JENMASTER DEVELOPMENT LTD. v. LAM WAI CHUNG AND ANOTHER

1993, No. MP4206

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. This is a vendor and purchaser summons under section 12 of the Conveyancing and Property Ordinance. The Plaintiff was the purchaser and the Defendants, the vendors. The Plaintiff seeks declarations inter alia, that certain requisitions have not been sufficiently answered, that good title has not been shown, and that it is entitled to rescind the sale and purchase agreement. The usual relief in relation to the deposit and expenses is also sought.

2. The parties signed a simple sale and purchase agreement on 26th August 1993 by which the Plaintiff was to purchase the property at Flat E, 4th Floor, King Cheung Building, 1-9 King Kwong Street, Hong Kong for HK$1,875,000.00. Completion was to be on 15th October 1993. That agreement was superseded by a formal agreement dated 7th September 1993, prepared by the Defendant's solicitors (the agreement). The agreement contained 30 clauses. The relevant ones are :

Clause 3 which provided for completion on 15th October 1993

Clause 4(a) which provided that the vendor should make a good title and that at their expense should furnish such certified copies of any matters of public record as might be necessary to complete title Clause 14 provided that time should be of the essence

Clause 15 reads :

"The Purchaser hereby expressly declares that he has duly inspected the said Premises prior to the signing of this Agreement and is fully aware that he is purchasing the said Premises in its present state and shall not make any objection or requisition thereto or in connection therewith."

Clause 21 reads in part :

"Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 working days after the delivery of the title deeds to the Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the agreement)."

3. The flat is one of a number of flats in a multi-storey building. As is customary in Hong Kong, the building was divided into a number of undivided parts, each being allocated exclusive use of a specified flat. The flat in issue between the parties was first assigned on 9th September 1966. The purchaser, Chan Tung Choi, in addition to receiving one undivided share, also received exclusive use and occupation of "all that flat No. 5 on the 4th floor of the said building now known as Flat No. 5, 4th floor, No. 5 King Kwong Street, as is shown on the plan hereto annexed and thereon coloured pink, together with the balcony appertaining thereto erected over Crown Land under permit from the Crown, as is shown on the said plan and thereon coloured hatched red".

4. The plan referred to was the floor plan of the 4th floor and was chopped by the architect or authorised person. Coloured pink is a rectangular area marked "5" contained within the main exterior walls of the building. The area hatched red immediately adjoins the area coloured pink but is outside the exterior wall. It is clearly marked "balcony".

5. That assignment was subject to a deed of mutual covenant dated 6th August 1966 (the DMC). The DMC contained the usual familiar provisions but, in particular, a covenant on the part of owners of individual flats not to make any addition or alteration to, inter alia, balconies for any purpose whatsoever.

6. Chang Tung Choi disposed of his share to Chang Chi Ling Ella, by assignment dated 21st March 1987. The assignment was subject to the DMC. It assigned :

"All that the whole of the Flat No. 5 on the 4th floor of King Cheung Mansions, No. 5 King Kwong Street, Hong Kong which said flat is more particularly shown and coloured pink on the plan annexed to an assignment, memorial no. 550451 and is hereinafter referred to as "the said flat"."

7. It went on to assign the undivided share and exclusive use and occupation of "the said flat". There was no mention of any balcony.

8. Chang Chi Ling, Ella disposed of her undivided share to the Defendants by assignment dated 4th April 1991. That assignment conveyed the undivided share together with exclusive use and occupation of "all that Flat No. 5 on the 4th floor of King Cheung Mansions, now known as Flat 5, 4th floor, No. 5 King Kwong Street which said flat is shown on the plan annexed to an assignment registered in the Land Office by memorial no. 550451 and thereon coloured pink". Again, no mention of the balcony.

9. The title deeds were sent to the Plaintiff's solicitors on 2nd September. By letter dated 8th September, the Plaintiff's solicitors drew to the attention of the Defendants' solicitors the apparent omission of the balcony in the two later assignments. They suggested amendments to these documents. Finally, they said "we reserve our right to raise requisitions on the above".

