JUMBO KING LTD. v. FAITHFUL PROPERTIES LTD. AND OTHERS

HCMP160/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.160 OF 1998

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J U D G M E N T

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Introduction

1. This is a vendor and purchaser summons issued on behalf of the purchaser on 13th January 1998. The Plaintiff is the purchaser. The 1st Defendant is the 1st Vendor, the 2nd Defendant is the 2nd Vendor, the 3rd Defendant is the 3rd Vendor, collectively "the Vendor" under the Sale and Purchase Agreement dated 14th October 1997 ("the Agreement").

Relevant provisions of the Agreement

2. Clause 1 of the Agreement provides that :

"The First Vendor, Second Vendor and Third Vendor shall respectively sell and the Purchaser shall purchase the First Property, the Second Property and the Third Property absolutely or (as the case may be) for the residue of the term of years created by the Crown Lease referred to in the Second Schedule hereto ('the Crown Lease') subject as hereinafter provided but otherwise free from all incumbrances."

Under Part I of the Second Schedule to the Agreement, the First Property comprises :

"ALL THOSE 6,734 equal UNDIVIDED 720,000th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land office as KOWLOON INLAND LOT NO.8219 AND THE EXTENSION THERETO ('the Land') And of and in the building thereon now known as 'HANKOW CENTRE (漢口中心)' ('the Building') (formerly known as J. HOTUNG HOUSE) Nos.5, 7, 7A, 9, 9A, 11, 11A, 13 and 15 Hankow Road, 41, 43, 45, 47, 49 and 51 Peking Road, 4, 4A and 4B Ashley Road and 1, 1A, 1B, 1C, 1D and 1E Middle Road TOGETHER with the right to the exclusive use, occupation and enjoyment of ALL THOSE UNITS NOS.G-5 and G-6 on the GROUND FLOOR of the Building (as shown and coloured Pink on the Ground Floor Plan attached to an Assignment registered in the Land Registry by Memorial No.5253646)."

Under Part II of the Second Schedule to the Agreement, the Second Property comprises :

"ALL THOSE 9,861 equal undivided 720,000th parts or shares of [the same land and building] TOGETHER with the right to the exclusive use, occupation and enjoyment of ALL THOSE UNITS NOS.G-7 and G-8 on the GROUND FLOOR of the Building (as shown and coloured Pink on the Ground Floor Plan attached an Assignment registered in the Land Registry by Memorial No.5253646), Two Utility Rooms (which are otherwise known as Units U3A and 302A) on the THIRD FLOOR of the Building (which Utility Rooms are shown coloured Pink on the Third Floor Plan annexed to the said Assignment) and the Flat Roofs on the Tenth Floor of the Building (which said flat roofs are shown and coloured Yellow on the Tenth Floor Plan annexed to the said Assignment) and the Flat Roofs on the Main Roof of the Building (which is shown and coloured Yellow on the Main Roof Plan annexed to the said Assignment)."

Under Part III of the Second Schedule to the Agreement, the Third Property comprises :

"ALL THOSE 10,916 equal undivided 720,000th parts or shares of [the same land and building] TOGETHER with the right to the exclusive use, occupation and enjoyment of ALL THOSE UNITS NOS.G-9/9A and G-10 on the GROUND FLOOR of the Building (as shown and coloured Pink on the Ground Floor Plan attached to an Assignment registered in the Land Registry by Memorial No.5253646) and One Utility Room (which is otherwise known as Unit 213A) on the SECOND FLOOR of the Building (as shown and coloured Pink on the Second Floor Plan annexed to the said Agreement) and One Utility Room (which is otherwise known as Unit 413A) on the FOURTH FLOOR of the Building (which Utility Room is shown and coloured Pink on the Fourth Floor Plan annexed to the said Assignment)."

3. Clause 2 and the Second Schedule of the Agreement provides that the purchase price is in the sum of $257.5 million payable in the following manner :

"(a) HK$10,000,000.00 as deposit to be paid by the Purchaser on or before the signing of this Agreement;

(b) HK$15,750,000.00 being further deposit to be paid by the Purchaser on or before 20th October 1997;

(c) HK$25,750,000.00 being further deposit to be paid by the Purchaser on or before 15th November 1997; and

(d) HK$206,000,000.00 being the balance of the purchase price shall be paid by the Purchaser on completion."

