WEALTHY CHINA TRADING LTD. v. HUIE MAN KIT AND OTHERS

HCMP2286/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2286 OF 1998

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J U D G M E N T

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The facts

1. The Defendants are the owners of the property known as Shop No.I ("the Property") on the ground floor of Po Wing Building ("the Building") in section Z of Inland Lot No.29, Hong Kong. By a Provisional Agreement dated 4th September 1997, the Defendants agreed to sell the Property to the Plaintiff. The parties then entered into a formal agreement for the sale on 3rd October 1997 ("the Agreement"). Completion was to take place on 31st March 1998.

2. Time for raising requisition under the Agreement was seven working days after the receipt of the title deeds by the Plaintiff's solicitors. The title deeds were delivered to Kok & Ha ("Kok"), the Plaintiff's solicitors by T.C. Lau & Co. ("Lau"), the Defendants' solicitors on 3rd October 1997. Requisitions were raised shortly thereafter and answered. On 20th March 1998, the Plaintiff raised further requisitions on title. They were in respect of :

1. An unauthorised structure, namely a concrete canopy, was found attached to the upper part of the Property.

2. Another unauthorised structure - a cockloft, was found inside the rear portion of the Property.

3. A metal gate was found installed at the side lane adjacent to the Property which blocked the access to the common staircase of the Building.

4. A shop ("the Wall-shop") was found attached to the external wall of the Property.

3. Lau refused to respond to these requisitions on the ground that they were raised out of time. They relied on Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285. Kok's response was that the requisitions went to the root of the title and as such, there was no time bar. Furthermore, in regard to the Wall-shop, it was raised not merely as a requisition on title but also in respect of the Defendants' ability to deliver vacant possession of the Property on completion.

4. Lau maintained that the requisitions were raised out of time. On the question of vacant possession, they stated that the Plaintiff should not be bothered about the occupancy of the Wall-shop prior to completion. Furthermore, they stated that vacant possession was concerned with the exclusive possession of the internal area of the Property but not the external wall who was the common part of the Building. The Wall-shop would not affect the delivery of vacant possession of the Property on completion.

5. On 31st March 1998, after the time fixed for completion had expired, Lau wrote to Kok stating that the Plaintiff was in breach of the Agreement by failing to pay the balance of the purchase price to complete the sale. The Plaintiff's deposit of $3,200,000 was forfeited by the Defendants. On the same day, Kok also wrote to Lau stating that the Defendants had repudiated the Agreement by failing to answer the requisitions on the unauthorised structures. The letter from Lau further stated that :

"Further or in the alternative, your client has failed to deliver vacant possession of the said property as the side shop i.e. the Wall-shop is still found attached to the property. All our client's rights and remedies are expressly reserved."

6. On 16th April 1998, Lau wrote to Kok stating that the Defendants had rescinded the Agreement by reasons of the breach of the Plaintiff to pay the balance of the purchase price on 31st March 1998; the deposit of $3,200,000 paid by the Plaintiff was forfeited; the Defendants would either retain or resell the Property and they would also seek to recover any deficiency arising from the resale.

7. By this vendor and purchaser summons, the Plaintiff seeks, among other things, to recover the deposit and damages from the Defendants.

Requisition as to title

8. It is clearly stated in Hillier that for requisitions which go to the root of the title, the time limit imposed in the agreement does not run against a purchaser only if having used due diligence, he is unaware of some defect in the vendor's title. Mr Cheung, Counsel for the Plaintiff, submitted that Hillier was wrongly decided and the matter will be argued in the Court of Final Appeal in the case of Jumbo King Ltd. v. Faithful Properties Ltd. [1999] 2 HKC 507. The appeal will be heard on 17th November 1999.

9. Hillier is a case binding on me and it should be followed. In any event, the rights and obligations of the parties must be decided by the state of the law at the time of the sale and not on how the law would turn out eventually. The Plaintiff has not advanced any further argument why it should be entitled to raise the requisitions out of time. Applying Hillier, I hold that the requisitions were raised out of time and the Plaintiff was not entitled to raise them on 20th March 1998.

Vacant possession

10. However, that is not the end of the matter because the question remains as to whether the Defendants could deliver vacant possession of the Property on the completion by reason of the presence of the Wall-shop. Clause 16 of the Agreement expressly provides that the Defendants shall deliver vacant possession of the property to the Plaintiff on completion.