10. The Defendants' solicitors consulted 2 firms of solicitors who had acted previously in relation to the property. Both firms replied to the effect that the balcony had been assigned pursuant to section 16 of the Conveyancing and Property Ordinance, Cap. 219. By letter dated 27th September, the Defendants' solicitors sent to the Plaintiff's solicitors copies of the two letters they had received which they regarded as self- explanatory. They made no further comment.

11. Section 16 of Cap. 219 and also section 1.7 which becomes relevant, read :

" 16. (1) Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign, with the land, all rights, interests, privileges, easements or appurtenances in, over, belonging or appertaining to that land or at the time of the assignment used, held, occupied or enjoyed with that land and things attached to the land or permanently fastened to anything attached to the land.

(2) This section shall not operate to give to any person a better title than that assigned or any better title than that enjoyed by the assignor.

17. Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign all the estate, right and interest in the land assigned which the assignor has in that land and which he has the power to assign."

12. By letter dated 4th October, the Plaintiff's solicitors expressed the view that section 16 deals with easements and did not apply. They added that according to their client's inspection of the premises, no balcony could be seen. They suspected that either structures had been built on the balcony to make it look like part of the whole unit, or that the balcony had at some time been demolished. They sought clarification and, if appropriate, the consent of the Building Authority to the structure.

13. The Defendants' solicitors replied on 12th October. They did not agree that section 16 deals only with easements. They referred to the wording of that section and observed that no contrary intention having been expressed in the two later assignments, section 16 applied. As to the position revealed by inspection of the premises, they considered that was not a requisition or objection to title because the time for raising requisitions expired on 9th September. They added, however, that the balcony was built over Crown Land as previously permitted by the Building Ordinance (presumably meaning Authority). They referred to the plan attached to the original assignment certified by the architect and suggested that the Plaintiff would not challenge the correctness of the said plan "which was supposed to have been drawn according to the building plan." They enclosed two photographs of the building which, they suggested, show that the "balcony of the whole building was built over the Crown Land which is identical with the said floor plan and that no other structure of the said property is in existence". They hoped that the information would "dispel the anxiety of your client and set her mind at rest".

14. It is quite clear from the plans and photographs that each flat had a balcony, the balconies of each pair of flats being continuous. There is then a break before the balcony of the next pair.

15. I observe from the photographs that the balcony of every flat in the building appears to have been enclosed in identical manner. The effect is, as it were, of bay windows protruding from the face of the building. I do not think that this is seriously in dispute. Consequently, when the Plaintiff inspected the flat it would have been unaware of any balcony and would have assumed that the 780 sq. ft. described by the Defendants was contained within a wholly enclosed flat.

16. In their letter of 13th October (two days before scheduled completion), the Plaintiff's solicitors referred to the latter point, noting that it was only after inspection of the title deeds that there was discovered the reference to a balcony over Crown Land in the 1st assignment. They said it appeared likely that the balcony was enclosed to form part of the built-in area which would give rise to problems, namely :

1. Whether the alteration contravened the permission to build over Crown Land.

2. Whether building regulations were contravened in matters such as fire regulations, loading and permitted gross floor area.

3. The prohibition on the alteration to balconies contained in the DMC.

17. The solicitors said that the omission of the description of the balcony in the 2 later assignments was material because the Defendants could only offer to sell legal and beneficial interest in Flat 5, being an area of less than 500 sq. ft., and the right to a balcony of approximately 100 sq. ft. over Crown Land. They pointed out that their client had been led to believe it was acquiring a legal and beneficial title to a built-in area of 780 sq. ft.

18. The Defendants' solicitors replied the following day. As to the omission of a reference to a balcony in the later assignments, they said they had expressed their point of view. On the other matters, they did not consider the points valid requisitions. Accordingly, they felt it pointless to express further comment but drew attention to clauses 15 and 26 of the agreement.

19. On the following day, the Plaintiff's solicitors asked for a certified copy of the permit to erect a balcony over Crown Land to show that it was still valid and subsisting, that it conferred a right running with the property and that the alteration to the balcony was not in breach of any condition. The next day (the date for completion), the Defendants' solicitors repeated that the Plaintiff was not entitled to raise further requisitions because time expired on 9th September. Without prejudice, however, they pointed out that from the 1st assignment it was clear that the erection of the balcony was permitted by the Crown and certified correct by the architect on the plan. The Plaintiff's solicitors replied promptly the same day, saying that they did not find the answer to their requisition satisfactory. They regarded the legality of the structure on the balcony as an important issue and suggested postponing completion until the matter was clarified by an authorised person or the Building Authority. The Defendants' solicitors replied equally promptly.

