TRILLION JOYFUL LTD v. SUNNIX INTERNATIONAL LTD

HCA 1149/2022

[2026] HKCFI 850

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1149 OF 2022

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  The dispute herein concerns the sale and purchase of the property known as Ground Floor and Cockloft, No 183 Queen’s Road West, Hong Kong (“the Property). The plaintiff (“the Purchaser”) and the defendant (“the Vendor”) signed a provisional sale and purchase agreement dated 24 March 2022 (“the PSPA”), in which the completion date was stipulated as 18 August 2022. However, the transaction fell through.

2.  At the beginning of these proceedings, the Purchaser claimed against the Vendor for (a) misrepresentation, (b) failure to show a good title, and (c) failure to give a good title. For the reason set out in [23] to [27] below, in this trial, it would not be necessary for me to consider the misrepresentation claim.

3.  In this trial, Mr Adrian Leung represents the Purchaser. Mr Chase Pun and Ms Nicola Ho represent the Vendor.

B. BACKGROUND

4.  In around mid-March 2022, the Purchaser through an estate agent (“the Agent”) came to know that the Property was on sale. Through WhatsApp, the Agent provided to the Purchaser’s director (a) some photos showing the Property; and (b) copies of 3 tenancy agreements concerning different parts of the Property, ie (i) the tenancy agreement concerning the Ground Floor (“the G/F TA”), (ii) the tenancy agreement concerning the cockloft (“the Cockloft TA”) and (iii) the tenancy agreement concerning the rear shop/side shop (“the RS TA”). The copy of the RS TA provided by the Agent to the Purchaser through WhatsApp was not a complete set of that tenancy agreement. In that tenancy agreement, the rear shop/side shop was described in Chinese as “側邊鋪” (side shop). For ease of reference, the part covered by the RS TA is referred to as “the Rear Shop” in this judgment.

5.  One or two days before the parties entering into the PSPA, the Purchaser inspected the Property (“the Inspection”).

6.  On 24 March 2022, the Purchaser and the Vendor signed the PSPA. The material terms of the PSPA are as follows:

(1) purchaser price being HK$23,800,000 (Clause 2);

(2) completion date being 18 August 2022 (Clause 2(d));

(3) the Property “shall be sold to the Purchaser … free from encumbrances” (Clause 4);

(4) the Purchaser “agrees to purchase [the Property] subject to existing tenancy” (Clause 5);

(5) “簽署正式買賣合約後，買方有權與現租客商議及簽訂續租租約，賣方須盡力協助” (Clause 27)

(6) an annexure (“the Rider”), the contents of which are as follows:

“買方清楚明白所購入之物業連同屋宇署/消防處之頒令 / 命令一併購入 買方對有關之頒令 / 命令

頒令號碼: ……

買方不會作出任何質詢，質疑或質問。

買賣雙方同意及清楚明白。就有關頒令/命令之清拆費用及責任，成交前均由賣方負責。

買方亦清楚明白所購入之物業連同租約購入。

買方清楚明白所購入之物業共有租客三戶。

租戶1 - 地舖

租戶2 - 閣樓

租戶3 - 地舖後鋪

有關以上物業之分間買方清楚明白賣方未有向政府作出任何合法申請。買方同意不會因此作出拖延成交或拒絕成交之理由。”

7.  On 6 May 2022, V Hau & Chow (“VHC”) representing the Purchaser raised, inter alia, the following requisitions:

“2(a) We note from the Provisional Agreement that the tenancies of the Property covering (inter alia) [租戶3 - 地舖後鋪] (“the rear Shop”). However, we note that the copy Schedule 1 being part of the said Tenancy Agreement which relates to [香港皇后大道西183 [sic] 地下側邊鋪] (“the lateral Shop”) was sent by you to us previously. Please clarify the discrepancies of the said tenancy(ies) on the rear Shop and the lateral Shop as aforesaid and let us have each of the full and complete original(s) of the relevant Tenancy Agreement(s) duly stamped for our perusal.

(b) We note that:

(i) Occupation Permit No.H135/69 (“OP”) was issued to (inter alia) Ground Floor (with cockloft) with “1 shop for non-domestic use with one cockloft for storage for non-domestic use.”;

(ii) in the First Schedule of the Deed of Mutual Covenant No.UB715238 (“DMC”) that “the Ground Floor and Cockloft” were stated to be “exclusively used, occupied and enjoyed” by the Second Owner (as therein defined) without mentioning the rear Shop and/or the lateral Shop insofar as the said tenancy is concerned;

(iii) in Clause 11 of the DMC, it was stated that: “Each of the parties hereto shall have the fullest right and liberty without any consent or reference to other parties hereto, and without the necessity of making the other parties hereto parties thereto, (a) to sell, mortgage, charge or otherwise dispose of or deal with his share and interest of and in the said premises and the floor of which he is entitled to the exclusive use, occupation and enjoyment but subject to and with the benefit of these presents and (b) to let or demise to any tenant or lessee the floor of which he is entitled to the exclusive use, occupation and enjoyment but he shall be responsible to the other parties hereto for the due performance and observance by his tenant or lessee of the covenants terms and conditions herein contained.”

