SILVER PIONEER INTERNATIONAL LTD v. GOOD ONWARDS CO LTD

HCMP 4807/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4807 OF 2003

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D E S I C I O N

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INTRODUCTION

1.  This is a vendor and purchaser summons taken out by the Plaintiff in respect of a provisional sale and purchase agreement dated 25 April 2003 (the “Agreement”).  The property which is the subject matter of the sale and purchase is a shop in Hang Shun Building known as Shop No. 5, Ground Floor, 37-39 Tonkin Street, Kowloon (the “Property” or “Shop No. 5”).  The sale and purchase was to complete by mid-night on 9 September 2003.  By this summons, the Plaintiff seeks a declaration that the Defendant has not answered or sufficiently answered two requisitions raised by the Plaintiff, thereby entitling the Plaintiff to terminate the Agreement and to the return of the deposit paid.

2.  Properwealth Development Limited (“Properwealth”) was the first owner of the ground floor of Hang Shun Building subject to and with the benefit of a deed of mutual covenant (the “DMC”) holding 64 of the 216 equal undivided shares of the land on which Hang Shun Building stood.  Properwealth partitioned the ground floor into seven shops and allocated the said 64 equal undivided shares separately to the various shops. On 17 May 1990, Properwealth assigned the six shares allotted to Shop No. 1 and No. 2 to Hillgem Limited (“Hillgem”) and entered into a sub-deed of mutual covenant with Hillgem (the Sub-DMC”) giving Hillgem exclusive right to hold, use, occupy and enjoy Shop No. 1 and No. 2 subject to and with the benefit of the DMC and reserving unto itself the exclusive right to the remaining five shops. 

3.  In due course, the Defendant acquired Shop No. 5, which was further subdivided into five shops, namely Shops 5A, 5B1, 5B2, 5B3 and 5C.  There was constructed in each of Shop 5B2 and Shop 5C a cockloft covering the whole area of the respective shops.  Beneath the ground floor is a basement.  The sub-division and the cocklofts were not shown in the approved building plans of Hang Shun Building.

THE FIRST REQUISITION

The facts

4.  The first requisition relates to the due execution of the Sub-DMC by Hillgem.  Hillgem executed the Sub-DMC by sealing it with its common seal and signing it by one Lau Chi Shing, identified as “one of the Directors.”  In a letter dated 12 May 2003, the Plaintiff's solicitors, Messrs Tong & Tsoi (“Tong & Tsoi”) requested for a certified copy of board resolution of Hillgem authorizing the execution of the sub-DMC by Lau Chi Shing.

5.  Two months later, on 11 July 2003, the Defendant's solicitors, Messrs Eric Yu & Company (“Yu & Co”) responded by asking Tong & Tsoi to “refer to section 23A of the Conveyancing and Property Ordinance.”

6.  Tong and Tsoi was not satisfied with the answer, and in my view rightly so, as the Agreement was entered on 25 April 2003 while section 23A was only operative since 9 May 2003.  As such, section 23A is not applicable to the Sub-DMC in the present transaction.  They explained that to Yu & Co and repeated their request for the board resolution.

7.  On 27 August 2003, Yu & Co responded by relying on the case of Chan Sai Hung v Well Develop Ltd [2000] 4 HKC 50 that in the absence of fraud, a company was bound by the deed even if it was defectively executed and production of the board resolution is unnecessary.  This argument is wrong in law as Chan Sai Hung v Well Develop Ltd was overruled by the Court of Appeal in Grand Trade Development Ltd v Bonance Internation Ltd [2001] 3 HKC 137.  Tong & Tsoi pointed this out to Yu & Co in their letter dated 30 August 2003 and persisted for a board resolution.

8.  Yu & Co replied on 3 September 2003 reiterating their erroneous view in their previous letters and further argued that “the Sub-DMC had no direct bearing to the title of the [Property] and due execution was not required to be proved.” Tong & Tsoi wrote back expressing their disagreement and insisted that the Sub-DMC is directly affecting title and due execution must be proved.

9.  Further exchanges followed in which the parties reiterated their respective views.  However, in their letter dated 9 September 2003, Yu & Co, in addition, intimated that they had written to two other firms of solicitors involved in the previous transactions requesting for the relevant resolution.  Tong & Tsoi replied on the same day insisting for the board resolution prior to completion and intimated that the Defendant's failure to produce the board resolution would be treated as repudiation and breach of the Agreement entitling the Plaintiff to terminate the Agreement. Completion was due at midnight that very day.  Yu & Co failed to provide the requested board resolution.  On 11 September 2003, Tong & Tsoi gave notice on behalf of the Plaintiff to terminate the Agreement.

10.  On 12 September 2003, Yu & Co replied that they had just contacted Hillgem for the relevant resolution or other documentary evidence and offered to supply them once the same should be available.  Tong & Tsoi rejected the offer.  In any event, Yu & Co never came up with the resolution.  On 19 September 2003, they wrote to Tong & Tsoi and reverted back to rely on Chan Sai Hung v Well Develop Ltd.  On 2 October 2003, they purported to accept the Plaintiff's repudiation of the Agreement and forfeited the deposit.

11.  Mr Leong SC, Counsel for the Defendant, submits that reference by the Defendant to section 23A of Conveyancing and Property Ordinance was a complete answer to this requisition that the Sub-DMC is not a necessary document to prove title and, that it need not be executed as a deed.  I prefer to consider his second and third arguments first.

Whether the Sub-DMC is a necessary document to prove title

12.  A deed of mutual covenant has always been treated as a necessary document to prove title because it gives to an individual owner of a unit within a property the right to exclusive possession in respect of his unit.  In Polyson Jewellery Co Ltd & Anor v Liu Song Carlos [2002] 2 HKC 182, Rogers VP said at 188H:

“In relation to the DMC being a contractual document and not one that affected title the judge, again, in my view, correctly rejected that.  Clearly the DMC does affect title.  It is the document by which the individual owners can claim the right of exclusive possession.”

By the same analogy, the Sub-DMC, which provides for the right of exclusive possession in respect of the individual ground floor shops, must also be a document affecting title.

