LARGE LAND INVESTMENT LTD. v. CHEUNG SIU KWAI PANSY

HCA 434/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 434 OF 1998

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J U D G M E N T

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Introduction

1. The plaintiff was the purchaser named in an agreement for the sale and purchase of ground floor shop premises in Kowloon entered into with the owner, the defendant, named therein as vendor. It is the plaintiff's case that on the day for completion (time being of the essence) the defendant repudiated the agreement and the plaintiff, in accepting that repudiation, was entitled to recover all moneys paid or due under the agreement, being deposits totalling $3.1m. The defendant denies that she was in breach. The plaintiff failed to complete and it was thus in breach which entitled her to forfeit the deposits paid.

History

2. The shop's address is ground floor, 244, Apliu St, Kowloon. The building of which it is a part was built in 1963. The occupation permits for each floor issued in April 1963. In May of that year the Buildings Ordinance Office (as it was then called) approved plans for the construction of a cockloft designed to occupy space inside the shop between the side walls and running from the rear wall to 2.8 metres from the front of the shop. The existing shop walls at the rear and on both sides thus were to become three sides of the cockloft. The fourth at the front was designed to be open with a three foot high railing, leaving open what is commonly known as a cockloft void. Access to and egress from the cockloft was shown to be by a staircase running down to the rear along the right hand wall, breaking at right angles at a landing one step from the bottom. The cockloft was built apparently in accordance with the plans because it was approved by an Authorized Person with notice to that effect to the Buildings Ordinance Office.

3. At some stage during its existence the cockloft was altered and added to. The front railing was removed and the floor extended to the front of the shop, thus doing away with the cockloft void. The staircase leading down acquired what is known as a winder step; that is a step at the foot of the main part of the staircase set at 45°to it, leading round towards the remaining step. There is no clue as to when this alteration work was carried out; there is no evidence that approval was sought or given.

4. The defendant (Miss Cheung) bought the shop in 1996 in this condition.

5. At the time material to this litigation the shop was leased to a retailer of audio equipment and the like. The ground floor was the shop proper with direct access to the street. The cockloft was used for the storage of merchandise, including the later extension at the front of the shop. Customers were not entitled to access to the cockloft.

6. In August 1997 Miss Cheung instructed a real estate company called Centaline Property Agency Limited (Centaline) and in particular one of the agents called Karen Tam (Miss Tam) to promote the premises for sale at a price of $16m., subject to the existing tenancy. She had used Miss Tam's services when she bought the premises the year before. Miss Tam began by approaching Chan Wah Hing (Mr Chan) whom she knew not only as a fellow real estate agent but as an experienced investor in real estate who had, in previous transactions, also used her services. He was interested. He went to have a look. He went into the shop, spending 15 to 20 minutes there. He saw the cockloft but did not ask to go up.

7. The parties negotiated, Miss Tam being the intermediary. On 27 August a deal was struck, at a price of $15.5m. Miss Tam prepared the provisional agreement. It bore the reference number KSW0463. Miss Cheung signed. So did Mr Chan on behalf of the plaintiff (Large Land). Large Land is a company incorporated in Hong Kong part owned by Mr Chan and frequently used by him and his fellow shareholder in real estate investment. Miss Tam signed as agent. Large Land paid an initial deposit of $300,000.00. A further $1,250,000.00 was due on 12 September, the scheduled date for signing of the formal agreement. $1,550,000.00 more was due to be paid as a further deposit on 18 October. Completion was agreed for 18 December. The agreement was made subject to the existing tenancy. The premises were described as "G/F, 244, Apliu St. KLN." Executed by the parties at the same time was a document both parties refer to as an addendum which I reproduce in full:-

"Date: 27.8.97

Re : My company's provisional agreement of sale and purchase no. KSW0463

Address of the property: G/F, 244 Apliu St., KLN.

The above property is sold together with a self-constructed cockloft.

(signed)	(signed)	(signed)
Landlord	Purchaser	Agent "

8. Who proposed this document and why is a matter of dispute which I shall come to.

9. Large Land engaged Messrs So & Company Solicitors (So & Co.) to act for it in the purchase. Miss Cheung was represented by Messrs Y S Lau & Partners (Y S Lau).

