large Land Investments Ltd and Cheung Siu Kwai [2003] 1 HKLRD 313 at 318H-I.  Furthermore, after WKT informed Yen that the requisitions would only be answered on a without prejudice basis, the copy of Occupation Permit and the answer given by the Building Department were provided to Yen under cover of letters which expressly stated again that they were provided on a without prejudice basis.  For these reasons, it can hardly be argued that what the Defendant did amounted to waiver of the right not to answer the requisitions on the ground that they were raised out of time. 

31.  Adopting the approach in Big Foundation Development Limited and Wong Shu Kei, I find the Plaintiffs have utterly failed to discharge their burden of proving that the Defendant waived their right not to answer the late requisitions.  Quite on the contrary, I am satisfied that Defendant had conveyed to the Plaintiffs in unequivocal terms that the Defendant considered the requisitions were raised out of time and that the Defendant was not obliged to answer the requisitions.  Prior to answering the requisitions, the Defendant also expressed in unequivocal terms that the answers were provided on a without prejudice basis.  I am satisfied that in answering the requisitions, the Defendant did so on a without prejudice basis and had not waived their right not to answer the requisitions.  Even if I were to adopt the approach in Ultra Eternal Ltd v Liu Tai Cheong, I would reach the same conclusion. 

Conclusion

32.  Accordingly, I find that the requisitions were raised out of time and that in answering the requisitions the Defendant did so on a without prejudice basis without waiving their right not to answer them.  This conclusion is sufficient to dispose of the four actions.  However, for completeness, I shall consider further if the requisitions had been satisfactorily answered.

Answering the  requisitions

The law

33.  Before considering the questions whether the requisitions have been satisfactorily answered, it would be convenient to set out two general and basic legal principles on proving good title to a property as stated by Litton PJ in Mexon Holdings Ltd and Silver Bay International Ltd [2000] 1 HKLRD 935 at 942F-G.  Firstly, a good title does not mean a perfect title, free from every possible blemish.  Secondly, whether a title is good must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.  

34.  The concept of a willing purchaser possessed of reasonably robust commonsense intending to see the transaction through to completion in terms of their own bargain must mean that this purchaser will only raise requisitions which are reasonable.  Thus, frivolous, vexatious, speculative and unrealistic requisitions will not be in the mind of this willing purchaser.  If such requisitions are raised, there is no obligation on the part of the vendor to answer them.

The  first  set  of  requisitions

The Government lease

35.  The first set of requisitions is related to the Government lease which imposed a building height restriction of not exceeding 43.59 metres above Hong Kong Principal Datum and the obligation to provide car parking spaces at the rate of 1.5 cars per flat in the development.   The height restriction was later varied by the Second Schedule attached to a modification letter dated 21 October 1998 issued by the District Lands Office, which provides as follows: 

“And except with the prior written consent of the said Director will not erect or permit or suffer to be erected any structure which exceeds a height of Forty three metres and fifty nine centimeters above Hong Kong Principal Datum” (the amendment highlighted in italics)

36.  In respect of the provision of car parking spaces, the Government Lease provides that:

“will provide within the said piece or parcel of ground to the satisfaction of the said Director space and car ports for the parking of motor vehicles at the rate of not less than 1.5 cars per flat in the building or buildings erected or to be erected on the said piece or parcel of ground or 1,500 square feet of gross floor area as indicated on the approved layout plan registered in the Land Office by Memorial No 943485 and will not use or allow to be used the space and car ports so provided for any purpose other than for the purpose of parking private motor vehicles belonging to the residents of the said building or buildings and will maintain the said parking space and car ports in accordance with the said approved plan and will not alter the lay-out except with the prior written consent of the said Director …”

The modification letter does not contain any material amendments in respect of the obligation to provide for car parking spaces.

The requisitions and answers

37.  I set out below the requisitions raised by Yen and WKT’s answers, which show the way in which the requisitions were pursued.

38.  Yen raised the following requisitions in their letter dated 18 September 2001:

“Please make full and frank disclosure as to whether you or your client (i) is/are aware of or (ii) suspect(s) that any part of any structure now existing on the Lot exceeds a height of 43.59m above Hong Kong Principal Datum. If your answer is in the affirmative, please produce sufficient conveyancing evidence to prove beyond reasonable doubt that prior written consent of the Director of Lands has been given for such erection.

  Please also produce sufficient conveyancing evidence to prove beyond reasonable doubt that the space and car ports now existing on the Lot meet with the satisfaction of the Director of Lands.”

39.  WKT replied as follow via their letter dated 26 September 2001:

“The requisitions were not made with reference to any evidence which indicated that the buildings erected on the Lot may exceed a height 43.59m above Hong Kong Principal Datum or the space and car ports did not conform with the lay-out specified in the covenant concerned.  In this connection, we are of the opinion that the mere assertions made by you without any indication of any non-compliance of the covenants contained in the Government Lease shall not be a proper foundation for you to raise such requisitions and our client is therefore not required to respond to the same.”

40.  Yen replied on 3 October 2001 giving specific reference to the layout of the car parking spaces and said that the number of parking spaces had been reduced from twelve to eight. They demanded conveyancing evidence to prove that the alteration had been made with (i) prior and (ii) written consent of the Director of Lands.  They repeated their requisition on the height restriction point but without giving particulars of any suspected breach.  They wrote as follows:

“We refer to the Government Lease as varied and/or modified by Modification Letter Memorial No 7595798 (“Modification Letter”), in particular to page 4 of the Modification Letter. The grantee (including all its successors-in-title and assigns) covenanted, inter alia, to maintain the parking space and car ports in accordance with the approved lay-out plan registered in the Land Registry by Memorial No 943485 (“the Lay-out Plan”) and would not alter the lay-out except with the prior written consent of the Director of Lands.

