LO YEE MAN AND ANOTHER v. SI CHUAN PROPERTY DEVELOPMENT CONSULTANTS LTD

DCMP 478/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 478 OF 2014

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

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

JUDGMENT

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

1. This is a vendor purchaser summons taken out by the plaintiff purchasers against the defendant vendor. The main issues are whether a tortious claim against the incorporated owners of a multi-storey building will constitute a blot on individual owners’ title of their own properties; and whether the defendant has shown good title to the property in question before completion.

THE BACKGROUND

2. On about 3 August 2009, the defendant became the owner of a property known as Shop 1B on Ground Floor, Hing Fook Building, Ma Miu Road, Yuen Long, New Territories, Hong Kong (“the Property”).

3. Hing Fook Building (“the Building”) is a multi-storey building.  According to the deed of mutual covenant (“DMC”) of the Building dated 18 November 1975, the Building was notionally divided into 211^th equal and undivided shares.  There were 28 units on the ground floor, 26 units on each of the 1^st floor to 5^th floors.  The Property was on the ground floor of the Building and it was allocated 1 equal and undivided share.

4. Clause 5(j)(i) of the DMC provides that:-

“5. Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions:-

  …...

(j) The Manager shall have power and authority without reference to any of the owners to do all or any of the following acts and things namely:-

(i) To demand and receive from each owner the contributions payable by each owner as hereinbefore specified and all such contributions shall without prejudice to any other remedy exercisable hereunder be recoverable by the Manager by civil action and the defaulting owner shall not be entitled to dispute the right of the Manager aforesaid to sue and recover the unpaid contributions.”

THE PRELIMINARY AGREEMENT

5. On about 30 October 2012, the plaintiffs as purchasers entered into a preliminary sale and purchase agreement (“the Preliminary Agreement”) in Chinese with the defendant as vendor.  The plaintiffs agreed to buy and the defendant agreed to sell the Property subject to a tenancy at HK$6 million.  The estate agent also signed on the Preliminary Agreement as one of the parties.

6. The Preliminary Agreement provided, inter alia, that:-

(a) The Property was to be sold at HK$6,000,000 (Clause 2).  A preliminary deposit of HK$200,000 shall be paid upon signing of the Preliminary Agreement (Clause 2(a)).  A further deposit shall be paid upon signing of a formal sale and purchase agreement on 13 November, 2012 (Clause 2(b)).  The completion date shall be on or before 28 February, 2013 and the balance of the purchase price of HK$5,400,000 shall be settled at the vendor's solicitors firm (Clause 2(d)).

  (b) If the purchasers are unable to perform ther terms of this agreement to complete the sale and purchase, apart from forfeiting the initial deposit paid, the vendor has the right to re-sell the Property to other person, but the vendor shall not sue the purchasers for any liability or demand for any compensation or specific performance (Clause 7).

  (c) If the vendor does not complete the sale and purchase in accordance with this agreement after the vendor has received the initial deposit, apart from returning the full amount of the initial deposit to the purchasers, the vendor shall also compensate the purchasers in equal sum. The vendor shall be responsible for paying/returning the stamp duty of this agreement (if any), but the purchasers shall not further sue the vendor for any liability, including other compensation or specific performance (Clause 8).

  (f) In consideration of the service of causing the sale and purchase of the Property, the estate agent shall receive HK$60,000 from the vendor and HK$60,000 from the purchasers as commissions (Clause 9a); the vendor’s commission and the purchasers’ commission shall be paid no later than 28 February, 2013 (Clause 9b).

7. The Preliminary Agreement also contained the following clauses which were relevant to the parties' submissions and arguments:-

(a) 該物業是以免除所有負擔或債項之情況下售予買方，買方的提名人或其承讓人。(The Property was sold to the purchasers, the purchasers’ nominee or their assignee, free from all encumbrances or debts.) (Clause 3)

(b) 無論在任何情況下，若賣方或買方未能履行本合約之條款賣出或買入該物業，則悔約的一方須即時付予代理港幣$120,000作為賠償代理之損失。(Under all circumstances, if the vendor or the purchasers fail(s) to sell or purchase the Property in accordance with this agreement, the defaulting party shall pay $120,000 to the estate agent forthwith as compensation to the estate agent’s loss.) (Clause 10a)

(c) 在交易完成前賣方需負責如有該物業違例建築令之費用及維修費用及一切有關上述物業之訴訟費用。(Prior to the completion of the transaction, the vendor shall be responsible for the costs of the building order for unauthorized work of the Property and costs of repair and all litigation costs in relation to the Property, if any.) (Clause 18)

8. The Preliminary Agreement contained an annexure entitled “物業臨時買賣合約－備註附頁 (annexure to the preliminary sale and purchase agreement)” which set out the terms of the tenancy on the Property.

9. Upon signing the Preliminary Agreement, the plaintiffs and the defendant also signed an ancillary agreement entitled “未經授權改建樓宇私人附加協議 (personal ancillary agreement of unauthorized alteration of premises)” dated 30 October 2012 (“the Ancillary Agreement”).  According to the Ancillary Agreement, the plaintiffs were given notice to the existence of unauthorized structures on the Property.  The plaintiffs acknowledged that the government might take action against the unauthorized structures which might constitute a blot on title. The plaintiffs agreed to waive their rights to raise requisitions on the unauthorized structures and refuse to complete on the ground of unauthorized structures.

10. Upon signing of the Preliminary Agreement, the plaintiffs paid HK$200,000 as deposit and part payment to the defendant.

FORMAL AGREEMENT

11. On about 19 November 2013, a formal sale and purchase agreement was executed by the plaintiffs and the defendant (“the Formal Agreement”) for the sale and purchase of the Property.

12. The Formal Agreement expressly provided, inter alia, that:-

“6. The Property is sold subject to and with the benefit of the Deed of Mutual Covenant and/or Sub-Deed of Mutual Covenant and/or Management Agreement (as the case may be) relating to the Property. (Clause 6)

7. The Property is sold to the Purchaser on an “as is” basis. (Clause 7)

8. The Vendor shall give title to the Property in accordance with Section 13A(1) of Conveyancing and Property Ordinance (Cap 219). …... (Clause 8)

11. Immediately after the signing of this Agreement, the Property shall as [sic] between the Vendor and the Purchaser be at the Purchaser's risk. (Clause 11)

14. If the Vendor shall for any cause (other than the default of the Purchaser) fail to complete the said sale in accordance with the terms hereof then all deposits paid hereunder shall be returned to the Purchaser forthwith in full who shall also be entitled to recover from the Vendor such further damages as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor. (Clause 14)

16. Time shall in every respect be of the essence of this Agreement. (Clause 16)

17(a) The Property is sold subject to and with the benefit of the existing Tenancy Agreement and the copy is annexed hereto (“the Tenancy Agreement”). (Clause 17(a))

23. This Agreement set out the full agreement between the parties hereto and supersedes all previous agreements, whether oral or in writing, entered into by the parties hereto or their agents. (Clause 23)

30. Should any of the parties hereto fail to complete the sale and purchase of the Property according to the terms and condition of this Agreement (“the Defaulting Party”), the Defaulting Party shall in addition to all such liabilities contained herein bear and pay the stamp duty payable on this Agreement and/or the Preceding Agreement under the Ordinance and the estate agent's commissions (if any) of both parties. (Clause 30)

32. 在交易完成前賣方需負責如有該物業違例建築令之費用及維修費用及一切有關上述物業之訴訟費用。(Clause 32)

34. Notwithstanding anything herein contained to the contrary it is hereby agreed and declared that the Chinese provisions mentioned in “物業臨時買賣合約－備註附頁” and “未經授權改建[樓]宇私人附加協議”respectively annexed hereto shall be incorporated into this Agreement as if the terms and conditions herein contained. The said Chinese provisions shall prevail [sic] if there is any discrepancy between the said Chinese provisions and the terms and conditions contained in this Agreement.”(Clause 34)

13. By the Formal Agreement, the plaintiffs and the defendant had mutually agreed that time was of the essence of the Formal Agreement.  Double compensation clause under clause 8 of the Preliminary Agreement was superseded by clause 14 of the Formal Agreement. Further, by Clause 34 of the Formal Agreement, the Ancillary Agreement and the annexure to the Preliminary Agreement were incorporated into the Formal Agreement.