10. On due date, 12 September, the parties entered into a formal agreement, professionally drawn and perused, and Large Land paid the further sum due on the deposit. The agreement incorporated in its terms details such as price, deposits, dates for payment on account and the completion date, matching those already agreed in the provisional agreement. Some of the remaining clauses are pertinent and I reproduce them in full:-

"8.(a) the Purchaser declares that he has inspected the Property and all fixtures and furnishings therein (if any) prior to the signing of this Agreement and is fully aware of the fittings and finishes and the physical conditions of the Property and save as hereinafter provided no warranty is hereby given by the Vendor as to the area fittings finishes (if any) or the physical conditions of the Property and he is purchasing the Property on an "as is" basis. (The "as is" clause)

12. Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within seven (7) working days after the receipt of all the title deeds of the Property by the Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of this Agreement) and if the Purchaser shall make and insist on any objection or requisition in respect of the title or otherwise of the Property which the Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his Solicitors not less than seven (7) working days notice in writing to annul the sale in which case, unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to a return of all the deposit forthwith but without interest (if that return is made within seven days from the date of demand), costs or compensation. (The requisitions clause)

13. The Vendor shall at his own expenses show and give good title of the Property pursuant to S.13 of the Conveyancing and Property Ordinance Cap.219.

18. The Vendor shall show and give a good title to the Property at his own expense and he shall at the like expense make and furnish to the Purchaser such attested or certified copies of any deeds or documents of title, wills occupation permit and matters of public record as may be necessary to prove such title. The costs of verifying the title by inspection and examination including search fees shall be borne by the Purchaser. (The show and give good title clauses)

20. Should the Purchaser fail to complete the purchase in accordance the terms of this Agreement for Sale and Purchase (otherwise than for the default of the Vendor) the Vendor may (without tendering an Assignment to the Purchaser) forthwith determine this Agreement for Sale and Purchase by giving notice of termination in writing to the Purchaser or his solicitors to such effect and the Vendor shall thereupon be entitled to re-enter upon the Property and repossess the same if possession shall have been given to the Purchaser free from any right or interest of the Purchaser therein and the Vendor shall be entitled to forfeit the said deposit. Upon determination of this Agreement for Sale and Purchase the Vendor may resell the Property either by public auction or by private contract or partly by one and partly by the other subject to such stipulations as the Vendor may think fit and any increase in price on resale shall belong to the Vendor. Without prejudice to the Vendor's right to recover the actual loss which may flow from the Purchaser's breach of this Agreement, on such resale any deficiency in price shall be made good and all reasonable expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages. On the exercise of the Vendor's right to determine this Agreement for Sale and Purchase as aforesaid the Vendor shall have the right, if this Agreement for Sale and Purchase shall have been registered at the Land Registry or any District Land Registry, to register at the Land Registry or the relevant District Land Registry an instrument signed by the Vendor evidencing determination as aforesaid of the sale of the Property.

21. In the event of the Vendor fail (other than the default of Purchaser) to complete the sale of the Property in accordance with the terms hereof or failing to observe or comply with any of the terms and conditions herein contained, all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be forthwith returned to the Purchaser who shall also be entitled to recover from the Vendor all the stamp duty and legal costs and express paid under or in connection with this Agreement and such damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor or execution. (The default clauses)

27. This Agreement supersedes and annuls all representations and previous agreements between the parties whether implied or expressed verbal or written. (The complete agreement clause)

S C H E D U L E

1.	The Property:-
(a)	Description, Address, Lot number, Sections, Undivided shares, etc.:
	ALL THAT one equal undivided 9th part of share of and in ALL THAT piece or parcel of ground and registered in the Land Registry as SECTION B OF NEW KOWLOON INLAND LOT NO.1795 ("the Land") And of and in the messuages erections and buildings thereon known as No.244 Apliu Street, Kowloon, Hong Kong TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy All That the Ground Floor of the said No.244 Apliu Street, Kowloon, Hong Kong.
	(The legal description of the property)"

11. What was not included was a clause or any other reference to the cockloft.

12. By letter of 18 September (wrongly said to be 1996, in fact obviously 1997) So & Co sent to Y S Lau the title deeds and documents of the shop. These included documents described as:-

1. Ground Floor Plan Proposed Alteration and Additions at No. 244 Apliu Street on NKIL 1795;

2. .......

