CHAU SO MAN SUE v. CHOW WAI FONG ALICE

DCCJ 5648/2018

[2022] HKDC 206

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5648 OF 2018

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BETWEEN

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JUDGMENT

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1.  This is a conveyancing dispute between Madam Chau and Madam Chow concerning the sale of a parking lot in a residential building. The sale was eventually aborted. Madam Chau was the purchaser and she now seeks rescission from the sale agreements and the recovery of the deposits that she has paid in the main. Madam Chow counterclaims for damages resulting from the alleged repudiation of Madam Chau.

2.  Both Mr Cheung, for Madam Chau, and Mr Fung, for Madam Chow, agree that there are no significant factual disputes calling for my resolution and this matter is akin to a vendor and purchase summons. The key issue is whether Madam Chow through her solicitors has answered the requisitions of Madam Chau satisfactorily and adequately thereby discharging her duty to show good title.

Background facts

3.  The undisputed background facts can be briefly stated as follows.

4.  Madam Chau as the purchaser of one part and Madam Chow as the vendor of the other part entered into a written provisional agreement for sale and purchase agreement dated 25 October 2018 (“the Provisional Agreement”).

5.  The subject property under the Provisional Agreement is known as All That one equal undivided 78^th part or share of and in ALL THAT piece or parcel of ground registered in the Land Registry as THE REMAINING PORTION OF ABERDEEN INLAND LOT NO. 302 AND THE EXTENSION THERETO (“the Land”) and of and in the messuages erections and buildings thereon now known as Nos. 2-16 Nam Ning Street (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT Car Parking Space No.108 on the Basement of the Building (“the Property”).

6.  The agreed purchase price of the Property was HK$2,000,000.

7.  Upon signing the Provisional Agreement, Madam Chau paid to Madam Chow an initial deposit in the amount of HK$100,000 (“the Initial Deposit”).

8.  Pursuant to the Provisional Agreement, Madam Chau and Madam Chow entered into a written formal agreement for sale and purchase dated 7 November 2018 (“the Formal Agreement”). Madam Chau duly paid a further deposit in the amount of HK$100,000 (“the Further Deposit”) upon signing the Formal Agreement.

9.  It is provided in the Formal Agreement that completion was to take place or before 6 December 2018, 5:00 p.m..

10.  Clause 5(1) of the Formal Agreement further provides that Madam Chow shall prove and give title in accordance with sections 13 and 13A respectively of the Conveyancing and Property Ordinance, Cap.219 (“the CPO”)

11.  The Land was granted by the Government to Hong Kong and Whampoa Dock Company Limited (“the Developer”) being the developer of the Building including the Property subject to the terms and Conditions of Exchange No.10511 (“the Land Grant”).

12.  Special Condition 11 of the Land Grant provides that “A lay-out plan indicating the parking space to be provided within the Land in accordance with Special Condition No.10 and approved by the Building Authority, or a copy of such plan certified by an authorized architect, shall be registered by the grantee in the Land Office. No transaction affecting the Land or any part thereof or any building or part of any building erected or to be erected thereon shall be entered into prior to such registration. The parking spaces indicated on the said approved plan shall not be used for any purposes other than the purpose set out in Special Condition No.10. The grantee shall maintain the parking spaces in accordance with the said approved plan and shall not alter the layout except with the prior written consent of the Director of Public Works.” (“Special Condition 11”).

13.  Clause IV of the Land Grant (“the Clause”) provides,

“That in the event of the said [Grantee] failing or neglecting to observe or comply with any of the terms and conditions of this [Land Grant], the Government shall be entitled to re-enter upon and retain the said old lots and that the rights of the [Grantee] thereunder shall, together with the rights of the [Grantee] under this [Land Grant], absolutely cease and determine but without prejudice to the rights remedies and claims of the [Government] in respect of any breach non-observance or non-performance of the terms and conditions of the said [Government Leases] or of this [Land Grant].”

