EMPIRE TREND ENTERPRISES LTD. v. DOUBLE MIND CO. LTD.

HCMP 2425/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2425 OF 1998

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J U D G M E N T

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1. These proceedings arise out of a sale and purchase agreement entered into between the plaintiff/purchaser and defendant/vendor on 13 August 1997 in respect of the ground and mezzanine floors of a property at 46-48 Granville Road, Tsimshatsui, Kowloon. The agreement was in familiar terms with the usual requirements for the vendor to show and prove good title, for completion to be not later than 5.00 p.m. on 23 April 1998, and for requisitions and objections as to title to be delivered in writing within 7 working days after delivery of all title deeds and documents. Other relevant terms of the agreement I shall refer to later when considering specific requisitions. The title deeds and documents were delivered to the plaintiff's solicitors on 6 January 1998 and a number of requisitions were raised by them in letters dated 12 and 14 January 1998, with a further letter on 6 February 1998 correcting some clerical errors. It is the plaintiff's case that 7 of those requisitions remained unanswered satisfactorily or sufficiently at the date fixed for completion and that the defendant has accordingly failed to show and/or prove a good title to the property in accordance with the agreement, and they now seek a declaration to that effect, that they were entitled to rescind the agreement, and for an order, inter alia, that the defendant refunds the deposit of $34,000,000.00 paid.

2. I will deal with the requisitions in the order of their listing in the plaintiff's solicitors' letters and using the same numbering, except for requisition 17, which, raising as it does considerably more issues than the others, I shall deal with last.

Background

3. The property in question was built in about 1978 and was designed for the ground and mezzanine floors to be used as a banking hall and offices by the Hang Lung Bank. To this end the mezzanine floor began about one third of the way in, leaving the first part of the ground floor banking hall with a double height ceiling. In March 1988 the premises were agreed to be sold to one Tang Shing Bor with a leaseback arrangement for the bank to continue to use the mezzanine floor as its banking hall, with a condition that it also be allowed to undertake certain building works in connection with that, including adding a staircase entry from the street and removing the safe deposit enclosure on the mezzanine floor. There is no evidence that the staircase was ever constructed, or indeed that the bank ever used the building again, but the safe deposit walls, door and gates were certainly removed at some stage, although by whom is not clear.

4. In July 1988, some four months later, the property was sold by Tang Shing Bor to the defendant, who proceeded to make a number of substantial alterations to the building, which I shall look at in more detail when considering requisition 17 below, in order to increase the useable floor area for the purpose of using the premises as a shopping arcade. No approval by the Building Authority was obtained for these alterations. In 1996 the defendant was minded to sell the property, and in 1997 either approached, or was approached by, a firm of estate agents, Uni-Pacific Property Consultants Ltd (Uni-Pacific), in the person of one Dennis Lee. Through that firm contact was made with Mr Mak Hin Kwan, a director of the plaintiff, who was interested in purchasing the premises for use as a restaurant, having a number of other restaurants around Hong Kong. The plaintiff's dealings with Uni-Pacific were through a Mr Felix Chan. Negotiations ensued, which, again, I shall return to later, as a result of which a provisional sale and purchase agreement was signed on 23 July 1997 by another director of the plaintiff, Mr Yeung Chak Por, and the formal agreement on 13 August 1997.

Requisition 1－ terms of the Government Leases

5. The two Crown leases granted in respect of the lots upon which this property stands, dated 12 June 1968 and 7 June 1972 respectively, have endorsed in the margin and signed by or on behalf of the Registrar General the words:

"This Lease is issued under the terms of paragraph 2(b) of a document entitled "Alternative Terms available to a Crown Lessee on Application for the Renewal of a Lease of Land in Hong Kong and Kowloon (not including New Kowloon or the New Territories)" issued by the Government following a Statement of Government Policy announced on 6th August 1963."

6. The plaintiff's solicitors requested certified copies of the said document as necessary to prove the terms of the Government Leases.

7. The defendant's solicitors, having made enquiries of the Lands Department of the Government, replied that the terms of the document could not form part of the Government Lease as it was not annexed to it, it only stated that the lease was issued under it, not subject to it, that that was accordingly only authority to issue the leases, and that, in any event, the Lands Department having no record of it confirmed that it could not be part of the leases.