14. According to Part III of the Schedule of the Formal Agreement, completion date was scheduled on 28 February 2013 and the time of completion was before 5:00 pm (“the Completion Date”).

15. According to Part IV paragraph 1(c) of the Schedule of the Formal Agreement, HK$5,400,000 shall be paid as balance of the purchase price on the Completion Date.

16. Upon signing the Formal Agreement, the plaintiffs paid the defendant a further deposit of HK$400,000 pursuant to Part IV paragraph 1(b) of the Schedule of the Formal Agreement.

REQUISITION

17. On about 26 November 2012, the defendant’s former solicitors sent the title deeds of the Property to the plaintiffs’ solicitors.

18. On about 4 December 2012, the plaintiffs’ solicitors wrote to the defendant’s former solicitors and raised requisitions about the title of the Property.  The plaintiffs’ solicitors wrote, inter alia, that:-

“8. Please confirm whether the owners or the Incorporated Owners or the Manager of the development or building of which the Property forms part is involved in any litigation which may result in the owners of the said development or building becoming liable to pay loss or damages or legal costs and, if so, please provide us with the relevant particulars of such litigation including the nature of the claim, the amount involved, the legal opinion on the likely outcome of such litigation and the amount of legal costs that may have to be borne by the owners of the said development or building” (“Requisition No 8”).

19. The plaintiffs’ requisition letter dated 2 December 2012 was not responded by the defendant’s former solicitors until 7 February 2013.  By a letter dated 7 February 2013, the defendant’s former solicitors purported to answer other requisitions raised by the plaintiffs’ solicitors.  However, Requisition No 8 was not replied at all. Requisition No 8 was simply ignored by the defendant’s former solicitors.

20. On about 18 February 2013, the plaintiffs’ solicitors re-iterated Requisition No 8.

21. On about 19 February 2013, the defendant’s former solicitors then replied Requisition No 8 as follows:-

“8. It does not fall within the scope of requisition on title. However, we opine that the addressee of this matter should be the manager or incorporated owners of the building rather than us.”

22. On about 27 February 2013, the estate agent of the parties gave the telephone number of one Mr Chan, a representative of the Incorporated Owners of the Building (“the Incorporated Owners”), to plaintiffs’ solicitors.  The plaintiff solicitors then contacted Mr Chan for making enquiries about the matters mentioned in Requisition No 8. Mr Chan replied that he would get back to the plaintiffs’ solicitors as he needed to check the records first.

23. At about 11:00 am on 28 February 2013, Mr Chan informed the plaintiffs’ solicitors that there was a pending personal injury claim against the Incorporated Owners (“the PI Claim”) which had not yet been concluded.  Mr Chan further told the plaintiffs’ solicitors that the next hearing date was in May, 2013.  But he did not have any other information or documents in relation to the PI Claim.  This was the first time the plaintiffs learnt about the existence of the PI Claim.

24. At about 1:00 pm on 28 February 2013, the estate agent informed the plaintiffs’ solicitors that the defendant was willing to offer a sum of HK$50,000 to be stakeheld by the defendant’s solicitors to cover the apportioned damages payable by the owners of the Property in relation to the PI Claim.

25. In order to consider the defendant’s offer of HK$50,000 as stakehold money, the plaintiffs’ solicitors wrote to the defendant’s former solicitors by the 3^rd letter dated 28 February 2013 in which it was stated, inter alia, that:-

“We have also been informed that your client proposes to offer HK$50,000.00 to cover the apportioned damages payable by the owner of the Property, which sum shall be paid to a stakeholder pending outcome of the said case.

To enable our client to consider your client’s aforesaid proposal, please let us have all the relevant documents regarding the said case, including but not limited to a copy of the statement of claim, the defence, the amount involved, the legal opinion on the likely outcome of the said case and estimated amount of legal costs. Please also let us have documentary evidence regarding the financial position of the Incorporated Owners and a confirmation from the Incorporated Owners whether the owners of the building are expected to be required to make contribution for the costs and damages.

We also put on record that your client has failed to disclose the said litigation to our client despite a requisition was raised on the matter as early as 4^th December 2012.”

26. At about 2:00 pm on 28 February 2013, Mr Chan invited the plaintiff’s solicitors to collect some documents of the PI Claim.  At about 3:00 pm on the same day, the plaintiffs’ solicitors collected a pre-action letter dated 8 September 2011 which was issued by Massie & Clement, solicitors for the injured person, to the Incorporated Owners.  The letter set out the background of the PI Claim with copies of three medical reports of the injured person enclosed.

27. According the Massie & Clement’s letter dated 8 September 2011, the injured person was a resident of the Building.  It was alleged that when the injured person returned home at about 12:30 am on 23 December 2009, she slipped on rubbish or waste materials at the staircase.  Consequently, she fell backward down the staircase and have her head struck on the main entrance gate.  As a result of the accident, she collapsed and lost her consciousness.  It was alleged in the letter that “as a result of the accident our client suffered serious injuries loss and damage (quote)”.

28. After the plaintiffs’ solicitors had collected Massie & Clement’s letter dated 8 September 2011, the plaintiffs’ solicitors wrote to the defendant’s solicitors with Massie & Clement’s letter enclosed.  By the 4^th letter dated 28 February, 2013, the plaintiff’s solicitors wrote as follows:-

“Further to our 3^rd letter of even date, we enclose a copy of the letter dated 8^th September 2011 for your reference.  Please clarify whether the intended claim under the said letter (“the 2011 claim”) is the same case as the personal injury case as mentioned in our 3^rd letter today.

Please fully disclose the status of the 2011 claim and provide all relevant details and documents regarding to the 2011 claim, including but not limited to a copy of the statement of claim, the defence, the amount involved, the legal opinion on the likely outcome of the said case and estimated amount of legal costs.  Please also let us have a confirmation from the Incorporated Owners whether the owners of the building are expected to be required to make contribution for the costs and damages.

We also put on record that your client has failed to disclose the 2011 claim to our client despite a requisition was raised on the matter as early as 4^th December 2012.”

29. Later on the same day, the defendant’s former solicitors replied as follows:-

“Regarding to the allegation claim as involved by the Incorporated Owners (“IO”), we take the view that such claim will not be affected to the present transaction [Please see the case in Chow Chiu Tai and Chan Tak Ming (HCA 3825/1992)]. However, there is no order is granted by the Court to demand IO paying any compensation and therefore, we take the view that the allegation potential liability to contribute in the present case is not created until and unless your client is enabling to prove the same before the date of completion.