3. Approval of plans dated 8-7-1963;

4. Certified copy Occupation dated 11-4-1963;

.......

13. Y S Lau responded, by letter of 22 September, raising certain requisitions. Whether these requisitions were fully answered is a point of conjecture but that is not material to these proceedings. Suffice to say there was no reference to the cockloft.

14. Meanwhile, Large Land resold, at a profit. On 18 September it entered into a provisional agreement of sub-sale with a sub-purchaser for $17.1m. Completion was fixed to take place on the same date, 18 December. The formal sub-sale agreement was signed on 16 October. By 16 October the sub-purchaser had paid 10% of the deposit. A further 10% was due on or by 15 November. But on that date the sub-purchaser defaulted and was thereby in breach. The breach persisted. Large Land withheld as forfeited the deposit paid of $1,710,000.00.

15. On 26 November Y S Lau wrote to So & Co. I reproduce the letter in full:-

" Y.S. LAU & PARTNERS

Date: 26th November 1997

Messrs. So & Company,
Solicitors,

Dear Sirs,

Re: Ground Floor of No.244 Apliu Street, Kowloon

We refer to your letter dated 11th November 1997.

According to a physical inspection by our client, a cockloft has been constructed in the above property. However, no reference to or making of the cockloft is found in the title deeds or the plan attached to Assignment Memorial No.412403. We shall be much obliged if you would supply us written proof that such cockloft is exempted works under the Buildings Ordinance or that the necessary approval from the Building Authority for the erection of the cockloft has been granted.

We reserve our rights to raise further requisitions hereof.

 

Yours faithfully,
(Signed)
Y.S. Lau & Partners"

16. The response came by letter of 28 November:-

"SO & COMPANY

28th November 1997

Messrs. Y.S. Lau & Partners,
Solicitors,

Dear Sirs,

Re: Ground Floor of No.244 Apliu Street, Kowloon, Hong Kong.

We refer to your letter dated 26th November 1997 and in accordance with the Clause 8(a) of the Agreement for Sale and Purchase, your client had been well awared of and accepted the structures inside the Property and purchased the property on an "as is" basis. Your client can not raise any requisition or objection on the said Property. Therefore, our client will not produce any relevant documents showing that the said cockloft is legal and authorised to your client.

Yours faithfully,

(Signed)

SO AND COMPANY."

17. There followed a flurry of correspondence between the solicitors up to and inclusive of 18 December, the due date for completion. The theme was the same. There was no retraction. There was no completion. Both parties blamed the other for being in breach and accepted the other's repudiation.

18. There being no resolution, Large Land filed this writ in January 1998. Miss Cheung filed her defence in March 1998. In the fullness of time she joined as third parties Centaline and Miss Tam and as fourth party So & Co. The third and fourth party proceedings came to be settled before trial so that the claim and defence are all that now remain. The plaintiff registered its writ in the Land Registry Office against the shop's title.

The Proceedings

19. Large Land's claim is that Miss Cheung failed to answer its requisition of 26 November and further that she failed to show and prove good title; the cockloft was an illegal structure that tainted her title.

20. In the premises it seeks an order of rescission and reimbursement of the deposits paid of $3.1m., interest thereon and costs. It also seeks a declaration that it is entitled to a lien pending recovery. Damages pleaded are not being sought.

21. Miss Cheung's defence is that the requisition was made out of time. Large Land had by inaction waived its right to query title. Furthermore, she denies the cockloft was an illegal structure; but if it was that there was substantial performance on her part.

22. These pleadings give rise to a number of issues.

The Issues

1. Was the cockloft or a material part of it an unauthorized structure?

2. If so, was Large Land aware of its illegality?

3. If so (a), was Large Land bound by action or inaction to accept Miss Cheung's title notwithstanding that illegality, or (b) did Miss Cheung's solicitor's refusal to respond to the requisition of 26 November 1997 entitle Large Land to treat the agreement as rescinded?

4. To the extent that it may be relevant, was there substantial performance?

5. In the event Large Land succeeds on liability, is it entitled to recover all the deposits paid or must there be allowance for the deposit forfeited on the sub-sale?