Please clarify: (I) the legal title of your client in the rear Shop and/or the lateral Shop insofar as the said tenancy is concerned and (II) how your client is entitled to the exclusive use, occupation and enjoyment of the rear Shop and/or the lateral Shop insofar as the said tenancy is concerned with a view to the DMC and the OP as stated above.

(c) It appears that the rear Shop and/or the lateral Shop was constructed by (inter alia) demolishing a part of the external wall of the Property. We do not see from any title deeds provided by you that the relevant external wall was expressly reserved as not being a common part of the Building. According to the Building Management Ordinance (Cap.344) (in particular the definition of common part under section 2 , Schedule 1 thereto), the external walls shall be a common part of the Building. Clause 3(b) of the DMC also suggest that the external wall shall be a common part by holding each of the parties hereto liable to pay his due proportion of the costs of keeping external parts of the building. Besides, clause 8 of the DMC stipulates that each of the parties shall not make any structural alteration to the said building and shall not cut or damage any of the main walls of the building.

Please (I) explain how your client’s good title to the Property is to be proven notwithstanding the above, and (II) confirm if the said demolition was approved by the Building Department, and let us have all relevant documents with regard thereto including but not limited to the Authorised Person’s Certificate to prove compliance of the relevant legislations.

……

5 Please let us have the full and complete originals of the existing three (3) Tenancy Agreements all duly stamped in respect of the rented parts or portions as set out in the Provisional Agreement covering 租戶1 – 地鋪 ; 租戶2 – 閣樓 ; 租戶3 – 地鋪後鋪 for our perusal.”

8.  On 11 May 2022, YL Yeung & Co (“YLY”) representing the Vendor gave the following answers to the requisitions:

“2(a) First, please be advised that the Tenancy Agreement is not a title document.

Secondly, please be advised that there is no standard description of the said “Shop” either “rear” shop or “lateral” shop in present case. There are merely by common understanding between respective clients and between our client and the Tenant. Please also be advised that the said Tenancy Agreement will expire on 30 June 2022. Reference to clause 27 of the Provisional Agreement dated 24 March 2022, the Vender agreed that your client is welcomed to make a new Tenancy Agreement with the Tenant. Your requisition will not be entertained.

(b) & (c) Please refer to Rider of the Provisional Agreement dated 24 March 2022. The Purchaser agreed that he will not raise any requisition about the title of such partitions.

……

5. Please be advised that the said Tenancy Agreement are not title documents and the Vendor is not required to provide the same to show and prove his title. The same will only be provided on or after completion.”

9.  On 20 May 2022, VHC raised the following points in relation to Requisitions 2(a), 2(b), 2(c), and 5.

“2(a) With due respect, we do not share your view. We fail to see how you would have your statement that “there is no standard description of the said “Shop” either “rear” shop or “lateral” shop in present case” while it was clearly stated in the Provisional Agreement that the tenancy relating to (inter alia) [租戶3] refers to – [地舖後鋪] (being the rear shop) instead of [地下側邊鋪] being the lateral Shop referred to in the copy of the Schedule I of the Tenancy Agreement provided by you for perusal. While whether there is any standard description of the said “Shop” is another issue, the “rear” shop or “lateral” shop apparently refers to different locations of the shop which will inevitably create doubt on the validity of the Tenancy Agreement, not to mention the rights and obligations of both the landlord and tenant under the Tenancy Agreement and the title of the Property held by your client insofar as the tenancy is concerned.

In any event, as the Property is subject to the existing tenancies, your client, the Vendor is required to produce a full and complete original of the “current original tenancy agreement” (New Jade Enterprises Ltd v Jing Ying She Ltd, HCA013764A/1997 refers) to the Purchaser for perusal before completion so as to let our client to know its full particulars including but not limited to the rights and obligation of both the landlord and tenant under the Tenancy Agreement.

Our requisition is hereby reiterated. Please let us have a proper and adequate reply thereto.

Without prejudice to the aforesaid, as regards the new Tenancy Agreement in the manner as proposed by you, we are instructed that unless our requisition has been properly and satisfactorily answered, our client is not in a position to consider the same.

2(b) Please note that in the Rider of the Provisional Agreement, it was stated that “ 有關以上物業之分間買方清楚明白賣方未有向政府作出任何合法申請。買方同意不會因此作出拖延成交或拒絕成交之理由”which relates exclusively to [以上物業之分間] and [賣方未有向政府作出任何合法申請]. However, there is [sic] provision as alleged by you that “The Purchaser agreed that he will not raise any requisition about the title of such partitions.”

As our requisition relates to the legal title of your client and also the entitlement of your client to the exclusive use, occupation and enjoyment of the rear Shop and/or the lateral Shop insofar as the said tenancy is concerned with a view to the DMC and the OP as particularly raised in our previous letter, your reply is irrelevant to our requisition.