13.  Mr Leong SC queries the authoritativeness of Polyson Jewellery Co Ltd & Anor v Liu Song Carlos.  He submits that the unsuccessful party, i.e. the purchaser, was not legally represented and the Court did not have the benefit of counsel's assistance and particularly the Court of Appeal had not been referred to Goodtex Land Co Ltd v Lung Kwong Emporium Co Ltd [1992-3] CPR 452.  The property concerned in Goodtex Land Co Ltd was a six-storey building.  All the conveyances on sale contained identical terms which included the rights of the purchasers to exclusive use of the floors which they bought.  But the developer did not expressly reserve to himself the right to exclude the first purchaser from the use of the remaining floors.  Nor was there a deed of mutual covenant setting out the rights and obligations of the owners in the building inter se.  Godfrey J (as he then was) held there was no defect in title because the right to exclude the first purchaser and all other purchasers from the unit purchased was impliedly reserved in the conveyances on sale as a matter of commercial necessity and that the risk which the plaintiff worried about could be ignored as being fanciful since the properties had been enjoyed in accordance with the title for more than thirty years without such risk materializing.  He said at 455:

“The purchaser maintains its objection to the title before me.  The answer given by the vendor is that the right to exclude the first purchaser and all other purchasers is to be treated as impliedly reserved.  While I accept that it is a strong thing to imply a reservation in a conveyance on sale, I have no doubt that this argument is correct.  The whole scheme of the conveyances on sale effected from 1952 to 1961 (and I apprehend I am entitled to look at the factual matrix in order to construe each of these conveyances) involves not only that a purchaser should obtain the exclusive use of the floor which is granted to him together with his undivided share, but that he should be excluded from the use of the other floors.  It is quite true that no such reservation or exclusion is expressed, but I have no doubt that as a matter of commercial necessity, it does have to be implied.  The conveyances on sale could not be made to work without such an implied reservation.  Even if that be wrong, it is to be observed that the properties (so far as the evidence goes) have been enjoyed in accordance with the title for upwards of 30 years, without any such problem as that which is now said to exist ever having reared its head.  I am of the opinion that, although there is a theoretical risk that the argument for the purchaser might just possibly be correct, the risk of it being successfully asserted is fanciful.  It ought, accordingly, to be ignored.”

14.  Mr Leong SC argues that the Sub-DMC contained clauses serving two purposes, namely, those pertaining to the management of the seven shops on the ground floor and those ensuring exclusive possession to the respective shop owners.  As to the clauses pertaining to management, he argues that their absence does not constitute any defect in the title and relying on the above dicta of Godfrey J, he submits that the law will provide, as and when necessary, for what is to be done when any problem arises as between the co-owners.   To this submission, I agree.

15.  In respect of the clauses ensuring exclusive possession, he argues on the authority of Goodtex Land Co Ltd that no problem of exclusive possession would arise even if the Sub-DMC was never executed because the assignment of the Property itself provides for exclusive possession of the Property and that such right could as a matter of commercial necessity be implied under the principle in Goodtex Land Co Ltd.  With respect, I do not agree.  The facts in Goodtex Land Co Ltd is peculiar in that the property in question was a six-storey building which composed of a small number of units.  On such peculiar facts and thirty years quiet enjoyment, the reservation could be readily implied.  In Polyson Jewellery Co Ltd & Anor, there were more than eighty different flats in the building concerned.  Hang Shun Building in the present case is a modern high rise building composed of many more units.  Such covenant as regards exclusive possession could not be readily implied in the present case.

16.  It should also be noted that what Godfrey J did in Goodtex Land Co Ltd was to imply into the conveyances on sale a reservation of the right to exclusive possession, which is an item usually to be found in a deed of mutual covenant.  I do not think the case established any principle of law that in the absence of a deed of mutual covenant, the court will necessarily imply such a right of exclusive possession binding on all the owners.  Even if such a right could be implied, the Defendant never relied on that in their answer to the purchaser's requisition.  What the court has to consider in this case is not whether the vendor had a good title but whether he has sufficiently answered the purchaser's requisition and showed a good title: see Kok Chong Ho v Double Value Developments CA 96/1991 (unreported).

17.  As a matter of precedent, Goodtex Land Co Ltd was a decision of the High Court, while Polyson Jewellery Co Ltd & Anor was a decision of the Court of Appeal which is binding on me.  I do not think the defendant's lack of legal representation material as it was the decision of a very strong Court of Appeal comprising of Rogers VP, Le Pichon and Cheung JJA and the relevant authorities have been referred to.  The proposition of law is a very simple one, namely that a document by which individual owners of undivided shares in a property could claim the right to exclusive possession of their respective units in the property is a document which affects title.

18.  There is in existence a DMC which governed the rights of all the owners, including Properwealth as to its 64 undivided shares and the other co-owners as to the balance of 152 shares.  Under the DMC, Properwealth was given the right to exclusive possession of the entire ground floor subject to the obligations in the DMC.  In May 1990, Properwealth subdivided the ground floor into seven shops and assigned undivided shares to the shops. The Sub-DMC gave Hillgem the exclusive right to possession of Shop No. 1 and No. 2, subject to and with benefit of the DMC.  It is only by virtue of this Sub-DMC that Hillgem and the other individual owners of the ground floor shops could claim the right to exclusive possession of their respective shops.  If the Sub-DMC is found to be invalid, these owners of the ground floor shops, including Hillgem, would have at the highest a right to use the ground floor in common with the other co-owners of the ground floor shops as against the other co-owners in the upper floors of Hang Shun Building.  As among themselves, they would not have the right to exclusive possession of their respective shops.  Thus, in my view, the Sub-DMC does affect title.  It is the document by which the individual owners of the ground floor shops may claim the right of exclusive possession.  This Sub-DMC must be a document of title.

Whether the Sub-DMC is a deed

19.  As an alternative argument, Mr Leong SC argues that the Sub-DMC though described as a deed, need not be executed as such by Hillgem in order that it is binding on Hillgem.  He contends that the Sub-DMC is no more than an ordinary contract made by a company.  As such, it need not be made under seal and may be signed by Lau Chi Shing, described as one of Hillgem's directors.  He relies on section 32(1)(b) of the Companies Ordinance which provides that such a contract may be made on behalf of the company in writing signed by any person acting under its authority, express or implied.

