SINOBRAIN INDUSTRIAL LTD. v. MOK KAM MING

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J U D G M E N T

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Jones, J. This is the judgment of the Court.

1. This is an appeal by the defendant against a decision of Leonard J. given on the 5th March 1992 when he entered judgment for the plaintiff under Order 14 of the Rules of the Supreme Court against the defendant inter alia, for a declaration that the plaintiff had validly rescinded a sub-sale and purchase agreement dated the 27th August 1991 with the defendant, and ordered forfeiture of the deposit of $275,000.

2. The facts reveal that the plaintiff as purchaser, entered into a sale and purchase agreement on the 9th August 1991 (the principal agreement) with the Official Receiver as the trustee in bankruptcy of Wong Chi Woon as vendor, to purchase premises known as Shop B, G/F, 141-145 Caine Road for $1,638,000 subject to certain terms and conditions.

3. By the agreement, it was agreed that completion was to take place at or before 5 p.m. on the 30th September 1991 with time to be of the essence of the contract. Although the premises were sold free from incumbrances, it was provided by clause 4A of the agreement that the premises were to be sold subject to the orders of the Building Authority registered in the Land Office by two Memorials Nos.3346662 and 4859150 and any other orders that may be issued by the Building Authority. It was also provided that the purchaser was to pay all the costs and expenses for the discharge of the orders.

4. On the 27th August 1991, the plaintiff, as vendor, entered into a sub-sale and purchase agreement with the defendant as purchaser whereby the plaintiff, as confirmor, agreed to on sell the premises to the defendant for $2,750,000 subject to the terms and conditions set out in the principal agreement. Completion was fixed to take place at or before 3 p.m. on the 30th September 1991 with time to be of the essence of the contract. Under clause 5(b) of this agreement, the plaintiff warranted that Memorial No.3346662 had been discharged and complied with,and that the Memorandum of Compliance in Memorial No.4859150 related to compliance with the order. The plaintiff also undertook to be responsible for all costs and expenses.

5. On the 29th September 1991, the defendant, as vendor and second confirmor, entered into a sub-sub-sale and purchase agreement with Wong Pui Wan for the sale of the property for $3,750,000 subject to and with the benefit of the first two agreements. Completion of this agreement was to take place on the 30th September 1991 before 2 p.m. whilst time was again to be of the essence.

6. At 9:54 a.m. on the 30th September 1991, the plaintiff's solicitors received a draft deed of assignment from the defendant's solicitors which was in turn faxed to the vendor's solicitors for approval at about 11 a.m. The vendor's solicitors returned the assignment with amendments at 3 p.m. No objection was made by the plaintiff's solicitors to the amendments. However, the defendant objected to one of the amendments which reads as follows : -"And subject also to two orders by the Building Authority registered in the Land Office by Memorials Nos.3346662 and 4859150 respectively." At about 4:30 p.m. Mr Nie, the plaintiff's solicitor spoke to Mr A. Leung, the defendant's solicitor informing him that the proposed amendment was acceptable and that he would not permit the plaintiff's agreement under the principal agreement to be prejudiced by the defendant's solicitors' objection. Mr Nie also imposed a deadline of 5 p.m. for the completion of the agreement, but this evidence is disputed by Mr Leung.

7. Subsequently and before 5 p.m., the plaintiff's solicitors obtained an extension of time for completion of the principal agreement to 6 p.m. As the defendant failed to complete the agreement by 5 p.m., the plaintiff's solicitors wrote to the defendant's solicitors at 5:08 p.m. accepting the defendant's repudiation and forfeited the deposit of $275,000. At 5:38 p.m., the defendant's solicitors wrote to the plaintiff's solicitors enclosing a cheque for the balance of the purchase price subject to approval of the draft assignment by all parties. However, the cheques were returned by the plaintiff's solicitors on the following day.