Under the Lay-out Plan, there were 12 car ports with 10 of which lying vertical to Tai Tam Road and 2 of which lying horizontal to Tai Tam Road.

However, our clients’ surveyor observed that as on 27^th September 2001, there were only 8 (instead of 12) car ports on the Lot and all such 8 car ports were lying horizontal to Tai Tam Road.  It is obvious that the lay-out of the car ports under the Lay-out Plan has been altered.  Please produce sufficient conveyancing evidence to prove beyond reasonable doubt that such alteration was with (i) prior and (ii) written consent of the Director of Lands.

…

…

In our letter to your dated 18^th September 2001, we asked you to make full and frank disclosure as to whether you or your client (i) was/were aware of (ii) suspected that any part of any structure now existing on the Lot exceeded a height of 43.59m above Hong Kong Principal Datum, and should your answer be in the affirmative, to produce sufficient conveyancing evidence to prove beyond reasonable doubt that prior written consent of the Director of Lands had been given for such erection. We note that you have not dealt with our such requisitions. Please do so.”

41.  WKT then wrote to the District Lands Officer on 19 September 2001 enquiring whether consents have been given to the structures erected upon the lot which exceeded 43.59 metres above Hong Kong Principal Datum and to alternation to the car park layout.  They applied to the Director of Buildings for a certified copy of Occupation Permit of the Properties in respect of all the car parking spaces on 19 September 2001.  In addition, they also wrote specifically to the Buildings Department seeking confirmation that the occupation permit issued for the Properties dated 22 May 1998 covered the parking spaces.  The District Lands Officer replied on 3 October 2001 as follows:

“I refer to your letter dated 19 September 2001 enquiring whether consents from the Director of Lands have been given to (a) the structures erected upon the lot which exceed 43.59m above HKPD and (b) alteration to the carpark layout.

  Written consent to the above had been given on 13 November 1998 via the building plan amendment submission (which comprises Dwgs. Nos. AG-02A to AG-13A approved by the Building Authority on 21 April 1998).  A copy of the said letter is attached for your reference.”          

The letter dated 13 November 1998 attached to the District Lands Officer’s letter was a letter from the District Lands Officer to Lee Mark & Associates, Architects & Surveyors Ltd, the architect responsible for the construction of the Properties.  That letter read:

“I refer to your captioned submission received by the Buildings Department on 28 March 1998.

Your submission has been checked and is considered acceptable under the lease.

Please be reminded to implement the landscaping proposal to the stilt structure in accordance with Drawing No. LP-1A as prepared by Team 73 HK which was submitted through your client’s agent Albert So Surveyor Ltd. to our office on 28 July 1997.” 

42.  Then WKT answered Yen’s requisition on 8 October 2001 as follows enclosing the above letters from the District Lands Officer:

 “Without prejudice to our client’s position that your requisitions raised in your letter dated 18^th September 2001 in this regard are merely of a speculative nature so that our client is not required to respond to the same, we enclose herewith certified copy of a letter issued by Lands Department to us dated 3^rd October 2001 together with enclosure therein for your reference, the contents of which are self-explanatory.

  The said letter clearly provides that the relevant consent of the Director of Lands had been given on 13^th November 1998.”

43.  Yen replied on 15 October 2001 as follows:

“The letter dated 3^rd October 2001 issued by District Lands Office / Hong Kong South to you referred to written consent given (i) on 13^th November 1998 and (ii) via the building plan amendment submission (which comprises Dwgs. Nos. AG-02A to AG-13A).

The Modification Letter referred to “prior written consent”. On 13^th November 1998, the construction of the buildings on the Lot has been completed (note: the date of Occupation Permit No. H32/98 was 22^nd May 1998 which was almost half a year before 13/11/1998).  The written consent allegedly given was obvious not a prior consent as required under the Modification Letter.  Please produce the required prior written consentfrom the Director of Lands in relation to (i) structures exceeding 43.59m above Hong Kong Principal Datum and (ii) alteration to the carpark layout.

Even if consent has been given by the Director of Lands in relation to alteration to the carpark layout, you have not supplied us with any evidence proving that such consent covers the present layout of the carpark.

Further, please produce Drawings, Nos.AG-02A to AG-13A and Drawing No.LP-1A (referred to in the letter dated 13^th November 1998) issued by District Lands Office / Hong Kong South to Lee Mark & Associates.”

44.  On 18 October 2001 Yen wrote further as follows:

“The letter dated 13^th November 1998 issued by the District Lands Office / Hong Kong South to Lee Mark & Associates was written long after the date of Occupation Permit No.H32/98.  In such letter, the District Lands Officer reminded Lee Mark & Associates to implement the landscaping proposal to the stilt structure in accordance with Drawing No.LP-1A.  From the wordings in such letter, we suspect that up to 13/11/1998, such landscaping proposal to the stilt structure has not yet been implemented.  It appears that the consent given by the District Lands Office / Hong Kong South was subject to and conditional upon the implementation of such landscaping proposal.  We require your client producing Drawing No. LP-1A for our perusal and to raise follow-up requisitions if necessary.”