23. To deal with these matters I need first to make findings of fact and I come now to review the evidence which deals with those matters that are disputed.

The Evidence

24. Mr Chan was called first. He swore to the truth and accuracy of his witness statement. In that he recounted that once the parties had negotiated the price Miss Tam brought the provisional agreement to his office for perusal and signing. He read the agreement, and raised a query. I repeat verbatim what he said happened next:-

"I noticed that the property was described as "G/F, 244 APLIU ST., KLN.", which did not include the cockloft thereof. I therefore asked the Agent why the cockloft was not included. The Agent told me that the cockloft was constructed after the building concerned had been completed. As the land search record did not reveal the cockloft, the provisional agreement could not include the same. The Agent assured me that the owner had got an approved plan for the construction of the cockloft and there should not be any problem with the cockloft. The Agent further assured me that should there be any problem, the legal representatives of the parties would deal with the problem. The Agent then suggested that the parties could sign an addendum confirming that the property sold should include the cockloft. The Agent then drafted the addendum confirming that the Property would be sold together with a cockloft. I then signed the provisional agreement and the addendum for and on behalf of the plaintiff."

25. He went on to state that it was not until November that he was notified by his solicitors that there might be a problem with the legality of the cockloft, and that a requisition concerning it had not been satisfactorily answered. On advice he instructed surveyors to carry out an inspection. The report revealed the cockloft was unauthorized. He declined to proceed.

26. In cross examination he said that a significant amount of his business as agent was in the sale of ground floor shops in the area. He agreed that many had illegal structures including cocklofts. He knew that in such case the title was rendered defective. He also confirmed that he and partners in various corporate guises had over the years invested in similar properties, either to retain to rent or for resale at a profit. Some had cocklofts. Asked, repeatedly, if any that had been purchased by him had unauthorized cocklofts he answered, repeatedly, "I can't recall". But he agreed that some banks will decline to lend on the security of a shop whose title is defective because of an illegal structure.

27. When he went to inspect Miss Cheung's shop he noticed the cockloft ran the full length of the shop; that there was no cockloft void. He did not ask to inspect it from above.

28. It was put to him that Miss Tam told him at the outset that the cockloft was self-constructed and unauthorized. He denied that. She had told him that it was self-constructed after the shop was built but in accordance with an approved plan; in reliance on this he committed to the purchase. She told him she had copies of the plan; he directed that she send them to his solicitors, and to him; in the event she did not comply. He did not press it.

29. He said the addendum was Miss Tam's idea because, according to her, as the cockloft was not registered it could not be referred to in the agreement. He denied that it was his idea, to avoid drawing the attention of a prospected mortgagee bank to the existence of an unauthorized structure. He confirmed he had purchased similar properties using addendums similarly worded in the past. He confirmed both provisional agreement and addendum were forwarded to his solicitors after signing.

30. It was put to him that when Large Land's sub-purchaser defaulted, in November, it was then and only then that he instructed his solicitors to find fault with Miss Cheung's title and thereby escape its obligation to complete in a rapidly collapsing market. He disagreed. He said up to this time he was not aware of a defect in title; only when made aware and for that reason did he elect not to proceed.

31. It was put to him that at some stage he asked the vendor to reduce the purchase price and for Centaline to lower its commission. He denied that.

32. The next and remaining witness for the plaintiff was a Mr Benson Wong (Mr Wong), chartered surveyor, whose company Multiple Surveyors Limited (MSL) was instructed by Y S Lau to inspect and report on the legal status of the cockloft. The instruction was given on 12 December. He and a colleague called Peter Lee carried out the inspection on 16 December. He was the author of the report that followed. He viewed the plans drawn for the construction of the cockloft duly approved, and a subsequent letter to the effect that construction had been carried out in accordance with those plans and was thus approved. He noted the subsequent alterations. He concluded that the extension of the cockloft to the front of the shop in effect converted the cockloft into a separate storey. The staircase being the only means of egress from a storey had to comply with the Code of Practice for Means of Escape in Case of Fire (MOE Code). Under such code winder stairs are prohibited. The alteration had been carried out without authority when approval should have been sought but was not. The resultant structure was thus illegal.

