CENTURY CROWN LTD. v. HO WING CHUN AND ANOTHER

HCMP 2147/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2147 OF 1998

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J U D G M E N T

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1. In these proceedings begun by Originating Summons, the plaintiff seeks a declaration that the sale and purchase agreement between the parties had been validly rescinded and the return of the deposits paid under this agreement. There was initially also a claim for damages, but this was abandoned at the commencement of the trial. The defendant counterclaims for various loss and damages suffered as a result of the plaintiff's alleged breach of the agreement.

Background

2. The defendants are the registered owners of the property known as Shops C and D, Ground Floor, Joy Take Court, 48 Tin Kwong Road, Kowloon ("the Property").

3. By a sale and purchase agreement dated 29 October 1997, the plaintiff agreed to buy and the defendants agreed to sell the Property at $5.3 million to be completed on 28 April 1998 ("the Agreement"). Prior to the execution of the Agreement, the defendants and the plaintiff's director, Mr Choi Kwok Chan, had signed a provisional sale and purchase agreement which was dated 20 October 1997 in respect of the Property ("the Provisional Agreement"). Pursuant to the Provisional Agreement and the Agreement, deposits totalling $530,000 had been paid by the plaintiff to the defendants. The title deeds were delivered by the defendants' solicitors to the plaintiff's solicitors by the letter dated 1 November 1997.

4. By a letter dated 18 April 1998 to the defendants' solicitors, the plaintiff's solicitors purported to raise requisition on the structures on the Property. In this letter, the plaintiff's solicitors stated as follows :

"On a recent inspection of the above property while preparing for completion, our client has discovered certain unauthorized structures appearing within the Property. Enclosed herewith is the architect report together with photographs for your information.

Kindly let us know whether your client can comply with the terms of the sale and purchase agreement before completion.

Your urgent reply thereto is much appreciated."

5. In the enclosed architect report dated 17 April 1998, it mentioned that 2 unauthorized structures were found on the Property, namely, a substantial cockloft in Shop C and a suspended false ceiling with a substantial cockloft above the ceiling level in Shop D.

6. The defendants then commissioned their own architect's report. By a letter dated 22 April 1998, the defendants' solicitors answered the plaintiff's letter in the following terms :

"We refer to your letter of 18 April 1998 and would like to reply as follows :-

1. The said structures are not unauthorized as you alleged and in this regard we enclose herewith a copy of Architect's report dated 21/4/1998 for your perusal. We shall let you have a certified true copy of the same in due course.

2. We confirm that our client can comply with the terms of the Sale and Purchase Agreement before completion."

7. In the architect's report enclosed with this letter, it stated that there was a wood decking in Shop C and that, for Shop D, the space above the false ceiling was only for air-conditioning ducts and fittings. The architect was of the opinion that the decking and the false ceiling were non-structural and exempted works which do not require the approval of the Building Authority.

8. On 25 April 1998, the plaintiff's solicitors responded by firstly referring to the case of Kan Wing-yan v. Hong Kong Housing Society M.P. No.2436 of 1997 which held that the vendor must show beyond doubt that he is in a position to convey to the purchaser the estate without any blot or possibility of litigation. The letter went on to state as follows :

"In the premises, as the opinions of 2 Authorized persons are conflicting and the said opinions are of the same weight, the doubt as to whether the cockloft and the suspended false ceiling constituted unauthorized structure still exists. Thus it is your client's obligation to clear the said doubt."

The letter continued by referring to the case of Giant River Limited v. Asia Marketing Limited MP No. 2510 of 1987 on the point about possible enforcement action under s.24 of the Buildings Ordinance. It then stated :

"In view of the said case, the existence of the cockloft and the suspended false ceiling would constitute unauthorized structure, approval of which from the Building Authority is necessary. Thus this would constitute a blot on your client's title.

In the premises, in order to resolve the matter, we have written a letter to the Building Authority asking their opinion as to whether or not the existence of the cockloft and the suspended false ceiling were building works which require the Building Authority's approval.

We reserve the right to raise any further requisitions and all our client's rights under the Agreement for Sale and Purchase signed between our respective clients are hereby reserved."

9. The defendant's solicitors responded by a letter dated 27 April 1998. In it, they doubted the plaintiff's purpose of procuring the architect report at such a late stage. They maintained that good title had been proved by the defendants and that the defendants were not obliged to wait for the opinion of the Building Authority. They stated that if the plaintiff failed to complete as scheduled, the defendants shall exercise their rights under the Agreement.

10. Then plaintiff's solicitors wrote on the same day enclosing a draft assignment, which was stated to be without prejudice to the plaintiff's right to require the defendants to comply with the requisition raised in the previous correspondence. The plaintiff's solicitors also wrote to the Building Authority seeking their opinion as to whether the structures found on the Property were unauthorized or exempted works.

11. On the following day, which is the day for completion, the plaintiff's solicitors replied to the defendant's solicitors, saying that there was nothing wrong for the plaintiff to make inspection only on 14 April. The letter further stated that the defendants had failed to prove a good title beyond reasonable doubt, having regard to the conflicting architect's reports, and that the plaintiff was ready willing and able to complete subject to good title being shown.

12. The defendants' solicitors replied on the same day reiterating that good title had been proved. The subsequent reply from the plaintiff's solicitors was in similar terms to that of the previous letters.