45.  WKT replied on 20 October 2001 as follows:

“Suffice it to say that the written consent in relation to (i) structures exceeding 43.59m above Hong Kong Principal Datum and (ii) alteration to the carpark layout had already been given by the Director of Lands, We are of the view that production of the Drawings nos.AG-02A to AG-13A and Drawing No.LP-1A referred to in the letter dated 13^th November 1998 issued by the District Lands Office is totally unnecessary since such Drawings obviously do not form part of title deeds and documents of the Properties.

Regarding your allegation that the written consent given by the District Lands Office was subject to and conditional upon the implementation of the landscaping proposal to the stilt structure in accordance with Drawing no.LP-1A, with respect, we totally disagree with your interpretation of the letter dated 13^th November 1998 issued by District Lands Office.  If your interpretation is correct, which we expressly deny, the District Lands Office would no doubt mention such condition precedent in its letter to us dated 3^rd October 2001 and would not simply say that the relevant written consent had been given on 13^th November 1998.  In any event, we are of the view that you were again raising a requisition which was merely of speculative nature or based upon a bare possibility of a defect. The mere assertions made by you without any indication of failure to implement the landscaping proposal shall not be a proper foundation for you to raise such requisition and our client is therefore not required to respond to the same.

Regarding your request for our client to supply evidence to prove that the relevant written consent given by the Director of Lands did cover the present layout of the carpark, you must note from the Drawing No.AG02-A which was approved by the Building Authority on 21^st April 1998 and enclosed in our letter to you dated 8^th October 2001 that there was a “Car Park Provision” column which expressly stated that there were 8 carports provided within the Lot.  Such provision no doubt constitutes a complete answer to your clients’ surveyor’s observation as to the change of the layout from the previous 12 carports to the present 8 carports.  This being the case, unless you can make reference to any contrary evidence indicating that the present layout of the carpark is different from the layout set out in the approved plan, which there is none, we take the view that your request made in your said letter would not constitute a proper requisition which deserves an answer from our client.”

46.  At the end of those exchanges, it emerged that even if the structures on the Properties might have exceeded the height restriction under the Government lease and that the layout of the car parking spaces had been altered, written consent from the Director of Lands was given on 13 November 1998.  In the face of that written consent, Yen argued that it was not a prior written consent and insisted production of a prior written consent from the Director of Lands.  Yen also seized upon a reminder from the District Lands Officer for implementing landscaping proposal as a condition precedent to the granting of the written consent and demanded further drawings and reserved their right to make further requisitions.  Thus, the issues to be determined are:

(1) whether written consent was given in respect of  breach of height restriction and alteration to the layout of the car parking spaces;

(2) whether the written consent of the Director of Lands was conditional on implementing the landscape proposal;

(3) whether production of further drawings in respect of the alteration to the car parking space and the landscaping proposal was required; and

(4) whether the written consent, not being a prior consent, sufficiently answered the requisition.

Whether requisitions were reasonably raised

47.  Before embarking on the issue whether the requisitions had been sufficiently answered, I have the following observation to make.  Most of the requisitions were speculative.  Yen was just asking the Defendant to “confess” to breaches of the Government lease without making any reference to any evidence indicating any building structure might have exceeded the height restriction or that the parking spaces did not conform with the layout specified in the covenant.  The series of requisitions was a pure fishing exercise.  WKT was right that they were not obliged to answer the requisitions.  However, they did answer the requisitions and Yen raised further requisitions. 

48.  The series of requisitions as well as the nature and number of requisitions demonstrated the very recalcitrant and unruly attitude of Yen in raising the requisitions.  This attitude and the lateness with which the requisitions were raised cast doubts on whether the requisitions were reasonably or genuinely raised by a willing purchaser intending to see the transaction through to completion in terms of his bargain.

Consent for breaching height restriction and for alteration to the layout of the car parking spaces

49.  It appeared that Yen and WKT assumed that the building works had exceeded the height restriction and their focus was directed to the alteration of the layout of the car parking spaces and the need for prior written consent from the Director of Lands for exceeding the height restriction and the alteration to the layout of the car park.  It should be recalled that in the letter of the Lands Department dated 3 October 2001, the District Lands Officer confirmed that written consent for both matters had been given by its letter dated 13 November 1998 and referred to drawings No AG-02A to AG-13A.  In WKT’s reply dated 8 October 2001, WKT provided a copy of drawing AG-02A.  That drawing was approved by the Building Authority on 21 April 1998.  In the drawing was a “Car Park Provision” column which expressly stated that there were eight carports provided within the lot.  In further answer to Yen’s requisition, WKT explicitly pointed out the above to Yen.  Though the drawing was approved by the Building Authority and not by the Lands Department, it is clear from letter dated 13 November 1998 from the Lands Department that the Lands Department adopted the car park provision in drawing No AG-02A approved by the Building Authority and on that basis confirmed that the submission was acceptable under the lease.  I consider WKT’s production of drawing No AG-02A had sufficiently answered the requisition relating to the layout of the car parking spaces.  Production of other drawings was unnecessary.  Yen’s requisition for the other drawings was frivolous and vexatious and manifestly reflected the attitude of unwilling purchasers trying to get themselves out of their obligation. 