33. In cross examination it was put to him that he had not played any part in the inspection or subsequent report, save that he signed the report, and that it was Peter Lee, then not qualified, who was the inspector and the report's author. He denied that. He said he was present, did inspect and did sign the report as his own. He conceded he did not attempt to examine the extension internally and establish how it was constructed. He was not instructed to do so. But he said it was apparent from a visual inspection and because of its load bearing capacity that it amounted to a structural rather than cosmetic alteration. It was put to him that he had misinterpreted the relevant codes; that an independent storey was not formed; that such works as had been carried out were not in contravention of the relevant codes of practice, were exempted works and were not illegal. He disagreed.

34. For the defence Miss Tam was called. She adopted her witness statement. She said she was employed by Centaline as an agent between 1994 and 1998. She said when she introduced Miss Cheung's shop to Mr Chan she told him there were approved plans for a cockloft but that he should treat the cockloft as it was constructed as not approved. When it came to signing the provisional agreement it was at Chan's instigation, not hers, that she drafted the addendum. A few days after that, at Mr Chan's request, she faxed him copies of the cockloft's approved plans. He acknowledged receipt. Going forward in time to a few days before completion Mr Chan asked her to try to negotiate a reduced price because of the market's downturn. She spoke to Miss Cheung but she refused and she passed that on to Mr Chan. Next he asked if Centaline would accept a lesser commission. On behalf of Centaline she rejected that proposal.

35. She said that in the past Mr Chan had, through her, bought shops with illegally constructed cocklofts which she was aware of. On both those occasions he had instructed that it be the subject of an addendum to avoid disclosure to a prospective mortgagee bank.

36. In cross-examination she said she knew the cockloft was illegal because the previous owner who had sold the shop to Miss Cheung had said so and Miss Cheung said the same when she asked her to find a buyer. She had no reason to disbelieve them.

37. It was put to her that when she referred the shop to Mr Chan she represented that the cockloft was a legal structure built in accordance with approved plans. She denied that. She asserted she had told him it was illegal. It was put to her that whilst Mr Chan did ask her to send to him a copy of the plans she did not do so. She denied that.

38. The second and remaining witness for the defence was a Mr James Law (Mr Law) who is a chartered building surveyor and a designated Authorized Person. He was invited to inspect and report on the shop and its cockloft, but not until July 2001. By this date the tenancy had changed hands. The new tenant had by then constructed a false ceiling in that area known as the cockloft void, and had also rebuilt the staircase to conform with the original plans. In his report he concluded:-

"5.1 The false ceiling which was alleged as unauthorized addition work by MSL, used to cover the cockloft void at the material time as alleged was only a decoration work and removal of which is a very simple work. (Take above 2 days to complete at a cost of approximately $3,000)

5.2 The winder step added at the bottom of the stair as alleged as unauthorized alteration work by MSL was actually an exempted minor building work not involving the structure of the building and not contravenes any regulation. Therefore, it is definitely not an unauthorized alteration work."

39. But from the witness box he conceded that the conclusion at 5.1 was based on no more than an assumption that the new tenant would not have bothered to dismantle a more substantial structure. He had not inspected what was formerly filling the cockloft void. Furthermore he did not go up into the cockloft or attempt to inspect what the false ceiling was attached to.

40. He disagreed with Mr Wong's conclusion that the extension would have made the cockloft into a separate storey thus requiring the staircase to comply with the MOE Code. He concluded the addition of the winder step was a minor matter, did not contravene any code and would be regarded as exempted work.

Findings of Fact

41. I am satisfied from the documents that the cockloft when originally constructed was done so to approved plans and the completed work was itself approved. I have considered the reports submitted by the respective experts and their evidence concerning the subsequent extensions. Of course Mr Law was at a disadvantage because he did not have the opportunity to inspect the work carried out. I have to say that that rendered his conclusion I have repeated verbatim as extraordinary. How could he come to an opinion on the structure of something which no longer existed?

42. Much of the evidence adduced by both surveyors dealt with whether or not a new storey resulted from the alterations, and whether this brought into play the MOE Code. But I regard that as academic. The question to answer is simply this: was the extension structural, requiring planning approval?

