MILLION GENIUS LTD v. CHEERBOND DEVELOPMENT LTD

HCMP864/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 864 OF 2010

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J U D G M E N T

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1. This is a vendor-purchaser summons taken out by the plaintiff, being the purchaser, by way of Originating Summons seeking, inter alia, declarations that :

(a)  requisitions of the plaintiff have not been sufficiently answered by the defendant;

(b) good title to the property in question have not been shown by the defendant; and

(c) the plaintiff be entitled to rescind and/or cancel the agreement in question;

and other consequential orders and reliefs as contained in the Originating Summons.

Introduction

2. By a Provisional Agreement for Sale and Purchase dated 8 January 2010 (“the Agreement”) entered into between the plaintiff and the defendant, the plaintiff agreed to purchase and the defendant agreed to sell the property known as Ground Floor, 874 Canton Road, Kowloon (“the Property”) at the price of HK$5,030,000.

3. Pursuant to the Agreement, the plaintiff paid an initial deposit of $330,000 on 8 January and a further deposit of $173,000 on 20 January 2010.

4. Under the Agreement, a formal agreement was to be entered into between the parties on 21 January 2010 and the completion date was scheduled for 29 March 2010 when the balance of the purchase price fell due and payable.

5. As matters transpired, the completion date was subsequently extended by agreement to 9 April 2010 to allow for more time in view of the requisitions raised by the plaintiff.

6. Requisitions were first raised by the plaintiff’s solicitors by letter dated 29 January 2010.

7. The defendant’s then solicitors, Messrs N.K. Tsang & Co. purported to answer the requisitions raised by the plaintiff by letters dated 25 February, 16 March and 26 March 2010.

8. Completion did not take place, neither on the original date set for completion nor on the extended time for completion.  (It should also be noted that at no time was any formal agreement entered into between the parties as was contemplated by the Agreement.)

9. Subsequent to the extended completion date, and no completion having taken place, the defendant’s solicitors, by letter dated 10 April, gave notice to the plaintiff of the defendant’s intention to rescind the Agreement and to forfeit the deposits paid due to the plaintiff’s breach of the Agreement by failing to complete.

10. By letter of 12 April, the plaintiff’s solicitors demanded the return of the deposit from the defendant on the basis that the defendant had failed to sufficiently answer the requisitions raised by the plaintiff and had therefore failed to show or prove good title to the Property.

11. As a result, the Originating Summons herein was taken out by the plaintiff.

Issues in dispute

12. Initially as appears from the skeleton submission lodged with court by the plaintiff, two issues were identified as being in dispute.  These two issues were encompassed in requisitions 3, 4 and 5 raised by the plaintiff in the plaintiff’s solicitor’s letter dated 29 January 2010.

13. However, at the hearing, counsel for the plaintiff indicated that the plaintiff no longer relied on the issue contained in requisition 3 of the said letter, but would only proceed on requisitions 4 and 5 (which in effect relates to only one issue).

14. This judgment therefore only deals with that one issue raised by the plaintiff in requisitions 4 and 5 of the said letter.

Relevant historical and conveyancing background

15. There is no factual dispute between the parties as to the relevant background concerning the disputed issue and which is as follows.

16. The Property is the ground floor of a four storey building which stands on the piece of land more particularly described in the Land Office as the Remaining Portion of Subsection 1 of Section A of Kowloon Inland Lot No. 1099 (“the Land”).

17. By an assignment dated 31 July 1954, the Land “together with the messuage erections and building thereon” (i.e. the entire building standing on the Land) was assigned to one Woo Leung.  This assignment was registered in the Land Office by Memorial No. 227903 on 28 August 1954.

18. By another assignment dated 14 March 1955, Woo Leung assigned the Property to Ko Chat, Ko Hong and Ko Kong as tenants in common in equal shares.  This assignment was also registered in the Land Office by Memorial No. 233624 on 22 March 1955.   In this assignment, the Property is described and denoted as “one equal undivided fourth part or share of and in The Remaining Portion of Subsection One of Section A of Kowloon Inland Lot No. 1099.”

19. A Deed of Mutual Covenant relating to the Land and dated 31 May 1955 was registered in the Land Office by Memorial No. 235782 (“the DMC”).  In the preamble of the DMC, it describes the parties to the DMC to be “in possession of or otherwise entitled to the Land and the appurtenances thereto as tenants in common in equal shares”.  It is also stated in the DMC that the parties thereto have entered into the DMC for “the management control and better enjoyment of the building now standing or to be built on the Land”.

20. In the Schedule to the DMC, the parties to the DMC are more particularly described as being respectively the owners of the ground floor, the first floor, the second floor and the third floor of the building standing on the Land.

21. In the Land Search record from the Land Office, the defendant is shown as the registered owner of the Property by reason of an assignment to it of same dated 20 January 2010 and which was registered in the Land Office on 2 February 2010.

