FAR EAST CONSORTIUM LTD. v. SINGAPORE HONG KONG PROPERTIES INVESTMENT LTD.

HCA4390/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4390 OF 2001

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J U D G M E N T

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1. This action arose out of an abortive sale and purchase agreement dated 11 September 2001 ("the Agreement") whereby the defendant agreed to sell to the plaintiff at a price of HK$72 million its entire shareholding in one Diamond Gold Limited ("the Company") together with all its interests and rights in a loan of more than HK$90 million extended to the Company. The plaintiff paid a deposit of HK$7.2 million upon signing of the Agreement. The Company is the legal and beneficial owner of a property described in full in the Agreement as "all that piece or parcel of ground situate at the Peak, Hong Kong and registered in the Land Registry as Rural Building Lot No.588 together with the messauges erections building and the Garden thereon now known as No.73 Mount Kellett Road, The Peak (formerly known as No.5 Cameron Villas) ("the Property")". Completion fell on 27 September 2001. It can readily be seen that the object of the Agreement is to enable the plaintiff to hold the Property through the acquisition of the Company.

2. The Agreement expressly provided that the defendant had to prove good title to the Property in accordance with section 13 of the Conveyancing and Property Ordinance, Cap.219. In the statement of claim, the plaintiff alleges that it is an implied condition of the Agreement that the defendant had to prove that the Company had good title in the Property. This implied term is accepted by the defendant through its counsel, Mr Shieh.

3. By a letter dated 17 September 2001, the plaintiff's solicitors sought to raise a total of eight requisitions. The answers were purportedly given in the letter of the defendant's solicitors dated 24 September 2001. The plaintiff's solicitors were not satisfied and followed up on the answers. Apparently, the defendant's solicitors did not make any further reply. The plaintiff complained that the defendant had failed to prove that the Company had good title in that it had failed to answer its requisitions on or before completion or at all. It therefore rescinded the Agreement and demanded the return of the deposit of HK$7.2 million. The defendant did not make any repayment.

4. On 8 December 2001, the plaintiff commenced the present proceedings to claim for a declaration that it had validly rescinded the Agreement and had no obligation to perform or complete the same and for the return of the deposit. By a summons dated 19 October 2001, the plaintiff sought summary judgment. The master heard the application on 28 December 2001. She made no order on the summons and gave directions regarding pleadings, discovery and witness statements. Although it was not so specified in her order, the master must have given the defendant unconditional leave to defend. Dissatisfied, the plaintiff now appeals. At the hearing before me, Mr Swaine for the plaintiff only relied on four of the eight requisitions raised in the 17 September letter.

Deficiency in the defendant's affirmations

5. Before I proceed further, I find it necessary to first deal with the defendant's affirmations. The first affirmation is that of its director, Mr Richard Cheung Chung Leung, filed on 10 November 2001. Essentially, he exhibited a copy of the Agreement and the solicitors' correspondence in connection with the requisitions. He said that there were triable issues involving facts and law which could not be dealt with summarily. Those issues, however, had not been identified or particularised. Mr Leung also said that he was advised that the defendant had a good defence. But the purported defence was not spelt out. The second affirmation is that of Mr Wong Wai Man, a partner of the defendant's solicitors. Mr Wong simply exhibited some further documents the defendant sought to rely on. He did not add anything to the alleged triable issues or purported defence referred to by Mr Leung. Mr Shieh, counsel for the defendant, submitted that these affirmations had put forward sufficient facts and documents for him to properly argue the defendant's case. And that would be good enough. With respect, I disagree. In my view, it is not enough to simply exhibit the documents and correspondence in the affirmations without particularising the alleged triable issues or the purported defence. The burden rests squarely on a defendant who wishes to oppose an application for summary judgment to condescend upon particulars in his affirmation. The affirmations of Mr Leung and Mr Wong have failed in this regard miserably.

