MEXON HOLDINGS LTD. v. SILVER BAY INTERNATIONAL LTD.

1998, No. MP 589

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. By an agreement dated 29 May 1997, the defendant bought from the plaintiff a share in the property known as Lippo Tower, together with the exclusive right to use Room 3301. The purchase price was $40,600,000. The plaintiff paid a deposit of $8,120,000.

2. In the proceedings before me, the plaintiff seeks a declaration that requisitions made by the plaintiff's solicitors in various letters have not been sufficiently answered, a declaration that the defendant has failed to show good title, a declaration that the plaintiff was entitled to determine the agreement, the return of the deposit and various other relief.

3. The title documents were sent to the plaintiff's solicitors on 3 June 1997. There included a certificate by an architect, Mr Gary Chung, that the sub-division of the floor concerned by partition walls, including a partition wall of Room 3301, "complies in every respect with the Building Ordinances and Regulations" and that the partition walls "do not involve structural alteration and are exempted works under the present Building Ordinances and Regulations. These partitionings do not require the submission of plans for the approval of the Building Authority under the present Building Ordinances and Regulations."

4. In fact, such works, which, of course, included a partition affecting the property sold, are exempted only if the do not contravene any regulation, including, what is relevant here, the requirement that provision is made for adequate means of escape in case of emergency. If the works are not exempted, and thus not approved, the Building Authority may require them to be demolished. If the works were so, this could result in an encumbrance over the property. This would go to the root of title, and the vendor's ability to show good title.

5. On 6 November 1997, the plaintiff's solicitors first raised a concern about compliance with fire regulations. They did this because the plaintiff had pointed out that the architect's certificate did not expressly cover compliance with the fire regulations. The defendant solicitors responded by saying that the requisition was out of time. If the purchaser was not negligent in failing to spot a potential defect in the vendor's title, the requisition was not out of time. I see no negligence here. The architect's certificate by Mr Chung was provided to the plaintiff for the purpose of assuring it that the sub-division was in order. By implication, the certificate says that proper provision had been made for adequate means of escape in case of emergency. There was no reason to doubt this at the time it was supplied. It was only the plaintiff's ultra-cautious attitude that sparked it's solicitors chain of inquiry. In reply, the plaintiff's solicitors said that the requisition was not out of time, to no avail. The defendant's solicitors said, in effect, that, by implication, the architect's certificate covered compliance with the fire regulations.

6. Having got nowhere with the defendant's solicitors , the plaintiff consulted Mr Andy Leung, an architect. In December 1997, Mr Leung said that, on the basis of the plan of the floor, the layout might contravene the Building Regulations. This information was conveyed to the defendant's solicitors, with the request that assurance be given that there was no contravention of the fire regulations. The response was not helpful, and made no attempt to allay the plaintiff's concerns. The plaintiff's solicitors persisted in their attempts to get the assurance they wanted, but the defendant's solicitors made no attempt to assist. The plaintiff's solicitors then instructed Mr Leung to take measurements on the ground. He did this, and then confirmed his earlier view that there was a contravention. The defendant's solicitors were told this, but they did not try to satisfy the plaintiff's concerns. In the result, the defendant's solicitors, far from answering the plaintiff's requisition satisfactorily, did not seek to answer it at all before the time for completion.

7. It seems to me that there was a prima facie case here that the subdivision of the floor might have resulted in an unauthorised partition because there had been no proper provision for adequate means of escape in case of emergency. The defendant now produces evidence, and argues, that, in fact, there was almost proper provision for adequate means of escape in case of emergency, and, to the extent that there was not, the Building Authority is unlikely to take enforcement action. This, if provided to the plaintiff by way of an answer to its requisition, may or may not have been a satisfactory answer. On the evidence of Mr Leung, whose evidence I prefer to that of Mr Chung, it is unlikely that there was such adequate provision. I would have thought that, if the Building Authority was minded to be strict in any area, it would have been in relation to proper means of escape in case of fire. But it is not necessary to decide this because this evidence of alleged near adequate provision should have been produced in answer to the requisition, not in these proceedings. The plaintiff could then have investigated it and decided what course to take. It is now too late for the defendant to attempt to show good title now when it failed to do so before the date for completion. The vendor has an obligation to answer requisitions and to show a good title before the completion date, not afterwards.

8. The defendant also sought to argue that compliance could be achieved by, in effect, the plaintiff surrendering the use of part of Room 3301 so that any route to the nearest fire escape was reduced. If this suggestion had been provided to the plaintiff in answer to the requisition, the plaintiff would not, of course, have been obliged to accept it as satisfactory. It cannot be a satisfactory answer to say to a purchaser that the vendor is only able to provide a usable area less than that sold.

9. In Kok Chong-ho v Double Value Developments Ltd [1993] 2 HKLR 423, the High Court had held that a requisition regarding unauthorised structures had been satisfactorily answered because the risk of enforcement by the government as so remote as to justify ignoring it, but the Court of Appeal decided that, at 433, "at no stage prior to the time for completion . . . did the vendor's solicitors rely on any evidence in support of exemption under the Buildings Ordinance or on any evidence of practice regarding enforcement of the Buildings Ordinance by the Building Authority. . . . By the time the Agreement was rescinded . . . it was too late for the vendor to rely on any evidence in support of exemption or relating to the enforcement practice of the Building Authority."

10. This, as I see it, is the situation in the case before me.

11. There is some suggestion by the defendant that the plaintiff sought to get out of this deal because the property market had collapsed and it did not want to pay more than the market price. That may be so, but, if the plaintiff was entitled to determine the agreement, it was entitled to determine the agreement, and its motives for wanting this are not relevant.

12. Accordingly, the plaintiff is entitled to the relief sought in paragraphs (1), (2), (3), and (4) of the originating summons. The interest payable on the deposit shall be the commercial bank rate plus 2% to date, and thereafter at the judgment rate. The plaintiff is also entitled to recover the costs of investigating the defendant's title and the agent's commission. If this cannot be agreed, it will be necessary to come back to me. The plaintiff is, in addition, entitled to a lien over the property in respect of the deposit and interest and any costs recoverable from the defendant. I give judgement in favour of the plaintiff accordingly.

13. As to costs, there seems no obvious reason why they should not follow the event. I make an order nisi that the plaintiff is entitled to recover its costs of these proceedings from the defendant, including the costs of two counsel.