Significantly, $25.75 million, being further deposit, was payable by 15th November 1997.

4. Clause 4 and Part III of the Third Schedule provide that completion shall take place on or before 26th January 1998 which is some 3 months and 12 days away from the date of the Agreement (14th October 1997) and 2 months and 12 days away from 14th November 1997, and 2 months and 23 days away from 3rd November 1997.

5. The second Clause 6 in the Agreement (p.4 of the Agreement) provides that :

"Time shall in every respect be of the essence of this Agreement."

Clause 7 provides that :

"The Vendor shall assign the relevant Property as BENEFICIAL OWNER."

Clause 8 (a) provides that :

"Each of the Vendor shall show at its own costs a good title to the relevant Property of which it is the registered owner in accordance with Section 13 of the Conveyancing and Property Ordinance. Each of the Vendor shall prove his title to the relevant Property at its own expenses and shall at the like expense make and furnish to the Purchaser such certified copies of any deeds or documents of title, wills and matters of public record as may be necessary to prove such title. The costs of verifying the title by inspection and examination, including search fees, shall be borne by the Purchaser who shall also, if the Purchaser requires copies of any documents in such Vendor's possession relating to other premises retained by such as well as to the relevant Property pay the costs of such copies."

The first Clause 10 of the Agreement provides that :

"Any 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 ten (10) working days after the receipt of the title deeds by the Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the Agreement) and the Purchaser shall be deemed for all intents and purposes to have accepted the title of the Property and if the Purchaser shall make and insist on any objection or requisition in respect of the title or otherwise which the relevant Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his Solicitors not less than five (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 a return of the deposits and all other monies paid to the Vendor hereunder forthwith but without interest, costs or compensation and the Purchaser shall return to the Vendor all title deeds, documents and any other papers furnished to the Purchaser or his solicitors by or on behalf of the Vendor in connection with the sale and purchase hereunder."

The second Clause 10 provides that :

"The Property is sold subject to and with the benefit of the documents/Deed of Mutual Covenant and Management Agreement (if any) as more particularly described in Part V of the First Schedule hereto ('the Deed of Mutual Covenant')."

Clause 18(e) provides that :

"The Vendor does not warrant or represent that each and every fixture, fitting, erection and structure (if any) on the Property or any part thereof is erected in all respects in compliance with the Building Ordinance and/or its subsidiary legislation and/or any other legislation or regulation. The Vendor shall be under no liability whatsoever if it is discovered at any time (whether before or after Completion) that at the date hereof or before Completion, there is any fixture, fitting, erection or structure in or to any part of the Property which is in contravention of the Building Ordinance an/or its subsidiary legislation and/or other legislation or regulation, the Vendor shall not be held responsible for the demolition, alteration, removal, reinstatement, reinforcement and/or any other works relating to such illegal fixture, fitting, erection or structure or for any costs or expenses of or incidental thereto whether or not such works are required by the Building Authority or other authority or body or otherwise. The Purchaser shall not be entitled to raise any requisition or objection or to rescind this Agreement or to annul the sale or to claim any compensation or damages from the Vendor by reason of or in connection with any such contravention."

Clause 19 of the Agreement provides that :

"Notwithstanding anything to the contrary herein, the Purchase shall be deemed to have duly inspected the Property prior to the signing of this Agreement and the Purchaser expressly declares that he is fully aware that he is purchasing the Property in its present state and user thereof and shall not make any objection as to title or otherwise or raise any requisition thereto or in connection therewith. The Property is and will be sold on an 'as is' basis. Without prejudice to the generality of the foregoing no warranty is given by the Vendor on any of the following matters, namely :-

(a) The physical state and condition, quality, or fitness of the fixtures fittings and finishes or the installations and appliances (if any) incorporated in the Property or in the Building;

(b) The physical state and condition of the Property and the Building;

(c) The permitted user of the Property; and

(d) The redevelopment potential of the Property."

