WONG ON v. LAM SHI ENTERPRISES LIMITED

1995, No.MP2549

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 Vendor and Purchaser summons relates to a Sale and Purchase Agreement dated 30 June 1995 and entered into by Wong On, ("the Purchaser") and Lam Shi Enterprises Limited ("the Vendor") for the sale and purchase of Lot Nos.542, 543, 544, 546, 547 and 548 in DD204 with the 3-storey houses that have been erected on the Lots. The purchase price was $25,200,000 and a deposit and part payment of $2,520,000 was paid upon the signing of the Agreement. Completion was to take place on or before 4:30 p.m. on 30 August 1995, time being of the essence.

2. The Purchaser seeks, inter alia, a declaration that the Vendor has failed to show and/or to prove good title, and that accordingly, he is entitled to rescind the Agreement and to the return of the deposit of $2,520,000. The issues between the parties concern :-

(a) occupation permits for the houses on Lot Nos.542, 543, 547 and 548;

(b) the failure of the Vendor to produce a Statutory Declaration pursuant to Section 5(4)(b) of the Power of Attorney Ordinance; and

(c) Letters of Modification dated 29 November 1993 and 20 October 1993 respectively.

The Occupation Permits

3. The parties are agreed that each of four of the houses require an occupation permit. The requirement arises in this way. Building works for these houses were in the course of being carried out on 16 October 1987 when the Buildings Ordinance (Application to the New Territories) Ordinance 1987 Cap.121 ("the 1987 Ordinance") came into effect. Under the transitional provisions of s.13 of the 1987 Ordinance, the Buildings Ordinance (Application to the New Territories) Ordinance, Cap.322 ("the 1961 Ordinance") and the Buildings Ordinance (Application to the New Territories) Regulations ("the Regulations") continued to apply to any building works to which the 1961 Ordinance and the Regulations applied immediately before their repeal by 1987 Ordinance and which were in the course of being carried out at the commencement of the 1987 Ordinance. In a letter dated 25 August 1995, the District Lands Office, Tai Po ("DLO") confirmed that building works in respect of the houses commenced before 17 October 1987. It is accepted that the building works were not completed until 1992. Therefore, the transitional provisions in the 1987 Ordinance applied.

4. It is common ground that the old law applies by virtue of the transitional provisions of the 1987 Ordinance. The 1961 Ordinance extended the operation of the Buildings Ordinance to the New Territories. The Regulations excluded certain buildings from the operation of various provisions of the Buildings Ordinance, including s.21 which prohibits the occupation of a new building unless an occupation permit has been issued by the Building Authority. The effect of s.3 of the Regulations, inter alia, is that s.21 of the Building Ordinance which relates to occupation permits does not apply to any building which -

(a) has a roofed over area not exceeding 92.90 square metres does not exceed 7.62 metres in height and complies with plans; or

(b) has a roofed over area not exceeding 65.03 square metres and does not exceed 7.62 metres in height.

5. It is common ground that the four houses in question exceed the dimensions set out above. They are 0.05 metres or 2 inches more than the permitted height. Accordingly, occupation permits ought to have been obtained. They were not.

6. Where a building is not exempt from s.21 of the Buildings Ordinance which imposes the requirement of an occupation permit, that occupation permit is a relevant and necessary document to prove title because in the absence of such a permit, there is the possibility of enforcement action by the Building Authority in respect of the building. See Lui Kwok Wai v. Chan Yiu Hing [1995]1 HKC 197. In the absence of special factors which effectively removes the probability of enforcement action, I am bound to hold that the Vendor's title is defective because of the absence of occupation permits.

7. I now turn to consider what the Vendor submits are special circumstances in this case. Taking Lot 542 as an example, by New Grant No.11734 dated 15 August 1980, the lot in question was granted to the grantee subject to General and Special Conditions. There were fourteen General Conditions including a condition (which is not in issue here) that the building be completed and fit for occupation before the expiration of 30 months from the date of the New Grant. There were twenty-five Special Conditions. Special Condition 7(a) provided that no structure shall be erected on the lot other than one building which shall not contain more than three storeys nor exceed a height of 7.62 metres and the maximum built over area of the lot shall not exceed 65.04 square metres. Special Condition 8 permitted the erection of two balconies and one canopy provided they projected from the same side of the house and were within the dimensions specified. Special Condition 9 contained, inter alia, a definition of "built over area". In effect in calculating the built over area, the area of the balconies and canopy, provided that they were within Special Condition 8, would be excluded from the calculation. Special Condition 25(b) prohibited the occupation of any building to be erected on the lot until the District Officer shall have certified in writing that the conditions of the New Grant had been complied with to his satisfaction.

