WONG WAI YIP v. HO WAI FUNG

DCMP2221/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO.2221 OF 2015

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DECISION

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1.  Before the court is a vendor and purchaser summons taken out by the Plaintiff pursuant to s.12 of the Conveyancing and Property Ordinance, Cap.219, by which the Plaintiff, the purchaser of the property in question, seeks among others declarations that (a) the Defendant’s title to the property is defective, and (b) the Defendant has failed to prove a good title to the property.

The Property

2.  The property in question is “all that one equal undivided 90^th part or share of and in all that piece or parcel of ground registered in the Land Registry as Kowloon Inland Lot No.6704 and of and in the messuages erections and buildings thereon known at the date hereof as Fu On Mansion together with the sole and exclusive right and privilege to hold use occupy and enjoy all those portion of Shop E1 on the ground floor of the said Fu On Mansion (“Shop E1 or“the Property”)

Jurisdictional Issues

3.  As the ratable value of the property is not stated in any of the court documents, at the beginning of the hearing I invited counsel to produce proof that the matter is within the jurisdiction of the District Court. After a short adjournment, counsel informed me that the ratable value of the Property, as revealed in an online search which counsel had just conducted, was around $33,000. On such evidence, I am satisfied that the present matter is within the jurisdiction of the District Court by virtue of section 36 of the District Court Ordinance, Cap. 336.

4.  Section 12(2) of the Conveyancing and Property Ordinance provides that if the parties submit to the jurisdiction of the District Court, the District Court can deal with a vendor and purchaser summons. In this case, although the parties have not expressly submitted to the jurisdiction of this court, by taking part in these proceedings without taking any jurisdictional issue, they are taken to have impliedly submitted to the jurisdiction of this court.

The Sale and Purchase Agreement

5.  By a sale and purchase agreement dated 18 March 2015 (“the Agreement”), the Defendant agreed to sell and the Plaintiff agreed to purchase the Property at the price of HK$3,750,000.

6.  The Agreement contained the following terms and conditions which are material to the present proceedings: -

“(1) Clause 3(1) – Completion shall take place on or before the 29 May 2015 ...;

(2) Clause 11 – The Purchaser is purchasing the Property on an “as is” basis;

(4) Clause 16(1) - Any requisitions or objection in respect of the title of the Property shall be delivered in writing to the Vendor’s solicitors within 7 working days after the date of receipt of the title deeds by the Purchaser’s solicitors otherwise the same shall be considered as waived and the Purchaser shall be deemed to have accepted the Vendor’s title to the Property (in this respect time shall be of essence of this Agreement) and any further requisition or objection previously raised by the Purchaser shall be delivered to the Vendor’s solicitors within seven working days after the date of receipt of such reply from the Vendor’s solicitors (in this respect time shall be of essence of this Agreement), failing which the Purchaser shall be deemed to have accepted the Vendor’s title.”

The Requisitions and Answers

7.  On 10 March 2015, the Defendant’s solicitors delivered the title documents to the Plaintiff’s solicitors. Among the documents delivered to the Plaintiff’s solicitors were the occupation permit dated 24 November 1958 (“the Occupation Permit”) and assignment dated 10 December 1958 (“the 1^st Assignment”).

8.  The Occupation Permit provided that: -

“Permission is hereby granted to occupy and use the building for the purpose stated hereunder.

Ground floor (front portion) 5 shops for non-domestic use.

Ground floor (rear portion) 3 tenements for domestic use”

9.  Eight “Flats” were shown in the plan annexed to the 1^st Assignment. It is common ground that the five flats on the side Tung Chau Street (which were respectively marked as Flat A to Flat E) were the five shops for non-domestic use referred to in the Occupation Permit. Flat A therefore is an interchangeable reference for Shop A, Flat B for Shop B, and so forth.  A V-shaped area opposite to Shop E, which was neither marked as a flat nor a shop but identified on the plan by a patch of pink, was assigned to the assignee as Shop E1 under the 1^st Assignment.  Shop E1, the sixth shop on the ground floor, is the subject of these proceedings.

10.  Hence, while the Occupation Permit gave permission for non-domestic use of five of the eight units on the ground floor, the 1^st Assignment referred to six shops. Naturally, the Plaintiff’s solicitors were concerned about the discrepancy. Not knowing how Shop E1 came about, the Plaintiff’s solicitors sought clarification from the Defendant’s solicitors.

