Dei Chuen Ho Industrial Limited v. Leung Yin Por and Another
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HCMP000303/1993 1993, MP No. 303 IN THE SUPREME COURT OF HONG KONG HIGH COURT MISCELLANEOUS PROCEEDINGS ____________
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____________ Coram: Hon. Rhind J. in Open Court Dates of hearing: 21 June 1993 and 29 July 1993 Date of delivery of judgment: 18 August 1993 _______________ J U D G M E N T _______________ 1. This is a Vendor and Purchaser Summons, brought under s. 12 of the Conveyancing and Property Ordinance, Cap. 219, arising from an Agreement in writing, dated 7th September 1992, made between Leung Yin Por and Leung Che Kin ("the Vendors") and Dei Chuen Ho Industrial Limited ("the Purchaser") in respect of 4 equal undivided 1,328th parts of land registered in the District Land Office, Tai Po, as Lot No. 1794 in DD6, being known as "Fook On Building", 51, Wan Tan Street, Tai Po, together with the exclusive right to the use and occupation of Shop 7 on the Ground Floor of that building. It is the Purchaser who brought this summons, claiming that the Vendors have wrongfully forfeited its deposit of $320,000, being 10% of the $3.2 million purchase price, after the Purchaser purported to rescind the contract on 3rd November 1992. 2. The circumstances leading up to that purported rescission are as follows. 3. Specific provision was made in clause 12 of the Agreement that time was in every respect of the essence, the date for completion being fixed as on or before 28th October 1992. 4. Clause 5 of the Agreement operated in such a way that requisitions on the Vendors' title had to be delivered to the Vendors' solicitor within 7 days of the delivery of the title deeds to the Purchaser's solicitor. The Vendors' solicitor delivered those title deeds on the very date of the contract-signing, namely, 7th September 1992. The Purchaser's solicitor was also quick off the mark, sending his requisitions to the Vendors' solicitor by letter, dated 7th September 1992, the content of which, insofar as relevant, I now set out:-
5. It is that requisition, numbered one ("Requisition No. 1"), and the Vendors' solicitor's attempts to answer it, which have given rise to the present proceedings. In addition to Clause 5, other clauses of the Agreement with a bearing on the topic of requisitions are those numbered 9,10 & 27. I now set out as much of those clauses as is relevant for the present case.
6. The background to Requisition No.1 is that the original building plans submitted by the developer, Sing Gay Land Investment Company Ltd., ("Sing Gay Land"), to the Building Authority for approval prior to constructing Fook On Building showed four shops for non-domestic use on the Ground Floor, and it was on that basis that the Building Authority approved those building plans. The Occupation Permit issued by the Building Authority in respect of the whole of Fook On Building on 4th July 1974 specified that occupation of the Ground Floor was to be for the purposes of "4 shops for non-domestic use". 7. When Sing Gay Land made an Assignment of Shop 7 to the present Vendors on 21st November 1975 ("the first Assignment"), the plan annexed ("the Assignment plan") showed twenty-four shops on the ground floor. That Assignment plan was prepared by one "A.H. Pasty", architect and engineer, who, I am prepared to assume, was the Authorised Person for the purpose of the development. 8. On 14th November 1974, which was after the Occupation Permit but before the first Assignment, Sing Gay Land caused a Deed of Mutual Covenant to be made in respect of Fook On Building on the basis that the Ground Floor comprised twenty-five shops. Confusion would have been worse confounded if the Purchaser had raised a requisition on the discrepancy between the twenty-four shop spaces shown on the Assignment plan and the twenty-five shops referred to in the Deed of Mutual Covenant, but, fortunately, that particular discrepancy can be disregarded for present purposes, and the case is to be determined on the basis that there were twenty-four shops on the Ground Floor when Sing Gay Land made the first Assignment to the present Vendors. The only discrepancy with which the court need concern itself is that raised by the Purchaser's solicitor as Requisition No. 1. 9. Under the Originating Summons, the issue which arises for determination by me is whether the Vendors' solicitor sufficiently answered that Requisition No. 1. That was the appoach adopted by the Court of Appeal in the not dissimilar situation in Kok Chong Ho v. Double Value Developments Limited, C.A. No. 96/1991, and I can discern no justification for embarking on a different approach in the present case. What I do not have to determine is whether in fact the Vendors do have a good title - only whether they sufficiently answered the Purchaser's requisition and showed a good title, as required by the Agreement. 10. After the Purchaser's solicitor's letter of 7th September 1992 raising the requisition, the Vendors' solicitor replied on the 16th September 1992, explaining how he had written off to the government in relation to the requisition, and, that same day, he had, in fact, written to the Buildings Ordinance Office, as follows :-
