Big Foundation Development Ltd v. Wong Shu Kei

HCMP004536/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4536/97

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Coram: Mr Recorder Ribeiro SC in Court

Date of Hearing: 4 June 1998

Date of Handing Down Judgment: 16 June 1998

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JUDGMENT

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1. By a sale and purchase agreement dated 8^th September 1997 between the Plaintiff and the Defendant ("the Agreement"), the Defendant agreed to sell and the Plaintiff to purchase the abovementioned property for the sum of HK2,120,000. The amount of HK$212,000.00 was duly paid by the Plaintiff by way of deposit and completion was to take place at or before 5.00 pm on 28th October 1997.

The terms of the Agreement, so far as material, included the following provisions, namely, that:-

2. It is common ground that the Agreement was preceded by a provisional sale agreement and, that prior to the parties entering into that agreement, someone acting on behalf of the Purchaser had inspected the property.

3. Pursuant to the Agreement, the Purchaser's solicitors were provided with the title deeds on 6^th October 1997 and the first requisitions were made on 8^th October 1997. Nothing turns on those requisitions. It may however be noted that as the Agreement required requisitions to be made within 7 working days after the date of the receipt of the title deeds, if the Purchaser had considered that an inspection of the premises might be relevant to questions of title, it was, under the terms of the Agreement, incumbent on the Plaintiff to arrange for an inspection in good time so as to enable any relevant requisitions to be raised within the time limit.

Inspection and events on the day stipulated for completion

4. It is common ground that it was only on 27^th October, the day before the stipulated completion date, that the Purchaser requested inspection. The parties arranged that this should take place at 2:30 pm on 28^th October.

5. It appears that a Mr Choi Chung Hang ("Mr Choi"), acting on the Plaintiff's behalf, attended to make this inspection. An Affirmation ("the solicitor's Affirmation") made by an assistant solicitor of Messrs Patrick Chung & Co ("PCC"), the firm acting on behalf of the Plaintiff, describes what happened as follows (on information and belief, as the solicitor in question did not attend at the inspection):

"During such inspection, the Plaintiff, after comparing the layout of the Property with the Floor plan annexed to the Assignment [in question], found out for the first time that the balcony of the Property which protrudes into the light well is not constructed in accordance with the plan."

6. An urgent letter ("PCC 's 1^st letted") was faxed at 2.48 pm on 28^th October to Messrs Adrian Yeung & Cheng ("AYC"), the Vendor's solicitors, stating that PCC's client had found that the balcony was "not in accordance with the approval plan annexed to the Assignment....." The two paragraphs which follow are material. The first stated:

"Our client doubts that the balcony is an illegal structure or [alteration]. In the premises let us have documentary evidence to show that the structure or erection of the balcony is in order. Meanwhile, our client is engaging an architect to inspect the captioned premises in order to substantiate his contention."

The second added:

"Nevertheless, we are instructed that our client will be prepared to complete the transaction notwithstanding the aforesaid on the condition that your client agrees to reduce the purchase price by HK$300,000.00."

The letter ended with a request for a reply "before 3.30 pm today", i.e., within 42 minutes of receipt of this fax.

7. It is the Plaintiff's case that by this letter, it raised a requisition requiring production of documentary evidence showing that the structure was not an illegal structure.

8. AYC did not reply before 3.30 pm. PCC sent another letter ("PCC's 2^nd letter") by fax at 4.19 pm stating that "in view of the illegal structure" in the captioned property, we are not able to advise our client to complete the purchase "since, as you are well aware, the existence of such illegal structure ..... renders your client's title to the captioned property defective."

9. AYC's reply (apparently received by PCC at 4.40 pm) pointed out that the title deeds had been provided on 6^th October and that requisitions had to be raised within 7 days of receipt. It continued:

"As the requisition period has expired already, you are not entitled to raise and we will not entertain the requisition."

AYC's reply however went on to make two other points in the following terms:-

AYC's reply concluded with an invitation to complete in accordance with the Agreement.

10. PCC faxed a rejoinder at 4.53 pm (7 minutes before the stipulated deadline for completion) referring to Giant River Ltd v Asie Marketing Ltd [1990] I HKLR 297 as authority for the proposition that the existence of an illegal structure or alteration "renders title defective and .... goes to the root of title". Accordingly, the fax continues, ".....the time limitation did not restrict our client's right to make requisitions out of the time limit."

11. By a letter dated 28^th October 1997, received by PCC on 29^th October 1997, AYC, on behalf of the Defendant, asserted that the Plaintiff had repudiated the Agreement and accepted such repudiation, forfeiting the HK$212,000 deposit.

