SUMMIT LINK LTD v. SUNLINK GROUP (HONG KONG) CO LTD

CACV 2/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF APPEAL

CIVIL APPEAL NO 2 OF 2000

(ON APPEAL FROM HCMP NO 2439 OF 1998)

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J U D G M E N T

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Woo JA:

Background

1. This is an appeal against the judgment of Deputy Judge Z E Li delivered on 16 December 1999 after he had heard a vendor and purchaser summons between the parties on 29 and 30 November 1999. The plaintiff was the vendor and the defendant the purchaser. The judge gave judgment in favour of the plaintiff, and now the defendant appeals.

2. The parties had entered into an agreement dated 6 January 1998 whereby the plaintiff agreed to sell and the defendant agreed to buy premises known as Units 3601-3602 on the 36th floor of Peregrine Tower of Lippo Centre ("the Property") at the price of $40,850,000. Completion was agreed to take place on 28 May 1998 between 9:30 am and 5:00 pm. Pursuant to the agreement, the defendant had paid deposits to the plaintiff totalling $8,170,000. Completion in fact did not take place by 5 pm on 28 May 1998. The plaintiff terminated the agreement at 5:06 pm on that day on the ground of the defendant's failure to complete, whereas the defendant took the view that by the plaintiff purporting to terminate the agreement when it had not satisfactorily answered all requisitions, the plaintiff had evinced an intention to repudiate the agreement. The defendant accepted such repudiation thereby terminating the agreement.

3. The main issues for the judge's decision were whether certain requisitions raised by the defendant were legitimate, whether they had been satisfactorily answered by the plaintiff and whether the plaintiff had shown and proved good title to the Property.

Key terms in agreement

4. The key terms of the agreement relevant to the issues are contained in clause 4, which provides as follows:

"(a) The Vendor declares that all title deeds relating exclusively to the Property will be delivered to the Purchaser's Solicitors. Should the Purchaser require certified copies of the Government Leases or other title deeds and documents not in the Vendor's or in his mortgagee's/chargee's possession to complete such chain of title extending to at least 15 years before the date hereof, all costs and expenses for obtaining such certified true copies shall be borne by the Vendor solely. If the Purchaser requires certified true copies of any documents in the Vendor's or his mortgagee's/chargee's possession relating to other properties retained by the Vendor as well as to the Property the Purchaser shall pay the cost of such certified true copies.

(b) For the purpose of enabling the Purchaser to approve the title of the Property, the Purchaser shall accept

(i) production of photocopies of the title deeds or documents of title of the Property to which the Purchaser is entitled in law (other than those relate exclusively to the Property) together with

(ii) an undertaking from the Vendor's Solicitors to deliver the original thereof (if it relates exclusively to the Property) or a certified copy thereof from the Land Registry within seven days upon their receipt of the same from the Land Registry but in any event not later than 60 days after completion

as sufficient production and delivery of such title deeds and documents without requiring for the production and delivery of the same prior to completion. The failure of the Vendor to furnish certified copies of the said title deeds and documents to the Purchaser on or before the date of completion shall not by itself be a ground for delaying or postponing completion by the Purchaser or be treated as a default or failure of the Vendor to complete the sale and purchase herein.

(c) The requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 working days after the receipt of all the title deeds by the Purchaser's solicitor or within 7 working days of the reply of the Vendor's solicitor to such requisitions otherwise the same shall be considered as waived (in which respect time shall be of essence of the agreement).

(d) If the Purchaser shall make and insist on any objection or requisition either as to title conveyance or any matter appearing on the title deeds or particulars or conditions or otherwise which the Vendor shall be unable or (on the ground of difficulty delay or expense or on any other reasonable ground) unwilling to remove or comply with or if the title of the Vendor shall be defective, the Vendor shall notwithstanding any intervening negotiation or litigation be at liberty on giving to the Purchaser or his Solicitors not less than 5 days' notice in writing to annul the sale, in which case unless the objection or requisition shall have been in the meantime withdrawn the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to the return of the deposit in full but without interest costs or compensation. ..." (emphasis added)

Time

Title deeds of the Property were delivered to the defendant's solicitors on 7 January 1998. By a letter dated 14 January 1998, the defendant's solicitors raised requisitions. A series of exchange of correspondence between the solicitors for the parties then ensued regarding numerous issues on title and on adequacy of the plaintiff's answers to requisitions. Miss Wong, for the defendant, has very helpfully prepared for this appeal a chronology regarding each of the requisitions in issue before us. The requisitions were all numbered. Before dealing with each of the requisitions, I will first determine the applicable law regarding the time for answering the requisitions in this case bearing in mind the aforesaid provisions of clause 4 of the agreement.