43. In fact I am satisfied that the extension was structural. Mr Wong's description and the photographs he took reveal that what it amounted to was an expansion of the cockloft into the former cockloft void. It was quite apparently not a false ceiling or in any way a decoration with limited load-bearing capacity. The safety fence as depicted in the original plans had been removed. The area was, as with the original cockloft, being used for storage of merchandise freely accessible by staff of the tenant. All this was done without authority. Approval should have been sought before and after construction. It was not. It was perforce an illegal structure.

44. Contrary to his account, I am satisfied Mr Chan was at all material times well aware of the legal status of the cockloft. He had traded in the area both as a real estate agent and as an investor in his own right for a number of years; long enough to know that illegally constructed cocklofts were then and still are commonplace, and I accept as true that Mr Chan had purchased shops before with illegal cocklofts. His evidence that he could not remember whether he had or not was, to say the least, disingenuous.

45. When Miss Tam referred him to Miss Cheung's shop she told him the cockloft was illegal as recounted to her by Miss Cheung and her predecessor in title. He would have known this tainted the title; but it did not put him off the transaction.

46. The addendum was his idea to identify the cockloft as part of the purchase without disclosing its existence in the agreement; that was why it was not referred to in the provisional agreement or formal agreement. And that was why, when the time came to requisition, no reference was made to the cockloft; this notwithstanding that both Mr Chan and his solicitors had copies of the approved plans and the solicitors were alerted by means of the addendum to a prospective blot on the title and Mr Chan was expressly aware of the illegality of the structure, because the intention was to proceed with the transaction in any event; indeed four days before the letter of requisitions had been sent Large Land had already resold at a gross profit of $1.6m. An unanswerable requisition would have lost it the fruits of that resale.

47. Only when the sub-sale foundered and his request to lower the price and or the commission fell on deaf ears did he instruct his solicitors to requisition concerning the cockloft's status, to escape the obligation of paying much more than the shop was by then worth.

48. The answers to the first two questions posed under the sub-heading "Issues" being thus a resounding "yes", I now turn to consider the legal consequences of those findings.

The Law

49. The parties contracted that Miss Cheung should show and give good title; see clauses 13 and 18. The illegal structure was a blot on her title. There are a long line of cases going back to the 19th century to the effect that where the vendor contracts that he will give good title then he must do so. It makes no difference that the purchaser might have been aware of the defect at the time the contract was entered into; see Cato v. Thompson [1882] 9 QB 616, and in re Gloag and Millers Contract [1883] 23 Ch 320.

50. The principle was addressed in the Hong Kong case of Giant River Limited v. Asie Marketing Limited [1991] 1 HKLR 297. In that case the vendor was held not to have shown good title because of the presence of illegal structures. The purchaser knew of the existence of some of these. But that did not assist the vendor. I quote from headnote 3:-

"3. Mere knowledge of the existence of some of the unauthorized structures does not of itself operate to modify a contractual term. Before a purchaser's knowledge of the facts can prejudice his position he must also be aware of the legal consequences of those facts, and even this knowledge would not reduce the obligation of the vendor to show a good title on the date for completion."

51. See also Regent Summit (Hong Kong) Limited v. Smart Business (Asia) Limited 2 HKC 718.

52. The rationale behind this principle is that the purchaser whose expectations of a clear title are protected by a clause which requires the vendor to show and give good title should not be found to forego that security unless the circumstances are compelling or clearcut. In Qualihold Investments Limited v. Bylex Investments Limited [1991] 2 HKC 589, Keith J described the burden which lies on a vendor to prove good title to be a heavy one.

53. But there are exceptions.

54. The parties may contract to exempt the vendor from giving good title in respect of any actual or prospective illegal structure. Even so that does not apply to a defect he knows of, about which the purchaser is ignorant; see Jumbo King Limited v. Faithful Properties Limited & Ors [1999] 4 HKC 707. There is no such exempting clause in this agreement.

