KOK CHONG HO AND ANOTHER v. DOUBLE VALUE DEVELOPMENTS LTD

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J U D G M E N T

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Clough, J.A.:

1. This is the judgment of the court.

2. This is a purchasers' appeal against the order made by Godfrey J. on the 19th December 1990, on the purchasers' originating summons issued pursuant to section 12 of the Conveyancing and Property Ordinance (Cap. 219), declaring that the defendant vendor had given sufficient answer to the purchasers' requisitions and objections in respect of the property contracted to be sold by the vendor to the purchasers and declaring that the vendor had shown a good title to the property in accordance with the contract. The vendor has filed a respondent's notice contending that the judge's order should be affirmed on additional grounds to which we will return later in this judgment.

3. By an agreement for sale dated the 7th August 1990 the vendor agreed to sell and the purchasers to purchase for a price of $815,000 one equal undivided 54th share in the property comprised in Inland Lot No. 2300 in Hong Kong upon which stands a composite building ("the building") known as Nos. 51 and 53 Seymour Road and Nos. 140, 140A, 142 and 142A Caine Road together with the exclusive right to use, occupy and enjoy all of the ground floor of No. 51 Seymour Road for the residue of the term of 999 years from the 1st September 1857 created by a Crown Lease of the whole property dated the 7th September 1922. In layman's terms the property comprised in the agreement ("the sale premises") was a leasehold flat on the ground floor of No. 51 Seymour Road.

4. A deposit of $108,000 was paid by the purchasers by the date of the Agreement. The date for completion was the 21st August 1990 and time was stipulated to be of the essence of the contract. Nothing turns on the precise wording of any of the conditions in the Agreement which was in a form familiar in Hong Kong.

5. One of the vendor's documents of title was the first assignment of the sale premises made by the original developers of the building, on the 14th June 1980, soon after the building had been erected on Inland Lot No. 2300, the plans ("the approved plans") having been approved by the Building Authority on the 10th May 1980. The difficulty in this case arose from the inconsistency which came to light, due to the vigilance of the purchasers' solicitors, between the occupation permit for the building, which was issued on the 20th May 1980 (and referred only to No. 40 Caine Road), on the one hand and on the other hand the plan of the building ("the Assignment plan") annexed to the first assignment of the sale premises.

6. There were originally two discrepancies which gave rise to requisitions. The first discrepancy, which has been resolved, concerned the numbering of the floors in the building. The occupation permit indicated 10 floors comprising the ground floor and the 1st to 9th floors. The assignment plan (and the approved plans) indicated the same number of floors but comprising the lower ground and ground floors and the 1st to 8th floors. It was accepted by the purchasers when they rescinded the Agreement on the 5th September 1990 that this discrepancy had been resolved. It was, in effect, merely a discrepancy in description of the floors so that, for example, the level shown on the assignment plan as the 3rd floor on the Caine Road side of the building was described as the 4th floor in the occupation permit.

7. The discrepancy which led to these proceedings arose in this way. The building is so constructed that, whereas the Caine Road side has 10 floors, the Seymour Road side has only 7 because that side has no floors corresponding with the first three floors of the Caine Road side (i.e. the lower ground, ground and 1st floors shown on the Caine Road side on the assignment plan). The lowest floor on the Seymour Road side, called the lower ground floor on the assignment plan, is on the same level as the floor described on the Caine Road side on that plan as the 2nd floor. Likewise, the next floor on the Seymour Road side, called the ground floor (where the sale premises flat is situated) on the assignment plan, corresponds with the 3rd floor shown on the Caine Road side on the same plan. This produces the result that on the Seymour Road side of the building the top floor is called the 5th floor on the assignment plan and on the Caine Road side it is called the 8th floor.