5. It is to be noted that the time within which to raise requisitions and objections that must be in writing is provided in clause 4(c) to be within 7 working days after the receipt of all title deeds by the defendant's solicitors or within 7 working days of the receipt of the plaintiff's reply to the requisitions. It is clear that if no requisition or objection is raised within 7 working days after the receipt of all title deeds, the defendant will be deemed to have waived its right to raise requisitions. Moreover, no requisitions or objections can be raised after the 7 working days if they are not arising from or following up the plaintiff's reply to the requisitions raised within the 7 working days. Further, there is no provision as to time within which the plaintiff is required to reply to requisitions and objections.

6. The judge's view regarding time is contained in paragraphs 8 and 16 to 18 of his judgment, as follows:

"8. If I understand correctly Mr. Chan for the Plaintiff, the counter-argument runs like this. In the absence of specific time limit for answering requisitions, although there is an obligation to give the purchaser reasonable time to prepare for completion, the vendor cannot be held in default if the purchaser does not put the vendor on notice of the need to comply by a certain time. ...

15. As to the law, time for answering requisitions cannot be of the essence where the contract does not stipulate any deadline for the purpose. The time, if essential, is absent. In the normal course of events, a purchaser is bound by contract to have money ready for completion. If at the moment for completion the vendor is unable to deliver good title or possession, there is nothing to stop the purchaser from withholding payment and claim damages. A purchaser has no right to extra advance notice for completion where completion date and hour(s) have been provided for by contract. Again, in the normal course of events, the requisitions raised by a particular should specify how defect or deficiency may be cured. If the vendor comes on completion day with the cure as demanded, it does not take more than simple checking by the purchaser to verify that its demand has been met.

16. Miss Wong treated Active Keen as the Bible for conveyancing lawyers. On the duty to properly answer legitimate requisitions, Active Keen is the authority. However, on the question of time for answering requisitions, with respects (sic), Miss Wong has definitely over-stated. In Active Keen the Court of Appeal was dealing with an open contract which did not provide at all for objections and requisitions as to title. In a case like the instant one, where there is contractual provision for raising objections and requisitions and for the time for doing so and time for completion but not the time for answering, the clear intention of the parties must be that the vendor may have up to the moment for completion to prove title. There is no place for the court to re-write or supplement the contract for the parties. Had they wanted, the parties could have inserted further stipulations as to time for answering requisitions. They could also make such time of the essence by serving notice.

17. In conclusion, Mr. Chan for the Plaintiff has correctly stated the law on this issue.

18. Even if I am wrong in coming to the conclusion I just did, the 'reasonable time' stipulated by the Court of Appeal in Active Keen is very short indeed in the run of the mill cases as I have explained in Paragraph 15 supra. So short that it is counted by the hour rather than days. Where a purchaser does need extra time to get the money ready, provided the reason is made known to the vendor, the purchaser is entitled to reasonably longer time warning before completion. Or, if the vendor deals with a requisition otherwise than in the manner demanded by the purchaser, the purchaser is entitled to time in terms of days to reason with such response. In other words, 'reasonable time' is to be determined by reference to circumstances and reasons made known to the vendor, not by what the purchaser asserts ex post facto is needed. It is I presume quite wrong to hold on to a minimum reasonable time of two days just because the court has mentioned two days in a previous case." (emphasis added)

Miss Wong submits that where no time is specified for the vendor to show and prove good title, the courts will imply a term requiring him to do so within a reasonable time. The ascertainment of that reasonable time depends on the circumstances of the case and is not controlled by reference to the date before completion. She cites Ng Chek-kok v Kiu Wai-ming [1992] 1 HKLR 5 in support, where Clough JA delivering the judgment of this Court said at p 14(15):

"No time having been specified for the vendor to show good title by the production of copies of the relevant documents relating to title (in lieu of an abstract of title in accordance with the Hong Kong practice) there must have been an implied term in the Sub-sale Agreement requiring the vendor to produce the relevant copies of documents within a reasonable time: Williams on Title p. 521, Halsbury's Laws of England, 4th ed., Vol. 42, para 106, Emmet on Title, 19th ed., para 5.062. The ascertainment of that reasonable time must depend on the circumstances of the case and, in our opinion, there can be no reasonable basis for contending that that time is to be controlled and fixed by reference to the date before completion when the balance of the purchase price was payable by the purchaser."