Requisitions 4 and 5 and defendant’s answers thereto

22. Requisitions 4 and 5 in the letter from the plaintiff’s solicitors dated 29 January 2010 was stated in the following terms :

(4) The description of the property was firstly referred to in the Assignment Memorial No. 233624 as: ‘THE REMAINING PORTION OF SUBSECTION ONE OF SECTION A OF KOWLOON INLAND LOT NUMBER ONE THOUSAND AND NINETY NINE as is more particularly delineated in the Land Office by Memorial No. 227903 and thereon coloured Pink and Blue Together with the messuage erections and building thereon known at the date hereof as No. 874, Canton Road as well as the exclusive right to the use occupation and enjoyment of the GROUND FLOOR’.  There is no plan or division or notional share in respect of the property, that is, ground floor.  Though the only record which shows that there had been erection of the entire land Lot was a four storey buildings, still, there is no division of notional share, there is no plan regarding the property (bearing in mind that the wording ‘more particularly delineated on a plan’ was used, and, more important, the Deed of Mutual Covenant was dated two months after this Assignment. Please comment;

(5) It does appear that the notional share of the property was ¼ share in the Lot.  However, there is no evidence to substantiate that the property was notionally divided into such manner.  Kindly provide us evidence as to the manner of how the property was notionally divided;”

23. By letter dated 25 February 2010, Messrs N.K. Tsang & Co., the solicitors then acting for the defendant answered requisitions 4 and 5 as follows :

“4. We stress that it had been expressly stated in the Assignment Memorial No. UB233624 that the property assigned was the Ground Floor of N0. 874 Canton Road.  The subsequent Deed of Mutual Covenant also clarified in the Schedule thereto how different floors of the said building were owned by different owners.

5.   Please be referred to Assignment Memorial No. UB233624 and Deed of Mutual Covenant Memorial No. UB235782.  No doubt the said property occupies ¼ share of the said lot.”

24. By letter dated 3 March 2010, the plaintiff’s solicitors wrote back as follows :

4.   We agree that in the Assignment, there has been mention of the undivided share, still, we do not how [sic] and on what grounds that the undivided share divided in this manner.  The first mention is the Assignment and there is no confirmation at all in the Deed of Covenant [sic].  In fact we have attempted to obtain from the Land Registry the Control Card to ascertain the division of undivided shares but we are unable to obtain the same.  In the circumstances, we hope that you could appreciate the significance of the notion of undivided shares and we see doubt as to how ¼ undivided share came from and insist on our requisition to clarify how the undivided shares are set in this manner;”

25. This drew the following reply from Messrs N.K. Tsang & Co. their letter dated 16 March 2010 which stated as follows :

4.   It was expressly stated in Assignment Memorial No. UB233624 that one equal undivided fourth part or share of and in The Remaining Portion of Subsection One of Section A of Kowloon Inland Lot No. 1099 stood for the Ground Floor of No. 874 Canton Road.  Your said requisition is therefore totally misconceived.  Without prejudice to the aforesaid and solely as a matter of good gesture, we enclose herewith copy of the Control Card of No. 874 Canton Road for your reference.”

26. Nothing further of significance relating to this requisition emerged from the subsequent correspondence between the plaintiff’s solicitors and Messrs N.K. Tsang & Co. since the plaintiff’s solicitors took the view that their requisitions had not been answered but that the stance taken by Messrs N.K. Tsang & Co. was that the plaintiff’s requisitions 4 and 5 had been satisfactorily answered by them.

Contention of the plaintiff

27. The plaintiff’s complaint started off on the footing that the conveyancing deed and instruments do not show how the notional division of ¼ undivided share of the Land being assigned to the Property came about since when the entire building standing on the Land was acquired by Woo Leung there was no notional division of the Land in that assignment, registered by Memorial No. 227903.  However, when the Property (being only the ground floor of 874 Canton Road) was assigned to Ko Chat, Ko Hong and Ko Kong, that assignment registered in the Land Office by Memorial No. 233624 showed that the Property was notionally divided as being an undivided one fourth part or share of the Land.

28. The query by the plaintiff in requisitions 4 and 5 has always been how did that notional division come about since that was not shown in any of the conveyancing deed or documents.  The plaintiff further says that this query of the plaintiff’s was never answered by the defendant since the defendant’s answer goes only as far as saying that in the assignment of the Property to Ko Chat, Ko Hong and Ko Kong (Memorial No. 233624) the Property was denoted to be a one fourth share of the Land, but not as to how it came about.

29. The plaintiff relies on the judgment of Le Pichon JA in the case of Yip Ngan Yee & anr v Chan Tsz Yam & anr [2001] 2 HKC 81 to the effect that such a requisition asking to be told how a notional division of the land in question came about to be a proper requisition and ought to be answered.

Decision

30. From the conveyancing records, Woo Leung became the registered owner of the entire building standing on the Land in August 1954.

31. There are no deeds or conveyancing documents before the court to show what Woo Leung did with the first floor, the second floor or the third floor of the building standing on the Land.

32. However, looking at the DMC which was dated May 1955 it would appear that between August 1954 and May 1955, Woo Leung had subdivided the four different storeys of the building and sold off each of the ground, first, second and third floor to different parties or entities, the ground floor being the Property being assigned to Ko Chat, Ko Hong and Ko Kong jointly as tenants in common by the assignment dated 14 March 1955.