6. It would appear from page 25 of the Agreement that the same person signed on behalf of all three Vendors. It is common ground that the cases of all three Vendors stand or fall together. In other words, it is not open to any Vendor to contend or rely on any contention that the title to its property is good notwithstanding any defects in title in one or more of the other two properties.

The Requisitions

7. Under cover of the letter dated 23rd October 1997, the Vendor's solicitors enclosed the title deeds and documents as per the two schedules annexed thereto. There are 54 and 49 documents listed in the two schedules. The Vendor's solicitors went on to state :

"Please note that Messrs Baker & McKenzie have retained Mortgages Memorial No.588927 and 5950150 and Messrs Chan Lau & Wai have retained Mortgage Memorial No.6009025 for the preparation of the necessary Receipt on Discharge of a Charges/Releases."

8. In a letter dated 3rd November 1997, which is within 10 working days from 23rd October 1997, the Purchaser's solicitors raised the following requisitions :

" We refer to your letter dated 23rd October 1997.

Upon perusal of the title deeds of the above property, we would like to raise the following requisitions:-

1. Kindly produce evidence that the land premium payable under the Conditions of Regrant No.7135 and Conditions of Extension No.8555 has been duly paid up. Copies of the said Conditions are enclosed for your reference.

2. Please produce the Articles of Chemical Bank and the requisite legal opinion to prove that Partial Release Memorial No.5657464 and Release Memorial No.5889276 were duly executed as only 2 vice-presidents signed the said documents and it is unknown whether they are directors of the Company.

3. It is also noted that, inter alia, the Final Release Memorial No.5712616 was executed by one signatory on behalf of the Chemical Bank. Please therefore produce the Articles and the requisite legal opinion to show that one signatory complies with the Bank's Articles on sealing of documents and such execution manner is binding and effective on the Bank.

4. Please send us the following documents for our perusal:-

a. Originals of all Tenancy Agreements and Licence Agreements subject to which the above properties are sold to our client;

b. Original Release Memorial No.6192792 (previously registered by Memorial No.5253645). In the meantime, a certified copy should be sent to us for perusal.

5. Please produce the relevant Memorandum and Articles of Association to prove that Assignment Memorial No.5929995 has been duly executed by Target Power Limited.

6. Please confirm that you are retaining the following documents for the purposes of discharge:-

a. Mortgage Memorial No.5889277

b. Mortgage Memorial No.5950150

c. Mortgage Memorial No.6009025

7. Please prove and show which one of the 2 utility rooms both marked pink on the 2nd Floor Plan of Assignment Memorial No.5253646 is 213A; similarly, on the 3rd Floor Plan attached to the said Assignment, it is not possible to tell which utility room is U3A and which one is 302A as they are both coloured Pink but without room marking. Please show which is which.

8. It appears that no undivided shares were alloted to Units U3A, 302A, 213A, 413A, Flat Roof on 10th Floor and Flat Roof on the Main Roof of the building. Kindly show how these properties can be validly assigned to our client.

We reserve our right to raise further requisitions on title."

The letter dated 3rd November 1997 does not stipulate any time limit to deal with the eight requisitions, and the Agreement contains no time limit for answering requisitions.

The purported rescission and the Vendor's response

9. It is common ground that the Vendor's solicitors did not reply to the letter of 3rd November 1997 by 14th November 1997. On 14th November 1997, i.e. one day before the further deposit of $25.75 million would become payable under the Agreement, the Purchaser's solicitors sent a letter dated 14th November 1997 in these terms :

" We refer to the above properties.

It is discovered by our client that the cocklofts in the said properties are unauthorized structures. Under the existing Sale and Purchase Agreement dated 14th October, 1997, your clients are obliged to show good title to the said properties. The existence of the these unauthorized structures renders your clients' title defective. Firstly, these unauthorized cocklofts are liable to be demolished by the Buildings Authority. As a consequence thereof, the size of the property which your clients have agreed to sell to our client will be reduced and your clients will in effect compel our client to accept property substantially different from that agreed in the Agreement. This is of course unacceptable by our client who will be substantially prejudiced by the difference. Furthermore, these unauthorized structures may also give rise to enforcement action by the Government (including the exercise of the Government's right of re-entry) under the relevant Government Leases. It is also noted that the Deed of Mutual Covenant of Hankow Centre expressly prohibits structural alteration to any part of the building. These unauthorized structures may also give rise to action by the co-owners of the building and/or the manager thereof.

