Sky Globe Holding Ltd v. Hung Lee Estates Ltd

HCA 9/2023

[2023] HKCFI 1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 9 OF 2023

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.The dispute herein concerns the sale and purchase of the property known as and situated at Shops A, B, C, D, E, F, G, H & I (“the Shops”)  on the whole Ground Floor, Mai Hing Building (“the Building”), Nos.1-11 Hang On Street, Nos.30-36 Luen On Street, Kowloon (“the Property”).  The plaintiff (“the Purchaser”)  and the defendant (“the Vendor”)  signed a Provisional Sale and Purchase Agreement dated 6 June 2022 (“the PSPA”), in which the completion date was stipulated as 30 December 2022.  However, the transaction fell through.

2.The Purchaser claims that the Vendor has breached (a)  its duty to show a good title within a reasonable time before completion, and (b)  its duty to give a good title on completion.  The Purchaser seeks rescission of the PSPA, return of the deposits paid, as well as related costs and other monetary relief.  The Vendor denies liability.

3.The Purchaser commenced these proceedings against the Vendor on 5 January 2023, and took out a summons under Order 86 for summary judgment (“the O86 Summons”)  on 10 January 2023.  This is the substantive hearing of the O86 Summons.  In this hearing, Mr Victor Dawes SC (leading Mr John Cheung)  represent the Purchaser, and Ms Maggie Wong SC (leading Ms Sharon Yuen)  represent the Vendor.

B.  BACKGROUND FACTS

4.The facts as recorded in the documents are as follows:

(1)  On 6 June 2023, the Vendor and the Purchaser signed the PSPA.  The PSPA contains the following terms:

(a)  As stipulated in Clause 2, the purchase price of the Property is HK$110m, which shall be paid by the Purchaser to the Vendor in the following manner: (i)  an initial deposit in the sum of HK$3.8m, which shall be paid upon signing of the PSPA (“the Initial Deposit”); (ii)  a further deposit in the sum of HK$7.2m, which shall be paid on 6 July 2022 (“the Further Deposit”); and (iii)  the balance of HK$99m be paid upon completion on or before 30 Dec 2022.  Both the Initial Deposit and the Further Deposit shall be paid to the Vendor’s solicitors, Messrs Ho and Wong (“HW”), as stakeholders until completion.

(b)  Clause 4 stipulates that the Property shall be sold to the Purchaser, its nominee or sub-purchaser free from encumbrances.

(c)  Clause 7 states that the Vendor is represented by HW, whereas the Purchaser is represented by Tong Kan & Co (“TKC”).

(d)  Clause 9 provides that the Property is sold to P on an “as is” basis.

(e)  Clause 10 bears significance in this case.  That clause is as follows:

“This Agreement supersedes all prior negotiation, representation, understanding and agreement of the parties hereto.”

(f)  Clause 12 states that that time shall be in every respect of the essence of the PSPA.

(g)  Clauses 14 and 15 are handwritten Chinese Clauses inserted into the PSPA, which are as follows:

“14. 此乃必買必賣合約.

15.  所有政府命令在成交前由賣方負責, 成交後由買方負責”

5.Upon signing the PSPA on 6 June 2022, the Purchaser paid the Initial Deposit to HW.  Ad valorem stamp duty chargeable on the PSPA at a sum of HK$4,675,000 was paid by the Purchaser on 27 June 2022.  The Purchaser paid the Further Deposit to HW as stakeholders to be held until completion on 6 July 2022.  No formal sale and purchase agreement has ever been concluded.  TKC’s representatives attended the office of HW to inspect the title deeds regarding the Property on 14 November 2022.

6.By a letter dated 17 November 2022, TKC raised requisitions concerning inter alia the following 5 issues:

(1)  1^st Issue

The Purchaser requested for production of certified copies of some title documents registered against the Property.

(2)  2^nd Issue

The Purchaser requested for proof of due compliance with a Building Order No.UBCSN/0345/0001/12 registered against the common area of the Building in the Land Registry by Memorial No.14042501330048 issued by the Building Authority on 26 February 2014 (“the Common Area Order”).  This order concerns a metal gate across the staircase at the entrance on ground floor of the Building.

(3)  3^rd Issue

The Purchaser requested for proof of due compliance with a Building Order No.UBCSN/0345/0002/12 registered against the Property in the Land Registry by Memorial No.14042501330057 issued by the Building Authority (“the Shops Order”).  The Shops Order concerns the following 3 items:

(a)  Item (i)  relates to “2 nos. of metal frame supporting the air-conditions attached to the fence wall at the rear of building”;

(b)  Item (ii)  is a “canvas canopy attached to the external wall”;

(c)  Item (iii)  is a “structure erected on and over the yard”.

(4)  4^th Issue

The Purchaser requested for proof of due compliance with a Fire Safety Direction No. FSD/FSDn/6905/2014 in respect of the common areas of the Building issued by the Director of Fire Services on 25 September 2014 (“the 2014 Common Area Direction”)  and a Fire Safety Direction No.BD/FS/TCBl/04348/14 in respect of the common areas of the Building issued by the Director of Buildings (the “2014 Common Area BD Direction”).