11. The ingenious guess by the Vendors' solicitor that a "2" had been omitted in front of the "4 shops" turned out to be wrong, so that when the Buildings Ordinance Office replied on 26th October 1992, it was to the effect that the Sing Gay Land's orignal building plans had shown only 4 non-domestic shops. 12. On the 27th October 1992, that is to say, the day before the completion date fixed by the Agreement, the Purchaser's solicitor wrote to the Vendors' solicitor as follows :-
13. On a careful reading, it is difficult to fathom quite what that letter means, but, in the context of the amiable correspondence between the Vendors' and the Purchaser's solicitors up to that point, I think it was probably meant to mean that the Purchaser was offering to postpone completion until 7 days after Requisition No.1 was answered. 14. The Vendors' solicitor replied by a letter dated 2nd November 1992. It was agreed all round that the actual date, "2nd October 1992", appearing on that letter was erroneous, and should have read, "2nd November 1992". A further error occurs in the first sentence of the second paragraph where the writer refers to a ".... letter from Buildings Ordinance Office dated 26 instant.....", which, in context, obviously meant 26th October 1992. I now set out that letter to the Purchaser's solicitor with the dates corrected:-
15. Firstly, I will comment on the penultimate paragraph of that letter. Exactly what it means is not easy to say, but of one thing I am reasonably sure, namely, it is not an acceptance of the offer embodied in the Purchaser's solicitor's letter of 27th October 1992, which never offered to fix the date for completion by reference to the "reply by the developer's solicitor". 16. That final paragraph in the Vendors' solicitor's letter, in my view, amounts to a counter-offer. The significance of that will in due course emerge from subsequent correspondence. 17. Of the rest of that letter from the Vendors' solicitor, it can fairly be said it is long on assertion but short on evidence. It gets nowhere near satisfactorily answering Requisition No.1. In particular, it contains no evidence that the works done in converting four shops into twenty-four shops on the Ground Floor did not harm the structure of the building, and no evidence that the Purchaser need have no fear about any enforcement action from the Crown. 18. That letter elicited the following reply from the Purchaser's solicitor on 3rd November 1992 :- "
19. Assuming for the sake of argument that the Vendors' solicitor had not satisfactorily answered Requisition No. 1 and had not shown the Purchaser a good title on or before 3rd November 1992, I am of the view that the Purchaser's solicitor's letter of 3rd November 1992 effectively rescinded the Agreement, entitling the Purchaser to the return of its deposit. As the Vendors never accepted the offer I have described in the Purchaser's solicitor's letter of 27th October 1992, but, instead, came up with their own unaccepted counter- offer in their letter of 2nd November 1992, I am satisfied that, on normal contract principles, the Purchaser was entitled to, and did effectively rescind the Agreement by its letter of 3rd November 1993, bearing in mind, that time was of the essence of the contract and the completion date of 28th October 1992 fixed by the Agreement was past. 20. I will now consider the question whether, on or before 3rd November 1992, the Vendors had in fact shown a good title. A discrepancy between what is stated in an Occupation Permit on the one hand, and what features in a Deed of Mutal Covenant and the plan annexed to a first assignment from a developer on the other hand, can involve a point on title. Kok Chong Ho, already referred to, was such a case. The point was dealt with, in particular, at p.16 of the unpublished version of that judgment, where there is a reference to "...the defect in the Vendor's title due to the non-approval of the extra flats...." [As an aside, I express the hope that the Editor of the Hong Kong Law Reports will, before too long, include that judgment in the Reports, since it is on a frequently litigated topic. Active Keen Industries Limited v. Fok Chi Keung, MP No.3761/1992 where judgment was delivered on 31st December 1992, and Octorich Limited v. Liu Sin Ming, MP No.977/1992 where it was delivered on 7th May 1993, are two recent instances where the Kok Chong Ho case fell to be considered.] 21. The issue raised by Requisition No.1 is essentially about unauthorised structures, thus bringing Clause 36 of the Agreement into play. That too makes it plain that unauthorised structures give rise to questions of title. I now set out Clause 36.