8. When the building was completed some 12 years after the date of the New Grant, the DLO took the view that Special Conditions 7(a) and 9 had been breached. It would appear that the DLO exacted a premium for these breaches. Upon receipt of the additional premium, the DLO issued a Letter of Toleration to the grantee on 26th August 1992 in the following terms :

"... in consideration of the fee paid by you, the breaches of conditions as set out in the Schedule below will be tolerated by Government only for the life of the building presently erected on the lot.

Schedule

Condition No.	Nature of breach
Special Condition No.7(a)	Exceeds the permitted height of
	the building by 0.05 metre.
Special Condition No. 9	Exceeds the permitted height of
	the stairhood by 0.15 metre.

As the building erected on the lot is exempt from the provisions of the Buildings Ordinance Cap.123, under the Building Ordinance (Application to the New Territories) Ordinance Cap.121, no site formation, building or other plans have been approved by the Building Authority in respect of the above lot and building erected thereon and accordingly this certificate is not to be construed as a representation by Government that the building erected on the above lot or any works in connection therewith are structurally safe and Government expressly excludes any liability arising out of such construction or works.

9. I note here that the reference to Special Condition 9 is somewhat puzzling. That condition contained definitions and did not impose any positive obligations on the grantee. It is therefore not readily apparent what breach had been committed.

10. There is a further letter ("the Letter of Compliance") dated 16 November 1992 from the DLO which certified that all the positive obligations imposed on the grantee had been complied with to the satisfaction of the District Lands Officer. The letter then stated as follows :

" This certification is given without prejudice to all or any rights of the Lessor whether under the said Conditions or otherwise in respect of any breach or failure to observe any of the said Conditions which may exist on the date hereof or which may hereafter occur."

It also contained a paragraph in identical terms to that in the Letter of Toleration referring to the Building Ordinance set out above.

11. As I understand it, the Vendor's submission is not that the de minimis principle should apply in relation to the transgression. Rather, on the proper construction of the Letters of Toleration and Compliance, that it is beyond reasonable doubt that the Purchaser would not be at risk so far as enforcement action being taken against him is concerned. It was submitted that the very detailed provisions relating to the building to be erected on the lot contained in Special Conditions 8 to 16 of the New Grant and the remarkable coincidence of the dimensions mentioned in Special Conditions 7, 8 and 9 with those contained in the Regulations, supported an inference that prior to the 1987 Ordinance, the DLO, rather than the Building Authority, had de facto control over the development of small houses in the New Territories and that the 1987 Ordinance formalised what was the de facto situation when it authorised the DLO to issue certificates of exemption.

12. Central to its arguments is the Vendor's contention that because the DLO had to monitor compliance with the Conditions of Grant, it necessarily also monitored compliance with the Regulations and thus performed or discharged a dual function; that, therefore, the reference to "Government" in the Letter of Toleration is to be construed in its all-embracing sense.

13. The Vendor therefore submitted that the Letter of Toleration amounted to a waiver by Government upon receipt of the premium. Even though the Vendor acknowledged that Government could in theory enforce the prima facie breach of s.21 of the Buildings Ordinance, it submitted that the risk of enforcement was "fanciful", bearing in mind that the transgression here is 0.65% of the permitted height.

14. Despite certain similarities between Special Conditions 7 to 9 and provisions in the Regulations, they were framed differently and different terminology was used, for example "built over area" rather than "roofed over area" and one of the dimensions specified was marginally different. Why this was so is not evident but, in any event, the fact that similarities existed, of itself, does not appear to warrant the inference as to de facto control by the DLO prior to the 1987 Ordinance.

15. Moreover, it is well-recognized that Government may act in different capacities : for example, as landlord and as Building Authority. See Hang Wah Chong Investment Co. Ltd. v. Attorney General [1981] HKLR 336. In what capacity it was acting and whether or not it was acting in more than one capacity depends on the circumstances of each case. In the absence of any provision which empowered the DLO to make decisions on behalf of, or to override the Building Authority where the subject matter is the development of small houses in the New Territories or any evidence that this was in fact the practice, there is nothing to warrant the conclusion or inference that the DLO had authority to assume the statutory functions of the Building Authority and make decisions that are solely within the domain of the Building Authority under the relevant statutory provisions.