8. As these leases run until 2038, it would be surprising in the extreme if there were terms to them, not recorded in them, of which the lessor, the Government, was itself unaware and had no record of. The possibility of this endorsement affecting the title of the land is therefore in my view so remote that I consider the requisition satisfactorily answered.

Requisition 6 － permitted use under the Occupation Permit

9. This request was for evidence that approval and consent for change from the original user had been given by the Buildings Department.

10. The original occupation permit of 28 September 1978 allows use of the property as:-

"Ground Floor: Bank Hall......

Mezzanine Floor: Bank Office and safe deposit vault...."

11. On 11 December 1987, notice was given of intended change of the use from "banking" to "retail and/or banking", and on the Form 28 required for this were, inter alia, the following particulars:

"Number of persons of each sex who will occupy the building after change of use: not more than four on each floor"

12. At that stage no building works were foreseen and the Building Authority indicated that they had no objection in principle, advising that detailed submission was required for works not exempted from the Building Ordinance. After the defendant purchased the property in July 1988 and had the building works carried out, which I shall return to below, they converted the premises into a shopping arcade. It is the defendant's case that no approval was necessary for this change of user as the occupation permit had qualified the use as a banking hall and offices by the words "for non-domestic use" and, further, such use was permitted under the Outline Zoning Plan for the area. This is supported by an opinion from a registered structural engineer and authorised person, Mr Shun Lok Nin, that where an area, as here, is zoned for commercial use, retailing business is always permitted without further approval. He also gives as his opinion that the number of persons given who will use the premises is not of any significance. Indeed, no-one appears to be able to explain how the number 4 came to be given, as it is inexplicable even for the original use.

13. A proper notice under the Buildings Ordinance had been given here, and there is no provision under that ordinance for an application for approval, only a notice. I am accordingly not satisfied that the change of user was unauthorised here. It is also unclear what sanctions there are should the change of use not be authorised. The plaintiff's solicitors, in their letters of 12 and 14 January 1998, refer to breaches of the provisions of the Buildings Ordinance and the Government Lease, and to possible enforcement proceedings or a premium being levied. There is no evidence before me of any possible consequences, nor what provisions of the Government Lease could be breached, nor under what authority a premium could be charged. I therefore am also of the view that this requisition was properly answered.

Requisition 10 (and 16) － approval of building works by Hang Lung Bank and their reinstatement

14. As already referred to above, by a sale and lease back arrangement in March 1988, the Hang Lung Bank, the then owner, sold the premises to Tang Shing Bor on condition that a tenancy was granted to the bank of the mezzanine floor and that they were permitted to carry out substantial building works to allow access to what was obviously intended to be their banking hall on the upper floor. I have no evidence that this was ever carried out, or that the bank took up its tenancy, except that the safe deposit vault on the mezzanine floor was removed. Indeed, the comparatively short period of time between this agreement and the assignment to the defendant suggests that the works were not carried out or reinstated.

15. However, the request of the plaintiff's solicitors under this requisition was for proof that approval had been given for these works by the Buildings Department and the building management under the deed of mutual covenant. The defendant's solicitors initially approached the request on the basis that approval was unnecessary, but on 31 March 1998 pointed out that the works referred to in the 1988 agreement "practically" do not exist. By this time the plaintiff had instructed their own expert to report on the property, who could have confirmed that, even if the works had been carried out, they must have been reinstated, save for the removal of the safe deposit area, and there is no evidence that any approval was necessary for the demolition of what were clearly internal and non-structural walls.

16. These requisitions were also satisfactorily dealt with by the defendant.

Requisition 15 - Approval by the Director of Public Works

17. By deeds of variation of the Crown Lease in 1975, approval and consent of the Director of Public Works was required for demolition and redevelopment of the site. The plaintiff requested proof that such approval and consent for the existing building had been granted.