Whether the consent was conditional

50.  I have quoted the letter of the District Lands Officer dated 13 November 1998 in paragraph 41.  In the first paragraph, the District Lands Officer referred to the letter of Lee Mark & Associates, Architects & Surveyors Ltd (the “Architect”) dated 28 March 1998 enquiring about consent.  The second paragraph of that letter unequivocally confirmed that the submission was acceptable under the lease.  Then in the immediately following paragraph, the District Lands Officer reminded the Architect of the landscaping proposal to the stilt structure.  The proposal was made on 28 July 1997, while the application for consent was made on 28 March 1998, eight months later.  There is nothing to suggest that the consent was conditional upon the implementation of the landscaping proposal.  By any reading of the letter, the consent and the landscaping proposal were wholly unrelated matters.  The District Lands Officer first confirmed that the submission was acceptable and then reminded the Architect of the landscaping proposal.  That was obviously intended as no more than a convenient reminder and not a condition precedent to the grant of consent.  In any event, the Plaintiffs adduced no evidence that such proposal had not been implemented.

51.  I do not consider this requisition as reasonably raised.  It bore the hallmark of an unwilling purchaser seeking to wriggle himself out of the contract.

Whether production of further drawings required

52.  In their letter dated 15 October 2001, Yen demanded WKT to produce all the drawings comprising Nos AG-02A to AG-13A in relation to the layout of the car parking spaces.  In their letter dated 18 October 2001, Yen further demanded drawing No LP-1A in respect of the landscaping proposal.

53.  In view of my conclusion reached in paragraph 49, I consider WKT’s production of drawing No AG-02A has sufficiently answered the requisition in relation to the layout of the car parking spaces and there was no need to produce other drawings.   In view of my conclusion reached in paragraph 50, it was not necessary to produce drawing No LP-1A in respect of the landscaping proposal.

Whether the consent sufficiently answered the requisition

54.  The evidence indicates that the consent given by the Director of Lands was not a “prior” consent.  But written consent had been given.  Thus, the main issue here is whether there was any real risk that the Government would take enforcement action, such as exercising the right of re-entry, on the ground that there was a breach of the Government lease and the modification letter.

55.  In Jumbo Gold Investment Ltd and Yuen Cheong Leung & Another [2000] 1 HKLRD 763, Litton PJ said at 769H-770J :

“The cardinal point put forward by the vendors' solicitors, in dealing with the requisition as to title, was not any surmise or conjecture as to what might have happened within the Director of Public Works' office in 1955, but this simple proposition: Was there a real risk that the Government might take "enforcement action" in respect of any alleged breach of covenant now? This is how Yeung J dealt with the matter at trial.

It is common ground that the only "enforcement action" the Government could possibly take is re-entry under the Lease in respect of the entire piece of land upon which Block C is built: Exercisable by registering a memorial of re-entry under s.4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap.126), extinguishing the interest of every owner therein.

If the Government, in its capacity as lessor, were dealing simply with the developer, that is one thing: The equitable considerations that would arise on a question of relief against forfeiture, under s.8(1)(b) of Cap.126, would be decided by examining the respective conduct of the two immediate parties: The Government as lessor and the developer as lessee. But where third parties have become involved, acquiring units in the building on the basis that permission to occupy that building for domestic purposes had been granted by the Government and that Crown rent had been paid and accepted for many years, to forfeit their interest because of some "fault" of the developer, perhaps way back in the past, is a wholly different matter. This concerns, of course, not only owners, but tenants as well. When Counsel for the purchaser was asked during the hearing why the Government would wish to do that, the answer was: To extract some premium from the owners for relief against forfeiture. Counsel was unable to point to any precedent where the Government has acted in such a harsh and capricious manner.

…

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.  …………  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.”

56.  The Occupation Permit was issued on 22 May 1998.  This implied that all building works were completed before that day.  The Director of Land’s written consent was given on 13 November 1998, six months later.   In that letter the District Lands officer, on behalf of the Director of Lands, expressly stated that the developer’s “submission had been checked and was considered acceptable under the lease”.  It was a newly constructed building at the time.  When granting the consent, the Director of Lands must have been aware that building works had been completed and the consent he was to give was not a prior consent as required under the modification letter.  He must have decided that he had the power and good reasons to waive such requirement and that such requirement was to be waived.  Having waived such requirement as to prior application for consent and having granted the consent, it is unlikely that the Government will now seek to re-enter the land on such ground, even if it was wrong to have waived the requirement. 

57.  The Properties have since been occupied and enjoyed without intervention from the authorities, including the Building Authority and the Director of Lands.  The structures thereon complied in all respects with the requirements of the Building Authority.  When WKT made the enquiries on 19 September 2001, the District Lands Officer unreservedly confirmed that consent had been given and helpfully provided WKT with a copy of the letter dated 13 November 1998.  The letter of 3 October 2001 confirmed that whatever breaches of conditions of the lease there might be, the building works were considered acceptable under the lease.  It can be assumed that the Government and its officials would act reasonably and consistently and not capriciously or arbitrarily.  There is nothing to suggest that the Government would not honour its consent given, although it was not a prior one.  Hence, it is unlikely that the Plaintiffs would be at risk of enforcement action by the Government.

58.  Furthermore, in Jumbo Gold Investment Ltd and Yuen Cheong Leung & Another, Litton PJ suggested out that because of the equitable considerations that would arise on a question of relief against forfeiture under s 8(1)(b) of the Government Rights (Re-entry and Vesting Remedies) Ordinance (Cap 126), it was less likely that enforcement action would be taken against a third party such as a subsequent purchaser who was utterly without fault as regards the breach than against the developer.  I think the risk of enforcement is, if any, less than fanciful.

