Lau Man Loon v. Exceliko Enterprises Ltd. and Another
Read the full judgment text of HCA 9320/1996 on BabelCite. This High Court CFI judgment was delivered on 5 February 2001.
1. By a Provisional Sale and Purchase Agreement ("the Agreement") dated 13th March 1996, the Plaintiff and the 2nd Defendant as co-purchasers agreed to buy and the 1st Defendant as the vendor agreed to sell a whole building situated at No. 180, Reclamation Street, Kowloon, Hong Kong ("the Property") at the price of HK$9,800,000. The completion date was scheduled to be on or before 12th June 1996. The sale and purchase did not go through.
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HCA009320/1996 H.C.A No. 9320/1996 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 9320 OF 1996 ____________________
____________________ Coram: Deputy High Court Judge Barnes in Court Dates of Hearing: 27, 28, 29, 30 November, 13, 14 and 15 December 2000 Date of handing down Judgment: 5 February 2001 _____________________________ JUDGMENT _____________________________ Introduction 1. By a Provisional Sale and Purchase Agreement ("the Agreement") dated 13th March 1996, the Plaintiff and the 2nd Defendant as co-purchasers agreed to buy and the 1st Defendant as the vendor agreed to sell a whole building situated at No. 180, Reclamation Street, Kowloon, Hong Kong ("the Property") at the price of HK$9,800,000. The completion date was scheduled to be on or before 12th June 1996. The sale and purchase did not go through. 2. The following provisions in the Agreement are of relevance to the present proceedings:
3. The fact that illegal /unauthorised structures exist in the Property is not in dispute. The Plaintiff alleged that the 1st Defendant had failed to show a good title before completion and/or to answer or sufficiently answer requisitions concerning illegal/unauthorised structures on the Property and claimed against the 1st Defendant for, inter alia:
4. The 1st Defendant in its Defence contended that the Plaintiff was not entitled to raise such requisitions by virtue of Clause 2 of the Agreement, saying that the Plaintiff was bound by the act of 2nd Defendant who was aware of the existence of the illegal/unauthorised structures and accepted the same. The 1st Defendant contended that the Plaintiff was time-barred to raise requisitions by virtue of Clause 3 of the Agreement. Further, the 1st Defendant alleged that the requisitions were adequately answered. 5. The Plaintiff also sought an alternative claim of indemnification against the 2nd Defendant on the basis that such alleged acceptance by the 2nd Defendant was not authorised by the Plaintiff. 6. In her Defence and Counterclaim, the 2nd Defendant pleaded under paragraph 6 the following particulars:-
7. It should be noted that the 2nd Defendant retracted this allegation during the trial when she acted in person. I will deal with that aspect of the case later. The 2nd Defendant counterclaimed against the Plaintiff for her half share of the deposits and stamp duty on the ground that the Plaintiff had refused to complete the purchase of the Property wrongfully. Issues involved Mr. Chong, counsel for the Plaintiff and Mr. Chan, counsel for the 1st Defendant approached the issues from slightly different angles. Having considered their respective approaches, I have formulated my own approach of the issues involved:
Background history of the case 8. The history of this matter is so unusual that it is necessary to set it out before consideration of the issues involved. 9. The Plaintiff is a man interested in investing in real property. Madam Lam Lin ("Lam") is an estate agent who has known the Plaintiff for over 10 years. The Plaintiff asked Lam to inform him should a good 'bargain' came up. The Plaintiff agreed to pay Lam the usual 1% commission should Lam secure a deal on his behalf. The 2nd Defendant, who is also an estate agent, was interested in purchasing the Property and had been negotiating with the representative of the 1st Defendant, a certain Mr. Fan ("Fan"). The 2nd Defendant was very keen to purchase the Property but she needed to find a partner as she did not have enough money to purchase it on her own. 10. Lam and the 2nd Defendant met accidentally and reference was made to the 2nd Defendant's intended purchase of the Property. Lam expressed interest and the 2nd Defendant, not knowing that Lam was acting on behalf of the Plaintiff, thought that Lam would be her partner in the purchase. The 2nd Defendant was later appraised of the situation and it was agreed that the Plaintiff and the 2nd Defendant would purchase the Property in equal shares. The 2nd Defendant learned of a potential 'firm' purchaser wanting to purchase the ground floor and the maisonette to use as a church at the price of $8 Million and informed Lam of the same. As the 2nd Defendant was familiar with a certain Ms. Yeung Choi Chu ("YCC") who was then working with Kwan & Kwan, Solicitors ("K & K"), K & K then represented both the Plaintiff and the 2nd Defendant for the purchase of the Property. 11. Neither Lam nor the Plaintiff knew Fan. Negotiations were done by the 2nd Defendant with Fan. It is not in dispute that the originally asking price was $10 Million. The eventual sale price was lowered to $9.8 Million. Though in its Defence the 1st Defendant gave particulars of what Fan had allegedly told the 2nd Defendant during negotiation regarding illegal structures (para. 7(i) and (ii)), as Fan has since passed away in 1999 no direct evidence was called from the 1st Defendant as to what was said during these negotiations. The 1st Defendant instead relied heavily on the contents of contemporary correspondence between K & K and Anthony Chiang & Partners ("AC&P"), solicitors for the Plaintiff after the Plaintiff terminated the service of K & K. I will refer to these letters in greater detail later. 12. The Plaintiff did not know the 2nd Defendant before and had only met the 2nd Defendant once at K & K when he, together with Lam, took a cashier order to K & K as deposit on 12th March 1996, a day before the Agreement came into existence. 