Our requisition is hereby reiterated. Please let us have a proper and adequate reply thereto.

(c) Please also refer to our comments under 2(b) above. Further, please note that as our requisition relates to the external wall of the Property which forms a common part of the building pursuant to the Building Management Ordinance (Cap. 344) and the DMC as previously pointed out by us, your reply is irrelevant to our requisition. Our requisition is hereby reiterated. Please let us have a proper and adequate reply thereto.

…..

(5) Please refer to our comments under 2(a) above.” (Emphasis in original)

10.  On 27 June 2022, YLY gave the following answers:

“2(a) No further action or extension will be made by the Vendor on the Tenancy Agreement which will be expired after this month. Please take your client’s instruction.

(b)&(c) No further comment will be made. Please take your client’s instruction.

…..

5 All the Tenancy Agreements will expire before completion and the Vendor is not required to provide. Moreover, Tenancy Agreement is not a title document and the Vendor is not required to provide to show and prove his title. Your requisition will not be entertained.”

11.  On 27 July 2022, VHC followed up and raised the following points:

“2(a) With due respect, we do not share your view. We note that you have failed to properly and adequately reply to our requisitions previously raised by us, not to mention that your purported reply will not be accepted by our client.

We would like to put it on record that up to present, you still have failed to produce the full and complete original(s) of the relevant Tenancy Agreement(s) duly stamped for our perusal as to [租戶3-地舖後鋪] (“the rear Shop”) as mentioned in the Provisional Agreement and [側邊鋪] (“the lateral Shop”) when you have only produced a copy Schedule I being part of the Tenancy Agreement relating to “香港皇后大道西130號地下側邊鋪” (ie without production of the full and complete original of the relevant Tenancy Agreement duly stamped for our perusal).

Further, your purported reply under your letter dated 11^th May 2022 has been disapproved by us in our letter dated 20^th May 2022 with the support of legal authority and reasons therein mentioned, particularly the discrepancies of the said tenancy(cies) on the rear Shop and the lateral Shop. In this connection, without production of the said Tenancy Agreement(s) and without proper and adequate reply to our requisition by you, we fail to see how you have said “No further action or extension will be made by the Vendor on the Tenancy Agreement which will be expired after this month” and requested us to take our client’s instruction.

As such, our requisition is still outstanding and is hereby reiterated. Please let us have a proper and adequate reply thereto without further delay.

2(b)&(c) With due respect, we do not share your view. We note that your purported reply under your letter date 11^th May 2022 has been disapproved by us with the support of reasons as mentioned in our letter dated 20^th May 2022 particularly when our requisition 2(b) relates to the legal title of your client and also the entitlement of your client therein mentioned and our requisition 2(c) relates to proof of good title to the Property particularly on the external wall of the Property which forms a common part of the building and as to the demolition in question, approval by the Buildings Department and proof of compliance of the relevant legislations in the manner as therein mentioned.

In this connection, without proper and adequate reply to our requisition by you, we fail to see how you have said: “No further comment will be made” and requested us to take our client’s instruction. Thus, your purported reply is a “blank” answer to our requisition.

As such, our requisition is still outstanding and is hereby reiterated. Please let us have a proper and adequate reply thereto without further delay.

…..

5. Please refer to our comments under 2(a) above.

Pursuant to Clause 5 of the Provisional Agreement, the Property is sole to our client, the Purchaser “subject to existing tenancy tenancy” covering 租戶1 – 地鋪 ; 租戶2 – 閣樓 ; 租戶3 – 地鋪後鋪 as particularly set out in the Rider attached to the Provisional Agreement covering 租戶1 – 地鋪 ; 租戶2 – 閣樓 ; 租戶3 – 地鋪後鋪. As such, your client, the Vendor is required to produce a full and complete original of the “current original tenancy agreement” (New Jade Enterprises Ltd v Jing Ying She Ltd, HCA013764A/1997 refers) to the Purchaser for perusal before completion.

In this connection, our client is entitled to know the rights and obligations, covenants or conditions, expressed or implied, of both the landlord and tenant contained in or derived from the Tenancy (irrespective of your purported reply: “All the Tenancy Agreements will expire before completion”) and the title of the Property held by your client insofar as the tenancy(ies) is/are concerned.

We would like to put it on record that up to present, you have still failed to produce the full and complete original(s) of the rented parts or portions as set out in the Provisional Agreement covering租戶1 – 地鋪; 租戶2 – 閣樓 ; 租戶3 – 地鋪後鋪 by you for our perusal and without proper and adequate reply to our requisition by you, we fail to see how you client’s obligation under the provisional Agreement has been discharged.