All the rights mentioned above are neither fanciful nor remote particularly so due to the substantial size of the cocklofts in question.

Furthermore, up to the moment hereof, you have still failed and/or refused to assure us as to how Units U3A, 302A, 213A, 413A, Flat Roof on 10/F. and Flat Roofs on the Main Roof of the building can be validly assigned to our client as no undivided shares of and in the building and the land are allotted or attached to them. Our client should not be compelled to accept just the exclusive right to use these Units and Flat Roofs but without the corresponding undivided shares. Nor are your clients legitimately entitled to assign just the exclusive right but without the corresponding undivided shares.

Moreover, The Deed of Mutual Covenant of the building Memorial No.624356 has not even mentioned about the abovesaid Units at all. Indeed, under the said Deed, Joseph Edward Hotung was granted exclusive right to, inter alia, offices on the 2nd Floor and offices on the Fourth Floor. Utility rooms are obviously not offices but are more appropriately regarded as common area or common facilities for the relevant floors or building. It follows that these Units should since become and remain to be part of the common area of the building. As such, it is extremely doubtful whether your clients have exclusive right and possession to these Units capable of being assigned away. Even if (which is denied) these Units are regarded as Reserved Area, it is extremely doubtful whether your clients (as opposed may be to Mr. Joseph Hotung) shall have the legitimate right to assign them away.

It is therefore considered that the present defects in title are not one that can be remedied before completion. In particular, as for the unauthorized cocklofts, even if they are reinstated, your clients are not entitled to compel ours to accept property substantially different from that agreed to be sold under the existing Agreement. Obviously, our client will be seriously prejudiced by the difference.

Hence, in view of such title defects and/or your clients' fundamental breach and/or repudiation which defects and/or breach and/or repudiation is unlikely (if not impossible) to be remedied before Completion, our client is not required to wait until completion in order to exercise its right of rescission. Notice is hereby given to you that our client hereby exercises its right of rescission and requires your clients to refund the deposit to our client forthwith."

10. The Vendor's solicitors replied by letter dated 18th November 1997 stating :

"We refer to your letter dated 14th November, 1997 and are most surprised by the allegations therein.

As you have rightly admitted, our clients are only required to prove good title to the properties before completion. It is certainly premature to say that the matters raised by you in the said letter constitute any defect in title or if they do constitute any defect in title (which is denied) that they cannot be remedied before completion.

Furthermore, the time for raising requisitions has expired and our clients are not, in any event, obliged to deal with any matters raised out of time. We would also remind you of the provisions of Clause 19(e) [Error for Clause 18(e)] of the Agreement for Sale and Purchase dated 14th October, 1997 ('the said Agreement') dealing with unauthorised structures.

As your client has failed to pay the further deposit of HK$25,750,000.00 on 15th November, 1997 in accordance with the terms of the said Agreement, our clients hereby exercise their rights under the said Agreement to terminate the said Agreement and the deposit of HK$25,750,000.00 already paid to our clients has been forfeited.

In the meantime, all our clients' rights and remedies in the matter including but not limited to recovering from your client further damages are hereby expressly reserved."

The Purchaser's contention

11. The submission of Miss Audrey Eu, SC, leading Counsel for the Purchaser, that the Purchaser was entitled to call off the transaction on 14th November 1997 as they did may be summarized under three broad grounds :

(a) There is a fundamental or irremediable defect in title in that Utility Rooms Unit U3A and 302A on 3rd Floor, Flat Roof on the 10th Floor and Flat Roofs on the Main Floor [part of the Second Property], Utility Room Unit 213A on the 2nd Floor and Utility Room Unit 413A on the 4th Floor [which is part of the Third Property] are not referable to or accompanied by any corresponding undivided parts or shares of and in the Land and the Building and as the matter of law, the Utility Rooms and Flat Roofs cannot be assigned as such.

(b) The Utility Rooms are common areas under the Deed of Mutual Covenant of which the Vendor do not have any right to the exclusive use, occupation and enjoyment.