13. On 13th March 1996, neither the Plaintiff nor Lam attended K & K to sign the Agreement. By a Letter of Authorisation (p.7 of the Trial Bundle of Witness Statements ("TBWS")), the Plaintiff authorised the 2nd Defendant to sign the Agreement on his behalf. The 2nd Defendant did not know before-hand that the Plaintiff would authorise her to sign. After the signing of the Agreement, the supposedly 'firm' potential buyer was no longer interested in the deal. Both the Plaintiff and 2nd Defendant encountered difficulty in obtaining mortgage on the Property due to the existence of illegal/unauthorised structures. 14. As stated earlier, both the Plaintiff and 2nd Defendant were originally represented by K & K. The 1st Defendant was (and still is) represented by John Ku, Tam & Ho ("JKTH). By a letter dated 21st March 1996 (p.16 and pp.20-28 of the Trial Bundle of Agreed Documents ("Bundle")), JKTH forwarded 5 title deeds and documents to K & K. On 27th March 1996 (p.18 of the Bundle) K & K raised requisition for the first time. K & K and JKTH then engaged in correspondence regarding the requisition raised. In the meantime, K & K and JKTH also exchanged correspondence over the drafting and re-drafting of the Agreement for Sale and Purchase (p.29, p.34, pp.35-66, p.67, p.68 and p.69 of the Bundle.) 15. The Plaintiff terminated the service of K & K on 27th April 1996 (p.72 of the Bundle) and was represented by AC&P instead. K & K was duly notified of the same (pp. 70-71 of the Bundle). Apart from asking K & K to hand over all relevant documents, K & K was asked if they had raised any requisitions on title. 16. The 2nd Defendant continued to be represented by K & K (though she was represented by Yip and Partner ("Yip") when she filed her Defence and Counterclaim on 17th March 1997 and has since filed a Notice to Act in Person on 15th June 1998). 17. JKTH was informed of the new representation on 6th May 1996 (pp.80-81 of the Bundle). By a letter dated 16th May 1996 (pp.85-86 of the Bundle) AC&P raised certain requisitions on behalf of the Plaintiff. Meanwhile JKTH continued to correspond with K & K over the requisition they raised earlier (p.87 and p.88 of the Bundle). 18. On 13th May 1996 JKTH sent over further title deeds and documents to K & K (p.89 of the Bundle). 19. After the Plaintiff terminated the service of K & K, AC&P engaged in rather voluminous correspondence with K & K (pp. 92-93, pp.94-96, p.97, p.103, pp.104-105, p.106, pp.112-113, p.115, pp.116-117, pp118-120, p.125, pp.126-127, p.131 and p.138). Amidst accusation and denial of negligence on the part of K & K, K & K made the following allegations/comments:
20. AC&P categorically denied such allegations on behalf of the Plaintiff (p.106 and pp.116-117 of the Bundle). 21. It should be noted that by a letter dated 3rd June 1996 (p.114 of the Bundle), K & K supplied copies of the above-mentioned three letters (i.e. letters dated 17th May, 27th May and 3rd June 1996) to JKTH. JKTH was thus appraised of the disagreement between the Plaintiff and 2nd Defendant. No reasons have been advanced as to why K & K did so. 22. As the disputes and the matter of requisitions dragged on, the time for completion got closer. AC&P continued to press JKTH for answers to requisitions raised. Eventually on 13th June 1996 (p.135 of the Bundle) JKTH wrote to AC&P, K & K and the 2nd Defendant, noting that 'no balance of the purchase price for completion' was sent to them in accordance with the Agreement. The 1st Defendant rescinded the Agreement and forfeited the deposits paid. 23. On 14th June 1996 (p.139 of the Bundle) AC&P maintained that it was the 1st Defendant who had wrongfully repudiated the Agreement and demanded the return of the deposits paid. 24. By a letter in Chinese dated 20th May 1996, the 2nd Defendant, while still being represented by K & K, wrote to AC&P personally. In this letter she stated that in respect of the Property, she was fully aware of the existence of unauthorised structures on the ground floor, cockloft, and the roof top of the building; and the partitioning of the shops on the ground floor before she signed the Agreement and she accepted the same. She did not agree to have litigation over the said issues and that she intended to complete the sale and purchase of the Property. 25. The Plaintiff also instructed Agnes Ng, an Authorised Person, to prepare an expert report on the Property. A report dated 28th June 1996 ("Expert Report") was prepared and parties agreed to its production without calling Ms. Ng (pp.31 -54 of the TBWS). 26. During the trial, the 2nd Defendant claimed that the particulars pleaded in her Defence and Counterclaim were incorrect. She did not know of the existence of illegal structures and YCC had never explained the contents of the Agreement to her or to the Plaintiff. She could not explain why her then solicitors, Yip, pleaded such particulars for her. Although she was given the chance she was unable to submit any amended pleadings. She indicated that she wished to retract the allegation in her Defence and Counterclaim and instead of counterclaiming the Plaintiff for half of the deposit and stamp duty, she wished to counterclaim for damages. Again she did not and was not able to give any particulars of damages to be claimed. She also indicated that she wanted to claim against the 1st Defendant for the wrongful forfeiture of her half share of the deposits paid on the same grounds advanced by the Plaintiff against the 1st Defendant. 27. After hearing submissions, I allowed the 2nd Defendant to retract part of her Defence. As the 2nd Defendant acted in person and was not capable of submitting any formal amendment, I did not have the formal pleadings amended but treated the pleadings, for the purpose of the proceedings, as if the particulars I have related at the beginning of this judgment had been deleted from paragraph 6 of the Defence and Counterclaim of the 2nd Defendant. 28. As to the 2nd Defendant's Counterclaim, I did not allow any amendment as the 2nd Defendant was unable to give any particulars of damages. 29. I ruled that the prejudice caused to the 1st Defendant would not have been adequately cured by an order for costs should I allow the 2nd Defendant to make a claim against the 1st Defendant at such a late stage of the proceedings. I refused the 2nd Defendant's application to add a new claim against the 1st Defendant. Construction of terms of the Agreement 30. As a general principle, contracts for the sale of land are not exceptions to the principle that parties have freedom of contract and may agree to whatever terms they like: per Lord Hoffman NPJ in Jumbo King Ltd v. Faithful Properties Ltd. ("Jumbo King") [1999] 3 HKLRD 757, at 776. 