18. The defendant's solicitors replied that, since an occupation permit for the building was issued on 25 September 1978, by the Buildings Ordinance Office, which was under the supervision of the Director of Public Works, approval was deemed to have been given. Even before that, the same office had approved the plans for the building to be erected. I am not satisfied that the wording of the Lease intends that some other approval is necessary, and again the defendant's solicitors answer is entirely satisfactory.

Requisition 20 - Renunciation by Nominators

19. By a sale and purchase agreement dated 13 April 1976, the then owner of the building, of which the suit premises herein form part, agreed to sell the building to three purchasers, Yip Chun Ling, Young Chan Koon and Tsoi Ling Moon for $9,000,000.00 and acknowledged receipt of a deposit of $2,700,000.00. On 29 May 1976 these three gentlemen nominated Benefit Corporation Investment Ltd (Benefit), of which all three were directors, to be the assignee of the property, but without recording any renunciation of their own interests. On the same day the property was duly assigned to Benefit, the assignment reciting the nomination document and also that the three purchasers had thereby renounced their right, benefit and interest in the property, which was not in fact correct.

20. By their requisition, the plaintiff's solicitors sought evidence that these three nominators did not retain any interest in the property.

21. The defendant's case on this is, so far as Yip and Tsoi are concerned, that they signed the assignment as directors of Benefit, and accordingly confirmed their own renunciation recited in it. As to the third nominator, Young, the defence case is in two parts: first, that, being a similar situation to that in Easyknit Investment Co Ltd v Yetonce Ltd MP 1454 of 1991, the directors were clearly acting as agents for Benefit; and, second, that, in any event, any possible action by Young would be statute barred under section 20 of the Limitation Ordinance, Cap 347, which excludes from the other provisions of that ordinance only actions involving fraud by the trustee.

22. I agree that the situation here is almost identical to that in Easyknit. The vendor acknowledged receipt of the whole purchase price from the purchaser, Benefit, in the assignment, and the same solicitor, Clayton C.K. Wong, clearly prepared and witnessed all three documents, the agreement, the nomination, and the assignment. As in Easyknit, I too consider it fanciful to imagine that Young could have been anything but an agent for Benefit.

23. In support of the limitation point, Mr Chan for the defendant has directed my attention to the decision of Findlay J in Yeung Kit Lam and Wong Sau Fun v Lau Yiu Shing MP 3392 of 1994, where he points out that any action for breach of trust could only be against the trustee, which here would be Benefit, not the subsequent owner, and would not affect the title. Further, any action would be statute barred under the ordinance, unless it was against the trustee, the purpose of the exception being to prevent a trustee taking advantage of his own fraud. There is accordingly no risk of any action by the nominator, Mr Young, and the requisition again has been adequately dealt with.

Requisition 17 - Unauthorised Building Works

24. Under this requisition the plaintiff required proof that there had been no breach of the Buildings Ordinance, the Government Lease or the Deed of Mutual Covenant in respect of the unauthorised building works found in the premises.

25. It is not in dispute that, since acquiring the property in 1988, the defendant has carried out extensive alterations to the building which Mr Wong Wai Biu, the defendant's director, admits were to increase the useable floor area for the purpose of using the premises as a shopping arcade on both floors. It is also not in dispute that no approval for these building works was sought or granted and they are according illegal structures under the Buildings Ordinance, and liable to be subject to a demand from the Buildings Department for demolition and reinstatement. Particularly, as here, it was the intention to use the premises as a restaurant and the process of applying for a licence to do so would inevitably have involved a careful inspection of the structure of the building by the relevant authorities.

26. The alterations may briefly be described as follows:

* The original void space in the ground floor banking hall giving it double height had been covered by a new floor slab to increase the floor area on the mezzanine floor by some 81 square metres.

* A new staircase had been built to give access to this area which could not be easily connected to the rest of that floor owing to the presence of a structural beam across the building.

* The flight direction of the original staircase to the mezzanine floor had been reversed.

* The mezzanine floor had been extended by a new floor slab over part of the rear yard to give an extra 41 square metres of space and a new doorway constructed to give access to this area.

* The original toilets on the ground floor had been demolished, the walls removed, and converted into a shop and new smaller toilets constructed elsewhere in the yard which had been covered over.

* A new toilet was constructed on the mezzanine floor.

