Giant River Limited v. Asie Marketing Limited

HCMP002510/1987

Property law - residential property sold for $12 million when defendant vendor contracted to show good title - property comprised 6 storeys of which 3 upper storeys authorised under occupation permit but 3 basement floors unauthorised - 950 square feet ground floor inner court also unauthorised - when defendant purchased property for $4 million certain unauthorised structures disclosed - whether defendant made full and frank disclosure - whether exemption clauses excluded defendant's liability - whether plaintiff waived defendant's obligation to show good title - Held: 1. Unauthorised structures entitled Crown to re-enter and exercise other enforcement powers and adjoining owners entitled to sue under Deed of Mutual Covenant; 2. Unauthorised structures constituted defects which precluded defendant showing good title; 3. Defects went to root of title and plaintiff therefore not prohibited by exemption clause from raising late objection; 4. On facts plaintiff had not waived defendant's obligation to show good title; 5. Plaintiff entitled to refund of $1.2 million deposit; 6. Defendant's counterclaim dismissed.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

M.P. No. 2510 of 1987

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BETWEEN

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Coram: Deputy High Court Judge Cruden

Dates of Hearing: 7th, 8th, 11th to 14th and 18th July 1988

Date of Judgment: 2nd August 1988

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JUDGMENT

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1. On 27th August 1987 the parties entered into an agreement for the sale by the defendant to the plaintiff of the residential property at No. 66 Black's Link ('the property') for the sum of $12,000,000. The plaintiff paid a deposit of $1,200,000 but has not paid the balance or entered into possession. The plaintiff refused to complete the purchase on the ground that because the property included certain unauthorised structures, the defendant had failed to discharge the contractual obligation imposed by Clause 10 of the agreement to show good title.

2. The plaintiff on 24th November 1987 took out the present summons under Section 12 of the Conveyancing and Property Ordinance, Cap. 219 seeking various declarations and an order for the return of the deposit.

The first 3 declarations were sought in the following terms:

3. Section 12 is a useful provision which enables vendors and purchasers summarily to apply to the Court to have questions arising out of contracts for the sale of land speedily determined. Often but not always the plaintiff takes out a summons in the hope that completion of the contract will be achieved in accordance with its terms after any prior ambiguities have been resolved by the Court. The plaintiff's present summons raises more substantial issues than those commonly raised on a vendor and purchaser summons and it is not surprising that the Master by consent on 30th May 1988 Made a number of order considerably widening the scope of the proceedings. These orders granted the defendant liberty to file points of counterclaim; liberty to the plaintiff to file a defence to counterclaim; required each party to file a list of documents; provided for inspection; ordered deponents of affidavits filed to be available at the hearing for cross-examination; and granted leave to both parties to adduce further evidence at the hearing viva voce but limited to matters contained in the affidavits.

4. The defendant thereafter filed points of counterclaim seeking declarations that the defendant had deduced good title; that the plaintiff had failed to complete; that the deposit was in terms of the agreement thereby forfeited; and for various related declarations. The plaintiff in turn filed a defence to the counterclaim. Although the Master did not make a formal order under R.S.C. Order 28 Rule 8 that the originating summons proceedings continue as if begun by writ, the result of his directions had a similar practical effect. The hearing proceeded in open, Court in accordance with those directions.

The facts

5. To understand the nature of the unauthorised structures it is necessary to go back to 20th March 1979 when the permit to occupy the property was issued pursuant to Section 21 of the Buildings Ordinance, Cap. 123. The permit in fact extended to the whole of Lot RBL 933 on which 2 houses had been built at a lower level and 3 houses had been built at a higher level. The subsequent owners of the 5 houses held the whole of Lot RBL 933 as tenants in common in equal shares. The lot was notionally subdivided into Blocks A, B, C, D and E. Under this notional subdivision one of the 5 equal shares was allocated to each of the houses and adjoining private gardens designated as Blocks A, B, C, D and E. No. 66 Black's Link is one of those 5 houses, built on the upper level and also designated as Block A. Under the Section 21 permit, the Building Authority permitted the occupation on Lot RBL 933 of 5 detached 3 storey residences for domestic use.

6. The defendant's predecessor in title was Ricoa Lee & Son Ltd. which had mortgaged its interest in the property to the Algemene Bank Nederland NV ('the Bank'). On 21st January 1985 the Bank, in exercise of its power of sale, sold the property to the defendant for $4,000,000. I accept the evidence of Mr. Philippe Charriol, the defendant's Managing Director, that since the property was purchased by the defendant in 1985, no structural additions or alterations have been made to the property. I find that the alleged unauthorised structures were all built at some time before the defendant purchased the property. The plaintiff has alleged that the 3 lower basements, the inner court and certain bedroom balconies forming part of the property are unauthorised structures. On the evidence I find that each of these 3 structures are unauthorised.

7. The Bank was clearly aware of the existence of at least some of these structures for Clause 18 of the agreement its solicitors prepared, for the sale of the property on 21st January 1985 to the defendant, provided:

"18. The said premises are and will be sold on an "as is" basis. No warranty is given by the vendor as to the state and condition of the said premises or of any building or buildings of which the said premises form part. Nor is any warranty given as to whether the said premises or the said building or buildings conform with the approved plans. The purchaser hereby acknowledges that he has inspected the said Block A and the adjacent garden and is aware that certain structures there within (which are not comprised in the said premises hereby agreed to be sold and purchased) are not in conformity with or included in the approved plans."

8. Although Clause 18 refers to the fact that the property included structures not included in the approved plans, it does not specify the nature of those unauthorised structures but merely records that the defendant was aware of them. Mr. Charriol stated that when the defendant purchased the property it comprised 6 and not 3 storeys. Three of those 6 storeys were above ground level; the remaining 3 floors formed the basement. He also stated that as at that date the inner court on the ground floor, was roofed-over and that 2 bedrooms on the 1st and 2nd floors were provided with balconies. Mr. Charriol stated that when the defendant purchased the property he had been told by the previous owner that the basements were unauthorised and their illegal nature was one factor which caused him to take 2 months before a final decision was made to purchase the property. I before the present hearing that he became aware that the balconies might also not be approved structures.

