CHONG PING v. HUNG LING YUEN LAWRENCE

HCA6481/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6481 OF 1998

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J U D G M E N T

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1. The plaintiff in this case claims for the return of deposit paid under a formal sale and purchase agreement ("the Agreement") dated 22 December 1997 whereby the plaintiff agreed to purchase from the defendant the property registered in the Shatin New Territories Land Registry as Lot No.426 in Demarcation District No.192 together with the buildings erected thereon ("the Property"). Clause 11 of the Agreement provides that the vendor shall give good title to the Property.

2. On 3 January 1998, various requisitions were raised by the plaintiff's solicitors by a letter. For the purpose of this case, the relevant requisitions were Requisitions Nos. 4 and 5.

3. Under Requisition No.4, the plaintiff stated that as the height of the building erected on the Property measured 7.92 metres which exceeded the permitted height of 7.62 metres under the Buildings Ordinance (Application to the New Territories) Regulation, Cap. 322, they sought from the defendant the relevant occupation permit of the Property.

4. Under Requisition No.5, the plaintiff required the defendant to show that the claim of High Court Action No. A5287 registered as a lis pendens in the Land Office had been discontinued, withdrawn or disposed of by the parties to the effect that there was no subsisting claim to the Property.

5. The plaintiff was not satisfied with the replies given by the defendant and said that the defendant, through his solicitors, had not satisfactorily answered Requisitions Nos. 4 and 5 and had not proved or shown a good title to the Property. By the letter dated 7 April 1998, solicitors for the plaintiff demanded refund of the paid deposit, stamp duty, commission, as well as legal costs incurred by the plaintiff. On the other hand, the defendant by his solicitors' letter of the same date sought to rescind the Sale and Purchase Agreement and forfeit the deposit paid.

Requisition No. 4

6. Under the then applicable section 4(1) of the Buildings Ordinance (Application to the New Territories) Ordinance, Cap. 322, it provides that the Governor in Council may by regulation provide that such of the provisions of the Buildings Ordinance [i.e. section 21 of Buildings Ordinance as far as this case is concerned] shall not apply to the building works for the erection of buildings situate in the New Territories.

7. Regulation 3(1) of the Buildings Ordinance (Application to the New Territories) Regulations ("the Regulation") made under the aforesaid section 4 of Cap.322 states that section 21 of Buildings Ordinance shall not apply to building works for the erection of a building which will, when such works have been carried out, be a building to which the Regulation applies. However regulation 3(2) provides that the Regulation applies only to any building situated in the New Territories which has a roofed over area not exceeding 65.03 square metres and does not exceed 7.62 metres in height. In essence, the effect of regulation 3 of the Regulation is that section 21 of the Buildings Ordinance which relates to occupation permit does not apply to any building, inter alia, which has a roofed area not exceeding 65.03 square metres and does not exceed 7.62 metres in height.

8. It is common ground that the building, erected on the Property in around 1983, had a height of 7.92 metres which exceeded the height limit prescribed by regulation 3(2) of the Regulation. Accordingly, section 21 of the Buildings Ordinance is applicable and an occupation permit is required for occupation in the Property. An occupation permit is therefore necessary and relevant to prove title to the Property. It is accepted by the defendant that no occupation permit has been issued in respect of the Property and none has been provided to the plaintiff. For the purpose of the present action, the issue boils down to whether there is a real risk that the plaintiff purchaser would be at risk of enforcement action being taken by the Building Authority.

9. Mr Peter Ng, Counsel for the defendant submits that in the circumstances of this case, there is no real risk that enforcement action will be taken under the Buildings Ordinance and it is not necessary to provide a copy of an occupation permit to the plaintiff in order to substantiate that. In this regard, the defendant relies on the letter issued by the District Land Office dated 17 August 1983 ("the letter of toleration"). In the letter of toleration, the District Lands Officer ("DLO") confirmed that the breach of the height limit prescribed by Special Condition 7(a) of New grant No.11391, which restriction was the same as that contained in the Regulation, would be tolerated after payment of a fine of $6,000. Mr Ng therefore submits that at the material time, the development construction and occupation of small houses in the New Territories was under the de facto exclusive control of the DLO. Having fined the then owner $6,000, the government had waived the breach in respect of the height of the buildings erected on the Property. The government cannot enforce its rights twice on the same breaches through enforcement of section 21 of Buildings Ordinance by the Building Authority.