11.  By a letter dated 16 March 2015, the Plaintiff’s solicitors raised five requisitions. For the purposes of the present proceedings, the following requisition is relevant: -

“1. We note in the plan annexed to [the 1^st Assignment] that Shops A-E and E1 of the above property are total 6 shops. In the [Occupation Permit], we note that the shop stated in the said Occupation Permit was ‘Ground Floor (front portion) 5 shops for non-domestic use’. Please clarify.”

(“the Requisition”)

12.  The Defendant’s solicitors replied: -

“1. Please note that the Plan annexed in [the 1^st Assignment] has been certified by the Architects, it is sufficient to prove that the subdivision of the Ground floor into 6 shops did not contravene the provisions of the Buildings Ordinance.

Taking into consideration that there are some 57 years after the existing of the said property of the building, no enforcement action by the building Authority since then. Furthermore, there are some orders registered against the property at the Land Registry issued by the Building Authority. It is most likely that the Building Authority had acknowledged the said property. In view of the aforesaid, the said property have existed for 57 years, even may be a theoretical possibility of proceedings being taken for enforcement by the government (the fact is never), the possibility is so remote and unlikely. Please see Kok Chong Ho v Double Value Development Ltd (1990) MP No.2857/90. Therefore, there is no real risk of enforcement action being taken by the Buildings Authority or any other competent authority which will affect the title of the said property. Please see Active Keen Industries Limited v Fok Chi Keung (1992) MP No.3762, Civ App no.42/93.

13.  The Plaintiff’s solicitors did not accept the reply of the Defendant’s solicitors. In a letter dated 21 May 2015, they referred to an approved building plan dated 14 January 1958 (“the Approved Building Plan”) and raised further objection (“the Further Objection”) as follows:-

“In view of the fact that [the 1st Assignment was made after the issuance of the Occupation Permit, the plan annexed to the 1^st Assignment] was not approved by the Building Authority or there is no evidence to prove such plan has been approved by the Building Authority. The discrepancy between the O.P. and the Assignment Plan indicates that the [Property] contravenes the Buildings Ordinance and the Buildings Regulations and such contravention would be an encumbrance affecting the Vendor’s title and render the Vendor’s title defective.

We have obtained [the Approved Building Plan which shows] that the Vendor’s property does not belong to the 5 numbers of the Ground Floor Shops (front portion) for non-domestic (use) indicated in the Approved Building Plan or [the Occupation Permit] and therefore legally could not be used as a shop. A copy of the Approved Building Plan is enclosed herewith for your information and perusal. In brief, the Vendor’s property was unauthorised structure or building works in contravention of Building Ordinance or Building Regulations and therefore subject to the enforcement power of the Building Authority under section 24(1) of the Building Ordinance (Authority: Giant River v Asie Marketing Ltd. (1990) HKLR 297).

...

(b) We do not agree with your view that “there are some orders registered against the property at the Land Registry issued by the Building Authority” save and except a recent order dated 24-09-2013 under Section 24(1) of the Buildings Ordinance issued by the Buildings Authority registered in the Land Registry by Memorial No.13100707090087. There are, in fact, other orders issued by the Buildings Authority ... We draw your attention that the orders were not exclusively related to the Vendor’s property but related to the common parts or other flats or units of Fu On Mansion, Kowloon for which the Vendor’s property forms part of. In the circumstances, your allegation that the Building Authority had acknowledged the existence of the Vendor’s property for 57 years is NOT justified and incorrect.”

14.  In reply to the Plaintiff’s letter of 21 May 2015, the Defendant’s solicitors wrote, in a letter dated 22 May 2015: -

“1.   The Property designated as Ship E1 is shown on the Assignment Plan. It was there in the Building Plan although the name “Shop E1” was not shown there.

2.   The Property is designated as Shop E1 because the Property was assigned together with Shop E in the same Assignment and the 2 Property were/are separated by a corridor. Shop E1 is only the name given to the Property but it is not meant to be used as a Shop and it had never been so used. However, it had been used as a Management Office.

...

3.   In suggesting the Property is not meant to be used as shop, it does not follow that the Property cannot be so used. Your attention is invited to Section B of a “To Whom It May Concern” letter signed by Wong Kim-Wing, HKIA AP registered Architect which reads “... change of usage not constituting “material change” under Section 25 ... are permissible and do not jeopardize the validity of the Occupation Permit.”

