BUT CHUNG YIN v. BILLION EXTENSION DEVELOPMENT LTD. and Another

No. A6181 of 1992

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiff was the purchaser of a residential property situate at and known as House No. A, Block 8, Stage 1, Marina Cove, Sai Kung, New Territories, which was owned by the 1st Defendant. The 2nd Defendant is and was at the material times an estate agent. On 14 April, 1992 a sale and purchase agreement was entered into between the parties whereby the Plaintiff agreed to buy and the 1st Defendant agreed to sell the property at a price of HK$5,050,000. An initial deposit of $150,000 was paid, but the Plaintiff made no further payment.

2. There were in existence two building orders issued by the Building Authority prior to the signing of the agreement. They were in respect of a number of unauthorized structures which the Plaintiff, as owner, was required to remove and demolish. The first building order was dated 31 August, 1989 and this was superseded or replaced by the second order issued in July, 1991. The latter order specified the following unauthorized structures:

(a) a structure erected in the carport adjacent to the main entrance;

(b) a two-storey structure erected in the courtyard;

(c) a structure erected on the adjacent flat roof at 1st floor level and

(d) a structure erected on the rear roof.

Up to the time of the signing of the agreement, the 1st Defendant had not complied with the requirements of this order to demolish and remove the unauthorized structures and reinstate those parts of the building affected by the unauthorized building works in accordance with plans approved by the Building Authority. There is no dispute that the Plaintiff had knowledge of at least some of the unauthorized structures. He and his sister had inspected the property on two occasions. In the Reply and Defence to the 1st Defendant's Counterclaim filed on 31 October 1992, it was pleaded that "Save that the Plaintiff noticed the structures particularized in paragraph 8(c)(i), (ii) and (iv), paragraph 8(c) is not admitted. Paragraph 8(c) of the Defence of the 1st Defendant is in these terms:

"On divers occasions during the inspections, the attention of the Plaintiff was expressly drawn by Mr. Chan (Edwin Chan) to the existence of various illegal structures as particularized hereunder erected on the said Premises.

Particulars

(i) a two-storey structure erected in the courtyard;

(ii) a structure erected on the adjacent flat roof on the first floor;

(iii) a structure on the rear roof; and

(iv) a structure erected in the carport adjacent to the main entrance."

In other words, what the Plaintiff was not aware was the structure on the rear roof. He must be bound by his own pleadings despite the fact both he and his sister testified that they only saw and were told about (iv). Furthermore, a clause was specifically added to the agreement to the effect that the Plaintiff knew and understood that there were unauthorized structures on the property.

3. It was contended on behalf of the Defendants that the Plaintiff's knowledge of the existence of the unauthorized structures prior to signing the agreement constituted waiver or estoppel. Whether there is waiver or estoppel is a question of fact depending on the extent and effect of the knowledge and its legal consequences. A case in point was Giant River Ltd. v. Asie Marketing Ltd. [1990] 1 HKLR 297. The facts as stated in the headnote were these.

" The Plaintiff purchaser entered into an agreement with the defendant for the sale and purchase of a residential property. A deposit was paid, but no further payment was made, nor did the plaintiff enter into possession, but it repudiated the agreement and sought various declarations from the Court in relation to the agreement, and also the recovery of the deposit, pursuant to s. 12 of The Conveyancing and Property Ordinance (Cap. 219).

The grounds for the plaintiff's repudiation were that the defendant had failed, as it was required to by an express term of the agreement, to adduce good title to the property, by virtue of the existence of extensive structures forming part of the property which were not authorised by the Building Authority. The defendant by counterclaim sought declarations inter alia that it had adduced good title, and that the plaintiff had forfeited the deposit by reason of its failure to complete.

An express term of the agreement that was any requisition or objection in respect of the title should be made within 14 days of the delivery of the title deeds. The existence of certain of the unauthorised structures was known to the plaintiff prior to the execution of the agreement for sale and purchase, and the defendant had expressly informed the plaintiff of the illegality of these structures shortly after the execution of the agreement.

The existence of other unauthorized structures was known to the defendant but was not communicated to the plaintiff, other parts of the structures were also unauthorised although this was known to neither of the parties at the time of making their agreement.

It was argued on behalf of the plaintiff that the existence of the unauthorised structures with the consequent risk of enforcement action being taken by the Crown constituted a defect in title by reason of which the plaintiff was entitled to avoid the contract, and, that the defendant had failed in its duty to make full and frank disclosure of any defect in title. For the defendant it was submitted that the plaintiff had knowledge of the illegal structures giving rise to the defect in the title, and that in any event the plaintiff had by conduct affirmed the agreement following the disclosure by the defendant of the existence of structures having an adverse effect on title thereby waiving any entitlement to further full and frank disclosure by the plaintiff."

It was held by Deputy High Court Judge Cruden that:

"1. The defendant had failed to show a good title to the plaintiff by virtue of the practical and real risk of the Crown taking enforcement action in relation to the unauthorised structures.