10. However, in Wong On v. Lam Shi Enterprises Limited No.MP2549 of 1995, it was held by Le Pichon J at p. 6 that -

"Moreover, it is well-recognized that Government may act in different capacities : for example, as landlord and as Building Authority. See Hang Wah Chong Investment Co. Ltd v Attorney General [1981] HKLR 336. In what capacity it was acting and whether or not it was acting in more than one capacity depends on the circumstances of each case. In the absence of any provision which empowered the DLO to make decision 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.

Turning to the Letters of Toleration and Compliance, the DLO was acting for the Crown in its capacity as landlord under the New Grant : it was dealing with the terms of the New Grant and breaches thereof in respect of which an additional premium was paid. It certainly did not purport to act for or on behalf of the Building Authority who could not have required payment of any additional premium. In fact, from the paragraph common to both the Letters of Toleration and Compliance, no representation was being made that 'Government' extended to the Building Authority. It certainly did not purport to assume or exercise any of the statutory functions of the Building Authority...... There is also the fact that Government has no power, qua Building Authority, to waive compliance with statutory requirements the Building Authority was charged with enforcing, as opposed to waiving compliance with conditions of grant, qua landlord."

11. In Lui Kwok Wai v. Chan Yiu Hing [1995] 1 HKC 197, Cheung J, at p.201G made the observation that -

"The letter of 3 July 1992 was issued by the District Lands Office of Yuen Long......It is wrong to construe the letter as an indication that.....the District Lands Office had assumed the statutory authorities of the Director of Buildings and come to a view that an occupation permit was not necessary."

12. Accordingly, I agree with the plaintiff that since the Building Authority and the DLO are two separate entities, tolerance granted by the DLO could in no way usurp the authority of the Building Authority in their exercise of their rights under the Buildings Ordinance.

13. The issue remains whether there is a real risk of enforcement action being taken by the Building Authority. Again in Wong On v. Lam Shi Enterprises Limited, No.MP2549 of 1995, Le Pichon J held at p.7 that -

"It is in these circumstances that the test in MEPC Ltd v Christian-Edwards [1981] AC 205 at 220 is to be applied, namely whether it can be said that it is beyond reasonable doubt that the Purchaser would not be at risk of enforcement action being taken. I am asked so to conclude, based on the limited extent of this transgression and the fact that a premium had been paid for the contravention. But I do not see how I can be satisfied that it is beyond reasonable doubt that the Purchaser would not be at risk in the absence of any evidence that in circumstances such as the present, it is not the practice of the Building Authority to take any enforcement action. Had such evidence been adduced, it would have been a different matter......"

14. In an attempt to rely on the words in bold above, counsel for the defendant seeks to adduce an expert report to support his contention there is no real risk of enforcement in the present case. He attempts to rely on the expert report to argue, inter alia, that there was no mechanism for making applications to the then Building Ordinance Office ("BOO") for approval of building plans or commencement of building works under the Buildings Ordinance and no occupation permit would be issued by the BOO in respect of the small houses like the Property in the present case. He said that the BOO did not supervise or monitor the construction and occupation of such houses; it regarded the administration of such houses as within the domain of the DLO. The legal position in this aspect is succinctly explained by Deputy Judge A. Chung (as he then was) in Spark Rich (China) Limited v. Valrose Limited, M.P. No.3739 of 1997, at p.8 that -

"I agree with the Plaintiff's submissions over this point. The task of a conveyancer (whether acting for the vendor or the purchaser) to decide whether a requisition was reasonably raised and/or has been sufficiently answered is already difficult tough. This is because this decision will often result in having to determine whether to proceed further with the sale and purchase transaction. In the Hong Kong context, this decision may have to be made within a relatively short period of time. It would be almost impossible to perform that task if the law were that materials not available at the time of the making of the decision can also be taken into consideration subsequently to judge the correctness of that decision."

15. I agree entirely with the above observation made by Deputy Judge A. Chung. Expert report adduced subsequent to the date of completion is therefore irrelevant and inadmissible for determining the question of risk of enforcement. The question can only be determined by reference to the evidence available as at the date of completion. In excluding the expert report as I have so decided, there is no evidence before the Court which substantiates the defendant's contention that the DLO can usurp the statutory functions of the Building Authority and make decisions which are solely within the domain of the Building Authority as conferred by the Buildings Ordinance.