9. Mr. Charriol also stated that the previous owner told him that the roofed-over inner court was not approved. He went on to assert that the previous owner had also told him that some time after the unapproved inner court roof had been constructed, an officer of the Building Authority had called and given oral "clearance" of the roofed-over inner court. Counsel for the defendant conceded that because of the hearsay nature of that evidence, it was not admissible as truth of its contents but submitted that it was evidence that the statement was made by the previous owner to Mr. Charriol and relevant to Mr. Charriol's subsequent conduct. I accept that the statement is admissible on that very limited basis. Any doubts as to Mr. Charriol's knowledge were removed in cross-examination, when he agreed that before purchase he was told that both the basements and the roofed-over inner court were unauthorised. I find that when the defendant, purchased the property in 1985 it knew that the basements and the roofed-over inner court were unauthorised structures.

10. The Section 21 occupation permit, already referred to, was issued in Eerms of the restrictive covenants contained in the Crown's particulars and conditions of sale of Lot RBL 933 for its sale by auction on 18th January 1974. The particulars and conditions are important. General Condition 14 provided that fulfilment by the purchaser of his obligations under the General and Special Conditions, was a condition precedent to the grant or continuance of the tenancy. General Condition 16 required compliance with all the conditions before the purchaser was entitled to a Crown Lease for the lot for a term of 75 years together with an option for renewal for a further 75 years. The Special Conditions limited the use of the lot to private residential purposes. Special Condition (10) required any buildings erected on the lot to be approved by the Director of Public Works. Clause (11) provided that the total roofed-over area should not exceed 15% of the area of the lot. Clause (12) limited buildings to 3 storeys.

11. The maximum roofed-over area for the 5 houses built on the lot was 6,150 feet. The approved plans of those structures totalled 6,088.46 square feet. The approved plans for Block A indicated that its house covered a roofed-over area of 1,178.37 square feet. The residual unused roofed-over area for the whole lot, available for additional approved building was, on these figures, only 61.54 square feet. It was common ground that the very large area of the unapproved roofed-over inner court comprised 950 square feet which, by itself, would result in the maximum roofed-over area of 15% being substantially exceeded.

12. After buying the property in 1985 for $4,000,000 the defendant in December 1986 put the property on the market for $12,000,000 granting a joint exclusive agency to Jones Lang Wootton and House Hunters Ltd. Mr. Charriol stated that he informed a senior partner of Jones Lang Wootton, who had visited the property socially on a number of occasions, that part of the buildings were unauthorised but left it entirely to them to prepare a sales brochure or any other material. In the event the joint agents prepare a two page brochure which limited the description of the accommodation to the 3 storeys above ground level which were stated to comprise 4,220 square feet. The approved roofed-over area of 1,173.37 square feet produces for those 3 floors an approximate area of 3,536 square feet. If to that area is added the 950 square feet of the inner court the area would be increased to 4,486 square feet. The brochure was never shown to the plaintiff.

13. There was no explanation of how the joint agents reached their accommodation area of 4,220 square feet. However, it clearly excluded the basements. The total basement area comprised 5,350 square feet made up of the 1st basement of 2,550 square feet, 2nd basement of 1,950 square feet and the 3rd basement of 850 square feet. The total basement area of 5,350 square feet exceeds the approved above ground buildings of 3,536 square feet. If the area of the inner court is added, then the difference is eve greater with unauthorised structures totalling 6,300 square feet compared with the approved structures of 3,536 square feet. The scale of the unauthorised structures in both relative and absolute terms is immense.

14. By June 1987 the joint agents had been unable to obtain a purchaser willing to pay $12,000,000 and their exclusive agency was terminated. At this time Ms. Dorothy Poon, the managing director of the plaintiff, was looking for a residential property to be purchased in the plaintiff's name but to be occupied by her as her home. Ms. Poon knew a Miss Anita Wong of L & D Associates, Real Estate Agents, who brought the property and another property at No. 68 Black's Link to her attention. It appears that L & D Associates became aware of the property through another real estate agent, Land Power Property Consultants Ltd. After the original joint agents exclusive agency had terminated, Mr. Peter Ling, the General Manager of the defendant, had given authority to Land Power Property Consultants Ltd. to sell the property at the same price of $12,000,000. On 8th June 1987 Ms. Poon, in the company of Miss Wong, visited the property and carried out her first inspection.

15. Ms. Poon stated that she inspected all 6 floors of the property including the inner court. As to the basements which she inspected, it is common ground that the 1st basement comprises 4 bedrooms, 2 bathrooms, 1 music room, 3 storerooms and a utility room; the 2nd basement comprises I billiard room, 1 study, 1 dark room, 1 store room and 1 lavatory; and the 3rd basement, 1 storeroom and 1 toilet. The basement rooms do not have any windows, natural light or ventilation. There was a door from the first basement floor which led outside but it could not be seen from the exterior of the house, as it was covered with vegetation. There was also another exit on a lower basement floor, at times referred to as an escape hatch, which could be used in an emergency, giving access to a common area between the property and an adjoining house. A staircase gave access from the ground floor to the basement floors. A cabinet on the ground floor contained planks, covered with the same mosaic coloured tiling as the staircase area. In the event of Government inspectors visiting the property the planks were available, according to the evidence, to mask the staircase opening.

16. Ms. Poon was impressed by the property and consulted J. Wilburn & Associates, Surveyors and Valuers, on value. On 9th June 1987 Mr. Patrick Lai of that firm orally advised her that the market value of the property was in the region of $16,000,000. When Ms. Poon told Mr. Lai she particularly liked the property Mr. Lai, according to her, observed that if she intended to reside in the property personally, as there were no real comparables, it could be valued at $12,000,000. Whatever the precise form of that conversation, on 16th July 1987, J. Wilburn & Associates sent to Bowman Enterprises, another of Ms. Poon's companies, a valuation of the property, expressly prepared for "mortgage purposes", at $12,000,000. The property was described as containing 6 floors with a total floor area of 9,190 square feet, which measurements did not include the roofed-over inner court.

17. On 8th June 1987 Ms. Poon had already paid to L & D Associates a temporary deposit of $100,000 and on 10th June 1987 she signed a Memorandum of Agreement to purchase the property for $12,000,000. This document in the event remained merely a written offer, as it was never signed by the defendant. Its terms were conveyed by letter to the defendant by Land Power Property Consultants Ltd. on 18th June 1987. Mr. Ling stated that on receipt of that letter he took the property off the market. The plaintiff also in June 1987, retained the services of Dale Keller & Associates, Designers, to advise on the renovation of the property. To assist them in their work she sought a copy of the original plans and specifications for the property. This request was first made by the plaintiff's then solicitors to the solicitors they wrongly understood acted for the defendant by letter on 14th July 1987. The request was repeated in the first letter to the defendant's actual solicitors on 22nd July 1987, when a draft agreement for sale and purchase was also requested.