20.  I cannot agree with such a contention.  The Sub-DMC sets out the rights and obligations of the shop owners on the ground floor and provides for the exclusive possession of the respective shops.  It was intended to run with the land and to bind subsequent owners of the shops on the ground floor.  It defines the legal estate which the undivided shares of the land held by each of the shop owners would entail.  It is expressed to be subject to and with the benefit of the DMC.  It has the effect of a deed of mutual covenant and has the similar effect of the DMC in this case, except that it binds only the shop owners on the ground floor.  It is in effect a deed of mutual covenant as it is concerned with the creation or disposal of a legal estate in land.  Accordingly, it is required to be made by deed in accordance with section 4(1) of the Conveyancing and Property Ordinance.  It was intended to be a deed and was executed as a deed.  The question is therefore whether because of Hillgem's defective execution, the Sub-DMC failed to take effect as a valid deed binding itself and subsequent shop owners of the ground floor.

Section 23A of the Conveyancing Property Ordinance

21.  I now turn to the vendor's argument based on section 23A of the Conveyancing Property Ordinance 23.  The section provides:

“23A    Proof of title and presumptions of due execution of deed by corporation

(1)       A deed purporting to be

(a)          executed prior to the commencement of section 9 of the Law Amendment and Reform (Miscellaneous Provisions) Ordinance 2003 (14 of 2003) by or on behalf of a corporation aggregate; and

(b)          attested by a signatory or more than one signatory, where the signatory or each of the signatories, if more than one, is a person who could have been authorized under the articles of association or other instruments of the corporation,

shall, until the contrary is proved, be presumed for the purposes of proof of title to any land to have been duly executed by the purported signatory or signatories, as the case may be, with the authority conferred by the articles of association or other instruments of the corporation, whether or not the source of the authority or the means by which such authority was purportedly conferred is apparent from the deed.

(2)                 Where any deed is or has been produced by a vendor as proof of title to any land and that deed purports to have been executed by a corporation aggregate not less than 15 years before the contract of sale of that land, it shall for the purposes of any question as to the title to that land be conclusively presumed –

(a)          as between the parties to that contract; and

(b)          in favour of the purchaser under that contract as against any other person,

that the deed was validly executed.

(3)        This section applies only to deeds produced as proof of title to any land pursuant to contracts for the sale of such land entered into on or after the commencement of section 9 of the Law Amendment and Reform (Miscellaneous Provisions) Ordinance 2003 (14 of 2003)

Section 9 of the Law Amendment and Reform (Miscellaneous Provisions) Ordinance 2003 (14 of 2003) commenced on 9 May 2003.  Hence section 23A took effect on 9 May 2003, i.e. two weeks after the date of the Agreement.

22.  Mr Leong SC submitted that as a matter of law, the requisition had already been bad when it was first raised on 12 May 2003 because section 23A took effect three days prior to making of the requisition.  Mr Leong SC does not dispute that section 23A is only applicable to deeds produced as proof of title to any land pursuant to contracts for sale of such land entered into on or after 9 May 2003.  He ingenuously argues that any future contract of sale by which the Plaintiff will dispose of the Property  must be entered into after 9 May 2003 and with section 23A having become operative before the date of completion of the Agreement no future purchaser from the Plaintiff can query the propriety of the execution of the Sub-DMC by Hillgem.  He buttresses his submission on two well established principles.  Firstly, a vendor need not prove a perfect title and that a good title is shown so long as he can satisfy the court beyond reasonable doubt that the purchaser would not be a risk of a successful assertion against it of an encumbrance in the futures: see M.E.P.C. Ltd and Christian-Edwards and Others [1981] AC 205 at 220C-D.  The second principle is that whenever questions like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain: see Mexon Holdings Ltd v Silver Bay International Ltd [2000] 2 HKC at 8G-H.  Thus, Mr Leong SC submits that adopting such an approach, the Plaintiff must realise that the risk of a successful assertion of an encumbrance in futures is non-existent and a good title has therefore been shown.

23.  Mr Mok, Counsel for the Plaintiff, objects to the above submission on the basis that Yu & Co never made the above point in the answer to the requisition and is therefore not entitled to rely on this new point now.  He argues that initially Yu & Co relied on section 23A, which they later abandoned in favour of Chan Sai Hung v Well Develop Ltd, which they also subsequently abandoned.  He says that the Defendant should at least have pointed out in their answer that section 23A would apply in a future sale by the Plaintiff and that the rebuttable presumption would have sufficiently protected the Plaintiff.   I do not think that is correct.  The requisitioning process is not an occasion for the parties' solicitors to bandy propositions of law.  Each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: see Active Keen Industries Ltd v Fok Chi Keong [1994] 2 HKC 67.  Of course it would be preferable if one party can persuade the other to his own point of view on the law.  But, if the parties cannot agree on what the law is, they have to make up their minds on what the law is and assess where they stand.  If a vendor was wrong about the law while negotiating with his purchaser, there is nothing to prevent him from changing his position by arguing on the basis of the true proposition of law in the litigation that follows.  The position is different as regards the facts and all material relevant to the requisition known to the vendor.  If he has such facts and material in his possession which could have provided a complete answer to the requisition, but if he chooses not to disclose them, he will be barred from relying on them once the time for providing the answer has expired.  

24.  Mr Mok argues that section 23A(1) only sets up a rebuttable presumption of due execution and future purchasers from the Plaintiff will be entitled to try to rebut the presumption.  Hence, he argues that if the Plaintiff is entitled under the Agreement to be supplied the requested board resolution of Hillgem on due execution and when such a board resolution would prove due execution as contradistinctive to resting it on a rebuttable presumption, there is no justification why the Plaintiff should receive anything less than the requested board resolution under the Agreement.