(5)  5^th Issue

The Purchaser requested for confirmation as to whether the Shops were subject to any fire safety directions, and if so, proof of due compliance with such directions.

7.HW reverted on 23 November 2022 and provided the following answers:

(1)  1^st Issue

HW undertook to produce certified copies of the documents relating to the Common Area Order and the Shops Order but refused to produce certified true copies of the other requested documents (“the Outstanding Documents”).

(2)  2^nd Issue

HW denied that the Common Area Order affected the Vendor’s title to the Property on the basis that it fell upon the Incorporated Owners (“IO”)  to deal with it, and that Clause 15 of the Agreement meant that the matter would not affect the Property’s title.

(3)  3^rd Issue

HW asserted that the Shops Order had been partially complied with and that the remaining part, ie item (iii), could not be satisfied because it would require the demolition of a concrete structure on the 1^st Floor of the Building.  HW added that the matter had already been reported to the Buildings Department.

(4)  4^th and 5^th Issues

HW said that the IO had been handling the 2014 Common Area BD Direction and the 2014 Common Area Direction.  HW disclosed a number of Fire Safety Directions from 2014 relating specifically to the Property (“the 2014 Shops Directions”).  It appears that these directions were then superseded by a series of Fire Safety Directions from 2019 (“the 2019 Shops Directions”).  HW said that these directions “have been handled by the IO years ago”.

8.Between 6 to 7 December 2022, there was correspondence passing between TKC and HW.  The Purchaser was not satisfied with the answers given by the Vendor.  The Vendor maintained its position that none of the issues raised by the Purchaser constituted title defects.

9.By a letter dated 12 December 2022 from the IO to TKC, the IO informed the Purchaser that the common areas of the Building were now subject to the Fire Safety Directions No.FSD/FSDn/4509/2019 and FSD/FSDn/2833/2019 issued by the Director of Fire Services (“the 2019 Common Area Directions”). It appears that these directions superseded the 2014 Common Area Direction.

10.On 15 December 2022, HW wrote to TKC enclosing a letter from the IO regarding the 4^th and 5^th Issues:

(1)  The IO’s letter confirmed that the 2019 Shops Directions “are addressed to the owner of above Property. These orders are not related to the common parts of the building, the building does not have any liabilities on it. Please check with the owner about the progress”.  As to the 2019 Common Area Directions, the IO’s letter noted that they had applied for an extension and been “following up” on these notices, and that the “new owner” would be expected to “share the renovation/construction fee of the above said repair works for the building are being taken in action”. 

(2)  HW’s covering letter asserted that the progress with complying with the 2019 Shops Directions would be the same as for the 2019 Common Area Directions. 

11.On 20 December 2022:

(1)  TKC wrote to HW indicating inter alia that the Purchaser was prepared to consider settling the 2^nd to 5^th issues on the following terms: (a)  the Vendor shall undertake to be responsible for the compliance of the outstanding orders and directions; and (b)  as security for the Vendor’s undertaking, HK$1,821,600 shall be deducted from the balance of purchase price and stakeheld by HW towards the compliance of the outstanding orders and directions. 

(2)  The proposed amount in respect of each issue was based on a “Certificate of Costs” produced by a project management company engaged by the Purchaser, Peaktop Century Ltd (“Peaktop”).  A copy of the Certificate of Costs was provided to HW in the same letter.  An authorised person, Mr Chao from Peaktop had previously inspected the Property on 7 December 2022.

(3)  As to the Shops Order, TKC referred to 3 photos enclosed in the letter (“the 3 Photos”), which showed (a)  metal frames supporting air-conditioners attached to the fence wall at the rear of the Property; (b)  a canvas canopy attached to the external wall over the open yard; and (c)  a structure erected over the yard.

12.On 21 December 2022, HW replied and refused to respond to TKC’s comments on the basis that they were requisitions raised out of time, and rejected P’s proposal.  HW also said that the photographs “did not show the correct position of the required works”.

13.From 28 to 30 December 2022, the parties exchanged further letters:

(1)  The Vendor offered to pay the Purchaser a sum of HK$180,000 in “full and final settlement of the Building Order(s)”.  This was rejected by the Purchaser.

(2)  The Purchaser produced an Authorised Person’s Certificate issued by Mr Chao on 29 December 2022 (“the AP Certificate”), after Mr Chao further inspecting the Property on 26 December 2022.  The AP Certificate certified that there were 2 unauthorised building works (“UBW1” and “UBW2”)  affecting the Property which were in a dilapidated condition and posed a real risk of collapse.  TKC sent the AP Certificate to HW on 29 Dec 2022.  In response, HW acknowledged the “illegal structures” (ie UBW1 and UBW2)  but asserted that “[they] were not erected nor used by our client or its tenant and they do not form part of the Property. The only relevant portions to the Property or to the said Building Order were shown in P-5 and P-6 of the Photographs taken on 7^th December 2022, which were beneath UBW1”.

(3)  As to the 3 Photos, HW said that the metal frames and canvas canopy identified by TKC were at “false location[s]”, and provided a photo purporting to show “the canopy at front entrance which was required to be demolished (and already demolished prior to 24^th October 2014)  by the Building Order…”.

