MAX CROWN INTERNATIONAL LTD v. WONG KIT CHUN

HCMP2028/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2028 OF 2003

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J U D G M E N T

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1. By a sale and purchase agreement dated 19 March 1997 ("the Agreement"), Max Crown International Limited, the plaintiff, agreed to purchase from Wong Kit Chun, the defendant, the Ground Floor of Lot No.2798 in DD No.130, Tuen Mun, New Territories ("the Property"). A deposit of $109,500 was paid and completion was to take place on 20 May 1997.

2. The Property is part of a small house held under New Grant No.2878 dated 23 November 1989 ("the New Grant").

3. Special Condition 5(a) and Special Condition 26 of the New Grant are important because they were subjects of requisition.

4. Special Condition 5(a) provides :

"5. The Grantee shall not assign or otherwise create an undivided share or interest in the lot without complying with the following provisions -

(a) one undivided 1/3rd share each shall first be allocated, by a Deed of Mutual Covenant complying with (iii) hereunder to the Ground Floor, the First Floor and the Second Floor of the building on the lot; ..."

5. The whole of Special Condition 26 is relevant and it provides :

"26.	(a) No building works, site formation works or drainage works shall be carried out on the lot unless and
until the Grantee shall have applied for and obtained from the District Lands Officer a certificate of exemption or separate certificates of exemption in respect of such building works, site formation works or drainage works pursuant to the Buildings Ordinance (Application to the New Territories) Ordinance 1987.
	(b) Within two weeks of the completion of any building hereafter to be erected on the lot the Grantee
shall inform the District Lands Officer in writing of such completion.
	(c) No building at any time erected on the lot shall be occupied in any way, except by not more than two
watchmen, until the District Lands Officer shall have certified in writing that these Conditions have been complied with to his satisfaction."

6. The Buildings Ordinance (Application to the New Territories) Ordinance 1987 came into force on 16 October 1987 and is now Cap.121 of the Laws of Hong Kong.

7. In these proceedings, the plaintiff claims the return of the deposit and damages on the ground that certain requisition had not been answered sufficiently or satisfactorily. The defendant has purported to forfeit the deposit.

8. The Title Deeds were supplied to the plaintiff's solicitors, Messrs M.F. Ko & Dennis Wong ("MF") by a letter dated 22 April 1997.

9. On 1 May 1997, the following relevant requisitions were raised :

(i) The Purchaser sought the original or certified copies of Certificate(s) of Exemption for building works, site formation works and drainage works pursuant to Special Condition 26(a).

(ii) In relation to Special Condition 5(a), the requisition reads as follows :

"Special Condition 5(a) of New Grant requires that one undivided 1/3rd share each shall be allocated to G/F, 1/F & 2/F but according to the DMC, one undivided 1/3rd share was allocated to G/F, 1/F, 2/F and the roof above thereof."

10. The vendor's solicitors at the time was Messrs T.L. Ip & Co. ("TL"). The answers to the requisitions were made on 7 May 1997. In relation to the request for Certificate of Compliance, TL wrote :

"The documents you requested do not form part of title of the above property. Therefore your request is not needed."

In relation to Special Condition 5(a), they said :

"Since a Letter of Compliance has been issued and registered in the New Territories Land Registry by Memorial No.436016, there can be no doubt that all terms stipulated in the said New Grant (including but limit to the landslip) have been complied with. Therefore your request is not needed."

11. The answers did not satisfy MF, so on 14 May 1997, they wrote, saying in relation to the Certificate(s) of Exemption :

"Obviously, they do form part of title. Please let us have a certified each thereof without further delay."

And in relation to Special Condition 5(a) :

"The Deed of Mutual Covenant was dated later than the Certificate of Compliance. Therefore, the issuance of the Certificate of Compliance is no reply to an apparent breach of the Crown Grant afterwards."

12. In reply, TL wrote :

"Kindly let us have the Memorial number of the documents requested by you so enable us to obtain the same from the New Territories Land Registry."

And in relation to Special Condition 5(a), TL wrote :

"We do not agree to your view as stated in your said letter. The Deed of Mutual Covenant is purely contractual and has nothing to do with the legal estate. We refer to the case of Pearl Inland Hotel Ltd. v Li Ka Yu (1955) H & SCA No.46 of 1987 which said that the Deed of Mutual Covenant is a service contract."