15.  In plain words, the Defendant’s solicitors were saying that their client was not selling a “shop”.  He was merely selling an area which, designated and previously used as a management office though, could be used as a shop.

16.  The Plaintiff’s solicitors did not accept the answer to the Requisition and considered that the Defendant had failed to prove his title to the Property. The Plaintiff then commenced the present action for the return of the deposit.

The Plaintiff’s case

17.  The Plaintiff’s case is that (a) the Defendant’s title to the Property is defective, and (b) the Defendant has failed to answer the Requisition satisfactorily and therefore failed to prove his title. In support of his case, the Plaintiff has adduced an expert report prepared by MC Property Limited. According to the Plaintiff’s expert, Shop E1, which does not belong to any of the five shops referred to in the Occupation Permit, comprises part of the lobby, a space marked as “Care Takers” and part of the area marked as “the Yard” (“collectively referred to as “the Converted Areas”). The conversion of the Converted Areas into Shop E1 constitutes:-

(1)   a material change in use within the meaning of section 25 of the Buildings Ordinance, Cap.123;

(2)   conversion of “domestic areas/non-accountable areas” into “non-domestic areas”;

(3)   intervention of lighting and ventilation of the adjacent Flat F on the ground floor.

18.  The Plaintiff’s expert concludes that Shop E1, not being the result of any exempted building work, is an unauthorised structure and subject to enforcement action by the Building Authority.

The Defendant’s Case

19.  The Defendant contends at the hearing of the vendor and purchaser summons that the Requisition is imprecise and therefore ineffective. In any event, even if the Requisition is precise enough for the Defendant to answer, the Defendant’s solicitors have satisfactorily answered it.

20.  The Defendant has filed no expert evidence. Without seriously disputing that Shop E1 is an illegal/unauthorised structure, the Defendant contends that there is no real risk of enforcement action by the government.

The Issues

21.  The issues that this court needs to resolve are: -

(1)   Is the Requisition sufficiently precise?

(2)   Whether the title of the Defendant is defeasible on grounds of apparently unauthorised building works?

(3)   Has the Defendant responded adequately to the Requisition?

22.  The second and third issues, closely related though, are distinct issues because the vendor is under a separate duty to satisfactorily answer the purchaser’s requisitions. Thus, even if the vendor has a good title, the purchaser is entitled to rescind the contract if the vendor has failed to answer the requisitions satisfactorily. An illustration of the distinction is provided in the judgment of the Court of Appeal in Active Keen Ltd. v Fok Chi Keong [1994] 1 HKLR 396. In that case, the vendor contracted to sell a flat in respect of which the occupation permit provided for seven flats on each of the upper floors. The deed of mutual covenants and plan attached to the assignment, however, provided for nine flats. The purchaser raised a requisition as to the discrepancy and the Court of Appeal ruled that, even though the title of the vendor was probably a good one, the purchaser was entitled to rescind the sale and purchase agreement because the requisition had not been adequately answered.

23.  I shall now deal with the three issues.

Issue (1) - Is the Requisition sufficiently precise?

24.  The need for requisitions to be precisely formulated was emphasised by the Court of Appeal in Chan Chik-sum v Great Pearl Industries Ltd [1997] 1 HKC 27 (CA) . Pointing out that there was a world of difference between formalism and necessary precision, Bokhary JA (as he His Lordship then was) made it clear that, if requisitions are to be effective, they must be formulated with reasonable precision. Helpful guidance as to the proper formulation of requisitions were set out in Excel Wood Ltd v Charmed Investments Ltd (1998) HCMP 4130/97. In that case, Chung J. stated (at §4): -

“(d) ... How a requisition ought to be raised and how specific it ought to be depends on the circumstances of each case. 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. At the other extreme is a requisition for which an answer is self-evidently wanting, that no further explanation or elaboration needs to be given by the purchaser. In-between these 2 extremes are requisitions which require to be elaborated upon by the purchaser in a manner appropriate to the particular circumstance. The same principles apply to answers to be given by the vendor in answer to the requisitions raised;”