These proceedings

12. The Plaintiff now seeks a Declaration that the requisition raised in PCC's 1^th letter has not been sufficiently answered and/or a declaration that the Defendant has failed to show and/or prove good title, the claim being for return of the deposit, indemnity for stamp duty paid and the costs of investigating title.

The alleged illegal structure

13. The Defendant does not accept that there was any illegal structure erected on or at the premises. On this issue, the solicitor's Affirmation was the only evidence filed on the Plaintiff's behalf. It gives no details of the allegedly offending structure. At an early stage of the hearing, the scantiness of the evidence was canvassed and Mr Bernard Mak on behalf of the Plaintiff took instructions as to whether an adjournment might be sought to adduce further evidence. I was told that his client wished to continue on the evidence as it stood.

14. There is in consequence no direct evidence before the Court as to the existence, size, features or other details relating to the alleged illegal structure. PCC's 2^nd letter refers, as a matter of hearsay, to it as "the balcony" without more. PCC's 2^nd letter merely refers to "the illegal structure or [alteration]".

15. Additionally, there is exhibited to the solicitor's Affirmation, a letter purporting to be from Michael W.K. Yuen, Architect dated 29^th October 1997 addressed to Big Luck Property Agency Ltd., attention Mr Joseph Choi. We have no evidence who Mr Joseph Choi is. The letter is headed "Illegal Structure at Flat B, 3/F, 137 Wong Nei Chung Road, Happy Valley, Hong Kong." Thereunder, it states:

"Upon my inspection, I hereby confirm that there is [an] illegal structure being erected at the light well of the captioned flat (as marked pink on the attached plan)."

16. There was attached (and produced at the hearing) a photocopy of a floor plan with the area of the light well (indicated by the letters "L. W.") coloured pink and an arrow linking this area to the typewritten words "illegal structure". These documents were sent to AYC under cover of a letter from PCC dated 30^th October 1997.

Root of title

17. On the basis of this evidence the Plaintiff contends (relying on Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297) that the requisition as to the alleged illegal structure went to the root of title so that the Plaintiff was not bound by the time limit for requisitions.

18. It is common ground (in my view, obviously correctly) that not every unauthorized structure goes to the root of title. Whether or not it does so depends on the nature and extent of the unauthorized structure, the risk of enforcement action that it poses and the likely consequences of any such enforcement action, including risk of the property becoming encumbered or subject to re-entry by the Government: see, e.g., Chan Chik-sum v Great Pearl Industries Ltd [1997] 1 HKC 27 at 32; Ji Shan International Investment Ltd v Resources Main Enterprises Ltd & Anr (Unreported, 30^th March 1998), Civ App No 213 of 1997, at p 11.

19. As Mr Raymond W.S. Chan appearing for the Defendant pointed out, in the authority cited by the Plaintiff, there was ample evidence that extremely extensive unauthorized structures had been built on the property in question, consisting of three lower basements, the inner court and certain balconies, all forming part of the property (Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297 at 300E-F). Plainly, where there is only a minor unauthorized structure which is readily capable of being removed and the property reinstated, the defect does not per se go to the root of title.

20. As I have stated above, the evidence as to the nature and extent of the structure in the present case is extremely thin. The letter from the Architect (which was not made the subject of any hearsay notice and was merely exhibited to an affirmation sworn on information and belief) is strictly inadmissible. In any event, it is most uninformative. It does no more than to indicate that the allegedly offending structure protruded into the light well. It says nothing about its size, construction, obtrusiveness, remediability or otherwise. Although Mr. Mak had stated in his skeleton argument that the structure substantially covered the light well, this allegation was withdrawn at the hearing because it could not be sustained on the evidence. The basis for the assertion that it is "an illegal structure" is not explained. We do not, for instance, know if the writer had in mind some form of illegality under the Building Ordinance, some contravention under the Deed of Mutual Covenant or some other "illegality".

21. The Court is therefore unable to form any view as to the nature and seriousness of the unauthorized structure or of the risk of enforcement action posed by it. It may however be noted that in PCC's 1^st letter, the Plaintiff was offering to proceed with the purchase if a $300,000 price reduction was agreed. This does not sit comfortably with the assertion now made that the complaint advanced in that same letter goes to the root of title.

22. In my judgment, the Plaintiff has not established that any illegal structure that may have existed at the flat was such that a requisition in respect of it goes to the root of title. It follows that the time limit agreed for requisitions is not overridden and that prima facie at least, the purported requisition in PCC's 1^st letter was raised out of time.

