CHIU KIN ON v. HENMY INTERNATIONAL LTD.

HCMP4956/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.4956 OF 1998

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J U D G M E N T

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Facts

1. By a Provisional Agreement dated 12th March 1998, the Plaintiff agreed to buy and the Defendant agreed to sell the Property known as 2/F, Kowloon Tong Mansion, No.110A Boundary Street and Carpark No. 35 of No.110A, Boundary Street ("the Property"). On 26th March 1998, the parties signed a formal agreement ("the Agreement") for the sale of the Property. Completion was to take place on 10th July 1998. This was by agreement postponed on 26th May 1998 to 17th September 1998.

2. Title deeds of the Property were supplied by the Defendant's solicitors, Tony Kan & Co. ("Kan") to the Plaintiff's former solicitors, Yung Yu Yuen & Co. ("Yung") on 16th April 1998. Under Clause 10 of the Agreement, the Plaintiff had seven days after receipt of the title deeds to raise requisition on title. No requisition was raised by Yung.

3. On 25th July 1998, the Plaintiff appointed his present solicitors Wong & Chan ("Wong") in replace of Yung to handle the sale.

4. Earlier on 21st July 1998, the Plaintiff instructed a surveyor to inspect the Property, a survey report dated 27th July 1998 was prepared. On 28th July 1998, Wong raised requisition on title. Two matters were raised. First, documents relating to the declaration of trust of the predecessors-in-title of the Property and issues on identification. Second, matters relating to illegal structures constructed outside the Property and outside the building and structural alterations to part of the building.

5. Kan responded by saying that the requisitions were raised out of time and they were not required to answer them. However, answers were nonetheless provided on a without prejudice basis. These answers were not disclosed in the evidence before me. No point was being taken by either party on this issue. The sale was not completed.

The application

6. By this Vendor and Purchaser Summons, the Plaintiff seeks a declaration that the requisitions had not been answered and asks for the return of the deposit.

7. The Defendant also raises a Counterclaim, seeking, among other things, a declaration that the Plaintiff was not entitled to raise the requisitions.

The principle

8. The only issue in this application is whether the requisitions were raised out of time. The Plaintiff contends that the requisitions go to the root of the title and the time limit does not run against it. The case of Giant River Ltd. v. Asie Marketing Ltd. [1990] HKLR 297 was relied upon. The Court of Appeal in Hillier v. Tread East Ltd. [1993] 1 HKC 285 had clearly stated that even for requisition which goes to the root of the title, the time limit will only not apply if the purchaser cannot discover the defect with due diligence. The case is binding on me. I respectfully agree with the principle stated in Hillier. This principle is applicable irrespective of whether the defect is based on the paper title or by reason of extraneous matters such as the existence of illegal structures. I can see no distinction between the two.

Imprecise requisition

9. The Defendant submits that the matter relating to the illegal structure does not go to the root of the title and the requisition relating to the trust is not precise enough to be answered. In respect of the last matter, the point that was taken when the requisition was raised was simply it was raised out of time. It was not said that they were not precise enough to be answered. Hence the only issue I should be concerned with is whether the requisitions were indeed raised out of time.

Requisitions raised out of time

10. Even assuming that the requisitions relating to the illegal structures go to the root of the title, they were raised outside the seven-day period.

11. Under Clause 7(2) of the Agreement, the Defendant has to show a good title to the Property. To do this, it has to supply the documents of title to the Plaintiff. It also has to answer requisitions of title as part of its duty to prove a good title. However, when requisitions are raised, they have to be raised within time, otherwise, under Clause 10(1), requisition or objection to title is deemed to be waived and the Plaintiff is deemed to have accepted the Defendant's title.

The survey

12. In this case no explanation is offered why the survey was only carried out on 21st July 1998 when the Provisional Agreement was signed on 12th March 1998. It is said that the survey was carried out pursuant to Clause 27 of the Agreement. This clause enables the purchaser to have one inspection for the purpose of viewing the Property and preparing a valuation inspection and a final inspection on or before completion.

13. The Plaintiff has not stated whether the inspection was for valuation or a pre-completion inspection. It appears that the inspection was solely for the purpose of preparing the report. The Plaintiff has not explained why a report was required at that stage. Something must have prompted him to take such a step. This is most likely due to the illegal structure or flower cage outside the Property. If the Plaintiff was genuinely concerned with enforcement action by the Government or claims by the other owners of the building, he ought to have conducted the survey earlier. After all, he already had knowledge of the illegal structure outside the Property. The existence of the illegal structure is apparent to the eye. The Defendant had informed him that the flower cage was illegal when the Provisional Agreement was made and the Plaintiff had already acknowledged this in a Chinese note. The fact that the solicitors were changed later on would not relieve the Plaintiff of his obligation to raise requisition within time.

Other cases

14. Mr Shum, Counsel for the Plaintiff, relied on cases such as Max Smart Ltd. v. First Super Investment Ltd. [1999] 1 HKLR 519 and Mexon Holdings Ltd. v. Silver Bay International Ltd. HCMP No.589 of 1998, where the learned judges found that requisitions had not been raised out of time. Each case must be decided by its own facts. In this case, the requisition on the illegal structures were raised out of time.

15. The test as stated in Hillier is simply whether a purchaser could with reasonable diligence discover the defects. If he could not, prior to the expiration of the time limit, then obviously he could raise it later. In this case, the Plaintiff could with reasonable diligence have discovered the defects. Even if the result could not be obtained before the seven-day period had expired, there is no reason why it could not be obtained within a reasonable time thereafter.

Period of time before completion

16. Mr Shum further submits that there was still 1 1/2 months before the completion when the requisitions were raised and there was ample time for the Defendant to respond to the requisitions. The short answer to this is that the rights and obligations of the parties are governed by the terms of the Agreement, namely, Clause 10(1) on the time imposed for requisitions. Time is of the essence of the Agreement.

Full and frank disclosure

17. Mr Shum further complains that the Defendant had not made full and frank disclosure of the defects of title because it had only disclosed one illegal flower cage and not the other items. The flower cage is the illegal structure outside the Property whereas the other matters concern the whole of the building. The Defendant might not even know structural alterations had been made to the other parts of the building. The Chinese Note, in my view, sufficiently discharged the burden of disclosure on the part of the Defendant.

The trust

18. Matters relating to the question of trust and identity can clearly be discovered on an inspection of the title deeds that were supplied by Kan to Yung. The requisition was clearly raised late.

Other clauses

19. The parties agreed that I need not deal with Clauses 13(2) and 24 of the Agreement. The first is the "as is" clause and the second excludes requisitions by the Plaintiff of certain items.

The relief

20. As the requisitions were raised out of time, the Plaintiff is not entitled to raise them. Accordingly, the Plaintiff's application is dismissed. Instead, I will grant the relief sought by the Defendant in its Counterclaim, namely :

(1) A declaration that the Plaintiff had accepted title to the Property and was not entitled to raise the requisitions;

(2) A declaration that the Defendant was not obliged to answer the requisitions;

(3) A declaration that the Defendant was entitled to forfeit the deposit and part payment in the sum of HK$510,000 paid by the Plaintiff to the Defendant under the Agreement;

(4) Damages to be assessed. The assessment is to be handled by the Master; and

(5) Interest on the damages at a rate to be decided by the Master.