13. MF pursued the matter further by their letter of 19 May 1997. In relation to the Certificate of Exemption, they wrote :

"We do not know the Memorial number of the documents.

As you are an established conveyancing firm, you should know that the Certificates of Exemption are obtainable from the relevant District Land Office, and the Waiver Letter is obtainable from the Law Society. Please also see fit to contact the developer's solicitors for assistance."

And in relation to Special Condition 5(a), they wrote :

"We fail to see the relevance of your argument. It is the Deed of Mutual Covenant which allocated undivided shares to the flats. There is now an apparent breach of the Crown Grant as the allocation of undivided shares was different from the requirements of the Crown Grant. Please write to the developer's solicitors or the Crown for clarification."

14. TL's reply came by their letter dated 20 May 1997 which is the date fixed for completion :

"Please be informed that we are unable to obtain the documents you requested without any Memorial numbers. Please made enquiry with the relevant District Land Officer (as part of your verification process under Clause 9 of Part A of the Second Schedule to the Conveyancing and Property Ordinance) to confirm the same. We repeat that the said documents do not form part of title of the above property."

And in relation to Special Condition 5(a), they wrote :

"We are of the view that any breach of the Crown Grant in the Building to which the above property relates as alleged by you shall not affect the use and enjoyment of or title of the above property nor will entitle the Crown to re-enter the same. Perhaps, would you be kind enough to enlight us the authority to support your requisitions raised."

15. On the same day, 20 May 1997, MF wrote, drawing TL's attention to Lo Chun Tak v. Chan Foon Tai [1992] HKDCR 47 and supplied the copy of the judgment together with the case commentary in the New Gazette (January, 1992). In Lo Chun Tak, Wesley Wong DJ held that a certificate of exemption is necessary to prove title where Cap.121 applies.

16. On the following day, MF wrote rescinding the sale and asked for the return of the deposit.

17. Messrs Wong, Hui & Co. ("WH") was instructed by the vendor in the place of TL. There were correspondences between WH and MF. I will refer only to two letters.

18. In MF's letter of 28 May 1997, they said that :

"It is clear that your client has to produce a certified copy each of the Certificates of exemption for building works, site formation works and drainage works. However, Messrs. T.L. Ip & Co., your client's former solicitors, only replied that they do not form part of title. That was on all fours with Lo Chun Tak's case and our client is entitled to rescind."

19. On 30 May 1997, WH replied :

" We note from the enclosure that :-

(1) the Certificate of Compliance was issued on 11th July 1990; and

(2) the Certificate of Compliance states that (a) all the positive obligations imposed under New Grant No.2878 have been complied with and (b) the building erected on the lot is exempt from the provisions of the Buildings Ordinance, Cap. 123.

This is conclusive evidence that the Grantee has applied for and obtained a certificate of exemption or separate certificates of exemption.

Since the captioned property is sold as a unit in a completed development in respect of which a Certificate of Compliance has been issued, the Certificates of Exemption, which might well be relevant in the context of sale of a site intended for or under development, are not relevant title documents."

20. Mr Tony Ng who appeared for the vendor defendant argued that the vendor should not have raised any requisition at all because it was clear from the New Grant and the Certificate of Compliance already supplied that no Certificate of Exemption was ever issued.

21. Further that it was clear from the documents supplied that the absence of the Certificate of Exemption did not matter.

22. Mr Kenneth Chan who appeared for the purchaser plaintiff, puts at the forefront of his argument that the requisition relating to the Certificate of Exemption has not been sufficiently or satisfactorily answered by the defendant.

23. By summons dated 11 March 2004, the defendant sought leave to produce a letter dated 8 December 1997 from the District Lands Officer. Leave was granted by me at the hearing.

24. The letter was written in response to Wong Hui & Co.'s letter of 5 November 1997 and it reads :

"I would like to inform you that the Grantee completed the construction of the small house before the execution of the New Grant. Under the circumstance, Certificates of Exemption in respect of the Building Works, Site Formation Works, and Drainage Works were not issued.

Due to the reason that all other conditions were complied with, a Certificate of Compliance was issued under sympathically consideration on 11 July 1990.

