ESSENCE STAR LTD. v. MAI JIANBO

HCMP299/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a vendor and purchaser's summons issued on behalf of the purchaser on 20 January 1998, seeking a declaration that the requisition raised by the solicitors for the plaintiff purchaser in a letter dated 16 December 1997 has not been sufficiently answered by the defendant, and for other related and consequential reliefs.

2. The defendant vendor counterclaimed damages for alleged breach of the agreement for sale and purchase. I have been informed by counsel for the parties that damages for the counterclaim, if I find in favour of the vendor, has been agreed in the sum of $990,000.

3. The agreement for sale and purchase dated 6 October 1997 provides, by clause 3(a) and the first schedule, that 18 December 1997, 5 pm, shall be the completion date, and that completion shall take place by way of undertakings.

4. Clause 10 of the agreement, under the heading of "Encumbrances", refers only to the Deed of Mutual Covenant, and/or sub-Deed of Mutual Covenant and/or the management agreement. Clause 12(a) and (b) is a usual restriction on time for raising requisitions, and it provides:-

"(a) Any requisition or objection on title or other matter arising out of this Agreement shall be delivered to the Vendor's solicitors within seven (7) working days after the receipt of the title deeds and documents 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 (in this respect, time shall be of the essence of this Agreement)."

"(b) If the Purchaser shall make or insist on any objection or requisition either as to title conveyancing or any matter appearing on the title deeds or otherwise which the Vendor shall be unable or (on the grounds of difficulty, delay or expenses or on any other reasonable ground) unwilling to remove or comply with, or if the title of the Vendor shall be defective, the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his solicitors not less than five (5) working days' notice in writing to annul the sale in which case, unless the objection or requisition shall have been in the meantime withdrawn by the Purchaser or the same shall have been removed or complied with by the Vendor the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to the return of the deposit without costs compensation and if that return is made within seven(7) days of demand by the Purchaser, without interest."

5. It is common ground that title deeds were forwarded by the vendor's solicitors to the purchaser's former solicitors on 8 November 1997; that requisitions were raised by the purchaser's former solicitors on 18 November 1997; that answers were provided by the vendor's solicitors on 21 November 1997; and that the present proceedings have nothing to do with those requisitions or answers. It is further common ground that Madam Zhu Xing-mei, one of the purchaser's directors, inspected the subject premises once in September 1997 and again in October 1997.

6. The "requisition" in the letter of 16 December 1997 reads:-

"We understand that there is structural alteration in the captioned premises, namely, the interior wall between the guest's washroom and the master bedroom's washroom has been demolished and reinstated at a different position. Please provide evidence to prove that such alteration and the related building works had been properly approved and authorized by the relevant authority. If the approval and authorization have not been obtained, the alteration and the related building works would have contravened the Government Lease. Such contravention would entitle the Government to re-enter the land and is therefore a defect that goes to the root of title.

As the completion will take place very soon, please deal with the above matter on an urgent basis.

Since the defect goes to the root of title, our client shall not complete the purchase unless and until the defect is properly dealt with.

All our client's rights are hereby reserved."

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.

12. Dealing first with the insufficiency of the materials before me to justify a question on any alteration or any building work, the only evidence I have been referred to is what Madam Zhu Xing-mei said in paragraphs 9 and 10 of her affirmation.

"9. On or about the 12th December 1997, I had a telephone conversation with Miss Becky Wong of the estate agent. She reminded me of the completion date and she told me that the wall between the guest's washroom and the master bedroom's washroom had been demolished previously and the said wall had been reinstated at a different position. Miss Becky Wong told me that prior to the alteration, the area of the guest's washroom and the master bedroom's washroom were identical."

13. Pausing here for one moment, I asked Mr Lam, counsel for the purchaser, whether this conversation with the estate agent was inadmissible hearsay. If I understand Mr Lam correctly, he did not submit that such evidence was admissible.

14. So paragraph 9 does not provide any admissible evidence of any alleged alteration. Be that as it may, Madam Zhu went on to say that:

"10. As deposed in paragraph 8 hereinabove, I had made two site inspections to the Property. I recalled that during my inspection of the Property, the actual size of the master bedroom's washroom was significantly larger than that of the guest's washroom. I then instructed our solicitors and they immediately consulted the first Assignment of the Property which contained an architect's floor plan. I was then informed by our solicitors that according to the architect's floor plan annexed in the said Assignment, there was a wall between the guest's washroom and the master bedroom's washroom and the size of the two washrooms should be identical. I then informed them that from my inspection, the said wall had been demolished and reinstated at a different position (so that the master bedroom's washroom was significantly larger than that of the guest's washroom). There is now produced and shown to me marked 'ZXM-3' a copy of the said Assignment with plan which showed the original and approved layout."