13. The plaintiff did not complete as scheduled. The defendants' solicitors, by a letter dated 28 April 1998, gave notice that the defendants accepted the plaintiff's repudiation and, pursuant to their rights under the Agreement, forfeited the deposits paid while reserving their rights.

14. The plaintiff then commenced these proceedings by Originating Summons. By the Order of Barnett J. dated 21 October 1998, the matter was ordered to be continued as if begun by Writ.

The Issues

15. The issues to be resolved in this trial involve both matters of fact and of law. They can be summarized as follows :

(1) Whether the plaintiff was out of time in making the requisition;

(2) Whether the plaintiff's requisition was properly based;

(3) Whether the defendants had satisfactorily answered the requisition;

(4) Whether the defendants had shown and proved a good title; and

(5) Whether the defendants had proved the damages pleaded in the Counterclaim.

The Evidence

(1) Witnesses of Facts

16. For the plaintiff, Mr Choi Kwok Chan had given evidence. Mr Choi is a director of the plaintiff and he had various business interests and committments in Hong Kong as well as in the mainland. According to him, the plaintiff's main and only business is in property investment and had owned 3 commercial properties before the present transaction. He testified that he had only made a brief inspection of the Property on the night before he signed the Provisional Agreement. As it was late in the evening, the 2 shops had closed for the day and he could only take a look at them from the outside. He was therefore not aware of the internal layout, let alone the existence of the alleged cockloft and the suspended false ceiling in the 2 shops. He denied the defendants' case that he had made 3 visits to the Property before signing the Provisional Agreement.

17. It is Mr Choi's evidence that he had only requested for the completion date to be deferred from 28 January to 18 April 1998 because he was busy and could not be in Hong Kong to execute the assignment. He denied that he had twice requested for the completion of the Property to be deferred for the reason that the plaintiff needed more time to arrange for mortgage facilities. He said that the plaintiff was financially capable of completing the transaction and referred to a letter from the plaintiff's banker, Sin Hua Bank Ltd, which certified that the plaintiff had since 21 February 1998 been granted overdraft facilities of up to 29 million. Mr Choi also denied that he had before completion and as a result of the sharp decline in the property market requested through the estate agent for a 20% reduction in the price.

18. For the defendants, Mr Ng Luk Kin, the estate agent, and the 1st defendant had given evidence. Mr Ng operated a small estate agency in the vicinity of the Property. He had known Mr Choi long before this transaction as he had handled a tenancy matter for Mr Choi in 1994. According to him, Mr Choi approached him expressing interest in the Property. He had taken Mr Choi to view and inspect the Property on 3 occasions during day time before Mr Choi signed the Provisional Agreement. He said that in the course of these inspections, Mr Choi had gone inside the shops, taken detailed look and measurements of them and also spoken to the tenants.

19. Mr Ng said that the completion date under the Provisional Agreement was initially stated to be "8" January 1998, but on the following day, Mr Choi requested for it to be changed to "28" January 1998 so as to give the plaintiff more time to arrange banking facilities. This request was agreed to by the defendants, so Mr Ng inserted the digit "2" before the digit "8" in the completion date. Mr Ng also said that some time later on, Mr Choi again requested to change the completion date to 28 April 1998 also to give the plaintiff more time to arrange for mortgage facilities. This was again agreed to by the defendants, hence the completion date in the Agreement was stated to be 28 April 1998.

20. It is also Mr Ng's evidence that in early April 1998, Mr Choi requested for a 20% reduction in the purchase price, on the basis that the property market had experienced a 20% fall in the meantime. Mr Ng related the request to the 1st defendant, who rejected it.

21. Mr Ng had been extensively cross-examined on the layout of the 2 shops. He denied the suggestion that he had given evidence against the plaintiff in order to maintain good business relationship with the defendants and also out of spite since the plaintiff had failed to pay him the commission under the Provisional Agreement.

22. As for the 1st defendant, she confirmed that she was consulted by Mr Ng on changing the completion date from 8 to 28 January and subsequently to 28 April 1998. She also confirmed that Mr Ng had related to her Mr Choi's request for a 20% reduction in the price, to which she disagreed.

23. Having heard and seen the witnesses, I am of the view that the evidence of Mr Ng and the 1st defendant is to be preferred to that Mr Choi. Mr Choi's evidence that he had only made one very brief inspection on the night before he signed the Provisional Agreement is inherently illogical and self-conflicting. On the one hand, he emphatically denied that the plaintiff was a property speculator. According to him, the plaintiff purchased the Property for its rental returns and the Property was intended to be a long term investment. That being the case, one would have expected him to visit the Property during day time so that he could find out the business volumes and potentials of the shops and the flows of pedestrians and traffic, matters which are clearly material and relevant in deciding whether the Property is a suitable choice for long term investment. Plainly, no useful information can be gathered by having an inspection at night time when the shops were closed and the street was quiet since the area is admittedly a residential and school area.

24. Further, if the plaintiff were indeed primarily interested in the rental returns of the Property, it is difficult to understand Mr Choi's evidence that he was not concerned to find out the financial or business prospect of the tenants, which must be of great relevance on the tenants' ability to honour their obligations under the tenancy agreements. Similarly, if the acquisition of the Property were intended as a long term investment, it is also difficult to follow Mr Choi's evidence that he needed not be concerned with the physical state and condition of the 2 shops before committing himself or the plaintiff in the transaction.