Further, we have not received any information from the Incorporated Owners showing the aforesaid allegation claim and however, it is your duty to check from the Incorporated Owners until our receipt your 3^rd and 4^th letters on 16:20 pm and 16:38 of today.  Therefore, we have failed to see why you are entitled to put your duty in our or our client’s position.

Without prejudice to the aforesaid, we are instructed by the Vendor that our client has agreed to stakehold a sum of HK$50,000 being the security money in our office as Stakeholders until and unless the relevant litigation as completed.

Please be reminded that the completion shall take place on or before 5:00 pm of today and failing which, we will consider that Agreement for sale and purchase dated 19^th November 2012 is repudiated by your client.  In such event, our client will exercise his right under the provisions of the said Agreement for sale and purchase.”

30. Completion did not take place on 28 February 2013.  On 1 March 2013, the plaintiffs’ solicitors wrote to the defendant’s former solicitors to put on record that the defendant had failed to answer Requisition No 8 satisfactorily.  However, the plaintiffs were willing to proceed with the purchase if the defendant could satisfactorily answer Requisition No 8 within the next three days.

31. The defendant’s former solicitors did not reply to the plaintiffs’ solicitors before 4 March 2013.  As a result, the plaintiffs’ solicitors accepted the defendant's repudiation of the Formal Agreement on 4 March 2013.

32. On 15 March 2013, the defendant’s former solicitors wrote to the plaintiffs’ solicitors and alleged that the plaintiffs had wrongfully repudiated the Formal Agreement by failing to complete.  The defendant’s former solicitors accepted the plaintiffs’ repudiation and forfeited the deposits of HK$600,000.

33. On 13 May 2013, the plaintiffs took out the present originating summons in the Court of First Instance in HCMP 1037 of 2013 for, inter alia, declarations and return of deposits.  On about 20 January 2014, the parties made a joint application for transferring the case to the District Court.

THE PLAINTIFFS’ CASE

34. The plaintiffs submitted that it was undisputed that there was the PI Claim against the Incorporated Owners. The plaintiffs contended that while it depended on the magnitude of the liability and the amount of funds available by the Incorporated Owners to meet its liability under the PI Claim.  If the PI Claim succeeded, it was not unlikely that the plaintiffs, as owners of the Property for the time being, would be required to make contribution towards the compensation and costs to be awarded under the PI Claim.  The amount so payable by the plaintiffs, if demanded by the Incorporated Owners, would be a debt due and payable by the plaintiffs to the Incorporated Owners.

35. The plaintiffs also submitted that although in the ordinary circumstances, liability under the PI Claim would be enforced against the property of the Incorporated Owners, leave might be granted by the Lands Tribunal to a judgment creditor to enforce the judgment sum against individual owners of the building under s 17 of the Building Management Ordinance (Cap 344).  In the premises, the liability under the PI Claim would then be attached to the defendant’s title which would be passed to the plaintiffs as the defendant’s successors-in-title, if the plaintiffs proceeded to completion under the Formal Agreement.

36. Mr Lau, counsel for the plaintiffs, relied on Active Keen Industries Limited v Fok Chi Keong [1994] 1 HKLRD 396; and Spark Rich (China) Limited v Valrose Limited (1999) CACV 249 of 1998 with regard to the vendor’s duty to show and give good title and the standard of proof thereof respectively.

37. Mr Lau submitted that the test of whether a vendor had shown good title to his property was formulated in Spark Rich (China) Limited case (above) in which the Court of Appeal held that:-

“So the test may be usefully framed as follows: If the purchaser asks his solicitor: “Can I be sure that I can safely disregard the risk?” then, unless his solicitor (being a prudent and experienced solicitor) can properly advise him that he can, the purchaser cannot be obliged to accept the vendor’s title, even if supplied by the vendor within opinion evidence to the effect that action by the Building Authority was unlikely” (per Godfrey JA at para 22)

38. Applying the test formulated in Spark Rich (China) Limited case (above), Mr Lau submitted that there were risks that the Incorporated Owners would demand for contribution from the owners of the Building to settle the damages and legal costs awarded to the injured person in the PI Claim; and, if the Incorporated Owners failed to settle the compensation and legal costs of the injured person, the injured person might apply for leave to enforce the judgment against individual owners under s 17 of the Building Management Ordinance (Cap 344).

39. Mr Lau also relied on Chi Kit Co Ltd v Luck Health International Enterprise Ltd [2003] 3 HKCFAR 268 regarding how a tortious claim against the incorporated owners could constitute a blot on title on individual owner’s property in the context of a multi-storey building.

40. In the premises, the plaintiffs claimed for a declaration that good title to the Property had not been shown by the defendant before completion, return of deposits of $600,000 and damages. The plaintiffs have produced relevant documents in their affirmation and they claimed for $81,491.30 as damages.  The particulars of damages are:-

(a) $13,005 being the costs of approving title deeds and investigation of title;

(b) $7,500 being bank fee for application of mortgage;

(c) $986.30 being Bank interest for drawing down the loan in contemplation of completion; and

(d) $60,000 being estate agent’s fee.

THE DEFENDANT’S CASE

41. Miss Chan, counsel for the defendant, submitted that:-

(a) Requisition No 8 was too general and too wide.  Miss Chan argued that Requisition No 8 required the defendant to confirm with “the owners or the Incorporated Owners or the Manager” of the Building as to whether they were involved in any litigation which might result in the owners of the Building becoming liable to pay loss or damages or legal costs.  Miss Chan submitted that it would be too onerous for the defendant to ask each and every owner of the Building whether he or she was involved in any such litigation;

(b) up to the date of Completion, no judgment had ever been entered against the Incorporated Owners on the PI Claim.  Thus, there was no such liability as alleged by the plaintiffs.  This also distinguished the present case from Chi Kit case (above) in which a judgment sum of HK$25.7 million was entered against the incorporated owners after the parties had already signed the formal sale and purchase agreement but prior to the completion date;

(c) the PI claim was only a District Court claim and the maximum civil jurisdiction of the District Court was HK$1 million.  As the Property was only allocated 1 out of 211^th equal and undivided share, the offer of HK$50,000 would exceed any future demand for contribution by the Incorporated Owners to the plaintiffs.  In any event, the defendant submitted that there was a valid insurance policy covering the liability of the Incorporated Owners;

(d) the defendant was protected by Clause 11 and Clause 32 of the Formal Agreement because the defendant was only responsible for any liability before Completion.  Miss Chan submitted that the litigation costs must be materialized before a liability could arise.  Miss Chan also submitted that there must be a judgment before there could be any liability.  Thus, as submitted by Miss Chan, the PI Claim had no financial implications on the Incorporated Owners because no judgment had been entered against the Incorporated Owners, no demand had been made by the Incorporated Owners for individual owners’ contribution to satisfy the PI Claim, and no resolutions had been passed by the Incorporated Owners to make such contribution to satisfy the PI Claim.  Thus, Miss Chan submitted that the defendant had no duty to answer Requisition No 8;

(e) the injury suffered by the injured person in the PI Claim was not serious when compared with the injuries sustained by the injured person in Chi Kit case (above).  Thus, any compensation payable under the PI Claim could be treated as ordinary expenses of Incorporated Owners.  Miss Chan disagreed that the nature of the PI Claim was outside the contemplation of the plaintiffs or any reasonable purchasers. Thus, as submitted on the defendant’s behalf, there was no risk that the plaintiffs would be required by the Incorporated Owners to make any contribution for the PI Claim;

(f) the plaintiffs decided not to complete because of drop of the market price of the Property.  In any event, Miss Chan submitted that the defendant had acted in good faith.