18. The defendant's solicitors on 30th July 1987 forwarded to the plaintiff's then solicitors the draft agreement; the relevant title deeds and other documents including the prior agreement for sale and purchase from the Bank to the defendant; and regretted that the defendant did not have the plans and specifications requested. On 11th August 1987 the plaintiff's then solicitors returned the draft agreement with amendments and raised a requisition not related to the present dispute, made within the time later stipulated in Clause 6 of the agreement and later answered to the plaintiff's apparent satisfaction. The plaintiff in a further effort to obtain a copy of the plans and specifications for Dale Keller & Associates, itself wrote on 14th August 1987 to the Building Authority.

19. The agreement for sale and purchase was executed by the parties on 27th August 1987 but before considering its contents, it is necessary to determine a dispute as to fact, over what occurred when Ms. Poon visited the property a few days earlier on 19th August 1987. Ms. Poon stated that she visited the property on that occasion with Miss Anita Wong who had arranged to complete the furniture list with representatives of the defendant. It is undisputed that a large number of persons were present. These at least included Ms. Poon, Miss Wong, Mr. Louis Lo of Land Power Property Consultants, 2 representatives from Dale Keller & Associates, Mr. Ling, an assistant from the defendant's office and Mr. Charriol's servants including his butler-driver Mr. Rodolpho Sarino.

20. According to Mr. Ling, when the party reached the billiard room a cupboard was opened and inside were a roll of plans. After these were unrolled on the billiard table Ms. Poon took some of these plans away with her. Mr. Ling further stated that when they were at the staircase on the ground floor, he pointed out to Ms. Poon the cabinet in which the tiled covered planks were stored and told her that they were for covering up the staircase opening in the event of anyone coming to inspect the premises.

21. Ms. Poon agreed that there were plans in the cupboard of the billiard room but asserted that when she enquired whether these were the plans of the house, Mr. Ling replied he did not know and the plans were left in the cupboard unopened as the property was then tenanted. Ms. Poon also denied that Mr. Ling showed her the planks, claiming that this only occurred later on 22nd September 1987 when they were shown to her by Mr. Charriol. Mr. Sarino gave evidence and he confirmed Mr. Ling's evidence that on the day of their joint inspection the plans were opened out on the billiard table; Ms. Poon took some of the plans away with her; and that on the same day Mr. Ling also showed her the planks. He was quite definite that he had not confused this occasion with the later occasion when Ms. Poon spoke to Mr. Charriol. As to the later occasion, he said that Ms. Poon obtained further plans and that Mr. Charriol also talked to her about the planks.

22. When Mr. Charriol gave evidence he said that Ms. Poon called at the property when he was home on 22nd September 1987. Mr. Charriol stated that when he told her about the planks she said that she had seen them before and asked if he could recommend someone to fit the planks. As Mr. Sarino himself later confirmed, Mr. Charriol stated he was sure that Mr. Sarino could help. Mr. Charriol also alleged that Ms. Poon asked for additional copies of the plans which were kept in the billiard room and these were given to her. After reviewing the evidence, I am satisfied that Ms. Poon is mistaken over what occurred on these different days. I find that on the visit of 19th August 1987, Ms. Poon was given some of the plans found in the billiard room and that on passing the staircase entrance, Mr. Ling did indicate that planks were kept in a cabinet and could be used for covering the entrance in the event of anyone wanting to inspect the premises.

23. So it was 8 days after the visit when she obtained plans and had her attention drawn to the planks and their purpose, that the agreement for sale and purchase was executed on 27th August 1987. I record that 29 days earlier the plaintiff's solicitors had also received from the defendant's solicitors, a copy of the prior agreement from the Bank to the defendant, with its Clause 18 reference to "certain structures" which did not conform with the approved plans. I confirm that the agreement of 27th August 1987 in Clause 6 required any requisition in respect of title to be made within 14 days of the delivery of title deeds. Clause 7 of the agreement, which appeared to be in standard form, included an additional final sentence which seems to have been specially inserted, providing that:

"The Purchaser purchases with full knowledge of the physical condition of the said premises and takes the same as they stand."

24. The agreement did not include any clause similar to Clause 18 of the agreement from the Bank. It may be that the draftsman, in adding to Clause 7 the sentence just cited attempted, within the constraints of the standard form documents available space, to reflect in much more economical form, the provisions of Clause 18 of the prior agreement. If so then, in my view, he failed to do so for the additional sentence, at least prima facie, refers to the physical condition of the property and not to the affect on the title to the property of any unauthorised structures forming part of the property. Whether the words of that sentence have any wider meaning, in the particular circumstances in which the agreement was executed, is a matter I will have to determine later.

25. When some days after the agreement was signed, Ms. Poon visited the property on 22nd September 1987 and spoke to Mr. Charriol, it is common ground that Mr. Charriol referred to the fact that the 3 basement floors were as illegal structure and that he showed her the planks explaining how they could be used to conceal the basement staircase. Ms. Poon stated that although she was aware of the illegal nature of the unauthorised structures she inferred from Mr. Charriol's explanation that it was "not a big problem". She went on to state that she did not then appreciate that the title was consequentially defective but believed that having signed the agreement her Company was obliged to complete the purchase of the property. I also record that later Ms. Poon stated that she knew Mr. Charriol had lived there for 2 years having to cover the basement opening only once and that she too hoped to "get away with it", to use her words, and that the unauthorised basements would not be discovered.

26. The plaintiff's attempts to obtain mortgage finance to complete the purchase on the 15th October 1987 contractual completion date were unsuccessful. An application for a loan of $8,400,000 to the Standard Chartered Bank, which would have equalled 70% of a $12,000,000 valuation, was declined. The Hong Kong & Shanghai Banking Corporation only valued the property at $9,000,000 and offered a loan of $6,300,000. Later the Overseas Trust Bank offered a loan of $6,750,000. Between 15th and 19th October 1987, when Mr. Charrio1 was in Paris, Ms. Poon asked Mr. L. C. Louvet to telephone Mr. Charriol and explain the plaintiff's mortgage finance problem. Mr. Charriol refused to reduce the purchase price.

27. Ms. Poon stated in evidence that although the plaintiff sought a mortgage of $8,400,000, if the defendant had shown good title, the plaintiff could have completed the purchase using available alternative funds together with a lesser mortgage of $6,750,000 or $6,300,000. During the plaintiff's efforts to arrange satisfactory mortgage finance, it became aware that the banks lower valuations, were because they had taken into account the fact that the 3 basement floors were unauthorised structures.

