THE HONG KONG CENTRAL HOSPITAL LTD v. PROGRESSIVE GROUP LTD

HCMP 689/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 689 OF 2007

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J U D G M E N T

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1.  Cordial Mansion is a multi-storey residential building on Caine Road in Mid Levels.  This Vendor and Purchaser Summons concerns one of the units in that building, ie, Flat B on the 6th floor (“Flat 6B”).

The Facts

2.  By a sale and purchase agreement dated 8 November 2006, the plaintiff agreed to sell and the defendant agreed to purchase Flat 6B for $2,200,000.  Completion was due to take place on 30 November 2006.

3.  In the usual way, following execution of the sale and purchase agreement, the vendor’s solicitors delivered title documents to the purchaser’s solicitors.  By letter dated 29 November 2006, the purchaser’s solicitors raised a requisition regarding a discrepancy between the Occupation Permit for the building issued on 23 October 1973 and the floor plan (“Assignment Plan”) attached to the first Assignment of Flat  6B  dated 26 February 1974.

4.  The discrepancy is in relation to the number of flats on the 6th  floor stated on the Occupation Permit and the Assignment Plan.  The Occupation Permit stated that the Building Authority:

“… hereby permit the occupation of the new building … for the following purposes: -

Ground Floor: 1 flat for domestic use.

1st & 2nd Floors: 4 flats per floor for domestic use.

3rd Floor: 4 flats for domestic use & 1 transformer room for non-domestic use.

4th & 5th Floors: 4 flats per floor for domestic use.

6th Floor: 3 flats for domestic use.

7th to 23rd Floors (inclusive): 4 flats per floor for domestic use.

Roof: 1 flat for domestic use.” (emphasis added)

5.  On the other hand, the Assignment Plan showed that the 6th  floor of the building had 4 flats: flats A and B facing Caine Road, flats C and D facing Arbuthnot Road.

6.  The vendor’s solicitors responded to that requisition on 30  November 2006, stating that they had been instructed that there were in fact 3 flats only on the 6^th floor of the building, with flats C and D marked on the Assignment Plan forming one single unit.

7.  I pause here to note two matters.  First, the layout of the flats on the 6th floor as shown on the Assignment Plan and the Approved Floor Plan referred to below was such that flats A and B were separated from flats C and D by the lift lobby and staircases.  Thus flats A and B could be connected or combined to form a single flat, and likewise for flats C and D, but no other combination was possible without encroaching upon the common areas.  Secondly, although completion was due to take place on 30 November 2006, I have been informed that both sides had agreed to postpone completion, and I can take into account all the correspondence exchanged, including those after 30 November 2006, in determining whether the vendor had satisfactorily answered the requisition.

8.  Returning to the narrative, the purchaser’s solicitors were not satisfied with the answer from the vendor’s solicitors dated 30  November  2006.  By letter dated 13 December 2006, they stated that the discrepancy – this time also mentioning the number of flats mentioned in the Deed of Mutual Covenant dated 1 November 1973 (“DMC”) – had not been clarified and took the view that the requisition had not been satisfactorily answered.  The DMC referred to 4 flats on each of the 2nd to 9th floors and had annexed to it a plan of the 3rd floor showing 4 flats, similar to the layout shown on the Assignment Plan.

9.  The vendor’s solicitors responded on 20 December 2006.  In a letter of that date, they pointed out that the division of the 6th floor of the building into 4 flats as shown on the Assignment Plan was consistent with the building plans approved by the Building Authority as evidence by the approved Typical Floor Plan dated 23 October 1973 covering the 4th to 22nd floors of the building (“Approved Floor Plan”) previously sent to the purchaser’s solicitors.  The Approved Floor Plan showed 4 separate flats on each of the 4th to 22nd floors.  The vendor’s solicitors further asserted that there was no requirement in law that the description of the number of units in the occupation permit should be consistent with that shown on the approved building plans or the assignment, as long as the floor plan in question has been approved and the subsequent assignment was consistent with it.

10.  The purchaser’s solicitors did not agree with that view.  In a letter dated 21 December 2006, they insisted that the discrepancy had to be clarified and referred to the judgment of Rhind J in Dei Chuen Ho Industrial Ltd v Leung Yin Por [1993] HKC 495.  The letter added that it would not be difficult to obtain written clarification from the Buildings  Department.

11.  The vendor’s solicitors did not agree.  In a letter dated 27  December 2006, they repeated their position that there was no inconsistency between the approved building plans and the Assignment, which was what mattered.

12.  By letter dated 27 December 2006, the purchaser’s solicitors reiterated that the discrepancy between the Occupation Permit and the various plans must be clarified and requested for a written clarification from the Buildings Department.

13.  The vendor’s solicitors then wrote to the Buildings Department on 29 December 2006 and asked the department to clarify the discrepancy between the Occupation Permit and the Approved Floor Plan.

14.  By letter dated 5 January 2007, the Buildings Department responded as follows:

“I would like to advise you:

a)      that the description of the building indicated on the Occupation Permit are generally a concise summary of the building layout shown on the latest approved building plans at the issue of the Occupation Permit of the building;

b)      to refer to the latest approved building plans of the subject premises so as to verify the approved use/layout.”

15.  There is affidavit evidence from the vendor’s solicitors that they had checked the records kept at the Buildings Department and that the Approved Floor Plan was the latest approved building plan in relation to the 6th floor.

16.  The purchaser’s solicitors by letter dated 11 January 2007 indicated that they did not agree that the response from the Buildings Department had answered the discrepancy.