25.  The purpose of section 23A is to save the validity of title deeds executed by a corporation prior to the commencement of section 9 of the Law Amendment and Reform (Miscellaneous Provisions) Ordinance 2003, i.e. 9 May 2003.  Section 23A distinguishes between two kinds of deeds executed by a corporation.  In respect of deeds which purport to have been executed not less than fifteen years before the contract of sale of that land, it is conclusively presumed as between the parties to that contract of sale and in favour of the purchaser under that contract as against any other person that the deed was validly executed.  This is an irrebuttable presumption and a total protection for the purchaser to the contract of sale.  However, in respect of deeds executed less than fifteen years before the contract of sale, the presumption of due execution is a limited one and is subject to a condition precedent.  The deed has to purport to be attested by a signatory or signatories who is/are a person(s) who could have been authorized under the articles of association or other instruments of the corporation. The presumption provided by section 23A(1) is that the deed has been so executed but not validly executed in all respects as in the case of a deed executed not less than fifteen years before the contract of sale.  The presumption is also rebuttable.  Thus, the protection under section 23A(1) is not a total protection for the Plaintiff.  To this extent, I agree with Mr Mok's submission that there is no reason why the Plaintiff should accept anything less than the board resolution.  However, Mr Mok's argument does not address Mr Leong SC's point that there is no risk of a successful challenge of the title in future.  Though on the face evidence of due authority for Lau Chi Shing as a director to execute the Sub-DMC is missing, if Mr Mok goes along the lines of Mr Leong SC's argument, it is difficult to see how the presumption under section 23A(1) could be rebutted.  This is because the section provides that the presumption applies “whether or not the source of the authority or the means by which such authority was purportedly conferred is apparent from the deed”.  On that basis, one must agree that there could be no real risk of a successful challenge as to the due execution of the Sub-DMC in future.

26.  However, I think counsel have allowed themselves to engage in an argument which started on false premises.  The fallacy of Mr Leong SC's submission becomes immediately apparent if his submission is properly understood.  In effect, Mr Leong SC is saying that though section 23A does not apply to the Sub-DMC in the present transaction and does not save the Sub-DMC from the consequence of a defective execution, if the Plaintiff accepts the title as proven, despite the Sub-DMC was not properly executed, then in relation to future disposition of the Property, the Plaintiff can rely on section 23A to show a good title to his future purchasers.  Thus, Mr Leong SC is not relying on section 23A directly in respect of the present transaction to show a good title.  He circumvented section 23A(3) by arguing that in future the Plaintiff can rely on the rebuttable presumption under section 23A(1) or if he would wait long enough, on the irrebuttable presumption under 23A(2) to prove a good title.

27.  This cannot be right as matter of legal principle.  The vendor's obligation is to show a good title of the property to be conveyed under the agreement for sale and purchase prior to completion. This obligation is not discharged by showing that irrespective whether he can show a good title to the property prior to completion, the purchaser will be able to show a good title in future to his future purchasers.  A good title does not mean a perfect title, free from every possible blemish. If a vendor could not show that a document affecting title and necessary to prove title had been duly executed, he has failed to show a good title.  It is also trite law that though a vendor has a good title, if he failed to show it by properly answering any reasonable requisition, he has failed to discharge the obligation of proving title: see Kok Chong Ho v Double Value Developments.  Thus, it cannot be open to a vendor to say to a purchaser, “Never mind that I cannot prove a good title now.  You shall accept the defect in title because in future you can rely on section 23A and no future purchasers can query the defect.”  Mr Leong SC's argument must be dismissed on this ground. 

28.  On the facts, the Sub-DMC is a document affecting title of the Property.  It is a document necessary to prove title and is required to be executed in the form of a deed under section 4(1) of the Conveyancing and Property Ordinance.  On the face, the Sub-DMC was executed by Lau Chi Shing who identified himself as one of the directors of Hillgem.  It is reasonable and indeed proper for the purchaser to request for a copy of the board resolution of Hillgem authorising Lau Chi Shing to execute the Sub-DMC.  The Defendant failed to produce the board resolution.  Its ultimate answer to the requisition was that “due execution was not required to be proved.”  On the law, I have rejected Mr Leong SC's submission that due execution was not required to be proved because the purchaser could in future rely on the protection of section 23A(1).  I must therefore conclude that the first requisition has not been properly answered.

The second requisition

The facts

29.  Along with the first requisition raised in their letter dated 12 May 2003, Tong & Tsoi raised a second requisition based on Clause 19 of the Agreement.  Clause 19 provides as follows:

「賣方必須証明該物業之結構(包括現有間隔牆)符合法例及該物業不存有任何僣建物」

“The vendor must prove that the structure of the property (including the existing partition walls) are in compliance with the law and that no unauthorized structures exist in the property”

The first limb of Clause 19 is specifically directed to the sub-partitioning walls within Shop No. 5 which subdivided the shop into five smaller units, namely Shops 5A, 5B1, 5B2, 5B3 and 5C.  The second limb of the clause is of general application and applies to any illegal structure in the Property.  The Plaintiff's second requisition is similarly worded in the following terms:

“Please produce architect's certificate to confirm the existing Sub-partitions within the property are legal and there is no illegal/unauthorised structures within or appertaining to the property.”

30.  Yu & Co responded by their letter dated 11 July 2003 enclosing an architect's certificate of Mr Yuen of Michael W K Yuen Architect dated 3 July 2003 certifying that the partitioning works were non-structural alteration works which did not require building approval.  This purportedly answered the first limb of the requisition regarding the sub-partitioning walls but not the second limb of the requisition regarding non-existence of any illegal structures. 

31.  The parties' solicitors exchanged further correspondences arguing whether Mr Yuen's certificate sufficiently answered the requisition.  Eventually on 3 September 2003, Yu & Co in purported answer to the second limb of the requisition sent an up-dated land search record showing there was no notice or order regarding illegal and unauthorized structures registered against the Property.  Yu & Co asserted in their letter that no other evidence is required to be produced. 

32.  On 6 September 2003, Tong & Tsoi wrote to Yu & Co referring to Clause 19 of the Agreement and reiterating that Mr Yuen's certificate failed to cover all the points required by the terms of the Agreement.  They enclosed an architect certificate from Mr Tsang of Lee Leung & Tsang Engineers & Architects dated 5 September 2003, which made the following points: (1) the subdivision of Shop No. 5 into five smaller shops was not shown in the approved plan; (2) there were no sanitary fittings provided for each of the five sub-divided shops; (3) the materials used for the partitioning walls were unknown and such partitioning walls created additional loading which adversely affected the structural members of the building and (4) the provision of sanitary fittings for the shops on the ground floor did not comply with regulation 5 of the Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations after the subdivision of Shop No. 5. 