7. Miss Wong further submits that in any event, the vendor does not discharge his obligation to show and prove a good title by doing so on the day fixed for completion but must do so within a reasonable time in advance of completion, meaning such time as would permit the purchaser, not only to satisfy himself on the matter, but also to get his money ready and complete on the date and at the time agreed. This is derived from the judgment of Litton JA (as he then was) in Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396 where he said at 405(35) and 406(34):

"... I am satisfied that even though the Chinese agreement is wholly silent on the question of objections and requisitions as to title, there is an obligation on the vendor to show a good title. This obligation arises by necessary implication from the contract itself. This accords with common-sense. Were the law otherwise, the purchaser might be left in the position of having to make a snap decision on the day fixed for completion, on scanty information, as to whether to complete or not. It follows that this obligation falling on the vendor to properly answer requisitions and inquiries, if reasonably raised by the purchaser, must be discharged within a reasonable time, to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed. ...

... The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing good title would not have been discharged by disclosure on the day fixed for completion."

8. The judge tried to distinguish Active Keen by saying that what that case decided was that there was an implied obligation on the part of the vendor to properly answer legitimate requisitions and that Miss Wong had over-stated the effect of that case. The judge seemed therefore to think that Active Keen was no authority for saying that that implied obligation must be discharged within a reasonable time. I am of the view that the judge erred in this regard. It is abundantly clear from both Ng Chek-kok and Active Keen that in the absence of a contractual provision as to time for properly answering requisitions, the law implies a reasonable time. The judge is, however, correct to say that what is reasonable time depends on the circumstances of the case and that the purchaser can make time of essence by serving notice. He is also right to hold the view that reasonable time, depending on the circumstances, may sometimes be hours and not days, and that there is no support to say that the reasonable time in one case should follow that decided in another case. While I agree with the passage in Ng Chek-kok cited above, I wish to stress that although such reasonable time cannot be controlled or fixed by reference to the completion date, the completion date should and will normally be one of the circumstances by reference to which whether a certain period of time is reasonable or not can be judged and measured. There are, of course, other factors that may also be taken into account. For example, the knowledge of the parties when they entered into the contract, the notices given by one party to the other, the contract provisions on time allowed for the parties to perform obligations and exert rights, the nature of the document involved in the sense of its importance regarding the proof of title, and the size and complexity of the document so as to help the court decide on the reasonable time required for the recipient's solicitors to check through, etc.

Notice

9. The judge laid emphasis on the importance of the purchaser giving notice to make time of essence when the vendor has failed to comply with requisitions within a reasonable time. He referred to Re Stone and Saville's Contract [1963] 1 WLR 163 where Upjohn LJ (as he then was) said at 171 as follows:

"No doubt it is true that in the ordinary case where one party, the vendor, fails to answer a requisition, it is normally right for the purchaser, insisting on the requisition, to give some notice making time of the essence and putting a period within which the vendor must answer the requisition. That was not done in this case and the judge in the court below held that it was unnecessary. In my judgment he was entirely correct in doing so. ... In those circumstances the only reasonable inference that could be drawn was that the vendor was not going to answer their important requisition, and, therefore, it was quite unnecessary to give any notice making time of the essence."

10. The judge then referred to counsel's argument. He said at pp 7 to 8 of the judgment thus:

"12. ... Mr. Chan tried to impress upon the court that conveyancing is not a game of battle, but a game of cooperation. It is no good for one or the other party setting up trip-wires and then wait silently to watch the opposite party fall before reaching the finishing line. Miss Wong retorted by saying that each party ought to know its duties and obligations, especially when there are solicitors acting, and that therefore there is no need for reminder by any kind of notice about time running out or matters outstanding.

13. I should think some kind of notice putting time of the essence is immensely desirable. I say so for practical reasons. First, to set the time table for orderly completion. 'Reasonable time' per se does not make allowance for the special circumstances of the parties or a peculiar requisition. A purchaser may need as little as half an hour's time to obtain a cashier order for completion. Another may need a couple of days' advance notice in order to draw on banking facilities. The vendor does not usually know what sort of time is 'reasonable' for the purchaser. It is much better that the purchaser puts the other party on notice. Of course, there may be the odd purchaser who wants everything done yesterday; in such case the purchaser begs unwarranted litigation and cannot expect sympathetic hearing. In this respect, I envisage there can be a global notice and particular notices. A global notice caters for time needed for general final preparation. I would expect, in the vast majority of cases, the purchaser would sensibly specify by notice that he be given at least a few hours or one day. A particular notice is specific to a particular matter. For instance, if there is requisition on a particular title document which requires rectification, the purchaser may justifiably need a few days to study and to do research on the rectified document or new document to decide whether the method of rectification is acceptable. But in a case of requisition for production of say certified copy of occupation permit which is available somewhere, it should not take more than a couple of minutes for the purchaser to satisfy himself that the certified copy eventually produced is acceptable.

