PRICE CLUB LTD v. BIZSMART CONSULTANTS LTD

HCMP 556/2019

[2019] HKCFI 2137

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 556 OF 2019

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J U D G M E N T

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INTRODUCTION

1.  This is a vendor-purchaser summons taken out by the Plaintiff (“the Vendor”) against the Defendant (“the Purchaser ”) in respect of the sale and purchase of a property known as ALL THOSE 15 equal undivided 790th parts or shares of and in ALL THAT piece or parcel of ground registered at the Land Registry as NEW KOWLOON INLAND LOT NO. 4411 And of and in the messuages erections and buildings thereon now known as WAH HING INDUSTRIAL MANSIONS No. 36 Tai Yau Street and Nos. 21 - 25 Tseuk Luk Street, Kowloon (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT PENT HOUSE C on the MAIN ROOF of the Building (“the Property”).

2.  The Vendor and the Purchaser signed a formal sale and purchase agreement (“the SPA”) on 10 May 2018, which comprises all the terms agreed between the parties[1]. The scheduled completion date as per the SPA is 28 September 2018. The parties cannot reach an agreement on whether requisition no.2.3 raised by the Purchaser in its solicitors’ letter dated 30 May 2018 (“the Requisition”) has been satisfactorily answered. Due to this difference, the transaction has not been completed as scheduled. The parties have agreed to postpone the completion of the transaction to a time after the determination of these proceedings.

3.  The only issue in these proceedings is whether the Requisition has been satisfactorily answered by the Vendor.

THE REQUISITION AND THE ANSWERS

4.  The gist of the Requisition is whether the transaction as per the SPA is in breach of Clause 6 of the DMC, which prohibits anyone other than an owner of a “Factory Space” from having exclusive use occupation and enjoyment of any portion of the roof of the Building, and from entering into a transaction to sell assign mortgage charge lease or otherwise deal with the same save concurrently with a sale assignment mortgage charge lease or other dealing with a Factory Space within the Building.

5.  The answers provided by the Vendor can be summarized as follows:

(1)  The Property itself is a “Factory Space” by reason of a recital in the DMC.

(2)  The Main Roof on which the Property is built is not a “roof” for the purpose of Clause 6. Only the flat roof of the Building is.

(3)  One of the first parties of the DMC, who must know the DMC the best, assigned the Property in 1981 alone without assigning a “Factory Space” to a third party.

(4)  The Incorporated Owners of the Building (“the IO”) considers the Property a “Factory Space”.

ESSENTIAL FACTS

6.  On 28 July 1965, a Deed of Mutual Covenant (“the DMC”) in respect of the Building was executed by On Hing Investment Company Limited, Nan Kang Company Limited and Ta-Woo Chien as the then owners of the Building.

7.  The following are stated in the recitals in the DMC:

(1)  Recital (2)

“AND WHEREAS there is now constructed on the said premises a flattered building of eleven storeys known as Wah Hing Industrial Mansions (hereinafter called “the said Building”) comprising seventy-nine self-contained factory spaces and a number of parking spaces and certain other spaces.” (Emphasis added)

(2)  Recital (3)

“AND WHEREAS the parties hereto are in possession of or entitled to certain equal undivided seven hundred ninetieth parts or shares in the said premises and the right to the exclusive use occupation and enjoyment of such Factory Spaces Parking Spaces and portions of the main roof within the said Building or upon the said premises as are set against their respective names in the second column of the First Schedule hereto (an each such party is hereinafter referred to as “Owner” and the others of such parties are hereinafter referred to as “other Owners” and all of which parties are hereinafter referred to as “Owners”)” (Emphasis added)

8.  The following clauses in the DMC are relevant in these proceedings:

“1. Each Owner hereby grants unto each of the other Owners full right and privilege to hold and enjoy to the exclusion of all others that those Factory Space(s) and Parking Space(s) and portions of the main roof of the said Building set out in the second column of the First Schedule hereto against their respective names as listed in the first column of such Schedule TO THE INTENT that each Owner shall be entitled to the exclusive use occupation and enjoyment of such part or parts of the said Building consisting of the Factory Space(s) and Parking Space(s) and portions of the main roof so set out against his name as aforesaid together with the appurtenances thereto and the entire rents and profits thereof (and the Factory Space(s) and Parking Space(s) and portions of the main roof to which each Owner is entitled as aforesaid and together with such portions of the roof of the said Building as he may be entitled pursuant to Clause 6 hereof are hereinafter referred to as “Allotted Space”).

6. No person other than an Owner of a factory space within the said Building shall be entitled to the exclusive use occupation and enjoyment of any portion of the roof of the said Building. Any Owner entitled to the exclusive use possession and enjoyment of a portion of the roof of the said Building shall be solely responsible for the maintenance repair and renovation of such portion at his own expense. No person entitled to the exclusive use possession and enjoyment of a portion of the roof may sell assign mortgage charge lease or otherwise deal with the same save concurrently with a sale assignment mortgage charge lease or other dealing with and of a Factory Space with the said Building.” (Emphasis added)

9.  As per the First Schedule to the DMC,

(1)  the Building has 11floors, from G/F to 10/F;

(2)  the number of “Factory Space” expressly mentioned in the First Schedule is 75;

(3)  undivided shares have been allotted to “[t]hose portions of the main Roof of the said Building which extend above the Factory Spaces A, B, C, and D on the Tenth Floor thereof” in the First Schedule;

(4)  if the aforesaid portions of the main Roof are regarded as Factory Spaces, the number of “Factory Space” in the First Schedule would be 79.

