LI MING ON v. LUCKY APPLE LTD AND ANOTHER

1992, No. MP1084

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is an originating summons in which questions are raised as to the rights of the parties under a provisional agreement for the sale and purchase of property dated 3rd December 1991. The parties have not or have not yet entered into the formal sale and purchase agreement which the provisional agreement contemplates, but nevertheless, each of them (as I understand it) invites the court to proceed on the footing that there exists between them a binding and effective contract for the sale and purchase and so I propose to deal with the matter upon that footing.

2. The property is a property built on part of Lot 1009, Castle Peak Road, one property in a larger development. The plaintiff is the purchaser under the agreement. The defendants are the vendors. Under the agreement the property is described as "DD381, Lot 1009A, Castle Peak Road". I shall return to this description in a moment. The price stated is $6,200,000. Preliminary deposits of $400,000 have been paid by the purchaser. The agreement is unremarkable. (But I would draw attention to one feature which is not uncommon in provisional agreements of this sort, that is to say, that the agreement nowhere appears to contain anything which could be construed as evincing an intention presently to sell, on the part of the vendor, and presently to buy, on the part of the purchaser, the property in question. It states the parties; it deals with the price of the property; and what is to happen to the deposits; and how the fees of the agent are to be paid; as is common. It could, I suppose, be construed as a memorandum of some precedent oral agreement for the sale and purchase; but equally, it could be construed as a preliminary agreement, looking forward to the formal sale and purchase agreement, but not intended itself contractually to bind the parties to the sale and purchase. As I have said, it does not matter for present purposes, because the parties are prepared to treat the agreement as if it did have immediate binding effect.)

3. I must, however, refer to one provision in Chinese contained in the agreement, with the side note "remarks". The remarks (translated) read as follows:-

"The Purchaser understands that the Government has recently notified that the semi-detached greenhouse constructed on the captioned Property does not comply with the Regulations. The property owner is presently liaising with the relevant Government Department(s). Now both parties agree that if it is confirmed before completion that the greenhouse must be detached, such expenses shall be borne by the Vendor. If it is confirmed after completion, such expenses shall be borne by the Purchaser. Both the Vendor and the Purchaser cannot use this as an excuse to rescind this Provisional Agreement."

4. It is common ground that there exists on the property what is referred to in the remarks as "the semi-detached greenhouse". It is also common ground that there exists on the property a pool, the physical features of which show that it is intended to be used as a swimming pool. A problem arises because while consent has been given to the erection of the greenhouse as an agricultural structure and to the construction of the pool as a landscape pool, it is by no means certain that the greenhouse and the pool as built are structures falling within the terms of the permission.

5. The history of the plot of land on which the house itself stands must be further explained. The lot itself, Lot 1009, has been divided into two. The house stands on what has been identified as "Section A". There remains unbuilt upon what has been identified as "the remaining portion". The agreement is concerned only with the house and that part of the lot upon which the house stands. Different persons have been registered as owners of, respectively, Section A, and the remaining portion, of Lot 1009, in the District Land Office. But it is not at all easy to reconcile this with the conditions of grant upon which the title to Lot 1009 depends, nor to reconcile it with the provisions of the Deed of Mutual Covenant which affects Lot 1009.

6. I must now turn to the particulars and conditions of grant (in fact, particulars and conditions of exchange, though the point is immaterial) which govern the position.

7. Special condition 5, upon which some of the points with which I am concerned turn, must be read in full. It reads as follows:-

"5. (a) Except as provided in sub-clauses (b), (c) and (d) hereof, the Grantee (which expression shall, for the purpose of this Special Condition, include any mortgagee, whether legal or equitable, or an. assignee of such mortagee), having obtained this grant by way of private treaty at a concessionary premium, shall not assign, partition, mortgage, charge, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon or enter into any agreement so to do, whether directly or indirectly, or whether by way of direct or indirect reservation, grant of any right of first refusal, option, power of attorney, building agreement or through a solicitor, agent, contractor, trustee or otherwise howsoever unless -

(i) a period of Five years has elapsed from the date of a letter issued by the District Lands Officer confirming that these Conditions have been complied with to his satisfaction, or

(ii) the Grantee has paid to the Government the additional premium in accordance with Special Condition 5(c)(ii) hereof.

    (b) Upon certification by the District Lands Officer that these Conditions have been complied with to his satisfaction the Grantee may underlet the lot if, and only if, the underletting is -

(ii) without the charge of a premium or fine,

(iii) for a term not exceeding 5 years, and

(iv) without any right or option of renewal or extension.

    (c) Upon certification by the District Lands Officer that these Conditions have been complied with to his satisfaction the Grantee may, with the prior written consent of the District Lands Officer and on such conditions as may be imposed by him (including the payment of such fee as may be required by him), assign (but not partition); mortgage, charge or part with the possession of the lot (as a whole only and not a part thereof) or the building or part of the building thereon or, subject to sub-clause (d) hereof, any interest therein or enter into any agreement so to do but only to -

(i) a person who has satisfied the District Lands officer that at the date of the application for such consent he is a person descended through the male line from a person who was in 1898 a resident of an established village in Hong Kong, or

(ii) a person other than a person referred to in sub-clause (c)(i) hereof provided the Grantee shall have first paid to the Government an additional premium equivalent to the difference between the amount of premium (if any) paid by the Grantee to the Government at the date of this grant and the full market value of the lot as at the date of the application to the District Lands officer for such consent, such value to be determined by the District Lands officer whose decision shall be final and binding upon the Grantee, whereupon, such additional premium having been paid and such consent having been obtained, sub-clauses (a), (b) and (c) hereof shall be null and void and shall cease to have effect.