28. On 14th October 1987 the defendant's solicitors returned to the plaintiff's then solicitors, the draft assignment of the property, duly approved. In conveyancing practice, this was an important step, as it would usually signify that requisitions had been satisfied and the draft assignment was approved for execution. The difficulties in obtaining mortgage finance, led the plaintiff to obtain an extension of the completion date, although the reason on this and on a subsequent occasion, was not expressly mentioned in the correspondence. The defendant agreed to extend completion from 15th to 30th October 1987 in consideration of the plaintiff accepting the responsibility for roof repairs which, under the agreement, had been the responsibility of the defendant. The plaintiff agreed to this condition. The defendant's solicitors recorded by letter that save for this condition and the variation of the completion date:

"... all other terms and conditions contained in the Agreement shall remain in full force and effect. Without prejudice to the generality of the foregoing the property shall be sold to your client on "as is" basis pursuant to Clause 7 of the Agreement."

The reference to the "as is" basis is interesting, for while those words formed part of Clause 18 of the prior sale by the Bank they were not included in Clause 7 of the present agreement. This letter suggests that at least in the mind of the draftsman, the additional final sentence inserted in Clause 7, was an attempt to repeat some of the exclusionary provisions of the prior Clause 18. On 30th October 1987 the defendant agreed, further to extend completion to 30th November 1987 in consideration of the payment of $72,000. The plaintiff paid the $72,000 and the defendant's solicitors again took care to record by letter on 30th October 1987 that save for the extension of the date for completion:

"... all other terms and conditions contained in the agreement for sale and purchase dated 27th August 1987 (as amended by our letter to you dated 14th October 1987) shall remain in full force and effect."

29. Counsel for the plaintiff placed considerable reliance on these affirmations made on behalf of the defendant, that the agreement remained otherwise unaltered, when he came to submit that the obligation of the defendant to show good title to the property, as at the extended settlement dates of 30th October 1987 and 30th November 1987, continued unaffected.

30. During October 1987 the plaintiff, although still instructing its former solicitors, sought the advice of another firm of solicitors, Fred Kan & Co. After its former solicitors had obtained the second extension for completion, Fred Kan & Co. were formally instructed to act for the plaintiff on the purchase and wrote their first letter to the defendant's solicitors on 11th November 1987. This letter asked for the title deeds for perusal and purported to reserve the right to raise further requisitions. On 16th November 1987 Fred Kan & Co. wrote a further letter to the defendant's solicitors stating that after the agreement had been executed it had come to the plaintiff's knowledge that the basement floors were unauthorised structures, prior approval of the Building Authority not having been obtained.

31. The letter went on to refer to alleged breaches of Special Conditions (10), (11) and (12) of the Crown's particulars and conditions for the sale of. Lot RBL 933. The letter further claimed that the 3 basement floors would increase the roofed-over area by about 3,300 square feet. This latter complaint was factually misconceived for the basements, being no larger than the upper floors, did not increase the roofed-over area. However, unknown to the plaintiff or its solicitors at that time, the unauthorised roofed-over inner court, did result in the maximum permitted roofed-over area of 15% being exceeded. The letter asserted that because of such contraventions the Crown was entitled to re-enter. The plaintiff's solicitors concluded that unless they were satisfied that the basement did not contravene Special Conditions (10), (11) and (12) the defendant's title was defective. If the plaintiff's requisitions were not answered within 7 days it would annul the agreement and require the return of the deposit.

32. The defendant's solicitors replied on 17th November 1987 stating that the property had been bought "as is"; that time for requisitions under the agreement had long since expired; and that in terms of Clause 6 if requisitions were not made within the stipulated 14 days they were considered to be waived. The property, of course, had not in express terms been bought "as is" but that was the interpretation sought to be given to clause 7 by the defendant's solicitors. The plaintiff's solicitors replied on 24th November 1987 asserting that as their requisition went to the root of the title it was properly raised; that the exclusionary provisions in the agreement did not apply for the defendant had failed to make full and frank disclosure that the basements were illegal structures; and that Clause 7 related only to the physical condition of the property and not to title. This letter from the plaintiff's solicitors also included the statement, emphasised by Counsel for the defendant on several occasions that:

"... if the basements are not illegal then there is no defect in title at all ..."

I accept that at this stage the plaintiff was solely relying on the allegation that the basements were unauthorised and had not raised the issue of the inner court or the balconies. On 24th November 1987 the plaintiff took out the present summons. On 1st December 1987 the defendant's solicitors wrote to the plaintiff's solicitors formally recording that the plaintiff had not completed the purchase and gave notice that the deposit of $1,200,000 was absolutely forfeited to the defendant pursuant to Clause 12 of the agreement.

33. During the hearing one defence advanced by the defendant was that the plaintiff, before signing the agreement, had been informed by the defendant that the basements were unauthorised and with such knowledge had executed the agreement and on several occasions thereafter had continued to affirm the agreement. Paragraph 11 of the Counterclaim at least in part pleaded this defence. After the parties closing submissions had been completed, leave was granted to the defendant to file an Amended Points of Counterclaim which in express terms pleaded that the plaintiff by its conduct had waived its right to insist on good title.

34. There was certainly evidence before the Court which, if the issue was purely one of contract, arguably supported the defence plea of waiver. However, in the law of real property, equity has developed a number of principles in relation to the sale of land, which cast a heavy burden on vendors and provide protection for purchasers. These principles at times produce results different to these which commonly follow in cases of pure contract. It is now necessary to turn and consider these equitable principles.

The law

The defendant's obligation to show good title:

35. Clause 10 of the agreement provides:

"The vendor shall show a good title to the property at the vendor's own expense ..."

Counsel for the plaintiff submitted that the defendant as vendor was obliged on the date for completion to show good title to the plaintiff as purchaser. If good title was not shown, the plaintiff was not obliged to complete and was entitled to the refund of its deposit. The only variation to the agreement, it was submitted, related to the date for completion, which was twice extended. On each of those occasions the defendant's solicitors had confirmed in writing that all the other conditions remained in full force and effect. Those other conditions included Clause 10. Counsel accepted that it was always open to a purchaser to waive a good title condition but contended that in this case the plaintiff had not waived the defendant's obligation to show good title.

36. The question of what constitutes a good title has recently been considered by the Court of Appeal in Kan Wing Yau v. Hong Kong Housing Society Civil Appeal No. 1/88. Clough J.A. described a good title in these terms:

"A good title is one which can at all times and in all circumstances be forced on an unwilling purchaser in an action for specific performance, but the court will not force a doubtful title on a purchaser. A doubtful title includes not only a title on which the court entertains doubts, but also one in respect of which the court entertains a favourable opinion but may yet be reasonably and fairly questioned by other competent persons."