I would like to advise you that no retrospective Certificate of Exemption will be issued and that government will not take enforcement action pursuant to SC(26)(a) notwithstanding the absence of Certificates of Exemption for the life time of the erected small house."

25. So now we know that no Certificate of Exemption was ever issued but that government would not take enforcement action pursuant to Special Condition (26)(a).

26. However, this letter came long after the completion date.

27. It is not disputed that the matter has to be assessed as of 20 May 1997.

28. The information contained in the letter of 8 December 1997 were not disclosed prior to 20 May 1997. For example, the plaintiff was never told that there was no Certificate of Exemption issued, or that the building was built prior to the New Grant.

29. Mr Tony Ng has submitted that so much can be gathered from the Certificate of Compliance itself and that being so, no requisition could properly be raised.

30. I do not think that is right.

31. Given Special Condition 26(a), it was natural to call for Certificate(s) of Exemption. Nor did the reply explain that there was none or that any irregularity had been waived. Indeed, Special Condition 3(a) required the grantee to "develop the lot by the erection thereon of a building ....". There is no reason for the purchaser to think that Cap.121 was inapplicable. Or that the small house of which the Property was part was erected even before the New Grant was made.

32. What TL said instead was that Certificate(s) of Exemption were not documents of title. Not that there was no Certificate of Exemption ever issued. For all the plaintiff knew, the vendor had Certificate(s) of Exemption which they were not prepared to supply to the purchaser. Clearly, the Certificate(s) of Exemption if they existed ought to be produced to prove title.

33. Nor can I agree with Mr Ng that the Certificate of Compliance is so clear that anyone reading it would know that no Certificate of Exemption was ever issued. Mr Tony Ng referred to the reference in the Certificate of Compliance to "The Buildings Ordinance (Application to the New Territories) Ordinance, Cap.322". He made the point that Cap.322 is the predecessor to Cap.121. As I have said Cap.121 came into force in October 1987 and was the ordinance referred to under Special Condition (26)(a). Mr Ng's point was that the purchase should have gathered from the reference in the Certificate of Compliance to the earlier Ordinance that the small house of which the Property formed part must have been built or was in the course of being built prior to commencement of Cap.121, namely 16 October 1987.

34. I do not believe that to be clear at all.

35. In my opinion the answers given by TL were misleading and do not sufficiently answer the query raised. Indeed the letter of WH of 30 May 1997 already quoted by me in paragraph 19 above did not say that no Certificate of Exemption was ever issued or that there was no need for a Certificate of Exemption because the house that was built was not covered by Cap.121. Instead, WH said :

"This [Certificate of Compliance] is conclusive evidence that the Grantee has applied for and obtained a Certificate of Exemption or separate Certificates of Exemption."

36. For this reason, I believe the plaintiff's claim should succeed, whether or not their other requisition in relation to Special Condition (5)(a) is valid.

37. I turn to consider the other requisition.

38. Here, I believe the plaintiff is on much weaker ground as Mr Kenneth Chan fairly acknowledged.

39. Special Condition 5(a) does not in term prohibit the inclusion of the roof as part of the second floor.

40. Moreover, in all the circumstances, I am of the opinion that the answer given by TL on 20 May 1997 in relation to Special Condition 5(a) quote at para.14 above is a sufficient and satisfactory answer. Requisitions and answers to them have to be viewed with common sense. Mr Chan's complaint about the language of the answer is a counsel of perfection.

Damages

41. Lastly I turn to the question of damages. The plaintiff claims a total of $61,813. They are made up of :

(a) $3,500 expenses paid for rectification of electricity sockets for the purpose of re-connecting the electricity supply to the Property;

(b) $30,000 estate agent fee paid; and

(c) $28,313, the conveyancing expenses payable by the plaintiff.

42. So far as the $3,500 expenses are concerned, no receipt was produced. Mr M.F. Ko, who was a partner of MF at the material time, gave evidence as a director of the plaintiff and was cross-examined on the absence of the receipt. He said that he had lost the receipt and that the electrician refused to issue another copy for tax reasons. I have no reason to doubt his word.

