CHEUNG FUK YU DANNY AND ANOTHER v. VU POI VAN

DCCJ 2817/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2817 OF 2013

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J U D G M E N T
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Undisputed Background

1. This is an action arising out of a conveyancing dispute concerning a village house situated at 2^nd Floor and main rooftop of the building in the remaining portion of Lot No 2111 in Demarcation District No 117, Yuen Long, New Territories, Hong Kong (“the Property”). 

2. By a provisional sale and purchase agreement between the plaintiffs (the purchasers) and the defendant (the vendor) dated 24 March 2013 (page 46-49 Bundle C), the Property was being sold at the purchase price of HK$2,900,000 and the completion date was scheduled to take place on 31 July 2013.  An initial deposit in the sum of HK$50,000 was paid.

3. Upon the signing of the Sale and Purchase Agreement dated 22 April 2013 (“the Agreement”) (page 50-66 Bundle C), a further deposit of HK$240,000 was paid. Stamp duty in the sum of HK$43,500 was duly paid on 17 April 2013.

4. The plaintiffs are represented by Messrs Y L Yeung & Co (“YLY”) whereas the defendant is represented by Messrs Raymond Chan, Kenneth Yuen & Co (RCKY”) throughout the transaction and in this action.

5. The first batch of title deeds was being delivered from RCKY to YLY on 7 May 2013. Requisitions were raised by the plaintiffs from 8 May 2013.  Details of the requisitions and reply will be dealt with below. 

6. After some exchange of correspondence, by a fax at 5:04pm on the scheduled date of completion (page 166 Bundle C), the plaintiffs accepted the defendant’s repudiatory breach of the Agreement by her failure to answer the requisitions and to prove good title to the Property.

7. By a letter dated 31 July 2013 (page 167-168 Bundle C), the defendant denied any failure to prove good title and since the plaintiffs had failed to pay the balance of the purchase price by 5pm on 31 July 2013, the deposit is forfeited without prejudice to the defendant’s claim for damages.

8. On 1 August 2013, the plaintiffs issued the writ of summons alleging that the defendant had failed to prove a good title by failing to answer the requisitions and seeking, inter alia :

(a) A declaration that the defendant has failed to prove good title to the Property and/or in breach of the Agreement and that the Agreement has been rescinded;

(b) An order for repayment of the deposits in the sum of HK$290,000 (“the Deposits”) by the defendant;

(c) A declaration that the plaintiffs are entitled to and had a lien on the Property until repayment of the Deposits; and

(d) A declaration that the plaintiffs are entitled to be indemnified by the defendant in case the plaintiffs are unable despite of reasonable effort to reclaim the stamp duty paid from the Collector of Stamp Duty.

9. The defendant denied the allegation of failing to prove title and filed a counterclaim together with its defence on 15 August 2013.  The defendant counter-claimed, inter alia for :

(a) A declaration that the defendant has sufficiently proved and shown good title to the Property in accordance with Section 13 of Conveyancing & Property Ordinance, Cap 219;

(b) A declaration that the defendant’s solicitors had sufficiently answered the requisitions on title raised by the plaintiffs’ solicitors;

(c) A declaration that the said deposit of HK$290,000 was duly forfeited; and

(d) A declaration that the Agreement was duly determined by the defendant.

10. Both parties confirmed at trial that their respective claim for damages in the pleadings is no longer pursued.

The Requisitions

11. The requisitions raised by the plaintiffs which formed the dispute in this case are copied below :

Raised on 8 May 2013 (page 127-129 Bundle C)

(i)  New Grant No 3509 dated 24/2/1986 and Toleration Letter Memorial No YL 543637 (“Requisition 1”)

It was noted that the building erected on the subject lot is in breach of the Special Conditions of the said New Grant ie the height thereof exceeded by 0.13 meter and there was excessive roofed-over area by 0.76 sq m.

By reason of the said breaches, we further note that there is nothing mentioned in the three Certificates of Exemption and Letter of Compliance that the site formation, building and drainage plans have been approved by the Building Authority prior to the commencement of building works.  Please let us have the proof of such prior approval and let us have the relevant Occupation Permit for the occupation of the subject building.