33. The Schedule to the DMC lists the owners respectively of the ground, first, second and third floors of the building standing on the Land, and each of those respective owners were parties to the DMC.

34. One of the preamble in the DMC states as follows :

“WHEREAS the parties hereto are in possession of or otherwise entitled to All That piece or parcel of ground situate lying and being at Kowloon in the said Colony of Hong Kong and registered in the Land Office as The Remaining Portion of Subsection 1 of Section A of Kowloon Inland Lot No. 1099 and the appurtenances thereto (hereinafter referred to as ‘the said premises’) as Tenants in Common in equal shares.  [Emphasis added]

35. Given that the schedule to the DMC list out the respective owners of the ground, first, second and third floors of the building, all of whom were parties to the DMC and that the preamble referred to above recites that they hold the Land and the appurtenances thereto in equal shares, the only inference which can be drawn must be that the respective owners of the four storeys of that building must have agreed inter se to the notional division of each of the four floors being a ¼ equal undivided share of the Land.

36. Moreover, having executed the DMC with what is stated therein, the parties thereto and their assigns thereafter will be bound by its contents.

37. This therefore answered the query raised by the plaintiff in its requisitions 4 and 5.

38. That much was conceded by counsel for the plaintiff at the hearing of this matter.

39. However, the further contention by the plaintiff was that since no mention was made by the defendant’s then solicitors to what was stated in the preamble to the DMC when the defendant purported to answer requisitions 4 and 5, it follows that the defendant had not sufficiently answered the requisitions raised.

40. I cannot agree with that contention of the plaintiff for the following reasons.

41. First, the plaintiff relies on the judgment in Yip Ngan Yee v Chan Tsz Yam.

42. That case involved the sale between the parties of one (out of nine) shops on the first floor of Cheong Wing Building.  The occupation permit and the deed of mutual covenant referred to only one shop on the first floor to which 6 of 85 undivided parts or shares in the building were allocated.  It would appear therefore that the nine shops on the first floor was a later subdivision of the first floor. However, there were no documents which showed how the 6 of the 85 equal undivided parts or shares were allocated among the nine shop units of the first floor.  In those circumstances, the Court of Appeal held that the requisition raised by the purchasers concerning the allocation of shares to the property was a proper requisition which had not be answered by the vendor.

43. The facts of that case are clearly distinguishable from the present case.  In the present case, the answer as to how the division of a ¼ undivided share to the Property is clear and apparent from what is stated in the DMC.

44. Not only is the answer apparent from a complete reading of the DMC, but also that the DMC had been supplied to the plaintiff’s solicitors as part of the proof of title.  Therefore if the plaintiff’s solicitors had taken the trouble to look at what was stated in the DMC including the preamble, the answer to their requisitions 4 and 5 must have been clearly apparent to them.

45. In those circumstances, can the plaintiff now contend that it was for the defendant to sufficiently answer requisitions 4 and 5 by pointing out the preamble in the DMC, when they were in as good a position to obtain that answer themselves from the documents provided.

46. In Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396, Litton JA had this to say at page 406 :

“But assume the objection to have no substance.  In such a case, as Godfrey J remarked, this presents considerable difficulties.  Is it enough for the vendor to say: ‘there is no substance in the purchaser’s objection’?  The judge answered this question as follows:

‘If there is nothing the vendor can usefully add, I would hold that it is enough…’ [A proposed answer was put forward to deal with the facts of that case.]

In my judgment the judge’s approach must in principle be correct. If the matter was self-evident, the purchaser’s solicitor cannot insist upon a fuller reply.  But the vendor’s solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed.”

47. This proposition of the law has been followed by Chung J in the case of Excel Wood Limited v Charmed Investments Limited (HCMP No. 4130 of 1997) where he said in paragraph 4 of his judgment :

“… At one extreme is a requisition for which the answer is so self-evident, or clearly related to non-existing difficulties, that it need not be answered. …”

48. Applying this proposition of law to the present case, I cannot see how the plaintiff’s solicitors can insist on a fuller reply than what has been given in answer by the defendant’s solicitors.  Despite the fact that in that answer by the defendant’s solicitors, reference had not been made to the preamble to the DMC by the defendant’s solicitors, the DMC had been supplied to the plaintiff’s solicitors as part of the documents to prove title and also that the answer given had made reference to the DMC itself, in particular to the schedule thereto.  Therefore on a reasonable reading of the DMC, the plaintiff’s solicitors ought to have found the answer themselves.

49. In those circumstances, I come to the conclusion that the objection raised by the plaintiff in requisitions 4 and 5 was not a requisition which was properly raised since it was self-evident from the DMC supplied to them and furthermore, the plaintiff could not insist on anything more than the answer given to them by the defendant.

50. For the above reasons, the plaintiff’s application by its Originating Summons must be dismissed.

51. The parties having accepted that costs in relation to this application ought to follow the event, there will be a costs order that the defendant would be entitled to the costs of the Originating Summons to be taxed if not agreed.