THAPA BISHNU MAYA v. CHAN SHIU LAM

HCMP 230/2021

[2022] HKCFI 889

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 230 OF 2021

_________________

_________________

BETWEEN

_________________

_______________

JUDGMENT

_______________

Introduction

1.  This is a vendor and purchaser summons arising out of the sale of the property known as Flat A including its Flat Roof on the Second Floor, Fu Wing Court, Nos 10-12 Cross Street, Hong Kong (“the Property”).

2.  By originating summons filed on 23 February 2021, the plaintiff, as purchaser, seeks a declaration that the defendant, as vendor, had repudiated the agreement for the sale and purchase of the Property dated 20 May 2020 (“the Agreement”), a declaration that the requisitions on the title of the Property have not been answered or satisfactorily answered, a further declaration that good title to the Property to pass on completion has not been shown. The plaintiff also seeks the return of deposits in the sum of $500,000, solicitors’ costs of $8,445 and estate agent’s commission of $100,000.

3.  In her supporting affirmation, she asserts that the requisitions raised on the following two matters have not been answered satisfactorily:

(1) A charging order nisi dated 21 October 2020 made in the District Court action DCCJ 2949/2020 and registered against the Property in the Land Registry on 28 October 2020.

(2) A claim made by owners of three units (“the owners”) on the First Floor of Fu Wing Court, which are located below the Property, against the defendant in the District Court action DCCJ 4709/2020 on 3 September 2020 (“the District Court action”). The owners claim that since June 2020, water has been seeping from the Property to their premises. The writ was registered in the Land Registry on 9 September 2020. I shall refer to this as “the water seepage requisition” below.

4.  At the hearing, the plaintiff was represented by Ms Eugenia Yang, counsel. The defendant appeared in person.

5.  The defendant opposes the originating summons but has not filed any affidavit in opposition.

6.  In his oral submissions, he contended that he was not in breach of the Agreement. He believed that the plaintiff had not been able to secure a mortgage. He suspected that that was the reason why the plaintiff all of a sudden claimed that there was a problem with the title. He said that parties in fact had a conference the day before the scheduled completion date and discussed how to resolve the water seepage issue. He also complained about the conduct of the owners, ie the plaintiffs in the District Court action, and suggested that they were pursuing the action because they found out about the sale of the Property.

7.  At the hearing, I told the defendant that he would not be able to rely on these factual allegations as they are not properly deposed to in an affidavit. I will therefore not take them into account.

8.  In the course of her oral submissions, Ms Yang confirmed to the court that the plaintiff would no longer pursue the requisition relating to the charging order nisi. Hence the sole issue before the court is the water seepage requisition.

The contract

9.  On 6 May 2020, the plaintiff and the defendant signed the provisional agreement for sale and purchase. The purchase price was $5,000,000. The plaintiff paid an initial deposit of $150,000. The agreement contained a special clause providing that the defendant should at his own costs and expenses be responsible for complying with a building order previously registered against the Property (“the Building Order”) and should produce a letter of compliance or withdrawal issued by the Building Department before completion.

10.  On 20 May 2020, the plaintiff and the defendant signed the Agreement. The plaintiff paid a further deposit of $350,000. The completion date was to take place between 9:30am and 5pm on 13 November 2020. The obligation of the defendant in relation to the Building Order was reproduced in the Agreement.

11.  The Agreement also contained the following clauses which are presently relevant:

(1) The vendor shall give good title to the Property in accordance with section 13A of the Conveyancing and Property Ordinance, Cap 219. The vendor shall, in accordance with section 13 of that Ordinance prove his title to the Property at his own expense and shall at the like expense make and furnish to the purchaser such certified or attested copies of any deeds or documents of title, wills and matters of the public record as may be necessary to prove and complete such title (clause 10(a)).

(2) Time shall in every respect be of the essence of the Agreement (clause 14).

(3) If the vendor fails to complete the sale of the Property in accordance with the terms and conditions of the Agreement, then the deposit shall forthwith be returned to the purchaser in full but without prejudice to the right of the purchaser to recover from the vendor damages which the purchaser may sustain by reason of the failure on the part of the vendor to complete the sale and purchase and it shall not be necessary for the purchaser to tender an assignment to the vendor (clause 19).

The water seepage requisition

12.  In the transaction, the plaintiff was represented by Messrs Li, Chow & Company (“Li Chow”) and the defendant by Messrs Edmund Cheung & Co. (“Edmund Cheung”).