25. Mr Choi's explanation is that he had to go during night time because he was occupied during day time, and that he needed not see the shops in operation as he lived in the vicinity and was familiar with the area. If that is the case and if he was contented with the information supplied by the estate agent on the 2 tenancies, then there is no need for him to visit the Property at all. A visit as brief as the one he made can only establish that the Property was used for operating a photocopying business and a fast food business, and can serve no useful purpose. According to Mr Choi, he went there purely to take a look and to see whether the 2 businesses were indeed carried out on the Property. But this information should be readily known to him since he lived in the vicinity and knew the area, and the 2 businesses had been in operation for some time before October 1997. Mr Choi had also said that he wanted to find out how big were the shop fronts. I cannot see how he could do that with an inspection made at after 9 p.m. when the shops were closed.

26. Mr Choi's demeanor and evidence show that he is a clever, experienced and careful businessman. He does not strike me as a person who will rush into a hasty decision. I do not believe that he would undertake such a cursory and casual look of the Property if the plaintiff was acquiring it as a long term investment as he said.

27. I also find Mr Choi's reason for requesting the postponement of the completion date from 28 January to 28 April 1998 unconvincing. Mr Choi is said to be a busy businessman with many business interests and have to spend most of his time in the mainland to attend to his business, but completing the purchase of a $5.3 million property is no small matter either. It is difficult to understand why, as early as in late October 1997, he could not have re-arranged his business trips as to make himself available for the completion on 28 January 1998. It is not suggested that he was permanently resident outside Hong Kong and he had given no details about the commitment or business trips that allegedly prevented him from being present to complete the purchase in January 1998. At any rate, if the deferment was purely occasioned by his business schedule, it is hard to understand why he would need a 3 months long deferment. There is simply no explanation offered as to why the completion date was not brought forward or deferred to shortly after 28 January 1998.

28. There is also a ring of untruth surrounding the reason for commissioning an architect report only about 2 weeks before the completion date. Mr Choi said that the report was an ordinary pre-completion exercise and was prepared solely for the sake of the company's record. That does not explain why the architect was or could not be instructed earlier on, given that there was a lapse of more than 5 months between the signing of the Agreement in late October 1997 and the completion date in late April 1998. If the report were for the sake of record since the Property was intended to be a long term investment, one would have expected a more extensive and thorough survey and inspection than the one undertaken by the plaintiff's architect, a matter which I shall return to deal with later. It is also of interest to note that the architect's report dated 14 April 1998 is extremely limited in its scope and coverage. Other than reporting the discovery of unauthorized structures on the Property, the report mentions nothing else, not even simple information such as the floor area, the age or the condition of the Property.

29. Mr Choi was evidently uneasy and evasive when being cross-examined about the purpose of his architect's report and of the plaintiff's financial ability to complete the transaction. Mr Choi did not dispute that the property market had experienced a sharp decline since late October 1997. Having regard to that and judging from the timing and the contents of this architect's report, the irresistible inference is that the plaintiff was trying as best as it could to get out of the transaction and the architect's report was part of this attempt. It is also to be noted that the plaintiff's architect gave evidence that no prior notice or arrangement for his inspection was made so as not to alert the tenants or occupants of the Property. If the inspection is an ordinary pre-completion exercise, there is no need for it to be carried out in such secretive manner.

30. I pause here to say that, as a matter of fact, the motive of the plaintiff has no direct bearing on the issues as to whether the defendants' title is defective and whether the defendants had failed to answer the requisition satisfactorily. Even if the plaintiff was trying to get out of the Agreement by commissioning the architect's report, the plaintiff was in law entitled not to complete if the defendants' title is defective or if the defendants had failed to answer the requisition satisfactorily. However, Mr Choi's reluctance to acknowledge that the plaintiff was, to say the least, unwilling to complete the purchase, goes a long way to reflect on his credibility.

31. Mr Choi had testified that the plaintiff was financially able to complete the purchase and he relied on the letter from the plaintiff's banker, Sin Hua Bank Ltd. This letter, however, only states that the plaintiff had been granted overdraft facilities of up to $29 million since 21 February 1998. It is not informative as regards the plaintiff's financial strength, whether in October 1997 or in April 1998, because it does not reveal how much of the facilities had been drawn down and how much of the facilities remained available to the plaintiff. It is therefore of no probative value, let alone demonstrating that the plaintiff was financially sound and able to complete the transaction. Mr Choi had testified that the plaintiff had utilized not more than half of the credit facilities by February 1998. Had this been the case, it would have been simpler for the plaintiff to disclose its bank statements or to have the bank certifying the credit available to the plaintiff as at the material time. It is to be noted that this letter was obtained in August 1998 after the commencement of these proceedings. The fact that the bank's letter merely refers to the extension of the credit facilities, but is silent as to the amount of the available facilities is indicative of the plaintiff's reluctance to present a full picture of its financial position. This lends credence to the evidence of Mr Ng and the 1st defendant that Mr Choi twice asked for deferment of the completion date so as to enable the plaintiff to arrange the necessary finance. On the contrary, it reflects adversely on the credibility of Mr Choi as a witness.