10.  The Control Card of the Building shows that there are 79 Factory Spaces in the Building, and the portions of the main Roof mentioned in the First Schedule to the DMC are regarded as Factory Spaces in the Control Card.

11.  On 8 April 1981, the First Owner assigned the Property to an assignee (“the 1981 Assignment”). The Property was described as “Pent House C” in the 1981 Assignment, and is the only property in the said assignment.

12.  The IO, in their letter dated 23 October 2018, certified and confirmed that Pent Houses A, B, C and D on the main roof of the Building are “factory spaces” in their record and that the owner of any of the said Pent Houses A, B, C and D on the main roof is entitled to sell, assign, mortgage, charge, lease or otherwise deal with the same on its own account.

THE PRINCIPLES

13.  It would be useful to first mention the well-known conveyancing case Active Keen Industries Ltd v Fok Chi Keong, in which Litton JA (as he then was) said[2]:

“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. A requisition as to title is not an occasion for the parties' solicitors to bandy propositions of law: each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: although, obviously, if one party can persuade the other to his own point of view on the law, so much the better.”

14.  Good title means that there is no real risk that a third party may assert some right over the property, thereby encumbering it or defeating the title altogether. It is trite that a good title is not a perfect title, free from every possible blemish. In considering whether a good title has been shown, the matter should be approached from the stand-point of a willing vendor and a willing purchaser with reasonably robust commonsense. What has to be borne in mind is the commercial reality, not the seeking of an absolute risk-free assurance[3].

15.  A recital of any fact, matter or party contained in any document of title of more than 15 years before the contract of sale, for the purposes of any question as to proof of title concerning the parties to the contract, unless the contrary is proved, is presumed to be true[4].

16.  In respect of the principles concerning interpretation of a deed of mutual covenants, Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd said[5]:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

ANALYSIS

17.  Ms Kathy Sum, counsel for the Vendor, relies upon the recitals mentioned in the above, submits that the Property is clearly a “factory space” in the context of the DMC. In Ms Sum’s submissions, it is undeniable that there would only be “seventy-nine self-contained factory spaces” in the Building if the 4 units on the main roof are counted as factory spaces. Ms Sum also relies upon the presumption in s.13(4) of the CPO. The DMC is certainly a document of title more than 15 years before the SPA, and hence the presumption applies. There is no evidence showing that the reference “seventy-nine self-contained factory spaces” in Recital (2) is a typographical error or incorrect. Accordingly, it is clear that the Property, i.e. Pent House C mentioned in the 1981 Assignment, is a factory space in the context of the DMC.

18.  Mr David WK Tang (together with Mr Avery Chan), counsel for the Purchaser, submits that “Factory Spaces”, “Parking Spaces” and “portions of the main roof” are mentioned in parallel in Recital (3) and in the First Schedule. That being the case, “Factory Spaces” would not be equivalent to “portions of the main roofs”. Otherwise, there would be no need to mention these 2 different categories of spaces by using 2 different names. In Mr Tang’s submissions, this point is reinforced by the references in the First Schedule to the DMC. In the First Schedule, the 4 specific units on the main roof are described as “portions of the main Roof”, not “factory spaces”.

19.  In my view, the difficulty in Mr Tang’s submissions is that “seventy-nine self-contained factory spaces” is expressly mentioned in Recital (2). There is no evidence showing that this description is incorrect[6]. In particular, I have to mention that the number “seventy-nine” is expressed in English, not in an Arabic number “79”. This makes it extremely difficult to imagine that there is any typographical error in that number. The description “seventy-nine self-contained factory spaces” provides a strong support to the proposition that the 4 units on the main roof are regarded as “factory spaces” in the context of the DMC.

20.  As to Mr Tang’s argument that “Factory Spaces”, “Parking Spaces” and “portions of the main roof” are mentioned in parallel in the Recital (3), and hence “Factory Spaces” and “portions of the main roof” are two different matters, with respect, I am unable to agree.

(1)  In Recital (2), when “seventy-nine self-contained factory spaces” is mentioned, “portions of the main roof” is not mentioned. This again provides support to the proposition that the 4 units on the main roof are included in the expression “seventy-nine self-contained factory spaces”.

(2)  While it is true that “Factory Spaces”, “Parking Spaces” and “portions of the main roof” are mentioned in parallel in the Recital (3), it does not necessarily mean that “Factory Spaces” and “portions of the main roof” must be two different matters.