14. The second practical consideration is to minimise misunderstanding. The vendor may believe that a purchaser requisition has been answered or does not need further attention when in fact the purchaser is waiting for a better response. In some cases, the parties may argue for cross purposes. A concluding notice forces the parties to focus on the real issue to be resolved by what point in time. Of course, I take on board the argument that conveyancing solicitors need no reminder. However, it is Murphy's Law - whatever can go wrong will go wrong - that the courts should endeavour to abolish. It is far much better to set up proof against fools in practice than to look for proof of the worse fool at trial."

11. With all these observations of the judge, I agree. It is always difficult to decide what is reasonable time where the contract between the parties does not make specific provisions and where no notice has been served to make time of the essence. The difficulty is not only that encountered by the courts, but is also applicable to members of the legal profession in advising their clients. This poses a certain degree of uncertainty how a case will turn, and this uncertainty does not augur well for lawyers and courts alike, for it will create doubts and therefore reduce, if not destroy, confidence in and respect for the law in its ability to justly resolve disputes between members of the community, especially those who have spent hefty sums on legal costs.

12. Now I turn to the requisitions in dispute. There were five requisitions, namely, Requisitions 12(b), 13, 14(b), 16 and 18 that required the judge's decision. They were raised in the Notice of Appeal. Before us, however, Miss Wong has withdrawn her challenge to the decisions on Requisitions 14(b) and 16, leaving the other three requisitions as live issues.

Requisition 12(b)

13. On 7 January 1998, the plaintiff's solicitors sent to the defendant's solicitors a certified copy of a letter dated 14 December 1994 issued by First Pacific Davies (HK) Ltd approving the partitioning of the 36th floor into 6 units and the sub-allocation of the 1,366 equal undivided shares allocated to this floor to these 6 units. Reference was made to two Architect's Certificates dated 3 December 1994 and 5 December 1994.

14. On 14 January 1998, within the time provided for requisitions by clause 4(c) of the agreement, the defendant's solicitors asked for a certified copy of the second of the Architect's Certificates.

15. On 24 March 1998, the defendant's solicitors received from the plaintiff's solicitors the first Architect's Certificate with a plan showing, inter alia, the position and size of the entrance to Unit 3601 as approved by the Manager.

16. On 1 April 1998, noting that the actual entrance to Unit 3601 was different from that shown on the plan annexed to the first Architect's Certificate in both location and size, the defendant's solicitors asked for proof of approval by the building's Manager of the relocation and enlargement. The plaintiff's solicitors replied that the Manager's approval was not required and that the Manager had not raised any objection despite the existence of the relocated and enlarged entrance for more than 3 years.

17. On 7 April 1998, the defendant's solicitors pointed out that clause 4(a) of the Third Schedule of the Deed of Mutual Covenant specifically required approval of the Manager for any alteration or any partitions, internal doors and pipes in the unit.

18. On 26 May 1998, the defendant's solicitors insisted on this requisition being answered.

19. On 28 May 1998 at 12.15 pm, the plaintiff's solicitors transmitted by facsimile to the defendant's solicitors a letter dated 27 May 1998 by which the Manager confirmed that it had approved the relocation and enlargement of the entrance to Unit 3601. At 12.45 pm on the same day, the defendant's solicitors received the original of the plaintiff's solicitors' letter faxed to them earlier on. However, the Manager's letter of 27 May 1998 remained a copy.

20. On these facts, Miss Wong argues that the Requisition 12(b) had not been answered within reasonable time before completion. It is, however, not submitted that after receiving the fax and the original of the plaintiff's solicitors' letter of 28 May 1998, the defendant's solicitors sought the production of a certified copy of the Manager's letter of 27 May 1998. This requisition relates to the location and size of the entrance to Unit 3601, and strictly speaking, it is not related to the title to the Property. In the circumstances, I am of the view that clause 4(b) of the agreement applies to the situation, and production of a copy of the Manager's letter of 27 May 1998 amounts to a sufficient and satisfactory answer to the requisition. If the defendant had wanted a certified true copy of the Manager's letter, it could have requested the plaintiff to make available the same. This matter should not by itself be a ground for delaying or postponing completion by the defendant.

