HEUNG SUI KEI AND ANOTHER v. BENEFIT CHARTER LTD.

MP 2809/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2809 OF 1998

--------------------------------------

---------------

JUDGMENT

---------------

1. This is a Vendor and Purchaser Summons which is concerned with requisitions arising from the registration of a Demolition and Reinstatement Order under s.24 of the Buildings Ordinance against the property in question. Although expert reports on the existence of certain building works were contained in the evidence, this issue was not explored at the hearing as the Plaintiff has chosen to proceed only on the requisitions arising from the s.24 Order.

2. Due to the rather unusual factual circumstances of this case arising from there having been more than one "letter of compliance" from the Building Authority (which gave rise to one argument put forward by the Plaintiffs), it is necessary to describe the facts in some detail.

Factual background

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

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

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

The Demolition and Reinstatement Order ("the s.24 Order")

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

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

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

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

Defendant's Agreement with former owners

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

Land Registry Search

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

Requisitions

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

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

...

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

a) Letter of Compliance M/N 948744.

...

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

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

Answer

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

15. Their letter said:-

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

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

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

17. The first point that should be noted about this letter was that it was not dated 17 April 1997, which was the date of the "Letter of Compliance" delivered under Memorial No.948744, nor was it dated 15 April 1997 which was the date stated in the Defendant's Solicitors' letter, although it is fair to say that the written character for "eight" against the printed character for month was not very clear.

18. More important are the contents of the letter. It is worth quoting in full:- (the English translation or version had been subsequently supplied by the Building Authority itself, and the parties had no objection to using this version)

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

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

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

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

Plaintiffs' solicitors' query on letter

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

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

Forfeiture of deposit

22. The Defendant's Solicitors' reply on 16 June 1998 still referred to the letter from the Building Authority dated 15 August 1997 as "the Letter of Compliance dated 15 April 1997". They went on to say:-

"It is clear from the Letter of Compliance that the Building Order No. C0441/95/NT (`the Building Order') was expressly withdrawn. Therefore, there is no risk of enforcement actions by the Building Department regarding the Building Order. There are no other building orders which may render the title defective. Your client is not entitled to speculate on future change of circumstances. As completion is scheduled to take place today, if there should be any change of circumstances in the future, it will not be our client's responsibility. We take the view the Letter of Compliance is a proper and sufficient document to prove that the said Building Order was discharged".

23. On the same day, the Defendant forfeited the deposit paid by the Plaintiffs. Three days later, the Originating Summons herein was issued.

Was the Letter of Compliance of 17 April 1997 supplied ?

24. At the hearing, the Plaintiffs took two points. The short point was that the document sought in the requisition was a letter dated 17 April 1997 which had been delivered for registration under Memorial No.948744. That letter was never produced before the Defendant forfeited the deposit, and was only produced well after the proceedings had commenced. What was supplied by the Defendant's Solicitors before completion date was a letter dated 15 August 1997 which was never delivered for registration.

25. Mr. Chung for the Defendant argued that although the letter supplied before completion date was a different letter from that sought, the Plaintiffs had waived their requisition for the 17 April 1997 letter.

26. It is well-established that for there to be waiver, the party said to have waived his rights must have made a choice; a choice could not be made if he was not aware that he was getting something different from what he wanted.

27. It is for the Defendant to satisfy the Court that the Plaintiffs knew or must have known that they were getting a different letter from the one requested, and that they abandoned their request for the 17 April 1997 letter delivered under Memorial No.948744.

28. In my view, the Defendant has not satisfied the Court that the Plaintiffs had so waived their request. The Plaintiffs' Solicitors had asked for a letter from the Building Authority bearing a date in mid-April 1997 which was meant to show compliance with the s.24 Order. A letter from the Building Authority said to be bearing a date in mid-April 1997 (albeit 2 days earlier) and dealing with that s.24 Order was supplied by the Defendant's Solicitors in response.

29. The Defendant's Solicitors never drew to the Plaintiffs' Solicitors' attention the fact that they were not supplying the letter requested, but a different letter from the Building Authority. This was in circumstances when the Plaintiffs' Solicitors had no reason to think that there would be more than one letter from the Building Authority, as the land search only showed one Order from the Building Authority and one "Letter of Compliance by the Building Authority".

30. Moreover, it was misleading for the Defendant's Solicitors to refer to the enclosed letter as being dated April 1997 (i.e. the same month as the letter requested). This misleading data was acted upon by the Plaintiffs' Solicitors who also referred to the letter as the "15 April 1997" letter. I do not say that the Defendant's Solicitors had set out deliberately to mislead, because the written character for "eight" could have been misread, but it does not lie in the Defendant's mouth to say that the Plaintiffs' Solicitors must have known from the different dates that the Defendant was supplying a different letter from the one requested.