20. They did not agree that it was necessary to postpone completion because they regarded the requisitions as sufficiently answered. They asked the Plaintiff's solicitors to complete. On the same day, the Plaintiff's solicitors replied that the requisitions had not been satisfactorily answered. Because the Defendants had failed to prove title, the solicitors said the Plaintiff was not obliged to complete and asked for return of the deposit. On the following day, the Defendants' solicitors wrote to say that, as the Plaintiff had failed to complete as stipulated in the agreement, the agreement had been wrongfully repudiated and the deposit was forfeited to the Defendants.

21. There were in effect two requisitions. The first, raised in the Plaintiff's solicitors letter of 8th September, was as to whether title to the balcony had passed to the Defendants. The second, raised in their letter of 4th October, concerned the legality of the enclosure of the balcony and possible consequences flowing therefrom. As far as the second requisition is concerned, Mr. Cheung for the Defendants argued that it was raised out of time and therefore invalid. I reject that argument for two reasons. First, I am satisfied, as Mr. Li for the Plaintiff submitted, that the second requisition arose as a natural consequence of the first.

22. Second, I am satisfied that the purchaser could not reasonably have been expected to appreciate the full implications attaching to the balcony until after the Defendants' solicitors replied to the first requisition, their reply being on 27th September, well after the time limit prescribed by clause 21 of the agreement had expired. Although there is no evidence on this point beyond that contained in the correspondence to which I have referred, it seems to me there was no reason for the Plaintiff and its solicitors to have conferred until the Defendants' solicitors' reply had been received. Only then would the confusion as to whether or not there was a balcony have become apparent and only then were the Plaintiff's solicitors in a position to raise the queries encompassed by what I have referred to as the second requisition.

23. The law on this point was usefully encapsulated in the judgment of Penlington J.A. in Tread East Limited v. Hillier Development Limited, 1992 No. 209 (Civil) dated 17th June 1993 (as yet unreported), where he said :

"The question of the effect of a time limit on requisitions when they go to the vendor's root of title was considered in detail in Giant River Ltd v. Asie Marketing Ltd [1990] 1 HKLR 297. At 311 Deputy High Court Judge Cruden refers to Warde v. Dixon (1858) 28 LJ Ch 316, Re Tanqueray-Willaume and Landau (1881-2) 20 Ch D 465 and In re Cox & Neve's Contract [1891] 2 Ch 109. I am satisfied that those authorities only go to the proposition that where a vendor, having used due diligence, is unaware of some defect in the vendor's title, the time limit imposed in the agreement does not run against him."

24. In my judgment, the Plaintiff's solicitors could not have discovered the problems arising out of the balcony from the title deeds alone. Nor was there any reason, in my judgment, for them to have consulted the Plaintiff at that stage. Equally, there was no reason for the Plaintiff to have raised the question of a balcony with its solicitors because the Plaintiff was in no position to appreciate that a balcony was included as part of the flat. Accordingly, I am satisfied that the second requisition was not out of time and, prima facie, required a proper answer.

25. I will deal first with the second requisition. The balcony was attached to the building but extended over Crown Land. It owed its existence, according to the 1st assignment, to a Crown permit. In spite of Mr. Cheung's valiant efforts, I am not persuaded that a balcony comprehends anything other than an open platform extending from a building on which a person may enjoy the fresh air and sunshine. I am satisfied that a balcony which is enclosed so as to become an integral part of a flat or other unit to which it belongs loses its identity as a balcony. Quite plainly, serious questions must then arise as to whether there has been some breach of the Crown permit, building regulations and any relevant provision in a DMC. It is notorious that the Crown does take enforcement action in relation to breaches of building regulations, Crown Land permit conditions and other matters. Unauthorised structures on multi-storey buildings have come under particular scrutiny.

26. Other than to repeat that the second requisition was out of time and therefore not valid, the vendor's solicitors made no attempt to grapple with or answer the queries and questions that were raised. The queries and questions were properly raised. They required an answer. No answer satisfactory or otherwise was forthcoming.