59.  In conclusion, I consider the first set of requisitions had been sufficiently answered. 

THE  SECOND set  of  REQUISITIONs

Occupation Permit No H32/98

60.  The second requisition is related to the Occupation Permit H32/98.  The Occupation Permit states that occupation of the buildings on lot was granted for the following purposes:

 “4 nos 3-storey single-family house each with an open garden for domestic use…”

The Occupation Permit made no reference to any car parking spaces.

61.  By way of background, there used to be an old building on the lot in 1974, the roof of which was used as a car park.  An Occupation Permit No. H191/74 was issued in respect of that building which expressly stipulated that the roof was for non-domestic use as a car park.

The requisitions and answers

62.  On 18 September 2001, Yen queried the legality of the car parking spaces on the basis that Occupation Permit No H32/98 made no mention of the car park.  Yen raised the following requisition:

“We are surprised that Occupation Permit No H32/98 did not cover any of the car parking spaces now existing in the buildings erected on the Lot. That being the case, such car parking spaces may be illegal structures and thus or otherwise may not be occupied. Please explain.”

63.  WKT replied on 26 September 2001:

“With respect, we do not share your view that the said Occupation Permit did not cover any of the car parking spaces now existing in the buildings erected on the Lot.  It is clear that the said Occupation Permit covered the buildings …. unless there is anything provided in the said Occupation Permit which puts you on enquiry, the car parking spaces are no doubt part and partial of the buildings concerned.  Without prejudice to aforesaid and merely for the purpose of dispelling your doubt which we believe is non-existent, we had applied to the Buildings Department for an Occupation Permit relating to all the car parking spaces on the Lot. Within our contemplation and in support of our view hereinbefore mentioned, the same Occupational Permit No H32/98 was supplied by the Buildings Department. Copies of our application form together with a fresh certified copy of the Occupational Permit made on 21^st September 2001 are enclosed herewith for your reference.”

64.  Yen was not satisfied with the answer and wrote on 3 October 2001 as follows:

“Our doubt is reinforced by the fact that in the previous Occupation Permit (i.e. O.P. No. H191/74 dated 27^th September 1974), car park on the roof for non-domestic use was expressly stipulated whereas in O.P. No.H32/98, the words “car parking spaces”… never appear.”

65.  WKT replied on 8 October 2001 producing the following documents:

(1) WKT’ letter to the Building Department dated 20 September 2001 setting out Yen’s earlier requisition on the Occupation Permit;

(2) the Building Department’s reply letter to WKT dated 28 September 2001; and

(3) the latest approved building plans with Drawing Nos.AG/BD/03 and AG02-A which show the location of the eight car parking spaces.

WKT also stated that the building plans clearly show that the car parking spaces had already been approved by the Building Department.

66.  It would be convenient to set out the contents of the letter from the Buildings Department to WKT dated 28 September 2001 as that effectively was WKT’s reply to Yen’s requisition.  It read as follows:

“I would like to advise you:

1. that the descriptions of the building indicated on the Occupation Permit are generally a concise summary of the building layout shown on the latest approved building plans at the issue of the occupation permit of the building.  If you wish to refer to the detailed and most up-to-date layout of the building, you are recommended to apply for viewing the said building plans and any subsequently approved Alteration and Addition Plans for reference.

2. to check or apply for certified true copies of the latest approved plans of the buildings and approved plans of the subsequent alteration and addition works completed after the issued of Occupation Permit by completing the attached application form so as to identify whether the Permit (No.H32/98) covers the above premises.”

67.  Yen was not satisfied with the answer and wrote on 15 October 2001 as follows:

“We are of the view that you have not sufficiently answered our requisition. 

You have not adduced any evidence proving that Drawing No.AG/BD/03 was the latest building plan approved by the Buildings Department.

Our doubt was alleviated by the fact that in the letter dated 3^rd October 2001 issued by District Lands Office / Hong Kong South to you, the District Lands Officer in addressing on consent to alteration to the carpark layout referred to Drawings Nos.AG-02A to AG-13A approved by the Building Authority on 21^st April 1998 (rather than to Drawing No.AG/BD/03 apparently approved by the Building Authority on 9^th October 1997).”

68.  WKT replied on 20 October 2001 stating that drawing No AG02-A clearly indicated that the provision of car parking spaces within the lot had already been approved by the Building Authority.

Whether the requisition was sufficiently answered

69.  My earlier observation that the Plaintiffs were no longer willing purchasers intending to see the transaction through to completion applies equally in respect of this set of requisitions.  Yen’s recalcitrant attitude in raising requisitions, its number and the nature of the requisitions clearly show a lack of good faith in raising the requisitions.

70.  To begin with, the requisitions were based on a wrong premise that all authorized building works would be set out exhaustively in an occupation permit. The Building Department’s letter dated 28 September 2001 impliedly rebuked such erroneous assumption and made it clear that an occupation permit would only contain a concise summary of the building layout and that a requisitionist should consult the latest approved plans available from the Buildings Department.