8. On the floor below the sale premises flat, i.e. the floor shown on the assignment plan as the lower ground floor on the Seymour Road side and as the second floor on the Caine Road side, a total of six flats are shown on the assignment plan, two of the flats being shown on the Seymour Road side and four on the Caine Road side. The relevant deed of mutual covenant, dated the 14th October 1960, was made in respect of 54 self contained units, including the six flats on this floor. But in the occupation permit the corresponding floor (i.e. the 3rd floor) is indicated as having permission for occupation for the purposes of four flats only. Moreover it was disclosed in the evidence of the vendor's architect, Mr. Ma Kin Tang, in these proceedings that the area occupied by the two flats, shown on the assignment plan as being on the lower ground floor of the Seymour Road side of the building, is shown as "Children's Playground" on the Building Authority's approved plans.

9. The purchaser's solicitors received the occupation permit on the 20th August 1990. On the same day they requisitioned on the two discrepancies between the occupation permit and the assignment plan and (completion being due on the next day) offered to defer completion for two weeks if the vendor required further time. The material part of the letter was as follows:

10. The material part of the vendor's solicitors' reply to this requisition, contained in their letter dated the 21st August 1990 was:

11. The purchasers' solicitors were not satisfied with this reply and said so in their letter of the same date in the following passage (where the reference to the penultimate paragraph of the vendor's letter was to the last paragraph set out above):

12. Completion did not take place on the 21st August. The vendor's solicitors agreed, in their letter dated the 23rd August, to extend the time for completion, as the purchasers had suggested, to enable the vendor's solicitors "to obtain clarification of the Assignment plan concerned from the Architect who signed the same, or from another authorized architect". On the 29th August the vendor's solicitors sent a letter to the purchasers' solicitors setting out a table reconciling the floors mentioned in the occupation permit with those shown on the assignment plan. They seem, at this stage, to have considered erroneously that the purchasers' requisition was concerned with the compliance of the sale premises flat (on the ground floor of No. 51 Seymour Road) with the requirements of the Buildings Ordinance (Cap. 123) rather than the two flats on the lower ground floor of the Seymour Road side of the building, because in their letter they said:

13. The purchasers' solicitors made it clear in their letter of the same date that they were not satisfied and insisted on satisfaction by the 4th September, the extended date for completion. After expressing dissatisfaction with the absence of actual evidence to justify the reconciliation of the floors shown in the occupation permit and the assignment plan they commented:

In reply, on the 30th August, the vendor's solicitors, in their letter of that date, informed the purchasers' solicitors that they had written to the Buildings Ordinance Office for clarification of the points raised by the purchasers' solicitors. The vendor's solicitors enclosed a copy of that letter dated the 29th August, the substance of which was as follows (emphasis supplied):

14. In its letter dated the 4th September the Building Authority replied to the vendor's solicitors' letter as follows (emphasis supplied):

There followed a table reconciling the floors shown on the occupation permit with those shown on the plans approved on the 10th May 1980 under the Buildings Ordinance. From this table it is readily apparent that the floors shown on the approved plans correspond precisely with those shown on the assignment plan.

15. It was not in issue in these proceedings (although the matter had been the subject of some contentious correspondence between the parties solicitors) that the extended date for completion was the 4th September. On the 5th September, the purchasers' solicitors, who had been sent the letter from the Building Authority, sent a letter to the vendor's solicitors acknowledging that the Building Authority's letter had resolved the discrepancy of floor numbering between the occupation permit and the assignment plan, but rescinding the Agreement demanding the return of the purchasers' deposit within three days and threatening proceedings in default. The reasons for this action were given in the following passage in that letter:

16. The vendor not having complied with the purchasers' demand for the return of their deposit they issued their originating summons on the 12th September seeking inter alia declarations that the vendor had not satisfactorily answered their requisitions raised in their solicitors' letter dated the 20th August, that the vendor had failed to show a good title to the sale premises, and that the purchasers had been entitled to annul the Agreement, and an order that the vendor return the purchasers' deposit.