37. The Court of Appeal referred to the House of Lords judgment in M.E.P.C. Ltd v. Christian-Edwards (1981) AC 205 where Lord Rusell of Killowen confirmed that the burden on the vendor is to prove good title to the very high standard of beyond reasonable doubt. The Court of Appeal accepted that facts which may give rise to a reasonable doubt adverse to good title, extend not merely to facts appearing on the title but to facts extrinsic to the title. Reference was also made with approval to In re Stirrup's Contract (1961) 1 WLR 449, 454 where Wilberforce J., as he then was, held that a purchaser is entitled to be satisfied that the vendor is possessed of the estate he is purporting to sell. That obligation is discharged if the vendor shows beyond reasonable doubt that he:

"... is in possession ion of the estate and that he is in a position to convey it without any blot or possibility of litigation to the purchaser."

38. In considering the possibility of litigation, the Court of Appeal referred, as did Godfrey J., in the court below, to In re Heaysman's and Tweedy's Contract (1893) 69 LT 89 where Lindley L.J. at page 91 declared:

"It is a general principle that a purchaser ought not to be forced to accept a doubtful title or to buy a Lawsuit. In applying that principle, however, we must exercise our common sense land see if the supposed lawsuit has any basis whatever. We must see if there is the slightest reasonable chance of any such lawsuit being instituted. If we come to the conclusion that the supposed lawsuit exists only in the imagination of the purchaser, we ought to disregard it, giving him the advantage of every reasonable doubt ... Such a claim would now be ridiculous: he would be laughed out of court. The purchaser says that he may. But is it a reasonable blot, to give effect to? I think not. I think the facts are such that this supposed blot is a purely theoretical and not a practical blot. Nothing could be made of it at law or in equity."

39. The Court of Appeal held that Godfrey J., wrongly identified merely a good holding title with a good title. A good title is a superior title to a good holding title or a good marketable title. On a vendor and purchaser summons, where good title is in issue the Court had no jurisdiction to accept a mere holding title.

40. Counsel for the plaintiff submitted that the unauthorised structures constituted a defect in title. The fulfilment of the conditions of the Crown's particulars and conditions of sale were a condition precedent to the grant of a Crown lease. Under Clause 7 of the agreement the property was sold subject to the performance and observance of the covenants in the Crown lease, which in this case pending grant of the Crown lease, was constituted by the Crown's particulars and conditions of sale. The unauthorised constructions were in breach of Special Conditions (10), (11) and (12).

41. The breach of those conditions, it was submitted, rendered the owner of the property liable to litigation under three separate heads. First, the Crown was entitled to exercise its contractual right of re-entry under General Condition 15. Secondly, the Building Authority could require the demolition of the unauthorised structures under Section 24 of the Building Ordinance and institute penal proceedings under Section 40 which provides for substantial fines and renders offenders liable to imprisonment. Thirdly, because the General and Special conditions apply not merely to Block A but to the whole of Lot RBL 933, the unauthorised structures on Block A, give rise to the Crown's powers against the whole lot and the owners of Blocks B, C, D and E would have a cause of action against the owner of Block A, under the Deed of Mutual Covenant.

42. Counsel for the defendant submitted that the risk of the Crown taking action against the owner of the property either contractually or under the Buildings Ordinance was low, as Government policy was only to act where the unauthorised structures constituted a fire hazard or otherwise caused the structure to be dangerous. A number of expert witnesses gave evidence on this issue. The plaintiff called Mr. Joseph Ma, a registered architect who is employed in the Development Section of the Buildings Ordinance office which now forms part of the Buildings and Lands Department. Mr. Ma confirmed that the basement, roofed-over inner court and balconies were not approved by the Building Authority and liable to be ordered to be demolished under Section 24.

43. Under cross-examination Mr. Ma agreed that the Building Authority does have a discretion to take action under Section 24. However, he had never known of a case where that discretion had been exercised in favour of action not being taken. But he pointed out that enforcement was carried out by the Control and Enforcement Division of which he had no personal knowledge. He had heard of a policy caused by manpower shortages only to proceed against owners where the unauthorised structure created a fire hazard or other danger. Where enforcement action is taken the Building Authority may, if the owner does not demolish the unauthorised structure, instruct his own contractor to demolish the structure and recover the cost from the owner. At least so far as buildings under construction are concerned, the gravity of a deviation is relevant to enforcement action. Independently of the Building Authority's statutory powers, the Crown may also take re-entry and forfeiture action under the Crown lease.

44. Application by a non-complying owner may also be made to the Crown for a modification of the Crown lease, for example to permit the erection of buildings in excess of the maximum roofed-over area. Where a modification is granted the Crown will usually charge a premium normally calculated on the difference in market value between the original lease with the lower density restrictive covenant and a lease permitting the larger roofed-over area. The defence called Mr. Charles Chan, a chartered surveyor of Chesterton Petty who produced his valuation report dated 22nd June 1988 which was the first report which indicated that the balconies were also unauthorised structures. According to Mr. Chan, unauthorised additions were common to a number of residential properties of comparable value in the Jardine's Lookout and Black's Link localities. In his opinion the unauthorised structures did not create a fire hazard, were structurally sound and the chance of enforcement action by the Crown was low. On the other hand, he stated that because of the large size of the unauthorised structures, the Crown was unlikely to approve a modification to permit the structures to remain.

45. Mr. Chan was a valuation surveyor and not a building surveyor. The plaintiff called Mr. S. Wong, a building surveyor, who is an Associate Director of Jones Lang Wootton who produced his report dated 28th January 1988 dealing with the unauthorised basement and roofed-over inner court. Mr. Wong had some years earlier worked as an Assistant Surveyor with the Buildings Ordinance Office and stated that if the Building Authority discovered the unauthorised structures he would take enforcement action. On the separate question of whether enforcement action would be taken in relation to the balconies he was not able to express an opinion stating that the size of the unauthorised structure was a relevant consideration to the exercise of the Crown's discretion. In cross-examination he agreed that roof of the inner court could be removed and that access to the basement could relatively easily be sealed. He also expressed the opinion that because of the large size of the roofed-over inner court the Crown would be unlikely to grant any modification of the Crown lease to allow that structure to remain.

46. After considering all the evidence and expert opinions on the nature of the unauthorised structures, I am satisfied that if on the date for completion the unauthorised basement and roofed-over inner court remained, there existed a real possibility that the Crown would take enforcement action under either or all of its various powers. I am less certain whether if the balconies had been the sole unauthorised structures, the Crown would have taken action and as against the defendant, propose not to take their existence into account. If the Crown took action in respect of the two larger structures, I am further prepared to find that it would not only have been possible but probable, that the owners of Houses B, C, D and E would have proceeded against the owner of House A under the Deed of Mutual Covenant or otherwise.