(a) The presumption that no part of a contractual document should be treated as inoperative or surplus where possible is not a strong presumption in relation to conveyancing documents[7]. In reality, sometimes words in a conveyancing document do not actually convey the message they are intended to convey. An example was mentioned by Lord Hoffmann in Jumbo King[8]:

“This means that the words (for example) “offices on the second floor” must be understood to mean the whole floor and the references to offices merely describes its general use. I quite agree that this is not the normal meaning of the words. It is sloppy draftsmanship. But having regard to all the surrounding circumstances, I have no doubt that it is what the parties intended the words to mean.”

(b) If Mr Tang’s construction is correct, an owner having a unit on a particular floor of the Building and a unit on the main roof, after selling the former (he is at liberty to do so), would not be permitted to continue to have exclusive possession of the latter. That owner would still own some undivided shares in the Building (for he is still the owner of the unit on the main roof), but he cannot continue to have exclusive use occupation and enjoyment of the unit on the main roof, yet at the same time he is still liable to contribute to the management fees, maintenance and repair expenses of the Building, and Government rent and rates. With respect, this is not a construction matching the commercial reality.

(c) The description “seventy-nine self-contained factory spaces” and the Control Card are clearly in support of the construction advanced by the Vendor.

(3)  Taking all these into account, I am unable to agree with Mr Tang.

21.  I have also considered the true meaning of Clause 6 of the DMC. According to Clause 6, it would be possible for an owner of the Building to have “exclusive use occupation and enjoyment of any portion of the roof of the said Building”. If the 4 units on the main roof are not covered in this description, one has to find out the true meaning of Clause 6. In my view, the true meaning of Clause 6 is as follows:

(1)  It is not in dispute that apart from the main roof, the Building has another roof, which may be described as the flat roof. In my view, the term “any portion of the roof” in Clause 6 refers to the area of the flat roof.

(2)  I accept Ms Sum’s submission that in the light of the words “…… the Factory Space(s) and portions of the main roof to which each Owner is entitled as aforesaid and together with such portions of the roof of the said Building as he may be entitled pursuant to Clause 6 hereof are hereinafter referred” in Clause 1 of the DMC, an owner of the unit on the main roof may be entitled to have exclusive possession of the area of the flat roof adjacent to his unit.

(3)  In my view, the purpose of Clause 6 is to ensure that anyone having exclusive occupation and enjoyment of any part of the flat roof should be an owner of a unit of the Building, including a unit on the main roof.

22.  In my view, Clause 6 of the DMC does not hamper the transaction as per the SPA.

23.  Mr Tang also submits that the Vendor has not advanced any “no real risk” argument in correspondence, i.e. even if the transaction is in breach of Clause 6 of the DMC if completed, there is no real risk of having any enforcement action against the Purchaser after completion. The Property is not a common part of the Building, and any owner of the Building, including the owners in the future, may enforce Clause 6 of the DMC. In any event, the IO has only expressed a view that the Property is a Factory Space. It may change its stance and enforce Clause 6 in future.

24.  With respect, I am unable to accept these submissions.

(1)  As said before, whether a good title has been shown depends upon whether there is a real risk that a third party may assert some right over the property, thereby encumbering it or defeating the title altogether. What a vendor has to do is to provide all the facts to the purchaser with total candour, and the purchaser himself would need to decide whether a good title has been shown (i.e. whether there would be any real risk of the title being encumbered or defeated by a third party) based upon those facts.

(2)  The IO has clearly and unequivocally certified and confirmed that all the 4 units on the main roof are “factory spaces” in the DMC. There is no evidence, let alone satisfactory evidence, showing a real risk that the IO may change its mind in future.

(3)  Applying robust common sense and bearing commercial reality in mind, it is difficult to imagine why an owner of another unit in the Building would enforce Clause 6 of the DMC against the owner of the Property. The interest and the liability of the owner of another unit would not be affected by the fact that the owner of the Property does not own a further unit in the Building. There would be no incentive for the owner of another unit to take any enforcement action.

(4)  After all, one has to go back to the basic. A good title is not a perfect title, and there is no absolute risk-free assurance.

(5)  With all these in mind, I am of the view that even if there is any merit in the Purchaser’s construction, based upon the evidence produced by the Vendor, a good title has been shown.

25.  For the sake of completeness, I would briefly mention that what the First Owner has done may or may not be in compliance with the DMC. The meaning of the DMC should be objectively construed and is not dictated by the First Owner. In my view, what the First Owner has done is not a good answer to the Requisition. However, notwithstanding this, for the reasons set out above, I am satisfied that the Requisition has been satisfactorily and sufficiently answered by the other answers provided by the Vendor.

DISPOSITION

26.  I declare that the Vendor has answered satisfactorily and sufficiently the Requisition raised by the Purchaser, and I also declare that the Vendor has shown and proved a good title to the Property in accordance with the SPA. I further order that the SPA be specifically performed. There be liberty to apply. The Vendor shall prepare a draft order in accordance with this judgment and, after seeking the Purchaser’s comments on the same, submit the draft order to the Court for my approval.

27.  The parties have agreed that neither party would seek costs. In the circumstances, I make no order as to costs.

28.  I thank counsel for the assistance rendered to the court.