31. It is also not in dispute that the meaning of the terms of an agreement is to be construed by the court wholly and exclusively on the simple process of construction of the terms in question. Extrinsic evidence of the parties' intentions is not admissible: see Chu Kit Yuk v Country Wide Industrial Ltd ("Chu Kit Yuk") [1995] 1 HKC 363. 32. In respect of Clause 1(b) of the Agreement, Mr. Chan submitted that according to the Plaintiff's pleadings, the fact that the Property was sold subject to the existence of trespassers at the roof top was not in issue. The reference to such trespassers was, however, relevant to the issue of illegal/unauthorised structures. As the occupants were described as 'trespassers' of 'names unknown to the Vendor' and their occupation was 'without the consent of the Vendor', Mr. Chan submitted that such occupation must be unlawful. Further, relying on the findings in the Expert Report that the roof was enclosed by '9" brick parapet wall 3/6" high from fin. Roof', Mr. Chan submitted that the roof top of the Property was not designed for human habitation. Mr. Chan contended that for these reasons, any reference in the Agreement to occupation by trespassers could only mean that illegal/unauthorised structures had been erected thereon. 33. Regarding Clause 2 of the Agreement, Mr. Chan submitted that it was more than an "as is" provision as it went on to provide ".........[t]he Purchaser shall be deemed to have inspected and made all necessary enquiries and shall be deemed to be fully satisfied with and accepts in all respects the existing state, condition and finishes of the said premises and shall take the said premises as it stands." (Emphasis applied). Mr. Chan submitted that bearing in mind that the sale was of a whole building, the combined effect of Clause 1(b) and Clause 2 was that the purchasers were precluded from raising requisition or objection on the illegal/unauthorised structures. 34. Mr. Chan also referred me to Jumbo King and Ni Tiee Bor Robert v. Golden Crane Industries Ltd. (Ni Tiee Bor) (HCMP 4407/98, Mr. Recorder Edward Chan, SC, 21/3/2000; and CACV120/2000, Rogers Acting CJHC, Leong & Wong JJA, 19th September 2000) to support his contention that the effectiveness of a similar "as is" clause has been upheld by the Court. 35. Mr. Chong, in his submission regarding Clause 1(b), objected to Mr. Chan's reliance on the Expert Report. With reference to Chu Kit Yuk, Mr. Chong argued that such reliance amounted to admission of extrinsic evidence to construe the parties' intention. Further, Mr. Chong contended that Clause 1(b) referred to trespassers, not unauthorised building works. Even if that clause did refer to unauthorised building works, it was only such unauthorised works on the roof top, not on any other part of the building. 36. Mr. Chong's submission regarding Clause 2 was that that clause was of no relevance as it only related to the physical condition of the Property and not to title. He sought to distinguish the present case from Jumbo King and Ni Tiee Bor on the basis that the "as is" clause in those two cases were much broader. He relied on the principles enunciated in Giant River Ltd v. Asia Marketing Ltd ("Giant River") [1990] 1HKLR 297 and Regent Summit (HK) Ltd v. Smart Business (Asia) Ltd ("Regent Summit") [1998] 2 HKC 718 to support his contention that the Plaintiff was entitled to raise requisitions on illegal/unauthorised structures. 37. In Jumbo King the Court of Final Appeal, in relation to the issue of unauthorised structure, had to consider the following clauses:
The Court of Final Appeal held that by virtue of clause 18(e), the purchaser was not entitled to take an objection to title based on unauthorised structure even if the objection was raised in time. In Ni Tiee Bor, Mr. Recorder Edward Chan, SC also had to deal with the effect of extensive clauses very similar to those in Jumbo King. The learned Recorder analysed Jumbo King and came to the conclusion that the real question was 'whether the clause relied upon by the vendor on its true construction could protect the vendor from this challenge to the title" (at p.22 of the judgment). The learned Recorder held that the purchasers were bound to complete notwithstanding the presence of unauthorised structures. Lord Hoffmann NPJ said in Jumbo King (at 776D),
38. In order to succeed, the 1st Defendant vendor has to show that the language used was perfectly clear that the purchasers were asked to bear the risk of any defect in title on account of illegal/unauthorised structures. 39. I will consider the effect of Clause 1(b) first. I agree with Mr. Chong's submission that Mr. Chan's reliance on the Expert Report amounts to admission of extrinsic evidence to construe the intentions of the parties, which is not permissible: Chu Kit Yuk. In any event, the said report did not come into existence until 28th June 1996, months after the Agreement came into existence. 40. The 1st Defendant vendor has to show that the language used was perfectly clear that the purchasers were asked to bear the risk of any defect in title on account of illegal/unauthorised structures. The description of trespassers occupying the roof top did, in my view, raise a very strong suspicion that there were illegal/unauthorised structures on the roof top. However, it remains a suspicion. The effect of Clause 2: that the Property was sold on an "as is" basis, and that the purchaser shall be deemed to have inspected the Property and made all necessary enquiries etc., is that the purchasers have agreed to take the building as it stood, in that physical condition. It is obvious that Clause 2 in the present case is no where near as extensive or broad as the clauses under consideration in Jumbo King and Ni Tiee Bor. It is of importance that the 1st Defendant vendor is under an obligation to show good title under Clause 3. I rule that that Clause, read in conjunction with Clause 1(b), does not have the effect that the Plaintiff was barred from raising requisitions or objections to title regarding the illegal/unauthorised structures. Actual/apparent authority 41. Almost all the evidence adduced during trial related to the issue whether the purchasers were aware of the existence of illegal/unauthorised structures prior to and at the time of the signing of the Agreement. For the sake of completeness and in case I am wrong on the construction point, I will consider all the evidence and make my findings of fact on the authority issue. 