(c) The extensive cockloft inside the relevant shops are in fact illegal structures.

No share in Land/Building

12. Objection to the absence of share was raised in Requisition No.8 in the letter dated 3rd November 1997.

13. I turn to consider the Deed of Mutual Covenant which begins on page 62 of the Bundle with a roof plan showing the location of the three flat roofs. Flat roofs on the 10th Floor are shown on page 67 of the Bundle as the narrow strips around Blocks A, B and C of the Building. On page 71 is the 4th Floor plan with two areas marked "UTILITY"; the word "OFFICE" appeared eight times, indicating eight areas with apparent openings to five areas marked "CORRIDOR". There are four areas marked "STORAGE" on this plan. There are other areas marked with other markings. On page 72 of the Bundle which is the 3rd Floor plan, there are two areas marked "UTILITY", there are eight areas marked "OFFICE" with apparent openings leading to five areas marked "CORRIDOR". Areas marked "STORAGE" on the 4th Floor plan would appear on the 3rd Floor plan to have been absorbed into two of the areas marked "OFFICE". Page 73 is the floor plan of the 2nd Floor, again with two areas marked "UTILITY". Eight areas marked "OFFICE", and openings leading to five areas marked "CORRIDOR". Parts of the areas marked "STORAGE" on the 4th Floor plan would seem to be divided into what are called "AHP ROOM(S)" and other parts of the storage area would seem to have been absorbed into two areas marked "OFFICE". On page 75, which is the Ground Floor plan, the word "SHOP" appear, indicating nine areas with openings to three areas marked "ARCADE" and two areas marked "LOBBY".

14. Clause 1 of the Deed of Mutual Covenants provides :

"Each of the parties hereto for himself and his executors administrators and assigns hereby grant unto each of the other parties hereto their or his respective executors administrators and assigns the full right and privilege to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises set out in the Second Column of the First Schedule hereto opposite to the respective names of the grantees as set out in the First Column of the said First Schedule TO THE INTENT that each of the parties hereto shall be entitled to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises so set out opposite to his name as aforesaid."

It is this Clause which restricts the rights of all co-owners in land and in the building to use occupy and enjoy all parts of the land and the building thereon by conferring on a co-owner the right to the exclusive use occupation and enjoyment of defined areas. At page 87 of the Bundle, which is the First Schedule to the Deed of Mutual Covenant, against the name of the First Owner under which 1/720th share is put in brackets, on the second column it reads :

"FLAT 'A5' on the SIXTH FLOOR and MAIN ROOF PORTION NO.11 (1/720th share)"

And under the name of the developer, there is in brackets "719/720th" share. And in the second column the first item reads :

"SHOP SPACES on the GROUND FLOOR

SHOP SPACES on the FIRST FLOOR

OFFICES on the SECOND FLOOR

OFFICES on the THIRD FLOOR

OFFICES on the FOURTH FLOOR

FLAT ROOF on the TENTH FLOOR LEVEL

(482/720th shares)"

In respect of the flat roofs on the 10th Floor, they originally formed part or were referable to part of the 482/720th share, but by the time the flat roofs were assigned to the Vendor, the flat roof on the 10th Floor had no shares referable to them. Further down on the First Schedule on page 87 of the Bundle, against the name of the developer, the following appears :

"MAIN ROOF PORTIONS NO.1 to NO.23B inclusive except the said NO.11 above mentioned

BASEMENT, PIPING SERVICE FLOOR and FLAT ROOFS on the MAIN ROOF"

No share is referable to any of the above areas.