16. Turning to the Letters of Toleration and Compliance, the DLO was acting for the Crown in its capacity as landlord under the New Grant : it was dealing with the terms of the New Grant and breaches thereof in respect of which an additional premium was paid. It certainly did not purport to act for or on behalf of the Building Authority who could not have required payment of any additional premium. In fact, from the paragraph common to both the Letters of Toleration and Compliance, no representation was being made that "Government" extended to the Building Authority. It certainly did not purport to assume or exercise any of the statutory functions of the Building Authority. The specific reservation of rights in the Letter of Compliance re-inforces this interpretation. It specifically reserved to the Lessor rights other than those contained in the Conditions. There is also the fact that Government has no power, qua Building Authority, to waive compliance with statutory requirements the Building Authority was charged with enforcing, as opposed to waiving compliance with conditions of grant, qua landlord.

17. It is in these circumstances that the test in MEPC Ltd v. Christian-Edwards [1981] AC 205 at 220 is to be applied, namely whether it can be said that it is beyond reasonable doubt that the Purchaser would not be at risk of enforcement action being taken. I am asked so to conclude, based on the limited extent of this transgression and the fact that a premium had been paid for the contravention. But I do not see how I can be satisfied that it is beyond reasonable doubt that the Purchaser would not be at risk in the absence of any evidence that in circumstances such as the present, it is not the practice of the Building Authority to take any enforcement action. Had such evidence been adduced, it would have been a different matter. Here, it is to be noted that enforcement action need not necessarily take the form of a demolition order which might appear to be a drastic response. Contravention of s.21(1) of the Buildings Ordinance is an offence punishable by a fine : see s.40 of the Buildings Ordinance. In the absence of evidence as to when occupation in contravention of s.21 began or when the same came to the notice of the Building Authority, there is no basis for concluding that any prosecution was time - barred as at the date for completion. There is therefore potential liability. If the Building Authority should decide, for whatever reason, to take action, it would be within its rights. The corollary is that the owner could be faced with a potential claim. Whilst it may be true that the chances of this happening are not high, this does not mean that it is in the "beyond reasonable doubt" category. To fall into that category, something more is required and that is what is lacking in this case. As it does not, the Vendor has failed to show that it has good title.

Failure to produce the statutory declaration

18. In relation to Lot No.548, this was assigned to the Vendor by Fong Tin Fook, Tin Sung Fong and Shum Hak Fong on 26 January 1994. The assignment was executed by an attorney, namely Fong Tin Fook, on behalf of himself and the other two joint owners pursuant to two Powers of Attorney dated 10 December 1991 and 1 April 1992 respectively.

19. In order to take advantage of the provisions in s.5(4)(b) of the Power of Attorney Ordinance, Cap.31, on 6 July, some seven weeks prior to the date of completion, the Purchaser quite properly asked that a statutory declaration be provided pursuant to that section. On 2 August, the Vendor stated that it would let the Purchaser "have the relevant statutory declaration in due course". On 24 August, the Purchaser reiterated that all outstanding requisitions had to be satisfactorily answered before completion could take place. On 30 August, the date of completion, the Vendor was reminded once again of the outstanding requisitions and, in particular the promised statutory declaration. No such declaration was provided to the Purchaser prior to the time and date fixed for completion.

20. The Vendor accepts that it was at fault. Although a draft statutory declaration was faxed to the Purchaser at 3:07p.m. on 30 August, that was a different statutory declaration and did not relate to the assignment and Powers of Attorney in question. In short, the Vendor's solicitors had made a mistake and had sent the wrong draft.

21. The Vendor submitted that because the statutory declaration was something that was within the power of the Vendor to produce, the Purchaser should not be allowed to avoid the contract for a matter which could have been put right by the Vendor and that the Vendor should have been given an opportunity to put it right. For this proposition, the Vendor relied on the decision in A-Mayson Development Company Limited v. Betterfit Limited [1992]2 HKC 533.

22. In that case, the completion date was fixed for 18 October 1990. On 12 October 1990, the purchaser purported to rescind the contract claiming that the vendor failed satisfactorily to deal with certain matters of title and conveyance which the purchaser had raised. The issues which arose in that case were whether a purchaser who has raised objections to matters of title or conveyance is bound to give the vendor until the date fixed for completion to provide satisfactory answers or whether there were circumstances under which the purchaser may become entitled to call off the contract at an earlier date and if so, whether those circumstances existed in that case. It was held that the obligation of a vendor to prove title is an obligation which he has to perform at completion. But this is an obligation which in practice "ought properly to be performed by the vendor well before the date fixed for completion", citing Re Priestley's Contract [1947] Ch.467, per Romer, J. at p.476. Godfrey, J. (as he then was) went on to say that whilst there are circumstances such as the discovery of a fundamental defect in the vendor's title, which would entitle the purchaser to call off the contract at once, he may not do so merely for minor deficiencies, removable defects, matters of conveyance and so on; he went on to say this :

"Where proof of title is insufficient but the title is not necessarily defective, the purchaser is, in my judgment, bound in the ordinary way to give the vendor a proper opportunity of establishing the title : see Re Balen and Shepherd's Contract [1924]2 Ch.365, per Tomlin, J. at p.378."