32. Mr Ng, on the other hand, appears to me to be a truthful and honest witness. Unlike Mr Choi, he is slow in response and is not an articulated person. Perhaps in recognition of these, he had taken great care in answering the questions out to him. Also because of this, there were occasions when he requested for the questions to be repeated. I do not consider that these are indicative of his being evasive in his answers, as counsel for the plaintiff suggested.

33. Mr Ng had been cross-examined on why he did not ask the 1st defendant to initial against the alteration to the completion date in the Provisional Agreement. He was ready to accept that, with the benefit of hindsight, it would have been better had he done so. But the reason he gave for not asking the 1st defendant to initial against the alteration is not unreasonable or improbable. As he said, it was a request made by Mr Choi and the defendants had agreed and the alteration was done in the presence of the 1st defendant, it did not occur to him to ask the 1st defendant to add her initial. The evidence of the 1st defendant is that Mr Ng took the Provisional Agreement to her and made the alteration in her presence. The other alterations on the Provisional Agreement and the initials against them had been made the day before, it is therefore not improbable that Mr Ng would have omitted to ask the 1st defendant to add her initial.

34. It was submitted on behalf of the plaintiff that Mr Ng was not an independent witness as he had his own purpose to serve by giving evidence in favour of the defendants. It was said that he was expecting more business from the defendants since the defendants had continued to entrust him with the sale of the Property. In advancing this submission, counsel for the plaintiff had overlooked the fact that Mr Choi had also been a long time customer of Mr Ng even before this transaction. It is Mr Ng's evidence that Mr Choi had as early as 1994 entrusted him with the letting out of several of his shops and had also referred business to him from time to time. There is therefore no good reason for Mr Ng to favour the defendants in preference to Mr Choi. If, as the plaintiff contended, he was giving evidence with a view to cultivating or maintaining his business contacts, one would have expected him to lean more in favour of Mr Choi than the defendants, given that Mr Choi is obviously a customer with greater potentials.

35. It was also submitted that Mr Ng might be motivated by his dislike for the plaintiff who had not paid him the commission under the Provisional Agreement. On this point, Mr Ng was frank and did not hide the fact that he was a bit angry with Mr Choi for failing to pay his commission. He also said that while he was concerned with the payment of the commission, he was also aware of the importance of being fair in his evidence. I am not convinced the Mr Ng had been motivated by his dislike for Mr Choi nor his preference for the defendants to give untruthful evidence.

36. I also find the 1st defendant a truthful and reliable witness. Her answers were straightforward and had a ring of truth. Although she obviously felt aggrieved by the incident, she had not been exaggerating in her evidence nor in her demeanor. She had been cross-examined about the present layout of Shop C. It is common ground that the wood decking or "cockloft" is no longer there. Her answer was that when the tenant moved out of the premises at the end of the tenancy, he had removed everything. Counsel for the plaintiff submitted that this was an evasive answer. I cannot agree. In my view, this is a perfectly natural answer. I am also unable to accept counsel's submissions that a tenant of a small shop like Shop C would not, short of being asked or compelled by the landlords, reinstate the premises upon termination of the tenancy. The duty to reinstate is generally implied, if not expressly provided for in a tenancy agreement. Even if it were the case that the defendants had requested the tenant to remove the decking, no adverse inference can be drawn from that. It is not necessarily indicative of a recognition by the defendants of the unauthorized nature of the structure.

37. In short, I do not consider Mr Choi a truthful witness and I reject his evidence. I find the events surrounding the transaction were as related by Mr Ng and the 1st defendant. I find that before he signed the Provisional Agreement, Mr Choi had made 3 inspections of the Property. I do not accept that he had no idea about the internal layout of the Property. I also find as a fact that Mr Choi had twice requested for the completion date to be postponed. The first request was made on the day following the signing of the Provisional Agreement and that was to defer the date from 8 to 28 January 1998. The second request to further defer to 28 April 1998 was made on the day before the signing of the Provisional Agreement. On both occasions, the reasons given by Mr Choi for the request was to enable the plaintiff to arrange for mortgage facilities. Both requests were agreed to by the defendants. I further find that in about early April 1998, Mr Choi had requested the defendants, through Mr Ng, to reduce the purchase price by 20%. On that occasion, Mr Choi further indicated that the plaintiff was not prepared to complete the purchase of the Property because the property market had undergone a 20% decline. This request for a reduction in the price was however turned down by the defendants.

(2) Expert Witnesses

38. Both the plaintiff's and the defendants' architects had given evidence. Both architects had apart from the reports compiled in April 1998, also prepared further reports for the purpose of this trial.

39. Mr Ervin Lee stated that after he received instructions from Mr Choi, he went to the Property on 14 April 1998 at about 6 p.m. to have a site inspection. As he was instructed not to alert the tenants or occupants of the shops, his visit was carried out rather discretely.

40. According to him, he first went to the fast food shop at Shop D and purchased a beverage while taking a look at the internal layout. He observed that the shop was fitted with suspended false ceiling.

41. He then went to the photocopying shop at Shop C. He said he stood at the entrance and took a look at it. He saw that there was a staircase leading to an upper partition which, in his opinion, constituted a cockloft for storage purpose. In his first report, he described the cockloft as constructed in steel beams and wood decking. In his oral testimony, he accepted that the wood decking was in fact supported by wooden rafters. As to the staircase, he said in his second report that it was a steel staircase, but he corrected himself in court and said that while the sides of the staircase were made of steel, the steps were made of wood. He had no idea whether the staircase was fixed or movable.