As such, our requisition is still outstanding and is hereby reiterated. Please let us have a proper and adequate reply thereto without further delay.” (Emphasis in original)

12.  On 1 August 2022, YLY replied and said:

“2(a) Under the same Rider there is specific acknowledgment by the Purchaser that the Purchaser shall purchase the Property subject to the 4 Orders and/or Notices and no requisitions doubts or questions could be made therefrom. The Purchaser is not entitled, as he estopped to make requisitions there from. …… As regard the description of the tenancies that are being transferred, (whether still sustaining or expired) they are described in the said Rider as [地舖] (1. Ground Floor Shop: 2. Cockloft : 3. Side Shop.

There should be no dispute over the Ground Floor Shop. Te [sic] Cockloft is also properly described, leaving only the need for explanation of the Rear Shop as described in the Rider annexed to the Provisional Agreement aforesaid but described as Side Shop in the Tenancy. On this issue, we take pleasure to enclosed herewith the plan of the Property which shows there could only exist a Side Shop facing Li Shing Street and there is no other space in the Ground Floor that could be used (in the rear side of the Plan) by the Tenant other than the Side Shop described in the Tenancy Agreement.

The Property Agent Madam Wong Suet Wai can only confirm that there are only 3 shops to be included under the said Provisional Agreement. The word Rear Shop was meant to be the Side Shop and they both refer to only one single tenancy. The so call Rear Shop written by the Property Agent was clearly a clerical error. In respect of your concern of contribution payable under the Two Orders, that has been required to be paid by the Vendor.

According to our instruction all amounts had been made. The Vendor is agreeable and undertake to be withheld a reasonable sum for settlement of any belated notice or demand that may be made by the Incorporated Owners for amount due on or before 18th August 2022. We will also write to the Incorporated Owners requesting for information if there is any arrears of contribution by the Vendor is outstanding (if any).

As requested, we enclosed herewith duly stamped Tenancy Agreements for your record subject to your usual undertaking to return upon demand. Our client undertakes no further renewable of Tenancy or extension will be granted to the Tenants upon expiration of their tenancy.

2(b)& (c) You raise requisitions relating to the legal title and his right to make alternation and use of external wall. We again refer you to … the said Rider annexed to the said Provisional Agreement where your client specifically agreed not to raise any requisitions there from. Therefore, your requisitions over the user that area or legality of the use of the part of the Side Shop (otherwise known as Rear Shop) are misconceived.”

13.  The plan produced by YLY in their letter dated 1 August 2022 is the plan annexed to the First Assignment of the Property, with a yellow line added to the plan showing the location of “the Side Shop” facing Li Shing Street. No tenancy agreement was attached to that letter.

14.  By a 2^nd letter dated 1 August 2022 from YLY, the Vendor produced (a) the original of the G/F TA (duly stamped); and (b) the original of the RS TA (not stamped). The original of the Cockloft TA has not been provided to the Purchaser.

15.  On 11 August 2022, VHC said that the Vendor’s answers to the requisitions raised were not satisfactory.

16.  On 15 August 2022, YLY said the following:

(1) Under the PSPA, there is no mention of beneficial interest or legal title of the Vendor extending beyond the Ground Floor Shop and Cockloft. “[N]o title or interest on the Rear Shop has been agreed by the Vendor to assign unto the Purchaser on completion as it is not an interest that could eb agreed to be assigned.”

(2) The sale and purchase is subject to the Rider.

17.  On 16 August 2022, YLY proposed to postpone the completion from 18 August 2022 to 24 August 2022.

18.  On 17 August 2022, VHC refused to accept the proposal of postponing the completion date. VHC also said:

“… we are surprised surprised and taken aback by the latest allegation in your letter dated 15 August 2022 that [the PSPA] does not cover the Rear/Side Shop, which is contrary and inherently contradicting to the confirmation that you just provided us with your 1^st letter dated 1 August 2022 which states inter alia that “[t]he Property Agent Madam Wong Suet Wai can only confirm that there are only 3 shops to be included under the said Provisional Agreement” … The above inconsistent, inherently contradicting and highly embarrassing answers given by your client/your firm further illustrate that all along the answers provided by you to our requisitions are confusing and unsatisfactory.” (Emphasis in original)

19.  On 18 August 2022, YLY said:

“The mentioning of a 後鋪 in the 屋宇署及消防署頒令命令 was not part of the Property agreed to be sold. ……

Good title has been proved and shown before the date scheduled for completion.”

20.  On 18 August 2022, completion did not take place.

21.  On 19 August 2022, VHC said that the Vendor had failed to prove and give a good title to the Property and repudiated the PSPA. The repudiation was accepted and the PSPA was terminated. VHC demanded for return of the deposits paid and said that the Purchaser would claim against the Vendor for loss and damage.

22.  On the same date, YLY said that the Purchaser’s rescission of the PSPA was unjustified, and the Purchaser’s deposits were forfeited forthwith.