8. The only defence pleaded in the draft defence was the defendant's contention that the plaintiff had waived time as being of the essence of the contract.

9. However, we are satisfied that the real dispute in this case arises with regard to the amendment to the deed of assignment that was required by the plaintiff's solicitors.

10. Mr Mills-Owens counsel for the plaintiff submitted that neither the plaintiff nor defendant, as confirmors, are in fact concerned with title for ultimately it is a matter between the vendor and the ultimate purchaser Wong Pui Wan. However, we do not agree with this submission for every purchaser is entitled to have transferred to him the title for which he contracted.

11. Memorial No.3346662 dated the 18th November 1986 relates to an order made by the Building Authority under s.28(3) of the Buildings Ordinance (the Ordinance) directed to all the co-owners of the building to carry out remedial drainage work. Section 28(3) reads :

"28.(3)     Where in the opinion of the Building Authority the drains of any building are inadequate or in a defective or insanitary condition he may

(a)     by an order in writing served on the owner of such building require him to carry out such rainage     works as the Building Authority may  deem necessary within such reasonable time as may be specified in the order; or

(b)     carry out or cause to be carried out such works, and recover the cost thereof from the owner."

12. The order was registered with the Land office on the 23rd April 1987. The work was subsequently carried out by a contractor on behalf of the Building Authority and after it had been completed satisfactorily, a letter was written by the Building Authority dated the 3rd April 1991 to all the owners informing them of the completion and that a demand note for the cost of the work and supervision charges under ss.28(3)(b), 32A and 33 of the Ordinance would be sent in due course. No demand has yet been made. Section 33 is concerned with the recovery of such costs. Section 33 where relevant provides :-

"33.(1)     In any case where under this Ordinance the Building Authority is authorized to recover the cost of works carried out by him or caused to be carried out by him or to recover the costs of services provided by him or caused to be provided by him, he may certify under his hand the cost due and names of the persons liable therefor, and may by such certificate apportion such cost among such persons.

(2)     Such cost may include -

(a)     the cost of materials supplied by the Building Authority for the purpose of carrying out such   works; and

(b)     supervision charges.

(3)     A copy of the Building Authority's certificate shall be served upon each person affected thereby.

(4)     Interest at the rate of 10 per cent per annum from the expiry of 1 month from the date of such service shall be recoverable as part of such cost.

(5)     The payment of such cost by any person shall be without prejudice to his right to recover the same from any person liable to pay the expenses of the repair of, or of other building works in connexion with, any building or land.

(6)     Without prejudice to any other remedy of the Building Authority for the recovery of such cost, the same may be recovered as a debt due to the Crown.

(7)       .......

(8)     A certificate purporting to be under the hand of the Building Authority, made under the provisions of subsection (1), and setting forth that the cost claimed is due or payable to the Building Authority and that the person sued is liable for the payment thereof, and specifying the nature and particulars of the claim shall be prima facie evidence of the facts certified therein and of the signature of the Building Authority thereto.

(9)     At any time before such costs and any interest accrued thereon has been wholly recovered, a memorial of the certificate referred to in subsection (1) may be registered in the Land Office against the title of any premises or land in respect of which such cost arose, and upon such registration the cost and any interest accrued or thereafter accruing shall -

(a)     be recoverable by action in Court in accordance with the provisions of this section from any person who from such Land Office register then or thereafter appears to be the owner of such premises or land:   Provided that -

(i) the amount recovered by virtue of this subsection shall not exceed the value of that person's interest in the premises or land charged; and

(ii) where the amount so recovered is equal to the value of the premises or land the charge created under paragraph (b) shall become void; and

(b) constitute a first charge on the said premises or land which shall give the Building Authority the same powers and remedies in respect thereof as if he were a mortgagee under a mortgage by deed in common form having power of sale and lease and of appointing a receiver:

    Provided that the charge shall be void and no liability shall accrue under this subsection against a bona fide purchaser or mortgagee of the premises or land for valuable consideration who, subsequent to the completion of the works specified in the certificate and before the registration of the memorial thereof, has acquired and registered an interest in the premises or land to be charged.