15. When I turned to page 54 of the bundle, i.e. Exhibit "ZXM3", said to show the original and approved layout, it transpired that it was neither an original nor approved layout plan. Page 54 was no more than a plan annexed to the first assignment of the subject property by the developer to the first owner, which plan was used in defining and identifying the exclusive right to use all that flat H on the 12th floor of block 4 of the building, which was shown coloured pink on the plan and marked 1st to 21st Floor.

16. The plan at page 54 does not show any part of the area coloured pink as a washroom, whether of the master bedroom or otherwise. And it does not show any structural wall or partition at all. It was the plan to identify the subject unit of the first assignment.

17. Paragraph 10 of the affirmation went on to say that:-

"There is now produced and shown to me marked 'ZXM-4' a copy of the assignment plan marked by me to show the demolition of the said wall and the reinstatement or the existing position of a new wall."

18. On this Exhibit was a mark made by Madam Zhu to show what she remembered to be the wall separating the two washrooms. It does not show any alteration or any reinstatement.

19. Therefore, on the materials before me, there is no material to support any allegation of any alteration of a wall inside the unit.

20. In any event, the point made in the "requisition" was not that it contravened any provision of the Buildings Ordinance. The point there made was that unless approval had been obtained, the alteration and the related building works were alleged to have contravened the government lease, and on such basis, it was said that the contravention would entitle the government to re-enter the land, and was therefore a defect which went to the root of the title.

21. Counsel for the purchaser made no submission about any possible or alleged contravention of the government lease. The government lease is not even in evidence before me. So the point which was made in the letter of 16 December, namely alleged contravention of the government lease, is a point which has not been pursued at this hearing before me. This reason is by itself a further reason why the purchaser would not have been entitled to any declaration that the "requisition" had not been sufficiently answered.

22. As stated above, the "requisition" contained no particulars and made no reference to any plan or report.

23. The question about the partition wall between the two washrooms was one which with due diligence could and should have been made much earlier than 16 December 1997 which was 2 days before the completion date. And in this respect, I respectfully adopt what was said by Nazareth VP, in Chan Chik Sum v Great Pearl Industries Ltd:-

"The judge disposed of the issue upon two bases. First, that the purchaser did not raise the requisitions either within a reasonable time before the completion date or within the time prescribed by cl 19 of the agreement. Those findings are, in my view, plainly right, notwithstanding that the title deeds were provided later than the deputy judge supposed. However, it was sought on behalf of the purchaser to circumvent those findings by the contention before us that the requisitions went to the root of title, and could, therefore, be raised at any time. However, I am unable to accept that submission as I am persuaded neither that the railings were structural works (which might have gone to the root of title) nor that the purchaser was not in a position to discover the matter in good time, given that the director involved was in occupation of the premises for nearly six months before raising the requisitions two days before the completion date in the agreement (see Hillier Development Ltd v Tread East Ltd [1993] HKC 285, 292-293; [1992-93] CPR 416, 423-424)." (at p. 31 - 32)

24. And I also adopt, with respect, what Stone J said in Wong Man Kit Raymond v Chan Nam Fan, HCMP 4391/97, 18 May 1998:-

"I do not intend in this judgment to investigate the proposition that this deviation from plan would raise enforceability problems from the Building Authority such as to constitute a blot on title. Suffice it to say that on the assumption that it does, I do not accept that a clear and obvious matter which goes to the root of the Vendor's title can, in effect, be clasped to the Purchaser's breast for opportunistic use in any subsequent emergency - and in this context, perhaps, there can be no greater emergency in the eyes of the Hong Kong speculator than the fall of the property market subsequent to purchase. It follows, therefore, that in my judgment a problem going to root of title does not, as Mr Chain contended, serve in itself to render the provisions of Clause 10(a) otiose. To the contrary. In my view the time limit in Clause 10(a) fails to bite only in those circumstances where the problem with title could not have been discovered within the relevant contractual period for the raising of requisitions.

Which, of course, was patently not the situation here. In the instant case the issue as to the balcony conversion was raised at the eleventh hour for a plainly collateral economic purpose. Indeed, with his customary realism, Mr Chain does not demur from the proposition that essentially this is a 'market claim', and whilst I remind myself that motive is irrelevant to the enforcement of legal right, such enforceable right must indeed be seen to exist. In the present case, it is clear beyond peradventure that the conversion of the balcony posed no difficulty at the time of inspection, nor at the time of the validly raised requisitions; accordingly, in all the circumstances, I think there is no doubt that there was a deemed acceptance of title and that the point was waived, which is precisely the type of situation which was adverted to by Nazareth JA in Hillier Development, op.cit., at 296 B-C:-

' However that may be, I did not understand counsel on either side to suggest that an objection or requisition, even one which goes to the root of the title could not be waived. Plainly it can; and in many cases, that precisely is what is done when a calculated risk is taken by a purchaser on possible objections that are thought unlikely to arise. It was no doubt in recognition of this that Miss Chow for the purchaser submitted that such waiver had to be express. But she produced no authority for that proposition, which must be rejected ...' (emphasis added)