23.  On 6 September 2022, the Purchaser commenced these proceedings by issuing the Writ of Summons (“the Writ”) herein. In the Statement of Claim annexed to the Writ, the Purchase pleaded the basis of the misrepresentation claim:

“27. It is averred that shortly before the signing of [the PSPA], the plaintiff was provided with the bilingual [PSPA] (together with the Annexure in particular page 1 thereof). Clause 5 of the PS&P stated that the Property will be sold subject to existing tenancy. Clause 14 of [the PSPA] further provided that the Property is sold on an "as is" basis. Clause 25 of [the PSPA] incorporated the Annexure as part of the agreement. It is averred that the parties also agreed to include Clause 27 into [the PSPA] which stated that upon the signing of the Formal Agreement, the plaintiff is entitled to negotiate with the existing tenants for the renewal of the tenancies, and the defendant shall exercise its best endeavours to assist the same.

(1) in the circumstance, the cumulative effect of the above provisions led the plaintiff to believe and/or reinforced the plaintiffs belief and impression that in entering [the PSPA], the plaintiff will succeed the defendant and become the paper owner/landlord of the 3 sub-divided units including the "Rear Shop/Side Shop" and hence, entitled to discuss and negotiate with tenant no.3 - the vegetable/fruit store the intended renewal of the tenancy agreement in respect of the "Rear Shop/Side Shop"”

24.  In the Defence and Counterclaim dated 15 November 2022, the Vendor pleaded:

“21. As to paragraph 27:

……

(c) … having, as the Plaintiff alleged, physically visited and inspected the Property prior to the signing of [the PSPA], the Plaintiff should have been fully aware of the size and/or layout and/or demarcation and/or condition of the Property at the time when the Plaintiff entered into [the PSPA]. …… In particular, the Plaintiff should have been fully aware of the facts that there was no Rear Shop thereat and that the Side Shop was in fact partitioned from the Ground Floor Shop and is thus part of the Property …”

25.  As a result of the misrepresentation claim raised by the Purchaser in the pleadings, the parties have prepared witness statements and adduced evidence in relation to this claim.

26.  In the pre-trial review hearing on 22 October 2025 (“PTR”), after some exchanges between the bench and counsel, Mr Pun for the Vendor clarified that the Vendor accepted that the “Rear Shop” in the Purchaser’s case is part of the Property sold under the PSPA, and at all times the Vendor was using the name “Side Shop” to describe this part of the Property. For ease of reference, Mr Pun has no objection that the name “Rear Shop” be used.

27.  As a result of the clarification made by Mr Pun in the PTR, at the beginning of the trial, both parties agreed that it would not be necessary for the Court to hear live evidence from the witnesses in the trial, and the issues in the trial could be argued by only referring to the documents in the agreed trial bundles. Hence, I directed that there be no oral evidence from the witnesses in the trial, and their respective witness statements be treated as hearsay evidence before the Court.

C. THE ISSUES

28.  The issues in this trial are as follows:

(1) whether the Vendor has failed to show a good title before completion; and

(2) whether the Vendor was able to give a good title on the scheduled completion date.

D. DISCUSSION

D1. The principles

29.  There is no dispute that under the PSPA, the Vendor has a duty to show a good title before completion. In fact, Clause 4 of the PSPA expressly stipulates that the Property shall be sold to the Purchaser free from encumbrances. As a matter of law, in order to show a good title, the Vendor has a duty to answer a requisition reasonably raised by the Purchaser at a time reasonably before the scheduled completion date.[1]

30.  To show a good title means that the Vendor has to show that the facts and the circumstances of the case are so compelling that it would be beyond reasonable doubt that the Purchaser will not be at risk of a successful assertion against him of the encumbrance raised in the requisition.[2]

31.  “[T]he vendor’s solicitors must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed.”[3]

32.  A vendor has a duty to show a good title reasonably before completion, and also a duty to give a good title upon completion. The duty to show a good title and the duty to give a good title are two separate and independent duties.[4]

33.  Good title means that there is no real risk that a third party may assert some right over the property, thereby encumbering it or defeating the title altogether. It is trite that a good title is not a perfect title, free from every possible blemish. In considering whether a good title has been shown, the matter should be approached from the stand-point of a willing vendor and a willing purchaser with reasonably robust commonsense. What has to be borne in mind is the commercial reality, not the seeking of an absolute risk-free assurance.[5]

34.  As to what is a real risk and what is a risk which is not real, the test may be formulated in this way: “If the purchaser asks his solicitor: “Can I be sure that I can safely disregard the risk?” then, unless his solicitor (being a prudent and experienced solicitor) can properly advise him that he can, the purchaser cannot be obliged to accept the vendor’s title.”[6]

35.  If the Vendor relies upon the terms of the contract to shift the risk of any defect in title to the purchaser, the language must clearly do so.[7]

D2. The Rear Shop

36.  By looking at a photo showing the appearance of the Rear Shop[8], it appears that the Rear Shop was constructed by demolishing part of the external wall of the building facing Li Shing Street, thereby creating a space in the external wall (“the Space”). The Space itself is the Rear Shop.