42. In the premises, the defendant opposed the present originating summons on the ground that the plaintiffs had wrongfully failed to complete in breach of the Formal Agreement and they were not entitled to any relief at all.  Regarding the quantum of damages, if the defendant is held liable, the defendant has no submission about the plaintiffs’ claim for $81,491.30 as damages.

THE LAW

Duty to Show Good Title

43. A vendor is under a duty to show good title to his property within reasonable time before completion: Horton v Kurzke [1971] 1 WLR 769; and Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396 followed.

44. In Active Keen case (above), the Court of Appeal acknowledged that the expression of “a good title” was incapable of precise definition in English law.  However, the Court of Appeal held that:-

“As stated in Barnsley’s Conveyancing Law and Practice 3^rd ed. at p.246:-

The word ‘title’ is an ambiguous word, meaning different things in different contexts. Conveyancers used the word in two main senses - (1) to mean ownership, the vendor's right to the property; (2) the evidence supporting the claim to ownership, ie the proof of title in the first sense. In the expression ‘good title’, the word is used as equivalent to ownership; a vendor must show a title as will enable the purchaser to hold the property against any person who may probably challenge his right to it. This obligation to make good title requires the vendor to show that he alone, or with concurrence of some person or persons whose concurrence he can compel, can convey the whole legal estate and equitable interest in the land sold, free from encumbrances except for those disclosed by the contract.” (per Litton JA, at p.409 line 10)

45. The Court of Appeal further held that:-

“…... The expression “encumbrance” in relation to land invariably means some claim to the property or charge which could be imposed upon the property” (per Litton JA, at p.409 line 27) (emphasis added)

“In the course of argument by counsel, the test was formulated in this way: “Are the facts and circumstances of the case so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchase will not be at risk of a successful assertion against him ofthe encumbrance?”” (per Litton JA, at p 410 line 19) (emphasis added)

Tortious claim against incorporated owners of a multi-storey building

46. Section 17(1) of the Building Management Ordinance (Cap 344) reads:-

“17. Enforcement of judgment etc. against a corporation

(1) If a judgment is given or an order is made against a corporation, execution to enforce the judgment or order may issue—

(a) against any property of the corporation; or

(b) with leave of the tribunal, against any owner.”

47. Section 20(1) and section 20(2) of the Building Management Ordinance (Cap 344) provides that:-

“20. Establishment of funds

(1) A corporation shall establish and maintain a general fund:-

(a) to defray the cost of the exercise of its powers and the performance of its duties under the deed of mutual covenant (if any) and this Ordinance; and

(b) to pay Government rent, premium, taxes or other outgoings (including any outgoings in relation to any maintenance or repair work) which are payable in respect of the building as a whole.

(2) A corporation may establish and maintain a contingency fund:-

(a)  to provide for any expenditure of an unexpected or urgent nature; and

(b)  to meet any payments of the kind specified in subsection (1) if the fund established thereby is insufficient to meet them.”

48. Section 21(1) of the Building Management Ordinance (Cap 344) reads:-

“21. Contributions to funds

(1) Subject to subsection (4), a management committee shall determine the amount to be contributed by the owners to the funds established and maintained under section 20 during such period:-

(a) in the case of the first such period after the date of registration of the corporation, not exceeding 15 months; and

(b) in any other case, not exceeding 12 months,

   as the management committee may determine.”

49. Section 22(1) and section 22(3) of the Building Management Ordinance (Cap 344) reads:-

“22. Recovery of contributions from owners:-

(1) The amount to be contributed by an owner towards the amount determined under section 21 shall be--

(a) fixed by the management committee in accordance with the deed of mutual covenant (if any);

(b) payable at such times and in such manner as the management committee may determine.

   …...

(3) The amount payable by an owner under this section shall be a debt due from him to the corporation at the time when it is payable.”

The Court of Final Appeal Decision in Chi Kit Case

50. The material facts of Chi Kit case (above) were as follows.  In about February 1994, an action for damages for personal injuries was instituted against the incorporated owners of the building in relation to an accident occurred in about three years earlier.  The management committee of the incorporated owners called upon a meeting on 30 January 1997 in which it was decided that counsel be instructed and money be raised from the owners.  On 15 August 1997, the committee published a notice to the effect that the claim for over $30 million had been set down for trial and substantial fees had to be collected from the owners.  Four days later, on 19 August 1997, the vendor and the purchaser signed a memorandum for sale of the property.  The trial began on 6 October 1997.  On 30 October 1997, the Court of First Instance gave judgment in the injured person’s favour for $25.7 million.  The completion of the sale of the property was due to take place on 20 November 1997.

51. The Court of Final Appeal in Chi Kit case (above) examined the statutory provisions of the Building Management Ordinance (Cap 344) and held that:-

“…... In the ordinary course of events, a liability (including an unexpected liability) of the corporation would be met from the funds of the corporation established under s 20 of the Ordinance. The management committee would determine under s 21 the amounts to be contributed by the owners. The amount to be contributed by an owner towards the amount determined under s 21 is fixed by the management committee in accordance with the deed of mutual covenant (if any) and is payable at such times and in such manner as the management committee may determine (s 22(1)). In the absence of appropriate provision in a deed of mutual covenant, the amount to be contributed by an owner is fixed by the management committee in accordance with the respective shares of the owners (s 22(2)). The amount so payable by an owner is a debt due and payable from him to the corporation (s 22(3)).

If it becomes necessary to enforce a judgment against a corporation, execution may issue against (a) any property of the corporation or (b), with the leave of the Lands Tribunal, against any owner (s 17).  What is required is leave to issue execution to enforce a judgment against a corporation against an owner, not leave to issue an action against an owner.  And in the winding-up of a corporation, the owners are liable, both jointly and severally, to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities (s 34).” (per Bokhary PJ and Sir Anthony Mason NPJ at 280B-F)

52. Regarding the effect of a tortious claim and a judgment against the incorporated owners of a building, the Court of Final Appeal held that:-

“The effect of the judgment is simply to convert the pre-existing cause of action by the workman against the corporation into a matter of record, transit in rem judicatam (The Itria v The Koursk [1924] P 140 at p 149, per Bankes LJ). The delivery of the judgment enables us to see, with the benefit of hindsight, that there was a cause of action giving rise to an actual liability on the part of the corporation, the amount of that liability being ascertained by the judgment. So, at the time of contract there was an actual, not merely a contingent, liability on the part of the corporation. The effect of the judgment was that execution could issue against the property of the corporation and, subject to leave, against an owner and that means against the property of an owner, including his share in the building. The entry of the judgment also created a situation in which the management committee had no alternative but to give notice to the unit owners under ss 21 and 22, determining the amounts of contribution payable by them to meet the judgment and the time when the amounts were to be payable. No such notice was given before the time fixed by the contract for completion. But, the judgment having been given against the corporation, the issue of such notices was a matter of certainty because the corporation was unable to pay the amount of the judgment from funds available to it. Nevertheless, had the contract been completed on the date fixed for completion, the vendor would have been able to convey what on its face at that date was a good title. But it was a title which, after the date fixed for completion, would certainly subject the owner to a very substantial and extraordinary liability arising out of the use and occupation, prior to contract, of the common parts of the building by the corporation, a use and occupation which gave rise to the liability in tort.