31. Further, the reference in the Defendant's Solicitors' letter to arrangements for registration of the original does not necessarily show that the letter being supplied must have been different from the one delivered under Memorial No. 948744. The whole point of the inquiry was because the "Letter of Compliance" dated 17 April 1997 had failed to be registered, and thus, new registration would be required.

32. Thus, there was no waiver of the requisition for the letter dated 17 April 1997 which had been delivered for registration under Memorial No.948744, which was not supplied prior to termination of the Agreement.

33. However in my view, this short point does not get the Plaintiffs home, because the letter not supplied was in virtually identical terms with the one that was supplied, so it is reasonable to assume that even if the Defendant had supplied the correct letter, it would have met with the same response from the Plaintiffs.

34. I should therefore proceed to deal with the Plaintiffs' second point, which was that the Building Authority's letter (be it dated April or August 1997) was not a "Letter of Compliance" because it did not show compliance with the s.24 Order.

No compliance with s.24 Order

35. The first step in the analysis must be to see what was ordered by the Building Authority in the Order, and what were the implications of the Order in relation to the title of the property.

36. The Order was clear as to what the owner must do:- he must demolish the stated structures and reinstate the property according to approved plans within 60 days.

37. The implications on the title were also clear :- (i) the s.24 Order was evidence that there existed at the property unauthorized building works as described in the Order, and (ii) it was a threat of enforcement from the Building Authority, being aware of the existence of those unauthorized building works, and that if the owner failed to complete the demolition and reinstatement works by the deadline given, the Building Authority could immediately enforce the order, e.g. by doing the works in his place and charging him for it.

38. I cannot comprehend how that Order could be "complied with" except by the owner doing what the Building Authority has ordered him to do :- demolish all the unauthorized building works and reinstate the property according to approved plans within the deadline.

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

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

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

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

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

44. The purchasers were not late in requiring further evidence of compliance in their solicitors' letter of 15 June 1998 - the point only came to light from the letter from the Building Authority which their solicitors were only given sight of on the same day, the day before completion.

45. In holding that the requisitions were not satisfactorily answered and good title not given notwithstanding the withdrawal of the s.24 Order here, I differ with great respect from the opinion of the late Mr Justice Jerome Chan in Ultra Eternal Ltd v Liu Tai Cheong [1997] 1 HKC 258, where he held that similar wording (less the express withdrawal) showed that "the risk of further enforcement without a new order being issued by the Building Authority would be negligible".

46. The present case is slightly different because the vendor there did not purport to put forward that letter as showing "compliance" with the Order.

47. But quite apart from that, the point is not whether there would be enforcement without a new order, or not. The point is that the Order evidenced that there were unauthorized building works on the property; although the order may have been withdrawn, unauthorized building works remained on the property which the Building Authority knew about and on which (the Building Authority has stated) he is only "withholding" action "for the time being". I do not see why it is said that there is no risk of enforcement, or that the risk is negligible. I fail to see how such a title could be forced on an unwilling purchaser.

48. As a matter of completeness, I should add that the Plaintiffs also argued that the Defendant had failed to undertake (as provided under Cl. 7.2 of the Agreement) to supply certified true copies of the letter within 60 days of the date of completion. The Defendant's solicitors had in their letter dated 15 June 1998 undertaken only to provide certified true copies "when received from the Land Office". This was not a matter which was raised by the Plaintiffs at the time, and in my view, is not a matter that I should hold against the Defendant now.

Order

49. I would grant an order in terms of paragraphs 1, 2 and 3 of the Originating Summons. The parties have agreed on the defaulting party's liability for stamp duty in Cl. 35.1 of the Agreement, and I shall therefore grant an order in terms of paragraph 4. No damages have been or can be claimed in the circumstances, so I would make no order regarding paragraph 5.

50. In relation to paragraph 6, the Plaintiffs are, as a matter of general law, entitled to a lien over the property for the return of deposit and interest, but no submissions have been made to me as to why the lien could be extended to reimbursement of stamp duty and/or estate agent's commission. Accordingly, I would declare that the Plaintiffs are only entitled to a lien over the property for the return of the sum of $2,110,000 together with interest thereon.

51. As for the rate of interest, in the absence of any evidence or submissions on this aspect, I would order that the rate of interest from the date of issue of the Originating Summons to date of judgment be the one used by the parties in the 7th Schedule of the Agreement for the licence for the use of the property, viz. prime rate + 0.5%, and be at judgment rate from date of judgment to date of payment.

52. I would make an order nisi that the costs of the Originating Summons be paid to the Plaintiffs.