    (d) The Grantee shall not assign, or otherwise create, an undivided share of interest in the lot without complying with the following provisions -

(i) 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;

(ii) neither the lot nor any unit in the building thereon shall be divided, as to the title thereto, vertically; and

(iii) such assignment or other disposal (other than an underletting not exceeding 5 years) shall be made subject to and with the benefit of a Deed of Mutual Covenant which shall provide, inter alia, for a right of access to and through all the common parts of the lot and the building thereon and for the proper maintenance and repair of the said building and the common parts thereof free from obstruction."

8. The first question I have to consider involves a point of construction of Clause 5 with which I shall deal in a moment. The second question which I have to consider concerns the doubt which has arisen as to the legality of the greenhouse and pool structures. The third question which I have to consider involves the complications which arise because no provision has been made for regulating the rights inter se of the owners respectively of section A and the remaining portion of lot 1009. The last question I have to consider concerns the validity of a disposition made pursuant to a power of attorney dated 29th December 1987 under which, it is suggested, the donee of the power assigned the property to a company with which he was associated at an undervalue. I shall take these four points in turn.

9. As to the point on the construction of Clause 5 of the Conditions of Grant, I am satisfied that no real difficulty arises. What is said to be the difficulty is that Clause 5(d)(ii) (which I have set out above) provided that "neither the lot nor any unit in the building thereon shall be divided, as to the title thereto, vertically". The plaintiff says that here we do have a division of the lot vertically, that is to say, the division of the lot into section A and the remaining portion, and that therefore we have a breach of the Conditions of Grant. But it will be remembered that this provision is part only of a provision which provides that the grantee shall not assign or otherwise create an undivided share or interest in the lot without complying with those provisions. What has happened here is not, in my judgment, an assignment or creation of an undivided share or interest in the lot at all. Accordingly, provision (ii) has no bearing on the situation. It does not stand alone and independent. It forms part of Clause 5(d), and it has no effect until such time as you find the grantee assigning or otherwise creating an undivided share or interest.

10. So far as the division of the lot itself into two parts are concerned, that matter is, in my judgment, governed by Clause 5(a). Under Clause 5(a), there is to be no objection to the grantee disposing of the lot or any part thereof or any interest therein given that one of the two conditions precedent are observed, that is to say that a period of five years has elapsed at the date of the letter referred to in (i); or that the grantee has paid to the Government the premium mentioned in (ii). It is now confirmed that the grantee has paid to the Government the additional premium in accordance with (ii). In these circumstances, I see no blot on the defendants' title arising from the fact that the lot has been divided into two in the manner which I have described. The provisions are convoluted; but when the scheme of Clause 5 is taken into account, it seems to me there is no sensible alternative conclusion.

11. The second question in the case is a different matter altogether. At the moment, there is real doubt as to the status of the greenhouse and of the pool. It may well be that the Government will decide to treat one or both as illegal structures, not to be maintained on the property without the payment of an additional premium. The matter of the pool is not a matter of any express provision in the agreement. In my judgment, the plaintiff is entitled to object to the title on the ground that it might be impugned by enforcement action taken by the Government in relation to the existence of the pool; and on this point accordingly, I am in the plaintiff's favour.

12. The third point, that is to say, that the matter as to the rights of the owners respectively of section A and of the remaining portion are not regulated inter se, might be said (as indeed was argued) to render the whole agreement between the plaintiff and the defendants unenforceable for incompleteness or uncertainty. On the hand, it might be said that, although it is not entirely clear what the position is now, if a dispute arose between the respective owners of section A and of the remaining portion, that matter could be dealt with by the court and the matter resolved in that way.

13. Whichever it is, the consequences for the plaintiff would be most undesirable. If the agreement is not complete, then of course it cannot be the proper subject of vendor and purchaser proceedings anyway. There would be no agreement. If the agreement leaves it uncertain what the rights are of the owner of the house in relation to the owner of that part of the lot of which the house does not stand, that is most undesirable. I would regard that, too, as a matter on which the plaintiff would be entitled to be satisfied before being forced to purchase the porperty.

14. The last point, the point on the power of attorney, again seems to me to be a point which justifies the concern of the plaintiff. The law is clear enough. A useful statement of it is to be found in the judgment of Russell J. in Reckitt v. Barnett [1929] 2 KB 244 at p.268, subsequently approved in the House of Lords at [1929] AC 176:-

"The primary object of a power of attorney is to enable the attorney to act in the management of its principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property."

15. In the present case the words of the power of attorney enable the attorney to assign "for consideration or otherwise, to such person or persons, company or companies, including the attorney himself, and persons or companies related to or owned or controlled by him the said property all such part or parts thereof in such manner and on such terms and conditions as the attorney may think fit". But I do not construe those words as being wide enough to enable the attorney to sell the property to a company with which he is associated at what may be an undervalue. There is evidence that this property was sold at an undervalue, having regard to the sale which the donee made very shortly after being given the power to make it. I think this is a justifable cause of concern for the plaintiff.

16. It is true that the solicitors for the defendants have said that the donor of the power has had no objection to the way it was exercised. But that is not, in my opinion, sufficient conveyancing evidence to satisfy a purchaser. If a statutory declaration could be provided, made by some responsible officer of the donor of the power, to the effect that the donor had no objection to what had happened, that would be another matter altogether. The point would then (I think) cease to have any substance. But that is not the present position.

17. So while then I am against the plaintiff on the important point of the construction of Clause 5, concluding as I do that there is no difficulty in the defendants' title occasioned by this, I am in the plaintiff's favour on the other three points.

18. I will hear counsel for the parties as to the right relief for me to grant in the light of the views which I have expressed.