HO CHING GROUP LTD v. TSANG PUI LIN, TSANG WAI MAN AND TSANG PUI LIN, CARLA

HCMP1496/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1496 OF 2012

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

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

J U D G M E N T

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

Background

1. This is a vendor and purchaser summons.  It concerns G/F, No 16, Lung Sum Avenue, Shek Wui Hui, Sheung Shui, New Territories (“the Property”), a shop premises.

2. By a provisional sale and purchase agreement dated 6 March 2012 (“the Provisional Agreement”), the defendants agreed to sell the Property to the plaintiff for HK$40 million.  A rider, containing clauses 5, and 17 to 23, was attached to the Provisional Agreement (“the Rider”). Clause 17 provided that the Rider is supplemental to the Provisional Agreement.  Clause 23 read :

“There is a staircase inside [the Property] as per attached floor plan. The purchaser acknowledges and accepts that the said staircase has been removed and shall not raise any requisition about the titles on the staircase.”

3. On 17 April 2012, the parties entered into a formal sale and purchase agreement (“the Formal Agreement”).  In Part 4 of the Schedule to the Formal Agreement, the Property is identified by reference to the area shown and coloured pink on the plan annexed to the first assignment (Memorial No.N163633) (“the Assignment Plan”). According to the Assignment Plan, a staircase was depicted on the left side in the middle within the boundary of the Property (“the Staircase”), which led to the cockloft immediately above the Property (“the Cockloft”).  At the right bottom corner of the Property, an area described as “right of way” coloured in yellow appeared, which is an external staircase (“the External Staircase”) running from the outside of the Property to the upper floors.  It does not form part of the Property.  Further, pursuant to Clause 24 of the Formal Agreement, the terms and conditions set out in Part 9 of the Schedule shall apply and prevail, “notwithstanding anything hereinabove contained”.  Part 9 repeats the clauses, re-numbered, as set out in the Rider.  Clause 23 of the Rider now became Clause 6 of Part 9 (“Clause 6”).  The plaintiff had paid a total sum of HK$4 million as deposits.

4. The plaintiff then raised requisitions concerning, among other things, the Staircase.[1] Insofar as the Staircase is concerned, what transpired from the solicitors’ correspondence may be summarized as follows :

(1) By a letter dated 22 March 2012, CL, acting for the plaintiff, asked for documentary evidence that the owner of the Cockloft had waived the right to use the Staircase.  In response, HL, acting for the defendants, in the letter dated 23 April 2012, HL invoked Clause 6 of the Rider in their letter dated 25 April 2012.

(2) By the letter dated 30 April 2012, CL claimed that they were entitled to raise such requisition because the plaintiff had never been told, or was aware of, the effect of the removal of the Staircase on the title of the Property citing 2 cases in support.  CL further claimed that there is a possibility of potential claims against the owner of the Property due to the removal of the Staircase unless it can be shown that the owner of the Cockloft or other relevant parties have permanently relinquished their rights and interest regarding the Staircase.

(3) By the letter dated 11 May 2012, HL replied that the two cases cited are distinguishable in that there was no express term similar to clause 6 of the Rider.

(4) In the further letter dated 18 May 2012, CL stated that the plaintiff had never been informed that the Staircase was for accessing the Cockloft or the removal thereof might interfere with the interest of the owner of the Cockloft.  They claimed that clause 6 of the Rider only covers requisition about “titles on the Staircase”, but not “title to the Property”.

(5) In the letter dated 22 May 2012, HL stated, among other things, that on a proper construction, Clause 6 precludes the plaintiff from raising any requisition against the title of the Property arising from the removal of the Staircase.  Further, HL stated that the potential risk mentioned by CL was only a gesture and asked CL to substantiate the allegation.

(6) In the letter dated 29 May 2012, CL repeated their stance, stating that the Staircase is the only right of way through which the occupiers of the Cockloft can go pass; hence, the Property must be significantly affected if the owner of the Cockloft asserts its right. In the letter dated 4 June 2012, HL replied:

“Further, you alleged that the staircase in the Property is the only way access to the Cockloft. This is also not true. There is another staircase access to the upper floors of the Building including the Cockloft. We enclose copy of the floor plan with the said staircase circled in red for your perusal. We are also instructed that the staircase in the Property has already been removed since our clients acquired the Property in 1998. No one has complained the removal of the staircase in the Property in the past 14 years.”

(7) In the letter dated 5 May 2012, CL stated that the External Staircase is a common staircase leading from the ground floor to all upper floors, and there is no door or access which can be found from the Cockloft Plan. 

5. On 5 June 2012, CL wrote to the Cockloft owner stating that the Staircase was removed for years and asked him to confirm that he would not use it as an access to the Cockloft.  In the reply letter dated 11 June 2012, LK, acting for the Cockloft owner stated that CL’s proposal that the owner of the Cockloft will not use the staircase as an access is unacceptable.  CL then wrote to HL on 12 June 2012, claiming that the refusal by the Cockloft owner as per LK’s said letter is an encumbrance against the Property and asked HL how they could remedy the situation and assign the Property to the plaintiff free from all incumbrances.  In the reply letter of the same date, HL stated that they disagreed that the refusal from the Cockloft owner amounted to an encumbrance and repeated that, even if it was, the plaintiff was not entitled to raise requisition on title in this respect.  Further correspondence ensued to no avail.

6. Eventually, the plaintiff refused to complete the sale on 15 June 2012 as provided in the Formal Agreement.  By a letter dated 16 June 2012, HL, on behalf of the defendants, elected to accept the plaintiff’s repudiation, forfeited the deposited and reserved the right to claim other loss and damage.