Without the said proof of prior approval and issuance of Occupation Permit, there is real risk of enforcement by the Building Authority.

(ii) Receipt On Discharge Memorial No YL970804 (“Requisition 2”)

The Receipt was signed by one Simon Kwok Keung Sin without the company chop of the Lender.  Please let us have the proof of his authority or let us have the relevant Power of Attorney.

(iii) Loan Agreement Memorial No YL970807 and Second Charge Memorial No YL970808 (“Requisition 3”)

The captioned Deeds are exclusively related to the subject Property, please let us have the original of the same or let us have the relevant statutory declaration as to its lost (sic).

Raised on 10 June 2013 (page 145 Bundle C)

(iv) Right of Way Requisition (“Requisition 4”)

Our clients are informed by the intended mortgagee bank there is no right of way for the purpose of ingress to and egress from the subject Building.  Please clarify.

Requisition 1: Occupation Permit Requisition

12. There are a number of exchanges of correspondence between YLY and RSKY concerning this requisition.  The following table is extracted from the Revised Agreed Issues prepared by the parties.

Plaintiffs’ requisitions	Defendant’s answers
8 May 2013 The height of the subject building is in breach of the Special Conditions, ie the height hereof exceeded by 0.13 meter and excessive roofed-over area by 0.76 sq m seeking production of Occupation Permit (“OP”) and prior approval by Building Authority (“BA”) (page 127 Bundle C) The Letter of Toleration did not amount to a waiver by the BA seeking prior approval of site formation, building and drainage works and the relevant OP (page 129 Bundle C)	13 May 2013 The issuances of the Certificate of Exemption of building works, Letter of Toleration and Certificate of Compliance exempted the provisions of Building Ordinance (“BO”) and that the approval, consent or OP are not required despite such excess of height and roofed over area (page 134 Bundle C)
15 May 2013 By reasons of the breaches on height and roofed over area, the Certificates of Exemption were invalid and the Letter of Toleration did not amount to a waiver by the BA (page 136 Bundle C)	4 June 2013 Section 21 of BO does not apply when Certificate of Exemption of building works, Letter of Toleration and Certificate of Compliance were issued (page 138 Bundle C)
7 June 2013 Requirement on thickness of load bearing walls under Part I of the Schedule to BO if the height of building is not more than 8.23 meter (page 143 Bundle C)	11 June 2013 Certificate of Compliance should be sufficient proof of compliance on requirement of the thickness of the load bearing reinforced concrete wall (page 146 Bundle C)
14 June 2013 Insisting the Certificate of Exemption was not effective and the production of OP is required (page 148 Bundle C)	14 June 2013 Certificate of Compliance and Letter of Toleration is prima facie proof of compliance of the conditions of building works and that there is no letter from BA raising any possibility of enforcement action (page 150 Bundle C)
17 June 2013 The burden of proof of risk of enforcement action by the BA is on the vendor with evidential proof (page 151 Bundle C)	22 July 2013 The letter of District Lands Office Yuen Long (“DLO”) dated 18 July 2013 confirmed all positive obligations under the General Special Conditions of New Grants No 3509 had been complied with and thus the thickness of load bearing reinforced concrete wall must comply with the requirement and removed the possibility of enforcement action (page 159 Bundle C)
29 July 2013 Proof of requirement on thickness of load bearing reinforced concrete wall could be relied on assumption and that the confirmation of issuance of Letter of Compliance and Certificates of Exemption does not preclude the BA from taking action (page 160 Bundle C)	30 July 2013 Assumption of the thickness of wall complies with the requirement prescribed by the Certificate of Exemption and the Certificate of Compliance issued by DLO and that relying on a letter of Building Department (“BD”) dated 25 July 2013 it is not within the jurisdiction of BD to comment the validity of Letter of Toleration issued by DLO (page 162 Bundle C)
31 July 2013 The confirmation seeking from BD is on the validity of the Certificate of Exemption of building works and their silent reply could not be an answer to the risk of enforcement action (page 165 Bundle C)

13. There is no dispute that under section 21 of the BO, an OP would be required to occupy a new building unless an exemption has been granted under section 7(1) of the Building Ordinance (Application to the New Territories) Ordinance Cap 121 (“BO(ANT)”).  However, for an exemption to be valid and effective, the new housing must comply with the dimensions specified under Part 1 of the Schedule of BO(ANT) (see : section 7(2) of BO(ANT).  This is also the findings in the case of Tai Wai Kin v Cheung Wan Wah Christina [2004] 3 HKC 198.