The burden is on the vendor to prove a good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance (MEPC Ltd v Christian-Edwards [1981] AC 205 at p.220).  The vendor discharges his obligation if he shows to that standard that he is in a position to convey the estate or interest contracted to be sold “without any blot, or possibility of litigation to the purchaser” (Re Stirrup’s Contract [1961] 1 WLR 449 at p 454).” (per Bokhary PJ and Sir Anthony Mason NPJ at 282D to 283A) (emphasis added)

53. The Court of Final Appeal in Chi Kit case (above) concluded that:-

“…... The appellants’ ownership of 7,217 undivided shares in the Sun Hing Building (out of 62,639 shares) entailed ownership of a corresponding share in the corporation (Ordinance, s 39). The defect relates to the title of the property sold, because the potential liability to contribute to the funds of the corporation and satisfy the judgment is an inseparable incident of the ownership of the undivided shares.” (per Bokhary PJ and Sir Anthony Mason NPJ at 284G) (emphasis added)

“In the present case the incumbrance does not have its origins, as the incumbrances in a number of the cases do, in the exercise of powers by the Government or a statutory authority. It arises out of the tortious liability of the corporation for the antecedent use and occupation of the common property. In this situation, there is no reason to treat the incumbrance or blot on title which subsequently arises as a fortuitous risk which the purchaser should bear.” (per Bokhary PJ and Sir Anthony Mason NPJ at 285C)

Factors to be considered by the Lands Tribunal in granting leave under s  17(1)(b) of the Building Management Ordinance

54. The Lands Tribunal examined the circumstances under which its discretion under s 17(1)(b) of the Building Management Ordinance (Cap 344) would be exercised in Buaphan Wanlayaphol and another v The Incorporated Owners of the Foremost Building and another, unrep, LDMP 12/2002.  The Lands Tribunal held that:-

“13. From the above cases, the principles concerning section 17(1)(b) can be summarized as follows:-

(1) The application is related to an action in respect of the common parts of the building.

(2) Whether leave should be granted under section 17(1)(b) is a matter within the Tribunal’s discretion.

(3) The leave procedure is there for the protection of both the creditors and individual owners.

(4) It is only in rare and clear cases when section 17(1)(b) may be invoked, and even in those cases, the application has to be supported with sufficient reasons, otherwise injustice could result.

(5) The discretion is not so fettered that all the applicant has to do is to show that the corporation itself has no property and that the person against whom he is proceeding is an owner.

(6) The onus is on the applicant to establish that it is a proper case for the granting of leave.

(7) The applicant must establish that justice requires the making of the order.

(8) The application must fail when the court considers that greater injustice will be done to an owner if leave is granted than will be done to an applicant if it is refused.

(9) When deciding how the discretion should be exercised, the court is entitled to look at all the circumstances.

(10) The relevant circumstances and considerations include:-

(a) whether the owner against whom the application is made is closely connected to the cause of action;

(b) whether the applicant may be left with no redress if leave is refused;

(c) the financial situation of other individual owners;

(d) the steps that the creditor has taken against the incorporated owners to pursue and execute the judgment;

(e) the financial situation of the incorporated owners and the assets that they have;

(f) the services provided by the creditor to the building, whether a particular owner has benefited therefrom; and

(g) the reason for choosing a particular owner but not others.” (per Deputy Judge Wong at para 13)

ANALYSIS

55. Tortious liability in a personal injury claim arises at the time the tort is committed.  The cause of action on tort does not depend on the issuance of a writ of summons, the delivery of a judgment, or a demand for contribution of funds by the incorporated owners. The effect of a judgment is to convert the pre-existing cause of action of a claimant into a matter of record which enables us to ascertain the amount a liability with the benefit of hindsight.

56. In Chi Kit case (above), the Court of Final Appeal had decided that “owner” for the purpose of s 17(1)(b) of the Building Management Ordinance (Cap 344) meant owner for the time being, so that enforcement of the judgment against the incorporated owners could be executed against the owners for the time being, with leave from the Lands Tribunal.  As a result, a tortious claim against the incorporated owners could constitute a blot on individual owner’s title of their own properties.

57. Before dealing with the defendant’s arguments, it is necessary to examine how the defendant’s former solicitors had purported to answer Requisition No 8 before the completion.

58. Although Requisition No 8 was raised on 4 December 2012, the defendant’s former solicitors chose to ignore it in its letter dated 7 February 2013.  When the plaintiffs’ solicitors reiterated and insisted on Requisition No 8 in their letter dated 18 February 2013, the defendant’s former solicitors then purported to answer Requisition No 8 by its letter dated 19 February 2013.  By its letter dated 19 February 2013, the defendant’s former solicitors said that Requisition No 8 did not fall within the scope of requisition on title.  The defendant’s former solicitors even asked the plaintiffs to address their concern to the Incorporated Owners. In any event, on a without prejudice basis, the defendant agreed to stakehold $50,000 by its former solicitors until the PI Claim was completed.

59. It should be noted that the defendant’s offer of stakeholding $50,000 was only communicated to the plaintiffs’ solicitors on the date of Completion.  Such offer was made by the defendant without providing any information of the PI Claim, including the statement of claim, defence and etc, despite the same were expressly requested by the plaintiffs’ solicitors.

60. It is necessary to point out that on or before the date of completion on 28 February 2013, there was no evidence in relation to the following matters:-

(a) the amount of damages claimed by the injured person in the PI Claim;

(b) the court at which PI Claim was instituted;

(c) whether or not there was further medical or expert evidence concerning the injured person’s injury, other than the copies of the three medical reports enclosed in Massie & Clement’s letter dated 8 September 2011;

(d) the current physical condition of the injured person;

(e) the general background of the injured person, such as her occupation, her earning capacity and etc;

(f) the progress of the PI Claim.  In particular, whether the PI Claim was allowed or dismissed by the court, or whether it was still ongoing.  Actually, no documents about the PI Claim were furnished by the defendants’ former solicitors to the plaintiffs’ solicitors at all, including court documents of the PI Claim.  On the date of completion, the plaintiffs only learnt from Mr Chan of the Incorporated Owners that the next hearing date of the PI Claim was in May 2013.  This information was not supported by any documents.  There was no evidence about the nature of the alleged May 2013 hearing.

61. The plaintiffs’ solicitors had raised Requisition No 8 back on about 4 December 2012.  The requisition was ignored by the defendant’s former solicitors.  When the requisition was reiterated and insisted upon, the defendant’s former solicitors refused to answer and alleged it to be outside the scope of title requisition.  When the plaintiffs’ solicitors became aware of the existence of the PI Claim and showed Massie & Clement’s letter date 8 September 2011 to the defendant’s former solicitors, the defendant’s solicitors still refused to answer Requisition No 8 directly.  In my view, Requisition No 8 was properly raised.