42. Although the Plaintiff stated in his statement that he had not viewed the Property before 13th March 1996, under cross-examination he conceded that he had a view of the Property by standing at the street corner for 1 minute on 7th or 8th March 1996. He said that he was not aware of the existence of illegal structures on the Property. He was of the view that a building being old did not necessarily mean that there were illegal structures. On 12th March 1996 when he attended the office of K & K, someone asked YCC something in the context of 'problem' with the Property and YCC asked them to be 'rest-assured", saying that the transaction would not go on if there was any problem. The Plaintiff was not aware of the existence of Clause 1(b) and Clause 2 in the Agreement. He said he trusted his solicitors and expected his interest to be looked after. He said that he would not have agreed to purchase the Property 'subject' to illegal structures as he knew that he would not be able to raise a mortgage from a bank. Apart from that occasion on 12th March 1996, he had not contacted YCC. He had not agreed nor authorised anyone to agree to accept illegal/unauthorised structures in the Property. 43. Lam testified that she had viewed the Property once on the 5th March 1996 together with the 2nd Defendant, from the inside of a taxi in heavy rain. This was confirmed by the 2nd Defendant during the trial. Lam said that she did have telephone contact with YCC when YCC wanted to get the Plaintiff to attend the office of K & K to sign the Agreement. She agreed she sent the Letter of Authorization to YCC at K & K by fax so that the 2nd Defendant could sign the Agreement on the Plaintiff's behalf as the Plaintiff was not able to attend. She did not consider it appropriate for her to sign on behalf of the Plaintiff as she was not the 'partner' buying the Property with the 2nd Defendant. She maintained that YCC had never explained the contents of the Agreement to her and she was not aware of the existence of Clause 1(b) and Clause 2 in the Agreement. She also maintained that YCC did not fax a copy of the Agreement to her though it was normal practice for her to keep a copy of a Provisional Sale and Purchase Agreement when she acted in the capacity of an estate agent. She was dissatisfied with the service of K & K regarding the progress of the transaction and recommended the Plaintiff to change solicitors. 44. The 2nd Defendant gave evidence that apart from the viewing inside a taxi with Lam, she had viewed the Property alone 3-4 times before the signing of the Agreement. She said that she had only viewed from the outside, never entering the building and never with a representative of the vendor. The 2nd Defendant claimed that YCC did not explain the contents of the Agreement to her. She was aware of some people occupying the roof top without paying rent but she believed that the 'Landlord' (i.e. the vendor) would be able to give vacant possession. She denied having either used or heard of the term 'trespassers' being used to describe these occupants though at one stage she did agree under cross-examination that she was aware of the existence of such trespassers. She claimed that she was never given a copy of the Agreement. She agreed that YCC was her friend and she could not advance any reason why YCC should testify that the contents had been explained to her. 45. As to the letters written by K & K to AC&P, she denied that she had ever given instructions to K & K to write them. She claimed that the assertions were untrue. She could not explain why K & K wrote those letters without her instructions. As to the letter dated 20th May 1996 she wrote to AC&P, she explained that she had done that to pacify her good friend Fan, who was being blamed by the Vendor as a result of the difficulties regarding the sale of the Property. She maintained that the contents of that letter were untrue. She said that she was not aware of the existence of illegal structures and she had never accepted the same. As to the particulars in the Defence and Counterclaim she later sought to retract, she claimed that she was angry with the Plaintiff making her a Defendant so she requested Yip to issue a letter to express her anger and dissatisfaction. She had no idea why Yip put those particulars in the Defence and Counterclaim. It appears that she had sought the service of Yip as YCC was then working with that firm of solicitors. 46. The 1st Defendant called YCC to give evidence. YCC testified that she had explained all the provisions in the Agreement to 2nd Defendant and Lam, emphasising that the reference to 'trespassers' on roof top put her on the alert of the existence of illegal structures, which she felt obliged to make known to both 2nd Defendant and Lam. YCC testified that her understanding at the time was that Lam was the 'real' purchaser while the Plaintiff's name was put forward as the co-purchaser of the 2nd Defendant. For this reason she ensured that the terms 'or their nominee(s)' appear after the names of the 2nd Defendant and the Plaintiff (see p.9 of the Bundle)). YCC did not have the conveyancing files on the Property. With the assistance of reading the Agreement and the Letter of Authorisation she recollected what had occurred on 13th March 1996. As to the event on 12th March, YCC denied having a conversation with the Plaintiff and Lam on that day. She denied that she was asked about 'problem' of the Property or that she had given any assurance. 