21. What should be considered as reasonable time must be considered in the light of the prevailing circumstances, including the parties' knowledge at the time if it can be proved and what the parties would each be reasonably contemplating at the time. From the correspondence passed between the parties' solicitors at the time from the date of the agreement of 6 January 1998 up to the date of completion, ie, 28 May 1998, there is no evidence to show that the plaintiff or its solicitors knew that the defendant needed time in the matter of days to get money ready for completion. Insofar as the defendant was left in no doubt that the Manager had given approval for the relocation and enlargement of the entrance to Unit 3601, there could be no impediment to completion. The answer to the requisition is simple, and it does not need more than a few minutes for any solicitor to be satisfied that the Manager's approval, especially where it was one dated as late as one day before completion date, had been obtained. In the circumstances, I am of the view that this requisition had been satisfactorily answered within reasonable time.

Requisition 13

22. The background relating to this requisition is simple. On 7 January 1998, the plaintiff's solicitors sent to the defendant's solicitors a certified copy of an Option to Purchase dated 20 December 1994. However, this Option did not appear on the face of it as having been registered. In the land search record, however, there is an Option to Purchase relating to the Property dated 20 December 1994 and registered by Memorial No. 6205008.

23. On 14 January 1998, the defendant's solicitors wrote to the plaintiff's solicitors:

"13. Option to Purchase Memorial No. 6205008

This instrument relates exclusively to the above property but you have only provided us with a certified copy of the above instrument before its registration at the Land Registry. Please let us have the original of the above instrument."

24. On 27 January 1998, the plaintiff's solicitors replied:

"13. Option to Purchase Memorial No. 6205008

Please return the above document to us for our perusal."

25. The defendant's solicitors complied with the request on 5 February 1998 by retuning "the certified copy of Option to Purchase dated 20/12/94 (without Memorial No.) for your handling." To the date of completion, no copy, certified or otherwise, of the registered Option had been provided to the defendant.

26. The Option as registered was an encumbrance against the Property. It is a title document, and as shown in the Land Registry record, was registered by Memorial No. 6205008. Miss Wong is certainly correct in her submission that a certified true copy of the registered Option should have been provided by the plaintiff's solicitors to the defendant's solicitors as part of the title deeds. Despite the requisition and the return of the unregistered Option to the plaintiff's solicitors as early as 5 February 1998, Requisition 13 had never been answered. Notwithstanding, the judge held that it would have been open to the defendant to study the Release of Option to Purchase dated 21 March 1995 and registered by Memorial No. 6244905 to "see if its terms were wide enough to erase any lingering doubt about a subsisting option", and he also found that the plaintiff could have provided the original or a certified true copy of the registered Option at the completion which the defendant did not attend.

27. I do not agree with the judge. Although it would have been open to the defendant's solicitors to study the Release of Option to Purchase to see whether it was a release in relation to the copy Option (unregistered), the obligation remained with the plaintiff to produce the original or a certified copy of the registered Option to the defendant. The argument that the defendant could examine the Release of Option to Purchase in order to provide itself with a satisfactory answer to Requisition 13 ignores the registered Option being an encumbrance and a title document which the plaintiff was obliged to furnish. Had a certified copy been produced on the day of completion at the time similar to the delivery of the copy Manager's letter of 27 May 1998 referred to above, I would hold that this requisition had been satisfactorily answered. An Option to Purchase and a Release of Option to Purchase are more complicated documents than a letter of approval. It would be unreasonable to expect the defendant's solicitors to spend just a few minutes before the deadline for completion in order to satisfy themselves that the registered Option to Purchase had been effectively cancelled. Moreover, there is no evidence to support the judge's finding that the plaintiff could have furnished the registered Option or a certified true copy of it at completion by 5 pm on 28 May 1998. The defendant's solicitors were cooperative in returning the copy unregistered Option to the plaintiff's solicitors as requested by the latter. Unless there is good reason to consider this requisition as not insisted upon, the defendant could have refused to complete on this alone.

28. Since I have rejected the judge's reasoning, I examine the circumstances carefully to see if his conclusion can be supported.