33.  On 8 September 2003, Yu & Co responded reiterating their view that Mr Yuen's certificate of 3 July 2003 and the land search record sufficiently answered the requisition.  Tong & Tsoi replied on the same day enclosing a second certificate from Mr Tsang dated 8 September 2003.  The certificate referred to a site inspection on 6 September 2003 which revealed a cockloft in each of Shops 5B2 and 5C.  Mr Tsang was of the opinion that Shop No. 5 had been altered and is different from the approved plan, the cocklofts created additional loading with serious adverse effect to the building and that approval from the Building Authority was required for the erection of the cockloft. Tong & Tsoi reiterated that Mr Yuen's certificate failed to certify that there was no illegal or unauthorized structures within or appertaining to the Property and that the land search record is not conclusive evidence to prove the same.  They also required the Defendant to clarify the legality of the cocklofts prior to completion.  That was the last day before the scheduled date of completion.

34.  On 9 September 2003, Yu & Co replied that items (2) and (4) of Tsang's first certificate, i.e. the sanitary requirements, did not affect the title of the Property and relied on Mr Yuen's certificate in answer to item (3) of Tsang's certificate, i.e. the question of loading of the partition walls.  They also enclosed a second certificate of Mr Yuen in answer to Mr Tsang's second certificate, i.e. the cockloft.  In that certificate, Mr Yuen opined that the timber cocklofts were decorative items and non-structural alteration works and as such no approval from the Building Authority was required.  Tong & Tsoi replied on the same day expressing their disagreement and enclosed a third certificate of Mr Tsang of the same date requiring the Defendant or its architect to produce evidence that the floor slab was adequate for the loading caused by the partitioning walls and that the cocklofts would not affect the plot ratio of the building.  Tong & Tsoi reiterated that the vendor has failed to reply to their requisitions on title satisfactorily and completion shall not take place unless and until the vendor has proved and shown a good title to the Property.  There was no further reply from Yu & Co before time for completion expired by mid-night that day.

35.  On 12 September 2003, Yu & Co offered to provide further answers to both the first and second requisitions.  In respect of the second requisition, they offered to arrange their architect to prepare a final report and asked Tong & Tsoi to take instruction and revert.  On 16 September 2003, Tong & Tsoi rejected the offer and demanded return of the deposit.

36.  On 19 September 2003, Yu & Co enclosed a third certificate dated 18 September 2003 from Mr Yuen.  In that certificate, Mr Yuen wrote:

“Upon further inspection, I hereby certify that :-

1.             the timber cockloft did not increase the existing bulk of the said shops.  As such, its does not change the plot ratio element of the said property; and

2.             the partition walls are, in my opinion, non-structural works and will not affect the basement of the building.”

This was not acceptable to the Plaintiff.  However on 26 September 2003, Yu & Co asserted that good title had been proved and shown.  On 2 October 2003, the Defendant purported to accept the Plaintiff's repudiation of the Agreement and forfeited the deposit.

37.  In respect of the second requisition, the Plaintiff's position as at the expiration of the time for completion is that the following matters remained unanswered: (1) the partitioning walls, (2) the sanitary requirements, (3) the cockloft and (4) the non-existence of illegal structures.  The Defendant argues that the matters raised in the second requisition were either adequately answered or do not affect title.  In the alternative, the Defendant argues that if the requisition had not been adequately answered by 9 September 2003, it was adequately answered by Yu & Co's letter dated 19 September 2003 enclosing Mr Yuen's third certificate of 18 September 2003 and that as the second requisition was made late the Defendant should be allowed reasonable time to answer that requisition.

The effect of Clause 19

38.  It is argued by Mr Mok that the effect of Clause 19 is to impose a burden on the Defendant to identify all structures (in this case, the partitioning walls and the cocklofts) which were not shown on the approved plans and to provide concrete evidence to prove beyond reasonable doubt either that the cocklofts and the partition walls were lawfully constructed or otherwise there was no real risk of enforcement action by the Building Authority or that they had been demolished and no longer existed.  He further argues that the Defendant had to discharge the above contractual duty without any requisition from the Plaintiff.  I do not find it necessary to decide on the effect of Clause 19 as the purchaser had in the ensuing correspondences actually identified all the illegal structures complained of and in respect of which the second requisition was raised. 

39.  If it is necessary for me to express an opinion, I would disagree with that submission.  It cannot be doubted that under the terms of the Agreement the Defendant was under an obligation to prove that the structures of the Property comply with the law and that there were no illegal structures in the Property.  However, this is an express contractual obligation which is different in scope from that of a vendor's implied obligation to show and prove title of the property to be conveyed under a sale and purchase agreement.  Depending on the nature of the illegal structure, breaches of the former obligation may not necessarily constitute a blot on title or create a real risk of enforcement action by the Building Authority.  Under such circumstances, completion may still go ahead with the obligation surviving completion and entitling the purchaser to claim damages for its breach.  The latter obligation is the vendor's obligation to show and prove a good title of the property to be conveyed upon completion of the sale and purchase agreement.   As Mr Leong SC rightly pointed out, the remedy sought by the Plaintiff is a declaration that “the requisition and objections … in respect of the title of the Property … have not been answered or sufficiently answered by the Defendant.”  Insofar as the Plaintiff is seeking a declaration that the requisitions in respect of the title of the Property have not been answered or sufficiently answered, the Plaintiff has to raise a requisition or an objection to the title of the Property in relation to either the existing partitioning walls or other identified illegal structures and to show that the Defendant had failed to answer such requisitions satisfactorily.   With or without Clause 19, the Defendant was under an obligation to deal with any specific requisition regarding all illegal structures which constitute a blot on title.  The very extensive obligation under Clause 19 as suggested by Mr Mok would be impossible of performance.  A strict interpretation of this clause would require the Defendant to show even at the construction stage of the building some twenty years ago that each and every building process complied with the Building Regulations and approved plans.  In my view, Clause 19 does not have the effect of reversing the burden of proof and imposing on the Defendant the obligation of showing all structures of the Property were in compliance with the law or of explaining each and every deviation from the approved plan and that there was no illegal structure in the Property without the Plaintiff making any requisition. 