71.  It is impossible to understand why in the light of the Buildings Department’s letter dated 28 September 2001 Yen was still unable to accept the copy of WKT’s application form for occupation permit, the fresh certified copy of the Occupation Permit made on 21 September 2001 and drawing No AG-02A as having answered the requisition.  Yen insisted that there was no evidence showing that drawing No AG/BD/03 was the latest approved plan.  There is no dispute that drawing No AG-02A was the latest approved plan showing the car ports.  It was the plan which was the latest in time as mentioned in the correspondence.  In particular, it was stated in the District Lands Officer’s letter dated 3 October 2001 that the plan was approved on 21 April 1998, very shortly before the issuance of the Occupation Permit on 22 May 1998.  Thus, this was the relevant plan and not drawing No AG/BD/03.  Yen’s requisition for evidence that drawing No AG/BD/03 was the latest approved plan was plainly frivolous and vexatious.

72.  In Jumbo Gold Investment Ltd and Yuen Cheong Leung & Another [2000] 1 HKLRD 763 at 768J-769G, Litton PJ held that:

“In considering the question whether the vendors had, in answer to the purchaser’s requisition, shown good title, the only rational basis upon which the parties could have proceeded was that plans had been submitted by the authorized architect in the 1950s for the construction of a five-storey building (to be built over car-ports on the ground floor) and that the Buildings Ordinance Office of the Public Works Department had inspected the completed building before the Director issued the occupation permit. What inference can properly be drawn from these two facts?

...

It would seem very odd that the Director of Public Works (or perhaps more accurately the responsible officers of his department) in approving the plans and issuing the occupation permit did not know that Block C had exceeded the height limit of 35 feet in the Crown lease. Mr Chong’s submission, on behalf of the purchaser, that the Director of Public Works was concerned simply with the statutory requirements of the Buildings Ordinance and nothing else is, on its face, somewhat unrealistic.”

73.  What Litton PJ said above applies to the present case with more force.  The Building Authority is charged with the duty of enforcing the Buildings Ordinance so as to ensure all building works comply with the Building Regulations, which is a pre-requisite for the issuance of an occupation permit.  After approving drawing No AG-02A on 21 April 1998 and before issuing the Occupation Permit on 22 May 1998, the Building Authority must have inspected the Properties and must have satisfied itself that all building works were done in compliance with the Building Regulations and in accordance with the approved plans. In the circumstances, what doubt could Yen have that the car parking spaces were illegal structures in the face of the reply, drawing No AG-02A and the certified copy of the Occupation Permit No H321/98 issued by the Building Authority responsible for enforcing the Buildings Ordinance and Building Regulations?  I am satisfied that the second set of requisitions had been satisfactorily answered.  The requisitions were not reasonably raised and without any evidential foundation. 

THE  THIRD  set  of  REQUISITIONs

Production of original title deeds and documents

74.  This requisition is related to the Defendant’s failure to produce the original Letter Memorial No 943485, Occupation Permit No H32/98 and the modification letter.

The requisitions and answers

75.  The requisition raised by Yen in their letter dated 18 September 2001 was as follows:

“You have only produced certified copies of Letter Memorial No 943485, Occupation Permit No H32/98 and the Modification Letter rather than the originals of the same.  All such documents relate exclusively to the Lot. Please let us know the whereabouts of the originals of such documents. If any of the originals of such documents are in your client’s possession, please confirm that the same would be handed over to our clients on completion. If any of the originals of such documents are not in your client’s possession, please prove lost or destruction as the case may be.”

76.  WKT replied in their letter dated 26 September 2001 as follows:

“With all due respect, while we agree that Letter Memorial No 943485, Occupational Permit No H32/95 and the Modification Letter Memorial No 7595798 are documents exclusively related to the Lot, we are of the opinion that our client is not obliged to produce the original of the said documents for the purpose of proving the title to the Properties because your clients are now acquiring the respective undivided shares of and in the Lot rather than the whole interest of the Lot.  In any event, we write to inform you that our client does not have in its possession the original of the said documents and your clients are again referred to Clause 9 of the Provisional Agreements in this respect.”

77.  Yen replied on 3 October 2001 as follows:

“As your client does not have in its possession the originals of Letter Memorial No 943485, Occupational Permit No H32/98 or the Modification Letter (and as all such documents relate exclusively to the Lot), please inform us as to the whereabouts of the same. In case any of the same has been lost or destroyed, please prove such loss or destruction (as the case may be).”

78.  The parties repeated their position in their subsequent correspondences dated 8, 15 and 20 October 2001.

The law and the issues

79.  Mr Chan SC, counsel for the Defendant, referred me to the case of Yiu Ping Fong & Anor v Lam Lai Hing Lana [1998] 4 HKC 476.  In that case, Yuen J (as she then was) helpfully summarised a vendor’s common law obligation to produce the original title deeds and documents at 482G to 483G and the application of section 13(2) of the Conveyancing and Property Ordinance.  Specifically, she drew a distinction between giving title and showing or proving title.  She held at 482G to 483G that:

“In my view, the real position is this. Unless there are express stipulations exonerating him from so doing, a vendor has an obligation to make or give a good title. There are two steps in the making or giving of good title.

The first is to show a good title. …

…

The proving of title by the production of title deeds and documents is therefore but one step in the making or giving of title, and proving of title is not to be equated with making or giving title.  A vendor does not make or give title simply by producing the documents referred to in s 13(1).