37.  In my view, the requisitions concerning the Rear Shop touch upon 3 issues:

(1) whether the Vendor has a good title to the Space, bearing in mind that the demolished part of the external wall (“the Demolished Part”) may well be a common part of the building (“the Common Part Issue”);

(2) whether the demolition of the external wall is an act contravening Clause 8 of the DMC (“the DMC Issue”);

(3) whether the demolition was approved by the Building Department (“the BD Issue”).

38.  I am of the view that the requisitions concerning the Rear Shop are reasonably raised.

(1) As said in [36] above, it appears that the Rear Shop was constructed by demolishing part of the external wall of the building and creating the Space in the external wall.

(2) As submitted by Mr Leung, the Demolished Part is a common part of the Building:

(a) There is nothing in the title deeds showing that the Demolished Part (being part of the external wall) was expressly reserved for the exclusive enjoyment of any co-owner of the building. Thus, it should be regarded as a common part of the building. See Building Management Ordinance (“BMO”), s.2 and Schedule 1.

(b) Further, the “external wall” being a common part of the Building is also consistent with Clause 3(b) of the DMC, whereby each owner is liable to pay his due proportion of costs for upkeeping in good and tenantable condition the “main walls” and “all external parts” of the Building.

(3) Clause 8 of the DMC provides inter alia that “each of the parties hereto shall not make any structural alteration to the said building” and “shall not cut or damage any of main walls or beams or floors of the said building”. Applying common sense, the external wall of the building would be a main wall of the building. Thus, the creation of the Space would be an act contravening Clause 8 of the DMC.

(4) In view of the above, the requisitions concerning the Rear Shop are queries reasonably raised by the Purchaser with sufficient particularity.

39.  By now, the Vendor has accepted that the Rear Shop is part of the Property agreed to be sold to the Purchaser under the PSPA. By looking at the correspondence passing between VHC and YLY at the requisition stage, as to the requisitions concerning the Rear Shop, the only substantive answer provided by YLY is the Rider.

40.  In my view, the Rider is a satisfactory answer to the BD Issue, but is not an answer to the Common Part Issue and the DMC Issue.

(1) The relevant part of the Rider is as follows:

“買方亦清楚明白所購入之物業連同租約購入。

買方清楚明白所購入之物業共有租客三戶。

租戶1 - 地舖

租戶2 - 閣樓

租戶3 - 地舖後鋪

有關以上物業之分間買方清楚明白賣方未有向政府作出任何合法申請。買方同意不會因此作出拖延成交或拒絕成交之理由。” (Emphasis added)

(2) In my view, the plain and natural meaning of the Rider is that the Purchaser has agreed not to refuse to complete the transaction, or to delay the completion of the transaction, by reason of the fact that the Vendor did not make any application to the Government to legalize the partitioning of the Property into three parts. The words “因此” should be referring to “未有向政府作出任何合法申請”. Having not made any application to legalize the partition, there may be enforcement action(s) by the Government. The Purchaser cannot refuse to complete and delay the completion because of the existence of such risk.

(3) The crux of the BD Issue is the risk of enforcement action by the Building Department. In my view, this risk is squarely covered by the Rider.

(4) However, as to the Common Part Issue and the DMC Issue, the risk in these issues is the risk of enforcement action by the owners of the building (“the Owners”) or by the incorporated owners of the building (“the IO”).[9] The risk of this kind is not covered by the Rider.

(5) In my view, it is plain that the Rider only covers the risk of enforcement action by the Government, not the risk of enforcement action by the Owners or by the IO. Alternatively, there is no clear language in the Rider showing that the Rider would also cover the risk of enforcement action by the Owners or by the IO. In the absence of clear language, the Vendor cannot shift the risk to the Purchaser.

41.  Since the Rider is the only substantive answer provided by YLY in the requisition stage and the Rider is not an answer to the Common Part Issue and the DMC Issue, the Vendor has failed to show a good title to the Rear Shop, and has failed to show a good title to the Property as well (the Rear Shop being part of the Property and part of the contractual bargain), before the scheduled completion date.

42.  Mr Pun submits that there is no real risk that the Owners or the IO would take action against the owner of the Property because of the problems identified in the Common Part Issue and the DMC Issue. Mr Pun submits that the existence and the appearance of the Rear Shop are something which cannot be concealed, and the Purchaser must be fully aware of all these through the Inspection before entering into the PSPA. Further, the Purchaser had obtained a copy of the RS TA through the Agent before entering into the PSPA, and was supplied with the original of the RS TA on 1 August 2022. On the RS TA, it is clearly stated that the RS TA was made on 1 August 2016. That would mean that the Rear Shop was constructed at a time prior to 1 August 2016. With all these in mind, the Purchaser should have no difficulty in reaching the conclusion that there would be no real risk of enforcement action taken by the Owners or the IO in relation to the matters raised in the Common Part Issue and/or the DMC Issue. Relying on Wing Ming Garment Factory Ltd v Wing Ming Industrial Centre (IO)[10], Mr Pun submits that as a matter of law, the IO can waive or acquiesce in unauthorized alternations of the external wall of the building.