13.  Li Chow raised the water seepage requisition for the first time on 21 August 2020. At that time, the writ in the District Court action was not yet issued. But Li Chow were made aware of a complaint of serious water seepage from the Property causing substantial damage and the owners were threatening legal proceedings against the defendant and, after completion, the plaintiff. They received a letter from the owners’ solicitors dated 22 July 2020. Li Chow requested documentary evidence from Edmund Cheung to prove that the water seepage has been repaired to the satisfaction of the owners.

14.  The writ was issued on 3 September 2020 and registered against the Property in the Land Registry on 9 September 2020.

15.  In the statement of claim endorsed on the writ, the owners contended that there had been a canopy together with a toilet on the Flat Roof of the Property. That was the subject-matter of the Building Order. In around early June 2020, the defendant demolished and removed the structure. Since then, water was found seeping into the owners’ premises through the walls and the ceilings. The owners pleaded that the defendant was responsible for the water seepage and sought a mandatory injunction to compel him to, among other things, carry out waterproofing works at the Property and claimed damages.

16.  On 24 September 2020, Edmund Cheung replied that the water seepage problem was not attributable to the defendant and that the incorporated owners were liable.

17.  On 6 October 2020, Li Chow wrote to Edmund Cheung following up on the requisition. They demanded professional evidence agreed by all the parties concerned to be provided on the liability issue, and an order discharging or withdrawing the writ in the District Court action to be provided.

18.  There was no substantive reply from Edmund Cheung.

19.  On 21 October 2020, Li Chow wrote to Edmund Cheung. The former had received test reports on the alleged water seepage from the owners’ solicitors. Li Chow stated that having considered the reports, it was indisputable that shortly after the removal of the building structure on the Flat Roof of the Property, water was found seeping into the flats below and also the common parts. Li Chow further stated:

“Furthermore, according to the aforesaid Statement of Claim, your client was fully aware the said water leakage problem and had admitted the liability thereof. It is trite that your client would be liable to the owner and the tenant of the flats below for water escaping from the Property to the flats below and it is an encumbrance of the Property. Our client should not be compelled to take such a title as it would involve her in litigation. We therefore opine that your client could not sell the Property to our client free from all incumbrances. In this regard, we hereby reserve all our client’s rights under the Agreement for Sale and Purchase dated 20.05.2020.” (underline added)

20.  On the same day, Edmund Cheung wrote and informed Li Chow that the defendant had taken out a summons in the District Court action to vacate the writ of summons from the Land Registry and that the return date of the summons was 19 November 2020, which is after the scheduled completion date of 13 November 2020. Hence Edmund Cheung proposed to postpone the completion to 27 November 2020.

21.  Li Chow wrote back on 29 October 2020 rejecting the proposal. No reason was given.

22.  On the same day, they wrote a second letter putting on record that Edmund Cheung had not yet answered their requisitions and demands, and chasing for a reply.

23.  By letter dated 3 November 2020, Edmund Cheung reiterated the request to postpone the completion date to after the return date of the summons taken out in the District Court action. Further, they stated that the defendant agreed to pay into court the sum of $100,000 in that action “in order to show his sincerity to deal with the said action”.

24.  Li Chow replied to this letter on 9 November 2020 to the effect that:

(1) Edmund Cheung had not answered the water seepage requisition at all.

(2) The defendant had so far failed to produce documentary evidence to prove that the water leakage problem was not caused by the Property.

(3) Whether the writ in the District Court action could be vacated before completion was irrelevant to the requisition. This is because:

“… without overwhelming proof to rebut the claims by the Plaintiffs and the Incorporated Owners of the building, your client is unable to prove, show and/or good title to the Property as a result of the water leakage problem. In this regard, we would like to draw your attention to “Lam Ping Ying Tricia & other v Hui King Sang DCCJ3232/2010”. We hereby put on record that up to this date hereof, your client has failed to prove, show and give good title to the Property.” (underline added)

(4) It was reiterated that the defendant should discharge or withdraw the registration of the writ on or before completion. The request to postpone completion was once again rejected.

25.  The next relevant correspondence on the water seepage requisition, which was also the last one before the scheduled completion date, is Edmund Cheung’s letter dated 11 November 2020. They wrote that they were taking client’s instructions and would revert as soon as possible.