17.  The vendor’s solicitors replied by letter dated 11 January 2007, stating that in their view the issue had been answered by the Buildings Department’s letter and emphasised that there had been no action taken by the Buildings Department so that the risk of any enforcement action for demolition or reinstatement in respect of the partitioning of 4 flats would be remote.

18.  On 12 April 2007, the vendor issued the present Originating Summons, seeking the following declaratory relief:

(1)     A declaration that the vendor has satisfactorily answered the requisitions raised by the purchaser over the discrepancy regarding the number of flats on the 6th floor of the building; and

(2)     A declaration that the vendor has shown good title to Flat 6B in accordance with the sale and purchase agreement.

19.  Hence, the factual situation is that the Occupation  Permit covered 3 flats on the 6th floor, whereas all the relevant plans, including the Approved Floor Plan and the Assignment  Plan showed 4  flats on that floor.

Parties’ Submissions

20.  Mr Roy Lau, counsel for the vendor, submitted that the main answer to the requisitions raised by the purchaser can be found in the vendor’s solicitors’ letter dated 11 January 2007.  Mr Lau submitted that the vendor’s solicitors had pointed out that the Buildings Department had already addressed the issue, and that the risk of any enforcement action would be remote.  Counsel relied on Active Keen Industries Ltd v Fok Chi Keung [1994] 1 HKLR 396, CA, and Jumbo Gold Investment Ltd v Yuen Cheong Leung (2000) 3 HKCFAR 52 in support of the latter submission.

21.  Mr Lau also submitted that the Dei Chuen Ho case referred to by the purchaser’s solicitors in correspondence could be distinguished.  In that case, the discrepancy was between the original building plan and the plan annexed to the first assignment with regard to the number of shops on the ground floor of a building: the occupation permit, based on the approved plans, showed 4 shops whereas the assignment plan showed 24  shops which had been partitioned from the original 4 shops.  That discrepancy gave rise to an inference of unauthorised structural alterations.  Mr Lau submitted that the situation in this case is different because all the plans showed 4 flats on the 6th floor.  I agree with him on this point.

22.  Mr Henry Lo, counsel for the purchaser, maintained that the requisitions had not been answered.  He submitted that in this case the Occupation Permit was clearly not a summary of the approved Typical  Layout Plan as asserted by the Buildings Department: there was an obvious discrepancy between the two which has not been explained.  Mr Lo submitted that unless the vendor can produce an accurate occupation permit stating 4 flats on the 6th floor, there remained a real risk of the Buildings Department taking enforcement actions.  However, Mr Lo was not able to indicate what enforcement actions he had in mind.

Discussion

23.  On the evidence before this court, the Approved Floor Plan is the latest approved building plans relating to the 6th floor.  I can see no good reason not to accept that evidence.

24.  There is clearly a discrepancy between the Occupation Permit on the one hand, and the various plans and the DMC on the other.  At the moment there is no explanation why the Occupation Permit stated 3 flats on the 6th floor.

25.  In this connection, it is to be noted that whereas the Approved Floor Plan covered the 4th to 22nd floors, the Occupation Permit specifically separated the 6th floor from the 4th to 5th and 7th to 23rd floors.  It is therefore likely that the specific reference to 3 flats on the 6^th  floor was deliberate.

26.  In my view, the Buildings Department’s letter dated 5  January  2007 does not answer the issue.  The gist of that letter is that the Occupation Permit should be a summary of the latest approved building plans and hence reference should be made to those plans.  However, the very issue in this case is the discrepancy between the Occupation Permit and the Approved Floor Plan, as to which the Buildings Department does not in any way address.

27.  One must, nevertheless, apply some common sense.  It is normal practice that there would have been an inspection of the building by the Buildings Department before issuing the Occupation Permit to ensure compliance with the approved building plans.  There is no reason to think that that was not the case in the 1970s.  Thus the fact that the Occupation Permit specifically stated 3 flats on the 6th floor in the manner described above strongly indicates that the Buildings Department was aware that there were only 3 flats on the 6th floor when the Approved Floor Plan showed 4 flats, but took the view that such deviation from the approved building plan did not constitute non-compliance or unauthorised works.

28.  Further, and in any case, even if there had been any “unauthorised” alteration from 4 flats to 3 flats on the 6th floor, the Buildings Authority must had knowledge of that fact since October 1973 and with such knowledge issued the Occupation Permit.  No action has been taken for over 30 years.  The risk of any enforcement action in the future is, in my view, far too remote to cast any doubt over the vendor’s title.

29.  Finally, there is no suggestion in this case that Flat 6B is affected by any unauthorised alterations.  If there were any deviation from the Approve Floor Plan, it would have been the combination of flats C and D into one single unit.  Such alteration did not affect Flat 6B.  Hence any building order which may be served on the owners of flats 6C and 6D would not affect the title of Flat 6B.  The current Buildings Ordinance s.  24, as amended in 2004 after the decision in Active Keen, enabled an order under section 24(1) to be served on the owner of the unauthorised building works and for that order to be registered against the land or premises in question: see s. 24 (2)(a) and (2C).  There is thus no real risk of any encumbrance on the title to Flat 6B arising from any enforcement action which may be taken against flats 6C and 6D.

Conclusion

30.  I am therefore satisfied that the vendor has answered the requisition by its solicitors’ letter dated 11 January 2007, and that it has shown a good titled to Flat 6B in accordance with the sale and purchase agreement.

31.  Accordingly, I would grant the declarations as sought in paragraphs 1 and 2 of the Originating Summons.

32.  The parties agreed that I should make no order as to costs and I accede to that request.