40.  I now turn to consider under separate subheadings the various objections raised in the Plaintiff's second requisition.

The subdivision partitioning walls

41.  By midnight on 9 September 2003, the Plaintiff has provided three architect certificates to the Defendant.  The second certificate of Mr Tsang was exclusively related to the cocklofts.  The Defendant has only provided two architect certificates from Mr Yuen.  Only the first one dated 5 September 2003 was related to the partitioning walls.  Thus as regards the partitioning walls, I am confronted with three certificates, all issued by architects, but apparently to different effects.

42.  Mr Yuen's first certificate dated 3 July 2003 reads:

“This is to certify that the partitioning works forming Shop 5 (including Shops 5A, 5B1, 5B2, 5B3 & 5C) on Ground Floor of Hang Shun Building, Nos. 37-39 Tonkin Street, Kowloon (as per plan attached) are in my opinion, non-structural alteration works in accordance with Section 41(3) of the Buildings Ordinance.  As such, no approval from the Building Authority is required for such partitioning.”

43.  In his first certificate dated 5 September 2003, Mr Tsang responded as follows:

“Pursuant to our general site inspection of the above property on the 4^th day of September 2003 and viewing of the approved building plan dated 23 December 1980, we found that the property in fact is different from approved plan as shown by the followings:-

(1)        The property has been sub-divided into Shops No. 5A, 5B1, 5B2, 5B3, 5C, No. 6 and No.7 respectively.

(2)        There is not sanitary fitting provides for Shops No. 5A, 5B1, 5B2, 5B3 and 5C after the sub-division of shops.

(3)        The materials used for the construction of existing partition walls are unknown.  Such additional loading will have serious adverse effect to the structural members of the existing building.

(4)        The provision of sanitary fittings for Shops at Ground Floor do not comply with paragraph 5 of Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations after the sub-division of shops as item (1) above mentioned.”

44.  In his third certificate dated 9 September 2003, Mr Tsang wrote:

“….  We would like the concerned parties to explain or provide evidence supporting for the followings:-

(1)          As there is a Basement Level underneath, the loading of the additional brick walls is not rested on soil, such additional loading will have great burden to the existing structural members of the building for the original superimposed load of existing slab is not adequate to support such brick walls.

(2)          The construction of Cocklofts in Shop 5B2 and 5C respectively will affect the plot ratio of the existing building, no matter they are constructed by what kind of materials.

In our opinion, the above mentioned constructions are considered as building works. Therefore, both the approval and acknowledgement for the completion of the said building works are required to obtain from the Building Authority.”

45.  Mr Yuen certified that the partitioning works being “non-structural alterations works” were exempted building works within the meaning of section 41(3) of the Buildings Ordinance for which no building approval was required from the Building Authority.  Mr Tsang did not deal with the section 41(3) point in any of his certificates.  In his first certificate, he identified the subdivision partitioning walls which were not shown in the approved plan and asserted without specifying the any basis on which he opined that the loading created by the additional partitioning walls had serious adverse effect to the structural members of the building.  In his second certificate, his complaint was exclusively about the cocklofts which I shall consider under a separate subheading below.  In his third certificate, he asserted that the partitioning works and the cocklofts were building works, which of course they were; but he did not allege that the partitioning works were not exempted building works within the meaning of section 41(3). 

46.  The question here is whether Mr Yuen's certificate adequately answered the requisition about the partitioning walls.  The answer to this question depends on whether the partitioning works were exempted works within the meaning of section 41(3) of the Buildings Ordinance so that no building approval was required for the execution of the works.  Both Mr Yuen and Mr Tsang are qualified architects.  I must respect their expertise in their field.  However, the question of interpretation of the Buildings Ordinance is a matter for me.  Section 41(3) provides:

“Building works other than drainage works, ground investigation in the scheduled areas or site formation works not involving the structure of any building may be carried out in any building without application to or approval from the Building Authority.”

The partitioning works cannot by any imagination be regarded as drainage works, ground investigation work or site formation works.  Thus whether approval was required depended on whether the works involved the structure of the building.  Mr Yuen certified that the works did not.  Mr Tsang opined that the works were building works, for which there could hardly be any dispute.  But he did not directly contradict Mr Yuen's opinion that the works were exempted building works which did not involve the structure of the building.  Thus put at the highest, Mr Tsang's certificates only raised a collateral question whether the floor slab was adequate to support the additional brick partitioning walls.

47.  Mr Tsang did not make any reference to any building regulations about loading.  However, at the hearing, Mr Mok referred me to Part III of the Building (Construction) Regulations made under the Buildings Ordinance.  Regulation 15 provides guidelines for designing and constructing a building insofar as resistance to sliding force, uplift force and overturning moments are concerned.  Regulation 16 provides guidelines for calculating dead loads at the stage the building was being designed and constructed.  Regulation 17 provides guidelines for calculating imposed loads of a building also for the purpose of its design and construction.  However, Mr Mok failed to explain the precise meaning of regulation 15, how the erection of the partitioning walls were in contravention of these regulations and how these contraventions, if in fact there were any, would affect the title to the Property.

48.  I think these regulations were relied on by the Plaintiff in support of its attack on Mr Yuen's certificate on the basis that the partitioning works were unauthorised and illegal as they not only created additional loading on but would also adversely affect the floor slab which is a structural member of the building and such unauthorised work would therefore attract enforcement action. However, in the absence of expert evidence and in particular the absence of evidence as to the weight of the partitioning walls, these regulations could not assist either party. 