55. I come now to the doctrine of waiver.

56. Notwithstanding the fact that the vendor has only shown a defective title, his purchaser may hold himself bound by waiving any objection to such defect. As to what constitutes waiver, Lord Diplock in Kammins Ballrooms Co. Limited v. Zenith Investments (Torquay) Limited [1971] AC 850 described waiver at p. 882 as:-

"..... a word which is sometimes used loosely to described a number of different legal grounds on which a person may be debarred from asserting a substantive right which he once possessed or from raising a particular defence to a claim against him which would otherwise be available to him."

57. In the context of agreements for sale and purchase I quote from Sihombing & Wilkinson's Hong Kong Conveyancing, Vol. 1 para. V34:-

"The waiver may be express, deemed or implied. Express waiver is rare in practice and waiver will more frequently be deemed as where, for example, the purchaser agrees, as a term in the contract of sale, that he will be deemed to have accepted the vendor's title after the expiry of a stated period for raising requisitions or objections. Finally waiver may be implied from the conduct of the purchaser and a common example of waiver by conduct would arise where he takes possession of the property before completion with knowledge of the defects in title.

.....

As to whether there is an implied waiver will depend upon whether such an intention can be inferred from the purchaser's conduct. The essential preconditions that must exist before waiver can be implied were analysed by the Court of Appeal in Peyman v Lanjani [1985] 1 Ch 457, where the court, following Leathley v John Fowler & Co Ltd [1946] KB 579 held that, where a party was faced with a choice of whether to affirm or rescind a contract, before a purchaser's acts could amount to an irrevocable election to affirm the contract, the purchaser must, first, have had knowledge of all the facts which might give rise to the election and, secondly, must have appreciated that the law gave him the right to affirm or rescind the contract. The purchaser must, therefore, have both factual and legal knowledge before the waiver will be effective. Further a person cannot be treated as having elected to affirm a contract, unless he has unequivocally demonstrated to the other party that he intends to proceed with it. The issue of election is, therefore, a question of fact to be decided upon the circumstances of each case."

58. Has there been waiver in this case? Not expressly. But as quoted above, that is rare, especially, in my experience, in contracts of conveyance in Hong Kong. As to implied and deemed waiver; I consider the surrounding circumstances. I have already found on the evidence that Mr Chan knew that the extension to the cockloft was illegal. I have explained why. And I have found he knew full well the consequences; that this tainted the title. I have explained why. His solicitors invoked the requisitions clause in time but without making any reference to the issue of the cockloft. I have already made my findings about that. I draw the irresistible inference that there was a positive election not to do so. The requisition made on 26 November was far too late in terms of a time limit strictly imposed. Although the response was not an outright rejection because it was made out of time, the manner in which the request was turned down does not in my view make any difference.

The Consequences

59. Miss Cheung had a contractual obligation to show and prove good title but could not do so because of the illegal structure in the shop. But Large Land by its conduct waived its rights to requisition for the removal of the defect. The answer to question 3(a) is "Yes" and to 3(b) "No".

60. Large Land by failing to complete on due date was in breach entitling Miss Cheung to invoke clause 20 and forfeit the deposits. Large Land's claim to recover the deposits fails on those grounds.

61. Questions 4 and 5 fall away.

Costs

62. The orders I now come to include one for costs. Because that is without the benefit of argument it will be nisi at first instance. But to assist the parties I give brief reasons for coming to the order I propose to make.

63. There is a general provision that costs follow the event. But the court has a discretion to depart from that course and I propose to do so, at least partially. Miss Cheung pleaded a number of alternative defences. Of course she is entitled to do so. She chose not to give evidence. She is entitled to adopt that position. But her primary defence was that the cockloft was not an illegal structure. Much of the trial was directed to this point. Not only did I find it was illegal but that all along she knew of this. I assume this was a factor which weighed against her entry into the witness box. Be that as it may it was improper conduct to plead on fallacious grounds. The trial was unnecessarily extended by this issue. In the circumstances I propose to discount the order for costs in her favour by half.

Orders

64. The plaintiff's claim is dismissed. It shall forthwith vacate the lis pendens from the Land Registry; in the event it fails to do so on or by 21 days of this date the Registrar, High Court, is empowered to execute a release on its behalf, prepared by the defendant's solicitors at the plaintiff's expense.

65. One half of the defendant's costs, taxed if not agreed, shall be borne by the plaintiff; this order is nisi at first instance.