7. On 18 July 2012, the plaintiff took out the present action, seeking a declaration that the defendants have failed to show and prove a good title; a declaration that they should return the deposits and other consequential relief.  The defendants counterclaimed for, among other things, forfeiture and damages for the wasted expenditure.

Encumbrance on title

8. The first and foremost issue is whether the right of way via the Staircase constitutes an encumbrance on title.  If it does not, then the requisitions raised by the plaintiffs are not justified. The defendants had answered them satisfactorily and they could deliver good title to the Property.  Whether Clause 6 precludes the plaintiff from raising the requisitions on the Staircase does not even arise.  If the right of way via the Staircase constitutes an encumbrance on title, then the effect of Clause 6 will become relevant and needs to be answered.  Given its pivotal importance, this very issue if the right of way via the Staircase constitutes an encumbrance on title deserves to be examined first.

9. It is not in dispute that the Property and the Cockloft previously formed a single unit.  This can be gleaned from the occupation permit issued by the Building Authority on 5 January 1968 which stated “Ground Floor: 4 shops each with cockloft store over for non-domestic use”.  The approved building plan dated 14 May 1964 further showed that the Staircase was the internal access between the Cockloft and the Property.  There was no access from the Cockloft to the External Staircase.

10. On 10 July 1969, the developers assigned the Property and the Cockloft to two different parties by assignment Memorial No.N163633 and assignment Memorial No.N163631 respectively.  The Property and the Cockloft then changed hands subsequently.  The defendants’ predecessors in title, who are their parents, acquired the Property in 1983.  It is the defendant’s undisputed case that the Staircase had already been removed when they acquired the Property in 1998 and that the Cockloft has all along been served by the External Staircase.

11. Mr Lam, for the defendants, readily accepted that the removal of the Staircase was necessarily an infringement of the right of way enjoyed by the Cockloft owner and that there is a risk that the Cockloft owner would sue the Property’s owner accordingly.  However, he argued that such a risk of litigation is fanciful and does not constitute an encumbrance on the title of the Property.  I agree.

12. In considering if a risk of litigation may constitute an encumbrance, the court will ask : 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 purchaser will not be at risk of a successful assertion against him of the encumbrance : Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396, at 410.  And the court will approach this question from the perspective of willing parties with a good dose of common sense.  As explained by Litton PJ in Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at 117E :

“A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arise, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

13. Here, the undisputed facts are these.  The Staircase had been removed at the very latest shortly before the defendants acquired the Property in 1998.  There has never been any complaint about the removal of the Staircase since then.  The External Staircase has at least since then been used as the means of access to the Cockloft from the ground floor.  There is no evidence whatsoever that there is any threat, either from other owners of the building or the government that action will be taken to prevent the owner of the Cockloft from using the External Staircase.  These facts strongly support the inference that the predecessors of the present owner of the Cockloft (who only acquired the Cockloft in 2012) must have abandoned the right of way via the Staircase and accepted the External Staircase, which has been used without interruption over the years, as its substitute.  Any risk of litigation by the present or future owner of the Cockloft based on the right of way via the Staircase is extremely fanciful indeed.

14. Mr Chong argued that it is not open to the defendants to argue that the right of way had been abandoned as Mr Lam has now argued.  He further argued that the defendants had failed to answer the requisitions any way by failing to expressly stating their case as Mr Lam did in his submissions.  With respect, I entirely disagree.  It is beyond doubt that from the solicitors’ correspondence, summarized above, HL had made set out the facts that they relied on and stated that the right of way via the Staircase did not constitute an encumbrance on title.  That in my view is sufficient.

15. I hold that the right of way via the Staircase does not constitute an encumbrance on the title of the Property.  The defendants had satisfactorily answered the requisitions and shown good title to the Property.

16. It follows that I need not deal with the effect of Clause 6.  For completeness, I would only say that the plaintiff now accepts that the effect of Clause 6 is to preclude it from raising any requisition on title arising from the Staircase.  It must follow that Clause 6 precludes the plaintiff from raising the requisitions as it did through CL.

17. Finally, again for completeness, I need to deal with Mr Chong’s submission that the existence of the right of way via the Staircase is a latent defect.  This submission wholly ignores the inescapable conclusion when one reads the title documents with the requisite knowledge of the circumstances.  The right of way via the Staircase originally existed was infringed when the Staircase was removed.  The defect on title, if any, must be apparent.

Relief

18. The defendant is entitled to forfeit the deposits.

19. On quantum of loss and damage, the defendants claimed the wasted coneyancing costs in the sum of HK$31,767.  This claim is documented and is not challenged.  The defendants next claimed the wasted costs in recovering possession of the Property from the tenant in the sum of HK$21,105.50.  I do not think they are entitled to do so.  The sale of the Property is subject to existing tenancy.  Although under Clause 1 of the Rider, the defendants agreed to do their best endeavour to recover possession from the tenant and to deliver vacant possession to the plaintiff upon completion, in the event they failed to do so, the transaction would just complete subject to the existing tenancy.  In other words, there is simply no contractual obligation on the part of the defendants to recover vacant possession from the tenant before completion.  They cannot now recover the expenses for so doing from the plaintiff as a consequential loss arising from non-completion. 

Dispositions

20. For the above reasons, I dismiss the plaintiff’s claims.  I enter judgment on the defendant’s counterclaim for a declaration that they are entitled to forfeit the deposits and an order that the plaintiff do pay the defendants the wasted conveyancing costs in the sum of HK$31,767.00 with interest from the date of the originating summons until payment at the judgment rate.

21. The parties agree that costs should follow the event.  I order the plaintiff to pay the defendants costs of this action, including any costs reserved, to be taxed if not agreed.