47. At first glance, it is hard to believe that the Plaintiff, Lam and 2nd Defendant were all so cursory when it came to the viewing of a property with the intention of buying it, particularly when the purchase price was close to $10M. I take into consideration that the Plaintiff did volunteer that information about viewing the Property. I have to bear in mind that he is in fact a 'speculator' in real property, looking to profit by sub-sale as confirmor. I believe him when he said that this deal ($9.8M) was not a particularly big one for him. I accept his evidence that he only viewed the Property once. He was content to leave the matter to Lam, whom he trusted. However, I am satisfied that he must have been aware that the clearly visible extensions to the building could be illegal/unauthorised structures. I am also satisfied that he was not aware of the actual extent of all the illegal/unauthorised structures. I am satisfied that he was prepared to sign a provisional sale and purchase agreement as he believed that his solicitors would look after his interest if there was any problem. I am satisfied that he was not aware of the existence of Clause 1(b) or Clause 2 in the Agreement when he authorised the 2nd Defendant to sign on his behalf. 48. When I first heard Lam's description of how she viewed the Property with the 2nd Defendant I did find it hard to believe. Having a look from a moving taxi in heavy rain is hardly a proper way of viewing a property. However, bearing in mind that Lam in her statement only mentioned that she and the 2nd Defendant did not enter the building, with the details about the taxi and heavy rain emerging in evidence in court; and that the 2nd Defendant readily confirmed that being the case when she heard such an assertion for the first time, I am satisfied that both Lam and 2nd Defendant were telling the truth about only having one viewing in the rain. I find it hard to accept that even on this one viewing Lam did not notice extensive extensions to the building. Being an estate agent by profession, it is not believable that she did not even suspect there could be illegal/unauthorised structures in the building. 49. It is obvious that 2nd Defendant was very keen to complete the sale and to re-sell as confirmors with the Plaintiff. I accept her evidence that she had only viewed the Property once with Lam. She readily admitted that she had viewed the Property 3-4 times, but never with the representative of the vendor. She also claimed that she did not know of the existence of illegal/unauthorised structures prior to the signing of the Agreement. Is her evidence on these aspects credible? 50. In their letter to AC&P dated 23rd May 1996 (p.99 of the Bundle) JKTH wrote: '[i]n the course of inspection and negotiation between the said Mr. Fan and Madam Leung, Madam Leung has been told and also she does acknowledge that there are unauthorised structures in the above property and also there are trespassers in the roof top and that the purchase is subject to the existing physical conditions....'. The 1st Defendant was not able to call Fan to substantiate the allegations and the 2nd Defendant denied the same in court. I am unable to rely on the contents of this letter in my assessment of the 2nd Defendant's evidence. 51. The letter dated 20th May 1996 from the 2nd Defendant to AC&P, confirming that prior to the signing of the Agreement the 2nd Defendant was fully aware of and accepted the existence of illegal/unauthorised structures and the partitioning of shops is of great importance here. The letter was written by the 2nd Defendant personally when she was still represented by K & K. Her explanation that she wrote such a letter to console her friend Fan when the assertions were untrue is unbelievable. Further, the 2nd Defendant has been working as an estate agent for over 10 years and was familiar with old buildings such as the Property. She must have been aware that illegal/unauthorised structures usually exist in such old building. While I am prepared to accept that she had never viewed the Property with any representative of the vendor, I am satisfied that she was fully aware of the existence of illegal/unauthorised structures in the Property. 52. Another question I have to consider is whether YCC had explained the contents of the Agreement to Lam and 2nd Defendant. YCC was relying on her own recollection to say that she did explain the contents to the 2nd Defendant and Lam. Although she was relating to something that had occurred more than 4 years ago, the reasons she gave for being able to recall the incident on the 13th March were convincing. It is certainly not usual to have a reference to trespassers when parties sign a provisional sale and purchase agreement. As Lam was the person who dealt with the 2nd Defendant at the beginning and even the 2nd Defendant thought that Lam was going to be her partner, it was not strange that YCC should be under such an impression that Lam was the 'real' purchaser and had the terms 'nominee(s)' added. Further, no reasons have been advanced as to why YCC should lie to the court, particularly when YCC was a friend of 2nd Defendant. 53. On the evidence before me, I have no hesitation in finding that on 13th March YCC did explain the contents of the Agreement to 2nd Defendant face to face and to Lam over the telephone before Lam faxed the Letter of Authorization from the Plaintiff. YCC had brought their attention to the reference of trespassers which indicated the presence of illegal/unauthorised structures immediately before 2nd Defendant signed the Agreement on her own behalf and on behalf of the Plaintiff. As to whether YCC did give a copy of the Agreement to the 2nd Defendant and faxed a copy to Lam, I make no specific findings as YCC's recollection as to that part of the event may not be accurate. It makes no difference whether a copy of the Agreement was immediately provided to the 2nd Defendant and Lam. 54. The Plaintiff accepted that Lam was his agent and he trusted her. YCC had explained the contents of the Agreement to Lam before Lam forwarded the Letter of Authorisation to her to enable the 2nd Defendant to sign the Agreement on behalf of the Plaintiff. Lam's knowledge of the contents of the Agreement was imputed to the Plaintiff. The 2nd Defendant did not expect the Plaintiff to authorise her to sign the Agreement. She just signed it on behalf of the Plaintiff when the Plaintiff was unable to attend K & K's office himself. On the evidence it cannot be said that the 2nd Defendant did not have actual authority to sign the Agreement on the Plaintiff's behalf to bind the Plaintiff. In any event, the Plaintiff, by signing the Letter of Authorization, held out to the 1st Defendant that the 2nd Defendant was a properly authorised agent of the Plaintiff for the purpose of signing the Agreement. If my ruling on the construction point is incorrect, the Plaintiff cannot argue that the 2nd Defendant did not have authority to sign on his behalf to bind him. 55. I do not consider the conflict between the evidence of the Plaintiff and Lam on the one part, and YCC on the other as to what had occurred on 12th March 1996 material. Suffice it to say that unlike what had occurred on 13th March, there was nothing unusual to jot YCC's memory of events that took place on that day. Waiver of right to raise requisitions 56. Did knowledge of the existence of illegal/unauthorised structures in the Property when the Agreement was signed amount to a waiver of the right to raise requisitions or objections? 57. It should be noted that according to the Plaintiff's pleaded case, the relevant illegal/unauthorised structures were:-