42. By the time Mr Lee had taken some photographs of Shop C, the fast food shop at Shop D had already closed. From observations he made from outside, he saw that there were a table and a chair as well as a window type air-conditioner installed at the upper portion of Shop D. He concluded that there was also a cockloft above the suspended false ceiling and it was for human occupation. He had taken photographs of Shop D from across the street.

43. Based on these observations, Mr Lee formed the opinion that there were "substantial cocklofts" in both Shops C and D on the Property. These "cocklofts" constituted unauthorized structural alterations, approval for which would not be granted by the Building Authority even if formal applications had been made.

44. Mr Michael Yuen testified that on 20 April 1998, he went with the 1st defendant to carry out an inspection of the Property. He went inside both Shops C and D. In the former, he climbed up the ladder and stood on its top to look at the upper partition. He observed that the ladder was an ordinary movable wooden ladder. The upper partition was a timber decking mounted by timber rafters onto both sides of the partition walls. The decking was not fixed to the structural wall standing at the back of the shop. Lights were mounted on the decking. In the space above the timber decking were some piping serving the building. There were also some carton paper boxes. Mr Yuen was of the opinion that this timber decking was a kind of false ceiling, but that the space above it was used for storage purpose. He considered that the installation of this timber deck was a kind of interior decoration work, falling within the exempted works provided under s.41(3) of the Buildings Ordinance. He said that the load of the decking together with the paper and boxes stored on it only had a small bearing on the loading of the building, allowance for which would have already been made in the design of the building.

45. Mr Yuen had also gone inside the fast food Shop. Similar to Mr Lee, he observed that there was a suspended false ceiling made of aluminum frame and acoustic panels. Lights were also fitted to this suspended false ceiling with light troughs made of metal sheets. Part of the ceiling panels were removable. Mr Yuen had removed one of them, stood on a chair and took a look at the space above the false ceiling. He saw that there were piping and ducts, but he did not find any table nor chair. He accepted that there was a window type air-conditioner installed at that level, but he also saw that there were a split type air-conditioner and an air duct. Mr Yuen was of the opinion that there was no cockloft at the level above the false ceiling, thus no unauthorized structure on Shop D.

46. The totality of the evidence of Mr Lee suggests that the inspection he made to the Property was cursory and brief. Evidently, there are inadequacies and errors in his observations. It is Mr Lee's evidence that he was standing close to the staircase of Shop C when he did the inspection. At that position, the wood decking was right above him. It is common ground that it is a small shop. From the photographs in both experts' reports, it is plain that the staircase was an ordinary wooden ladder while the wood decking was supported by wooden rafters mounted on the partitioning walls. Yet, Mr Lee mistakably reported that there were a steel staircase and a wood decking constructed in steel beams. If he could be so mistaken, there must be serious doubt as to the accuracy of his observation that there were a table and a chair at the upper portion of Shop D.

47. There are also certain features in Mr Lee's evidence that I find disturbing. He testified that he saw a wooden table of about 6 feet in width and a chair at the upper portion of Shop D. Inside the shop, he could see that the suspended false ceiling was built of acoustic panels with dimensions of either 2 feet by 2 feet or 2 feet by 4 feet. The panels were held together by an aluminum frame in the form of grids. Mr Lee said he believed there was a wood decking concealed by the false ceiling so as to provide a support to the furniture set placed there and he said the decking should be a fixed one. He also said, and it is common ground, that there was no visible access to the space above the false ceiling; it could only be accessed by removing the acoustic panels. Given this state of his evidence, it is difficult to imagine how the table could have been lifted up and placed at the space above the false ceiling. Mr Lee explained that this was possible if the table could be dismantled. But even if the table is one that could be dismantled, it still could not be lifted up into the space above the false ceiling, unless the wood decking was moveable and did not cover the entire floor area of Shop D. It is also most unusual that there would be no fixed or some form of visible access to this space above the false ceiling if there was human occupation.

48. When faced with this apparent difficulty arising from the state of his evidence, Mr Lee said that when he was inside Shop D, he saw that one of the acoustic panels had been removed, exposing a "solid wood decking" just above the false ceiling. He said this aroused his suspicion and it was an important matter, yet it did not find way into either of his reports. Neither did he mention it in Court until towards the last part of his evidence and after his attention had been drawn to the apparent difficulty of lifting up and putting the table in the space above the false ceiling.

49. Mr Lee explained that he did not mention it in his report because he could not conclude that there was a cockloft based on the presence of the wood decking and that the existence of the furniture set was more telling. I find it difficult to follow his reasoning. The same logic would have applied to Shop C so that the presence of the wood decking there could not alone have led to the conclusion that there was a cockloft, bearing in mind that Mr Lee did not check or look at the space above the decking. Nevertheless, he not only stated the existence of the wood decking, but also concluded that there was a "substantial cockloft for storage purpose" in Shop C. To say the least, there is no satisfactory reason for omitting the discovery of a wood decking in Shop D, when this is admittedly an important finding.

50. Not only this, it is Mr Lee's evidence that because of the furniture set and air-conditioner that he saw, he believed and concluded that there was a wood decking, and he accepted in cross-examination that he was not sure about this. It must be odd for him to say so if he had seen this solid wood decking. One cannot help but think that this was an attempt by Mr Lee to embellish or improve on his evidence.