27. There was also mentioned a locked steel gate blocking a fire exit. However, I propose to disregard that for the purposes of this case as it is not a permanent, or indeed, illegal, structure, it is almost certainly in the common area of the building, and there is no evidence that it cannot simply be unlocked by those who control it, who may well be the building management.

28. There can be no doubt that the presence of unauthorised structures, and the risk of action by the Building Authority, will prevent a vendor from being able to show a good title, unless either the purchaser can safely disregard that risk, or there is full disclosure of the existence and nature of the illegal structures and an agreement by the purchaser not to take any objection to title on that basis. The absence of risk is not the defence put forward here, which falls into five parts, namely:

(1) the requisition was not formulated with reasonable precision within time;

(2) there was an oral collateral agreement that the plaintiff would demolish the unauthorised structures of which they were aware;

(3) by the inclusion of clauses in the provisional sale and purchase agreement by which the plaintiff agreed to take the property "as is" and "in its present state" restricted the rights of the plaintiff to object to the alterations;

(4) the plaintiff had waived any rights to raise objections by entering into the agreement in the knowledge that the building works existed; and

(5) there could still be substantial performance by the defendant.

The "time" point

29. The original requisition was delivered on 14 January 1998 and it is conceded that this was within the time limited by the agreement. However, the defendant says that by relying on an expert report dated 15 April 1998 by Mr Kwong Hon Chung, some 7 days before the date of completion, they were out of time. Mr Chan does concede that, to the extent that the report is used simply to support the requisitions which were raised in the letter of 14 January, no time point could be taken.

30. The simple answer to this point is precisely that. The letter of 14 January amply sets out the structures of which they say they require proof that there are no breaches of the ordinance, the lease or the DMC, the report merely confirms in more detail what is set out in the letter. In any event, it has never been denied by the defendant that these are unauthorised structures and he knows the extent of them. Mr Chan submits that there is evidence that the plaintiff had the approved plans in October 1997 and could have complained earlier. There is, however, no obligation under the agreement for them to do so. They had until 14 January, which is when the requisition was delivered.

Collateral agreement, "as is" clause, and waiver

31. For these points raised for the defence it is contended that the plaintiff not only knew of the unauthorised building works, but was accepting the property with those structures, had agreed to be responsible for their demolition, and had waived any rights to raise requisitions on them. It will therefore be necessary to look first at the evidence of what transpired between the parties, and, more importantly, between them and the estate agents, it being common ground that the parties themselves did not meet at all, even at the time the provisional sale and purchase agreement was signed, the agents visiting the parties in turn to obtain their signatures.

32. As I have said above, the defendant first had dealings with Uni-Pacific through Dennis Lee and Mr Wong said that he had given him a copy of two sets of plans of the property, the first being copied from an earlier assignment and showing the original layout as a bank, and the second being a sketch of the existing layout partitioned into shop units. He also gave him a copy of a list of rentals then being paid by the licensees of the units. By a simple comparison of these plans it would have been obvious that extensive alterations had been carried out. However, there is no evidence that the plaintiff was given a copy of the first plans, or ever saw them until later, after the formal sale and purchase agreement had been signed. If he had, he would have been put on enquiry as to the alterations, but would still not know whether they had been approved or not. As I have already noted, the plaintiff, by Mr Mak and Mr Yeung, the directors, only dealt with Felix Chan of Uni-Pacific and, although they said that they had met Dennis Lee, negotiations were conducted through the former only, who supplied them with the sketch plan of the shops layout and no more, and who was only authorised to discuss the price, and to pass on the plaintiff's requirements, not to negotiate or agree other terms.