47. The risk of the Crown in such circumstances taking enforcement action, culminating in exercising its right of re-entry, was considered in Woomera Co. Ltd v. Provident Centre Development Ltd HCA No.12647/82. In that case Liu J., adapting the language of M.E.P.C. Ltd. v. Christian-Edwards (supra) to Hong Kong conditions, enunciated this test :

That test was not subsequently queried by the Court of Appeal in Woomera Co. Ltd v. Provident Centre Development Ltd (1985) HKLR 263. In the Australian case of Vukelic v. Sadil-Quinlan and Associates Pty Ltd. (1976) FLR 457 the risk that enforcement action might be taken in respect of an unauthorised structure was held to constitute a defect in title.

48. In the present case the risk that the Crown would take enforcement action in relation to the basement and roofed-over inner court, is sufficient to satisfy me that the defendant failed to show good title to the plaintiff. The risk of enforcement action was not merely theoretical or fanciful, but a practical and real blot on the defendant's title.

Time limitations for requisitions:

49. Clause 6 of the agreement provided:

"Any requisition or objection in respect of the title to the said premises shall be delivered in writing to the vendor's solicitors within fourteen days after the delivery of the title deeds to the purchaser's solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the contract) ..."

50. The title deeds were delivered to the plaintiff's solicitors on 30th July 1987. It was not until 11th November 1987 that the plaintiff's present solicitors wrote to the defendant's solicitors, purporting to reserve the right to raise requisitions and even later on 16th November 1987 that requisitions were delivered relating to the unauthorised structures.

51. Counsel for the plaintiff submitted that the time limitation in Clause 6 did not apply to those more substantial requisitions which go to the root of title citing 'Emmett On Title' (19th Edn.) paragraph 5.080:

"If the requisition goes to the root of the title, that is, the power of the vendor to sell or to give a purchaser what is intended by the contract he shall have, a condition limiting the time will not preclude the purchaser from making it after the time has expired."

In Warde v. Dixon (1858) 28 LJ Ch 316 objections to title under the contract had to be made within 10 days but it was held that even after the expiration of that period a purchaser was entitled to raise objections in respect of matters not disclosed upon the face of the abstract which would render the title bad or doubtful. The same principle was upheld by the Court of Appeal in Re Tanqueray-Willaume and Landau (1881-2) 20 Ch.D. 465. A similar position arose In re Cox & Neve's Contract (1891) 2 Ch 109 where the contract provided that requisitions had to be made within 14 days of the delivery of the abstract which occurred on 24th June 1890. Shortly before 23rd July 1890, after the 14 days had expired, the purchaser became aware of a restrictive covenant which he first raised with the vendor in an affidavit filed on 16th October 1890 in vendor and purchaser summons proceedings. The Court held that as the requisition formed a valid objection to title, the purchaser was not too late in raising the objection which, if unanswered, entitled him to be relieved from the contract.

52. I am satisfied that this well established principle of English property law applies in Hong Kong. The requisitions raised in the plaintiff's solicitors letter of 16th November 1987 clearly go to the root of the defendant's title. In these circumstances the time limitation in Clause 6, does not restrict the plaintiff's right to make such requisitions after the 14 day contractual period has expired. I hold that the plaintiff was entitled to make the requisitions contained in its solicitors letter of 16th November 1987.

Knowledge and the duty to make full and frank disclosure :

53. Before it can be determined whether the plaintiff waived its contractual right to good title, it is necessary to consider a number of other factors including knowledge and whether the defendant has discharged its common law obligation to make full and frank disclosure.

54. Turning first to the question of knowledge, on the evidence I have found that when Ms. Poon visited the property on 19th August 1987 Mr. Ling pointed out the planks which were available to cover the staircase opening if it appeared that there was likely to be an inspection. Shortly afterwards the agreement on 27th August 1987 was executed. When Ms. Poon again visited the property on 22nd September 1987, Mr. Charriol went so far as to tell her that the basements were illegal but she inferred that it was not a big problem. The plaintiff only obtained full knowledge of the illegal nature of the roofed-over inner court much later when, this year, it received the report from Mr. S. Wong of Jones Lang Wootton. The first knowledge either of the parties had that the balconies were unauthorised was when Mr. Chan of Chesterton Petty produced his report on 22nd June 1988. Counsel for the plaintiff submitted that on 19th August 1987 Mr. Ling only casually pointed out the desirability of covering the staircase opening while during, Ms. Poon's later conversation with Mr. Charriol, she had no reason to believe that the status of the basements was a major problem going to title.

55. Neither of the statements by Mr. Ling and Mr. Charriol, it was submitted, discharged the defendant's obligation to make full and frank disclosure of the effect of the unauthorised structures on title. In any event it was common ground that so far as the roofed-over inner court was concerned, no disclosure whatsoever was made. Counsel for the defendant submitted that Ms. Poon was a business woman experienced in property transactions who before execution of the agreement had inspected the basements lacking natural light and ventilation and had been told by Mr. Ling of the need to cover the staircase opening before any inspection. Further, after the agreement was signed she was told by Mr. Charriol that the basements were illegal, yet repeatedly thereafter affirmed the contract. These actions of affirmation it was submitted, clearly established waiver. In any event under Clause 7 of the agreement the property was sold subject to the purchaser's full knowledge of these structures. I reject this latter submission and hold that Clause 7 refers only to the physical condition of the property and does not extend to title.

56. The law is well settled that mere knowledge does not of itself operate to modify a contractual term. A recent example of the legal burden placed on a vendor of property, is to be found in the judgment of Millett J., in Rignall Developments Ltd v. Halil (1987) 3 All ER 170. Under the agreement in that case, Special Condition 5 provided that the purchaser was deemed to buy with full knowledge of all matters which might be disclosed by search and enquiries of the local authority. The purchaser was not entitled to raise any requisition in relation to any such disclosures. Under General Condition 11 the purchaser was deemed to have made local searches and enquiries; to have knowledge of all matters that would be disclosed thereby; and to purchase subject to such matters. The vendor knew that the property was subject to a registered improvement grant charge but did not disclose that fact to the purchaser. The purchaser omitted to search the register and purchased the property without actual knowledge of the charge.