25.  An example of imprecise and ineffective requisition can be found in the case of Continental Zone Ltd v More Glory International Ltd (2013) HCMP 446/2012. The plaintiff purchaser and defendant vendor entered into a preliminary sale and purchase agreement whereby the vendor agreed to sell its shop in Kowloon to the purchaser. No formal sale and purchase agreement was signed. The purchaser raised two alleged requisitions. The first read: “Please take instructions from your client and advise us whether there is/are any unauthorised or illegal structures or alterations of and in the property”. The purchaser replied that his client had no such knowledge or information. The Plaintiff then instructed a surveyor to carry out an inspection of the property. After the inspection, the surveyor advised the purchaser that there were unauthorised structures involving encroachment onto a public footpath and unauthorised signage which projected above the front of the property. The purchaser's solicitors then sent to the vendor a copy of the surveyor's report. On the purported ground that the vendor had failed to prove a good title, the purchaser refused to complete and asked for the return of the deposit. Deputy Judge Yeung SC rejected the requisitions in question because it had not been properly formulated. The learned Deputy Judge said:

“25. Mr. Li submitted on behalf of the Defendant that Requisition 16 was not a proper requisition as it was too general. In support, he referred me to Hong Kong Conveyancing and Practice Vol. 1A paragraphs VI[332.2] to VI[332.5].

26. The observations made by Deputy Judge To (as he then was) at paragraph 47 of Goldmex Ltd v. Edward Wong Finance Co Ltd [2006] 2 HKLRD 795 are relevant, that: -

“Before embarking on the issue whether the requisitions had been sufficiently answered, I have the following observation to make. Most of the requisitions were speculative. Yen was just asking the Defendant to “confess” to breaches of the Government lease without making any reference to any evidence indicating any building structure might have exceeded the height restriction or that the parking spaces did not conform with the layout specified in the covenant. The series of requisitions was a pure fishing exercise. WKT was right that they were not obliged to answer the requisitions. However, they did answer the requisitions and Yen raised further requisitions.”

27. In Essence Star Ltd v Mai Jianbo (1998) HCMP No. 299/98, Recorder Kwok had before him a requisition as to an alleged unauthorised structure. His reasons for not satisfying that it was sufficiently precise were as follows: -

“7. Apart from stating that the alteration or the building works related to the wall between two washrooms, no particulars were given in this letter. There was no reference to any plan, approved or otherwise. It was not supported by any report, whether by an authorised person or other expert(s).

8. Before the plaintiff purchaser could succeed on a declaration that this “requisition” has not been sufficiently answered by the defendant, I must be satisfied that it was properly raised.

9. One issue in Chan Chik-sum v Great Pearl Industries Limited [1997] 1 HKC 27, was whether the purchaser’s requisitions were properly made. On this issue, Nazareth VP said: -

“As to the requisition itself, its imprecise nature, with its confusing and repeated use of ‘and/or’ is apparent from its text. The excuse given for this is that such was the way in which the surveyor cast his advice. That does not begin to explain the purchaser’s solicitors’ failure to state precisely and clearly what it was they wanted in clarification of the vendor’s title. The statement that they ‘were instructed that approval would be required’ simply abrogated their duty to ascertain the legal position; moreover, the requisition was obscure and confusing. Some consideration given to the Buildings Ordinance (Cap 123) and Regulations in the course of the hearing before us served only to demonstrate the obscurity of what the requisition was directed to ...

Whatever is meant by ‘structural elements’ has never been explained. It was no wonder, therefore, that the deputy judge preferred the opinion of the vendor’s expert, also an architect, that the railings were non-structural works for which no approval was required, and made the finding that the railings were ‘non-structural and so required no approval.’

Reverting then to the first issue, it is difficult therefore to resist the conclusion that the requisitions were not properly raised in the sense that they were materially confusing and obscure. However, that point not having been taken in that sense below, I proceed to address those points that were taken.” (at p. 31)

10. On that point, Bokhary JA, as he then was, said:-

“Even assuming that there was material on the basis of which the purchaser could have formulated a proper requisition here, I am of the view that no properly formulated requisition has actually been raised. The requisitions in questions are insufficiently precise to be effective.

Formalism has no place in these matters. But there is a world of difference between formalism and necessary precision.

Requisitions on title must be formulated with reasonable precision if they are to be effective.

... If requisitions on title were treated as effective even though they are not at least reasonably precise, they would become a snare for vendors and a means of destroying bargains.” (at p. 33)

11. In my judgment I am not satisfied that there were materials before me which justified the question about any alleged alteration. Nor am I satisfied that the “requisition” was sufficiently precise.”

