VICTORY STAR LTD v. NG FUNG YING AND OTHERS

CACV 108/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 108 OF 2003

(ON APPEAL FROM HCA NO. 9257 OF 1999)

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REASONS FOR JUDGMENT

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Hon. Le Pichon J.A. :

1. I agree with the reasons given by Cheung J.A.

Hon. Cheung J.A. :

2. This Court dismissed the plaintiff's appeal at the conclusion of the hearing. These are my reasons.

The appeal

3. The plaintiff applied for summary judgment against the defendants for rescission of a sale and purchase agreement. Deputy High Court Judge Lam (as he then was) gave the defendants unconditional leave to defend. The plaintiff appealed against the decision.

The facts

4. The facts are briefly these. Mr. Chiu Ka Lung ("Mr. Chiu") was the registered owner of a property known as No. 16, Bowring Street, Ground Floor, Kowloon, Hong Kong ("the property"). Mr. Chiu died in 1995. The defendants are the intended beneficiaries of Mr. Chiu's estate.

5. On 17 August 1996 the plaintiff entered into a provisional sale and purchase agreement for the purchase of the property from the defendants. This provisional agreement was later replaced on 9 September 1996 by a formal agreement ("the agreement"). One of the terms of the agreement was that completion of the sale would take place within two months from the date of the defendants obtaining letters of administration of Mr. Chiu's estate.

6. Letters of administration were obtained on 15 March 1999. Before the letters of administration were obtained, the plaintiff's solicitors on 3 August 1998 raised a requisition of title on the property. Their concern, for the purpose of this case, was that there were unauthorized structures in the property.

7. The response of the defendants' solicitors on 10 August 1998 was that they denied that there were unauthorized structures and in any event asserted that there was no risk of any enforcement action by the Building Authority because the unauthorized structures were erected more than 28 years ago.

8. Thereafter there was further correspondence between the lawyers on the unauthorized structures.

9. On 5 February 1999, the defendants' solicitors wrote to the plaintiff's solicitors again, stating that without making an admission to the illegality of the structures, the defendants were prepared to remove the structures and restore the property to the original position. Further, they informed the plaintiff that once the remedial work had been carried out, the plaintiff would be required to complete the sale. There was no response from the plaintiff to this letter.

10. On 23 March 1999, the defendants' solicitors informed the plaintiff's solicitors that the remedial work would be carried out unless the plaintiff stated otherwise within the next seven days. The plaintiff did not respond.

11. The remedial work was carried out. On 18 May 1999, the defendants' solicitors informed the plaintiff's solicitors that the work was completed and offered the plaintiff an opportunity to inspect the property prior to completion.

12. Shortly after this letter, the plaintiff's solicitors wrote on 24 May 1999, stating that

“ Since it is an implied term of the Agreement for Sale and Purchase dated 9th September 1996 that the said property to be sold shall be on "as is" basis and our client shall take the said property as its stand, our client could not be forced to accept a substantial variation of the said property agreed to be sold."

13. The letter concluded by stating that the plaintiff was entitled to rescind the agreement.

Unconditional leave to defend

14. The judge granted the defendants unconditional leave to defend on the basis that there was a highly arguable defence of estoppel in that the plaintiff had remained silent when it was informed that the defendants would demolish the unauthorized structures. I agree with his view.

Substantial performance

15. The starting point is to see whether the vendor was able to substantially perform its obligation, see : Chan Man Choi & Another v. Poon Fook Wah & Another [2001] 3 HKC 493. This question can only be determined by the facts of the individual case. Hence in terms of the presence of unauthorized structures and the vendor's offer or action to remove them, the court has come to different conclusions depending, for example, on the size of the unauthorized structure as compared to the total size of the property intended to be sold and the importance attached by the intended purchaser towards the "unauthorized" part of the property in his decision to buy the property in the first place.

16. In the present case the unauthorized structures amounted to nearly 38% of the total area of the property. There is force in the plaintiff's contention that the defendants would not be able to substantially perform the agreement when the unauthorized structures were removed.

Willing parties

17. However, whatever may be the position on substantial performance, the issue of estoppel would assist the defendants in their defence.

18. Conveyancing is not a game. It is a transaction involving substantial sums of money between the parties. If the parties had chosen to enter into an agreement for the sale and purchase of a property, one has to proceed on the basis that they are willing parties to a deal and their wish is to complete the deal in accordance with the terms of the agreement. Likewise in the context of a requisition as to title, one has to proceed on the same basis. One would expect the parties to possess the requisite level of commonsense to guide them in their decision. Authorities for this approach are plenty, see : for example, Mexon Holdings Ltd. v. Silver Bay International Ltd. (per Litton P.J.) [2000] 1 HKLRD 935.

19. It goes without saying that the parties may be motivated by extraneous consideration such as a purchaser wishing to withdraw from a transaction because of a falling market. However, in deciding the legal obligations of the parties one must only be guided by the principle I have earlier stated.

Silence and estoppel

20. For the purpose of this appeal, it is sufficient to state the following principles in respect of estoppel :

1.	Under certain conditions, silence or inaction may constitute a representation as much as positive language or conduct for the purpose of an estoppel.
2.	The main condition is that a legal (not a mere moral or social) duty shall have been owed by the representor to the representee to make the disclosure, or take the steps, the omission of which is relied upon as creating the estoppel.

See : Spencer Bower and Turner on The Law Relating to Estoppel by Representation 3rd Edn. Para. 55.

21. In this case whilst the defendants had denied that the structures were illegal, their proposal to resolve the problem was not by putting up some fanciful legal arguments which might invite further discussions on the topic. They were actually telling the plaintiff that they would take the practical course of having the unauthorized structures removed. There was nothing equivocal about their intention at all.

22. The plaintiff had received a surveyor's report from its sub-purchasers on the unauthorized structures before it raised the requisition with the defendants. If its real concern was the blot on title, the defendants' proposal would have resolved the problem. If, on the other hand, its real concern was the size of the property that would eventually be conveyed to it, then one would expect it to have responded immediately to the defendants' proposal to remove the structures. Instead it had chosen to remain silent.

Arguable case on estoppel

23. Ultimately one must look at the nature of the relationship of the parties to determine whether there is a legal duty imposed on the representee. Here the parties have already entered into a binding legal relationship. The plaintiff knew that the defendants would undertake a course of action which would directly affect their respective rights and obligations. On the face of it, without finally deciding on this matter, I would consider there is an arguable case on whether the plaintiff had a legal duty to respond. It would indeed be strange if the position were otherwise.

24. Following from this, there must be an arguable case that the plaintiff's lack of response amounted to a representation that it would accept the defendants' proposal to resolve the requisition on title and is therefore estopped from alleging that the defendant would not be able to substantially perform the agreement.

Conclusion

25. I see no merits in the appeal. Accordingly the appeal was dismissed with costs to the defendants.