Wielder Properties Investment Co Ltd v. Richway International Investment Ltd

HCMP 1028/2019 & HCMP 1029/2019

[2020] HKCFI 506

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1028 OF 2019

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1029 OF 2019

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(Heard Together)

Before: Deputy High Court Judge MK Liu

Date of the Plaintiffs’ submissions: 26 February 2020 & 9 March 2020

Date of the Defendant’s submissions: 3 March 2020

Date of Judgment: 23 March 2020

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JUDGMENT

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INTRODUCTION

1.These 2 cases are 2 vendor and purchaser summonses taken out pursuant to s.12 of the Conveyancing and Property Ordinance (“CPO”).  The facts and the issues to be determined in these 2 cases are essentially the same.  As a result, on 29 November 2019, I directed that these 2 vendor and purchaser summonses should be heard at the same time.

2.Originally, the substantive hearing was scheduled to take place on 5 March 2020.  However, due to the General Adjourned Period, that hearing has been vacated.  The parties have agreed that the 2 Originating Summonses be determined on paper without an oral hearing, and have provided detail written submissions to the Court.  I am grateful to the parties for agreeing to adopting this approach, so that the 2 Originating Summonses can be determined without delay.

3.The Originating Summons in HCMP 1028/2019 is in relation to the sale and purchase of the property at the Basement or Garage Floor of No. 188 Boundary Street, Kowloon (“the 188 Property”).  The Plaintiff is Wielder Properties Investment Company Limited (“Wielder”), the vendor in the transaction.  The Defendant is Richway International Investment Limited (“Richway”), the purchaser in the transaction.

4.The Originating Summons in HCMP 1029/2019 is in relation to the sale and purchase of the property at the Basement or Garage Floor of No. 190 Boundary Street, Kowloon (“the 190 Property”).  The Plaintiff is Ms Chan Carrie (“Ms Chan”), the vendor in the transaction.  The Defendant is Richway, the purchaser in the transaction.

5.The Properties are located in 2 adjoining buildings erected on Kowloon Inland Lot No. 1959 (“KIL 1959”).  No 188 Boundary Street (“the 188 Building”) stands on Section A of KIL 1959 and No 190 Boundary Street (“the 190 Building”) stands on Section B of KIL 1959.

6.For ease of reference, Wielder and Ms Chan are referred to collectively as “the Vendors”, the 188 Property and the 190 Property are collectively referred to as “the Properties”, and the 188 Building and the 190 Building are collectively referred to as “the Buildings”.

THE FACTS

7.For the sale and purchase of the Properties, 2 formal sale and purchase agreements both dated 30 April 2019 were signed by the respective parties (“the SPAs”).  The terms of the 2 SPAs are substantially the same.  Under Clause 9 of both of the SPAs, the respective Vendors shall give title to the respective Properties in accordance with s.13A of the CPO, and shall prove their titles to the respective Properties in accordance with s.13 of the CPO.

8.After signing the SPAs, the Purchaser’s solicitors, Messrs. K. M. Lai & Li (acting for the Purchaser in both transactions, “KMLL”), by letters dated 16 May 2019 raised various requisitions as to the titles to the respective Properties.  For the purposes of the present proceedings, only one and the same requisition remains outstanding in both transactions, namely, the requisition set out in paragraph 1 of the aforesaid letters dated 16 May 2019 from KMLL (“the Requisition”), which reads: -

“1. We note from the Government Lease of K.I.L. No. 1959 that the user shall be domestic houses in a European type. However, we note from Occupation Permit No. 79 that the user is for non-domestic purposes. Please clarify.”

9.After KMLL raised the Requisition on 16 May 2019, subsequent correspondence was exchanged between KMLL and the Vendors’ solicitors, Messrs. Anthony Siu & Co. (acting for the Vendors in both of the transactions, “ASC”).  The relevant parts of the correspondence are summarized as follows: -

(a)  On 5 June 2019, ASC answered the Requisition as follows: -

“1. We note that-

a. the building which the Property forms part of was constructed more than 60 years ago as evidenced by the occupation permit dated 7 April 1956;

b. permission was granted by the Government to occupy and use of [sic] the building for non-domestic user under occupation permit dated 7 April 1956 and therefore, the Government must be well aware of the use of the Property since 1956;

c. there is no evidence showing that there [sic] the Government has any concern or objection as to the user of the Property since the construction of the building;

Therefore, there is no real risk that enforcement action against the Property will be taken out by the Government because if there exists any breach of the terms of the Government Lease, the Government has already acquiesced in the same.”