28. I refer to the wording of Requisition 16. It made no reference to any plan, approved or otherwise. It was not supported by any expert report. It in fact did not even refer to any particular structure. In effect, it simply requested the Defendant to make a confession as to the existence of any illegal structure. In my view, it lacked the specificity and precision to qualify as a proper requisition. The Defendant was not obliged to answer it.

26.  Unlike the requisitions in Continental Zone Ltd v More Glory International Ltd and Essence Star Ltd v Mai Jianbo (referred to in Continental Zone Ltd.), which were no more than demands for “confession” to breaches of government lease or building regulations, the Requisition in the present case is clearly a request for an explanation for the discrepancy between the Occupation Permit and the First Assignment.  In fact, it is formulated similarly to the one in Active Keen (above), which read: -

“It is stated in the occupation permit ... that there are seven tenements on each floor (from third to eleventh floor). However, we note that the ninth floor of the ... building has been divided into nine self-contained flats ... Please clarify.”

27.  The Court of Appeal held that the purchaser’s solicitors’ concern about the legitimacy of the additional two flats was justified and that the requisition was clear and precise enough.

28.  The solicitors for the Plaintiff in this case had a similar concern. Apparently, the Defendant’s solicitors had no difficulty in understanding the Requisition. Although one may say that the Requisition could be better formulated, the bottom-line is that there was never any confusion or misunderstanding. If the Defendant’s solicitorscould understand the Requisition perfectly well when it was first put to them, there does not seem to me to be any good reason for them complaining that the Requisition was not precise enough. In the circumstances, I do not accept the Defendant’s counsel’s argument that the Defendant was not obliged to answer the Requisition because it was too vague. Following the following authorities, I decide that the Requisition was precise enough and required a proper answer.

Issues (ii) and (iii) – Defeasible Title? Answer to the Requisition adequate?

29.  Although the two issues are separate issues, as I am not going to rule that this is one of the rare cases where the vendor should lose because he has failed to answer a requisition satisfactorily despite the fact that he has a good title, I shall deal with the two issues together.

30.  The main concern of the Plaintiff is: how did Shop E1 come about?

31.  To recap, the Defendant’s solicitors’ answer is that: -

“Please note that the Plan annexed in [the 1^st Assignment] has been certified by the Architects, it is sufficient to prove that the subdivision of the Ground floor into 6 shops did not contravene the provisions of the Buildings Ordinance. (emphasis mine)

32.  Subdivision is not the right word. When one talks about a sub-division, one means dividing one into two or more. However, as stated above, Shop E1 was the result of the conversion of the three “domestic areas”/non-accountable areas” into a “shop”. To call a conversion a sub-division is an under-statement if not actually misleading. In my view, the answer above does not address the concern of the Plaintiff.

33.  As to how Shop E1 came about, it remains a mystery.

34.  In the light of the unchallenged evidence of the Plaintiff’s expert that Shop E1 is likely to be an unauthorised structure, the question that follows is: in the absence of evidence as to how Shop E1 came about, is the Defendant’s title defeasible in view of the apparently unauthorised structure?

35.  The high standard of which a good title must be shown is well-known and is recently upheld by the Court of Appeal in Gigabillion Asia Pacific Ltd. v. Sino Dynamic International ltd. [2015] 2 HKLRD 100, at 104, in which Cheung CJHC said:

“... for the purposes of proving a good title, that is, proving it to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an encumbrance (MEPC Ltd. v Christian-Edwards [1981] AC 205) ... (emphasis added)

36.  It is trite law that a good title can only be shown and given when there is no real risk of enforcement action by the authority, as Godfrey JA said in Spark Rich (China) Ltd. v Valrose Ltd. [2006] 2 HKC 589, at 598: -

“20.   It is impossible to formulate any test as what is a real risk and what is a risk which is not real. So this is of little help. It is more helpful to state that if, in an “unauthorised structure” case, the court concludes that, beyond reasonable doubt, the purchaser will not be at risk of any successful action against him by the Building Authority, it should declare in favour of a good title shown: MEPCvc. Christian-Edwards [1981] AC 205, per Lord Russel of Killown at p.220 (followed here in Kan Wing-yau v Hong Kong Housing Society [1988] 2 HKLR 187: per Clough JA, at p.194).