Defendant's 1^st argument that Requisition No 8 is too wide

62. Regarding the defendant’s first argument that the Requisition No 8 was too wide, I am of the view that the defendant cannot take advantage of the expression “the owners” out of its whole context.  The plaintiffs’ solicitors were clearly asking the defendant’s former solicitors to confirm whether “the owners or the Incorporated Owners or the Manager” of the development or building of which the Property forms part was involved in any litigation which might result in the owners liable to pay loss or damages or legal costs.  I accept the plaintiffs’ argument that at the preliminary stage of title requisition, they were not certain if the owners had incorporated or not, so they asked the defendant to confirm if the owners or the Incorporated Owners or the manager was involved in any litigation which might result in the owners of the Building becoming liable to pay loss or damages or legal costs.  Further, it did not seem to me that the defendant’s former solicitors was unable to answer Requisition No 8 on the ground that it was too wide.  This argument is rejected.

Defendant's 2^nd argument that no judgment had been entered against the Incorporated Owners

63. As pointed out above, there was no evidence regarding the progress of the PI Claim including the court at which the PI Claim was instituted.  In addition, there was no reliable evidence as to whether the PI Claim had been allowed or dismissed by the court, or it was still ongoing.  There was only an allegation by Mr Chan of the Incorporated Owners that the next hearing of the PI Claim would be in May 2013.  Yet, the defendant’s former solicitors had not attempted to prove this matter.

64. Thus, it was inappropriate for the defendant to advance a positive case that no judgment had been entered against the Incorporated Owners prior to the date of completion, so as to distinguish the present case from the facts of Chi Kit case (above).  The alleged progress of the PI Claim was not mentioned in any pre-completion correspondence, nor was it included in the affirmations filed by the parties. The facts remained that on or before the completion, the defendant’s former solicitors had not provided any particulars about the PI Claim to the plaintiffs’ solicitors at all.  As a matter of fact, it might well be a case that the PI Claim had been allowed or dismissed.  Equally, it might well be a case that the PI Claim was still ongoing on the date of completion.

65. Although I accept that the material facts in the present case are not entirely the same as the facts in Chi Kit case (above), I do not consider that the vendor’s obligations to answer requisition are different.  In Chi Kit case (above), after the purchaser’s solicitors were aware of the judgment against the incorporated owners, they wrote to the vendors’ solicitors on about 21 October 1997 to ask for what “remedial action” was proposed so that the property could be sold free from all encumbrances.  They also complained about the vendors’ failure to disclose the existence of the claim.  However, in the present case, the plaintiffs’ solicitors only knew that an injured person had been granted legal aid and she was represented by Massie & Clement, solicitors, to claim against the Incorporated Owners.  On or before the date of completion, the defendant’s former solicitors alleged that Requisition No 8 was outside the scope of title requisition, they furnished no evidence about the PI Claim to the plaintiffs’ solicitors.

66. For the purpose of legal argument, as pointed out by the Court of Final Appeal in Chi Kit case (above), the effect of the judgment was simply to convert the pre-existing cause of action by the injured person against the incorporated owners into a matter of record, transi in rem judicatam.  The delivery of the judgment enabled us to see, with benefit of hindsight, that there was a cause of action giving rise to an actual liability on the part of the corporation, the amount of that liability being ascertained by the judgment.  In conclusion, it was not the ratio of Chi Kit case (above) that the existence of a judgment against the incorporated owners was the pre-condition of constituting a blot on title.  Hence, the defendant’s 2^nd argument based on lack of a judgment cannot get off the ground for want of factual and legal basis.

Defendant's 3^rd argument that the PI Claim was only a District Court claim

67. The defendant argued that the PI Claim was only a District Court claim and that the maximum jurisdiction of the District Court was $1 million.  The defendant also argued that it had already offered to stakehold $50,000 which was good enough to settle any potential liability of making contribution on the part of the defendant or its successor-in-title.  Moreover, the defendant argued that the Incorporated Owners had a valid insurance policy covering third party’s risk up to $10 million.

68. First of all, in all of the pre-completion correspondence, there was no iota of evidence that the PI Claim was only a District Court claim.  Secondly, prior to completion, the defendant’s former solicitors had not answered Requisition No 8 by purporting to rely on any valid insurance policy covering the Incorporated Owners against third party’s risks.  The allegations that the PI Claim was only a District Court claim and the Incorporated Owners had a valid insurance policy coverage were only raised after the date of completion.  In particular, in the affirmation of Tang Choi Lan Polin filed on 6 August 2013 on the defendant’s behalf, Miss Tang asserted that the PI Claim was a District Court claim on three occasions in her affirmation.  However, on each occasion, Miss Tang only said that she verily believed the PI Claim was only a District Court claim.  However, Miss Tang had no documentary proof.  Miss Tang also alleged in her affirmation that there was a valid insurance policy covering the Incorporated Owners’ liability against third party's risks up to about $10 million.  Yet, no insurance policy was exhibited.

69. It is essential that a vendor shall show good title to his property before completion.  It is too late for a vendor to show good title to his property in his affirmation at the stage of vendor purchaser summons proceedings.  In any event, in the absence of any documentary proof, it was not clear on what proper factual basis Miss Tang could safely assume that the PI Claim was only a District Court claim and that there was a valid insurance policy covering the Incorporated Owners’ liability up to $10 million.  Having said that, even if the defendant could produce reliable evidence in its affirmation to prove these two matters, it could not and would not change the facts that it failed to show the same before completion. In that scenario, the defendant had a good title but the defendant failed to show it to the plaintiff beyond reasonable doubt at reasonable time before completion.

70. Regarding the defendant’s offer to stakehold $50,000 pending the final resolution of the PI Claim, I am of the view that without first knowing the particulars of the PI Claim including its magnitude, such offer will not eliminate the risk of the plaintiffs, as the defendant’s successors-in-title, to make further contribution upon demand by the Incorporated Owners.  Further, without knowing the financial situation of the Incorporated Owners, there is a risk that the injured person may enforce the judgment against individual owners, if the Incorporated Owners fails to pay.

71. In conclusion, the defendant’s 3^rd argument fails.

Defendant's 4^th argument that it was protected by Clause 11 and Clause 32 of the Formal Agreement

72. Clause 11 of the Formal Agreement provided that after signing the Formal Agreement, the Property shall be at the purchaser’s risk.  The defendant argued that since no resolution had been passed by the Incorporated Owners for contribution to the PI Claim, there was no liability on the part of the defendant to make any contribution at the time the Formal Agreement was signed on 19 December 2012.  If the Incorporated Owners made a demand for contribution to satisfy the PI Claim after the Formal Agreement was signed, the plaintiffs could not complain as they had already contracted to buy the Property at their own risk.  The defendant cited Hu Mei Yu Anastasia v King Best Enterprise Limited (unrep) HCA 9317/1998 and Luk Stanley Ho Chang v Fook Man Finance Company Limited (unrep) CACV 131/2006, in support of its arguments.

73. I am unable to accept the defendant’s argument.

74. Firstly, prior to completion, the defendant’s former solicitors had not purported to answer Requisition No 8 is this way.