14.  Clause 9.2 of the Deed of Mutual Covenant and Management Agreement registered in the Land Registry by Memorial No.UB6507515 (“the DMC”) provides that “An Owner shall not be entitled to assign his Unit unless the assignment includes the following covenant (“the Covenant”):-

“The Purchaser hereby acknowledges and confirms the grant of the rights specified in Clause 8 of Section III of [the DMC] dated the [ day of 199 ] to ACIL, ACL and the Company (and their successors or assigns of those rights) and the Purchaser hereby covenants with the Assignors that the Purchaser shall not do or permit anything to be done which will affect the exercise of the said rights by ACIL, ACL and the Company (and their successors and assigns of those rights). The Purchaser hereby appoints ACIL (and its successors and assigns of those rights) acting singly to be its agent and attorney and grants unto ACIL (and its successors and assigns of those rights) the full right power and authority acting singly to do all acts matters and things and to execute and sign seal and as the act of the Purchaser deliver such deed and to sign such documents or instruments as may be necessary for the exercise of or incidental to the exercise of the rights conferred on ACIL, ACL and the Company and their successors and assigns of those rights) as aforesaid…”

15.  By the letter dated 16 November 2018, the solicitors for Madam Chau raised some requisitions. The following two requisitions led to non-completion and hence these proceedings:

“We note that [the Special Condition 11] requires the grantee to register a layout plan to indicate the parking space to be provided within Aberdeen Inland Lot No.302 and obliges the grantee and its successor-in-title to maintain the parking spaces in accordance with the said layout plan. Please let us have the registered layout plan as required under [the Special Condition 11] of Aberdeen Inland Lot No. 302 for our perusal. In this regard, we also refer you to Chen Paul v Lord Energy Limited [1999] 1 HKC 1, [1999] HKLRD 205 (CFA) and paragraph 33.2 of Part VI of Hong Kong Conveyancing Law and Practice Volume 1 (“the Layout Plan Requisition”).

“… We note that the covenants contained in paragraph 3 of the Assignment No.UB6511824 were found missing from the Assignment Memorial No.UB9099179 and there was no mentioning in the said Assignment Memorial No.UB9009179 that the Property were assigned to the purchaser thereof subject to [the DMC]. Further, the Property were wrongly stated in the said Assignment Memorial No.UB9009179 as residential property. Please inform us how you will propose to rectify the errors and submission (“the Missing Covenant Requisition”).

16.  The parties to Assignment No.UB6511824, which was dated 28 December 1995, were the Developer and Koo Po Shan Pall. By the Assignment Memorial No.UB9099179 dated 1 December 2003 (“the Material Assignment”), Koo Po Shan Pall assigned the Property to Wong Wai Kwan who was the predecessor-in-title of Madam Chow.

17.  The substantive answers given by Madam Chow’s solicitors to the Layout Plan Requisition could be found in their reply letters dated 4 December 2018 and 6 December 2018 in the following terms:

“We repeat once more. Certificate of Compliance was issued, all General and Special Conditions were complied with, that means, the Car Park Layout Plan must have been registered. Since there is no registration number in the Land Register, we are unable to provide you with copy.”

“We agree that a Car Park Layout Plan must be produced if it is registered in the Land office which Memorial number to show title. Since there is no such Car Park Layout Plan registered in the Land Office by Memorial Number, we are unable to produce the same. Therefore, we would rely on the Certificate of Compliance.”

18.  As regards the Missing Covenant Requisition, first Madam Chow’s solicitors by their letter dated 19 November 2018 pointed out the following,

“It is trite that covenants do not form part of title, any missing or discrepancies do not affect title.”

19.  Subsequently, in their letters dated 30 November 2018, 4 December 2018 and 6 December 2018, they repeatedly maintained the same stance that the missing of covenants was of personal nature in an assignment and it did not affect the title of the Property.

20.  Madam Chau is of the view that Madam Chow failed to prove and/or give title to the Property in accordance with section 13A of the CPO and so by a letter dated 6 December 2018 (“the Rescission Letter”), she purportedly accepted the repudiation of Madam Chow. Therefore, the sale fell through and there was no completion.

Applicable legal principles

21.  A vendor’s duties relating to the title to his property to be sold are well-established and the parties have no debate in this regard.

22.  A vendor is obliged to show a good title by satisfactorily answering requisitions irrespective of the vendor’s ability to pass/give good title on the date for completion: Chen Paul and Anor. v Lord Energy Ltd [1997] 3 HKC 270 per Le Pichon J (as she then was).

23.  The standard of proof is high and a vendor has to prove beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance: MEPC Ltd v. Christian-Edwards [1981] AC 205 at 220.

The Layout Plan Requisition

24.  I shall first assess the merit of the Layout Plan Requisition and Madam Chow’s answers thereto.

25.  Mr Cheung heavily relies on Chen Paul & Anor. v Lord Energy Ltd (1997-98) 1 HKCFAR 365, which, he submits, are on all fours with the present case.