58. The 2nd Defendant in her letter dated 20th May 1996 clearly stated that she was fully aware of and accepted the illegal/unauthorised structures on the ground floor, cockloft and the roof top. Such assertion covers the illegal/unauthorised structures pleaded by the Plaintiff. 59. In Giant River, the learned Deputy Judge applied Peyman v Lanjani [1985] 1 Ch 457 and held that before a purchaser's knowledge of facts can prejudice his legal position, he must also be aware of the legal consequences of those facts. In Regent Summit, Yuen J. following the decision in Giant River held that in that particular case, in the absence of satisfactory evidence that the purchaser's representatives were aware of legal consequences of the alterations, the act of entering into the agreement could not be regarded as a waiver of its right to raise requisitions on the title, or as an act implying acceptance of title in that respect. 60. Did the 2nd Defendant know the legal consequence of illegal/unauthorised structures existing in the Property? There is no evidence from the 1st Defendant vendor in this respect. The 2nd Defendant did say in evidence that she knew that the 'metal hut' at the rear lane might be demolished by the authorities in due course and that structural extensions would require building plans and approval from the authority. These were fairly general comments. There is no dispute that those illegal/unauthorised structures were illegal/unauthorised structures. There is no evidence before me as to the legal consequence of those illegal/unauthorised structures. Although the 1st Defendant pleaded in its Defence (under paragraph 9) that the 'structures' were 'exempted works' and that any enforcement action by the Building Authority is remote, Mr. Chan on behalf of the 1st Defendant did not pursue that during the hearing and no evidence was led. I find that there is no satisfactory evidence before me that the 2nd Defendant was aware of the legal consequence of the existence of illegal/unauthorised structures in the Property so that she, acting on her own behalf and on behalf of the Plaintiff when she signed the Agreement, has waived the right to raise objections or requisitions on those illegal/unauthorised structures. Requisitions raised 61. While K & K still represented both the Plaintiff and the 2nd Defendant, JKTH forwarded the following title deeds and documents in respect of the Property on 21st March 1996 (p.16 of the Bundle):
62. On 27th March 1996 (P.18 of the Bundle), K & K raised, inter alia, the following requisitions on behalf of both the Plaintiff and 2nd Defendant:
63. By a letter dated 9th April 1996 (P.32 of the Bundle) JKTH made the following reply concerning the Occupation permit:
64. K & K replied on 1st May 1996 (P.73 of the Bundle) that they did not share the view of JKTH on the Occupation Permit point and further asked for clarification whether the Building Ordinance had been contravened. 65. By a letter dated 7th May 1996 (P.87 of the Bundle), JKTH replied as follows regarding the Occupation Permit issue:
66. On 13th May 1996, JKTH forwarded the following title deeds and documents to K & K (P.89 of the Bundle):
67. On 16th May 1996, AC&P raised requisitions on behalf of the Plaintiff on the presence of "illegal/unauthorised structures" with reference to certain photographs of the exterior of the Property (P.85 of the Bundle). I will set out the particulars of such unauthorised structures without repeating the reference to photographs:
68. It is to be noted that three additional shops on the Ground floor under item 3 were not part of the Plaintiffs pleaded case. 69. By a letter dated 23rd May 1996 (p.99 of the Bundle) which I have referred to earlier, JKTH referred to the knowledge on the part of the 2nd Defendant of the existence of illegal/unauthorised structures and trespassers on the roof top, made the following reply:
70. JKTH also enclosed a copy of a certificate from Michael W. K. Yuen, Architect, certifying that the partitioning on the Ground floor into five units was non-structural and exempted by Section 41(3) of the Buildings Ordinance from approval by Building Authority. 71. By a letter dated 28th May 1996 (p.107 of the Bundle), AC&P noted the admission of the existence of unauthorised structures in the Property and raised doubt on the effectiveness of the certificate issued by Michael Yuen. AC&P stressed that the Plaintiff had never agreed or authorised anyone including the 2nd Defendant to accept unauthorised structures or waive his right to raise requisitions. 72. JKTH on 29th May 1996 (p.109 of the Bundle) replied that 'they did not wish to enter into any argument over the points that have already been accepted by the co-purchaser of your client.' 73. On 10th June 1996, JKTH sent a reminder to AC&P (p.121 of the Bundle) and K & K (p.122 of the Bundle) regarding the completion date. 74. In their reply to JKTH dated 11th June 1996 (p.123 of the Bundle) AC&P reiterated that the 1st Defendant had 'failed and refused to show title to the Property and to answer.....requisitions, thereby repudiating the...agreement.' AC&P required the 1st Defendant to let them know if it was willing to show good title or answer requisitions within 24 hours upon receipt of the letter. 75. By a letter also dated 11th June 1996 (p.124 of the Bundle), JKTH referred to the three copies of letters dated 17th May, 27th May and 3rd June from K & K to AC&P as a reply to the points raised by AC&P. JKTH asserted that no requisition was outstanding. 