51. It may be that, as Mr Lee said repeatedly, when he made his inspection, he did not anticipate that his report would be used in litigation and it may also be that he was constrained by his instruction not to alert the tenants and occupants of the Property, but the fact remains that his inspection was far from thorough and satisfactory, and his observations less than accurate and reliable. There is no way that the Court can act, let alone act safely, on his opinions as to the state and condition of the internal structure of the Property since these opinions are clearly derived from and influenced by observations and findings which are manifestly unreliable and doubtful.

52. On the other hand, the defendants' architect had clearly been afforded an opportunity to make a full inspection of the Property. It is obvious from his inspection at Shop D that there was no decking constructed nor furniture stored at the space above the false ceiling. There is good sense in Mr Yuen's evidence that the suspended false ceiling, being of light weight, could not have supported human activities. I also find Mr Yuen's opinions convincing and logical. In the case of Shop C, it is true that Mr Yuen could not say whether the carton boxes were empty or full of printing paper. It is also reasonable to say that paper carries considerable weight. However, given the small size of this Shop and looking at the construction of the wood decking as depicted by the photographs in the reports, the loading created by the decking together with the paper stored on it could not have been tremendous. In any event, it could not be compared to the load of the paper stored in a printing plant, as suggested by counsel for the plaintiff when he made reference to the "minimum imposed load" under Regulation 17 and Table I of the Building (Construction) Regulations, Cap. 123. In the circumstances, Mr Yuen's views that the wood decking, not being affixed to the structural wall, was no more than an interior decoration, and the loading created by it together with the paper stored on it was similar to and no greater than that of book shelves and books are both convincing and reasonable. Likewise, Mr Yuen's opinion that the loading thus created had minimum bearing on the loading of the building is a logical one since, in the normal course of event, the design of any building would have made allowance for the loading of decorations and installations such as book shelves and of usage such as keeping books on book shelves.

53. Counsel for the plaintiff had criticized Mr Yuen on his view that the wood decking in Shop C was temporary and non-structural. Mr Yuen said the decking was temporary because it was installed by the tenant and the premises would be reinstated upon the termination of the tenancy. He referred to his experience of building a "temporary" building on a piece of land with an one year lease from the government. Obviously, Mr Yuen was using the term "temporary" in the context of the likely duration of the decking having regard to the fact that it was installed for the business of the tenant for the time being. He was not measuring the duration by reference to calendar month and year. Hence while a tenancy may last for several years, from Mr Yuen's point, the installation was still temporary because it was expected to be removed in due course. It cannot be said that Mr Yuen's view in this regard is unreasonably held.

54. Mr Yuen took the view that the decking was non-structural because it was not mounted to the structural wall and because it had no significant bearing on the loading of the building. The reference by counsel for the plaintiff to the Building (Construction) Regulation is, in my view, inappropriate as the Regulation is dealing with the construction of new buildings. The Table on minimum imposed loading (i.e. Table I) has no application nor relevance in considering the loading of a small scale photocopying shop like the one in Shop C. In the absence of evidence as to the number of carton boxes stored on the decking in Shop C and the actual weight of these boxes and their contents, there is no proper foundation for suggesting that the wood decking carried heavy weight, so much so that it had a significant bearing on the loading of the building as a whole. It follows that there is also no proper basis for criticizing Mr Yuen's opinion that the kind of loading created by the decking would have been provided for in the design of the building.

55. In conclusion, I do not accept the evidence and opinion of the plaintiff's expert. On the other hand, I accept the evidence and opinion of the defendants' architect. On the basis of his evidence, I find that the wood decking installed at Shop C was not structural in nature and was an exempted work within the meaning of s.41(3) of the Buildings Ordinance. There is no need to obtain the approval of the Building Authority for its installation. The wood decking does not constitute an unauthorized structure. As for Shop D, on the basis of Mr Yuen's evidence, there was only a suspended false ceiling, which again is an exempted work that does not require Building Authority's approval for its installation. There was also no unauthorized structure on Shop D.

(3) Letter from the Building Authority

56. Before leaving the evidence, it is necessary to deal with a letter from the Building Authority dated 22 August 1998 in reply to the letter from the plaintiff's solicitors dated 27 April 1998.

57. In their letter, the plaintiff's solicitors referred to the existence of a substantial cockloft and suspended false ceiling on the Property and enclosed the first report of Mr Lee. The Building Authority was asked to confirm "whether the said cockloft and suspended false ceiling constituted unauthorized exempted works which requires [your] approval".

58. The Building Authority's letter in reply is in these terms :

"According to the approved plans, there is no cockloft in shop C on ground floor of the above building, hence the cockloft mentioned in your letter is unauthorized building work.

Please note that the construction of suspended false ceiling is an exempted building work under the Buildings Ordinance. My approval and consent for its construction are not required."

59. The comments and opinions contained in the Building Authority's letter were expressed without the benefit of reading the report of the defendants' architect. As counsel for the defendants pointed out, it is neither prudent nor satisfactory to provide the Building Authority with only the report of the plaintiff's architect, but not that of the defendant's architect. In the circumstances, little weight could be afforded to the views expressed by the Building Authority. In addition, the Building Authority obviously proceeded on the basis that there was on Shop C a substantial cockloft, which is the finding of the plaintiff's architect and which I have rejected. This letter from the Building Authority and the opinion expressed therein regarding Shop C can neither advance nor substantiate the plaintiff's case that there was unauthorized structure on Shop C.