21.   Now, the burden of showing a good title falls on the shoulder of the vendor. He must, therefore, in an “unauthorised structure” case, satisfy the purchaser (or, failing him, the court) thatthe risk of such action is one which a purchaser can safely advised to disregard,

22.   So the test may be usefully framed as follows: If the purchaser asks his solicitor: “Can I be sure that I can safely disregard the risk?” then, unless his solicitor (being a prudent and experienced solicitor) can properly advise him that he can, the purchaser cannot be obliged to accept the vendor’s title...”

(all emphasis mine)

37.  Back to this case, the Defendant’s solicitors gave two reasons as to why the Plaintiff can safely disregard the fact that Shop E1 is probably an unauthorised structure, namely: (1) the subdivision of the Ground floor into 6 shops, which was certified by an architect, did not contravene the provisions of the Buildings Ordinance; (2) given that the unauthorised structure had been in existence for a long time and that the relevant authority was well aware of it, there does not exist any real risk that the authority will take enforcement action.

38.  As stated above, Shop E1 was created out of the conversion of the Converted Areas in a shop. There was no subdivision of any shop, certified by an architect or not.

39.  Furthermore, the other architect’s letter dated 13 December 1995 that the Defendant’s solicitors sought to rely on also does support the Defendant’s case that the conversion work was authorised or legal. In the said letter, it is stated that:

“An Occupation Permit for a building is issued by the Building Authority under Section 21(1)(a) of the Building Ordinance. The Occupation Permit allows the building owner/unit owner to occupy a building/unit in accordance with the use specified therein. The Occupation Permit and provision of section 21 of the Building Ordinance do not control or restrict the layout and alternation works of the building. Any building works approved under Section 14, exempted building works under Section 41(3)(3A) or change of usage not constituting a “material change” under Section 25 are all permissible and do not jeopardise the validity of the Occupation Permit. Any doubt about the internal alternation and layout must be checked against the approved Building Plan kept by the Building Authority.”

40.  What is stated in the architect’s letter is nothing but a general statement of the principles. There is nothing in it that specifically deals with the legality of the work that had been carried out to convert the Converted Areas in a shop. Nor does it serve to prove that the work was exempted under section 41 of the Building Ordinance. In the circumstances, the said letter does not help address the issue raised by the Plaintiff.

41.  As for the second reason, the Defendant relies heavily on the case of Jumbo Gold Investment ltd. v Yuen Cheong Leung (2000) 3 HKCFAR 52. In that case, the vendor entered into a sale and purchase agreement whereby it agreed to sell to the purchaser an apartment in a 5-soreyed building in a block of land which was subject to a height restriction of 35 ft. An occupation permit was issued after the completion of the building despite the fact that the building exceeded 35 ft. When questioned about the height of the building, the vendor’s solicitors replied that there did not exist any real risk of enforcement action by the relevant authority. The first instance Judge held that a good title had been shown. The Court of Appeal allowed the purchaser’s appeal. On the vendor’s further appeal to the Court of Final Appeal, the Court of Final Appeal held that the vendor’s title was good because there was no real risk of enforcement. The main reasons for the Court of Final Appeal’s decision, as appear in the passages quoted below, were: (a) the authority must be aware that the building exceeded 35 ft; (b) any enforcement action would have affected many innocent owners and was highly unlikely.

“Per Litton PJ

19. It would seem very odd that the Director of Public Works (or perhaps more accurately the responsible officers of his department) in approving the plans and issuing the occupation permit did not know that Block C had exceeded the height limit of 35 ft in the Crown Lease.

21. It is common ground that the only "enforcement action" the government could possibly take is re-entry under the lease in respect of the entire piece of land upon which Block C is built: Exercisable by registering a memorial of re-entry under s.4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap. 126, extinguishing the interest of every owner therein.

22. If the government, in its capacity as lessor, were dealing simply with the developer, that is one thing: The equitable considerations that would arise on a question of relief against forfeiture, under s.8(1)(b) of Cap. 126, would be decided by examining the respective conduct of the two immediate parties: The government as lessor and the developer as lessee. But where third parties have become involved, acquiring units in the building on the basis that permission to occupy that building for domestic purposes had been granted by the government and that Crown rent had been paid and accepted for many years, to forfeit their interest because of some "fault" of the developer, perhaps way back in the past, is a wholly different matter. This concerns, of course, not only owners, but tenants as well. When counsel for the purchaser was asked during the hearing why the government would wish to do that, the answer was: To extract some premium from the owners for relief against forfeiture. Counsel was unable to point to any precedent where the government has acted in such a harsh and capricious manner.”