External wall as part of the Property

11. The first task to determine is whether the Property includes the external wall as well. In Hope Brothers Limited v. Cowan [1913] 2 Ch.312, it is stated that :

"The demise of a floor or a room or an office bounded in part by an outside wall prima facie includes both sides of that wall, unless there be an exception or a reservation or something in the context to exclude it."

See also Sturge v. Hackett [1962] 1 W.L.R.1257.

12. The first owner of the Property owned the Building in which the Property was situated. In the first Assignment dated 15th May 1967, the first owner assigned the Property to the first purchaser. The first purchaser was given the "full and exclusive right and privilege to hold, use, occupy and enjoy" the Property. This right is subject to the rights reserved to the first owner in Clause 3 of the Deed of Mutual Covenant ("DMC") dated 29th March 1967. Clause 1 of the Assignment identifies the Property. It states that the Property "is more particularly shown and delineated on the plan annexed hereto and thereon coloured pink". Photocopies of both the front and the reverse side of the plan are produced. The plan identifies the Property and it is clear that the coloured part includes the external wall of the Property. When the first owner disposed of the Property, the disposal must have included the external wall of the Property because the external wall was part and partial of the Property.

Deed of Mutual Covenant

13. Clause 1 of the DMC, which was made between the first owner and the purchaser of Flat No.N on the fifth floor of the Building, states that the first owner

"...have the full and exclusive right and privilege to hold use occupy and enjoy all the shops and flats in the said building and all the flat roofs adjacent to the setbacks on the upper floors thereof save only the said Flat No.N on the Fifth floor of the said building Together with the appurtenances thereto and the entire rents and profits thereof."

Clause 3 further provides that :

"3. The First Owner expressly excepts and reserves the following rights, namely (a) the right to erect or install one or more chimneys or outlets adjacents or affixed to the exterior walls of the said building and to have exclusive use thereof and (b) the right to affix or erect one or more signs neon lights or advertisements on the exterior walls of the said building or at or near the exterior dividing wall between any two flats PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that the First Owner shall at all times observe and comply with all the laws and regulations relating to erecting maintaining and dismantling any of such chimneys outlets signs neon lights or advertisements and shall be solely responsible for the repair maintenance upkeep renewal and removal thereof and of such parts the exterior walls of the said building upon which and/or to which such chimneys outlets signs neon lights or advertisements shall be affixed or installed and will at all times indemnify and keep indemnified the owners or occupiers for the time being of the said building against all loss damage injury costs expenses actions claims and demands arising out of or on account of or resulting from the installation repair renewal removal maintenance and upkeep of such chimneys outlets signs neon lights and advertisements or such parts or the exterior walls or any defect therein or any failure to maintain the same in proper repair and condition."

14. In my view, Clause 3 does not reserve to the first owner the ownership of the external walls of the Building. The reservation is merely a reservation of the right to erect, install and exclusive use of chimneys fixed to the exterior walls of the Building and the right to affix or erect neon lights or advertisements on the exterior walls. If the DMC intends to reserve the exclusive right of the exterior walls to the first owner, then one would expect this to be expressly stated. The words "to have exclusive use thereof" after the provisions of the chimneys must be a reference to the chimneys and not to the external walls. It would be odd to give an exclusive right to the exterior walls not at the beginning of the clause but only after the provision of the chimneys had been dealt with.

Building Management Ordinance

15. Mr Szeto, Counsel for the Defendants, referred to the definition of "common parts" in section 2 of the Building Management Ordinance, Cap.344 :

"'common parts' (公用部分) means -

(a) the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and (Amended 8 of 1993 s.2)

(b) unless so specified or designated, those parts specified in the First Schedule;"

Under the First Schedule, external walls are included as common parts.

16. In my view, the external walls in this Building should not be considered as common parts because the definition section is subject to the specification and designation in the Assignment of the area of the Property which is for the exclusive use of the Defendants. According to the delineation shown on the plan, the external wall is clearly included as part of the Property.

Waiver of delivery of vacant possession

17. In relation to the question of vacant possession, Mr Szeto's argument is this : the presence of the Wall-shop may involve the occupation of tenants or trespassers. These are matters of title as well and if the Plaintiff had waived its requisitions to title, then its contractual right to have vacant possession delivered to it was, to this extent, waived. The only authority cited by Mr Szeto was Wong Chim Ying v. Cheng Kam Wing [1991] 2 HKLR 253 which deals with the knowledge of a purchaser of the occupation in a residential flat by the spouse of the vendor of the property. The Court of Appeal held that the purchaser was bound by the spouse's right to occupy the property.