76. By a letter dated 12th June 1996 (p.128 of the Bundle) AC&P pointed out that on 29th May, JKTH simply stated that that they did not wish to enter into any argument over points already accepted by the 2nd Defendant and yet on 11th June 1996, with reference to the three letters by K & K, they alleged that the points had been answered. Apart from asking JKTH to disclose how they came to have such confidential correspondence between solicitors of co-purchasers, AC&P asked JKTH to show, with reference to each of the three letters, which parts were purported to have answered the requisitions raised. 77. By another letter dated 12th June 1996 (P.132 of the Bundle), AC&P enclosed a copy certificate by Agnes Ng and raised further requisitions regarding the removal of the smoke lobbies of the staircase from 1st to 5 floors. 78. On 13th June 1996 (P.135 of the Bundle) JKTH on behalf of the 1st Defendant rescinded the Agreement and forfeited the deposit. Time-limit 79. It is common ground that according to Clause 3 of the Agreement, requisitions must be delivered in writing to the vendor's solicitors within 7 working days after receipt of all the title deeds and documents. Mr. Chong submitted that since JKTH delivered the title deeds and documents in 2 lots on 21st March 1996 and 13th May 1996, the deadline for raising requisitions was 20th May 1996. Mr. Chong further submitted that regarding unauthorised structures, requisitions were raised in 3 lots:
the first two lots of requisitions were within the time limit while the third lot was simply a follow-up requisition of the second one. Mr. Chong further relied on Emmet on Title, 19th ed. Para 5.080 and Giant River for the proposition that if the requisition goes to the root of the title, a condition limiting the time will not preclude the purchaser from making it after the time has expired. 80. Mr. Chan in reply submitted that time started to run when the title deeds and documents were delivered by JKTH to K & K on 21st March, not on 20th May 1996. He contended that the so-called second lot of title deeds did not go to the root of the title and did not affect K & K's ability to check whether the title was good and had no bearing on the issue of unauthorised structures at all. Mr Chan referred me to the authority of Hillier Development Ltd v. Tread East Ltd ("Hillier") [1993] 1HKC 285 to support his contention. He submitted that time did not 're-start' unless the further title deeds delivered by JKTH go to the root of the title. 81. Regarding the requisitions raised, Mr. Chan submitted that the first lot of requisitions was irrelevant to the issues in the present action as the partitioning of the shops on the Ground floor was not part of the Plaintiff's pleaded case. The second lot of requisitions should not be entertained as they were out of time. Further, the Plaintiff should not be entitled to enjoy an extended time to raise requisitions simply because he had chosen to instruct another firm of solicitors in the course of raising/answering requisitions. As to the third lot, Mr. Chan complained that they were raised on the date of completion, and relying on Brain Future Ltd v Century Crown Ltd ("Brain Future") (HCMP 813/98, Cheung J, 11/6/99) at P.9, he submitted that such requisitions were not raised timeously or within a reasonable time. 82. In Hillier, the provision governing requisitions was that requisitions were to be made 'within five days after the delivery of sufficient title deeds' to the purchaser's solicitors, time being of the essence. The vendor delivered further deeds to the purchasers' solicitors after the period of five days had expired following the delivery of the first bundle of title deeds. Penlington JA said (at p.293) that there was no suggestion that the first lot of documents delivered was not sufficient to enable the purchaser's solicitors to check whether or not their client was going to receive a good title. Moreover, the further documents did not go to the root of title. 83. The key word in Hillier is "sufficient". On the facts of that case there was no suggestion that the first lot of documents delivered was not sufficient. Time thus started to run after the first lot was delivered. In the present case, the wording was quite different from Hillier. Clause 3 provided that 'any requisition on title shall be delivered in writing to the Vendor's Solicitors within 7 working days after receipt of all the title deeds and documents'. The present case is to be distinguished from Hillier as it is clear that not all title deeds and documents were delivered on 21st March 1996. I rule that the 7 days started to run after the second lot of title deeds and documents was delivered on 13th May 1996. 84. The first lot of requisitions was indeed of no relevance to the present case as submitted by Mr. Chan. The second lot of requisitions was raised before 20th May and was raised within the time limit. 85. As to the third lot of requisitions raised on the same day of completion, it is clearly out of time. I reject Mr. Chong's submission that it was simply a follow-up of the second lot of requisitions. Allegation of removal of smoke lobbies is quite distinct from illegal/unauthorised structures. 86. Penlington JA said in Hillier (at 293):
In Brain, Cheung J. when considering para.5.080 of Emmet on Title referred to the qualification enunciated by the Court of Appeal in Hillier, placing his emphasis on the words 'due diligence'. I respectfully agreed with the view expressed by the Court of Appeal and Cheung J. 87. It is clear that the third lot of requisitions was raised out of time. On the evidence before me I am not satisfied that the Plaintiff has shown that with due diligence he could not have realized the defect in title posed by the removal of the smoke lobbies on all floors. Further, raising such requisitions on the date of completion cannot be said to be timeous or within a reasonable time. I find that the Plaintiff was time-barred to raise the third lot of requisitions. Waiver of time-limit 88. As I have ruled that the second lot of requisitions was raised in time, there is no need to consider the arguments raised on this issue. In any event, the Plaintiff cannot rely on the fact that K & K had raised requisitions on behalf of both the Plaintiff and the 2nd Defendant and JKTH's answers to argue that the 1st Defendant had waived the time limit since the first lot of requisition and answer thereto was of no relevance to the present case. 89. The third lot was raised on 12th June 1996 and there was never any reply thereto by JKTH so there cannot be any question of waiver. Answers to requisitions 90. In this case it matters not whether the 1st Defendant had good title. If the 1st Defendant failed to show good title by answering requisitions raised on the illegal/unauthorised structures, it is in breach of clause 3 of the Agreement. 