Per Bokhary PJ

In my view, the evidence in this case did not exclude a reasonable possibility of an unwaived breach of condition which gives the Government a right of re-entry. The question is therefore whether, assuming that the Government has that right, there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Mr Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessarily like that. Accordingly it is safe to proceed on the basis that the Government would never do so.”

42.  For similar reasons, the vendor in Active Keen was held to have an indefeasible title.

43.  Jumbo Gold and Active Keen are distinguishable from the present case. First, Shop E1 came about apparently after the issuance of the Occupation Permit. Secondly, it does not seem likely that an order for reinstatement of Shop E1 will affect other owners.  In my view, Jumbo Gold and Active Keen do not assist the Defendant.

44.  As for the contention that the relevant authority was aware of the unauthorised conversion but chose not to take action, I do not think there is sufficient evidence for an inference of knowledge to be drawn from the fact that there were a number of building orders against the building. It should be noted that the Defendant’s solicitors, in answering the Requisition, did not refer to any particular building orders. To recap, the Defendant’s solicitors wrote:

“... there are some orders registered against the property at the Land Registry issued by the Building Authority. It is most likely that the Building Authority had acknowledged the said property.”

45.  Clearly, the answer is flawed. First, bearing in mind that the burden of showing a good title is always on the part of the vendor, the Defendant’s solicitors were under an obligation to identify the specific orders and explain their relevance to the Plaintiff’s question. It is no good contending that some building orders may address the Plaintiff’s concern. Secondly, all but one of the many building orders related to the common parts or other flats or units of the building. Clearly, those not relating to Shop E1 cannot be relied on to suggest that the Building Authority was aware of the condition of Shop E1.  As for the building order that related to Shop E1 (the one registered by Memorial No.13100701090087), the scope of it is far from unclear. There is no way to tell whether it had anything to do with the unauthorized conversion of the Converted Areas into Shop E1.  In the circumstances, I am not satisfied that one can infer from the building orders that the Building Authority was aware of the physical condition of Shop E1. Given the burden on the part of the Defendant and the very high standard of proof, I do not accept the Defendant’s contention that one can safely conclude from the existence of the building order that the Building Authority has “lost interest” in Shop E1 and would not have taken any enforcement action against its owner.

46.  I am aware that a good title does not mean a perfect title, free from every possible blemish. However, the Defendant’s title is a doubtful one which should not be forced on the Plaintiff.

47.  On issue (2), I hold that the discrepancy between the Occupation Permit and the 1^st Assignment constitutes a bolt on the Defendant’s title.  I also hold on issue (3) that the Defendant’s solicitors have failed to satisfactorily answer the Requisition.

48.  For completeness, I shall deal with one last argument of the Defendant. Mr. Cheung, calling the Further Objection “the 2^nd Requisition”, argues that it was raised out of them. My short answer is that it was a clarification or further elaboration of the Requisition, or a follow-up question to the Defendant’s solicitors’ reply to it. Not being a separate requisition, there is no question of it being raised out of time.

Declarations and Orders

49.  I declare and order that:

(1)   The Defendant’s title to the Property is defective;

(2)   The Defendant has failed to prove a good title to the Property;

(3)   The Defendant has wrongfully repudiated the Sale and Purchase Agreement and that he Plaintiff is not obliged to complete the purchase of the Property;

(4)   The Defendant shall forthwith return the deposit in the sum of HK$375,000 to the Plaintiff together with interest thereon at - (a) half judgment rate from 8 June 2015 (being the date on which the Defendant purported to forfeit the deposit) to the date of this judgment; (b) full judgment rate from the date of this judgment until full payment;

(5)   The Defendant shall reimburse the Plaintiff of all stamp duty paid and the costs of title investigation, with interest thereon at - (a) half judgment rate from 8 June 2015 to the date of this judgment; (b) full judgment rate from the date of this judgment until full payment;

(6)   The Defendant do pay the Plaintiff the costs of this application, to be taxed if not agreed with certificate for counsel.

50.  The above costs order being a costs order nisi will become absolute in the absence of application for variation within 14 days.

51.  Lastly, I thank counsel for their assistance.