14. Part 1 of the Schedule of BO(ANT) stipulates that if the height of a building is between 7.62m and 8.23m with a roofed-over area not exceeding 65.03m², it must have load-bearing walls with the following thickness :

(a) A load-bearing reinforced concrete wall is not less than 175mm thick; or

(b) Of the lowest storey is in the case of a load-bearing brick wall not less than 340mm; and

(c) Of any higher storey is in the case of a load bearing brick wall not less than 225mm.

15. The land where the Property situated is being held under New Grant No 3509 dated 24 February 1986 (page 1-16 Bundle C) with special conditions that a 3 storey building was permitted to be built but its height must not exceed 7.62m and the maximum built over area must not exceed 54.50m².  The building subsequently erected had a height in excess by 0.13m and the roofed-over area exceeds by 0.76m², as confirmed in the Letter of Toleration (page 38 Bundle C).

16. Hence, in order to be exempted from the requirement of obtaining an OP, it must be shown that, “if the height of the building exceed 7.62m although it is not more than 8.23m, the thickness of the load-bearing walls is not less than 175mm thick if it is of reinforced concrete construction” (§54 of Tai Wai Kin) as required under Part 1 of the Schedule. 

17. The plaintiffs contend that since there is no evidence to show the actual thickness of the load bearing walls of the building, the defendant cannot show the exemption is valid and effective. 

18. The defendant responded in reply that the Certificate of Exemption given on 26 March 1992 in relation to drainage works (page 25 Bundle C), site formation works (page 33 Bundle C) and building works (page 34 Bundle C) respectively, the Letter of Toleration dated 3 March 1993 (page 38 Bundle C) and the Certificate of Compliance dated 16 July 1993 (page 39 Bundle C) exempted the requirement of an OP (collectively referred to as “the Exemption Documents” hereinbelow).  And the Certificate of Compliance was sufficient proof of compliance on the requirement of the thickness of the load bearing reinforced concrete wall. 

19. In any event, it is the contention of the defendant that she had proved beyond reasonable doubt that there is no risk of enforcement, referring to the letter from DLO dated 18 July 2013 (“DLO Letter”) (page 159 Bundle C) and the letter from the Buildings Department (“BD Letter”) dated 25 July 2013 (page 164 Bundle C) in support.

20. I found the defendant’s contention about the Exemption Documents cannot stand. 

21. It is beyond argument that there is no evidence as to the thickness of the load bearing walls of the building in this case.  Even though the DLO had issued the Certificate of Exemption, the DLO had also confirmed in the DLO Letter that the DLO is “unable to ascertain the thickness of load bearing ‘reinforced concrete wall’ of the building … is not less than 175mm”.  Under such circumstances, it must be the case that the Certificate of Exemption, though issued, cannot confirm the thickness of the reinforced concrete wall is in compliance with Part 1 of the Schedule.  And as found in the case of Tai Wai Kin which involved a similar factual background where the thickness of the wall cannot be ascertained, “the Certificate of Exemption issued under section 5 would not have the effect of exemption compliance with section 21 of the Buildings Ordinance.  In other words, an occupation permit was required.  Thus, even though the District Lands Officer had issued the Certificate of Exemption, the Certificate of Exemption was not effective in exempting compliance with section 21 of the Buildings Ordinance” (my emphasis) (at §54).  I also agreed with the findings in Tai Wai Kin that “the District Lands office only has limited power under Cap 121, and … the effect of any certificate of exemption granted by him would depend on whether section 7(2) applied” (at §58). 

22. Given the contents of the DLO Letter about the thickness of the load bearing wall, it cannot be said that the Exemption Documents issued by the DLO can be taken to mean that the requirement for exemption in relation to the thickness of the wall had been complied with since this information was never within the DLO’s consideration.

