LEE TO MING AND ANOTHER v. TAM KIM SUM WILLIAM AND ANOTHER

HCMP 2874/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2874 OF 1998

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J U D G M E N T

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1. This is a vendor and purchaser dispute. It arises out of the sale of a property called Rosary Villas in Shatin, and there was an agreement on 10 December 1997 whereby the defendants who were the vendors were selling this flat on the 2nd floor for $9.2 million. Completion was going to take place in the middle of 1998. There have been a large number of cases brought to the Court recently because of the falling property market where people strive to get out of their bargains. I have no doubt that the value of this property has been falling dramatically, but it is right, as Mr Mayne has reminded me, that I must look at this matter strictly according to the law.

2. What had happened was that when this property was built, some years ago in 1984, one of the restrictions on the Special Conditions of the Grant was that no building should be erected more than four storeys high. There were a number of other obligations provided upon the developers who were developing the site by a collection of buildings. They had received the grant of their lease to develop this site with a number of buildings - the total area was something like 8,500 sq.m. The plans were submitted to the relevant Building Department and the buildings as shown had five storeys. An occupation permit was granted for this development (which is found at page 80 of the Bundle) to the development company, and it says :

"I hereby permit the occupation of the new building at Sha Tin on Lot No. S.T.T.L. 180 for the following purposes :-

10 nos. 5 storey buildings in 3 detached blocks, 2 being of 4 each and one of 2 and each comprising :-

Ground Floor : Entrance lobby for non-domestic use.

1st to 4th Floor : One flat per floor for domestic use.

1 single-storey guard house for non-domestic use.

1 single-storey electrical substation for non-domestic use.

1 swimming pool with filtration plant for non-domestic use.

4 nos. carports for non-domestic use."

So that it was clear that the building that was being erected had one floor, which was to be used as an entrance lobby, and four storeys for residential purposes.

3. The Special Condition, as I said, under 8(b) says :

"Any building erected on the lot shall not contain more than 4 storeys."

However, there was an exemption granted in Condition No. 16 that if a carport is at or above the ground level, that is not taken into account for the purposes of the gross floor site coverage and also the storeys. So, for example, if you had one carport and four storeys above, it would be called a four-storey building. The unusual position, therefore, is that there are large numbers of buildings in Shatin and a number of flats in these buildings where there is a clear conflict between the occupation permit, which has been granted for five storeys, and the conditions on the Crown Lease which is for four storeys.

4. The particular flat I am concerned with appears to have been sold before, no one has ever raised this point. However, the solicitors acting for the Plaintiffs, very properly, raised this matter in a requisition which is found at page 85 and pointed this out and wanted to know what the answer was. Unfortunately, there was not really an answer because what happened was that the solicitors acting for the vendors, K.H. Ho & Co., wrote in March 1998 to the Land Office pointing this out, saying :

".... we shall be grateful if you may clarify the situation as to whether there is any breach of the said Special Condition. ....."

An answer came back which is really absurd, pointing out 16(A) which, as I said, is dealing with carports and has nothing to do with it.

5. Then the solicitors wrote back again and said the answer related to carports, and it failed to define whether or not the ground floor will be regarded as a storey for the purpose of calculating the maximum number of storeys. The answer they got back was :

"I would like to draw your attention to the requirement ..... which only stipulates that 'any building erected ..... shall not contain more than 4 storeys'."

It seems to me, therefore, that the Land Office was merely pointing out what the solicitors for the Plaintiffs were pointing out, namely that the occupation permit is for five storeys, and the Special Condition relates to a building of only four storeys.

6. Speaking for myself, inexperienced in many conveyancing matters, I would have thought that it did not really make much difference because the building is there and no one seems to have done anything about it, a Certificate of Compliance had been obtained, although this certificate itself merely says that the positive obligations have been complied with and that it is given without any prejudice, it really does not certify anything. It provides the Government with a free rein to take action in respect of any breaches of the General and Special Conditions.

7. The approach to this sort of problem, in my judgment, is highlighted by the decision of Rogers J (as he then was) in Citiward Ltd. v. Tai Ping Wing [1995] 2 HKC 181, when he said that the purchaser is entitled to be cautious. On his particular case, he said : "The risk of government re-entry was probably low". I think the same situation is here. Mr Mok points out, very forcefully and correctly, that the government has not done anything about it, and the Land Agent has approved the plans which showed, not as though it was hidden, that there was "a lift lobby and four storeys above". It was not as though it was described as "a carport and four storeys above", it was properly described, and he is right to point out, that there has been nothing done to hide anything, it has all been done perfectly openly.

8. However, the position in law, in my judgment, is that I have to decide whether or not the requisition, which, in my view, is a valid requisition and properly made by the purchasers' solicitors spotting as they have done the discrepancy here, whether the requisition was satisfactorily answered, see for example, Kok Chong-ho and Another v. Double Value Developments Limited [1993] 2 HKLR 423. Even if they had good title, the issue is whether or not this has been satisfactorily answered. When one looks at the correspondence, the answer to the requisition was given, including the two letters from the Land Registry, which in my judgment, is not a satisfactory answer and probably put the purchasers' solicitors more on guard than they had been before, because all it does is to demonstrate that the Land Office is pointing out that there is an obligation under the Special Conditions only to have a four-storey building. The solicitors, therefore, were not given any answer as to this discrepancy. There is late correspondence where the vendors' solicitors tried and argued various meaning, in my judgment, that does not give any assistance at all when they talked about "if it is a carport or why is a lift lobby not different to a carport."

9. Although, as I said, it may be the risk of enforcement by the government is low, I think the solicitors were correct in being cautious. That of course is their duty to help their clients. There may be many solicitors, apparently, who would not have done anything about it. On the other hand, they thought it right to advise their clients of this risk and, in my judgment, they were correct. They were cautious, and they have not been given a satisfactory answer. I should have added, for the sake of completeness that although as I said, the property market has fallen dramatically, the affidavit from the plaintiff demonstrates that he was ready and willing to complete the property transaction had the discrepancy been satisfactorily answered.

10. A declaration to rescind by the plaintiffs is granted. The plaintiffs will have repayment of the deposit in the sum of $920,000 together with interest at 1% over prime until today and thereafter until payment at judgment rate. Costs be to the plaintiffs, to be taxed if not agreed.