18. There is no doubt that at times, issues relating to vacant possession are somewhat akin to questions of title as well. However, there really are differences between the two. At a minimum, the purchaser must be given the property without any physical impediment so that he may enjoy the use of the property. The encroachment of the Wall-shop on the external wall would impede the Plaintiff from using the external wall. I really do not see how Wong Chim Ying could assist the Defendants. The Plaintiff had always maintained that the Defendants were not in a position to deliver vacant possession of the property.

"As is" clause

19. Under Clause 19 of the Agreement, the parties agreed that the Property was to be "sold and purchased in the physical state and condition as it stands". In my view, this clause does not mean that the Plaintiff was required to take the Wall-shop as well. Clearly it was not the intention of the parties that the Wall-shop was to be included in the conveyance. Even the Defendants' lawyer was of the view that the sale of the Property only covered the internal parts. If the Wall-shop was indeed intended to be included as part of the transaction, then at least the Defendants should make the Wall-shop available to the Plaintiff so that it may use it. This will necessarily involve the Defendants evicting the occupants of the Wall-shop before the completion.

Mutual obligation

20. In my view, the Defendants had failed to deliver vacant possession of the Property to the Plaintiff on the date of the completion. However, this again is not the end of the matter. Under Clause 3 of the Agreement, the completion was to take place in the office of Lau when the balance of the purchase money was to be fully paid. Clause 3(ii) provides that :

"(ii) The Vendor as beneficiaries and beneficial owner and all other necessary parties (if any) will in compliance with the applicable undertaking provided herein execute a proper assurance of the said premises to the Purchaser (or his nominee or nominees or sub-purchaser or sub-purchasers) Subject as hereinafter appearing but otherwise free from incumbrances. The Vendor and the Purchaser authorise their respective Solicitors to complete the sale and purchase by way of Solicitors' cross undertaking in the form from time to time recommended by the Law Society of Hong Kong with such variation as they may agree."

21. In Camberra Investment Ltd. v. Chan Wai-tak [1989] 1 HKLR 568, the Court of Appeal had to construe a clause of a sale and purchase agreement which provided that :

"The purchase shall be completed at the offices of Messrs Kwan & Kwan, solicitors, on or before the date as set out in Part III of the Schedule hereto when the whole of the purchase money shall be fully paid and the vendor and all other necessary parties (if any) will execute a proper assurance of the said premises to the purchaser ..."

Hunter J.A. stated that :

" Their obligations under clause 3 were mutual. The duty of the defendant to tender an executed assignment and that of the plaintiff to tender the balance of the purchase price were concurrent conditions. Neither performed : neither tendered : neither triggered the corresponding obligation of the other. The defendant neither executed nor tendered an assignment before 1 pm and thereafter was denying his obligation so to act and preventing his solicitor from taking any step to that end. The plaintiff tried to tender and failed. The cheque constituted at most conditional payment and not the 'full' payment required. An effective tender required cash or its equivalent, neither of which was available that Saturday afternoon.

In my judgment this contract remained uncompleted at midnight on 28th February by the fault of both parties."

22. Likewise, the obligations of the parties in this case were mutual. The Defendants as vendors were required to deliver vacant possession of the Property to the Plaintiff. The Plaintiff, on the other hand, must be in a position to pay the balance price of the sale to the Defendants. This they had not done. Neither had performed their obligations and the sale was not completed on 31st March 1998. The Defendants were not entitled to forfeit the deposits of the Plaintiff on that day. Nor were they entitled to do so on 16th April 1998. The Plaintiff, on 31st March 1998, did not terminate the Agreement, it merely reserved its position. As I see it, the legal position is that the Agreement lapsed after 31st March 1998. Neither party gave notice to complete after that day. The Defendants could not seek to enforce the Agreement on 16th April 1998 when it had already lapsed. All that the Plaintiff is entitled in this case is to have the deposit returned to them. It is not entitled to further claim damages arising from the failure of the Defendants to deliver vacant possession of the Property.

Relief

23. The Plaintiff is entitled to the following relief :

1. A declaration that the Defendants had failed to deliver vacant possession of the Property in accordance with the Agreement in that the Wall-shop was found attached to the Property at the time of the completion;

2. A declaration that the Defendants had wrongfully forfeited the deposits;

3. An order that the Defendants do repay to the Plaintiff HK$3,200,000.00 being the total amount of deposits and part-payments of the purchase price paid by the Plaintiff pursuant to the Agreement;

4. Interest at judgment rate on $3,200,000 from the date of the service of the Originating Summons to payment; and

5. Costs nisi of the proceeding.