17. In the light of the above matters, which were narrated in the affirmation of one of the purchasers, Mr. Kok Chong Ho, it was affirmed by him inter alia that he had been advised that "the unauthorized structures in the building created a real risk and possibility that the Crown would take enforcement action including but not limited to forfeiture of the Crown Lease and that the Defendant has failed to show a good title to the Property." We mention that in the course of the hearing of the appeal Mr. Merry, counsel for the purchasers, accepted that no question of the forfeiture of the relevant Crown Lease arose.

18. The vendor relied on the affirmation of Mr. Ma Kin Tang, an architect and an authorized person within section 2 of the Buildings Ordinance. He affirmed that he had been asked to advise the vendor's solicitors on two questions, namely whether the two "extra" flats ("the extra flats") on the lower ground floor of the Seymour Road side of the property were unauthorised structures and, if so, whether, as a matter of practice "the Crown would re-enter the entire lot" including the sale premises. However, his evidence also touched on the question of enforcement proceedings in respect of the extra flats. Mr. Ma had examined the approved plans in the office of the Building Authority. He affirmed that the space occupied by the extra flats was shown on the approved plans as "Children's Playground". He had also examined the assignment plan, but he gave no evidence of any inspection by him of the extra flats or of the building in which they were situated.

19. Mr. Ma affirmed it to be his "professional opinion" that "with appropriate planning", the extra flats did not require the approval of the Building Authority and that they were not per se unauthorized structures. This opinion was based upon section 41(3) of the Buildings Ordinance (the substantial but not identical equivalent to section 28(3) of the Buildings Ordinance 1955 which was in force in 1960) which confers exemption from approval by the Building Authority on building works (other than inter alia drainage works) "not involving the structure of any building .... carried out in any building ...." provided that no contravention of any regulation is involved. Mr. Ma also relied on section 41(3A) of the Buildings Ordinance (which confers exemption from the requirement of approval in respect of certain drainage works carried out in or for any existing building) which was not enacted until 1987.

20. Mr. Ma, who had been an authorized person for the purposes of the Buildings Ordinance since 1976, expressed the further opinion, based upon his experience, that, even if the extra flats were unauthorised structures, the most likely enforcement action by the Building Authority would be the service upon "the owner of the offending unit" (i.e. each of the extra flats) of a notice under section 24(1) of the Ordinance requiring him to demolish and remove the offending buildings works. In the event of default by such "owner", Mr. Ma affirmed, section 24(3) would be invoked by "the Government" which would cause "the works" to be carried out by a contractor engaged by Government and recover the costs from the "owner". Mr. Ma gave further evidence, which is not material to this appeal, regarding Government practice in relation to re-entry for breach of a condition in a Crown Lease of Land comprising a building in multi-ownership.

21. The judge commented that Mr. Ma's evidence had not been answered by any evidence on behalf of the purchasers, nor had it been the subject of any notice to cross-examine, but he made it clear that he was not impressed by it, saying that he was far from satisfied that the exemption under section 41(3) applied and expressing doubts about the rest of his evidence, although he does not seem to have referred in terms to Mr. Ma's evidence concerning enforcement proceedings under the Buildings Ordinance as distinct from re-entry by the Crown under the Crown lease. The judge was nevertheless satisfied that the vendor had shown a good title because he considered that the first real issue concerned the degree of risk of enforcement proceedings in relation to the extra flats and on that issue he was satisfied that no real risk was involved. He said (emphasis supplied):

22. After making observations about the onus and standard of proof imposed upon the vendor to show a good title beyond a reasonable doubt the judge concluded that the vendor had discharged that onus, so that the purchaser had failed "on the first issue in the case". He went on to say:

23. On appeal the purchasers seek to reverse the judge's decision on both the issues decided by him. The vendor has filed a respondent's notice contending that the judge's order should be affirmed on the additional grounds that (1) the judge should have accepted Mr. Ma's unchallenged evidence that the exemption provisions under section 41(3) applied and that "re-entry" would be effected on the offending shares and unit only and (2) in any event the judge should, in holding that there was no real risk of enforcement action and that the title was good, have taken into account the exemption provisions of section 41(3).

