YIP NGAN YEE AND ANOTHER v. CHAN TSZ YAM AND ANOTHER

HCA 7871/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7871 OF 1997

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J U D G M E N T

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1. The Plaintiffs (P) claimed from the Defendants (D) damages mesne profits, outstanding charges, interest and damages for an uncompleted sale of property. The (D) by way of defence claimed that the P had not answered requisitions as to title satisfactorily.

2. The P were vendors and the D the purchasers, of Shop No 104, 1F, Cheong Wing Building. A Provisional Sale and Purchase Agreement (PSPA), at a price of $1,180,000.00, was signed on 17 February 1997 and the D paid a partial deposit of $30,000.00. On 28 February 1997 the parties signed the Agreement for Sale and Purchase (ASP) and the D paid a further $88,000.00.

3. The D went into occupation from 18 February 1997 under a licence agreement of the same date, which allowed the D to occupy the property on payment of water and electricity charges, management fees and rates. The D paid a further $236,000.00 on 11 March 1997 when title deeds were delivered to D's solicitors.

4. The solicitors raised requisitions on 19 March 1997, which were answered on 24 March 1997. On 27 March 1997 the D's solicitors purported to raise further requisitions. Wrangling over whether or not the requisitions had been answered occupied the solicitors thereafter and completion did not take place on the due date, 1 April 1997 or at any time later.

5. The P's solicitors demanded the return of the title deeds on 2 April 1997 and the next day the parties had a meeting. On 4 April 1997 D's solicitors alleged P had failed to prove title and refused to return the title deeds. P demanded vacant possession on 7 April 1997, to no avail. On 10 May 1997 P informed D that the ASP had been terminated and again demanded vacant possession. The ASP was rescinded on 23 July 1997 and P forfeited $118,000.00 of the deposit. The P issued a Writ on 29 July 1997 and, eventually, on 10 September 1997 D gave vacant possession. The P refunded $185,797.32 to D on 15 December 1997, retaining $50,202.68 to set off against rent, charges and interest.

THE ISSUES

6. It is necessary to decide whether the requisition raised on 19 March 1997 was properly raised by D and whether, on 24 March 1997, D was entitled to raise a further requisition, on matter not previously covered, after the contractual time for raising such had expired.

7. If the initial requisition was properly raised, it is necessary to decide whether P had answered it satisfactorily.

PROPERTY

8. The legal description of the suit premises was set out in Schedule 4 of the ASP as;

All those 9 undivided 102nd parts or shares of and in All Those 6 equal undivided 85th parts or shares of and in (The Land) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SHOP NO.104 on the FIRST FLOOR of CHEONG WING BUILDING

RELEVANT TERMS OF ASP

9. The ASP followed the standard form. Requisitions were to be raised within 7 working days of the receipt of the title deeds (CL.11). It was the vendor's duty to show and give good title (CL.20). Time was of the essence (CL.25). Consequences for breach were set out in Clauses 26, 27 and 34.

THE FIRST REQUISITION

10. On 19 March 1997 the D's solicitors wrote as follows:

"According to the Occupation Permit and Deed of Mutual Covenant there is only one shop (unit) on the 1st Floor. However, there are now several shops on the said 1st Floor. Further, there is no documents (sic) to show how to allocate the share (sic) to the above property and the rights of way, rights and liability of the individual owners of the 1st Floor. Kindly clarify."

11. Copies of the documents referred to were enclosed and the D reserved the right to make further requisitions.

REPLY TO REQUISITION

12. In answer to the request for clarification P forwarded a "copy Schedule/List" showing the allocation of shares to the Property and the whole of the First Floor saying:

"Section 21 of the Building Ordinance Cap.123 gives Form 22 as the form in which an Occupation Permit is to be issued. We take the view, therefore, that an Occupation Permit is a permission given by the Building Authority for occupation of a building or parts thereof for the purposes therein specified e.g. domestic or non-domestic. It was unnecessary for the Building Authority to have specified the actual number of shops on the first floor. Furthermore the Occupation Permit does not say that the shop cannot be subdivided."

"As regards rights of way, rights and liability of the individual owners of the 1st floor, we would refer you to the provisions as contained in the Deed of Mutual Covenant Memorial 116843"

13. In reply on 27 March 1997 the D complained that what the P had provided was not acceptable conveyancing evidence to prove the allocation of shares and said that they did not share P's view of the Occupation Permit (OP) as being only for the user of each floor. D also stated that their concern with rights of way and liability was not as between the owner of the 1st floor and other floors ,but as between the owners of the shops on the 1st floor and that the DMC memorial to which they had been referred was irrelevant. D asked P to note that no division of shares was shown in the Land Search Record.

14. No further response was made by the P and settlement never took place. There followed the rancorous correspondence usual between solicitors in this type of dispute, complicated by a change of solicitors for each of the P and the D and resulting eventually in this trial.

Defence Case

15. The D argued that when title was investigated it was found that both the OP and the DMC referred to the whole 1st Floor of the building without any subdivision and that division must have taken place after the OP was issued and the DMC drawn up. No Sub-Deed of Mutual Covenant governed the relationship among the owners of the subdivided units on the 1st Floor. The D's requisition sought clarification which, according to D, was not given.

16. The Schedule/List provided by P was said to be unsatisfactory as its nature and provenance was not stated and the allotment of shares, without any further explanation, was said to be difficult to understand. D complained too that there had been no answer to its suggestion that the subdivision of the 1st Floor was contrary to the OP, other than to say the OP was concerned only with user.

17. Reference to the DMC did not, according to D, answer its query about the rights and liabilities of the individual owners of the 1st Floor as amongst themselves, it related only to the liabilities of the owner of the 1st Floor vis-à-vis the other owners of the building.