33. Mr Mak did of course visit the property before any agreement was reached. While inspection by surveyors, on behalf of prospective purchasers, before even the formal sale and purchase agreement, seems to be the exception rather than the rule in Hong Kong, it is unusual for properties not at least to be looked at. Mr Mak said that he went there at least twice with Felix Chan and some of his partners in the restaurant business, and had asked to see the Deed of Mutual Covenant to make sure that there was no bar to using the premises as a restaurant. However, he said that neither Felix Chan nor anyone else told him at that time that there were illegal structures. He says that he saw that the front part of the mezzanine floor was separated from the rest by a solid partition, and was reached by means of a separate staircase, and thought that it might have been added, but he had no reason to believe that it was not an approved structure. Without seeing the original approved plans, he would have no reason to know that other parts of the building such as the extension to the mezzanine floor at the back, and the reversed staircase were also illegal alterations. Mr Kwong, the structural engineer retained by the plaintiff to produce a report on the premises, agreed in evidence that even for him it would not have been easy to see what additions had been made, which were possibly unauthorised, had he not had the approved plans, which he had received only about a week before his visit on 17 January 1998.

34. The defendant's director, Mr Wong Wai Biu, apart from giving evidence that he had given Dennis Lee the plans, and that he had told him of the alterations, was unable to say more than that, until his evidence of the final negotiations themselves. He may have assumed that the plans and information were passed on to the plaintiff, but there was no evidence from either Dennis Lee or Felix Chan to assist on this, or on what transpired later. I have to say that I am unable to draw any inference that Dennis Lee passed those plans to Felix Chan, and certainly not that Felix Chan gave them to the plaintiff, or told them of the building works.

35. What evidence is there then that the plaintiff had any knowledge of the unauthorised building works? It is unlikely that he was aware of their existence, and certainly not of their extent, from his own inspections, and I find it also unlikely that he had the advantage of seeing the original plans until well after the agreement. But Mr Wong says that demolition of the structures, and reinstatement, was specifically requested by the plaintiff during negotiations. This cannot have been negotiations with the plaintiff's directors themselves, as it is not disputed that they never met. And Mr Mak says that, not only did he not instruct Felix Chan to make such proposals on his behalf, the latter's only function was to discuss price on his behalf. He says that he only requested as a term of the sale that the partitions separating the shops should be removed, so that the property would effectively be empty upon completion. Later, as part of the negotiation on the price, he says he agreed that they may be left for the plaintiff to remove. These negotiations seem to have taken place mainly over the course of one evening, which ended with the provisional sale and purchase agreement being signed, on 23 July 1997, and then it is apparent that the estate agents were constantly receiving instructions over the telephone from the plaintiff's directors, who finally agreed on the terms. There is no evidence that the estate agents' representative ever had any authority to do more than be a go-between to relay offers and proposed terms.

36. Estate agents do not as a general rule have authority to bind their principals in any event, unless they are given such authority in clear and unambiguous terms. This must particularly be so where the agents, as here, are acting for both vendor and purchaser, albeit by different members of the staff. An estate agent's function is to find either a purchaser for property, or property for a potential purchaser, and introduce the proposed vendor and purchaser. He may assist them to arrive at an agreement satisfactory to both, but he cannot contract on their behalf without clear authority to do so, or give any warranty. As Diplock LJ said in Hill v Harris [1965] 2 QB 601, at p. 616:

"...it is, I apprehend, clear law that the ostensible authority of an estate agent invited to find a purchaser for premises or a lessee of premises, does not extend to entering into any contractual relationship in respect of the premises on behalf of the person instructing him. It may well be that he has authority to make representations as to the state of the premises, but representations are a very different matter from warranty."

37. There is no evidence here that the agents had any authority to make any agreement on behalf of their principals. As there is equally no evidence that the parties communicated directly, and I can look only at the written agreements to see what the terms were that they agreed.

38. Before doing so, I would add further reasons why the oral agreement contended by the defendant is an unlikely one. The defendant says that the agreement was that the plaintiff was to take the property as it was and demolish the structures themselves. This would inevitably mean that those structures would still be in place on completion, and the purchaser would take a defective title. On the basis of such an agreement there could be no demolition and reinstatement before that, unless there was another agreement to give vacant possession before completion, which is no part of the defendant's case here. In any event, Mr Wong said that, although he had taken steps to arrange for the licensees of the shops to vacate, he was eager to keep as many as possible up to the date of completion to maintain the rental income. If it was part of an agreement that a defective title was being passed, why was this not recorded in either of the agreements? Both Mr Wong and Mr Mak are experienced businessmen, used to dealing in property and who know the effect on title of such structures. Mr Wong admitted that he was used to reducing all important agreements into writing. Yet there is nothing in either the provisional sale and purchase agreement or the later formal agreement spelling out any such an agreement between them. It would have been a matter of a moment, when about to sign the provisional agreement, to add at the foot a note that the sale was to include any unauthorised structure which the plaintiff was to accept, or to ask the agents to do so. Yet there was nothing. This would have been an extremely unusual provision in the sale of a property, and I cannot accept that either side, being experienced businessmen, would have been content to rely on an oral arrangement, or their solicitors not to include it in the formal sale and purchase agreement, if they were told of it, which Mr Wong says they were. As Godfrey JA said obiter in Spark Rich (China) Ltd v Valrose Ltd CACV 249 of 1998 at p. 11:

"But it is perhaps worth adding that in the light of this judgment a prudent vendor should always consider, before attempting to sell his property, whether his title to the property may be affected by some unauthorised building work. If so, he should refrain from entering into any contract for the sale of the property which does not contain (1) a full disclosure of the problem; and (2) an agreement on the part of the purchaser not to raise any requisition or take any objection to the title based upon the unauthorised work."

39. Although I have found that there was no concluded collateral agreement between the parties as to the unauthorised building works, I would go further and say that, even if there had been, the defendant cannot now rely on it.

40. Mr Griffiths for the plaintiff submits, correctly in my view, that a collateral agreement, though it may add a term to a written contract, must not vary any of the terms of that contract. In support of this, he points to the decision of Lord Wright in Lysnar v National Bank of New Zealand [1935] NZLR 129, where he says, at p. 140:

"But though the rule is established, it is subject at least to one definite limitation; though the collateral contract must inevitably, it seems, add to the written contract, it must not vary it in the sense of being inconsistent with, or contradictory of, the written contract to which it is collateral;"

41. Such a collateral contract as is suggested by the defendant here would be inconsistent with the provision that good title must be shown and proved, as it would apparently provide for a matter, which would prevent good title being shown, to be ignored. Further, it would be contradictory to clause 24, which reads as follows:

"This agreement supercedes all representations and previous agreements between the parties, whether implied or expressed verbal or written."

the so-called "entire agreement clause". It is clear from this that the contract expressly states that the written terms are the only terms of that contract, and it is difficult, if not impossible, to envisage the circumstances where it could be held that there are other terms not recorded therein.

42. In their reply to this requisition, the defendant's solicitors refer to clause 11 of the provisional sale and purchase agreement, by which the plaintiff agrees to take the property on an "as is" basis, and say that this confirms the agreement reached as to the building works. There are two reasons I cannot accept this contention. The first is that this is clearly a standard form agreement produced by the estate agents and I would need considerably more evidence than there is here to be persuaded that this related to anything more than the physical state of the property. It may mean that the purchaser takes the property with the internal partitions left in place, which I consider more likely than not, but to extend it to mean that the purchaser was waiving his rights to object to title on the basis of unlawful structures would be stretching credulity too far. The second is that, in any event, the provisional agreement falls away when the formal agreement is signed, and is subsumed into it. Indeed, clause 24 of the latter clearly has the effect of excluding all previous agreements and making the later agreement the only one upon which the parties can rely.

43. The defendant's solicitors secondly relied on clause 15 of the formal sale and purchase agreement, which reads as follows:

"The Purchaser hereby expressly acknowledges and declares that he has been invited to inspect the Property or cause it to be inspected on his behalf prior to the signing of this Agreement and is fully aware that he is purchasing the Property in its present state."

44. Clause 4 of the Second Schedule also provides that the purchaser is purchasing with the full knowledge of the physical condition and is taking the property as it stands. These can only refer to the condition of the property. A similar clause was considered by Yuen J in Leung Wing Fai v Onlink Investments Ltd HCMP 474 of 1998, where she says, at p. 4:

"It is clear that it is for the protection of the vendor; in other words, the vendor would not need to improve the property. It is clear to me that the "as is" clause is not a right that can be asserted by a purchaser to restrain a vendor from demolishing what is undisputed to be unauthorised building works, nor can it be used as the purchaser's justification for insisting that unauthorised building works be sold to him together with the rest of the property."