Central issue

6. But that is not the end of matter. For Mr Shieh's submissions are essentially built upon the documents already exhibited. His primary attack on the requisitions is that (1) they related to non-existent difficulties in the sense that the problem or risk purportedly perceived by the plaintiff was fanciful or remote to the extreme and (2) the answers to them were self-evidence either from common sense or the materials already supplied by the defendant's solicitors at the time. The requisitions were thus improperly raised. The defendant's solicitors were not obliged to answer any of them. Even if some of the answers they gave were not complete, it did not amount to any failure to prove good title. It should be noted, however, this line of defence was never put forward in the correspondence.

7. In light of counsel's submission, the central issue before me is whether the four requisitions now relied on by the plaintiff, as formulated and considered in the factual context as disclosed on the evidence, were arguably raised improperly in the way as contended.

8. I will now proceed to examine the four requisitions in turn.

The first requisition

9. The Property is the subject of a Crown Lease dated 20 January 1950. It originally contained a building covenant to build a building on the land and a further covenant that the lessee would obtain the approval of the Building Authority as to the design of the exterior elevations and the depositions and height of any building erected or to be erected on the subject piece of ground ("the Special Approval covenant"). In 1954, by an endorsement, the building covenant was removed and replaced by a repair covenant. It would appear that by then a building must have been erected pursuant to the building covenant. It should however be noted that the Special Approval covenant remained intact. Thus, special approval of the Building Authority is still required for any work falling within the ambit of the Special Approval Covenant to be carried out on the building already erected or any building to be erected.

10. The plaintiff's solicitors asked for the special approval under the Special Approval covenant. The reply from the defendant's solicitors is difficult to understand. They stated that good title to the Property had been proved and the requisition was for matters relating to the building. No special approval was produced. It is not clear if the defendant's solicitors were suggesting that the building situated on the land did not form part of the Property. If they were, they must be wrong. For it is contrary to the very definition of the Property in the Agreement. If they were not, then it is difficult to understand how they had answered the requisition at all.

11. Mr Swaine submitted that the failure to provide the special approval is fatal because it is not clear if the building now situated on the land was built in accordance with the statutory provisions or that all the conditions of the Building Authority had been complied with. The plaintiff is not even clear if it was the same building erected in or before 1954. Mr Shieh submitted that the discharge of the building covenant presupposed that the building had been erected. The irresistible inference is that it had been built in compliance with the Building Ordinance and that special approval of the Building Authority had been obtained. Alternatively, if special approval had not been obtained, the government was all along aware of it. In the absence of any enforcement action taken, the risk perceived by the plaintiff is fanciful or extremely remote : Jumbo Gold Investment Ltd v. Leung Yun Cheong Warren & another [2000] 1 HKC 539, Mexon Holdings Ltd v. Silver Bay International Ltd (2000) HKCFAR 109.

12. I accept that it is certainly arguable that the discharge of the building covenant by the endorsement supports a reasonable inference that the building erected on the land before the discharge had the requisite approval of the Building Authority. Mr Shieh's submission however went further. It assumed the following facts : (1) that the building now situated on the land is exactly the same building erected before the discharge of the building covenant in 1954; (2) that the building erected before the discharge of the building covenant in 1954 had remained intact in all respects; (3) that throughout the years, no further work had been carried out in connection with the building which required special approval of the Building Authority under the Special Approval covenant; and (4) that no enforcement action had been or threatened to be taken. But the defendant's solicitors had simply failed to spell out these facts in their purported reply. This distinguishes both Jumbo Gold Investment Ltd v. Leung Yun Cheong Warren & another and Mexon Holdings Ltd v. Silver Bay International Ltd. The vendor's solicitors in those cases, unlike the defendant's solicitors here, did state in their answer to the requisition facts which enabled the court to conclude that the risk perceived by the purchaser was fanciful or remote to the extreme. Nor can the facts assumed by Mr Shieh be readily inferred from the materials available. In the circumstances, I do not subscribe to counsel's submission that this requisition was improperly raised. In my view, it was a proper requisition and the defendant's solicitors had not answered it.