(4)  As to the Outstanding Documents, HW said that “we normally decline to entertain such request and rely on the experience of conveyancing lawyers to treat these as extinct encumbrances”.  The same letter enclosed uncertified copies of the Letters of Compliance concerning Memorial Nos.UB6127610 and UB9296928.

(5)  HW also sent copies of the Outstanding Documents to TKC at 11:34 am on 30 December 2022. Those copies are not certified true copies.

14.Completion did not take place as scheduled on 30 December 2022.

15.On 31 December 2022, TKC wrote to HW and said that the Vendor’s breach was noted and that the Purchaser’s rights and remedies were reserved.  On 3 January 2023, TKC wrote to HW, informed HW that the Purchaser accepted the Vendor’s repudiation of the PSPA and demanded the Vendor to return the Initial and the Further Deposits.

16.P commenced these proceedings on 5 January 2023, and took out the O86 Summons on 10 January 2023.

17.In relation to the O86 Summons, the following affirmations have been filed:

(1)  Affirmation of Wong Man Hin Max (“Wong”, sole director of the Purchaser)  filed by the Purchaser on 10 January 2023 in support of the O86 Summons;

(2)  Affirmation of Chan Kai Hung (“Chan”, Senior Manager of the Vendor)  filed by the Vendor on 23 May 2023 in opposition to the O86 Summons; and

(3)  Second Affirmation of Wong filed by the Purchaser on 20 June 2023 in reply.

C.  MOTIVES IRRELEVANT

18.Before discussing the merits of the Purchaser’s O86 application, I would quickly dispose of one point raised by the Vendor.  One of the points raised by the Vendor in this application is that the Purchaser was simply wished to get out of a bad bargain in making all the criticisms against the title to the Property.  In his affirmation, Chan said:

“69. In the circumstances, I verily believe that by refusing to complete the purchase of the Property, the Purchaser simply wished to get out of what it considered to be a bad bargain, not only of the Property but also of its strategic, bulk acquisition of units in the Building for redevelopment purposes, in view of the unfavourable market conditions.

70. Thus, in HW’s letter dated 4 January 2023, HW stated that:-

‘the requisitions were not reasonably raised and not within reasonable time. What led to the requisitions was the further slump instead of revival in the property market since mid-2022 ...’ ”

19.With respect, time and again, the Courts in Hong Kong have said that the motives of the purchaser are really immaterial in this kind of cases.  The relevant question remains to be, as a matter of law, whether the purchaser has a right to rescind the contract in the circumstances.

(1)  In Mariner International Hotels Ltd v Atlas Ltd[1], Bokhary PJ said:

“55. Before examining the requisitions and answers in detail, there are several observations to make for the purpose of clearing the air, so to speak. Mr Thomas points to the

well-known statement by Fuad JA (later Fuad V-P and now Fuad NPJ)  in Woomera Co Ltd v Provident Centre Development Ltd [1985] 1 HKC 257 at p.275A–B. This is that while purchasers are “fully entitled to insist upon their legal rights whatever their motives for seeking to withdraw from their agreements, … they should not be surprised if … their list of condemnations is very carefully scrutinised where, in the absence of any inclination by the vendors to vary their bargain, [the purchasers] were so obviously looking for excuses not to complete”. I respectfully agree. But of course very careful scrutiny does not mean scrutiny with a jaundiced eye.

56. Mr Sumption submits that a fair reading of their judgmentmakes it plain that the lower courts had formed — and were influenced by — the view that the Purchaser was trying to escape from a purchase which a fall in property prices had made unprofitable. After pointing out that the Purchaser had been raising concerns even before the property market crashed, Mr Sumption says that it would not matter even if the Purchaser had been motivated by a desire to escape from an unprofitable purchase. I think that it comes back to very careful but not jaundiced scrutiny. After all, a party would normally only exercise a right of termination if it suits him to do so. The legal question is whether there was a right to terminate.

57. The standpoint from which the question of title is to be approached was identified by Mr Justice Litton PJ in Mexon Holdings Ltd v Silver Bay International Ltd (2000)  3 HKCFAR 109 at p.117D. It is that of “a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain”. The bargain being one for good title, it comes back to the general test of proof beyond reasonable doubt. ……” (Emphasis added)

(2)  In Profit World Trading Ltd v Ho So Yung[2], Bharwaney J said:

“I should state, for the sake of completeness, that I accept [counsel for the purchaser]’s submissions that the motive of the purchaser and the absence of good faith were immaterial, provided, as was the case here, that a substantive requisition was raised, i.e. a requisition that was proper and reasonable. It might well be that [the purchaser] in this case was a speculator who was trying to get out of a bad bargain. However, if the purchaser had a legal right to do so, the court ought not to deny him that right simply because the court suspected, or it was proved, that he was a speculator. ……” (Emphasis added)

20.Whether the Purchaser is entitled to have judgment depends upon whether the Vendor has discharged the duty of showing a good title reasonably before completion and is able to discharge the duty of giving a good title upon completion.  The Purchaser’s motives are irrelevant.

D.  THE PRINCIPLES

21.The principles concerning summary judgment are trite, which are as follows: [3]

(1)  The burden is on the defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial.

(2)  The defendant must show that he has a real or bona fide defence, or a fair probability or reasonable grounds that a bona fide defence exists.