15. What is relevant to the present proceedings is that under this Deed of Mutual Covenant, no share in Land or in the Building was referable to or has been allotted in respect of the flat roofs on the main roof. As noted from the First Schedule to the Deed of Mutual Covenant, no share is referable to the Utility Rooms on the 2nd, 3rd and 4th Floors unless "OFFICES on the SECOND FLOOR" meant the "SECOND FLOOR" as contended by Mr Anderson Chow, Counsel for the Vendor. Likewise, "OFFICES on the THIRD FLOOR" meant the "THIRD FLOOR" and "OFFICES on the FOURTH FLOOR" meant the "FOURTH FLOOR". In other words, "OFFICES on" or "OFFICES on the" are otiose. Furthermore, if "OFFICE" meant more than the areas marked "OFFICE", there is no reason for the different treatment of the areas marked "STORAGE" on the 4th Floor and the 3rd and 2nd Floor plans. In my judgment, "OFFICES" in the second column of the First Schedule to the Deed of Mutual Covenant referred only to the areas marked "OFFICE" on the 2nd, 3rd and 4th Floor plans attached to the Deed of Mutual Covenant, and do not include any of the Utility Rooms on the 2nd, 3rd or 4th Floors. In any event, it is common ground that by the time the four relevant Utility Rooms were assigned to the Vendor, no share was referable to or had been allotted to any of these four Utility Rooms.

16. For the point about share in land and in building, Ms Eu, SC, relied on what Godfrey J (as he then was) said in A. Mayson Development Co. Ltd. v. Betterfit Ltd. [1992] 2 HKC 533 at 535F-536B :

"....

The obligation of a vendor to prove title is an obligation which he has to perform at completion. But it is an obligation which in practice 'ought properly to be performed by the vendor well before the date fixed for completion': see Re Priestley's Contract [1947] Ch 469, per Romer J at p476. There are circumstances in which the purchaser may call off the contract at once, without waiting to see whether the vendor can succeed in proving title on or before completion: see Price v Strange [1978] Ch 337 per Goff LJ at p355. For example, in my judgment the purchaser does have a right to call off the contract as soon as he discovers a fundamental defect in the title, or some other fundamental breach of contract by the vendor. However, although, upon discovering before completion a fundamental defect in the vendor's title, the purchaser may thereupon treat the contract as at an end, in my opinion he may not do so merely from minor deficiencies, removable defects, matters of conveyance and so on: compare Pips (Leisure Productions) Ltd v Walton (1981) 260 EG 601, per Megarry VC, at pp 603, 604. Where proof of title is insufficient, but the title is not necessarily defective, the purchaser is, in my judgment, bound in the ordinary way to give the vendor a proper opportunity of establishing the title: see Re Balen and Shepherd's Contract [1924] 2 Ch 365, per Tomlin J at p378.

So I would hold, in relation to the first of the two issues which I have outlined above, that a purchaser is not always bound to give the vendor until the date fixed for completion to come up with satisfactory answers to the purchaser's objections to the title. There are circumstances under which the purchaser can properly call off the contract without waiting for the completion date."

17. Mr Chow accepted that a tenant and owner in a multi-storey building cannot assign any right to exclusive possession of part only of the premises being a right capable of subsisting as a legal estate in land and binding on his co-owners as well as himself. But Mr Chow went on to contend that it does not follow that a tenant in common cannot assign a legal estate, i.e. a definite number of undivided shares plus a right to exclusive possession of a part of the building even though the undivided shares might not have been notionally allocated in that part. No authority has been cited in support of Mr Chow's contention.

18. The right to the exclusive use occupation and enjoyment of the two Utility Rooms, U3A and 302A on the 3rd Floor and the Flat Roof on the 10th Floor and the Flat Roofs on the Main Roof is part and partial of the Second Property. In my judgment (which I believe is conceded by Mr Chow), the Vendor could not validly assign these units on their own as they had no corresponding share in land and (this is not conceded by Mr Chow) the Vendor's position cannot be improved or remedied or cured or affected by adding :

a. the exclusive right to use occupation and enjoyment of all those units, G7 and G8 on the Ground Floor, together with

b. those shopping units' corresponding 9,861/720,000th shares.

The same reasoning applies to Utility Room 213A on the 2nd Floor and Utility Room 413A on the 4th Floor on the one part, and Shops G9/9A and G10 and the corresponding 10,916/720,000th shares on the other part in respect of the Third Property. The four Utility Rooms, Flat Roofs on the 10th Floor and Flat Roofs on the Main Roof are part and partial of the Property agreed to be sold under the Agreement. If they were not of importance to the Purchaser, they would not have been included in the Agreement. There is, in this case, only one agreement, not several agreements for the sale and purchase of several separate properties, such as, for example, an agreement for the sale and purchase of the exclusive right to use occupation and enjoyment of Shop G5 together with its corresponding number of share in land and in building; and for example, a separate agreement for Utility Room U3A without any share and so on.