(b)  On 10 June 2019, KMLL stated that: -

“1. We do not agree with you. We refer you to the Judgments of Citiward Limited v Tai Ping Wing (HCMP No. 86 of 1995) and Jasmin Enterprises Limited v Chan Yuk Hon (HCMP No. 4070 of 1997).”

(c)  On 14 June 2019, ASC provided further answer, as follows: -

“1. We repeat our answer to this requisition and insist that there is no real risk of enforcement action by the Government. With the inaction on the government’s part over such a long period, the risk of enforcement action is remote, if not fanciful. Your attention is being drawn to to [sic] the judgment of Jumbo Gold Investment Limited v. Warren Yuen Cheong Leung and Joyce Mary Leung (FACV 9/192599) [sic], in particular, paragraphs 22 to 24. We note that this case is decided after HCMP 86/1995 and HCMP 4070/1997 and therefore supersede these cases that you have quoted.”

10.The original completion date of both transactions is 24 June 2019.  However, by the original completion date, the parties have not been unable to reach an agreement on whether the Requisition has been satisfactorily answered.  Accordingly, the parties have agreed to postpone the completion of the transactions to 1 month after the decision of the court in these proceedings.

THE ISSUES

11.The issues to be determined are:

(1)  whether the Requisition has been satisfactorily answered; and

(2)  in each case, whether the Vendor is able to give a good title.

ANALYSIS

12.The Crown Lease for KIL 1959 dated 9 September 1927 (“the Crown Lease”) provided: -

“… And the said Lessee hereby covenants with His said Majesty by these presents in the manner following that the said Lessee … shall not nor will erect domestic houses on the said piece or parcel of ground hereby demised or any part thereof other than domestic houses of a European type …” (Emphasis added)

13.On the other hand, the Occupation Permit in respect of the Buildings, No. Non-Dom 79/56, issued on 7 Apr 1956 by the Building Authority (“the OP”), provided: -

“Mr. A H Basto Authorized Architect has certified on 17-3-56 … that the new building being garages at ground floor level of Boundary Street on KIL 1959 comply in all respects with the provisions of the Building Ordinance (Chapter 123 of the Revised Edition, 1950) and that they are structurally safe. Permission is hereby granted to occupy and use the building for non-domestic purposes.” (Emphasis added)

14.There is no dispute that as a matter of fact, the Properties have been used for “non-domestic purposes”. 

15.Undeniably, there is a discrepancy between the user restriction provided in the Crown Lease and permission granted in the OP, and it is this discrepancy giving rise to the Requisition in both transactions. Mr Henry Cheng, counsel for the Vendors, does not shy away from this.  Mr Cheng submits that although there is a breach of the user restriction covenant of the Crown Lease, there is no real risk of enforcement action being taken by the Government in relation to such breach.  In these circumstances, the Vendors have shown good titles, and can also give good titles upon completion.

16.The “no real risk” answer has been provided by ASC in the correspondence prior to the original completion date.  Further, ASC has referred KMLL to the Court of Final Appeal’s decision in Jumbo Gold Investment Ltd v Yuen Cheong Leung & Another[1]in the correspondence.

17.In the affirmations in support of the 2 Originating Summonses, the Vendors raised the following points:

(1)  The OP in the present case was also copied to the “S.C.L. & S.” (ie the Superintendent of Crown Lands and Survey), who (as in the case of Jumbo Gold) was concerned with lease conditions under the Crown Lease.  This strongly supports the fact that the Government knew of the “non-domestic” use of the Buildings as from the date of the OP, and that this was in clear contradiction with the user restriction in the Crown Lease.