The second requisition

13. The plaintiff's solicitors asked for a copy of the occupation permit. The defendant's solicitors stated that no occupation permit had been issued and it was apparent from the copy letter from the Building Authority dated 24 June 1997 (enclosed as part of the title documents supplied) that no occupation permit has been issued since 16 August 1945. The plaintiff's solicitors replied that they were aware of the absence of the occupation permit and that in the absence of the occupation permit, the title might be defective. The defendant's solicitors did not make any further response. Mr Swaine submitted that the occupation document is a title document and he complained that there was no attempt to prove that occupation was legal. Mr Shieh contended that the defendant could not be asked to produce something which did not exist. He further argued that the compliant about illegal occupation was fanciful. The Building Authority must have been aware that no occupation permit has been issued since 1945. Yet there has been no threat of any re-entry. Again, Mr Shieh's submission is premised on assumptions of facts. They are : (1) that the occupation of the Property since 1945 has been continuous; and (2) that there has been no threat of any enforcement action by the Building Authority. Unfortunately, the defendant's solicitors had not set out these facts in their letter. And these facts cannot be readily inferred from the materials available.

14. In the circumstances, I hold that the requisition was properly raised and the defendant' solicitors had failed to answer it.

15. My ruling on the first and second requisitions is sufficient to dispose of this appeal. However, for the sake of completeness, I will proceed to deal with the two remaining requisitions.

The third requisition

16. The Property was assigned by the Hong Kong General Chamber of Commerce to the defendant's predecessor-in-title on 28 October 1975. The requisite assignment was signed by the Chairman of the Hong Kong General Chamber of Commerce. The plaintiff's solicitors asked for a copy of the relevant board minutes authorising such an execution as it was provided in the articles of association of the Chamber that it should be authorised by a director or a person so authorised by the directors. The defendant's solicitors replied that they would come back on this after they heard from the Chamber. In the end, they did not come back at all.

17. Mr Shieh submitted that it must be apparent from the assignment and the copy articles supplied as part of the title documents that the Chamber is a limited company incorporated under the Companies Ordinance. Referring to the fact that the receipt chop of the Company Registry appeared on the copy articles, he asked rhetorically: if it was not a limited company, why would it file its articles with the Company Registry for registration and why would the Company Registry accepted them for registration? Having established its corporate status, Mr Shieh then argued that the Chairman who executed the assignment must be the chairman of the board, who must be a director. Section 23 of the Conveyancing and Property Ordinance is therefore applicable.

18. I find Mr Shieh's submission an arguable one. A credible defence is therefore disclosed on this requisition.

The fourth requisition

19. It is an express term of the Agreement that at completion, the defendant had to produce a certificate of good standing for the Company. Apparently, the certificate is necessary because the Company is a BVI company and the plaintiff was buying its shares.

20. The plaintiff asked for a copy of the certificate of good standing to show that the Company was duly incorporated at the time when it executed the assignment whereby its predecessor assigned the Property to it in September 1997. The defendant's solicitors did not provide the certificate but instead supply another certificate called the certificate of encumbrance.

21. Mr Swaine accepted that the plaintiff knew that the Company had been duly incorporated at the time of the assignment. The requisition in the circumstances would thus appear to be superfluous. But Mr Swaine argued that the certificate of good standing was necessary to show that the Company was legally capable to receive the benefit under the assignment. However, no authority has been cited that the certificate is capable of proving this. That being the case, it is certainly arguable that the certificate is not a title document. Further, the requisition was not raised in the way as Mr Swaine did. I do not think the plaintiff is entitled to expand on the requisition now. A purchaser should always formulate the requisition with reasonable care and precision. The vendor is then expected to answer the requisition so formulated. If after the transaction has fallen through because of a dispute arising from the alleged failure to answer the requisition satisfactorily or at all, the purchaser is then entitled to expand on the requisition, conveyancing practice in Hong Kong will be thrown into chaos. That is not permissible. I will therefore hold that a credible defence has been raised on the fourth rrequisition.

Conclusion

22. For the above reasons, I will allow this appeal, set aside the master's order and enter judgment for the plaintiff on paragraphs (1) and (2) of the prayer in the statement of claim with interest. I will also make an order nisi that the plaintiff is entitled to the costs of the action, including the costs of this appeal and the costs below, to be taxed if not agreed.