It follows from the foregoing that I reject unequivocally Mr Chain's contention that if a matter goes to root of title, all else, in effect, falls away, and that the point can be kept in reserve to provide an unmeritorious "bail out" for a purchaser seeking to avoid what has turned out to be a bad bargain. In this regard, I am in respectful argument with the views expressed by the Court of Appeal in Hillier, op.cit., and in this circumstance, I perceive no need to further consider the spirited debate between Counsel as to whether the observations of Penlington JA in that case were in fact obiter." (at pp. 12 - 13)

"The decisions considered in the foregoing passage reflect those decisions which are quoted by the learned editors of Emmet, op.cit., in the extract set out above, and it seems to me, with respect, that the views expressed in the leading judgment of Penlington JA reflect the correct legal position; in principle time clearly should not begin to run adversely against the Purchaser absent knowledge, whether actual or discoverable by due diligence, as to the alleged defect in title of which complaint is made." (at p. 11)

25. The purchaser's case is that the alleged alteration of the position of the partition wall between the two washrooms could be ascertained from the plan annexed to the first assignment. In my judgment, the alleged alteration was discoverable with due diligence much earlier than 16 December 1997.

26. The inspections took place in September and October 1997 before the title deeds were delivered on 8 November 1997.

27. It follows that the vendor's title is deemed to have been accepted and the vendor's then solicitors' reply might not be relevant. In any event I will go on to look at the letter in reply and that is a letter dated 17 December 1997 at pages 68 to 69 of the bundle, and because of the importance attached to it, I will quote from the whole of the letter:-

"We refer to your letter dated 16th December 1997.

We were able to contact our client and are instructed that the premises was at the same state as it is since he purchased the same from previous owner and was not aware any of the existence of alteration. The allegation contained in your letter is hereby denied.

We have further instructions to reply, without admission of the existence of your alleged alteration, as follows : -

1. Your client has inspected the premises as early as September 1997 and your client have due notice of the state of and condition of the premises all along. Should any of the alternation exists as alleged under your letter, the same could easily be ascertainable and revealed within reasonable time after the 8th November 1997 the date we furnished you/your predeceassor the title deeds and documents including Assignment Memorial No.1000761 with an architect's floor plan annexed.

2. In any event your requisition has been raised out of time prescribed under the Agreement for Sale and Purchase dated 6th October 1997.

3. Even if the same goes to root of title, requisition of such nature should be raised within reasonable time before completion and your client's allegation is raised just one day prior to completion scheduled on 18th November 1997. We also draw your attention to the case of Wan Moon Ling Wandy v Sino Gain Investment Limited (MP No.3248 of 1996).

We add further the following : -

1. Your client has in or about November 1997 or early December orally requested from our client an extension of time for completion to January 1997 but the same had subsequently been withdrawn upon our client counter-offered on further part payment of purchase price and interest compensation;

2. Your mere allegation of the existence of alteration and demand for and approval from the Building Authority is at all without support of an architect's certificate. Further the extent of the alleged alteration is not serious and is common to many household decoration and the risk of re-entry by the government is indeed fanciful; and

3. We see it that the content of your letter is but an excuse for wrongful recission of the sale and purchase or otherwise a delay in completion in breach of the formal agreement.

Completion shall take place as scheduled."

28. In my judgment, the references to the inspection, the first-assignment floor plan, the requisition being raised out of time, and the reference to the unreported decision of Wan Moon Ling could have served no purpose except to make the point that the purchaser was out of time.

29. There is some support for this view as the letter in reply from the solicitors for the purchaser dated 18 December 1997 stated that:-

"1. Our client only recently get to know from the property agent that there is alteration at the property as stated in our letter. It is ridiculous for you on one hand to maintain that our client should be aware of the existence of alteration upon receiving the title deeds by our predecessor and upon our client's inspection of the property a couple of months ago but on the other hand allege that your client is not aware of the same after his purchase three years ago. Further, we are instructed that your client has been residing at the property.

2&3 We have already explained in detail in the last paragraph why the issue is raised so late. We re-iterate that as the defect goes to the root of title, raise of the same shall not be barred as alleged. We understand that time may not be sufficient for your client to resolve the matter. Under the circumstances, our client propose to postpone the completion for seven days so as to allow your client sufficient time to handle the issue of illegal alteration."

30. For the reasons which I have endeavoured to give, I consider that the plaintiff purchaser would fail in this vendor and purchaser summons and that the vendor would succeed.

31. I order that the originating summons dated 20 January 1998 issued on behalf of the purchaser be dismissed; that judgment in favour of the vendor be entered against the purchaser in the agreed sum of $990,000 with interest at judgment rate(s) from 18 December 1997 until payment; that the registration in the Land Office of the originating summons as an encumbrance against the property be vacated; and that the costs of the whole proceedings be paid by the purchaser to the vendor.