Plaintiff's Case

18. The P countered that the Requisition was merely a request for documents to show how the shares were allocated to the property and the rights of way, rights and liabilities of the individual owners of the 1st Floor. The P submitted that the requisition was not raised properly because, in substance, it related to non-existing difficulties, the answer to which could readily be ascertained from the title deeds and documents supplied to the D for investigation of title. If the DMC and the 1st Assignment were read together it was clear how the shares were allocated to the property.

19. As for the complaint about the absence of shares in the Land Search Record, P argued that it was a new matter, not previously covered by the Requisition and was raised out of time, the last date for requisitions being seven working days after receipt of the title deeds. Thus it should be considered waived in terms of the ASP Clause 11.

20. On the facts of this case I am of the view that the requisition was not properly raised as it did not set out precisely or clearly what the concern of the D was in relation to the title of the property. Nor did the D state what it was they wanted in clarification of the P's title. (Chan Chik Sum v. Great Pearl Industries Ltd [1997] 1 HKC 27). The P submitted that where the answer is so self-evident, or clearly related to non-existing difficulties, the requisition need not be answered (Excel Wood Ltd v. Charmed Investments Ltd HCMP No. 4136 of 1997- unreported).

21. This requisition related to non-existing difficulties as it was possible to discern from documents supplied to D by the P the following matters:

(a) The Developer, the registered owner of the 1st floor was first allotted 6/85th undivided shares in the Building by a DMC dated 17 October 1974.

(b) Clause 11 of the DMC gave each owner unfettered rights to deal with and dispose of his part of the building and his share in the premises without reference to the other owners.

(c) By an Assignment, dated 26 February 1980, the developer assigned 9/102nd parts or shares of and in 6/85th undivided to P's predecessor in title. That 1st Assignment was subject to both the DMC and the Management Agreement dated 17 October 1974. The boundary of the individual shops and common parts were outlined in a floor plan annexed to the 1st Assignment. Clause 4 (q) of the DMC defined "common parts".

(d) By a second Assignment, of 6 July 1994, 9/102nd parts or shares of and in 6/85th undivided shares in the building were assigned to the P. Thus the allocation of shares was clear.

22. No uncertainty as to the rights and liabilities which run with a unit will occur where there is sufficient evidence as to the allocation of undivided shares amongst the individual units on the same floor - per Le Pichon J in Marking Ltd v. Cheerifat Investment Ltd HCMP No 2727 of 1995 - unreported. Thus the alleged concern about this matter was unfounded and was not properly raised by the D.

23. From the evidence given at trial by the D it appeared that the lack of interest in settling the purchase arose because he was having difficulties obtaining a mortgage, not because of the alleged difficulties with the title.

24. In respect of what the P termed the further requisition, the reference to the Land Search Record, it appears to be an amplification of the purported requisition already raised rather than a fresh requisition. It therefore forms part of the requisition on non-existing difficulties. If it was a separate requisition it would be out of time and must be deemed to have been waived.

DAMAGES ASSESSED

25. As the D refused, wrongly, to conclude the contract he must be treated as having repudiated it and accordingly the P, in terms of Clause 26 of the ASP, was entitled to forfeit the deposit and re-sell the property.

26. This the P did, although there were significant difficulties in re-selling the property, because the D remained in occupation for 5 months after the repudiation and registered a counterclaim as a lis pendens against the title. The P managed to obtain a tenant for a month from 10 November 1997 and 16 December 1997 at a rental of $6,800.00 p.m. but it was not until March 1998 that the P found a purchaser. Settlement was delayed until May 1998 because D refused to vacate the lis pendens.

27. I am satisfied that the P mitigated its loss as far as was possible given the difficulties caused by the D remaining in occupation and a falling property market. The P tried to find a new buyer and resold at the first realistic opportunity. I take as the measure of damages the original contract price ($1,180,000.00) less the market price ($860,000.00) obtained on resale. Damages are awarded in the sum $320,000.00.

28. Costs and disbursements incurred by the P on the abortive sale are awarded at $10,645.00.

29. Interest at 11.5% is awarded on the balance of the purchase price ($1,062,000.00) from 1 April 1997 to 29 May 1998 (being the date of receipt of purchase price from re-sale). = $141,871.56

30. Credit is given to the D for the deposit of $118,000.00 retained by P. Total: $354,516.56

Mesne profits

31. The P claimed mesne profits for the period that the Ds were in unlawful occupation. I accept the P's argument that the Licence Agreement was conditional on completion by D of the purchase. The parties advised the court that they had agreed the appropriate rental at $5,900.00 p.m. The D is liable to pay to the P the sum of $39,530.00 for the period 18 February 1997 to 10 September 1997 ($5,900.00 x 6 months 21 days).

CHARGES

The Ps are entitled to claim outstanding charges for the period of unlawful occupation as under:

Rates (1-4-97 to 10-9-97)	$1,704.83
Rent (28-6-97 to 6-9-97)	$454.70
Management fee (1 to 10-9-91)	$116.67
Electricity charges	$566.00
Water and sewage charges	$111.00
	$2,953.20

32. Damages, mesne profits and charges total $396,999.76 less the sum of $50,202.68 applied by the P on 15 December 1997, making a total of $346,797.08

33. Interest on the total sum of $346,797.08 is awarded at 2% over the prime rate for the period 30 May 1998 to 2 June 2000 and thereafter at judgment rate from 2 June 2000 until payment.

34. There will be an order nisi for costs in favour of the P - costs to be taxed if not agreed.

35. Liberty to apply.