29. By the letter of 14 January 1998, the defendant's solicitors raised no less than 19 items of requisitions, some of which with subdivisions. On 16 January 1998, queries were raised by the defendant's solicitors about the pantry (dealt with under a separate heading below) inside the Property that seemed to be located in part of the common corridor. The parties then entered into arguments about the legality of the pantry and whether it should be demolished, apart from continuing to deal with the numerous requisitions. After the return of the certified copy of the unregistered Option on 5 February 1998, the parties continued with their heated arguments over the pantry and other outstanding requisitions. The correspondence exchanged include the following:

(1) letter of 17 February 1998 from the plaintiff's solicitors to the defendant's solicitors;

(2) letter of 17 February 1998 from the defendant's solicitors to the plaintiff's solicitors;

(3) letter of 19 February 1998 from the plaintiff's solicitors to the defendant's solicitors;

(4) letter of 2 March 1998 from the defendant's solicitors to the plaintiff's solicitors;

(5) letter of 3 March 1998 from the plaintiff's solicitors to the defendant's solicitors;

(6) letter of 10 March 1998 from the defendant's solicitors to the plaintiff's solicitors; and

(7) letter of 23 March 1998 from the plaintiff's solicitors to the defendant's solicitors.

30. Then came (8) the letter of 31 March 1998 from the plaintiff's solicitors to defendant's solicitors, urging the defendant to accept the plaintiff's proposal to demolish the pantry as the defendant had for the past two months not responded to the proposal. The penultimate paragraph reads:

"Last but not least, if your client shall unreasonably reject the proposal and/or fail to complete the purchase of the Property without valid reasons, we have firm instructions to pursue on behalf of our clients all the rights they have against your client, including the right to determine the Agreement for Sale and Purchase and forfeiture of all the deposits paid by your client, or alternatively, commence legal action to enforce specific performance of the said Agreement."

31. On the same 31 March 1998, the defendant's solicitors wrote (9) and (10) two letters of the same date to the plaintiff's solicitors, one dealing with the plaintiff's solicitors' letter of 23 March 1998, and the other dealing with their letter of 31 March 1998. There was no mention of Requisition 13.

32. Then the parties entered into another train of correspondence set out below, but again there was no mention about Requisition 13:

(11) letter of 1 April 1998 from the defendant's solicitors to the plaintiff's solicitors;

(12) letter of 1 April 1998 from the plaintiff's solicitors to the defendant's solicitors;

(13) letter of 7 April 1998 from the defendant's solicitors to the plaintiff's solicitors;

(14) letter of 5 May 1998 from the plaintiff's solicitors to the defendant's solicitors; and

(15) letter of 13 May 1998 from the defendant's solicitors to the plaintiff's solicitors.

33. In their letter of 15 May 1998 (16), the plaintiff's solicitors wrote:

"We take that all the requisitions have been satisfactorily answered and your client is required to complete the purchase of the Property in the state and condition according to the terms and conditions of the Agreement for Sale and Purchase duly signed by our respective client."

34. By letter dated 22 May 1998 (17), the defendant's solicitors dealt with Requisitions 4, 8, 12 and 14 and then stated:

"In the circumstances, we maintain that your client has not sufficiently answered all our requisitions on title and your client is also obliged to prove that your client is legally entitled to the above property in the existing state and condition.

In view of the short space of time available for completion, we would be grateful if you could attend to all outstanding matters on an urgent basis."

35. Again there was a notable silence on Requisition 13. There were 10 more letters between the parties, consisting of two dated 26 May, two dated 27 May and six dated 28 May 1998 (the date of completion). Again, there was a conspicuous silence regarding Requisition 13, except in the last letter written by the defendant's solicitors at 7:45 pm on 28 May where Requisition 13 was mentioned as one of the requisitions or objections still left unanswered. That was after the plaintiff had already rescinded the agreement at 5:06 pm.

36. I have numbered the correspondence between the parties' solicitors in order to show that no less than 27 letters went to and fro as from 5 February 1998 till the date of completion. In the circumstances, although no sight of the registered Option was ever provided to the defendant's solicitors by the plaintiff's solicitors before the time fixed for completion, I am of the view that the plaintiff's solicitors had been lulled into a false sense of security regarding Requisition 13, especially after their letter of 15 May 1998 and the defendant's solicitors' letter of 22 May 1998, because ever since the defendant's solicitors had returned the unregistered Option for their handling, no word had ever been uttered by the defendant's solicitors regarding the registered Option until the completion time had passed. I accept that normally it would not be for the purchaser to give reminders to the vendor as to the provision of this sort of title documents. However, in the circumstances of this case, where the defendant's solicitors knew that the provided copy without memorial number was the same Option as the registered one, and the distraction of the plaintiff's solicitors by the numerous requisitions raised by the defendant's solicitors, all of which except this Requisition 13, had been eventually held to be unmeritorious or sufficiently answered, I am of the view that notice should have been given by the defendant's solicitors if they really wanted the registered Option to be delivered to them well before completion. It can also be said that in all the circumstances of this case the defendant had not insisted on this requisition. I refer to the authorities and observations under the head "Notice" above. Requisition 13 therefore does not help the defendant.