23. Even though the DLO had been empowered to issue the Certificate of Exemption, since the requirement under section 7(2) has not been complied with, the Certificate of Exemption is not valid and not effective.  Hence, the provision of section 7(1) of BO(ANT) would not be applicable which means an OP is not exempted even though a Certificate of Exemption had been issued for the building in this case.

24. And I am not satisfied that the Exemption Documents or the DLO Letter and the BD Letter can prove beyond reasonable doubt that there would not be any risk of enforcement action being taken by the BD against the Property.

25. RCKY had asked the BD to confirm whether the Certificate of Exemption of building works issued by the DLO “are valid and effective” and nothing mentioned about the possibility of the BD to take enforcement action (page 163 Bundle C).  In the BD Letter in reply, it was stated that “it is not within my jurisdiction and I am not in a position to comment on the Letter of Toleration issued by District Lands Office” and advise the RCKY “to consult the Lands Department on lease/land matters and matters arising from the Building Ordinances (Application to New Territories) Ordinance” (page 164 Bundle C).  The Exemption Documents and the Letter of Toleration were not issued by the BD and it would not be surprising for the BD to say that it had no power and not in a position to comment.  Never had the BD confirmed in its letter that it had endorsed the issuance of the documents by the DLO or “showing BD’s unwillingness to interfere with or investigate about the thickness of the building wall or whether it is of reinforced concrete construction to satisfy the requirements of exemption of the building from Buildings Ordinance” as contended by Mr Jim (§9 of Written Submission).

26. In any event, any enforcement action under the BO is within the sole power of the BD. I agree with the observation of Madam Justice Le Pichon in the case of Wong On v Lam Shi Enterprises Limited HCMP 2549/1995, unreported 20 December 1995 that “in the absence of any provision which empowered the DLO to make decisions on behalf of, or to override the Building Authority where the subject matter is the development of small houses in the New Territories or any evidence that this was in fact the practice, there is nothing to warrant the conclusion or inference that the DLO had authority to assume the statutory functions of the Building Authority and make decisions that are solely within the domain of the Building Authority under the relevant statutory provisions” (at page 6-7).  BO(ANT) may have given the DLO the power to issue the Exemption Documents but had never delegated the power of the BD to take enforcement action to the DLO.

27. The Exemption Documents are issued by the DLO and not the BD.  They cannot be taken as binding on the BD nor could they be taken to preclude the BD from taking enforcement action.

28. As for the Certificate of Compliance issued by the DLO, it is stated in the DLO’s letter dated 18 July 2013 that “(A)s  at the date of our issuing the Certificate of Compliance, this office certified that all the positive obligations imposed on the Grantee of the Lot under the General and Special Conditions of New Grants No 3509 had been complied with” (page 159 Bundle C). However, on the Certificate of Compliance dated 16 July 1993, it is stated that “(T)his certification is given without prejudice to all or any rights of the Government whether under the said Conditions or otherwise in respect of any breach or failure to observe any of the said Conditions which may exist on the date hereof or which may hereafter occur” (page 39 Bundle C). 

29. I cannot see how the Certificate of Compliance can assist the defendant in showing the requirement under Part 1 of the Schedule had been complied with or to infer that there is no risk of enforcement action by the BD as contended by Mr Jim. On the contrary, there is specific provision in the Certificate of Compliance reserving all rights of the Government, with BD being part of it, to take action against any breach in the building where the Property situated.

30. I found the defendant had failed to show that the exemption from the requirement of the OP under section 7(1) of BO(ANT) is applicable, hence the plaintiffs are entitled to raise Requisition 1 and the defendant had failed to answer satisfactorily.

Requisition 2: Lack of Company Chop Requisition

31. The receipt on Discharge of a Charge Memorial No YL970804 dated 8 June 2001 (“the Discharge Receipt”) (page 45 Bundle C) was signed by one Mr Simon Kwok Keung Sin (“Mr Sin”) purportedly acting for and on behalf of the lender, namely Standard Chartered Bank.  The Discharge Receipt does not bear the company chop of Standard Chartered Bank nor does it express that Mr Sin has been authorised by the lender to acknowledge such receipt. 

32. Hence, by its letter dated 8 May 2013, YLY asked for proof of authority and power of attorney concerning the signatory of Mr Sin.