43.  With respect, I am unable to accept Mr Pun’s submissions. Even assuming that the Owners or the IO can waive or acquiesce in respect of the matters raised by the Purchaser in the Common Part Issue and the DMC Issue, at the requisition stage, the Vendor has the duty to act with total candour to let the Purchaser know all the facts which would support the conclusion that the Owners or the IO would have waived or acquiesced in the relevant breaches. Mr Pun has tried his best to point to those facts in his submissions, and at the end Mr Pun could only point to (a) the Inspection, (b) the date of the RS TA. It is true that the existence and the appearance of the Rear Shop are something conspicuous to the eyes. It is also true that from the date of the RS TA, one would know that the Rear Shop would have been created at a time before 1 August 2016. However, the problem is that the Vendor did not tell the Purchaser when the Rear Shop was constructed. If the Rear Shop was only constructed shortly before 1 August 2016, say in July 2016, that would mean that the Rear Shop would be in existence for a period of less than 6 years before the date of the PSPA. In these circumstances, a prudent and experienced solicitor acting for the Purchaser would certainly not be able to advise the Purchaser that the Purchaser can simply disregard the risk of any enforcement action by the Owners or by the IO.

44.  Further, I am unable to agree that as matter of law, the IO can waive or acquiesce in any unauthorized alternation of the external wall of the building. In my view, whether an incorporated owners could in law be held as having waived or acquiesced in a breach of a clause in a deed of mutual covenant depends upon whether the incorporated owners has the power to approve the act in question in the first place. If the incorporated owners does not have that power, there could be no argument based upon waiver or acquiescence against the incorporated owners.[11] In Wing Ming Garment Factory Ltd relied upon by Mr Pun, there is a specific finding by the Court that the subject matter is something which could be approved by the incorporated owners,[12] and hence the Court held that the matter would have been acquiesced by the incorporated owners.

45.  In this case, as to the breach identified in the Common Part Issue, in view of s.34I(1)(a) of the BMO, I am of the view that an argument based upon waiver or acquiescence would be applicable to that breach, if there is sufficient evidence in support of such an argument. However, in relation to the breach identified in the DMC Issue, I do not see anything based upon which it can be said that the Owners or the IO would have the power to approve an act which constitutes a breach of Clause 8 of the DMC in the first place. Thus, in my view, in relation to a breach of Clause 8 of the DMC, there can be no argument based upon waiver or acquiescence against the Owners or the IO.

46.  In my view, the Vendor has failed to satisfactorily answer the requisitions concerning the Rear Shop before the scheduled completion date. Further, based upon the evidence before me, the Vendor has also failed to give a good title by reason of the problems identified in the Common Part Issue and the DMC Issue.

D3. The tenancy agreements

47.  Regarding the tenancy agreements, the difference between the parties is that whether the tenancy agreements are title documents and hence the Vendor is obliged to produce the same to the Purchaser for inspection at the requisition stage.

48.  The Vendor’s stance is that all the tenancy agreements would expire and in fact expired before the completion date. Hence, the tenancy agreements would not affect the title which the Purchaser has agreed to accept on the completion date, and hence are not title documents.

49.  In the circumstances of this case, I am of the view that the tenancy agreements are title documents, and the Vendor has to produce the originals or the certified true copies of the originals (“the certified true copies”) to the Purchaser for inspection during the requisition stage. Plain copies of the tenancy agreements (“the plain copies”) were provided to the Purchaser during the negotiation stage. When the parties entered into the PSPA, the Purchaser agreed to purchase the Property subject to existing tenancies. That must mean that the Purchaser agreed to purchase the Property subject to the encumbrances as shown on the plain copies, no more and no less. The Purchaser is entitled to see the originals or certified true copies to make sure that the contents in the plain copies are same as the contents in the originals/certified true copies. In particular, the Purchaser would need to rule out the possibility that there is something in the originals/certified true copies which does not appear on the plain copies, and that matter itself would constitute an encumbrance on the title to the Property notwithstanding the expiry of the tenancy. In fact, VHC has voiced out this concern in their letter dated 20 May 2022, in which VHC said under Requisition 2(a) that the Vendor is required to produce the originals to the Purchaser for perusal before completion “so as to let [the Purchaser] to know its full particulars including but not limited to the rights and obligations of both the landlord and tenant under [the RS TA]” In the same letter, VHC repeated the same comments under Requisition 5. Similar comments were made by VHC in their letter dated 27 July 2022 under Requisition 5.

50.  On 1 August 2022, YLY produced the original of the G/F TA and the original of the RS TA to VHC. However, the original of the Cockloft TA, or a certified true copy of the Cockloft TA, has never been provided to VHC. For the reason explained in the paragraph above, I hold that the failure to produce the original or a certified true copy of the Cockloft TA to the Purchase before the completion date is a failure to answer the requisitions reasonably raised by the Purchaser, and a failure to show a good title.