(3)  In the affidavit filed in opposition to the application, the defendant must condescend upon particulars and state clearly and concisely what the defence is, and what facts are relied on to support it.

(4)  If a point of law raised by the defendant is clear and the court is satisfied that it is really unarguable, leave to defend will be refused.

(5)  Summary judgment is only for clear cases.  Leave to defend should be given where the defendant raises any substantial question of fact which ought to be tried, or there is a fair dispute to be tried as to the meaning of the document on which the claim is based.

22.Although there is no express term in the PSPA concerning the Vendor’s obligation to show a good title, Clause 4 of the PSPA has already mentioned that the Property shall be sold to the Purchaser free from encumbrances.  In any event, it is trite that a vendor has an obligation to show a good title reasonably before completion in an open contract.  Not only the vendor has the obligation to answer a requisition properly raised by the purchaser, the vendor also has an obligation to satisfactorily answer the requisition at a time reasonably before the scheduled completion date.  The point has already been made clear in the last century by the Court of Appeal in Acitve Keen Industries Ltd v Fok Chi-keong[4], in which Litton JA (as he then was)  said:

“…… even though the Chinese agreement is wholly silent on the question of objections and requisitions as to title, there is an obligation on the vendor to show a good title. This obligation arises by necessary implication from the contract itself. This accords with common sense. Were the law otherwise, the purchaser might be left in the position of having to make a snap decision on the day fixed for completion, on scanty information, as to whether to complete or not. It follows that this obligation falling on the vendor to properly answer requisitions and inquiries, if reasonably raised by the purchaser, must be discharged within a reasonable time, to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed.”

23.While the Vendor has a duty to show a good title reasonably before completion, it goes without saying that the Vendor would also has a duty to give a good title upon completion.  The duty to show a good title and the duty to give a good title are two separate and independent duties.[5]

24.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[6].

25.In the context of notices or orders from the Building Authority, it is incumbent upon the vendor to demonstrate either that the notices or orders have been dealt with to the satisfaction of the Authority, or that the costs of compliance have been adequately provided for, such that no encumbrance under s.33(9)  of the Buildings Ordinance (“BO”)  could arise.[7]

26.The liability of a unit owner to make a contribution to meet the liability of the incorporated owners is a liability goes with the ownership of that unit, and if it is so extraordinary having regard to matters such as its nature or magnitude as to be wholly outside the contemplation of a reasonable purchaser, would constitute a defect in title.  In Chi Kit co Ltd & Another v Lucky Health International Enterprise Ltd[8], Bokhary PJ and Sir Anthony Mason NPJ, after examining the provisions of the Building Management Ordinance, concluded[9]:

“The consequence of this interpretation is that the liability to meet a notice of contribution fixed by the management committee goes with the unit and is imposed upon the owner for the time being.”

Their lordship further said[10]:

“Although the liability is not a charge on the unit itself, it is a liability which goes with ownership of the unit. It is a liability which is imposed in virtue of ownership of the unit. …… Although the liability of the unit owner to meet a contribution is not charged on the unit, it binds the unit and therefore it can constitute a blot on the title or an incumbrance. ……

It follows in our view that the liability to pay a contribution, once it attaches to the owner of a unit, goes with the unit and binds successive owners of the unit so long as the contribution remains unpaid. Such a liability, if it were so extraordinary having regard to matters such as its nature or magnitude as to be wholly outside the contemplation of a reasonable purchaser, would constitute a defect in title.” (Emphasis added)

27.In respect of the principles concerning interpretation of a legal document, Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd said[11]:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

28.If the vendor relies upon the terms of the contract to shift the risk of any defect in title to the purchaser, the language must clearly do so. As said by Lord Hoffmann NPJ in Jumbo King[12]:

“Prima facie, it is the duty of the vendor to deduce and then convey a good title and if he relies upon the terms of the contract to shift the risk of any defect in title to the purchaser, the language must clearly do so. … The question is whether the purchaser would have been aware of the risk he was being asked to take.”

E.  DISCUSSION

E1. Issue 1

29.The Outstanding Documents are as follows:

	Memorial No.	Date of Instrument	Description
1.	UB4043552	14.4.1989	Government Notice No. 1204 of 14.4.1989 pursuant to section 22(2)  (Remarks: The Crown Rent and Premium (Apportionment)  Ordinance[13])  (“the Apportionment Notice”)
2.	UB4342245	8.2.1990	Order No. D13/NT/90C under section 26 of the Buildings Ordinance (Remarks: By the Building Authority)
3.	UB4623134	22.10.1990	Letter of Compliance
4.	UB4538276	2.8.1990	Order No. DR31/NT/90C under s. 28(3)  of the Buildings Ordinance (Remarks: By the Building Authority)
5.	UB4906558	11.6.1991	Letter of Compliance
6.	UB5936484	22.11.1993	Order No. C2956/93/K under s. 24(1)  of the Buildings Ordinance (Remarks: By the Buildings Authority)
7.	UB6127610	5.5.1994	Letter of Compliance
8.	UB8879618	23.1.2003	Order No. DR10002/K/01/MS/TC under s. 28(3)  of the Buildings Ordinance (Remarks: By the Buildings Authority Re: For Common Drains Only)
9.	UB8879619	23.1.2003	Order No. D10006/K/01/MS/TC under s. 26 of the Buildings Ordinance (Remarks: By the Buildings Authority Re: For common areas, exterior and interior of the building)
10.	UB9296928	18.6.2004	Letter of Compliance

E1A The Apportionment Notice

30.I agree with Mr Dawes that the Apportionment Notice is part of the Government lease.  By the operation of s.13 of the Conveyancing and Property Ordinance (“CPO”), the Vendor must produce either the original or a certified true copy of the same to the Purchaser for the purpose of showing a good title.