33. RCKY in its reply letter dated 13 May 2013 (page 134 Bundle C) stated that there is no legal requirement for the company chop of the lender to be affixed to the Discharge Receipt.

34. Following up on this requisition, YLY requested in its letter dated 15 May 2013 (page 136 Bundle C) for confirmation as to whether Mr Sin signed as an attorney and if so, production of the relevant power of attorney.   On 11 June 2013, RCKY replied that the signatory did not sign on the Discharge Receipt as attorney of the Bank and therefore it is not necessary to produce the power of attorney (page 146-147 Bundle C). 

35. By another letter dated 14 June 2013 (page 149 Bundle C), YLY asked for the production of the relevant power of attorney or rectification by affixing the lender’s chop on the Discharge Receipt.  RCKY replied on 10 July 2013 (page 154 Bundle C) maintaining that there is no legal requirement of putting company chop of the lender to prove its due execution.

36. The plaintiffs contend that with the defendant’s failure to answer the requisition, it remained unclear as to whether Mr Sin had been authorised by the bank as stipulated under section 56(1) of the Conveyancing and Property Ordinance (“CPO”). 

37. Section 56(1) of CPO stipulated that :

“A receipt, written on or annexed to a mortgage deed, for all money secured by that mortgage, which is executed by the mortgagee or the person in whom the mortgage is vested and who is legally entitled to give a receipt for the mortgage money, shall operate, without any surrender or release as a discharge and, where applicable, reassignment of the mortgaged property from all principle money and interest secured by, and from all claims, under, that mortgage, but without prejudice to any term or other interest which is paramount to the estate or interest of the mortgagee or other person in whom the mortgage is vested.”

38. The defendant contends that nowhere in section 56 of CPO requires the name chop of the mortgagee bank and proof of authority of the signatory.  If anyone doubts the validity of such Discharge Receipt dated 8 June 2001 which was registered in the Land Registry for over 12 years, the mortgagee bank would have taken legal action to dispute the validity of such signatory.  Moreover, according to section 23 of CPO, “an instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed”.

39. I agree with Mr Jim that section 23 of CPO should be applicable in the consideration of Requisition 2.  There is nothing to show that the signatory of Mr Sin was not properly executed or Mr Sin was not a person authorised to give the Discharge Receipt.  The Discharge Receipt was being executed 12 years ago and no issue had been taken by the bank or anyone else for all these years.  Under such circumstances, the presumption under section 23 of CPO should be applicable with no evidence to the contrary.  And I also agree with Mr Jim that section 56 of CPO never required the name chop of the mortgagee bank to be affixed on the Discharge Receipt.

40. I found the plaintiffs are not entitled to raise Requisition 2 and in any event, the defendant had answered the same satisfactorily.

Requisition 3: Production of Original Documents Requisition

41. The Building was subject to 2 registered instruments, namely a Loan Agreement Memorial No 970807 (“Loan Agreement”) (page 96-111 Bundle C) and Second Charge Memorial No 970808 (“Second Charge”) (page 112-122 Bundle C).  Certified true copies of these documents were provided by the defendant and received by YLY on 7 May 2013.

42. By a letter dated 8 May 2013 (page 128 Bundle C), YLY requested the defendant to produce the originals of these documents, but was refused by the defendant in its letter dated 13 May 2013 (page 134 Bundle C) and 10 July 2013 (page 154 Bundle C) on the ground that there was no legal requirement to produce the originals of these documents as there was a sale by the first mortgagee, The Hongkong and Shanghai Banking Corporation Limited (“First Mortgagee”) under First Charge Memorial No YL970806.  By a letter dated 10 July 2013 (page 154 Bundle C), the defendant further contended that there is no legal requirement to produce the original Loan Agreement and Second Charge in the event of sale by First Mortgagee.

43. It is the plaintiffs’ contention that the obligations of the defendant to provide original documents stemmed from Clause 20(a) of the Agreement as well as section 13A(1) of the CPO.