Requisition 18

37. This requisition relates to due payment of Government rent in respect of the Property. The judge held that this requisition was not legitimate because there was no evidence before him that there was no payment of Government rent, or even if Government rent had not been duly paid, it would have been regarded as a blot on the plaintiff's title.

38. While the Government lease was not shown to the judge, and he held that he was not satisfied that there was a forfeiture clause for non-payment of Government rent, Miss Wong submits that the plaintiff did not oppose that had it failed to pay the Government rent apportioned to the Property, such failure would be a ground for forfeiture of the Government lease, in which case good title could not be shown. On the other hand, Mr Chan for the plaintiff argues that the plaintiff should not be called upon to prove due payment of the Government rent when there was no prima facie evidence showing default of such obligation. I consider, however, that insofar as it is not disputed that failure in the payment of the Government rent may give rise to forfeiture, there is a risk attacking the title to the Property. The vendor is obliged to show and make good title. There is clear binding authority in Chen & Anr v Lord Energy Ltd [1999] 1 HKLRD 205, at 211A where Li CJ said:

"The legal position was that the obligation was squarely upon the vendor to show good title. Where a document needs to be produced by the vendor as proof of title, it is no answer for him to say that the purchaser that he could easily obtain it himself."

39. Whether the plaintiff had paid the portion of the Government rent for the Property, it was a matter entirely within its knowledge, and beyond the knowledge of the defendant. Although before a forfeiture is registered against the Property as an encumbrance, there appears to be no blot on the title, the risk of forfeiture by the head lessor is one the non-existence of which the defendant is entitled to make sure.

40. Notwithstanding, Mr Chan points out that the Government rent in respect of the Property is less than $3 per annum. That sum can be worked out from the $1,000 Government rent payable for each of the two lots on which the building comprising the Property stands, as appears on the land registry record. Moreover, it can be seen from the Deed of Mutual Covenant in respect of the Property that the management fees collected by the Manager from the owners of the undivided shares in the building, include the payment of Government rent by the Manager. These certainly puts the risk suggested or contemplated by the defendant as unrealistic unless there was a reasonable ground for suspecting that such peppercorn rent had not been paid. Had there been any such reasonable ground, I am of the view that the vendor would have been obliged to answer this requisition. As rent receipts in this regard are not title documents, a copy of such receipts or the Manager's confirmation of payment could have been provided to constitute a sufficient answer.

41. In Jasmin Enterprises Ltd v Chan Yuk Hon [1998] 4 HKC 224, at 229H-I, Sakhrani J said:

"The obligation on the vendor is to show good title. If the Government rent had not been paid, that would be a ground for forfeiture of the Crown Lease in which case good title could not be shown. If there was some reason to suspect that the Government rent was not paid then the plaintiff was certainly entitled to require proof. However, it has not been shown to me that there was any reason to suspect non-payment of Government rent. I accept the submission made by Counsel for the defendant that in the circumstances of the case, this was not a proper requisition."

42. One does not know the exact circumstances that made Sakhrani J accept the submission of counsel for the defendant in that case. If there were circumstances similar to those in our instant case, I would not hold the cited passage to be incorrect.

43. For the reasons stated, I rule that the judge was justified in concluding that Requisition 18 was not a legitimate one.

Pantry

44. Clause 8 of the agreement provides:

"The property is and will be sold on an 'as-is' basis. ...The Purchaser hereby declares that the Purchaser ... is fully aware that he is purchasing the Property in its present state and condition and shall not make any objection or requisition thereto or in connection therewith. No warranty is given by the Vendor on any of the following matters, namely: -

...

the physical state and condition or the legality of the user or the area of the Property or of the said building or of any structures or erections therein or thereto ..."

45. When the agreement was entered into on 6 January 1998, there was a pantry located in the common corridor between the two units 3601 and 3602. On 16 January 1998, the defendant's solicitors asked the plaintiff's solicitors to clarify whether the pantry was erected on the common corridor, in respect to which the owner of the Property had no excusive possession. The parties' solicitors then entered into argument as to whether the defendant was entitled to raise this requisition.

