TANG CHI WAI v. LAI YIK TING

DCCJ3844/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3844 OF 2013

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DECISION

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1.  The plaintiff (as the purchaser) seeks summary judgment against the defendant (as the vendor) under Order 86 rule 1 of the Rules of the District Court for the sum of HK $275,000, being the deposit paid under an Agreement dated 6 June, 2013 (“the Agreement”) for the sale and purchase of Ground Floor, Lot Nos 1229 & 1230 in DD 189 Shatin, New Territories (“the Property”), damages to be assessed, and a declaration that the defendant had acted in breach of the Agreement and the plaintiff is entitled to a lien on the Property .

Legal Principles

2.  The footnotes under Order 86 of the Hong Kong Civil Procedure 2015 page 1456 (86/4/1), state that the legal principles applicable to an application for summary judgment under both Orders 14 and 86 are the same, with reference to the case of Super Town Investment Limited v Ives Developments Limited and Others, HCA86/2006 [2007] HKEC 933: “While the scope of application of Order 86 and Order 14 are different, the legal principles applicable to an application for summary judgment under both orders are the same.”

3.  Order 86 rule 4(2) says: “the court may give a defendant against whom such an application is made leave to defend the action either unconditionally or on such terms as the giving security or time for mode of trial or otherwise as it deems fit.” Rule 1 of the same Order states “a defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the court.”

4.  A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438. The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence. The burden of proof is not a heavy one. It is not the function of the court at this stage to assess if a defence will succeed at trial. The court should not rule out a defence simply because it thinks the defence would not be believed by the trial judge because of some inherent weaknesses, save where what the defendant says is practical moonshine. Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law: see Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 and Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106.

Background

5.  The  following facts are not in dispute:

(a) Initial deposit in the sum of HK $100,000.00 and further deposit in the sum of HK $175,000.00 had been paid by the plaintiff and received by the defendant;

(b) Original completion date was 17^th July, 2013 which had later been postponed to 15^th August, 2013;

(c) The defendant had the duty to show and prove good title of the property before completion;

(d) The defendant owed the duty to satisfactorily and sufficiently answer all the requisitions raised by the plaintiff before completion; and

(e) The defendant had by the letter dated 17^th August, 2013 forfeited the plaintiff’s deposits in the total sum of HK $275,000.00.

6.  There are two requisitions (“the 1^st and 2^nd requisitions”) raised by the plaintiff which the plaintiff regarded as not satisfactorily answered, namely: (a) “No Objection Letter/Certificate of Compliance” evidencing the compliance of the terms and conditions mentioned in the Letter of Redevelopment dated 13^th July, 1987( Redevelopment Approval); and (b) failing to produce 3 Certificates of Exemption in respect of Building Works, Drainage Works, Site Formation Works and/or Occupation Permit issued under the Building Ordinance (Application to the New Territories) Ordinance, Cap 121( “the 1987 Ordinance”).

7.  The defendant through his solicitors’ letter dated 14^th August 2013 expressly referred to the completion scheduled on 15^th August 2013 and demanded the plaintiff to settle the outstanding balance of the purchase price. The defendant claimed that by that time he was ready , willing and able to complete the Agreement.

8.  The plaintiff by his solicitors’ letter dated 15^th August, 2013 alleged that the defendant had not properly answered the requisitions and demanded the return of all the deposits paid to the defendant.

9.  However, the defendant is of the view that he had satisfactorily and sufficiently answered the 1^st and 2^nd requisitions and could insist on completion on the agreed adjourned completion date ie on 15^th August, 2013. In the premises, the defendant forfeited the plaintiff’s deposits in the total sum of HK$275,000.00.

The Issue

10.  The main issue for determination is whether the 1^st and 2^nd requisitions had been answered properly and satisfactorily by or on behalf of the defendant, and whether  triable issues have been raised to the plaintiff’s claim that the defendant had failed to show a good title to the Property and had acted in repudiatory breach of the Agreement.

11.  The defendant claims that there are following triable issues to be fully canvassed, investigated and determined at trial:

(a) When was the subject property being constructed?

(b) Whether the Buildings Ordinance (Application to the New Territories) Ordinance, Cap. 322 (“the 1961 Ordinance”) is applicable to the Property.

(c) Potentially, there may be the need for further discovery from the District Lands Office, and also, the need for expert evidence for the building and construction of the Small Village House.

(d) Whether the answers or matters as stated in the defendant’s former solicitor’s letters are factually and legally correct, and hence had satisfactorily answered the requisitions.

(e) Whether there was any real risk of an enforcement action by the Government affecting the title of the Property.