(1)  S.13(1)  of the CPO provides:

“Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor, as proof of title to that land, only production of the Government lease relating to the land sold and ……” (Emphasis added)

(2)  The meaning of “Government lease” includes an instrument whereby the provisions of the lease have been varied.[14]

(3)  The effect of an apportionment notice issued under s.22(2)  of the GRPAO has been set out in s.15 of the same Ordinance.  The apportionment notice would have the effect of making the owner of a relevant interest (as defined in the Ordinance)  in the land liable to pay the determined Government rent to the Government, and any liability of the owner of the relevant interest in respect of the payment of the principal Government rent to the Government shall determine.

(4)  S.17 of the Ordinance provides:

“Save in so far as the same is necessarily affected by the operation of section 15 or 16, the Government lease of the lot shall continue in full force and effect.” (Emphasis added)

(5)  Plainly, an apportionment notice published under s.22(2)  of the GRPAO has the effect of varying the terms of the relevant Government lease.  Accordingly, that notice should be regarded as part of the Government lease.

31.Ms Wong submits that:

(1)  An apportionment notice issued under s.22(2)  of the GRPAO is a public document.  It would be published in the Gazette and registered in the Land Registry.  It is publicly available.

(2)  An apportionment notice issued under s.22(2)  of GRPAO plainly does not of itself suggest any defect in the title of the relevant property.  It does not suggest any non-payment of rent or premium.

(3)  There is no basis to say that an apportionment notice issued under s.22(2)  of the GRPAO constitutes any new grant or variation of the Government lease.

32.With respect, I am unable to accept these submissions.

(1)  I accept that the Apportionment Notice is a document which is publicly available.  However, for the reasons set out in [30] above, the Vendor has an obligation to provide a certified true copy of the same to the Purchaser for the purpose of showing a good title.  The Vendor certainly cannot say that the Purchaser can get a certified true copy themselves since the document is publicly available.  An argument of this kind has been rejected by the Court of Final Appeal in Chen & Another v Lord Energy[15], in which Li CJ said:

“The legal position was that the obligation was squarely upon the vendor to show good title. Where a document needs to be produced by the vendor as proof of title, it is no answer for him to say to the purchaser that he could easily obtain it himself.”

(2)  The Vendor has the obligation to provide a certified true copy of the Apportionment Notice to the Purchaser, not because the non-production of the same would mean any enforcement action against the Property, but because the Apportionment Notice is part of the Government lease.  By virtue of s.13(1)  of the CPO, the Vendor has an obligation to provide a certified true copy of the Apportionment Notice to the Purchaser.  After all, the Purchaser is entitled to know the amount of Government rent which the Purchaser is liable to pay after becoming the owner of the Property.

(3)  As to whether the Apportionment Notice is part of the Government lease, the legal analysis has been set out in [30] above.  With respect, Ms Wong has not pointed out any flaw in that legal analysis.

33.In my judgment, by failing to provide a certified true copy of the Apportionment Notice to the Purchaser at a time reasonably before completion, the Vendor has failed to show a good title.

E1B Other Outstanding Documents

34.As to the other Outstanding Documents, Ms Wong argues that the land search of the Property shows that the Building Orders have been complied with, as proved by the subsequent registration of Letters of Compliance. Accordingly, there would be no risk of having enforcement actions against the Property based on the said Building Orders.  In any event, copies (not certified true copies)  of the Outstanding Documents have been provided by HW to TKC on the morning on the completion date, ie 30 December 2022.

35.Ms Wong relies upon Goldenwick Ltd v Standard Chartered Bank (Hong Kong)  Ltd[16], in which the purchaser sought production of a mortgage and a duplicate letter listed as “pending registration” in the land search, which were not produced by the vendor.  Poon J (as Poon CJHC hen was)  stated that prima facie when an instrument was registered against a property and it is not apparent from the land search that the document had ceased to affect the property, the document ought to be treated as part of the title deeds which the vendor should make available to the purchaser; the matter is prima facie and may be displaced on examination. Applying this approach and examining closely the land search, Poon J held that the property would be free of any interest the mortgagees may have under the missing documents and the purchaser would not be a risk of a successful assertion against the property of the encumbrance that might possibly arise from the missing documents. Thus, the missing documents did not affect title and the vendor need not produce them.  Ms Wong submits that in the present case, by looking at items 2 to 10 of the Outstanding Documents as shown in the land search, it can be safely concluded that all the Building Orders in the Outstanding Documents have been complied with.