2. A requisition going to the root of the title will not be excluded by a condition purporting to limit the time for making the requisition.

3. Mere knowledge of the existence of some of the unauthorized structures does not of itself operate to modify a contractual term. Before a purchaser's knowledge of the facts can prejudice his position he must also be aware of the legal consequences of those facts, and even this knowledge would not reduce the obligation of the vendor to show a good title on the date for completion.

4. Disclosure by the defendant and acts of affirmation by the plaintiff made with knowledge of their legal consequences were necessary to establish a waiver by the plaintiff. On the facts, no such waiver was established."

He granted the declarations sought by the purchaser and ordered the return of the deposit. In his judgment, the deputy judge examined the various aspects of law in considerable detail with care and skill. I agree with his reasons and the route by which he arrived at them.

4. Although both the Plaintiff and his sister had come to know of the existence of some unauthorized structures, they said that they were told by Mr. Edwin Chan to ignore them because the Management Office would not take action. Mr. Edwin Chan was the employee of the 2nd Defendant who dealt with this particular transaction. I accept this evidence in the absence of evidence coming from Mr. Edwin Chan who has conveniently chosen to disappear. In relation to the facts, I also find that Miss Karen Lee, an employee of the 1st Defendant, faxed the building orders to Mr. Edwin Chan at the latter's request before the signing of the agreement. I further find that neither Mr. Edwin Chan nor anyone from the 2nd Defendant had passed on or communicated the two building orders to the Plaintiff. I do not accept the evidence of Mr. Law Kwok On on this aspect. His evidence was full of contradictions. I prefer the evidence of Miss Karen Lee that Mr. Law did not speak to her on the phone and did not ask her for the building orders. It was Mr. Edwin Chan who did. But this vital witness did not give evidence.

5. The building orders were material and important factors that would influence the decision of the Plaintiff whether to proceed with the transaction or not. It is one thing that the purchaser knew of some unauthorized structures. But it is quite another that building orders had been issued and enforcement action was to be taken if the orders were not complied with. No one wants to buy a flat or house knowing that he will have a massive amount of demolition and reinstatement work to do the moment he buys it or to face enforcement action. In the circumstances, the Plaintiff was entitled to raise requisitions on these two building orders which he said that he knew nothing about until after his solicitors informed him of them after signing the agreement. I accept his evidence. I find that a good title has not been shown.

6. It was submitted on behalf of the Plaintiff that the 2nd Defendant was not acting as an agent of the Plaintiff. Counsel for the 1st Defendant, on the other hand, submitted that a relationship of agency existed. For the 2nd Defendant, it was contended that estate agents in Hong Kong acting for both the vendor and purchaser is in the position of a mere broker or middleman. In Cheng Kwok Fai v. Miu Yiu Wah, Peter & Another [1990] 2 HKLR 440, Godfrey J. (as he then was) had this to say:-

"But was the misrepresentation made on the vendor's behalf? In my judgment, it was not. An agent in the property market in Hong Kong is not, as it seems to me, in quite the same position as an estate agent in England and Wales (as to this, in relation to misrepresentation by an estate agent, see Mullens v. Miller (1882) 22 Ch D 194). An agent in Hong Kong acts as a broker, usually, though not always, taking "commission" from both vendor and purchaser."

This passage is clearly obiter because he went on to say:

"Io doubt, in some cases even in Hong Kong, a misrepresentation made by an agent to a purchaser will, on the facts, be held to have been made on the vendor's behalf. But I am now concerned only with the facts of the present case."

7. The purchaser's claim was based on misrepresentation and the facts were not dissimilar from the present one. Godfrey J. dismissed the claim for rescission of the agreement, refund of deposit and other reliefs on the ground that Clause 20 of the agreement precludes the purchaser from relying on the misrepresentation. But he went on to say at the end of the judgment:-

"Had I taken a different view, I would have declared that the purchaser was entitled to rescind the agreement and to the other relief which he claims as mentioned at the outset of this judgment. But as it is, I must dismiss the action."

8. In this case, there is no Clause 20. On the facts, it is sufficient for me to hold and I do hold that the 2nd Defendant was acting as the agent of the 1st Defendant. The 2nd Defendant received the building orders by facsimile before the signing of the agreement and had failed to bring this to the attention of the Plaintiff. Therefore the 1st Defendant had failed to prove a good title through the neglect or omission of their agent to disclose the building orders. A principal is liable for the acts of his agent. Correspondingly, the agent is answerable to the principal for his wrongful acts, neglect or omission.

9. Accordingly, I would give judgment for the Plaintiff against the 1st Defendant for the declarations and other reliefs as claimed. The counterclaims by the 1st and 2nd Defendants are dismissed. There would be an Order Nisi for costs in favour of the Plaintiff against both Defendants. The 1st Defendant is entitled to indemnity against the 2nd Defendant and be so indemnified for loss and damages in terms of the Third Party Notice. I so order.