26.  In Chen Paul, the Court of Appeal dealt with, among other matters, a requisition concerning a carpark layout plan. There, the vendors and the purchaser entered into a provisional agreement for the sale and purchase of a flat and a carpark within a residential development. The “condition of exchange” executed between the Government and the developer included special conditions for the development and maintenance of carparking spaces. The purchaser raised two requisitions. The first requisition was to ask for a certified copy of the letter attaching the registered carpark layout plans. These plans had been registered on the basis that the plans were in accordance with the special conditions. The vendor refused to supply the letter with the plans as it did not affect title.

27.  Li CJ, giving judgment for the Court, said this at p.372C-E,

“In my view, the letter attaching the carpark layout plans was a document which the vendor needed to produce (by way of certified copy) to prove title. … Special condition 17 obliged the developer, and hence its successors in title, to maintain the carpark spaces in accordance with the approved plan and not alter the layout except with the prior consent of the Director. To show good title to the carpark sold, the vendor had to prove by producing the document that it is a carparking space corresponding with the approved plan. If it did not, the carpark sold would be a carparking space provided in breach of the conditions of exchange and Government would be entitled to take action in respect of such breach in which event its use and enjoyment would be affected.”

28.  There are indeed striking similarities with the present case. On this authority, I see no reason why Madam Chau was not entitled to ask for the production of the layout plan.

29.  Here, Madam Chau was contracted to purchase a carparking space and the carparking space must be maintained in accordance with the approval plan pursuant to Special Condition 11. If the Property was not so maintained, Special Condition 11 would be breached and the Government shall be entered to re-enter the Land on the strength of the Clause.

30.  The answers given by Madam Chow’s solicitors to the Layout Plan Requisition are not sound. Their reliance on the Certificate of Compliance is misplaced. Even if the Certificate of Compliance gives rise to an inference that all the positive obligations imposed under the General and Special Conditions of the Land Grant including Special Condition 11 were compiled with to the satisfaction of the Government, it does not mean that the Property has not deviated from the approval plan throughout these few decades.

31.  Sunlink Group (Hong Kong) Co Ltd v Sorrayo Investment Ltd [1999] 2 HKLRD 468, referred to me by Mr Cheung, is a case in point. There, the parties entered into an agreement for the sale and purchase of a property comprising an apartment and a carparking space and the purchaser requested a certified true copy of the carpark layout plans in order to verify that the carparking space was as per the approved plan and that it had not been altered since the certificate of compliance.

32.  Yuen J (as she then was) accepted the validity of the purchaser’s requisition and said this,

“In my view, this was a proper concern. The boundary and layout of carparking spaces are easily changed. An unscrupulous developer or subsequent owner can, if space permits, simply by re-drawing some lines on the ground at any time, squeeze say, three car parking spaces in place of two. That is not to say that it happened in this case.

But it explains why the Purchaser’s concern, to verify that the carparking space it was buying was a carparking space on the approved layout plans, is not answered by the Vendor producing a Certificate of Compliance which only shows that when the Government’s agent inspected the property 7 years ago, the lines on the ground had been correctly drawn. In my view, the Certificate of Compliance is not sufficient prima facie evidence that the Vendor’s title to the car parking space is not defeasible.

My answer to the 1^st issue is therefore, that even though a Certificate of Compliance had been issued for the development, the Vendor still had to prove that the title was not defeasible by supplying the approved carpark layout plans.”

33.  Here, the Certificate of Compliance was issued decades ago. I accept that there is a reasonable concern as to whether the present condition of the Property is still in conformity with the approval plan that satisfied the Government at the time when the Certificate of Compliance was issued. The Layout Plan Requisition is meritorious. On the authority of Sunlink, Madam Chow cannot rely on the Certificate of Compliance to avoid production of the approval plan.

34.  Mr Fung seeks to distinguish the present case from Paul Chen and Sunlink by pointing out that in those two cases, the plans had actually been registered and hence they should be made available to the purchaser. Mr Fung invites my attention to the comment of Li CJ in Paul Chen on the observation of Le Pichon J (as she then was), the trial judge at p.372H:

“Provided this approach is understood to apply to registered instruments that are properly registerable under the Land Registration Ordinance, Capp. 128, I think it is sound.”

35.  Mr Fung highlights that there is no such carpark layout plan registered in the Land Office and the solicitors for Madam Chow has made this clear to Madam Chow. Thus, the answer given by the solicitors for Madam Chow was good enough.