The Requisition

(1) The Timing of the Plaintiff's Requisition

60. Clause 8 of the Agreement provides that any requisition or objection in respect of title shall be delivered in writing within 7 working days after the receipt of the title deeds by the plaintiff's solicitors, and the plaintiff shall be deemed to have accepted the defendants' title if no requisition is delivered within the stipulated time.

61. The letter from the plaintiff's solicitors dated 18 April 1998 is clearly out of time, the title deeds having been delivered in November 1997. It is also not delivered within a reasonable time before the completion date, which is only 10 days away. The defendants therefore argued that the plaintiff had waived its right to raise requisition and was deemed to have accepted the defendants' title.

62. It is not in dispute that, as a legal principle, where a requisition goes to the root of the title and the purchaser, having exercised due diligence, is unaware of some defects in the title, then the time limit for raising requisitions stipulated in the sale and purchase agreement does not run against him: Hillier Development Ltd v. Tread East Ltd [1993] 1 HKC 285. Relying on this principle, counsel for the plaintiff argued that the time limit under clause 8 does not run against the plaintiff.

63. In my view, it is not open to the plaintiff to say that it had exercised due diligence and yet was unaware of the existence of the alleged unauthorized structures. First of all, its director, Mr Choi, had made 3 inspections of the property. Given that the 2 shops were under 200 and 300 sq. ft. with no partition, he should be able to have a good and full view of the layout and physical state of the Property. He should be aware of the existence of the wood decking in Shop C and the suspended false ceiling in Shop D. The 3 inspections were all made before the signing of the Agreement. The completion date was scheduled to be more than 5 months away. Even if he was in doubt about the status of these structures, there was ample time and opportunity for him to make enquiries. Secondly, no reason had been offered as to why the plaintiff did not commission an inspection by his architect immediately after the execution of the Agreement so as to comply with the time limit in the event it had to raise requisition on title. Had Mr Choi promptly given instruction to the architect, the existence of the alleged unauthorized structures would have promptly come to his attention. This exception mentioned in the Hillier Development case cannot be invoked by the plaintiff.

64. Counsel for the plaintiff also submitted that the defendant had waived strict compliance with the time limit stipulated under clause 8. On this point, I accept that the defendants' solicitors had never in the correspondence exchanged with the plaintiff's solicitors objected to the timing of the requisition. Instead, they proceeded to deal with the requisition raised. Neither had the defendant complained about the non-compliance with time limit in the affirmation filed in opposition to the plaintiff's Originating Summons. This point was only raised in the Defence and Counterclaim drafted by counsel. In the circumstances, I agree with counsel for the plaintiff that the defendants had unequivocally waived their right to insist on strict compliance with the time limit under clause 8 for raising requisitions.

65. It also follows that the plaintiff cannot be deemed to have accepted the defendants' title, notwithstanding the failure to deliver the requisition within the stipulated time.

(2) The Propriety of the Requisition

66. Counsel for the defendants submitted and I agree that there is a duty on the part of a purchaser to raise requisitions which have substance and which are formulated with reasonable precision and clarity : see Chan Chik Sum v. Great Pearl Industries Ltd [1997] 1HKC 27, 32B-F, 33B-D and Excel Wood Ltd v. Charmed Investments Ltd HCMP 4130 of 1997, unreported.

67. In this case, the letter of the plaintiff's solicitors dated 18 April 1998 hardly meets the requisite standard. This letter merely referred to the recent discovery of certain unauthorized structures on the Property and enclosed the architect's report. It did not set out what the plaintiff's concern or objection was in relation to the title of the Property and in what aspect of the defendants' title that the plaintiff sought clarification. The only question posed in this letter is whether the defendants could comply with the terms of the Agreement before completion. This letter cannot be said to have raised a proper and effective requisition, it being so vague and imprecise.

68. It is only until the second letter of 25 April 1998 that a proper requisition began to take shape. For the first time, the plaintiff made reference to the possibility of enforcement action by the Building Authority under s.24 of the Buildings Ordinance and asserted that this posed a practical and real blot on the defendants' title. However, as this assertion was based upon the opinion expressed by the plaintiff's architect and as I had rejected his opinion, there is therefore no substance in nor proper foundation for this assertion, hence the requisition. The result is that the plaintiff's requisition was not properly raised.

(3) The Defendants' Answers to the Requisition

69. As I have found that the plaintiff's first letter of 18 April 1998 is not a proper and effective requisition, the defendants were in fact not obliged to answer it. But, perhaps acting out of prudence and caution, the solicitors had replied in the letter dated 22 April 1998 that the defendants would be able to comply with the terms of the Agreement before completion, and also enclosed the report of the defendants' architect. This must be all that the defendants could have done and the answer must be a satisfactory one.

70. As to the defendants' answer to the plaintiff's second letter of 25 April 1998, as contained in the letter dated 27 April 1998, I am also of the view that, by referring to the report of the defendants' architect on the nature of the structures complained of, it has satisfactorily and adequately dealt with the plaintiff's query and objection.

The Defendants' Title to the Property

71. I have found, on the evidence and opinion of Mr Yuen, that there was no unauthorized structure on the Property. The defendants have therefore shown and proved a good title to the Property.