36.With respect, I am unable to accept Ms Wong’s submissions.  I agree with Mr Dawes that without seeing the certified true copies of the Building Orders and the Letters of Compliance, one cannot be really sure that whether all the requirements in the Building Orders have been complied with.  It is imperative that the Purchaser should be provided with certified true copies of these documents.  It is only where a document has been certified by a solicitor or by a public officer to be true[17], a party can rest content that it is so[18].

37.As submitted by Mr Dawes, the Vendor cannot derive any assistance from Goldenwick. In that case, the purchaser discovered in the deeds pending registration section of the register a mortgage in favour of the mortgagee, against which were the remarks “registration withheld” (“1^st Mortgage”). The vendor failed to produce a certified copy of the 1^st Mortgage. Poon J found that the 1^st Mortgage had been placed in the deeds pending registration section of the register, and this raised a prima facie doubt on the vendor's title.  However, upon examining the land search, the learned judge noted that the then owner had executed a subsequent mortgage also in favour of the same mortgagee (“2^nd Mortgage”)  which had been registered, and that the property had subsequently been sold by the mortgagee.  This meant that the property must have become free of any interest that the mortgagee might have in the property and there was no real risk of any assertion against the title by the mortgagee stemming from the 1^st Mortgage.  In the circumstances of that case, it could be concluded from the face of the land search that the missing documents were of no significance to the question of title.  However, in this case, for the reasons stated in the above, there is no reliable evidence upon which one can safely conclude that all the requirements in the Building Orders must have been complied with, and there is no outstanding item in the Building Orders which has not been dealt with.

38.Ms Wong argues that the Vendor has no obligation to produce any document which has ceased to affect the Property for the purpose of showing a good title.  I have no quarrel with this proposition.  However, without seeing the certified true copies of items 2 to 10 of the Outstanding Documents, one cannot be sure that all the requirements in the relevant Building Orders have been fully complied with.

39.In my judgment, by failing to provide certified true copies of items 2 to 10 of the Outstanding Documents to the Purchaser at a time reasonably before completion, the Vendor has failed to show a good title.

E2 Issues 2 and 3

40.Both the Common Area Order and the Shops Order are Building Orders issued under s.24 of the BO.  In my view, issues 2 and 3 are requisitions which have been properly raised by the Purchaser, but have not been satisfactorily answered by the Vendor.

41.Ms Wong submits that it is at least arguable that the true meaning of Clause 15 of the PSPA is that where payment amount in relation to government orders or directions is determined before completion, the Vendor shall be responsible, otherwise the Purchaser shall be responsible.  According to this interpretation, since the payment amounts in relation to the works required for complying with the Common Area Order and the Shops Order have not been determined before completion, the Vendor shall not be responsible for these two orders.

42.Mr Dawes submits that Clause 15 of the PSPA simply means that the Vendor shall handle (負責)  all government orders relevant to the Property issued pre-completion, but that all new orders issued post-completion will be handled by the Purchaser.  Far from aiding the Vendor’s position, the clause in fact makes clear that the Vendor is obligated to rectify or clear all title defects arising from government orders prior to completion.

43.Both Mr Dawes and Ms Wong have cited various authorities in support of their respective contentions.  With no disrespect to both Senior Counsel, I am not prepared to cite all those cases in this decision.  Suffice for me to say that the authorities cited by counsel have been carefully considered by me.  I am of the view that the construction suggested by Ms Wong is unarguable, and I agree with Mr Dawes’s interpretation of Clause 15 of the PSPA.

44.With respect, the fallacy in Ms Wong’s argument can be illustrated by the following examples.

(1)  Suppose that there is a building order registered against the Property in the Land Registry, requiring the Vendor to do some remedial works.  The Vendor has not taken any step to do those works.  Since the Vendor has done nothing to try to comply with the building order, the costs of carrying out the necessary remedial works have not been determined.  If Ms Wong’s argument is correct, in this example, the Vendor can do nothing and to compel the Purchaser to take up the Property, which is subject to an encumbrance, ie the building order.

(2)  Suppose that in the example above, before completion, the Purchaser suggests to the Vendor that the Vendor should pay a certain sum to the Purchaser on completion, which is the amount required for carrying out the necessary remedial works.  The Vendor disagrees with the suggested figure.  So no amount of costs for carrying out the remedial works has been determined before completion.  If Ms Wong’s point is correct, the Vendor can compel the Purchaser to take up the Property subject to an encumbrance (ie the building order), by refusing to agree to any suggested amount of costs for the remedial works before completion.

(3)  Bearing in mind Clause 4 of the PSPA, the aforesaid scenarios certainly would not be the effect of Clause 15 contemplated by the parties to the PSPA.

45.In response to the questions from the court, Ms Wong submits that Clause 4 of the PSPA has been overridden by Clause 15.  With respect, this is a bold submission not supported by the plain and natural meaning of the PSPA.  I refuse to accept this submission.

46.Ms Wong has also tried to rely upon both pre-contractual and post-contractual negotiations in support of the construction of Clause 15 contended by the Vendor.  With respect, there is no merit in these submissions.