57. Millett J., held that the vendor had failed to show a good title, notwithstanding the exemption conditions, because the sale was subject to the equitable rule, that if there were a defect in title of which the vendor was aware, he could not rely on exempting conditions unless he made full and frank disclosure of the existence of the title defect. The purchaser's acceptance of exemption conditions is on the basis that the vendor has made the full and frank disclosure required by equity.

58. There is a long line of cases where this same principle has been applied, protecting purchasers from the consequences of non-disclosure or inadequate disclosure by a vendor. In Bousfield v. Hodges (1863) 33 Beav 90 the purchaser bought a property by private contract and accepted the title. After accepting title, the purchaser discovered that in terms of a compromise which bound the vendor, the property could only be sold by public auction. The vendor argued that the purchaser having accepted the title and there being no fraud or surprise, could not later raise an objection. The Master of the Rolls rejected that submission holding:

"... a purchaser is only bound by his acceptance of the title, so far as he is made cognizant of it, and that if anything is kept back by the vendor he is not, as to that, bound' by his acceptance."

A 19th Century high water mark of the protection given by the Court to purchasers, which has remained good law ever since, was reached in the case of In re Gloag and Miller's Contract (1883) 23 Ch.D. 320 where it was held that if the contract, as here, expressly provides that a good title shall be shown, the purchaser is entitled to insist on a good title, notwithstanding that before execution of the agreement, he had notice of defects in the vendor's title. As to whether after the agreement is executed acts of the purchaser can amount to waiver Fry J., made a distinction between objections removable by the vendor and those which are irremovable.

59. Cato v. Thompson (1882) 9 QSD 616 is another case where the Court of Appeal applied the same principle. The purchaser bought freehold property and in terms of the contract the vendor had to make a good marketable title. The title on the date for completion was subject to restrictive covenants which precluded the vendor from showing a good marketable title. There was evidence that when the contract was signed the purchaser knew of the restrictive covenants. The Court of Appeal held that whether the purchaser had such knowledge was irrelevant because the vendor had contracted to make a good marketable title and the obligation was contractually on him to take such steps as were necessary so as to provide, on the date for completion, a good marketable title.

60. The English Court of Appeal in Peyman v. Lanjani (1985) 1 Ch 457 has more recently applied these principles to a case where the purchaser had even proceeded so far as to go into possession. On the question of knowledge the Court of Appeal held that before a purchaser's acts could amount to an irrevocable election to affirm the contract, it is not sufficient for him merely to have knowledge of the fact's which may give rise to an election. The purchaser in addition must know that on those facts the law gives him the right to affirm or rescind. It is only where the purchaser has that factual and legal knowledge that it is open to consider whether by his actions he has elected to affirm or rescind.

61. Accordingly, before a purchaser's knowledge of the facts, can prejudice his legal position, he must also be aware of the legal consequences of those facts. Counsel for the plaintiff strongly relied on this judgment of the Court of Appeal to emphasise that while Mr. Charriol did inform Ms. Poon that the basement was illegal, she thought it was only a small problem and was ignorant of the major adverse legal consequences of that problem on title. Hence, it was submitted, the plaintiff had not in accordance with the Court of Appeal's test in Peyman v. Lanjani waived its contractual right to obtain good title. In other words, the conduct of a purchaser aware of facts constituting a defect in the vendor's title but not of their legal consequences, could not amount to an affirmation of the contract.

62. On the question of knowledge I find that the information given by Mr. Ling to Ms. Poon on 19th August 1987 was given in circumstances which would not have caused her to know that the reason for the existence of the planks also went to the root of the vendor's title. As a matter of law, even if the plaintiff were fully aware of the affect on title, as that disclosure would have preceded the execution of the agreement, it would hot have reduced the obligation of the vendor to show good title on the date for completion. As to the express disclosure by Mr. Charriol after execution of the agreement that the basement was illegal, I am obliged to take into account the circumstances in which that information was disclosed and also the experience of Ms. Poon in property transactions as well as the particular knowledge she had of the physical condition of the property gained on her frequent visits. After doing so, I find that while Ms. Poon by that stage, was aware that the basement was illegal, she was unaware of the legal implications of that fact upon title. As to the unauthorised roofed-over inner court I have already found the plaintiff had no knowledge of its illegal nature until after the commencement of proceedings.

Waiver :

63. Before going on to consider in more detail the submissions on waiver, this is a convenient stage to refer to the defendant's submission that the present summons is limited to the consequences of the unauthorised basement and does not extend to include the roofed-over inner court. I record that paragraph (a) of the summons refers only to the requisition of 16th November 1987 which was limited to the basement. It was submitted that the following paragraphs of the summons are consequential and do not enable the status of the roofed-over inner court to be considered. Counsel for the plaintiff submitted that question is covered by paragraph (c) which is in general terms and seeks a declaration that the defendant has not shown good title.

64. When this question was raised during the hearing, I held that the status of the roofed-over inner court could properly be raised. However, I recognised that this issue had only arisen after the summons was issued and indicated that if the defendant was in any way taken by surprise and wished to apply for an adjournment that application would be favourably considered. Counsel for the defendant then informed the Court that an adjournment was not required and the hearing continued.

65. The summons was drafted last year when the plaintiff was only aware of the unauthorised nature of the basements. I am satisfied that when paragraph (c) was drafted that declaration was sought consequential to paragraph (a) which is limited to the basement requisition. However, the obligation to make good title remained. A declaration under paragraph (c) would be wide enough to cover not only the basement but also the roofed-over inner court.

66. Counsel for the defendant submitted that on a vendor and purchaser summons a free ranging enquiry into title should not be allowed. I was referred to the critical observations of Kekewich J., in the case of In re Wallis and Barnard's Contract (1889) 2 Ch 515 where he cautioned that such summonses should merely raise distinct isolated points in a summary way and not the general question whether a vendor has a good title. I note that those comments were mad in the light of what the judge considered to be contemporary mischievous practice. The type of proceedings referred to was where in the course of long drawn out actions for specific performance, it was helpful to bring a summons for determination of a distinct and restricted question. The present summons does not fall within that category for there is neither any action nor the likelihood of any action for specific performance.

67. Further, the directions given by the master have transformed the original summary nature of the proceedings into proceedings similar to trial by action. In any event because of a purchaser's right to raise requisitions going to the root of title, even after contractual time limits have expired, it is not unusual for new issues to be raised after a summons had been filed. Among the cases already cited on other issues, Cox & Neve's Contract is one example of that practice. I confirm that in my view the summons is not limited to the question of the basement but extends to include the roofed-over inner court and the balconies.