D4. Conclusion on liability

51.  For the reasons above, in my judgment, the Vendor has failed to show a good title before completion. Further, based upon the evidence before me, I am of the view that the Vendor has failed to give a good title on the scheduled completion date. Accordingly, the Vendor is liable to the Purchaser for repudiatory breach of the PSPA as claimed by the Purchaser.

D5. Relief

52.  Mr Leung submits that the Purchaser seeks the following relief:

(1) a declaration that the Vendor was in repudiatory breach of the PSPA and that the PSPA was validly terminated and brought to an end by the Purchaser’s acceptance of the Vendor’s repudiatory breach on 19 August 2022;

(2) an order that the Vendor do return to the Purchaser the deposits paid in the total sums of HK$2,380,000 together with interest at the rate of HSBC prime plus 1% from 19 August 2022 to date of judgment; and thereafter at judgment rate until the return of the said deposits;

(3) a declaration that the Vendor, and not the Purchaser, is liable to pay and compensate the estate agent for any sum(s) due to the estate agent under the PSPA;

(4) an order that the Vendor do pay the Purchaser damages of HK$20,250 (in respect of wasted conveyancing costs) together with interest at the rate of HSBC prime plus 1% from 19 August 2022 to date of judgment; and thereafter at judgment rate until the payment of the said wasted conveyancing costs;

(5) a declaration that the Purchaser do have an equitable lien on the Property to secure the return of the deposits paid by the Purchaser to the Vendor under the PSPA together with interests thereon, damages awarded to the Purchaser, and costs of the action awarded to the Purchaser;

(6) an order that the Vendor’s counterclaim be dismissed;

(7) an order that the costs of the Purchaser’s claim and the costs of the Vendor’s counterclaim be paid by the Vendor to the Purchaser (including all costs reserved), to be taxed if not agreed.

53.  Mr Pun submits in the event that the Purchaser succeeds on liability, he has no objection to the relief claimed by the Purchaser, subject to the following:

(1) there be an order that the registration of the Writ in the Land Registry be vacated after paying all the sums and costs awarded by the Vendor to the Purchaser;

(2) there be a discount on the costs awarded to the Purchaser, for the Purchaser has unnecessarily raised the misrepresentation claim and complicated the matters in these proceedings, and costs incurred as a result of the misrepresentation claim have been wasted.

54.  As to the first point raised by Mr Pun, since there is no objection from Mr Leung, I would accede to that request. As to the second point made by Mr Pun, I am unable to agree.

(1) In view of the stance taken by YLY in their letters dated 15 August 2022 and 18 August 2022, it is perfectly understandable that the Purchaser was under an impression that the Vendor was saying that the Rear Shop was not part of the Property and was not included in the contractual bargain. Hence, it is reasonable for the Purchaser to include the misrepresentation claim in the Statement of Claim.

(2) Mr Pun submits that at a very early stage of these proceedings, in [27] of the Defence and Counterclaim, the Vendor has made it clear that the Vendor accepted that the Side Shop was in fact part of the Property. Hence, the Purchaser would have no reason to pursue the misrepresentation claim from that time onwards. With respect, I am unable to accept this submission.

(a) By looking at the PSPA, in particular the Rider, it is reasonable and understandable that the Purchaser has an impression that the Property comprising of three separate and distinct parts, ie 地舖 (Ground Floor Shop), 閣樓 (Cockloft), and 地舖後鋪 (Rear Shop). Putting aside the label “Rear Shop” or “Side Shop”, the true meaning of [27] of the Defence and Counterclaim is that the Property is only comprising of two parts, ie Ground Floor Shop and Cockloft, and the “Side Shop” is only part of the Ground Floor Shop. In these circumstances, in my view, it is perfectly legitimate for the Purchaser to continue to pursue the misrepresentation claim in these proceedings.

(b) I am in respectful agreement with Mr Leung that the Vendor only made its position clear through Mr Pun in the PTR, ie all the 3 parts stipulated in the Rider in fact are included in the contractual bargain in the PSPA.

55.  I would accept the costs order proposed by Mr Leung. The costs order would be made on nisi basis, so that if there is any matter which may affect the parties’ respective positions on costs and has not yet been raised, either party would have an opportunity to make an application to vary the costs order nisi.

E. DISPOSITION

56.  I make the order as set out in [52(1)] to [52(6)], and [53(1)] above.

57.  As said in [55] above, there be a costs order nisi that costs of these proceedings (including costs reserved, if any) be to the Purchaser, to be taxed if not agreed. Unless there is an application for variation of the costs order nisi made by an inter partes summons within 14 days after the handing down of this judgment, the costs order nisi shall become absolute without a further order.

58.  Lastly, it remains for me to thank Mr Leung, Mr Pun and Ms Ho for the very helpful assistance rendered to the Court.