(1)  The Vendor is trying to rely upon the pre-contractual negotiation between Chan and a Mr Stanley Chan as alleged in Chan’s Affirmation.  According to Chan, before signing the PSPA, Chan has told Mr Stanley Chan that “if any amount needed to be paid by the Vendor in respect of notices for fire safety directions had been determined and fixed before completion, such sums should be borne by the Vendor, otherwise any sums which needed to be paid (the amount of which would be unknown and unascertained at the time of completion)  should be borne by the Purchaser.”[19] The Vendor’s case is that Mr Stanley Chan must have conveyed the Vendor’s intention to the Purchaser before the signing of the PSPA.  Clause 15 is only added to the PSPA after these discussions.

(2)  In All Ports[20], Le Pichon JA said:

“27. Clause 19 read:

‘The ‘Purchaser’ agrees and accepts all existing condition/states of the Property and shall not rely upon any pretext to refuse to complete the transaction or to raise any objections.’

Other clauses of the agreement that are pertinent for present purposes are the following. Clause 3 provided that the property was to be sold “free from encumbrances”. Clause 11 provided that the property was sold “on an ‘as is’ basis”. Clause 12 provided that the agreement superseded all prior negotiations, representation, understanding and agreements of the parties thereto. These provisions, unlike clause 19, formed part of the printed portion of the agreement. Clause 19, on the other hand, was a handwritten addition.

28. The issue is whether clause 19 is capable of being construed as including “illegal or unauthorized structures”. [Counsel] submitted that in construing the clause, the agreement has to be looked at as a whole against the factual and legal background in which it was concluded as well as the practical objects it was intended to achieve. See per Lord Hoffmann in Jumbo King Limited v Faithful Properties Limited [1999] 2 HKCFAR 279 at 296E.

29. [Counsel] referred the court to the evidence filed relating to pre-contract negotiations culminating in clause 19 being in its present form. The court was also shown what were said to be earlier drafts of clause 19. But given clause 12 of the agreement and the parol evidence rule, I fail to see how such evidence can be admissible. That being so, in the context of the present case, it is a little obscure what ‘factual and legal background’ could be adduced which is admissible and which would assist in the construction of clause 19.” (Emphasis added)

(3)  In my judgment, the situation in this case is not different from the situation in All Ports. Clauses 3, 11 and 12 of the contract in All Ports are same as Clauses 4, 9 and 10 of the PSPA in the present case. Applying All Ports (which is binding upon this court), evidence concerning pre-contractual negotiations leading to the insertion of Clause 15 into the PSPA is not admissible.

(4)  Without prejudice to the above, for the sake of discussion, even on the Vendor’s own case, the insertion of Clause 15 into the PSPA is for the purpose of catering for Fire Safety Directions. The purpose of that clause is not to cater for any building order.

(5)  The Vendor also tried to rely upon the discussion between HW and TKC concerning the terms of the formal sale and purchase agreement. However, post-contract conduct and statements are not generally relevant to the interpretation of the contract.[21] In any event, those correspondence has been marked “subject to contract” and “without prejudice” to the terms of the PSPA. Clearly, the Vendor cannot rely upon anything in those correspondence for the purpose of construing Clause 15 of the PSPA.

47.Regarding items (i)  and (ii)  of the Shops Order, the Vendor claims that these items have been demolished.  Insofar as these two items are concerned, the Shops Order has been complied with.  However, there is no letter of compliance from the Building Authority in support of this contention.  There is also no evidence from any professional in support of the Vendor’s position.  In the absence of all these, the Vendor’s position is not supported by satisfactory evidence.  In any event, even if there is any evidence showing compliance with the Shops Order in relation to items (i)  and (ii), such evidence has not been provided by HW to TKC before completion.

48.The Vendor also relies upon the offer of HK$180,000 made on 28 December 2022.  As submitted by Mr Dawes, there is no explanation in HW’s letter dated 28 December 2022 as to how the offered sum of HK$180,000 was arrived at, nor any “breakdown” of this figure.  Before completion, there has not been any explanation to the Purchaser why the sum of HK$180,000 would be sufficient for covering the liability of the owner of the Property under the Common Area Order and the Shops Order.  There is no basis upon which the Vendor can reasonably say that the offer is a satisfactory answer to the requisitions raised by the Purchaser.

49.In my judgment, the Vendor is liable to the Purchaser under issues 2 and 3.

E3 Issues 4 and 5

50.In Ip Fong Keng v Fong Yu Shing[22], DHCJ Dawes SC held that:

(1)  The Fire Service Department has no statutory power under the Fire Safety (Buildings)  Ordinance (“FS(B)O”)  to register fire safety directions against a property, carry out the work itself, recover the costs from the owner and/or register a charge against the property to secure payment of such costs; thus, without the power to charge, fire safety directions so issued cannot constitute potential blots on title.

(2)  In that case, the required contributions of co-owners to the cost of fire safety works in common parts are not likely to exceed the contemplation of the reasonable purchaser, so as to constitute a title defect.  Accordingly, the requisitions regarding the fire safety directions issued under FS(B)O were not validly raised.

51.Ms Wong submits that the same approach should also apply in this case.  By applying that approach, the requisitions raised by the Purchaser with regard to the Fire Safety Directions could not constitute any potential blots on title of the Property.

(1)  The Buildings Department or Fire Service Department has no statutory powers to impose a charge against the Property arising from non-compliance with the Fire Safety Regulations.