Waiver of the time limit

23. The Plaintiff argues that the time limit was in any event waived by AYC's reply mentioned above. The argument is based on the following dictum in Ultra Eternal Ltd v Liu Tai Cheong [1997] I HKC 258 (Jerome Chan J) at 266-7 as follows:-

"Admittedly, the second requisition was made only two days before completion, and was thus made out of time. In their letter of 20 March 1996, the defendant's solicitors pointed out the second requisition was not made within seven days after receipt of title deeds and any objection to title thereunder would have, pursuant to cl 15(1), deemed to be waived and title in that respect accepted. However, they then went on to give a purported answer 'as a matter of courtesy'. They further concluded by saying:

All your requisitions have been satisfactorily answered. Kindly let us have your draft assignment for our approval the soonest the possible. (Emphasis added.)

Such statements might fairly mislead the reader to believe that the writer had waived the non-compliance with time restrictions under c1 15(1). This was apparently the case with the plaintiff when its solicitors continued to argue the second requisition with the defendant's solicitors in their reply letter of the same date. In view of the plaintiff's success on the first requisition, it was not necessary for me to decide the second requisition. However, if necessary, I would have held that the defendant's solicitors had waived the non-compliance with time restriction for raising the second requisition. It is advisable that solicitors should avoid answering out-of-time requisition 'as a matter of courtesy'. Any reply to such invalid requisitions, if not accepted as a properly raised requisition, should only be 'answered' subject to very clear statement that such answer was to be wholly without prejudice to the rejection of such requisition on ground of lateness. Such a warning can also be found in Emmet on Title (19th Ed) para 5080."

24. In my judgment, the AYC reply did not waive the Defendant's right to rely on the time limit for raising requisitions under the Agreement. On the contrary, it expressly stated : "As the requisition period has expired already, you are not entitled to raise and we will not entertain the requisition." Far from waiving it, this was an express assertion of that right. No one could have been misled by such language.

25. Mr Mak argued that whatever the first paragraph of AYC's reply may have said, the second and third paragraphs nevertheless constituted an answer to the requisition and so amounted to a waiver. Because (so the argument runs) such answers were unsatisfactory, they put the Defendant in breach of his duty to show good title under the Agreement, entitling the Plaintiff to a return of the deposit.

26. I am unable to accept this argument. As I have already stated, the reply made it clear that the time limit was not being waived. Secondly, as a matter of construction, the second and third paragraphs of AYC's reply quoted above do not, in my view, constitute attempts to answer the requisition. Rather, they put forward the solicitors' arguments of law as to why the Plaintiff was bound to proceed with completion. It matters not whether the points made were good or bad legal points, AYC did not, by those paragraphs, derogate from the clear intimation on behalf of the Defendant that the purported late requisition was not open to the Plaintiff and would not be entertained.

27. In any event, the paragraphs in AYC's reply fell far short of the unequivocality required for a waiver of their client's contractual rights. If, contrary to the construction I have adopted, the second and third paragraphs of AYC's reply do constitute answers to the purported requisition, I would nonetheless respectfully decline to follow the approach suggested obiter in the Ultra Eternal case. I would hold that notwithstanding the giving of such answers, the clear express refusal to entertain the requisition precluded any waiver. In my view, the burden rests on the party alleging that the time limit is waived to show that this has unequivocally been done. The other party does not shoulder the burden of expressly excluding a waiver, whether by having to add express words preserving what is already his right by contract or otherwise. Solicitors should not be placed at risk of waiving their clients' rights as a result of a response given purely as a matter of courtesy, in the absence of a clear and unequivocal waiver.

Conclusion

28. Accordingly, I hold that the time-limit continued to apply and had neither been overridden by a defect going to the root of title nor by waiver of the Defendant's right to that time limit. The purported requisition was therefore raised out of time and the Plaintiff's claim based on a failure properly to answer it fails.

29. Various further arguments were advanced on behalf of the Defendant (e.g., as to the adequacy of the purported requisition's formulation and as to whether either Clause 13 or the initial inspection of the property, taken together with the floor plan when the title deeds were provided, precluded the Plaintiff from complaining about the alleged illegal structure). However, the view I have taken makes it unnecessary for these arguments to be examined.

30. The Plaintiff's claim is dismissed and I make an order nisi for the costs of the proceedings to be paid by the Plaintiff to the Defendant.

Representation:

Mr Bernard Mak instructed by Messrs. Patrick Chung & Co for the Plaintiff

Mr Raymond WS Chan instructed by Messrs. Adrian Yeung & Cheng for the Defendant