(10) Upon the recovery of any sum under this section the Building Authority shall lodge in the Land Office an appropriate memorial of satisfaction against any memorial lodged there by him under subsection (9)."

13. The letter of compliance of the 3rd April 1991 was registered in the Land Office on the 19th June 1991.

14. In respect of the Memorials, Leonard J. in his judgment had this to say :

"The-memorials related to an order to do work which had now been done, plus a letter confirming that such was the case. All the memorials do is give notice that a situation exists where the Building Authority may issue a certificate under s:33(1) certifying the cost, naming the persons liable therefor and apportion such cost among them, whereupon the money is recoverable from these persons as a debt due to the Crown. By. s.33(9), if a memorial of the certificate is registered against the title the cost, with interest, shall be a first charge on the premises or land. But that is subject to an important proviso:

'Provided that the charge shall be void and no liability shall accrue under this subsection against a bona fide purchaser or mortgagee of the premises or land for valuable consideration who, subsequent to the works specified in the certificate and before the registration of the memorial thereof, has acquired and registered an interest in the premises or land to be charged.'

The assignment in the amended form would have given to the Defendant what he had contracted to take, i.e. a title free from incumbrances. Even if there was by virtue of s.33, a potential future charge on the land, there was no charge yet. A potential as opposed to an actual statutory liability is not an incumbrance - In re Allen & Driscoll's Contract (1904) Ch 226."

Earlier in his judgment, Leonard J. referred to a misdescription in clause 4A of the principal agreement that the Building Authority had made two orders whereas he held that only the first order that required the work to be done amounted to an order whereas the letter of compliance was not an order, but merely amounted to a statement that the work had been completed. The only requirement to register an order, which is in any event discretionary, arises under s.33(9) when the cost of the work has been quantified and certified as being due from the persons who are liable

15. Mr Tang counsel for the defendant submitted that although the order requiring the work to be done and a letter of compliance had been registered, they did not impose a charge on the property in favour of Government. A charge in favour of Government could only arise under s.33(9) of the ordinance when a certificate quantifying the cost, had been registered. Mr Tang queried whether either document was registrable under the Land Registration Ordinance, although it is the practice to do so, but stated that he placed no reliance' upon any such consideration.

16. Mr Mills-Owens on the other hand submitted that the first memorial does affect the land and is registrable under s.2(1) of the Land Registration ordinance, for it is an instrument in writing. Accordingly, if the document is not registered, it will be null and void against a bona fide purchaser for value under s.3(2) of the Land Registration Ordinance. Mr Mills-Owens submitted that the relevant question to be asked is whether the document is registrable under s.2 of the Land Registration Ordinance. Mr Tang contended that, whether or not the documents were registrable, the plaintiff was not entitled to require that the amendment be inserted in the draft deed of assignment as the words were intended to impose a charge on the land in circumstances where, in law, no such charge existed. He submitted that they were, in fact, surplusage which the defendant was entitled to insist should not be included in the deed. By clause 4A of the principal agreement, the purchaser agreed to take the premises subject to the orders registered in the Land Office. In clause 5(b) of the agreement between the plaintiff and the defendant, the plaintiff warranted that the order had been complied with. The plaintiff also agreed to be responsible for all costs and expenses for the discharge of the order.

17. Bearing in mind that this is an Order 14 matter we are prepared, in all the circumstances, to rest our decision on the basis that it is arguable that the defendant was entitled to insist that the words be not included in the deed and to refuse to complete by signing a deed in which they were incorporated.

18. As a result, the appeal will be allowed, the judgment will be set aside and the defendant is granted unconditional leave to defend.

19. In handing down this judgment we make an order nisi for the costs of the appeal to the defendant and the costs below to be costs in the cause.