24. On the hearing of the appeal we had the benefit of wide ranging and able arguments from Mr. Merry and Miss Yuen on benalf of the purchasers and the vendor respectively. However for the purposes of this appeal we do not find it necessary to deal with all the esoteric arguments advanced by counsel, nor do we find it necessary to determine whether the judge was right in holding, on the evidence and arguments before him, that the vendor had shown a good title by satisfying him that there was no real risk of enforcement proceedings by the Building Authority, there being no other objection to the vendor's title. We prefer to express no view on that issue but to assume, without deciding, that the judge was right in his decision, because we are wholly persuaded that he came to the wrong decision on the second issue decided by him - which was the real issue raised in the purchasers' originating summons - namely whether the vendor had satisfactorily answered the requisitions raised by the purchasers' letter dated the 20th August 1990 and whether the vendor had "failed to show a good title", i.e. under the Agreement.

25. As the judge pointed out, it does not matter that the vendor has been held to have a good title if the purchasers' requisitions were never satisfactorily answered. Furthermore this was not a case in which the purchasers contended, before the date for completion, that the vendor did not have and could not obtain a good title before that date. The extended time for completion (under a contract in which time had been made of the essence) had expired when, on the 5th September 1990, the purchasers rescinded on the grounds that the defect in the vendor's title due to the non-approval of the extra flats had not been cleared i.e. that the vendor had failed to give satisfactory answers to the purchasers' requisitions, and to show a good title by the extended date for completion and was thereby in breach of contract: see Re Stone and Saville's Contract [1983] 1 All ER 353 (C.A.). The first two paragraphs in the prayer for relief in the purchasers' originating summons (relating to the relevant requisitions and the failure of the vendor to "show good title") were directed to these breaches. The question whether the vendor actually had a good title, or would have been able to show one subsequent to the extended date for completion, was not raised at all in the originating summons.

26. Mr. Merry was therefore right, in our opinion, to make the judge's decision on the second issued decided by him the first object of attack on behalf of the purchasers. The judge gave no reasons for his decision. He did not refer in his extempore judgment to any of the vendor's solicitors' letters to the purchasers' solicitors subsequent to the vendor's solicitors' initial answer on the 21st August 1990 to the requisitions contained in the purchasers' solicitors' letter dated the 20th August which the judge held to raise a reasonable point. In our opinion the correspondence, the substance of which is set out above in this judgment, demonstrates as Mr. Merry contended, that whilst the purchasers were in their requisitions reasonably (as the judge found) raising the point that the extra flats in the building were "unauthorized" under the Buildings Ordinance, thereby giving rise to the risk of enforcement proceedings under that Ordinance (and re-entry or other action by the Crown under the relevant Crown Lease), the vendor's solicitors consistently denied that the extra flats were "unauthorized" and maintained that they had been the subject of approval by the Building Authority.

27. Thus in their initial answer in their letter dated the 21st August 1990 the vendor's solicitors (who do not appear at this stage to have realised that the requisition was not alleging that the sale premises flat was without Building Authority approval) referred to the assignment plan (which had been certified on the 3rd June 1980 by the architect to whom the occupation permit dated the 20th May 1960 had been sent after the plans had been approved on the 10th May 1980) as having been in their view ".... in fact certified by the authorized architect after the approval by the Building Authority of the Government of Hong Kong..... There is no room for any suspicion on two of the flats/units been erected unauthorized." The rest of the letter was directed to supporting this view (i.e. that approval had been obtained for the extra flats) by reference to the fact that 54 units had been registered in the Land Office and by contending that the data in the occupation permit (which only related to user and was, in any event, inaccurately framed in relation to the description of the building to which it applied) could not be conclusive.