27. In reaching the conclusion which I do, I gain some assistance from the decision of the Court of Appeal in Active Keen Industries Limited v. Fok Chi Keong 1993 No. 42 (Civil) dated 5th October 1993 (unreported). In his judgment, Litton J.A. (with whom the other two members of the Court agreed) emphasised the need to distinguish between action which may be taken by the government through the Building Authority with regard to unauthorised works in common ownership, and action against works belonging to individual owners. While any action in relation to works in common ownership would constitute an encumbrance, the exercise of powers in relation to the unauthorised works of an individual owner would affect only that individual owner. In that case, the vendor made some attempt to answer the requisition raised by providing a letter from the Building Authority which showed that the Authority was aware of the arrangements.

28. In the instant case, the possibly illegal structures affect the owner of Flat 5. Nothing has been done to ascertain whether the Building Authority or any building management committee is aware of but tolerates both these and the other balconies that have been wholly enclosed. I find, therefore, that the requisition was properly raised, has not been answered and that the Plaintiff is entitled to the relief sought.

29. Turning to the first requisition, Mr. Li's initial point was that section 16 of the Conveyancing and Property Ordinance does not include personal or temporary rights. About that proposition, there was no dispute. Mr. Li said that in order to establish the nature of the right conferred in relation to the balcony, it was necessary for the Defendants to assert whether or not the right was personal only. The Defendants, however, failed to give any positive answer. As I pointed out to Mr. Li, a permit which allowed the construction of balconies in a multi-storey residential building would hardly be likely to confer a purely personal right on the owner for the time being of a particular unit. I asked whether, if this was the only point available to him, he felt he could seriously advance it. My impression was that he declined the challenge. I am quite satisfied that the only proper construction that can be put upon the wording of the 1st assignment is that the Crown granted an easement in favour of the balcony.

30. Mr. Li further argued that if the balcony exists only because of an easement, the Defendants cannot hold themselves out as the absolute legal and beneficial owners of that balcony as they can in relation to the flat itself Therefore, the Defendants can only offer to sell a legal and beneficial interest in an area of less than 500 sq. ft. and a right to a balcony of about 100 sq. ft. In contrast, the purchaser believed it was buying legal and beneficial title to a total area in excess of 700 sq. ft.

31. I think that it is necessary to look at the overall picture. From the DMC it can be seen that the flat together with the adjoining balcony was allotted one undivided share. I accept, as Mr. Cheung argued, that the owner of an undivided share cannot dispose of less than that share, that is to say, subdivide, without the agreement of all other owners of the building embodied in a further deed of mutual covenant. Consequently, Flat 5 and its balcony was and remains a complete and undivided share. This is illustrated by the 1st assignment which contains a description of the area over which the then purchaser would have exclusive use. I am satisfied that the balcony was distinguished only in order to show the area in relation to which there was a right to erect such a balcony over Crown Land and not for the purpose of defining the physical dimensions of the balcony as a separate unit.

32. In these circumstances, it is plain to me that at all times the flat proper and the balcony were part and parcel of one unit, compendiously described as Flat No. 5. Absent any suggestion that the undivided share that it represented had ever been subdivided, the simple description "Flat No. 5" in the later assignments was apt to transfer the complete unit, notwithstanding the absence of any reference to the balcony, and notwithstanding their reference to the pink colour only on the plan to the 1st assignment.

33. Further, I am satisfied that the right to construct the balcony over Crown Land was an easement and passed by operation of section 16 of the Conveyancing and Property Ordinance. There was no contrary intention expressed and any such intention must anyway be clear and unequivocal. A useful commentary is to be found in The Hong Kong Conveyancing and Property Ordinance by Sarah Nield at p.65.

34. Accordingly, had it been necessary to do so, I would have found that, just, this requisition had been satisfactorily answered.

35. I grant the declarations sought in paragraphs 1,2,3 and 4 of the originating summons. I make orders nisi in relation to paragraphs 5 and 6 of the summons which relate to the reimbursement of stamp duty and costs of investigating title. I make an order nisi that the Plaintiff has the costs of these proceedings.