The 1^st requisition

12.  The 1^st requisition concerns with the approval of re-development which was stated by the Redevelopment Approval that the approval was subject to strict observance of  10 conditions. Clearly,  unless

and until there was proof that the 10 conditions had been observed, the approval would not be valid and hence, the title to the Property would be defective.

The 2^nd requisition

13.  The 2^nd requisition relates to whether the 1987 Ordinance or the 1961 Ordinance is applicable to the Property. If the construction of the re-development commenced after 16^th October, 1987, then the 1987 Ordinance applies and the defendant was obliged to produce 3 Certificates of Exemption and/or the Occupation Permit. On the other hand, if the construction of the redevelopment commenced on or before 16^th October, 1987, then the property would be exempted from the requirement of an Occupation Permit or any of the Certificates of Exemption.

14.  Thus, the crux of the 2^nd requisition is whether the defendant had answered the requisition by showing and proving beyond reasonable doubt that the construction of the re-development commenced on or before 16^th October, 1987.

15.  In reply to the plaintiff’s requisitions, the defendant produced 4 letters by his former solicitors and alleged that the plaintiff’s requisitions had been satisfactorily answered and/or replied to.

16.  In gist, these 4 letters are summarized as follows:

(a) Letter dated 10^th July 2013 :-

(i) “1(a) There is no requirement for a Certificate of Compliance to be issued……is commonly known as the old scheduled lots…..there is no building covenant contained in the Block Crown lease requiring that certain structures must be erected on the lots within a specified time…….Furthermore, there is no payment of premium condition(s) or restriction(s) for alienation in the said Approval Letter (Redevelopment Approval). Therefore any letter or Certificate of Compliance as suggested is simply not required”.

(ii) “(b) No Occupation Permit and Certificate of Exemption(s) are required as they are exempted under the house on the lots is certainly not “new building: constructed after the commencement of the Buildings Ordinance Cap. 121”.

(b) Letter dated 12^th July 2013:-

(i) “……The Buildings Ordinance (Application to the New Territories) Ordinance 1987 (“the 1987 Ordinance”) Cap. 121 came into effect on 16^th October 1987. There was the Buildings Ordinance (Application of the New Territories) Regulations (“the Regulations”) applicable to the buildings in respect of the houses commenced before 17/10/1987 (“the transition period”).Section 3 of the Regulations excluded certain buildings erected during the transition period from the operation of various provisions of the 1987 Ordinance, including s.21 which prohibits the occupation of a new building unless an occupation permit has been issued by the Building Authorities. Thus it is therefore clear that the Property is exempted from the requirement of an occupation permit or any of the Certificate(s) of Exemption….”

(c) Letter dated 2^nd August 2013:-

(i) “1(a)……The Buildings Ordinance (Application to the New Territories) Ordinance, Cap. 322 (the 1961 Ordinance) is applicable to the captioned premises which form part of the house known as No, 43 Tin Sam Village (“the Property”). We encloseherewith aerial photos taken on 10^th June 1987 and 10^th December 1987 which show that the Property had been built by 10^th December 1987”.

(d) Letter dated 13^th August 2013:-

(i) “(1)(a)……It is also to be understood that it is not a condition of the Redevelopment Approval or a legal requirement that if the redevelopment of the previous building is completed, a Certificate of Compliance or No Objection to Occupy letter has to be issued”.

(ii) “Thus, we (the defendant’s solicitors) reiterate that your (the plaintiff’s) repeated demands for production of Letter of Compliance and/ or No Objection to Occupy are unnecessary”.

(iii) “We (the defendant’s solicitors) stress that  in our present case, as the Redevelopment Approval was issued before the 1987 Ordinance was enacted, it was clearly the intention of the DLO (District Land Office) that the Property was to be made subject to the 1961 Ordinance. Unlike the Wong On’s case, there is no evidence to suggest that there is any breach of any condition under the 1961 Ordinance or the Redevelopment Approval.”

(iv) “Your (the plaintiff’s solicitors) allegation that the whole building is illegal and the existence of possibility of enforcement actions being taken by the Building Authority / Government is without merit”.

(v) “(1)(b) Regarding your request for production of Certificates of Exemption , we point out again that with the aerial photos, it has been clearly proved and shown that the redevelopment works must have been started by mid October, 1987 and the 1961 Ordinance not the 1987 Ordinance, is applicable. Thus, Certificates of Exemption issued under the 1987 Ordinance and/or Occupation Permit is not necessary.”

17.  In order to support the defendant’s view that there is no real risk of enforcement action, the defendant further produced a letter dated 3^rd July 2013 from District Lands Office, Shatin (“the Shatin Letter”) which says, inter alia, that: “there is no record of the issue of Certificates of Exemption in respect of Buildings Works, Site formation Works and Drainage Works and No Objection to Occupy Letter”.