28. The correspondence shows that the purchasers' solicitors never accepted the view of the vendor's solicitors that the extra flats must have been approved by the Building Authority by the time that the authorized architect certified the assignment on the 3rd June 1980. Moreover, when the vendor's solicitors raised the question in their letter dated the 29th August 1990 to the Building Authority, the unequivocal reply in the Authority's letter dated the 4th September 1990 was that "no alteration and addition works have been approved under the Buildings Ordinance subsequent to the issue of" the occupation permit on the 20th May 1960.

29. Accordingly by the 4th September, which was the extended date for completion, it had become abundantly clear that the purchasers' solicitors' inference, from the content of the occupation permit, that the extra flats shown on the assignment plan were "unauthorized", had (whatever may be the strict purpose of an occupation permit) been shown to be justified to the extent that no approval had been granted under the Buildings Ordinance for the extra flats, so that the view of the vendor's solicitors that those flats must have obtained approval had been clearly shown to be unsustainable, notwithstanding the factors relied upon by them in their letter dated the 21st August 1990.

30. At no stage prior to the time for completion on the 4th September 1990 did the vendor's solicitors rely on any evidence in support of exemption under the Buildings Ordinance or on any evidence of practice regarding enforcement of the Buildings Ordinance by the Building Authority. As a matter of law there can be no doubt that section 24 can be enforced by the service of a notice (and subsequent enforcement action) on any joint owner or owner of an undivided share of a building all or part of which has been erected without approval of the Building Authority. Assuming that satisfactory evidence can be obtained from an authorized person or an officer of the Building Authority to establish that the invariable practice of the Building Authority is only to exercise its powers under section 24 of the Ordinance against the owner of a share in a building in "multi-ownership" who has the exclusive right to possession of the offending unit, and that such practice will continue, no such evidence was in fact proffered to the purchasers in this case before completion. Indeed the question of the Building Authority's enforcement practice was never raised by the vendor before the proceedings had begun.

31. Moreover this is not a situation where a shifting of ground is material only as to costs, such as where a vendor has been requisitioned on the efficacy of a document and, having given an answer which is held to be not sustainable at law, has been able to show on a vendor and purchaser summons that the document was effective by relying on another proposition of law. In the present case questions of fact are involved as well as questions of law. By the time the Agreement was rescinded on the 5th September 1990 it was too late for the vendor to rely on any evidence in support of exemption or relating to the enforcement practice of the Building Authority.

32. Miss Yuen very sensibly sought to direct the initial emphasis of her argument towards the first issue decided by the judge, namely whether there was any real risk of enforcement proceedings by the Building Authority which might affect the owner of the sale premises. This was followed by a detailed argument in support of the proposition that the purchasers had failed to show that there was any substance in their requisitions. It was contended that the requisitions had been based on the assumption of unspecified contraventions of the Buildings Ordinance which ignored the presumption of validity and facts evidencing regularity. Upon this proposition that the purchasers' requisitions were in themselves without substance it was contended, in effect, that this had been the answer to those requisitions in the vendor's solicitors' letter dated the 21st August 1990. In her written submissions (paragraph 27) Miss Yuen put the matter in the following terms:

33. This was an ingenious argument but it is not sound because it seeks to evade, by the expression "despite its lack of fluency" the opening passage of the letter in question where the vendor's solicitors said:

Furthermore, as Mr. Merry rightly submitted, by the 4th September any presumption, based on the circumstances relied upon by the vendor's solicitors, that the assignment plan was in accordance with the approved plans, was clearly rebutted by the Building Authority's letter of that date.

34. Accordingly, being unable to discern any sustainable basis for the judge's decision on the real issue actually raised by the purchasers' originating summons we allow this appeal and grant the purchasers the relief sought in their notice of appeal on the footing that the order relating to the costs of the appeal and below be made as an order nisi and that there be a direction for a legal aid taxation of the purchasers' costs.