The Counterclaim

72. As a result of my finding that there was no substance in the plaintiff's requisition and that the defendants have proved a good title, the plaintiff's failure to complete on the scheduled date constitutes a breach of the Agreement. The defendants are therefore entitled, by the last letter dated 28 April 1998 from their solicitors, to treat that as a repudiation and to terminate the Agreement. Under clause 18(a) of the Agreement, the defendants are also entitled to forfeit the deposits paid by the plaintiff.

73. Further, under clause 18(c) of the Agreement, the defendants are entitled to recover from the plaintiff loss and damages arising from the plaintiff's failure to complete, including the deficiency in price upon a resale and all reasonable expenses attending the resale.

74. In paragraph 22 of the Defence and Counterclaim, the defendants counterclaim for the difference between the price under the Agreement and the market price of the Property as at the date of completion or at a reasonable time thereafter, estate agency commission, stamp duty, legal costs and expenses in connection with the aborted transaction, all of which to be assessed by the court.

75. In the affirmations filed by the defendants herein, which had been ordered to stand as the witness statements, there is no reference to any of these heads of damages sought by the defendants. That may be understandable because the affirmations were filed before the Court directed for the matter to proceed as if begun by Writ and that a counterclaim may not be contemplated at that stage. No further or supplemental witness statements had been prepared or filed on the quantum of the defendants' damages. There has also been no application for leave to adduce further witness statements or expert reports regarding this aspect of the case. In the agreed bundles submitted for trial, there is also no document relating to this issue of quantum.

76. Accordingly, at the commencement of the trial, I raised this matter with counsel for the defendants. Counsel responded by suggesting that there could be an assessment after the determination of liability. It was pointed to counsel that there was no application nor order for a split trial such that all the matters fall to be determined in one trial. Counsel did not dwell further on this and the trial proceeded. In the course of the trial, no application was made on behalf of the defendants in respond to or to deal with this state of the affairs. At the end of his closing submissions, counsel for the defendants informed the Court that the defendants had obtained valuation report on the market value of the Property and applied for leave to adduce the report as evidence. After some clarifications, counsel then indicated that his application was for the court to order an assessment of damages and to grant leave for adducing the valuation report, if the Court found for the defendants on the counterclaim. Not surprisingly, the plaintiff opposed the application.

77. In the case of Born Chief Co. v. George Tsai and Another [1996] 2H.K.L.R. 188, the Judge found against the defendants on negligence and nuisance for causing flooding damage to the plaintiff's property, but there was nothing in the witness statements or in the evidence to relate the documents produced to the plaintiff's damage. Counsel for the defendants submitted that the plaintiff should only be awarded nominal damages. The Judge nevertheless ordered damages to be assessed by the master. On appeal, the Court of Appeal unanimously held that the Judge was not entitled to make such an order and allowed the appeal on this point. The order for inquiry was set aside and an award for nominal damages was made. Nazareth V.P. observed at p.195C-D that :

"But the good, efficient and increasingly affordable administration of justice requires that parties present their entire cases and cannot expect a second bite at the cherry simply because they failed to apply for a split trial or to produce their requisite evidence."

78. A similar approach was adopted by Deputy Judge Chung (as he then was) in Excel Wood Limited v. Charmed Investments Limited, supra. In that case, the Judge having found the plaintiffs' requisitions either not properly raised or were satisfactorily answered by the defendant, held that the defendant had established liability on the counterclaim. But as no evidence had been adduced on the quantum of the defendant's loss, the Judge awarded nominal damages in the sum of $100. There was of course an aggravating feature in that case as the parties had failed to comply with an earlier direction for exchange of expert reports on the market value of the suit property.

79. In the present case, had the plaintiff agreed, there may be room for allowing an inquiry of damages by a master at a future date. But where the plaintiff, as it is entitled to, opposes, this Court is bound to follow the decision of the Court of Appeal in Born Chief Co. v. George Tsai & Anor, supra. There has been no application or order for a split trial and so it must be expected that the trial would proceed from beginning to end and that all the relevant evidence be adduced by the parties. The litigation had taken more than 2 years before going to trial, yet there was not a shred of evidence before the Court to prove the defendants' damages. There is no proper basis for ordering an assessment of damages simply because, for whatever reason, the defendants had not during the trial put in the relevant evidence on damages.

80. In addition, I wish to point out that the defendants would in any event not be entitled to recover the legal costs and expenses and other wasted expenditure of the aborted transaction. This is because these expenses would have been incurred irrespective of whether the plaintiff had repudiated the Agreement, and putting the defendants in the position they would have been in had the Agreement been performed: see Barnley's Conveyancing Law and Practice p.654; and McGregor on Damages (16th ed.) para. 995.

81. In the circumstances, the defendants are only entitled to nominal damages on the counterclaim. There will be judgment for the defendants in the sum of $100.

Conclusions

82. For the above reasons, the plaintiff's claim is dismissed. There will be judgment for the defendants on the counterclaim in the sum of $100. There is no special circumstances in this case justifying a departure from the general rule that costs should follow event. Accordingly, there will also be an order nisi that the plaintiff pays the defendants the costs of the whole action, to be taxed if not agreed. The order nisi to be made absolute after the expiration of 14 days from the date of handing down of this Judgment.