26.  Completion did not take place as scheduled on 13 November 2020.

27.  On 14 November 2020, Li Chow wrote to Edmund Cheung stating that the defendant had failed to prove, show and give title of the Property on the scheduled completion date and was in repudictory breach of the Agreement. By the letter, the plaintiff accepted the repudiation. The plaintiff therefore sought the return of the deposit of $500,000 and damages. Below is the relevant extract:

“Since your client has failed and/or refused to answer all our requisitions and demands as raised in our aforesaid letters and also failed to prove, show and give good title of the Property on the scheduled date for completion on 13.11.2020, your client had in breach of the terms and conditions of the Agreement for Sale and Purchase of the Property dated 20.05.2020. Such breaches amount to a repudiation of the said Agreement which our client hereby accepts.”

28.  The defendant did not comply with the payment request. On 31 December 2020, Li Chow sent to Edmund Cheung a letter before action.

Discussion

29.  Based on the correspondence from Li Chow, the water seepage requisition was raised on the following basis. The liability arising out of the alleged water seepage was an encumbrance of the Property. This is because, upon becoming the owner, the plaintiff would be involved in the litigation. The defendant would thus not be able to show and pass a good title. See paras 19 and 24(3) above.

30.  Therefore, the water seepage requisition, as formulated, was a requisition going to the title of the Property.

31.  Ms Yang cited the following general principles on the issue of title, as recently set out in Ip Fong Keng v Fong Yu Shing [2019] HKCFI 1677:

(1) The defendant must show good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an encumbrance: para 11.

(2) A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the standpoint 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: para 11.

(3) The starting point is that: (i) requisitions must be answered with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed; (ii) to provide a satisfactory answer to a requisition, the vendor must provide proper conveyancing evidence, which is so compelling that the court can conclude beyond reasonable doubt that there is no real risk of a title defect; (iii) in the context of notices or orders from the Building Authority, it is incumbent upon the vendor to demonstrate either that the notices or orders have been dealt with to the satisfaction of the Building Authority, or that the costs of compliance have been adequately provided for, such that no encumbrance under section 33(9) of the Buildings Ordinance could ever arise: para 23.

32.  These are well-established principles. I shall apply them where applicable.

33.  Furthermore, in her written submissions, Ms Yang relied on the decision in Law Ping Ying Tricia v Hui Kin Sang DCCJ 3232/2010, 18 June 2013. That was the authority cited by Li Chow in support of the water seepage requisition.

34.  That case also concerned the sale of a flat. The judge made the factual finding that there was water leakage problem existing at the flat affecting the floors below and that the problem had existed before the signing of the provisional sale and purchase agreement and subsisted. He also found that the vendor had a duty to, but did not, disclose the problem to the purchaser: paras 22 and 28 of the judgment.

35.  On that factual premise, the judge held that the water leakage problem was an encumbrance of the flat as there would be potential claim made by the occupiers of the flats below. The purchasers should not be compelled to take such a title as it would involve them in litigation: para 23.

36.  At para 27, the judge summed up the position:

“Thus, I have no hesitation in finding that the water leakage problem is an encumbrance which would subject the plaintiffs to potential litigation and hence the title is bad.” (underline added)

37.  I pause here to note that in that case, the water seepage had existed before the sale contract whereas here, on the owners’ case, the water seepage only started after the Agreement was entered into.

38.  Ms Yang submitted in her written submissions that the registration of the writ in the District Court action with the Land Registry posed a real risk that a third party, including the plaintiffs in the District Court action, might assert some right in the Property. The defendant was unable to produce documentary evidence showing that the water seepage problem did not relate to the Property. If the plaintiff were compelled to go ahead with the completion, she would be buying a litigation for herself and bearing all the consequences. In the circumstances, she would be at risk of a successful assertion against her of the encumbrance. The court, Ms Yang concluded, should not declare in favour of a good title.

39.  At the hearing, I raised this question with Ms Yang – Do the alleged water seepage from the Property and the registration of the writ in the District Court action against the Property in the Land Registry properly raise an issue going to the title of the Property?

40.  In her written submissions, Ms Yang quoted para 23 of the judgment in Ip Fong Keng (see para 31(3) above) which refers to requisitions on orders issued by the Building Authority.