19. Just as the Purchaser cannot be forced to take the First Property alone, the Purchaser cannot be forced to take part only of the Second Property and part only of the Third Property. In any event, the First and the Second Properties cannot be "severed" because of the tenancy agreement in respect of Shops G5, G6, G7 and G8.

20. Objection or requisition in respect of the absence of share in land and building was raised within the contractual time limit by Requisition No.8 in the letter dated 3rd November 1997. This is a defect which cannot and has not been remedied or cured, whether by the date of completion (26th January 1998) or the date of this hearing. The theoretical probability of all co-owners joining in to assign a share to the Vendor or the Purchaser is so fanciful that it has not been raised by Mr Chow. The Purchaser was thus entitled in my judgment to call off the contract as it did on 14th November 1997 on this ground and without waiting to see whether the Vendor could succeed in proving title on or before completion. This is sufficient to dispose of the Originating Summons in favour of the Purchaser.

Brief comments on further points

21. For the reasons given above, it is not necessary for me to deal with the two other grounds argued by Ms Eu, SC. In deference to the request made both by Ms Eu, SC and Mr Chow, I shall deal with them briefly.

Utility Rooms - Common Areas

22. The starting point is that the 1st owner and the developer, as co-owners of the land and the building, were entitled to the use occupation and enjoyment of every part of the building including the Utility Rooms. The assignment by the developer to the 1st owner assigns 1/720thshare in land and in building, together with the full right to the exclusive use occupation and enjoyment of Flat A5 on the 6th Floor and Portion No.11 on the Main Roof. This assignment contains no express reservation to the developer to the exclusive use occupation and enjoyment of any other part of the building. There is a provision in the middle of p.2 of the assignment by the developer to the 1st owner providing that the developer shall pay the whole of each instalment of premium attributable to the 5th and upper floors of the building. This agreement on the part of the developer to pay is purportedly made also on behalf of :

".... Vendor and his successors in title the owners for the time being of the shares and the said building having the exclusive right to use occupation and enjoyment, ground, first, second, third and fourth floors and the piping service floor of the said building and of any part thereof.... "

In my judgment, this provision does not confer or reserve to the developer any right to the exclusive use occupation and enjoyment of the whole of the 2nd to the 4th floors. This assignment is of no assistance in determining the areas to which the developer had exclusive use and is no aid to the interpretation of the Deed of Mutual Covenant on this point. Therefore this assignment does not assist the Vendor.

23. I have already held that Clause 1 and the First Schedule only confer on the developer the right to the exclusive use of the areas marked "OFFICE" on the 2nd to the 4th Floor plans. The Utility Rooms are areas marked "UTILITY" on those plans and they are on areas outside and different from those areas marked "OFFICE".

24. Clause 3A of the Deed of Mutual Covenant which provides that each : "owner shall hold his part of the said building or the said premises subject to and with the benefit of the following ...." [emphasis added] does not assist the Vendor for the simple reason that it did not purport to enlarge "his part" of any owner. The Utility Rooms are, on the materials before me, "common parts", and they have not been carved out of the position under the starting point.

25. The objection on the ground that the Utility Rooms are common areas would appear plain on the face of the Deed of Mutual Covenant, a certified copy and an attested copy of which were sent under cover of the letter dated 23rd October 1997, see Item 16 of the G5 to G8 Schedule and Item 14 of the G9 to G10 Schedule. Any objection on requisition on this ground could and should have been raised within 10 working days.

26. Requisition No.8 in the letter of 3rd November 1997 deals with the absence of undivided shares which is a different point. The common area point, if in issue, could and should have been raised as part of Requisition No.8 or as Requisition No.9. Conveyancing is not by ambush. This is a defect which could, if the Plaintiff so wish, have been waived by the Purchaser. The Purchaser is deemed to have waived this defect in title by 14th November 1997. Further by virtue of Clause 10 of the Agreement : any requisition or objection in respect of title on the ground of Utility Rooms being common areas shall be raised within 10 working days, "otherwise the same shall be considered as waived". The Purchaser is therefore precluded from relying on this defect in title to rescind on 14th November 1997.