75. Secondly, as a matter of facts, there was no positive evidence that the Incorporated Owners had not passed any resolutions to demand for contribution.  The defendant did not have a positive case that no resolutions were passed by the Incorporated Owners for contribution to the PI Claim, unless the defendant had a proper confirmation or other evidence from the Incorporated Owners that no such resolutions had been passed.  The defendant’s evidence, as contained in the affirmation of Tang Choi Lan Polin, showed that Incorporated Owners had posted notices at the Building in relation to the PI Claim.  The first notice was undated, but it stated that an owners’ meeting would be held on 6 October 2011 on an urgent basis.  The owners’ meeting was an extraordinary meeting.  The second and third notices were dated 12 October 2011 and 25 August, 2012 respectively.  For the purpose of the present case, there is no need to set out the contents of these three notices in detail because they were only disclosed at the affirmation of Tang Choi Lan Polin filed on 6 August 2013.  They did not have any direct impact on the real issue.  It suffices to say that according to the first notice, an owners’ meeting was held on 6 October 2011.  The defendant had not exhibited any minutes or resolution of the owners’ meeting on 6 October 2011.  This is simply a case that the defendant did not exhibited any minutes or resolutions of the meeting(s) of the Incorporated Owners, if any.  From the evidence disclosed so far, the defendant cannot advance a positive case that no resolutions had ever been passed by the Incorporated Owners for contribution to the PI Claim, unless there was evidence from the Incorporated Owners that no such resolutions had ever been passed.

76. Thirdly, as a matter of law, the liability of the Incorporated Owners to pay damages under the PI Claim does not depend on whether the Incorporated Owners has reached any resolution for contribution from owners.  As a matter of justice and common sense, the Incorporated Owners cannot escape from its tortious liabilities under the PI Claim, if any, by simply refusing to pass any resolutions at all.

77. Yet, if the Incorporated Owners had passed a resolution for contribution with regard to the PI Claim, and if the defendant failed to inform this matter to the plaintiffs, then the defendant was prima facie in breach of its duty to make full disclosure.

78. Hu Mei Yu Anastasia case (above), a case authority cited and relied upon by the defendant, was about the effect of a building order issued by the Building Authority pursuant to s 27A of the Building Ordinance (Cap 123), as opposed to the effect of a tortious claim made by a third party against the Incorporated Owners in relation to an accident happened at the common parts of the building.  According to s 27A(3A) of the ordinance, owner’s liability towards the costs of any work or investigation that the Building Authority has carried out arises from the registration of the building order at the Land Registry.

79. Similar provisions can be found at s 24(2C) and s 24(4A) of the Building Ordinance which provide that the owner’s liability to pay for the cost of the Building Authority arises from the registration of the relevant building order which has been registered at the Land Registry.

80. Thus, owners’ liability to pay for costs of the Building Authority does not arise from the date the dangerous work or unauthorized structures were created or constructed.  It arises from the registration of the relevant building order by the Building Authority at the Land Registry.

81. However, cause of action on tort arises from the date on which the tort is committed.  In the present context, the cause of action of the injured person arises from the date of the accident, it does not arise from the date the writ is issued.  Limitation period also runs against the injured person from the date on which the tort is committed even if the injured person does not issue the writ.

82. Hence, the present situation is not comparable to the situation of a building order which is registered against the subject premises at the Land Registry after a sale and purchase agreement has been signed.

83. Thus, Clause 11 of the Formal Agreement does not avail the defendant of a defence.

84. Regarding Clause 32 of the Formal Agreement, it was submitted on the defendant’s behalf that the defendant shall be responsible for the all legal costs related to the Property up to the date of completion.  Clause 32 expressly provides that:-

“在交易完成前賣方需負責如有該物業違例建築令之費用及維修費用及一切有關上述物業之訴訟費用。 (Clause 32)”

85. By clause 32, the parties expressly defined their respective liabilities regarding litigation over the Property.  Clause 32 was not about the parties’ liabilities towards the common parts of the Building.  Thus, clause 32 has no application to any civil claim against the Incorporated Owners resulting from the use of the common parts of the Building.

86. Clause 32 does not concern contribution by individual owners.  It is hard to see how clause 32 can assist the defendant by limiting or exonerating its liability to pay contribution which had been, would be and might be demanded by the Incorporated Owners with respect to the PI Claim.

87. Furthermore, in reliance on clause 32 and clause 11, the defendant submitted that it was not responsible for all legal costs about the Property after completion.  The defendant further submitted that as the trial of the PI Claim would be after the date of completion, the defendant shall not be responsible for the legal costs of the PI Claim.

88. As pointed out hereinabove, there was no proper evidential basis for the defendant to say that the trial of the PI Claim would be after the date of completion.  I reject this argument.  In addition, clause 32 specifically refers to litigation costs regarding of the Property, its application does not extend to any compensation that may be awarded by the court regarding the use of the common parts of the Building.

89. Miss Chan, counsel for the defendant, also argued that the parties here were all laymen, they had not received any legal training.  Miss Chan said that clause 18 of the Preliminary Agreement was not drafted by lawyers.  Therefore, as submitted by Miss Chan, the express term “litigation costs of the above stated property (上述物業之訴訟費用)” in clause 18 of the Preliminary Agreement could mean “the compensation and litigation costs of the above stated property”.  The defendant's former solicitors had not attempted to answer Requisition No 8 by invoking clause 18 of the Preliminary Agreement.  If the defendant's former solicitors had attempted to answer Requisition No 8 in this way, I would have no hesitation to reject this argument as it was clearly against the plain meaning of the express term of clause 18 of the Preliminary Agreement.  By clause 18 of the Preliminary Agreement, the plaintiffs and the defendant expressed their agreement in clear words and reduced their agreement in writing.  Subsequently, clause 18 of the Preliminary Agreement was incorporated into the Formal Agreement as clause 32.  The parties signed the Formal Agreement when they were legally represented.  In any event, I conclude that clause 32 only stipulates for the parties’ liabilities towards the litigation costs of the Property, it does not provides for anything about the compensation and legal costs regarding a litigation arising from the use of the common parts of the Building.

Defendant’s 5^th argument that the injury was not serious and any compensation payable under the PI Claim could be treated as ordinary expenses of the Incorporated Owners

90. The defendant submitted that the injury sustained by the injured person was not as serious as alleged.  The defendant also argued that accidents happened at the common parts of the building were not rare in Hong Kong, therefore the PI Claim could not be said to be outside the contemplation of a reasonable purchaser.  Thus, as submitted by Miss Chan, the PI Claim was not unusual in terms of its nature and magnitude, and there was no need for the Incorporated Owners to make any demand for contribution from the owners if the Incorporated Owners was eventually held liable by the court.  Miss Chan submitted that if the compensation and legal costs were awarded to the injured person under the PI Claim, they formed part of the monthly management fees payable by the owners.

91. While I accept that whether a tortious claim against the Incorporated Owners will constitute a blot on title to individual owner’s property depends on the nature and magnitude of the claim against the Incorporated Owners, I do not accept that the PI Claim will not put the plaintiffs at risk of making contribution as may be demanded by the Incorporated Owners.  I also do not accept that the PI Claim will not expose the plaintiff to any risk of enforcement by the injured person against them.

92. I do not accept that the PI claim was equivalent to other recurrent expenses which can be settled by monthly management fees payable by the owners.  This argument has no merit at all.  If the Incorporated Owners’ liability under the PI Claim was no more than ordinary expense, it would be redundant for the Incorporated Owners to call upon an extraordinary owners’ meeting on 6 October 2011 on an urgent basis for the discussion of the PI Claim.