44. Clause 20(a) of the Agreement provided that :

“The Vendor shall prove, show and give a good title to the Property in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap. 219), and prove the same at his own expense and at the like expense shall make and furnish to the Purchaser such original or certified copies (as the case may be) of any deeds or documents of title wills and matters of public record as may be necessary to prove such title.” (page 53 Bundle C)

45. Section 13A(1) of CPO stipulated that :

“(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require the vendor to deliver to him, for the purpose of giving title to that land, the original of both of the following only ---

(a) if there is a Government lease that relates exclusively to the land, the lease; and

(b) any document that relates exclusively to the land and is required to be produced by the vendor as proof of title to that land under section 13(1)(a) and (c).”

46. Mr Li for the plaintiffs submits that the documents requested under Requisition 3 are documents related exclusively to the Property, hence the defendant is obliged to produce the originals of them to the plaintiffs.  Mr Li also relied on the case of Big Most Limited v Chau Wa Hung [2002] 4 HKLRD 599.

47. Mr Jim for the defendant submits that the obligation of the vendor under section 13 and 13A of CPO is to produce the mortgage or charge and evidence of its proper reassignment or discharge.  In our present case, there is no question of proving the reassignment or discharge of such Second Mortgage as chain of title of the Property and the title of the Property could be conveyed by the First Mortgagee free from the said Second Mortgage and Loan Agreement.

48. Mr Jim also seek to distinguish the present case from Big Most Limited in that in the latter case, DHCJ Lok found that the production of the originals was important “so that he can be sure that the property is not subject to an ‘equitable mortgage’ by deposit of the title deeds” (at §11).  In our case, the Second Charge had no priority to the First Charge by virtue of the First Mortgagee exercising its power of sale to convey the title and ownership of the Property free from the Second Charge.  The defendant only need to prove her ownership of the Property derived from such First Charge but not from such Second Charge.

49. I agree with the submission of Mr Jim.  The Second Charge was in relation to a loan from the Housing Authority to the purchaser in the sale transaction back in 2001.  It is not in dispute that the subsequent transaction in 2005 was a sale by the First Mortgagee exercising its power for sale under the First Charge. 

50. Section 53 of CPO provides that :

“(1) Where a mortgagee or receiver sells under an express

or statutory power of sale, the assignment shall operate- (Amended 31 of 1988 s. 18)

(a) to assign to the purchaser the mortgagor’s estate in that land, subject to any other mortgage having priority to the mortgage under which the sale is made; and

(b) to discharge that land from the mortgage under which the sale is made and any subsequent mortgage.

(2) Where a mortgagee obtains an order of foreclosure absolute, that order shall (unless it otherwise provides) operate-

(a) to assign to the mortgagee the mortgagor’s estate in the mortgaged land, subject to any other mortgage having priority to the mortgage under which the foreclosure order was obtained; and

(b)  to discharge that land from the mortgage under which the foreclosure order was obtained and any subsequent mortgage.”

51. Under section 53 of CPO, the sale by the First Mortgagee has power to assign the mortgaged land, ie the Property, free from all estates, interests and rights to which the mortgage has priority.  Furthermore, such a sale discharged the land from the Second Charge as well.  The title and ownership conveyed under such a sale was free from the Second Charge except to account to them for the surplus sale money.  The Second Charge only had interests over the money upon sale and was not an encumbrance on the First Mortgagee’s right to sell. 

52. Under such circumstances, I do not find the Second Charge had anything to do with proof of title.  Since Clause 20(a) of the Agreement and Section 13A(1) of CPO only required the production of original documents for the purpose of giving title, the Loan Agreement and the Second Charge do not fall within such category.

53. And I also find that the case of Big Most Limited can be distinguished with the present case in the sense that the sale in that case is not one involving a sale by the mortgagee.

54. I found Requisition 3 is not justified and the defendant had answered the same satisfactorily.

Requisition 4: Right of Way Requisition

55. By a letter dated 10 June 2013 (page 145 Bundle C), the plaintiffs raised the requisition that there is no right of way for the purpose of ingress to and egress from the building.  Such concern was discovered upon the site inspection by the intended mortgagee bank.

56. The defendant replied on 14 June 2013 (page 150 Bundle C) stating that the requisition was being raised out of time, ie not within the 7 working days time limit under Clause 14 of the Agreement.