(2)  The Fire Safety Directions do not exceed anything that a reasonable purchaser would have in contemplation when agreeing to purchase the Property.  The amount of contribution which needed to be made for complying with the Fire Safety Directions is insubstantial, particularly when the purchase in question concerned the acquisition of 9 Shops at the very substantial purchase price of HK$110 million.  On the Purchaser’s own case as set out in TKC’s letter dated 20 December 2022, for the 2014 Common Area BD Directions and 2019 Common Area Directions, the estimated apportioned contribution payable by the owner of the Property is around HK$540,000.  For the 2019 Shops Directions, the estimated contribution payable is around HK$430,000.  Only one set of costs need to be incurred to comply with both the 2019 Common Area Directions and the 2019 Shops Directions, as the work required completely overlap.  In any event, fire improvement works should be within contemplation in light of the old age of the Building (over 50 years)  and that the Property is non-domestic premises.

52.Mr Dawes submits that it cannot be said that the amount of contribution required for complying with the Fire Safety Directions is “insubstantial”.  The Vendor’s conclusion is arrived by comparing the amount of contribution and the purchase price, but this approach is not supported by any authority.  The test established in Chi Kit is merely asking whether the liability is “so extraordinary having regard to matters such as its nature or magnitude as to be wholly outside the contemplation of a reasonable purchaser”.

53.I agree with Mr Dawes.  To say the least, based upon the evidence now before the court, the amount of contribution required for complying the Fire Safety Directions would not be less than HK$400,000.  This sum cannot be said as insubstantial.  The Vendor has not produced any evidence[23] to show that in a similar transaction, a reasonable purchaser in the market would not regard the liability to pay a sum of over HK$400,000 for complying Fire Safety Directions as substantial, and that liability is something within the contemplation of the purchaser.

54.Further, in HW’s letter dated 28 December 2022, HW offered a sum of HK$180,000 to the Purchaser for “full and final settlement of the Building Order(s)”.  Clearly, in this transaction, even if an amount of HK$180,000 is regarded by the Vendor as a substantial amount, which (in the Vendor’s view)  would need to be paid to the Purchaser for settling the Building Order(s).  In the Chi Kit sense, the liability of paying an amount of not less than HK$400,000 for complying the Fire Safety Directions would not be something within the contemplation of a reasonable purchaser.

55.In my judgment, the Vendor has failed to answer the requisitions under issues 4 and 5 at a time reasonably before completion.

E4 Conclusion on liability

56.For the reasons above, I agree with Mr Dawes that the Vendor has failed to answer the requisitions under issues 1 to 5 as contended by the Purchaser. Further, based upon the evidence before me, I am also of the view that the Vendor is unable to give a good title on the completion date as stated in the PSPA, and hence has also breached the duty of giving a good title.

57.The Purchaser’s application for summary judgment must be allowed.

F. DISPOSITION

58.In my view, the Purchaser is entitled to have the following reliefs:

(1)  A declaration that:

(a)  the Purchaser has rescinded the PSPA on 3 January 2023;

(b)  the Purchaser do have an equitable lien on the Property to secure the return of the deposits paid by the Purchaser to the Vendor under the PSPA together with interests thereon, damages awarded to the Purchaser (if any), and costs of this action awarded to the Purchaser.

(2)  An Order that the Vendor do forthwith return the Initial Deposit and Further Deposit to the Purchaser with interest thereon at 1% above the prime rate of HSBC from 3 January 2023 to the date of this Order and thereafter at the judgment rate until return of the said deposits.

I so order.

59.As to whether the Purchaser is entitled to have an order requiring the Vendor to pay the Purchaser the legal costs and expenses incurred in investigating the title to the Property under the PSPA, and whether the Purchaser is entitled to have an order requiring the Vendor to indemnify the Purchaser for stamp duty and estate agent commission, there are disputes between the parties on these matters.  For the purpose of this decision, following the approach of Recorder Edward Chan SC in Wong Bik Ching v Yu Hon Chung[24], I would give the Purchaser liberty to apply for assessment of damages, including damages arising out of the aforesaid matters.  For avoidance of doubt, as to the merits of the parties’ respective positions on those matters, I express no view in this decision.  If those matters have to be argued at a time in future, the parties are at liberty to advance their respective arguments in that hearing.

60.I have heard submissions on costs.  In my view, costs should follow the event.  In view of the complexity of this case, I would grant a certificate for two counsel.  I order that costs of these proceedings up to the date of this decision (including the costs of the O86 Summons and all costs reserved, if any)  be paid by the Vendor to the Purchaser, with a certificate for two counsel.  Those costs be summarily assessed by this court.

61.There be leave to the Purchaser to file and serve a bill of costs for summary assessment within 7 days, and leave to the Vendor to file and serve a written reply to that bill within 7 days thereafter.  For the purpose of computing the time provided in these directions, time shall run during the Summer Vacation.

62.Lastly, it remains for me to thank all counsel for the helpful assistance rendered to the court.

Mr Victor Dawes SC and Mr John Cheung, instructed by Tong Kan & Co, for the Plaintiff

Ms Maggie Wong SC and Ms Sharon Yuen, instructed by Ho & Wong, for the Defendant