49.  A few words may be said, by way of surmise.  According to regulation 16, the weights of permanent partitions indicated on a building plan shall be included in the dead load in calculating the loading in designing and constructing a building.  Thus the weight of the subdivision partitioning walls in question do not contribute to the dead load but is to be treated as imposed load.  Table 1 of the Building (Construction) Regulations sets out the minimum imposed loads which a slab of a building must be designed to withstand.  Class 5 of Table 1, which applies to floors of department stores, supermarkets and shops and hence to the ground floor of Hang Shun Building, provides that the minimum loading for concentrated load to be applied on plan over any square with a 300 mm side shall be 4.5 kilo Newtons.  This is the figure most favourable from the Plaintiff's stand-point for the purpose of advancing its objection and it assumes that the partitions are not resting on beams or other structural members of the building for which the minimum designed loading is very much higher, namely 30 kilo Newtons.  Recalling my knowledge in physics from my Advanced Level study, a Newton is a unit of force which equals to the force that would give a mass of one kilogram an acceleration of one metre per second per second, i.e. the force needed to cause a mass of one kilogram to move with an ever increasing speed of one metre per second in every second.  4.5 kilo Newtons, i.e. 4,500 Newtons is a tremendous force that would keep a mass of 4,500 kilograms moving with an acceleration of one metre per second per second.  Translating all these into everyday experience of a motorist for comparison purpose, a speed of one metre per second in motorist's term is the speed of 3.6 kilometres per hour, an acceleration at the rate of 3.6 kilometres per hour per second is that acceleration which would bring a motor car from standstill to 36 kilometres in 10 seconds (the ordinary street acceleration from a traffic light) and 4,500 kilograms is about the weight (and I use the word “weight” interchangeably with “mass” for simplicity purpose) of four and a half medium size motor cars.  From these figures, it could be readily appreciated that 4.5 kilo Newtons is a tremendous force.  On the assumption that Hang Shun Building was designed and built to this minimum standard, if one has to surmise, it is most likely that the weight caused by a brick partitioning wall of the height of the ground floor of an ordinary commercial building on a square of 300 mm side, i.e. about one square foot, could hardly exceed 4.5 kilo Newton.  This, as I said, is a surmise because the weight of the bricks and the dimension of partitioning walls are unknown.  But it is very much less of a surmise than Mr Tsang's suggestion in his certificate that the existing floor slab is inadequate to support the partitions.  Given his knowledge of physics and architecture, I think Mr Tsang is magnifying a difficulty which does not in reality exist.  Mr Tsang is a professional architect.  He must be taken to know the purpose for which his certificates were required and that Mr Yuen was asserting that the partitions and the cocklofts were exempted works within the meaning of section 41(3).  He chose not to directly contest that point but obliquely raised questions about loading without quoting any regulations he was relying on and without any credible basis at all.  I am entitled to give no weight to his certificates on this issue.  Indeed the inference could also be drawn that by evading the section 41(3) point he conceded that the works were exempted works.  There is no evidence to suggest that the erection of a few partitioning walls would adversely affect the loading of the floor slab or would otherwise affect the structure of the building built to the requirements of regulations 15 to 17 of the Building (Construction) Regulations.  I do not think Mr Tsang's certificate raised any doubt in the correctness of Mr Yuen's certificate so far as the section 41(3) point is concerned.

50.  Mr Mok referred me to the decision of Dei Chuen Ho Industrial Ltd v Leung Yin Por [1993] 2 HKC 495.  Inthat case, according to the building plan approved by the Building Authority, the ground floor of the property was partitioned into four shops. The original partitions were removed and the ground floor was converted into twenty-four shops.  Rhind J held that the vendor failed to answer a requisition which stemmed from the discrepancy between the original approved building plan and the plan annexed to the first assignment in respect of the number of shops on the ground floor of the property.  Despite the apparent similarity between that case and the present one, Dei Chuen Ho Industrial Ltd is clearly distinguishable on the facts in that it was not a case of merely erecting additional partitions but it involved demolition of the existing structural walls and erection of new ones.  The basis of Rhind J's decision was that the partitioning involved alteration to the structure of the building and the vendors have failed to show it did not.  Indeed, in that case, Rhind J said at 503F:

“If there were evidence that the only reason for the discrepancy between the occupation permit, the original building plans, and the assignment plan was the mere erection of partitions, I would agree with the vendor's counsel that such works fell within the ambit of the exemption conferred by s 41(3), because the putting up of such partitions would not involve the structure of the building.

In the case before me, however, there is simply no evidence that the conversion of the four shops contemplated by the occupation permit into the 24 shops shown on the assignment plan was confined to the putting up of partitions.  The critical factor determining exemption under s 41(3) in the present case is whether or not the partitioning involved any alteration to the structure of Fook On Building.  What the vendors have failed to show by any evidence is that the partitioning did not involve such alteration to the building's structure.”

Thus the opinion of Rhind J in the first paragraph cited above is consistent with my more scientific conclusion reached on the basis of the two architects' certificates and the Building (Construction) Regulations. 

51.  Mr Mok also referred me to Spark Rich (China) Limited And Valrose Limited Civil Appeal No 249 of 1998.  I do not think I need to refer to the facts of that case.  In that case, the vendor conceded that there were illegal structures in the property concerned.  The issue was the question of the risk of enforcement action by the Building Authority.  Here, the question is whether the partitioning walls are unauthorised structures.  On my conclusion as well as on the obiter opinion of Rhind J in Dei Chuen Ho Industrial Ltd the partitioning walls are not unauthorised structures.  The issue of risk of enforcement action does not even arise.

52.  On the face, there is nothing to contradict the correctness of Mr Yuen's certificate that the partitioning works were non-structural alteration works which did not require building approval.  Mr Tsang did not say otherwise in his certificates or cast any doubt on the correctness of Mr Yuen's certificate.  There is nothing to suggest that any structural members have been removed in connection with the sub-division.  Insofar as the question that the partitioning works were exempted work within the meaning of section 41(3) is concerned, Mr Yuen's certificate is similar to the one in Mexon Holdings Ltd v Silver Bay International Ltd [1999] 3 HKC 756 in which the Court of Appeal held showed “a clear chain leading back to the base of the title”.  I have no reason to hold otherwise.  I accept Mr Yuen's certificate that the partitioning works were exempted building works for which no building approval was required under section 41(3) of the Buildings Ordinance.  The partitions are therefore not illegal or unauthorised structures.  Accordingly, I find Mr Yuen's certificate adequately answered the requisition on the partitioning walls.