41.  However, it was explained in para 13 of that judgment why these orders may constitute a potential blot on the title. This is so because the Building Authority has statutory powers to demolish an illegal structure, recover costs from the owner, and register a memorial of a certificate against the title of the property in the Land Registry, upon which the costs shall constitute a first charge upon the property: sections 24(3) and (4) and 33(9) of the Buildings Ordinance.

42.  That situation has to be contrasted with the present case where the District Court action is a civil action brought by the owners seeking injunctive relief and claiming damages. It is a personal action against the defendant. The owners are not asserting any right as against the Property. Hence it is not immediately clear what is the precise legal basis for saying that the litigation would amount to a blot on the title.

43.  In this regard, insofar as Law Ping Ying Tricia decided that the existence of any potential water leakage litigation would of itself render a property title bad, that conclusion may be open to doubt.

44.  If the legal point was wrongly decided, the water seepage requisition would appear to be invalid. On the other hand, even if it was in fact wrongly decided, given that it was a court decision which apparently supported the water seepage requisition, an issue arose as to whether Li Chow was nonetheless justified in relying on it in their correspondence with Edmund Cheung and, further, whether the water seepage requisition can be said to be have been properly raised based on that decision.

45.  At the hearing, I raised these concerns with Ms Yang. It was accepted that further research was required. I therefore invited parties to make supplemental submissions in writing on the following questions:

(1) Is the writ in the District Court action a registrable instrument?

(2) If not, and in light of the defendant’s application to vacate it, would the fact that the writ remained on the register cast doubt on the title of the Property?

(3) Is the District Court action a matter that goes to affect the title?

(4) In this regard, is Law Ping Ying Tricia correctly decided?

(5) If not, was the plaintiff justified in relying on it to refuse to proceed to completion?

46.  In her further written submissions, Ms Yang answered the questions as follows:

(1) The writ does not affect land for the purpose of the Land Registration Ordinance, Cap 128. It is thus not a registrable instrument.

(2) Even if the writ remained on the land register as against the Property, it would not cast doubt on the title.

(3) The District Court action does not affect the title of the Property.

(4) Water leakage problems do not affect land. Law Ping Ying Tricia is not correctly decided.

(5) The plaintiff was not justified in relying on that decision to refuse to proceed to completion.

47.  Notwithstanding the above answers, Ms Yang went on to submit that the defendant has failed to complete the sale of the Property in accordance with the terms and conditions of the Agreement, and he should return forthwith the deposit to the plaintiff. She relied on clause 14 of the Agreement. It stipulated that time shall in every respect be of the essence. She submitted that in light of such clause, the failure to meet the completion deadline amounts to a breach of contract on the defendant’s part.

48.  I would immediately say that Ms Yang’s last submission is not valid. That submission ignores the fact that it was the plaintiff who maintained at all times up to before the scheduled completion date that the defendant failed to show good title.

49.  Returning to the five questions which I posed, I will have to take counsel’s answers as representing the plaintiff’s final stance in the present application. Li Chow had formulated the water seepage requisition on the basis that the existence of a litigation concerning the alleged water seepage would by itself render the title bad. However, counsel now submitted that such litigation would not affect the title of the Property. It must follow, on the plaintiff’s own case, that the water seepage requisition was not properly raised in the first place.

50.  That requisition was the only ground on which the plaintiff relies in the present application (save for the submission which I have just rejected). Ms Yang has not put forward any other reason why the defendant has failed to show good title or why he was in repudictory breach of the Agreement. For these reasons, the plaintiff’s claim must fail.

51.  I wish to stress that I have arrived at my ruling specifically based on how Li Chow had formulated the water seepage requisition and how counsel answered the questions posed by me.

52.  In general, whether a purchaser is entitled to rescind a contract based on alleged water seepage emanating from the subject property and any potential or actual litigation flowing from it must depend on the facts of the case. How the water seepage occurred, when it started, the extent of the seepage, the seriousness of the resulting damage, and the contractual provisions governing the sale are all potentially relevant factors.

53.  But none of these really feature in this case. The requisition was formulated purely based on the contention that the existence of the District Court Action itself would render the title bad. Furthermore, I did not have the benefit of full legal submissions as the defendant was not legally represented. That being the case, it would not be necessary or proper for me to say any more on this issue in general. I must confine myself to deciding the case based on how it was presented to me by the parties, as I have done above.

Conclusion

54.  I dismiss the originating summons.

55.  I make an order nisi that the defendant do have costs of the originating summons, including any costs reserved.