22. According to Counsel for the Vendors, his clients have sufficiently answered Requisition No1, since the discrepancy relates only to partitioning, and partitioning is a form of building works which enjoy exemption from approval by the Building Authority by virtue of s.41(3), of the Buildings Ordinance, the relevant part of which I now set out :-
"Building works", as defined by s.2 of the Buildings Ordinance, includes
23. If there were evidence that the only reason for the discrepancy between the Occupation Permit, the original building plans, and the Assignment plan was the mere erection of partitions, I would agree with the Vendor's Counsel that such works fell within the ambit of the exemption conferred by s.41(3), because the putting up of such partitions would not involve the structure of the building. 24. In the case before me, however, there is simply no evidence that the conversion of the 4 shops contemplated by the Occupation Permit into the 24 shops shown on the Assignment plan was confined to the putting up of partitions. The critical factor determining exemption under s.41(3) in the present case is whether or not the partitioning involved any alteration to the structure of Fook On Building. What the Vendors have failed to show by any evidence is that the partitioning did not involve such alteration to the building's structure. 25. An argument advanced on behalf of the Vendors to the effect that the words "not involving the structure of any building" in s.41(3) control only "site formation works" does not square with the interpretation of s.41(3) which found favour with the Justices of Appeal in the Kok Chong Ho case, at p.12, where they note that s.41(3) "...... confers exemption from approval by the Building Authority on building works (other than inter alia drainage works) not involving the structure of any building ...... carried out in any building ......". Bearing in mind that one of the main purposes of the Buildings Ordinance is the safety of buildings, it strikes me as reasonable that, whereas building works involving the structure of any building should require the approval of the Building Authority, non-structural works, normally, should not. On the interpretation of s.41(3), I respectfully disagree with the obiter observations made in the Octorich case. 26. On the view I take, the Vendors' solicitor's letter of the 2nd November 1992 made too sweeping an assertion when it stated, " The approval of the qualified architect on the said floor plan also signifies that such partitioning would not be illegal and harmful to the structure of the related building." Approval by the architect is neither here nor there when it comes to considering whether partitioning involved structural alterations. The approval necessary where partitioning affects the structure of a building is that of the Building Authority, not the architect. If such approval was necessary from the Building Authority, the Purchaser, in common with the other co-owners, would run the risk of enforcement proceedings under s.24 of the Buildings Ordinance, in similar fashion to the buyer in the Kok Chong Ho case. It is to be noted, too, that in the Kok Chong Ho case, the discrepancy between the Occupation Permit and the first assignment by the developer went back for 30 years; in the case before me, where the discrepancy occurred something like 18 years ago, the risk must be a fortiori. 27. On the mixed fact and law question whether the Vendors' solicitor had, on or before 3rd November 1992, satisfactorily shown that the alteration made to the Ground Floor in connection with partitioning was non-structural and hence needed no approval under the Building Ordinance, I hold that he had not. 28. A further line of defence put forward on the Vendors' behalf was to the effect that conveyancers in Hong Kong would regard the risk of enforcement proceedings in the circumstances of the present case as so remote as not to constitute a defect in title. Once again, the Vendors rely on assertion, rather than evidence. As no evidence was adduced in relation to the practice of conveyancers in Hong Kong, the Vendors were unable to satisify me that the Purchaser was being unreasonable in treating Requisition No.1 as unanswered. 29. In my judgment, the Vendors failed to make a satisfactory answer to Requisition No.1 and show they had a good title on or before 3rd November 1993, so that, in the circumstances I have described, the Purchaser was entitled to rescind the Agreement by its solicitor's letter of 3rd November, 1992. 30. I regard it as in the nature of unproductive labour to set out the post-rescission correspondence, i.e. after 3rd November 1993. Suffice it to say that, even by 24th November 1992, when the Vendors' solicitor sought by a letter of that date to turn the tables on the Purchaser by claiming the Vendors were the ones entitled to claim rescission, the Vendors were still unable to show a good title. 31. On rescission by the Purchaser, the Vendors, in compliance with Clause 27(1) of the Agreement, should have returned the Purchaser's deposit of $320,000 to the Purchaser forthwith. If the Vendors had carried out their contractual duty by returning the deposit immediately, they would have incurred no obligation to pay any interest to the Purchaser. By failing to return the deposit, the Purchasers are in breach of the Agreement, and in my judgment are liable to pay the Purchaser interest on the deposit from the 3rd November 1992 until judgment. The Vendors are not entitled to blow hot and cold by seeking to claim the benefit Clause 27(1) can confer on a vendor while at the same time trying to avoid the obligation that same Clause imposes. 32. On the level of interest the Vendors must pay on the withheld deposit, I make an order nisi it should be at the rate of 7% per annum. 33. A further head of damage for which I hold the Vendors liable relates to payment of the Purchaser's costs payable to its solicitor in respect of his investigation of the Vendors' title. That head, in my view, comes within Clauses 10 and 11 of the Agreement. 34. Brief mention can now be made of the Active Keen Industries and the Octorich cases. In the Active Keen case, the Building Authority had, in effect, acquiesced in the existence of otherwise-illegal structures of long- standing, so that they did not, in practice, amount to a defect in the title tendered to a prospective purchaser. In the Octorich case, the Occupation Permit could reasonably be construed in such a way that there was no conflict between it and other documents of title relied or by the vendor in that case. Neither of those two cases is helpful to the Vendors on the facts of their case. 35. This is a Judgment handed down pursuant to 0.42, r 5B. I make an order nisi that costs are to follow the event.
Representation: Mr Anderson Chow (inst'd by M/s Fairbairn Catley Low & Kong) for the Plaintiff Mr Timothy Cheung (inst'd by M/s Samson Siu & Co.) for the Defendants |