The effect of s 13(2) [of the Conveyancing and Property Ordinance] is, in my view, to facilitate the proving of title when the vendor’s solicitor sends title deeds and documents to the purchaser’s solicitor for perusal after the formal agreement for sale and purchase is executed …

Section 13(2) does not, in my judgment, exonerate the vendor from producing at completion the originals of such title deeds and documents, at least those that relate exclusively to the property being sold.

…

However, a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over.

The handing over of original title deeds and documents (or at least those which relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land. That obligation is well established in the common law.

…

Further, it is important for him to get possession of the original title deeds so that he can be sure that the property is not subject to an equitable mortgage by deposit of title deeds.  If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (Emmet Title para 5.147).

Where, therefore, as in this case, the vendor has given notice that she would not be able to produce the original 1986 assignment on completion, it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain its loss.”

On the facts of that case, Yuen J held that the clause relied on by the vendor was not sufficient to relieve him of the obligation to produce the original title deeds and documents.  This implies that the vendor’s obligation to produce originals of title deeds and documents may be subject to modification by contract.

80.  Yiu Ping Fong & Anor v Lam Lai Hing Lana was followed by Deputy High Court Judge Chu (as she then was) in Guang Zhou Real Estate Development (HK) Co Ltd & Another and Summit Elegance Ltd [2000] 2 HKLRD 855.  Deputy High Court Judge Chu recognised that the parties may by contract relieve the vendor of the obligation to produce the originals.  She held at 872B-C:

“Accordingly, as Yuen J observed, clear language is required before the Court will hold that a vendor’s right to have the original title documents has been curtailed. Such clear language is not present in cl 7 or other parts of the Agreement. It is, for instance, open to the vendor to stipulate or for the parties to agree that the purchaser is not entitled to insist on the production of the originals of all or some of the title deeds or documents. On the contrary, cl 8 of the Agreement provides that the vendor shall deliver to the purchaser such of the documents of title as relate exclusively to the Properties, without in any way limiting the scope to certified copies of these documents of title.”

81.  Mr Lee queried the validity of the distinction between giving title and showing title.  He referred me to C & W Watch Company Limited and Chu Kwok Tai, HCMP 920 of 2005 in which Reyes J confessed to doubts about the correctness of Yiu Ping Fong & Anor v Lam Lai Hing Lana and Guang Zhou Real Estate Development (HK) Co Ltd & Another and Summit Elegance Ltd on the basis that the distinction would emasculate section 13 of the Conveyancing and Property Ordinance.  So far as that observation was concerned, it was obiter and was not supported by full reasoning.  For my part, I concur with the reasoning of Yuen J and her analysis of section 13(2).  In any event, Reyes J did not express any doubts on the proposition that the vendor’s common law obligation to hand over the originals of title deeds and documents on completion is not extended to those which do not relate exclusively to the property being sold or on the correctness of the proposition that this obligation may be modified by agreement.

82.  In my view, the following principles can be distilled from the dicta of Yuen J in Yiu Ping Fong & Anor v Lam Lai Hing Lana.  Firstly, there is a distinction between giving title and showing or proving title.  Proving title is part of the process of giving title.  For that purpose, the vendor’s solicitor may send certified true copies of title deeds and documents instead of tendering the originals.  However, when it comes to completion of the sale and purchase, the originals have to be handed over as part of the process of giving title to the property being sold.  Secondly, at common law, the vendor is obliged to produce the original title deeds and documents which relate exclusively to the property being sold in giving a good title to the property on completion.  But this obligation does not extend to title deeds and documents which do not relate exclusively to the property being sold.  The Government lease in respect of a lot of land on which was built a number of houses and the occupation permit of a multi-storey building are examples of the type of documents within this category.  Thirdly, the common law obligation to hand over original title deeds and documents may be modified by an express agreement.

83.  The questions to be decided in respect of this requisition are:

(1) whether Letter Memorial No 943485, Occupation Permit No H32/98 and the modification letter Memorial No 7595798 are documents which relate exclusively to the Properties being sold; and

(2) if they are, whether Clause 9 of the Provisional Agreements was sufficient to relieve the Defendant of the obligation to produce the originals.

Whether the requisition was sufficiently answered

84.  There is no dispute that the documents in issue were related to the whole lot and were not related exclusively to any individual Property.  However, Mr Lee submitted that the four transactions should be viewed as one and that the Defendant’s intention was to sell all rights, estate and interest in the lot simultaneously.  He referred to Special Condition (e) of the Provisional Agreements which provides as follows:

(e) The Purchaser is fully aware that it is the intention of the Vendor to sell all rights, estate and interest of and in the Land and the Estate at one and the same time and the Vendor has simultaneously entered into separate provisional agreements with another purchaser or purchasers for the sale of the following properties:-

[the particulars of the four Properties]

The parties hereto agree that the Provisional Agreements for Houses No. … [the other three houses] (hereinafter collectively referred to as “the said “Provisional Agreements”) shall be completed simultaneously with the completion of this Provisional Agreement.  If any of the said Provisional Agreements is or are not completed on the scheduled completion date stated therein due to the default of the Vendor, the Vendor shall be treated as being in breach of this Provisional Agreement and the Purchaser shall be entitled to exercise its right under Clause 13(b) of this said Provisional Agreement …”

Mr Lee argued that the Defendant intended to dispose of all interest in the lot and there was no reason for the Defendant to keep the originals of the documents.  He relied on Yiu Ping Fong & Anor v Lam Lai Hing Lana and argued that if the deeds were in the hands of some person other than the vendor, the purchaser would be placed on enquiry as to the reason lest the purchaser’s interest would be subject to any other third party interest which such enquiry would disclose.  Hence, he submitted that Yen was entitled to ask if the Defendant had possession of the documents and if not sufficient conveyancing evidence to explain their loss.