18.  The defendant regards that the plaintiff’s insistence on the production of the alleged documents were unnecessary.

19.  It is not in dispute that the defendant had not produced 3 Certificates of Exemption and/or the Occupation Permit up to the agreed completion date.

20.  If the construction of the property commenced on or before 16^th October, 1987, then the said Certificate/ Permit are not required.

Discussion

21.  Clause 13(a) of the Agreement stated that the defendant is entitled to forfeit the paid deposit and claims for damages provided that the plaintiff (other than the default of the defendant) fails to complete the purchase in accordance with the terms and conditions therein.

22.  It is also not in dispute that the plaintiff refused to complete the purchase. The plaintiff alleges that it is due to the default of the defendant as the defendant was unable to give good title to the Property. The plaintiff relies on the facts that prior to the agreed completion date, the defendant had not yet to answer the 1^st and 2^nd requisitions raised by the plaintiff satisfactorily and sufficiently.

23.  The defendant holds a different view.

24.  Paragraphs 26-29 of the Affirmation of Tang Chi Wai (ie the plaintiff) stated that the plaintiff’s previous application under Order 14 and Order 14A of the RDC had been dismissed and he is now attempting to have a second bite of the cherry. I note that the plaintiff’s previous application was dismissed purely because of procedural matters. Nothing is related to the determination on merits. I find that there is no res judicata issue and no issue estoppel for the plaintiff in the present application.

25.  Whether the defendant’s previous solicitors will join as the third party in this case is totally irrelevant to this application. There is no doubt that if the court rules that the defendant had failed to show and give a good title to the Property prior to the agreed completion date, then the plaintiff should succeed in his application. It is not the concern of the court whether the defendant would proceed to lodge a claim against his  previous solicitors.

26.  Clause 8 of the Agreement states clearly that the defendant has to give title to the Property and act in accordance with Section 13 of the Conveyancing and Property Ordinance (Cap 219) to prove his title to the Property prior to the agreed completion date. In such circumstances, even though the title to the Property is found to be good at later date by further discovery from the relevant District Lands Office and/or also the further expert evidence for the building and construction of the Property, I do not think it can help the defendant’s case at the present application as the defendant had to show good title prior to the agreed completion date. A purchaser will be entitled to rescind where the vendor has failed to show title even the vendor can prove that he actually has a good title later. In the judgement of the Court of Appeal in Active Keen Ltd v Fok Chi Keong [1994] 1 HKLR 396(CA), the Court of Appeal ruled that, even though the title of the vendor was probably a good title, the purchaser had been justified in rescinding the agreement on the ground that the requisition had not been adequately answered . In Jasmin Enterprises Ltd V Chan Yuk Hon [1998] 4 HKC 224, at 226 ,where Sakhrani J said : “ If requisitions are not answered satisfactorily , the vendor would have failed in its obligation to show good title and it does not matter if the vendor does in fact have good title.  Hence, the above paragraph 11(c) would not be a triable issue.

27.  The remaining issue for the present application is purely on legal argument (ie whether the vendor has answered the purchaser’s requisitions adequately). There is no factual triable issue in this application .

28.  Regarding to good title issue, the defendant relies on the following  three cases:

(1) Forever Business Ltd v Long Surplus International Investments Ltd [2007] 2 HKLRD 700 (CA) in which the Court of Appeal held ( in the headnotes at paragraph 4), inter alia, that: “A vendor had to be given reasonable opportunity to show or prove a good title by other means, such as by showing that there was no risk of any enforcement action”.

(2) In MEPC Ltd v Christian Edward & others [1981] AC 205, Lord Russell commented: “ … if the facts and circumstances of a case are 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 incumbrance, the court should declare in favour of a good title shown.”

(3) In Minchest Ltd V Lau Tsui Kwai [2008] 11 HKCFAR 551(at 559), inter alia: “In dealing with a dispute concerning title such as the present one, the court must approach the matter: 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.”

29.  The plaintiff relies on Kan Wing Yau and another v Hong Kong Housing Society [1988] 2 HKLR 187. In gist, the court would not force a doubtful title on a purchaser to risk or hazard. The court must be satisfied beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance. It was only if the blot of title were purely theoretical and not a practical blot that it could be ignored.

30.  The  major legal argument in this application is whether there is no risk of enforcement and the blot of title was purely theoretical and not a practical blot.