(2)  Just as in the case of Jumbo Gold, after the Buildings were constructed, third parties (including the Vendors) have become involved, acquiring units in the Buildings on the basis that permission to occupy the Buildings for non-domestic purposes (ie the user stated in the OP) had been granted by the Government and that Government Rent had been paid and accepted for many years.

(3)  The breach of the Crown Lease could only be “enforced” by way of re-entry under s.3 and 4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance.  Since the Vendors have acquired the Properties as innocent third parties, it is highly unlikely that the Government would act in such a harsh and capricious manner.  

18.The Purchaser is of the view that the Vendors are not entitled to rely upon these additional points in these proceedings, for these points are facts which have not been raised in the correspondence passing between the parties before the original completion date, and have only been raised after the commencement of these proceedings. 

19.With respect, the Purchaser’s argument is misconceived.  The points raised by the Vendors in the affirmations are points derived from the documents which have already been provided to the Purchaser prior to the original completion date.  Those points are some legal analysis based upon the conveyancing evidence disclosed to the Purchaser before completion.  The Vendors are entitled to state their legal position and the reasoning behind that position in these proceedings.  As said by Litton JA (as he then was) in Active Keen Industries Ltd v Fok Chi Keong[2]:

“In my judgment the judge’s approach must in principle be correct. If the matter was self-evident, the purchaser’s solicitor cannot insist upon a fuller reply. But the vendor’s solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed. A requisition as to title is not an occasion for the parties’ solicitors to bandy propositions of law: each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself: although, obviously, if one party can persuade the other to his own point of view on the law, so much the better”

20.Ms Joyce Leung, counsel for the Purchaser, raises the following arguments opposing the Vendors’ claim:

(1)  The breach of the user restriction in the Crown lease is a blot on the titles to the Properties and it is well-established that a purchaser need not take doubtful or defective title.

(2)  The facts and circumstances of this case do not render the risk of enforcement action by the Government “fanciful” in the sense described by Litton PJ in Jumbo Gold.

(3)  The question of whether good title has been shown should not depend on whether there is a risk of enforcement action based on existing Government policy.

21.With respect, I am of the view that there is no merit in these arguments.

22.As to the first argument put forward by Ms Leung, I am of the view that a breach of a covenant in a crown lease or a government lease may or may not lead to a doubtful or defective title to a property on the land.  The answer depends upon whether there would be a real risk that the Government may take enforcement action over the property as a result of the breach.

(1)  Ms Leung relies upon the following in support of her submissions:

(a)  In Citiward Ltd v Tai Ping Wing[3], a block of flats had been built on the site in breach of a restriction in the Crown lease in respect of the property, namely that only “one detached or semi-detached private residence of European style” was to be built.  In recognising the risk of Government re-entry, Rogers J held that although the risk was low, this itself did not mean that good title had been shown.  He said at 185D-E:

“My view of the matter is that the risk of government re-entry in this case is probably low. But the purchaser is entitled to be cautious. There is a breach of a Crown lease. This has not been sorted out. It needs to be sorted out. It may well be that many purchasers are prepared to take that risk, but it seems to me that I cannot say good title has been made out. I cannot foist upon the purchaser this title which does have some doubt about it. Therefore it seems to me that I have to grant the relief sought by the plaintiff [purchaser].”

(b)Citiward was expressly affirmed by Sears J in Lee To Ming & anor v Tam Kim Sum William & anor[4].

(c)  In Jasmin Enterprises Limited v Chan Yuk Hon[5], one multi-storey building containing some 46  shops and apartments was erected in breach of an express provision in the Crown lease to erect no building except “two houses of a European type”.  Requisitions were raised and answered. Sakhrani J placed considerable emphasis on the undesirability of the risk of litigation in holding that the requisition was not satisfactorily answered.  He said at 229D-E:

“Although in this case the risk of Government re-entry for breach of that covenant is not great, nonetheless there is a risk. In my judgment, the purchaser should not have to endure that risk of litigation and the purchaser’s solicitors were entitled, in my judgment, to take the stand that they did. They were entitled to be cautious. I find that the requisition was not answered satisfactorily and it does not matter whether in fact good title has been shown.”