16. Finally, counsel for the defendant seeks to add weight to their case by arguing that inaction of the government for the last 15 years could further support the conclusion that any possible actions by the government against the Property will be fanciful. I cannot agree with this. I accept the submission of the plaintiff that, as decided in Spark Rich (China) Limited v. Valrose Limited, the risk is not to be judged only at the time of hearing or judgment, but it is to be judged by looking at the whole tenure of interest purchased by the plaintiff purchaser. The fact that no action has been taken in the past 15 years cannot satisfy me that there is no risk of enforcement action at some future time during the whole tenure of interest. The rights conferred by the Buildings Ordinance remains in the hands of the Building Authority. As commented by Le Pichon J in Wong on v Lam Shi Enterprises Limited at p.8 -

"Here, it is to be noted that enforcement action need not necessarily take the form of a demolition order which might appear to be a drastic response. Contravention of s. 21(1) of the Buildings Ordinance is an offence punishable by a fine : see s. 40 of the Buildings Ordinance. In the absence of evidence as to when occupation in contravention of s.21 began or when the same came to the notice of the Building Authority, there is no basis for concluding that any prosecution was time-barred as at the date for completion. There is therefore potential liability. If the Building Authority should decide, for whatever reason, to take action, it would be within its rights. The corollary is that the owner could be faced with a potential claim. Whilst it may be true that the chances of this happening are not high, this does not mean that it is in the 'beyond reasonable doubt' category. To fall into that category, something more is required and that is what is lacking in this case. As it does not, the Vendor has failed to show that it has good title."

Again, Deputy Judge Chung in the aforesaid case of Spark Rich said at pp.14 and 15 that -

"...The risk that a purchaser will have to face is a risk present during the whole tenure of the interest he purchased. For this reason, I consider that whether or not there is a real risk of enforcement action must be judged by looking at whether there is such a risk during the whole tenure of the interest to be purchased. In the present case, it was the remainder of the leasehold: 75 years commencing from 8 June, 1953 and renewable for a further term of 75 years (see p.1 of the Cullen Report). Hence, the original term would expire by 8 June, 2028 and the renewed term would expire by 8 June, 2103. The original term would expire in about 30 years' time whereas the renewed term would expire in about 105 years' time.

Having reached the conclusion that the question of real risk of enforcement action is not to be judged by looking at it at present, but during the currency of the leasehold, whether there is a real risk of enforcement action in the present case is almost a foregone decision as a matter of logic. According to the evidence, enforcement action 'will be taken in sequence' although it 'may be deferred'. To put it in another way, enforcement action will be taken albeit at some time in future."

17. Accordingly, I find that the defendant had failed to prove or show a good title to the subject Property.

Requisition No. 5

18. By this requisition, the plaintiff sought proof that High Court Action No. A5287 of 1985 by Madam Cheung Lai Fun against, inter alia, Mr Wong Koon Tai, the defendant's predecessor-in-title, has been discontinued, withdrawn or disposed of by the parties so that there was no subsisting claim of any nature whatsoever affecting defendant's title to the Property.

19. It is common ground that upon the application of Mr So Min Woon, the successor-in-title of Mr Wong, and with the consent of Madam Cheung, the Writ was, by Order of the Hooper J on 19 June 1990, vacated as a lis pendens from the Land Register. On 3 July 1990, the Order was registered in the Shatin District Land Office by Memorial No.534013.

20. The position is very clear. The lis pendens had been vacated with the consent of the claimant Madam Cheung. Further, by section 17 of the Land Registration Ordinance, the Writ as a lis pendens would, in any event, have expired and ceased to have effect after 5 years, i.e. by August 1990. I cannot see how the plaintiff could still be affected by the that action. Accordingly, under Requisition No.5, the defendant had shown to the plaintiff that the Property was free from the claim in that action.

Relief

21. As I have decided, in respect of the Requisition No.4, that the defendant had failed to prove or show good title in respect of the Property, the plaintiff is entitled to the deposit and the interest. What is in dispute is whether the plaintiff is entitled to the stamp duty paid for the Agreement under Head 1A of the First Schedule of Stamp Duty Ordinance, Cap.117. As the plaintiff is entitled to have the money paid refunded under section 29C(5B), I cannot see the justification for claiming the same in the present action. It is open to the plaintiff to apply for a refund of the stamp duty paid.

Conclusion

22. In the circumstances, the defendant had failed to satisfy this court that he had proved or shown good title to the plaintiff. The plaintiff is entitled to the relief claimed save the payment of stamp duty. I shall make an order accordingly together with an order nisi on costs to the plaintiff.