45. Neither, I would add, can it be used to by the vendor to insist that unauthorised building works be taken by the purchaser.

46. As to the argument that the plaintiff had waived the right to raise requisitions as a result of knowledge of the unauthorised building works prior to entering into the formal agreement, the first answer is, as I have found above, that the plaintiff was not aware of them, or at the very least, was not aware of the extent of them even if he suspected that there were some alterations. The second answer to this argument is that, even if there was knowledge, this does not release the vendor from giving a good title. There must be clear evidence that the purchaser both knew of the alterations, the fact that they were unlawful and the legal effect of that. Even then, unless the agreement provided otherwise, it would not be a bar to raising the defect in title, as Fry LJ observed in In re Gloag and Miller's Contract [1883] 23 Chancery Division 320, at p. 327, where he says:

"....if the contract expressly provides that a good title shall be shown, then, in as much as a notice by the vendor that he could not show a good title would be inconsistent with the contract, such a notice would be unavailing; and whatever notice of a defect in the title might have been given to the purchaser, he would still be entitled to insist on a good title."

47. It follows from the above that I am satisfied that there was no collateral agreement which varied the written agreements, that there was no clause in those agreements requiring the plaintiff to accept the property with the defect in title resulting from the unauthorised building works, and that there was no waiver of the plaintiff's rights to raise a requisition in relation to them.

Substantial performance

48. It is settled law that good title can be given where the vendor is able to offer substantial performance, namely in conveying substantially what the purchaser had contracted to get. Mr Chan submits that here the defendant could not only convey a premises suitable for the use to which the plaintiff wished to put them, but had offered a reduction in the price based on the cost of rectification works, and on the resulting reduction in useable floor area.

49. In support of the first contention he has drawn my attention to the decision of Yuen J in Goldful Way Development Ltd v Wellstable Development Ltd [1998] 1 HKLRD 563, where the judge held that in removing an unauthorised structure, the vendor was still able to convey substantially what was contracted for. However, the structure in that case was an external addition, the removal of which did not seriously affect the intended use of the premises, and the proportion of it to the total floor area was 3.93%. In this case, the removal of the illegal structures would have the effect of reducing the useable floor area by some 17.85% on the defendant's own calculations, and a difference in value, again on the defendant's figures, of some $4,000,000.00. None of these differences could be described as negligible or trifling, and the possibility that the premises, after rectification, would still be able to be used as a restaurant, is to ignore the fact that the vendor must give what was contracted for, not something else which may or may not be adequate. In order to rely on this at all, the reinstatement must have been done prior to completion, and the resulting premises must have been so similar to what the plaintiff expected to get that they could not complain.

50. As to the offered reduction in price. This was proposed only seven days prior to the date fixed for completion, with no precise figures suggested, only a formula, and on condition that completion proceeded on the original date. As in Pang Chor Ying v Lifton Investment Ltd [1993] 2 HKC 57, the purchaser could not be expected to tender what was estimated to be the reduced price, or to tender the entire amount, leaving it to be calculated later what refund was to be made. Neither did the formula suggested take into account any other losses to the plaintiff through delays in commencing business, or any other possible expenses.

51. In the circumstances, I am not satisfied that the vendor was in a position here convey substantially what had been contracted for.

Conclusion

52. For the reasons given above, I am satisfied that the requisition as to the unauthorised building works was properly formulated, and that the defendant has been unable to satisfactorily answer it, and the plaintiff is entitled to the declarations they seek under paragraphs (1) and (2) of the claims in the originating summons in respect of requisition 17 only. There will also be an order that the defendant pay to the plaintiff the sum of $34,200,000.00, being the amount of deposit paid, together with interest on that sum at 1% above HSBC prime rate from 23 April 1998 to the date hereof. The plaintiff is also entitled to damages to be assessed by a Master in respect of conveyancing costs paid by them and commission paid to the estate agents. There will also be a declaration in terms of paragraph (5) of the originating summons as to a lien on the property for the sums payable, and an order nisi that the defendant pay the plaintiff's costs of these proceedings, to be taxed.