(2)  Ms Leung argues that in light of these authorities, the Requisition has not been satisfactorily answered.

(3)  The flaw in Ms Leung’s argument is that various important decisions on the definition of “good title” have not been considered or sufficiently considered in her submissions.  In a recent decision by the Court of Appeal in Kingdom Miles Ltd v Ever Crystal Ltd[6], the Court of Appeal have reviewed those decisions and reiterated the meaning of “good title” in [66] – [72] of that decision. I have summarized what the Court of Appeal has said in Price Club Ltd v Bizsmart Consultants Ltd[7], in which I said:

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

(4)  The true meaning of “good tile” must always be borne in mind.  It cannot be said that once a covenant in a crown lease or a government lease has been breached, there is no good title.  The Court of Final Appeal’s decision in Jumbo Gold is a clear example showing the otherwise. Bearing in mind the definition of “good title” as stated in the above, the crux should be whether there is a real risk that the Government may take enforcement action as a result of the breach.

23.As to the second argument raised by Ms Leung, with respect, I am of the view that Jumbo Gold is applicable in the circumstances of these 2 cases.

(1)  In my view, the answer provided by ASC in correspondence is a satisfactory answer to the Requisition.  Further, the points raised by the Vendors in their affirmations as set out in [17] above are valid points.

(2)  Ms Leung submits that each case depends upon its own facts.  Ms Leung refer me to the Court of Appeal’s decision in Wong Kwok Yan v Pon Chi Lok[8], in which the Court of Appeal did not regard the risk of enforcement action taken by the Government as fanciful.

(3)  Ms Leung submits that in these 2 cases, save and except the OP, there is nothing showing that the Government had consented to the breach of the user restriction in the Crown Lease.  Ms Leung argues that it cannot be said that the breach of the user restriction here is so obvious and visible and hence the Government must have waived or abandoned its right to take enforcement action over the years.

(4)  Ms Leung must be right in saying that each case depends upon its own facts.  In Wong Kwok Yan, the Government had expressly reserved its right to take enforcement action by a letter.  In the circumstances of that case, the Court of Appeal concluded that the risk of enforcement action by the Government would not be fanciful.

(5)  However, in these 2 cases, there is nothing indicating that the Government may consider to take any enforcement action in respect of the breach of the user restriction in the Crown Lease.  That the Buildings are not “domestic houses of a European type” is something which is conspicuous to the eyes and cannot be concealed. The Buildings have been standing on KIL 1959 for more than 60 years.  In these circumstances, to say that the Government is unaware of the breach of the user restriction in the Crown Lease is most unreal.

24.As to the third argument raised by Ms Leung, I am of the view that the submissions are wrong as a matter of law and must be rejected.

(1)  Ms Leung submits that Jumbo Gold is at odds with Citiward and Jasmin Enterprises which suggest that the very existence of a risk of re-entry suffices to defeat a vendor’s claim to good title.  It is noteworthy that neither Citiward nor Jasmin Enterprises was considered in Jumbo Gold and neither decision has been overruled by a higher court.

(2)  Ms Leung further submits that the reasoning in both Citiward and Jasmin Enterprises has been affirmed by the Court of Appeal in Wong Kwok Yan.

(3)  Ms Leung submits that the likelihood of a risk has no bearing on whether good title has been shown.

(4)  Counsel’s submissions are contrary to the authorities mentioned by the Court of Appeal in Kingdom Miles [66] – [72], including the Court of Final Appeal’s decisions in Jumbo Gold, Mexon Holdings Ltd v Silver Bay International Ltd[9], and De Monsa Investment v Whole Win Management Fund[10].  Time and again, the Court of Final Appeal and the Court of Appeal have emphasized that a good title does not mean a perfect title, free from every possible blemish.  With respect to counsel, the submissions put forward are wrong in law.

(5)  I do not regard Wong Kwok Yan as an authority lending any support to counsel’s submissions. In Wong Kwok Yan, the Court of Appeal was merely saying that in the circumstances in that case, the risk of enforcement could not be regarded as fanciful.