31.  Regarding to the 1^st requisition, the defendant’s stance on this issue was that there is no requirement for a Certificate of Compliance to be issued. The defendant relied on a letter from the District Lands Office, Sai Kung in relation to another property stating that the landowner was not required to report the completion of the construction works and that no Certificate of Compliance or No-objection to occupy letter was issued for the re-development.

32.  I do not think the letter from District Lands Office, Sai Kung can help the defendant much to answer the 1^st requisition. The Shatin Letter only stated that there was no No-objection to Occupy Letter issued. The Property is under the jurisdiction of District Lands Office, Shatin, not Sai Kung. The Shatin Letter does not exactly mean that the landowner of the Property was not required to report them the completion of the redevelopment so that the compliance of the 10 conditions of the Redevelopment Approval could be verified.  In my view, the 1^st paragraph of the Redevelopment Approval clearly stated:  “ There is no objection from this office to your proposal subject to strict observance (emphasis addded) of the  following:….”  Under such strong wordings,  it is no doubt that the completion of the redevelopment  should be reported to the District Lands Office, Shatin.

33.  The  defendant owed a positive duty to show and prove good title and to answer the requisitions satisfactorily and sufficiently. The Shatin Letter did not say clearly that there was no contravention in respect of the re-development of the Property. The defendant argues that the District Lands Office, Shatin was aware of this issue prior to the  agreed completion date of the Agreement , but no action had been taken out  against the Property.  With due respect, I do not  take the defendant’s view because the reliance of the inaction of the government is not a sufficient answer. It was still the defendant’s duty to show and prove to the satisfaction of the plaintiff that the re-development was in fact taken place in compliance of the 10 conditions as stated in the Redevelopment Approval.

34.  By reason of the above, I rule that the defendant had failed to give and prove good title to the Property by failing to answer the 1^st requisition satisfactorily and sufficiently.

35.  In relation to the 2^nd requisition, the main issue is whether the defendant had showed and proved that the construction of the re-development of the Property commenced on or before 16^th October, 1987. 

36.  There is no document proof as to when the construction works of the Property commenced. The defendant wholly relies on the circumstantial  evidence and the reply of  District Lands Office.

37.  The Redevelopment Approval was issued on 13 July, 1987. There were still 3 month left for the defendant to commence the construction before 16^th October, 1987.  The defendant  relied on the Assignment with Memorial Number 420962 and Deed of Mutual Covenant  with Memorial Number ST420964 both dated 6 April, 1988  to prove that the Property was likely to be erected on or before 16^th October, 1987. However, with the greatest respect, all these evidence, taken to the highest, can only imply that the construction works of the Property might have started on or before 16^th October, 1987, it is not an exclusive and final conclusion. It is no doubt that the re-development of the Property has been duly completed before April, 1988. But the key issue is when the re-development commenced but not when it was completed. The burden of proof is on the defendant. The defendant has to prove it beyond reasonable doubt.

38.  The defendant further relied on the aerial photos taken on 10 June, 1987 and 10 December, 1987 . From the photos taken on 10 December, 1987, the Property was there. The defendant submitted that it is highly unlikely, if not impossible, for the construction work of the Property to be commenced after 16^th October, 1987. However, I note that the aerial photos, in fact, did not show that the Property had been constructed by 17 December, 1987. Furthermore, even it was constructed by 17 December, 1987, there is no evidence to show and prove beyond reasonable doubt that the construction works in fact commenced on or before 16 October, 1987.

39.  The Shatin Letter stated that “there is no record showing when the building works of concerned building commenced”. In such circumstances, this letter does not assist the defendant’s case again as  District Lands Office, Shatin did not undertake not to take an enforcement action against the Property. I am aware of the comment made by Recorder Edward Chan SC in Link Harvest Limited & Another v Wayhang Development  Limited (HCA 13971/1997 at paragraph 22)  that if the District Lands Office was aware of the contravention, it would be unrealistic to allege that the office would deliberately keep quiet. However, the fact of this case is different from the Link Harvest Limited case. Up to the agreed completion date, the District Lands Office, Shatin has no record when the construction works of the Property began. And if there was evidence later showing that the construction works of the Property commenced after 16^th October, 1987, then the 1987 Ordinance would be applicable to the  Property. District Lands Office is entitled to enforce a breach against the Property if no Certificates of Exemption and/or Occupation Permit have been  produced. I have to say that the absence of record does not automatically amount to the fact that the construction works of the Property started before 17 October, 1987.

40.  What the defendant had proved, even given the most weight, is that the construction works of the Property had probably started before 17^th October, 1987.