Sanitary requirements

53.  There were two objections raised in Mr Tsang's first certificate dated 5 September 2003 in respect of non-compliance with sanitary requirements.  Firstly, there were no sanitary fittings provided for each of the sub-divided shops and secondly, the sanitary fittings for the shops on the ground floor did not comply with regulation 5 of the Building (Standards of Sanitary Fitments, Plumbing, Drainage Works and Latrines) Regulations after the subdivision of the Property.  That regulation provides for the number of watercloset fitments, urinals, basins and showers in every building used or intended to be used for the purpose of an office and in every industrial undertaking and other places of work.  In my opinion, these requirements apply to the building as a whole and not to the individual shops inside the building.  It is difficult to see the validity of the first objection.  As for the second objection, it was obscure and it failed to state precisely and clearly how the matter could constitute a blot on title.  In my view, both objections were bad and the purchaser failed to show how a non-compliance of regulation 5 would affect the title to the Property.  I consider Yu & Co's reply dated 9 September 2003 has adequately answered these objections.

The cockloft

54.  The vendor first raised the question of the legality of the cocklofts and the question of loading on 8 September 2003.  In his second certificate dated 8 September 2003, Mr Tsang wrote as follows:

“Further to our Architect's Certificated dated 5 September 2003 in respect of the captioned property, a site inspection was conducted again on 6 September 2003, we discovered that two of the captioned Shops (5B2 and 5C) in fact had been altered into the present state and were different from approved building plan dated 23 December 1980.  The alterations can be shown by the following:-

(1)          a questionable cockloft being constructed in Shop 5B2 with an opening provided; and

(2)          a questionable cockloft being constructed in Shop 5C and an associate wooden cat ladder was provided for the access with the Ground Floor.

In our opinion, the above mentioned constructions are building works and the additional loading of which will have great burden with serious adverse effect to the existing building.  Therefore, both the approved and acknowledgement for the completed of the said building works are required to obtain from the Building Authority.”

55.  Yu & Co replied on the same day.  I have dealt with part of that reply in relation to the sanitary requirements and the partitioning walls.  Yu & Co served a second certificate of Mr Yuen dated 9 September 2003 in reply to the objection about the cocklofts.   Mr Yuen certified as follows :

“This is to certify that the timber cocklofts at Shops 5B2 and 5C … are, in my opinion, decorative items and non-structural alteration works in accordance with Section 41(3) of the Buildings Ordinance.  As such, no approval from the Building Authority is required.”

56.  Tong & Tsoi did not accept Mr Yuen's certificate as a satisfactory answer.  They replied with yet the third certificate of Mr Tsang which I have referred to earlier when considering the question of loading of the partition walls (see paragraph 44 above for the text of the certificate).  In that certificate, Mr Tsang did not seek to dispute Mr Yuen's certificate that the cocklofts were decorative and were constructed of timber but asserted that the construction of the cocklofts would affect the plot ratio of the existing building no matter what the cocklofts were constructed of.  No reply was received from the Defendant until three days past scheduled completion date. 

57.  I shall now consider the position as at midnight on 9 September 2003.  Again, I am faced with two certificates to different effects.  Mr Yuen's second certificate certified that the cocklofts were made of timber for decorative purposes and the works were exempted works for which no approval from the Building Authority was required.  Mr Tsang did not dispute that the cocklofts were made of timber for decorative purposes and that they were exempted works within the meaning of section 41(3).  He must be taken to have accepted these assertions as correct.  In addition, there is nothing to suggest that the cocklofts were not exempted works.  Mr Tsang switched his objection by launching a collateral attack on Mr Yuen's certificate by saying that the cocklofts affected the plot ratio of the building.  Quite apart from the fact that the Plaintiff has advanced no argument on how the plot ratio of the building has been changed, if no challenge is made that the cocklofts are decorative, I fail to see how the plot ratio could be affected.  Furthermore, the Plaintiff has utterly failed to show how the effect on plot ratio of the building would affect the title to the Property.  There are numerous such decorative cocklofts in commercial buildings in Hong Kong.  To say that these are illegal structures because no building approval had been sought for their erection or because they affected the plot ratio of the buildings, Mr Tsang is again magnifying difficulties which in reality do not exist.  I think the requisition based on plot ratio is frivolous and vexatious and need not be answered at all.  I consider the requisition relating to the cocklofts had been adequately answered by Mr Yuen's second certificate dated 9 September 2003.  I do not need to consider the vendor's late reply of 16 September 2003 and Mr Yuen's third certificate.

58.  For the above reasons, I am satisfied that the second requisition has been adequately answered. 

Conclusion

59.  As a matter of law, I find that the Defendant has failed to adequately answer the first requisition as regards due execution of the Sub-DMC.  The Defendant has therefore failed to show a good title, thus entitling the Plaintiff to terminate the provisional sale and purchase agreement dated 25 April 2003 and to the return of its deposit.

60.  The Plaintiff is also entitled to have costs of the summons.  However, the conduct of the Plaintiff suggests that the second requisition was not raised bona fide.  Since receipt of the Defendant's answer on 11 July 2003, the Plaintiff did not follow up with the second requisition for two months until just 3 days prior to completion.  Within those three days, it procured three architect's certificates.  The Plaintiff's architect did not directly challenge Mr Yuen's certificate that the building works relating to the partitioning walls and cocklofts were exempted works but launched collateral attacks on the basis of loading and plot ratio.  The architect offered no basis for the challenges in his certificates and the Plaintiff failed to substantiate the challenges in court.  The way the second requisition was raised may be classified as frivolous and vexatious.  I am satisfied that the second requisition was not genuinely raised for the purpose of ensuring a good title to the Property to be conveyed.  The Plaintiff was obviously trying all that it could to get itself out of the Agreement even to the extent of magnifying difficulties which in reality were non-existent.  Though the Plaintiff was successful based on the first requisition which was properly raised but not adequately answered, much time has been wasted on the second requisition which should not have been raised or argued at all.  In the circumstances, I consider it appropriate that the Plaintiff should be deprived of part of its costs.  Accordingly, I make a costs order nisi that the Plaintiff shall be awarded 50% of its costs against the Defendant.