57. On 17 June 2013, the plaintiffs responded that the requisition on right of way was only discovered by site inspection and therefore not raised out of time (page 151 Bundle C).  The defendant maintained its stance in the reply letter dated 26 June 2013 (page 152 Bundle C).

58. Clause 14 of the Agreement stipulated that :

“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 receipt of the title deeds by the Purchaser’s Solicitors otherwise the same shall be considered as waived by the Purchaser.” (page 52 Bundle C)

59. This requisition is being raised on 10 June 2013 whilst the title deeds reached YLY on 7 May 2013.  The issue under this requisition is whether the requisition could be considered waived since it was not being raised within 7 working days after the receipt of the title deeds by YLY.

60. It is established law that a requisition is not considered to be waived in the event that it is raised out of time if it goes to the root of the contract or it only comes to the knowledge of the purchaser through his own search or inquiry (see Big Most Limited v Chau Wa Hung, supra).

61. Mr Li for the plaintiffs submits that in the present case, it is manifest that the requisition on right of way goes to the root of the contract as is expressly stipulated under Clause 1 of the Agreement that the defendant shall sell the Property with the benefit of, amongst others, the “rights of way … and other easements and privileges” affecting the Property.  Moreover, the requisition only came to the knowledge of the plaintiffs through their own search or inquiry.

62. Mr Jim for the defendant had no argument on the legal principles stated in §60 above. However, it is argued that the right of way problem was only discovered by the intended mortgagee bank and not by the plaintiffs themselves.  This is therefore not a situation in which the purchaser had discovered the same through his own search or inquiry. 

63. In the written submissions filed by the defendant, it is argued that :

“In Big Most Limited, the learned Deputy Judge considered the decision of W Wong DHCJ in Ostorich Ltd v Liu Sin Ming HCMP 977/1992 about requisition raised going to the root of the contract, which could not be discovered within the time limit due to the vendor’s concealment (of the Building Plan being different from the plan of the first Assignment) but only after the purchaser/plaintiff obtained the Building Plan at a later stage about the location, area and boundary of the car parking spaces in the garage being conveyed. In our case, there was no concealment by the defendant of any right of way problem. If the Plaintiffs wanted to raise it, they should raise it through YLY timely, especially that they had actual notice and knowledge of its significance in the context of Clause 1 of the Agreement” (at §24).

64. I found the requisition concerning right of way is an essential term of the Agreement which go to the root of the contract since the Property was being sold with the benefit of the right of way.  And without the right of way to ingress and egress from the building, the purchaser will be left with no access to the Property.  The plaintiffs’ concern was a legitimate one and should not be considered as waived.  The defendant was obliged to answer the requisition.

65. As for the argument that the problem was only discovered by the intended mortgagee bank and not by the plaintiffs themselves, I found this argument misconceived. Mr Jim is arguing that “through his own search or inquiry” means that such search or inquiry should have been made by YLY or the plaintiffs themselves only.  I beg to differ.  “Through his own search or inquiry” should mean search or inquiry on the part of the purchaser as distinguished from the vendor.  As long as the search or inquiry is being done by the purchaser or anyone engaged by the purchaser should suffice.

66. As for the argument that the plaintiffs or YLY should be able to make the inquiry by site inspection within the 7 working days’ time limit and should not wait till after being informed by the mortgagee bank.  Given my findings that Requisition 4 goes to the root of the contract, this argument as to whether the requisition was being raised within the time limit is irrelevant.  The defendant is duty bound to answer the requisition which goes to the root of the contract irrespective of whether it is raised out of time.

67. I found the plaintiffs are entitled to raise Requisition 4 and the defendant had failed to answer the same.

Conclusion

68. For these reasons, I found Requisitions 1 and 4 are properly raised by the plaintiffs but had not been satisfactorily answered by the defendant.  Under such circumstances, the defendant had failed to show and prove a good title.  The plaintiffs are entitled to rescind the Agreement and ask for the return of the Deposits.

The Order

69. I shall make an order in terms of §8 above.

70. The counter-claim of the defendant be dismissed.

71. Costs order nisi that costs of the action be to the plaintiffs, including all costs reserved, with Certificate for Counsel, to be taxed if not agreed.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.