41.  The risk in litigation is still there. It is not a fanciful risk for the plaintiff.  The defendant has been given reasonable opportunity to show or prove a good title by all means, upon which he failed to do so.  In Wong Kwok Yan and Chan Ching Sum v Pon Chi Lok CACV38/2008, the Court. at paragraph 22, clearly stated that the court cannot compel a purchaser to take title which there is some doubt or which might involve the purchaser in litigation.  Having considered all the evidence before me, I rule that the defendant cannot successfully prove that the construction works of the Property commenced on or before 16^th October, 1987. Under such circumstances, the plaintiff is entitled to request the documents as stated in the 2^nd requisition.

42.  The duty under Section 13A of the Conveyancing and Property Ordinance extended to all documents which are related exclusively to the Property and which fell within the chain of title period. The Certificate of Compliance/No-objection Letter and 3 Certificates of Exemption and/or the Occupation Permit are related exclusively to the Property of the present case.  

43.  Failing to produce the above document(s)  as raised in  the 1^st and 2^nd requisitions is a breach of the duty to give and show good title in accordance with Section 13 of  the Conveyancing and Property Ordinance.

Conclusion

44.  Having considered all the evidence and both parties’ legal arguments before me, I do not accept that the defendant has shown good title to the Property. From the requisitions raised on behalf of the plaintiff, I do not consider that the possibility of impeachment of title in this case is remote and fanciful, and from the Defence filed and the evidence adduced so far, I fail to see how the defendant can argue that the 1^st and  2^nd requisitions have been answered.

45.  Under Clause 14 of the Agreement, the plaintiff would be entitled to have all the deposits returned to him forthwith and to recover from the defendant such damages as the plaintiff may sustain by reason of the defendant’s default. Clause 36 further makes it clear that the defaulting party should bear or indemnify the other party all stamp duty and estate agent’s commission payable or had been paid in relation to the sale and purchase of the Property.

46.  I do not see any arguable defence, nor any other reason for trial.

47.  The plaintiff had through his solicitors’ letter to the defendant’s solicitors dated 15^th August, 2013 accepted the defendant’s repudiation. Hence, I rule that the plaintiff is entitled to a refund forthwith of the deposits  in the total sum of HK$275,000.00 with interest at the judgement rate from the date of the writ to the date of payment and for damages to be assessed.

48.  The plaintiff asks for a declaration that the plaintiff is entitled to a lien on the Property as security for the repayment of the said deposited of HK275, 000.00 and the interest thereon.

49.  Neither the counsel for the plaintiff  nor the counsel for the defendant had addressed  this issue to me.

50.  A good summary of the law on purchaser’s liens can be found in Snell’s Equity, 32^nd edn, para 44-041 :

“A purchaser occupies a position somewhat analogous to that of the vendor. The purchaser of land who has paid to the vendor a deposit (or other money towards the purchase price) has a common law lien in respect of title deeds that he may have in his possession. However, as a common law lien, this is again dependent on the purchaser having possession of such documentation. Furthermore, the prevalence of registered conveyancing for land means that this common law lien is of relatively less practical value than it was previously. However, as with the vendor, the purchaser also has an equitable lien over the land itself in the hands of the vendor for any deposit or instalment of this purchase-money which the purchaser has paid to the vendor (and not merely to a stakeholder) without obtaining a conveyance. The lien arises even if the time for completion has not yet arisen, for example because the contract is conditional on planning permission being obtained. The purchaser has this lien not only when the contract goes off for want of title, but also where he rescinds the contract under a condition enabling him to do so, or the vendor repudiates the contract; but if the contract goes off through the purchaser’s default, the lien is gone. The lien extends not only to the purchase-money actually paid, but also to interest thereon, and to money paid as interest on the unpaid purchase-money, and to the costs properly incurred by the purchaser.

As with the vendor’s equitable lien, the purchaser’s equitable lien is of a proprietary nature, capable of binding third parties.”

51.  There are 2 requirements to be satisfied before a purchaser can claim an equitable lien over the vendor’s property, namely, (a) money has been paid on account of the purchase price and (b) the money has been paid to the vendor( HCMP346/2014 para.34).

52.  In the case of Whitbread & Co Ltd v Watt [1902] 1 Ch 835 where the English Court of Appeal said that a purchaser’s lien is a right invented by the court to do justice – see Vaughan Williams LJ at p 838 and Stirling LJ at p 840.

53.  I accordingly allow judgement to be entered in terms of paragraphs 1, 2, and 3 of the plaintiff’s Summons dated 12 September, 2014, with interest.

54.  I make a costs order nisi that costs of this action up to the date of judgment be to the plaintiff, to be taxed if not agreed, with certificate for counsel. The costs order nisi will become absolute after the expiry of 14 days from the date of the judgment, without any application from the parties to vary the same.