23. Put in its context, I think that the learned Judge was saying no more than that in those circumstances, the purchaser had to wait till the date fixed for completion before he could treat the contract as being at an end. He did not hold that that where time is of the essence, the purchaser is under an obligation to give the vendor further time i.e. beyond the date fixed for completion in which to establish title. Although the case of Re Balen and Shepherd's Contract which was cited might appear to be authority for such a proposition, I note that it was not a case where time was of the essence and is therefore distinguishable.

24. It follows that where the vendor is unable to properly establish title by the time fixed for completion and time was of the essence, there is no obligation on the purchaser to give the vendor another opportunity or further time to make good the defect. In this case, it is not suggested that the Purchaser was anywhere at fault. Such fault as there was laid entirely at the door of the Vendor. I therefore hold that the failure to produce the statutory declaration by the time and date fixed for completion entitled the Purchaser to call off the purchase.

Letters of Modification

25. On 29 November 1993, the DLO wrote to the then registered owners of Lot No.568. It offered to modify New Grant No.11732 under which the Lot was being held in the manner set out in the letter upon payment of an additional premium. Paragraph 2 of the letter provided that : "If the foregoing conditions are acceptable to you, I shall be glad if you will signify your acceptance by signing the docket on both copies of this letter." The additional premium was to be paid on or before 16 December 1993 failing which the application for the New Grant would be deemed to have been withdrawn. The November Modification Letter was signed by Law Chi Yuen describing himself as the lawful attorney of Fong Tin Fook, Tin Sung Fong and Shum Hak Fong. The only power of attorney that has been produced is one dated 20 February 1993 by Fong Tin Fook to Law Chi Yuen. Although Fong Tin Fook was himself the donee of the power of attorney by the other two co-owners, the Purchaser contended that a grantee of a power of attorney could not sub-delegate.

26. The Letter of Modification dated 20 October 1993 related to Lot No.546 and is in similar terms to the November letter. The letter was addressed to Cham Kwok Fai although in May 1992, the District Officer of Tai Po had in fact approved a Letter of Succession in favour of Cham Chi Kuen, Cham Kwok Kwong, Cham Chi Keung and Cham Yiu Lung, Ricky, as successors to Cham Kwok Fai, the deceased owner. There are also Powers of Attorney executed by each of the four successors in favour of Law Chi Yuen dated 20 September 1993. Again it was signed by Law Chi Yuen, this time as the lawful attorney of Cham Chi Kuen, Cham Kwok Kwong, Cham Chi Keung and Cham Yiu Lung, Ricky. Neither the approval of succession letters nor the Powers of Attorney were provided to the Purchaser prior to the time and date fixed for completion.

27. The issue here is whether the Modification Letters were effective. The Purchaser's concern is that questions relating to the authority of the person executing them in each case had not been resolved. In addition, though not stated as such, the Purchaser appeared concerned that the Letters had not been registered and no explanation had been given for their non-registration.

28. The Vendor submitted and the Purchaser accepted that the signature of the grantee to a grant or deed was not necessary. In my judgment, provided there is evidence of payment as required by the Modification Letters, the Letters would have taken effect regardless of whether they had been executed by the relevant grantee. I note that the certification of the payment of premium contained in each of those Letters had not been signed by the District Lands Officer. As this point was not raised, I assume that there is no question but that the relevant premiums had been paid. If that assumption is correct, then the fact that the Letters were signed by persons other than the named grantees would not have rendered them ineffective. Further, non-registration did not have the effect of preventing the modified conditions from taking effect.

Conclusion

29. For the reasons set out above, I find in favour of the Purchaser on the grounds both relating to the occupation permits and the failure to provide a statutory declaration. In the result, the Purchaser is entitled to the declarations sought, namely that the Vendor has failed to show and/or to prove good title to the Lots in question. The Purchaser and is accordingly entitled to the return of the deposit of $2,520,000. I also make an order granting costs nisi to the Purchaser.