Cocklofts as illegal structures

27. Mr Chow contended that the Purchaser is precluded by Clause 18(e) of the Agreement to raise this point. He did not develop any argument on Clause 19. Mr Chow conceded that the Vendor had a duty or the burden to disclose all defects of which the Vendor knew or ought to know. Whether or not the Vendor had made any warranty or representation is neither here nor there. At best, Clause 18(e) might cover innocent non-disclosure. There is no suggestion that the non-disclosure was innocent and Clause 18(e) does not avail the Vendor.

28. The Purchaser exhibited a report by a registered architect and an authorized person dated 7th January 1998, stating that by comparing the latest approved building plans with the actual site conditions, he opined that the cocklofts in G6, G7, G8, G9/9A and G10 were not shown on the approved plans; that they were structural alteration works; and that the area of the cocklofts amounted to about 32% of the total floor areas of the shops agreed to be sold (which should therefore include G5). But that is the position as at 7th January 1998, at the earliest. It was clearly not available on 14th November 1997 when the Purchase rescinded nor on 18th November 1997 when the Vendor purported to accept the Purchaser's repudiation. The letter dated 14th November 1997 alleged that :

"The cocklofts in the said properties are unauthorized structures."

The mere presence of cocklofts is no evidence of that being unauthorized structures. The cocklofts might or might not have formed part of the original approved building plans. They might or might not have been subsequently approved alterations. The objection of the Purchaser on this ground is one which could not be properly considered, let alone dealt with, without enquiries and investigation. The Purchaser purported to rescind on this ground on 14th November 1997 without having raised with the Vendor any enquiry, requisition or objection, and without showing how the cocklofts were said to be "unauthorized structures". There is no suggestion that the Purchaser had any evidence as at 14th November 1997 that the cocklofts were unauthorized structures. The Vendor was not given any opportunity to consider or investigate this alleged defect in title. The contention that the Purchaser was entitled to call off the contract on 14th November 1997 on the ground of alleged defect in title because the cocklofts were allegedly unauthorized structures, without having raised with the Vendor any enquiry, requisition or objection, and without any suggestion that the Purchaser was, on 14th November 1997, in a position to make good its allegation that the cocklofts were unauthorized structures; and that so long as it be proved subsequently that the cocklofts were unauthorized structures, is a contention not supported by any direct or relevant authority cited by Ms Eu, SC.

29. I refer to direct or relevant authorities because I have very much in mind the importance of the position as at 14th November 1997. Unless the Purchaser could call off the contract as it had done, the Purchaser was bound to pay a further deposit of HK$25.75 million by 15th November 1997. The contention does not appeal to me at all. If I have to decide on this point, on the basis of the authorities which has been cited to me, I would decide it against the Purchaser.

Reliefs for the Purchaser

30. For the reasons which I have given on the absence of shares' point, the Purchaser is entitled to a declaration that the Purchaser was entitled to, and did effectively terminate, the Agreement by the letter dated 14th November 1997. I shall hear counsel on the terms of the Order to give effect in my judgment.

[Submissions from Counsel]

Order

(1) A declaration that the Plaintiff Purchaser was entitled to and did effectively terminate the Agreement by the letter dated 14th November 1997.

(2) A declaration that the Plaintiff is entitled to a lien on the property for the return of the deposit and part-payment made in the total sum of HK$25.75 million, and all other sums of money, interest and costs awarded in favour of the Plaintiff in these proceedings.

(3) An order that the Defendants do repay to the Plaintiff the sum of HK$25.75 million being the total amount of deposits paid by the Plaintiff together with interest thereon at the rate of 1% over the prime rate or rates charged by The Hongkong and Shanghai Banking Corporation Limited from 13th January 1998 until the date of judgment.

(4) An order that the Defendants do pay to the Plaintiff its costs of investigating the title in the properties in the sum of $202,137.50.

(5) Costs of these proceedings be paid by the Defendants to the Plaintiff, to be taxed if not agreed.

(6) Stay of execution until 5:00 p.m. on 23rd July 1998 or until further order.

(K. Kwok)

Recorder of the Court of First Instance
High Court