91. Had the 1st Defendant answered or sufficiently answered the second lot of requisitions? After AC&P raised the second lot of requisitions on 16th May 1996, JKTH in their reply dated 23rd May 1996 did not answer the requisitions raised. Instead, they referred to inspection and negotiation between Fan and the 2nd Defendant when the 2nd Defendant acknowledged the existence of unauthorised structures in the Property and trespassers on the roof top etc. and stated that the points raised had been accepted by 2nd Defendant. The 1st Defendant had clearly failed to answer the requisitions. 92. Mr. Chan submitted that 1st Defendant cannot be accused of having failed to so answer because of the stance taken by 2nd Defendant at the material time as one of the co-purchasers. Mr. Chan submitted that it would be a most serious impediment to the convenyancing practice if an innocent vendor is required to resolve the dispute between two purchasers who are taking conflicting views on the title of the property. He further submitted that it is implausible for the vendor to do so and it will rob the proof of title exercise of all practical effect. 93. I have already ruled that the first lot of requisitions raised by K & K was of no relevance here. The second lot of requisitions was raised by AC&P on behalf of the Plaintiff. No such requisitions were raised by K & K on behalf of the 2nd Defendant. Leaving aside the propriety (or impropriety) on the part of K & K in forwarding their letters to AC&P onto JKTH, such letters alerted the 1st Defendant to the fact that the Plaintiff and the 2nd Defendant were in dispute. The fact that the 2nd Defendant was content not to raise requisitions on the illegal/unauthorised structures cannot stop the Plaintiff from raising them. The 1st Defendant was under an obligation to show good title by answering the second lot of requisitions raised. Such an obligation did not disappear simply because the 1st Defendant became aware of internal disputes between the co-purchasers. Plaintiff's claim against the 1st Defendant 94. I find that the 1st Defendant has failed to show a good title by filing answer the second lot of requisitions. I find that the Plaintiff has effectively rescinded the Agreement. The Plaintiff is therefore entitled to the return of his half-share of deposits, i.e. $490,000. As to the claim of his half share of stamp duty paid ($134,750), there was some indication during the trial that stamp duties paid could be refunded by the relevant government department if the sale and purchase agreement was rescinded as a result of failure to prove good title. However, I do not have any evidence on this point. Since the Plaintiff has claimed for damages as an alternative to the stamp duty, I think it proper to allow Plaintiff damages to be assessed. I will also allow Plaintiff interest at judgment rate from date of Writ to date of full payment. Further, there will be a declaration that the Plaintiff was and is entitled to a lien on the Property for the deposits, damages and interest. Plaintiff's claim against 2nd Defendant 95. Since the Plaintiff succeeded in his claim against the 1st Defendant, I find against him on his alternative claim against the 2nd Defendant. The 2nd Defendant's Counterclaim against the Plaintiff 96. In her application to amend her counterclaim against the Plaintiff and to make a claim against the 1st Defendant, the 2nd Defendant acknowledged that she should have asked the 1st Defendant for the return of her share of the deposit. In any event, as I find that the Plaintiff was entitled to rescind the Agreement, there is no wrongful refusal on the part of the Plaintiff to compete the purchase. I find against the 2nd Defendant in her counterclaim. Order As against the 1st Defendant: Judgment for the Plaintiff against the 1st Defendant as follows:
As against the 2nd Defendant:
Costs of the action 97. The Plaintiff, being the successful party, is entitled to costs. The 2nd Defendant, having failed to have the counterclaim against the Plaintiff amended and to make a new claim against the 1st Defendant has to bear the costs of the Plaintiff and the 1st Defendant in their preparation to the argument and the time taken during the hearing. 98. The stance taken by the 2nd Defendant was most peculiar. K & K in their letters to AC&P alleged that both the Plaintiff and the 2nd Defendant were fully aware of the unauthorised structures and accepted the same. Though the 2nd Defendant denied the truth of such allegations and said that she had no idea why K & K wrote those letters, it is difficult to see how and why K & K would have written those letters except on instructions from the 2nd Defendant. It also appears that the purpose of forwarding those letters to the JKTH was to let JKTH know the disagreement between the 2nd Defendant and the Plaintiff so as to make it difficult for the Plaintiff to back out from the transaction. I of course cannot find that the contents of those letters were true. 99. Taking into consideration those letters forwarded by K & K to JKTH and the retraction of the 2nd Defendant of her Defence, I think there is a strong case for ordering the 2nd Defendant to bear a substantial part of the Plaintiff's cost of the actual hearing. I wish to hear all parties on this, particularly the 2nd Defendant who is not legally represented, before I make an order for costs. I am also minded to make a gross sum costs order in lieu of taxation pursuant to Order 62 Rule 9 of the Rules of High Court. For this purpose the Plaintiff and the 1st Defendant are each required to file and serve a schedule at least 7 days before the resumed hearing to be arranged.
Representation: Mr. Mathew Chong, instructed by Josip Ma & Co for the Plaintiff. Mr. Samuel Chan, instructed by John Ku Tam & Ho for the 1st Defendant. The 2nd Defendant Madam Leung Shok Ying in person. |