43. So far as the $30,000 estate agency fee is concerned, he has produced a cheque stub showing payment of the sum. Again no receipt is available. He says that the estate agent was a sole proprietorship and he has not been able to find the agent. Again, I have no reason to doubt his word.

44. So far as the conveyancing expenses are concerned, I do not think that the disbursement of $10,000 is really controversial. They are made up of the stamp duty of $8,313, registration fee for the agreement for sale and purchase of $210 and then sundry expenses for land search, travelling and photocopying at $1,477. However, there is also a claim for professional conveyancing charges totalling $13,175 of which $12,000 was charged for "perusing title deeds and raising and pursuing requisitions and all other works done including requesting for return of deposit."

45. This claim is complicated by the fact that the only shareholders and directors of the plaintiff are Mr and Mrs M.F. Ko. At the material time in 1997, MF was a partnership. The partnership has since been dissolved

46. Mr Ko was cross-examined on the quantum of this claim, in particular, the agreed fee of $12,000.

47. Mr Tony Ng made the point that it is artificial for Mr Ko acting as solicitor to make any agreement about fees with himself as director of the plaintiff.

48. But I can see no reason why MF, as solicitors, should not charge the plaintiff company for services rendered or to be rendered by Mr Ko as solicitor. And as Mr Ko said, and I accept, if the transaction had been put through, he would nevertheless have charged the plaintiff the fees at least for tax reasons.

49. Mr Tony Ng also makes the point in cross-examination that it is the practice of solicitors to charge half fee if a transaction should fall through. But Mr Ko has explained that that is not the invariable practice. I can see no reason why a solicitor or a purchaser in the position of the plaintiff should agree to waive such fees for the benefit of a vendor who has failed to complete. Mr Ko also explained that given the difficulties about title, $12,000 was not excessive. There is no evidence to the contrary.

50. Mr Ko has produced a bill of costs from MF addressed to the plaintiff for his fees dated 2 June 1997. According to Mr Ko, normally a client would be expected to pay the fees within a reasonable time. He said six months would not be unreasonable.

51. Mr Tony Ng argues that whether one takes 2 June 1997 as the day on which the fees became payable or six months after 2 June 1997, by today the claim would have become statute bared. He says therefore that if sued the plaintiff can rely on the limitation period and that would be a good defence. That, according to Mr Ng, is what the plaintiff ought to do in mitigation of damages. Of course, "whether a loss is avoidable by reasonable action on the part of the claimant is a question of fact not law." (See The Solkolt [1983] 1 Lloyd's Rep.605 at 608, Col.1 per Sir Johnson Donaldson M.R.)

52. However, Mr Ng accepts that if MF and the plaintiff had agreed to defer payment until after the conclusion of the present action, then the plaintiff would not be able to rely on the limitation period against MF. Mr Ko has not said in his evidence that there was any such explicit agreement although he said that it was not expected that the plaintiff would pay until it has income. Such income, he said, would include the proceeds of the present claim.

53. If the plaintiff were not beneficially owned by Mr Ko and his wife, and if MF were not a sole proprietorship consisting only of Mr M.F. Ko in the last few years, it is likely that MF would have reached an agreement with the plaintiff to postpone payment until after the conclusion of the present case. That would have been the reasonable thing to do having regard to the fact that MF were the solicitors acting in the transaction as well as in the claim against the vendor. Here, it is not said that there was any such agreement. But I think it is unreal to disregard the possibility of an implied understanding between Mr Ko and the plaintiff to defer payment until after the conclusion of the present proceedings. In other words, in the unlikely event that proceedings were brought by MF against the plaintiff for the fees (for example, if there is a change of control of the plaintiff), it is by no means sure that the limitation period would provide a valid defence.

54. Also, Banco de Portugal v. Waterlow & Sons Ltd [1932] AC 452 is authority that a person is not obliged to minimize damages on behalf of another who has broken a contract if, by doing so, he would injure his commercial reputation by getting a bad name in the trade.

55. Thus, there is also the question whether it would be reasonable to require the plaintiff to rely on the limitation period.