(6)  If Jumbo Gold is at odds with Citiward and Jasmin Enterprises as submitted by Ms Leung, Citiward and Jasmin Enterprises must be considered as having been overruled by the Court of Final Appeal and should not be followed.  After all, this Court is bound by the Court of Final Appeal’s decisions.

(7)  The definition of “good title” laid down by the Court of Final Appeal and the Court of Appeal is binding upon this Court.  The submissions put forward are in contradiction with the rule of stare decisis and must be rejected.  A lower court must follow a higher court’s decision which is directly on the point.  This has been made plain by Anderson Chow J in Secretary for Justice v Cheng Kam Mun[11], in which the learned judge said:

“24. [counsel] argues that the decision of the Court of Appeal in the Effiscient case was reached per incuriam, in that the Court of Appeal’s attention was not drawn to various conflicting provisions in the Rules of High Court ……

26. It is with no disrespect to [counsel] that I do not propose to examine in detail the merits of his submissions regarding the true construction of O.52 r.3(2), for I am clearly of the opinion that whatever may be my view regarding the true meaning and effect of O.52 r.3(2), I am bound by the decision of the Court of Appeal in the Effiscient case. The holding that entering an originating summons for hearing means issuing a notice of appointment to hear the originating summons was plainly an essential step in the reasoning of the Court of Appeal in that judgment and accordingly forms part of the ratio decidendi of that case. It is also clear that the doctrine of per incuriam cannot be relied upon by a judge at the first instance to refuse to follow a directly relevant decision of the Court of Appeal: see R v Pau Chi Keung and Cheung Hei Lai [1987] HKLR 1148, 1152, per Fuad JA (delivering the judgment of the Court of Appeal comprising also Cons V-P and Clough JA).

27. If any further authority is needed, I can do no better than refer to the opinion of Lord Hailsham of St Marylebone in Broome v Cassell & Co Ltd (No.1) [1972] AC 1027, 1054:

… I am driven to the conclusion that when the Court of Appeal, described the decision in Rookes v Barnard as decided ‘per incuriam’ or ‘unworkable’, they really only meant that they did not agree with it. But, in my view, even if this were not so, it is not open to the Court of Appeal to give gratuitous advice to judges of first instance to ignore decisions of the House of Lords in this way …. The fact is, and I hope I will never be necessary to say again, that the hierarchical system of courts which exists in this country, it is necessary for each lower tier … to accept loyally the decisions of the higher tiers.

28. In my view, this statement applies with equal, if not greater force, to a judge sitting at the first instance when invited not to follow a decision of the Court of Appeal.

29. [counsel] has referred me to the decision of Deputy High Court Judge Lugar-Mawson sitting at the first instance in Wong Kwai On v Leung Wing Cheong [1999] 2 HKLRD 779, where the learned judge apparently did not follow an earlier decision of the Court of Appeal in Wong Wai Chi Ann v Cheung Kwok Fung Wilson [1996] 3 HKC 287 on the ground the decision was at variance with a binding statutory rule.  With great respect to the learned judge, I do not consider this to be a permissible route for a judge at first instance to take.  In my view, if it is considered that the decision of the Court of Appeal in the Effiscient case is incorrect, the only way to achieve a reversal of that decision would be take the matter to the Court of Appeal (or the Court of Final Appeal) or amend the rules.”

25.Having considered the parties’ submissions, I agree with Mr Cheng and I am unable to accept Ms Leung’s submissions.  In my judgment, the Requisition has been satisfactorily answered, and the Vendors are able to give good titles to the Properties to the Purchaser.

26.I would give judgment to the Vendors in both cases.  The Vendors do not seek any costs, and hence there would be no order as to costs.

DISPOSITION

27.In each case, I make an order in terms of Originating Summons.

28.Lastly, it remains for me to thank counsel for the assistance rendered to the court.

Mr Henry Cheng, instructed by Anthony Siu & Co, for the plaintiffs

Ms Joyce Leung, instructed by K. M. Lai & Li, for the defendant