36.  I cannot accept his submission. In Paul Chen and Sunlink, the respective conclusions that the vendors had the duty to produce the carpark layout plans in question were reached not on the basis that they had been registered. On a correct reading of the two judgments, the courts held that the plans had to be produced by reason of the vendors’ duty to show that the titles would not be defeasible due to a possible breach of the special conditions in question.

37.  In the present case, the approval plan prima facie exists pursuant to Special Condition 11. The non-registration of the approval plan, which is already a breach of Special Condition 11, per se is no evidence of the non-existence of the approval plan. The non-registration of the approval plan cannot relieve Madam Chow from her duty to show good title by producing the same. She should make an effort to find out the whereabouts of the approval plan by making enquiries with the authority or the grantee under the Land Grant.

38.  In conclusion, the Layout Plan Requisition is meritorious and Madam Chow, in breach of her duty to show good title, failed to answer this requisition satisfactorily and adequately.

39.  Mr Cheung suggests that if this court finds in favour of Madam Chau in respect of the Layout Plan Requisition, there is no need to consider the Missing Covenant Requisition. His submission is correct. However, I believe that this issue can be disposed of briefly and for completeness, I proceed to make a determination of the same.

The Missing Covenant Requisition

40.  Based on the undisputed that the Covenant was missing from the Material Assignment, Mr Cheung submits that this constitutes a continuing breach of the DMC. He submits that there is a real risk of enforcement by present and/or future owners of the Building, relying on Asia Way International Investments Ltd v Hung Kin Ping, unreported, DCCJ 3911/2011, 13.5.2013.

41.  I cannot accept this submission. The non-inclusion of the Covenant in the Material Assignment cannot possibly be a continuing breach. There is no such breach in the assignment whereby Madam Chow acquired the Property from her predecessor-in-title. Properly advised, Madam Chau would also ensure that the assignment to be executed by the parties should contain the Covenant.

42.  I accept Madam Chow’s solicitors’ answer that the non-inclusion of the Covenant in the Material Assignment does not affect title to the Property. This requisition is unmeritorious in my judgment.

Repudiation

43.  In regard to the counterclaim, Mr Fung complains that Madam Chau failed to perform the Formal Agreement and tender the balance of the purchase price before 5 p.m. on or before 6 December 2018 with time being of the essence. The Rescission Letter only came at 6:05 p.m. on 6 December 2018.

44.  Mr Fung then submits that Madam Chau should complete the transaction before 5:00 p.m. on 6 December 2018 if she had not exercised her right to rescind the Formal Agreement. Mr Fung submits that Madam Chau, thus, repudiated the Formal Agreement and her belated rescission by way of the Rescission Letter could not “exonerate” her failure to complete.

45.  I see no merit in these submissions and cannot accept Mr Fung’s analysis. Madam Chow clearly failed to show and give good title to the Property before the contractual completion time and there was no sign that she would do so. She committed a repudiatory breach of the Formal Agreement and Madam Chau could not be obliged to complete notwithstanding such a fundamental breach in the circumstances.

46.  Such a breach was not remedied and there being no chance of a remedy after the contractual completion time, Madam Chau, of course, was entitled to accept the repudiation of Madam Chow by the Rescission Letter.

47.  In the premises, I find that it was Madam Chow and not Madam Chau who repudiated the Formal Agreement. I reject Madam Chow’s claim for the forfeiture of the Initial Deposit and the Further Deposit (collectively “the Deposits”).

Conclusion and order

48.  For the foregoing reasons, I hold that Madam Chow failed to show and give a good title pursuant to the CPO and in breach of the Formal Agreement. Madam Chau was entitled to rescind the Formal Agreement by the Rescission Letter. Accordingly, I enter judgment against Madam Chow and further dismiss her counterclaim in its entirety.

49.  I am inclined to grant the declaration that Madam Chau was entitled to rescind the Provisional Agreement and the Formal Agreement and an order for the return of the Deposits.

50.  I would also allow interest on the Deposits at the best lending rate of HSBC plus 1% from 6 December 2018 and at judgment rate from date of judgment to payment.

51.  There is no reason why costs should not follow the event. Madam Chow should pay Madam Chau her costs of the action including the counterclaim (including any costs previously reserved) to be taxed if not agreed, with certificate for counsel. This is an order nisi subject to the parties’ application(s) for a variation by summons.

52.  Lastly, I thank Mr Cheung and Mr Fung for their assistance.