68. I also heard submissions on whether the without prejudice Certificate of Compliance of the Director and Public Works with the positive obligations under the Crown's particulars and conditions of sale of Lot RBL 933, was a sufficient certificate under Section 14 of the Conveyancing and Property ordinance to enable the owners to convert their equitable estate into a legal estate by obtaining the grant of a Crown lease. This was a residual and to some extent a peripheral point raised by the plaintiff. Counsel for the defendant also submitted that it was outside the limits of the summons. I hold that the point is relevant and falls to be considered under paragraph (c). However, while I heard detailed submissions from both Counsel on this issue, I will only need to go on and consider them, if the plaintiff fails on all the other grounds raised.

69. On the basis that the issues were limited to the basements, Counsel for the defendant submitted that the evidence established beyond doubt that the plaintiff with knowledge of the illegality repeatedly thereafter affirmed the agreement. The Court was reminded that the plaintiff's conduct included knowledge of the existence of unauthorised structures from perusing the prior 1985 agreement; Ms. Poon with her experience of property transactions after inspecting the patently unauthorised structures making a decision to buy on 8th June 1987 and paying a deposit of $100,000; obtaining independent advice from J. Wilburn & Associates whose mortgage valuation supported the purchase price; the defendant's directors pointing out on 19th August and again on 22nd September 1987 the unauthorised nature of the basements; the plaintiff's solicitors on 18th September 1987 forwarding a draft assignment which was approved by the defendant's solicitors on 14th October 1987; the plaintiff's applications for extension of time made on 14th October and 28th October 1987 under which completion was finally extended to 30th November 1987.

70. It was further submitted that with actual knowledge that the basements were illegal, Ms. Poon freely admitted that in the light of Mr. Charriol's prior success, she too hoped to get away with the unauthorised basements. The defendant pointed out that with all this prior actual knowledge, it was only on 16th November 1987 that the plaintiff for the first time, purported to issue a requisition in respect of the basements. Finally, it was submitted that the real reason for the plaintiff trying to escape from its contractual obligations was the inability to arrange mortgage finance. The plaintiff's failure to do so, had also to be considered in the light of the collapse of prices on the Hong Kong stock exchange on what came to be known as Black Monday, namely 19th October 1987.

71. All these and other factors emphasised by the defendant, are relevant matters to be taken into account on the issue of waiver, although the weight to be given to each necessarily varies.

72. The difficulty the defendant faces, is that even if the plaintiff were held to have waived the defendant's obligation to show good title in relation to the basements, the position of the roofed-over inner court remains. The plaintiff had no knowledge of the inner court's illegal status. The defendant had such knowledge but never disclosed that fact to the plaintiff.

73. Whether the plaintiff's conduct constituted waiver has also to be considered in the light of the equitable principles relating to good title, the limited effect of the exemption clause, the requirement that a purchaser must not only have knowledge of the facts but their legal consequences and a vendor's duty to make full and frank disclosure. Before the defendant can establish waiver it must prove not only that it made full and frank disclosure but that the alleged acts of affirmation of the agreement by the plaintiff, were made with knowledge of the legal consequences of those facts. Finally, I hold that whether the plaintiff's acts amount to waiver is a question of fact for this Court to determine.

74. The House of Lords in McGory v. Alderdale Estate Co. Ltd. (1918) AC 503 affirmed the well settled principle that where a purchaser has a right to ask for a good title he may, after acquiring that right, waive that right. Counsel for the defendant referred to a number of old cases where that principle was considered including Bowles v. Round (1800) 5 Ves Jun 509, Margravine of Anspach v. Noel (1816) 1 Madd 310, Burroughs v. Oakley (1819) 3 Swans 159, Ogilvie v. Foljambe (1817) 3 Mer 53, Flint v. Woodin (1852) 9 Hare 618, McMurray v. Spicer (1868) LR Eq 527 and In re Wallis and Barnard's Contract (1899) 2 Ch 515. I have considered these cases but because of their different facts hold that none are decisive on the issue of waiver in the present case.

75. In addition to the recent important observations in Peyman v. Lanjani, I was also referred to the English Court of Appeal judgment in Becker v. Partridge (1966) 2 QB 155. In that case the conditions of sale included a provision that the vendor's title was accepted by the purchaser and that the purchaser "shall raise no requisition or objection" to title. The purchaser went into possession and only some days later became aware of defects in the vendor's, title. The Court of Appeal held that the exemption condition was not a bar to recission because the vendor had failed to disclose defects of which he knew or ought to have known.

76. On the facts it was held that even the purchaser's act in going into possession, was not an affirmation of the contract giving rise to waiver. In that case there are also observations on the issue of good title. The vendor had submitted that while the vendor's superior landlords were possessed of a right to enforce forfeiture by re-entry, they had taken no steps to enforce that right. The Court of Appeal rejected that submission. Danckwerts L.J., at page 171, referring to a letter from the reversioner's solicitors declared that the letter :

"...clearly indicates that she is alive to the point and if an interest in leasehold is subject to determination by the exercise of a right of re-entry for breaches of covenant which have already been committed, then that is a title which is not a good title, for it is defeasible."

In the present case the unauthorised structures clearly entitled the Crown to re-enter and exercise its other enforcement powers. On the facts I have already found that there was a real risk that the Crown might exercise those powers. In these circumstances the defendant only had a defeasible and not an indefeasible title. Hence on the day for completion the defendant could not have shown a good title.

77. I have reviewed the facts established in evidence in the light of the equitable principles already set forth. After doing so I find that the plaintiff by its conduct in respect of the basements has not waived the defendant's contractual obligation under Clause 10 to show good title. I am further satisfied that even if that were not the position, there has clearly not been any waiver by the plaintiff of the defendant's sane obligation in relation to the roofed-over inner Court. On the latter ground alone, the defendant would have failed to show good title. In these circumstances I do not need to consider further the Certificate of Compliance issue also raised by the plaintiff.

78. I hold that the plaintiff is entitled to the declarations sought in paragraphs (a), (b), (c), (d) and (e) of its summons. The defendant's counterclaim is dismissed. I will hear the parties further, if required, on the issue of interest under paragraph (d) and on any other consequential matters for which liberty to apply is reserved. There will be an order nisi pursuant to R.S.C. Order 42 Rule 5B(6) that the defendant pay the plaintiff costs to be taxed if not agreed; the order to become absolute if an application to the contrary is not made within 14 days.

Representation:

Mr. Denis Chang, Q.C. with Mr. Robert Kotewall instructed by Fred Kan & Co. for the plaintiff

Mr. Daniel Fung instructed by Raymond Tang & Co. for the defendant