56. In James Finlay & Co. Ltd v. N.V. Kwik Hoo Tung H.M. [1929] 1 KB400 at p.418, Sankey LJ said :

"In this case, I do not think that it would be reasonable to ask the respondents to sue their sub purchasers and to insist upon the conclusive evidence clause when by the hypothesis they had learned that the bill of lading was in fact untruly dated. The damage might have been minimized to this extent, that the Indian sub purchasers would have had no defence; but a person is not obliged to minimize damages on behalf of another who has broken his contract, if by doing so he would, as I think might have happened here, have injured his commercial reputation by getting a bad name in the trade."

However, immediately before the passage quoted above, Sankey LJ said :

"I venture to put to Mr Jowitt (who was counsel for the unsuccessful vendor) in the course of the argument the question whether a person is entitled to refuse to plead the statute of frauds or the statute of limitations. But these cases are rather different. There the person would be refusing to rely upon a statutory enactment."

Thus, the matter was left open.

57. I believe whether it is reasonable for a person not to rely on the statute of limitations must depend on all the circumstances.

58. In London & South of England Building Society v. Stone, [1983] 3 AER 105 at 121, Stevenson LJ had this to say :

"For the valuer is not merely asking the court to take account of what has actually been paid to the lender; he is requiring the lender to have take an action in claiming payment from the borrowers; and it is one thing for wrongdoer to claim the benefit of a benefit obtained by the wrong parties under a contract with another; it is another thing (and, in my judgment, a far stronger thing) to claim the valuation of the chance of such a benefit which the wrong party had deliberately chosen not to take. In that case it seems to me the wrongdoer must show that the wrong parties reasoned choice to waive his contractual rights against the third party is unreasonable in the ordinary course of events in the particular field of commercial business, and in all the circumstances (it may be something special) of the particular case."

59. In London & South of England Building Society, the defendant valuer contended that the lender ought to have mitigated the damage flowing from the worthlessness of the security, namely by relying on the borrowers' contractual obligation. Thus, Stephenson LJ went on to say :

"If, as I think and the judge thought, that is only available to the valuer as mitigation, the valuer must prove it was reasonable and when the court has to decide that question of fact, the lender's conduct in not taking steps to reduce the loss will not be weighed in nice scales at the instance of the party who has occasioned the loss; see what Lord Macmillan said of the plaintiff's conduct in taking positive steps to reduce its loss in Banco de Portugal v Waterlow & Sons Ltd [1932] AC452 at 506. I bear in mind the illustrations given in Macgregor on damages (14th ed., 1980) paras. 234-241, of which counsel for the lender relies on paras. 236, 238, 239 and 240; I accept these principles as established by authority and applicable to this case :

(a) a plaintiff need not take the risk of starting an uncertain litigation against a third party, for which Pilkinton v. Wood, [1953] 2 AER 810, [1953] Ch770 is authority, and that includes litigation which may be reasonably certain to result in judgment for the plaintiff but there is no certainty that the judgment will be satisfied;

(2) a plaintiff need not take steps to recover compensation for his loss from parties who, in addition to the defendant, are liable to him, for which The Liverpool No.2 [1963] P.64 is authority. There the other party was a tortfeaser, unlike the borrowers in this case; but

(3) a plaintiff need not act so as to injure innocent persons; and

(4) need not prejudice its commercial reputation."

60. Here, although this is no evidence that the plaintiff had any commercial reputation or that such reputation might be prejudiced if it were to rely on the limitation period against MF, I do not believe it matters. I have to decide whether on the facts of this case it is reasonable to require the plaintiff to plead limitation in the event of a claim by MF. I am of the opinion that it would not be reasonable to do so. Not least, because such a plea may not succeed.

61. For the above reason, I will make a declaration that the requisitions and objections in respect of the title of the Property in relation to Special Condition 26(a) has not been sufficiently or satisfactorily answered by the defendant. I would also make a declaration that the plaintiff was entitled to rescind and/or cancel the agreement and an order that the defendant to refund the deposit paid under the agreement as well of damages in the sum of HK$61,813. So far as interests are concerned, interests on the deposit of $109,500 and $43,500 of the damages to run from 20 May 1997. Interest on the sum of $13,175 to run from 2 December 1997. All interest to be at the rate of 1% over the best lending rate of HSBC until judgment. Thereafter at the judgment rate.

62. I also make a cost order nisi, that the plaintiff is to have the costs of the action. Such costs to be taxed, if not agreed.