Defendant’s 6^th argument regarding the motive of the plaintiffs and good faith of the defendant

93. Finally, Miss Chan argued that the plaintiffs failed to complete because of the drop of the price of the Property.  Miss Chan also submitted that Miss Tang Choi Lan Polin, the sole director and sole shareholder of the defendant, had been acted in good faith because once she learnt about Requisition No 8, she had enquired with the Incorporated Owners on about 6 December 2012.  In her affirmation, she said she had no knowledge about how the defendant’s former solicitors answered Requisition No 8.

94. In vendor purchaser summons cases, motive of the purchaser in completing or declining to complete a sale and purchase agreement is irrelevant.  In any event, making a commercial decision cannot be described as acting on bad motive.  The real issue is whether the defendant has shown a good title to the Property before completion, so as to force upon an unwilling purchaser to complete.  If a vendor fails to show good title to his property or his property has a bad title, a purchaser is completely entitled to make a wise decision by rescinding the sale and purchaser agreement.  Furthermore, the mere fact that a vendor is diligent in attempting to prove the title to his property will not by itself change a bad title good.  If a vendor has a good title, he must endeavour to show it to the purchaser at reasonable time before completion.

95. In conclusion, I cannot see the significance of the defendant’s arguments.

96. For completeness sake, the affirmation filed on the defendant’s behalf has shown no evidence about the drop of the price of the Property as alleged.  Further, I am not satisfied that the defendant had acted in good faith as alleged by Miss Chan.  In the affirmation Tang Choi Lan Polin filed on defendant’s behalf on 6 August 2013, Miss Tang said that on or about 4 December 2012, she had already made an enquiry about Requisition No 8 with Mr. Chan, the then chairman of the Incorporated Owners. Miss Tang was given to know that an expatriate lady had sued the Incorporated Owners for damages for personal injury.  Then, Miss Tang detailed her arguments with Mr Chan about the defendant's lack of knowledge about the notices posted by the Incorporated Owners at the Building in relation to the PI Claim.  Miss Tang then instructed the defendant’s former solicitors to collect the relevant documents and information about the PI Claim from the Incorporated Owners.  Subsequently, Miss Tang said in her affirmation that she did not have actual knowledge about how the defendant’s former solicitors replied to Requisition No 8 until 19 February 2013.

97. There is no evidence that Miss Tang had instructed defendant’s former solicitors to pass any information or documents collected from the Incorporated Owners to the plaintiffs’ solicitors. There is no evidence that Miss Tang had instructed the defendants’ solicitors to inform the plaintiffs’ solicitors about the existence of the PI Claim against the Incorporated Owners.  It is arguable that, as between the plaintiffs and the defendant, the defendant might be in breach of its duty to make disclosure after she had learnt about the PI Claim from Mr Chan of the Incorporated Owners: Rignall Developments Ltd v Halil [1988] 1 Ch 190; Luck Health International Enterprise Ltd v Chi Kit Co Ltd v another [1999] 2 HKLRD 473 (CA).  Thus, I am not satisfied that the defendant has acted in good faith based on the evidence disclosed so far.  In fact, as pointed out hereinabove, there is no need for this court to rule on this issue.

CONCLUSION

98. In conclusion, I accept the plaintiffs’ case and conclude that the defendant has failed to show good title to the Property before completion.  The defendant is in breach of the Formal Agreement and the defendant has wrongfully forfeited the deposits paid by the plaintiffs.

RELIEF

99. If liability has been determined, the defendant has not attempted to dispute the quantum of damages claimed by the plaintiffs.

100. Mr Lau helpfully referred this court to the relevant correspondence, bank statements, bank’s draw down document to show that the plaintiffs were entitled to costs of approving title and investigation of title at HK$13,005.00; bank fee for application of mortgage at HK$7,500.00; and bank interest for drawing down of loan in contemplation of completion at HK$986.30.

101. However, regarding the plaintiffs’ claim for HK$60,000.00 against the defendant as the commission payable to the estate agent under the Preliminary Agreement, I am not satisfied that the plaintiffs have a cause of action against the defendant for commission.

102. The Formal Agreement does not have any provision regarding the defendant’s liability to indemnify the plaintiff for the commission payable to the estate agent.  According to clause 10a of the Preliminary Agreement, the defaulting party shall pay the estate agent liquidated damages of HK$120,000.  The estate agent is one of the parties of the Preliminary Agreement and it is entitled to enforce clause 10a to recover its loss.  As between the plaintiffs and the defendant, the plaintiffs have no independent cause of action against the defendant for HK$60,000.

103. According to the affirmation of Chow Kai On filed on behalf of the plaintiffs, Mr Chow said that he was informed by the estate agent that the plaintiffs have to pay the estate agent a commission of HK$60,000.  Hence, the plaintiffs have not yet paid their share of HK$60,000 to the estate agent as commission, so that the plaintiffs can argue that the payment of HK$60,000 forms part of their damages.  As the sale and purchase of the Property fell through without default of the plaintiffs, the plaintiffs were not obligated to pay their share of commission to the estate agent.  As far as the commission is concerned, I find that the defendant is the defaulting party for the purpose of clause 10a of the Preliminary Agreement.

104. In the premises, the plaintiffs’ claim for HK$60,000 as commission payable to the estate agent fails.

105. For the purpose of costs, my rejection of the plaintiffs’ claim for HK$60,000 as the plaintiffs’ share of commission payable to the estate agent will not affect the costs order below. It is because the defendant had not actually argued on this item of claim whether in its written submission or during the hearing.  Thus, the costs and time spent on arguing this item of claim, if any, is minimal and insignificant.

106. I make the following orders:-

(a) A declaration that Requisition No 8 in the letter dated 4 December 2012 from Messrs Wong Kwan & Co, solicitors for the plaintiffs, to Messrs CO Chan & Co, former solicitors for the defendant, in respect of the title of the Property has not been satisfactorily and sufficiently answered by the defendant.

(b) A declaration that good title to the Property has not been shown by the defendant at or before 5:00 pm on 28 February 2013.

(c) A declaration that the defendant was in breach of the Formal Agreement and the defendant had wrongfully forfeited the deposits in the total sum of HK$600,000 on 15 March 2013.

(d) A declaration that the Formal Agreement was lawfully terminated by the plaintiffs on 4 March 2013.

(e) An order that the defendant shall return to the plaintiffs the deposits of HK$600,000 within 7 days from the date of this order, together with interest at the prime rate quoted by HSBC from time to time from 1 March 2013 to the date of judgment and thereafter at judgment rate up to the date of payment.

(f) An order that the defendant shall pay the plaintiffs damages of HK$21,491.30 with interest at judgment rate from the date of judgment until the date of payment.

(g) A declaration that the plaintiffs are entitled to an equitable lien on the Property for all the deposits paid by the plaintiffs and the damages which the defendant shall return to and pay the plaintiffs respectively.

(h) A declaration that the defendant was the defaulting party within the meaning of clause 10a of the Preliminary Agreement.

(i) A costs order nisi that the defendant shall pay the costs of these proceedings, including costs of HCMP 1037 of 2013 and any costs reserved, to the plaintiffs with certificate for counsel.