46. On 23 January 1998, the plaintiff's solicitors proposed, on a "without prejudice" basis, to demolish the pantry. On 30 May 1998, the defendant's solicitors made known to the plaintiff's solicitors that the defendant did not accept the without prejudice proposal. However, prior to 27 May 1998, the plaintiff had demolished the pantry without the defendant's consent.

47. The judge held that the pantry was an illegal structure and should have been demolished, or otherwise, the court might be taken as encouraging the construction and continuation of illegal structures in buildings in Hong Kong. To this, the defendant did not raise any objection. However, Miss Wong submits that without the pantry, the plaintiff was unable to perform the agreement. The demolition of the pantry resulted in a physical diminution in the area of the Property by 25.30 square feet, and would also affect the enjoyment of the rest of the Property because it took away the only water inlet and outlet facilities within the Property.

48. I am of the view that the second argument raised by Miss Wong has little merit. If it is reasonable to expect that there would properly or lawfully be water inlet or outlet facilities within the Property, those facilities could be provided by means other than the pantry. If, on the other hand, such facilities could not lawfully be installed in the Property, then the demolition of the pantry would amount to removal of an illegal structure.

49. In Leung Wing Fai v Onlink Investments Ltd [2000] 1 HKLRD 725, Yuen J was also dealing with an "as is" clause and provisions similar to those in clause 8 referred to above. She said at p 731E of the report:

"It is clear that it is for the protection of the vendor; in other words, the vendor would not need to improve the property. It is clear to me that the 'as is' clause is not a right that could be asserted by a purchaser to restrain a vendor from demolishing what is undisputed to be unauthorised building works, nor can it be used as the purchaser's justification for insisting that unauthorised building works be sold to him together with the rest of the property."

50. I hold, therefore, that clause 8 of the agreement precludes the defendant from complaining about the demolition of the pantry.

51. As far as the diminution in the area of the Property by about 25.30 square feet (the area of the pantry) is concerned, the judge held that the de minimis rule applied to an agreement for the sale and purchase of land, and even if such rule could not be applied, the diminution in the area and enjoyment of the Property caused by the demolition of the pantry was de minimis. The judge also held that the plaintiff could substantially perform the agreement by conveying and delivering possession of the Property without the pantry, leaving the defendant with a remedy in damages only.

52. Miss Wong concedes that substantial performance is available to the plaintiff. She, however, argues that even if the plaintiff could force the Property without the pantry upon the defendant, the defendant was entitled not to complete the agreement unless and until the plaintiff appropriately abated the price to reflect the loss of the pantry, and as the plaintiff purportedly terminated the agreement on the ground of the defendant's non-completion before it abated the price, the plaintiff had itself repudiated the agreement. Alternatively, Miss Wong argues that at least the defendant should be entitled to abatement in price.

53. The total area of the Property is 2,773.60 square feet. The pantry had an area of 25.30 square feet and was in the common area. The removal of the pantry had reduced the total area of the Property by about 0.9%. The contract price for the Property was $40,850,000. It was agreed by the parties that at the date of completion, the Property was worth $31,450,000 and the Property without the pantry was worth $31,250,000. The difference in value was $200,000 or 0.64%. I agree with the judge that as compared with the price and the worth of the Property on the date of completion, the amount of $200,000 was de minimis and should not be taken as entitling the defendant to rescind the agreement. Nor am I persuaded by Miss Wong's argument that it was incumbent on the plaintiff, without any suggestion or request made by the defendant, to offer a reduction of the price for the lost pantry before completion, especially in the circumstances of this case where the parties were still at loggerheads over other requisitions right to the last minutes before completion. I am of the view, nonetheless, that it is just fair for the court to exercise its equitable jurisdiction to allow an abatement of the price by $200,000, since the agreement did consist of the pantry as part of the Property. It is the loss of some 25 square feet of the area and the defendant should be allowed an abatement of the price. Nor, indeed, in the event of the defendant failing in this appeal, would Mr Chan oppose the damages awarded to the plaintiff to be reduced by $200,000.

Conclusion

54. In the premises, as the defendant fails in all the requisitions in dispute before us and also on its right to rescind for the plaintiff's not having offered an abatement of the price for the removed pantry, I hold that the appeal should be dismissed. However, by consent between the parties, the damages awarded by the judge to the plaintiff should be reduced by $200,000 for the removed pantry.

Suffiad J:

55. I agree.

Wong JA:

56. I also agree. The defendant's appeal is therefore dismissed. By consent, the damages awarded by the judge to the plaintiff be reduced by $200,000. We also make an order nisi that the defendant do pay the plaintiff the costs of this appeal, to be taxed if not agreed.