85.  Be that as it may, the fact remains that the Plaintiffs together were not buying the entire lot.  There were four Provisional Agreements for sale of four different properties on the lot.  Those Provisional Agreements were separate and distinct agreements made between the Defendant and different Plaintiffs, each in respect of a separate and distinct property defined in the Provisional Agreements.  The interest to be purchased by the four Plaintiffs together added up to 2296/2308^th shares of the interest of the entire lot leaving 12/2308^th shares which were not to be disposed of.  These shares may represent the common area in the lot.  Thus, despite Special Condition (e), the 12/2308^th shares were not for sale and did not form part of the subject matter of any of the Provisional Agreements.  The Defendant might or might not have those undivided shares in the lot.  For this reason, the documents did not, as against each of the Plaintiffs individually or as against all of them together, relate exclusively to the Properties being sold.  In the circumstances, WKT’s reply on 26 September 2001 has provided the complete answer.

86.  Mr Lee submitted that the situation should be approached with common sense and that it was not the intention of the parties that the Defendant would retain the twelve undivided shares in the lot.  Assuming that the four transactions were to be regarded as one transaction for the sale and purchase of the Properties in the entire lot, the documents would then relate exclusively to the Properties being sold.  To that proposition Mr Chan SC submitted that Clause 9 of the Provisional Agreements has also provided the complete answer.  Clause 9 of the Provisional Agreements provided as follows:

“The Vendor shall show give and prove good title to the Property at their own costs. Notwithstanding anything herein provided to the contrary, it is hereby agreed and declared that the Purchaser shall not insist the Vendor to produce the original copies of the title deeds and documents registered in the relevant Land Registry as relate exclusively to the Property if the original copies of such title deeds or documents are not in the Vendor’s possession.”

87.  To construe the meaning and effect of this clause, one must bear in mind the factual and legal background against which the Provisional Agreement was concluded and the practical objects which it was intended to achieve and then ascertain from the words used what a reasonable person would have understood the parties to mean: per Lord Hoffmann NPJ in Jumbo King Ltd and Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 296D-I.

88.  The factual background is that the Defendant was selling the Properties in the capacity as mortgagee.  Against such a background, Clause 9 must have been intended to modify the vendor’s obligation to produce the original title documents at completion, which he might for one reason or another not have in his possession.  The language was clear and unequivocal.  The first sentence referred to both the “giving” and “proving” of title. Hence, the obligation referred to in the subsequent sentences must be intended to cover the Defendant’s obligation in both respects.  It also referred to title documents which “relate exclusively to the Property”.  This phrase must have been inserted with the vendor’s common law obligation in mind.  In my view, the meaning which this clause conveys to a reasonable reader with knowledge of the factual and legal background leading to the conclusion of the Provisional Agreement is that the purchasers have foregone the right they have at common law to insist on the production of the original documents so long as they were not in the possession of the vendor.  Hence, under Clause 9, the Defendant was not obliged to produce the documents even if they were related exclusively to the “Property”, provided that the documents were not in his possession.

89.  As for the obligation to explain the missing originals, Mr Chan SC argued that the common law duty to explain the missing originals arose if the vendor was unable to discharge the obligation to produce the originals.  It must necessarily follow that if there was no obligation to produce the originals in the first place, then no duty to explain would arise.  Hence, he submitted that the effect of Clause 9 was that the Plaintiffs were not entitled to request the Defendant to explain and prove the whereabouts of the original documents or the loss.  I agree.  To suggest otherwise would tantamount to reading into Clause 9 an implied qualification that the clause may only be invoked if there was an explanation why the originals could not be produced.  That would render the clause nugatory. 

90.  I therefore find that there was no obligation to produce the original title deeds and documents as they do not relate exclusively to the Properties.  But even assuming that the four transactions were to be treated as one and that the documents related exclusively to the Properties, the Defendant was relieved of its common law obligation to produce the originals as it was common ground that the Defendant did not have possession of the originals.  This requisition has also been satisfactorily answered by WKT referring to Clause 9 and informing Yen that the Defendant did not have possession of the originals.  There was no obligation to explain why the originals could not be produced.  The third set of requisitions had been satisfactorily answered.

Conclusion

91.  For the above reasons, I am satisfied that the requisitions were raised out of time and the Plaintiffs were deemed to have accepted title to the Properties.  I am satisfied that in answering the requisitions, the Defendant’s solicitors did so on a without prejudice basis and have not waived their right to object to the requisitions being raised out of time.  I am further satisfied that all the requisitions had been satisfactorily answered.  The Plaintiffs were in breach of the respective Provisional Agreements in failing to complete the sale and purchase of the respective Properties.  Their claims against the Defendant must be dismissed. 

92.  On the Defendant’s counterclaim, the Defendant is entitled to the declarations that the Plaintiffs were in repudiatory breach of the respective Provisional Agreements, that the Defendant had lawfully terminated the respective Provisional Agreements and that the Defendant had lawfully forfeited the deposits.  The Defendant shall be at liberty to proceed to assessment of damages.  

93.  I also make a costs order nisi that the Plaintiffs shall pay the Defendant’s costs, to be taxed if not agreed.