Forever Business Ltd v. Long Surplus International Investment Ltd

CACV 192/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 192 OF 2006

(ON APPEAL FROM hcmp nO. 1630 OF 2005)

_______________________

BETWEEN

______________________

Before:  Hon Cheung JA, Yeung JA and Lam J in Court

Date of Hearing:  16 March 2007

Date of Judgment:  19 April 2007

______________________

J U D G M E N T

______________________

Hon Cheung JA :

The appeal

1.The defendant purchaser of an agreement (‘the agreement’) for the sale of the property known as Ground Floor, No. 9 Sing Woo Road, Happy Valley, Hong Kong (‘the property’) sought to rescind the agreement on the basis of a defect in title in that there was an illegal structure in the property and that the building on which the property is situated did not have an occupation permit.  Deputy High Court Judge Muttrie rejected this contention.  The defendant appealed to this Court.  We agree with the judge and dismiss the appeal.  The reasons are fully set out in the judgment of Yeung JA which I agree.

Disclosure of lack of occupation permit

2.The only issue I wish to address is the defendant’s contention that the vendor plaintiff was under a duty to disclose the non-existence of the occupation permit before the parties entered into the agreement.  The question is whether the plaintiff was obliged to do so in this case.

The test

3.The starting point is that there is no general requirement that a vendor must disclose certain facts to a prospective purchaser.  This is consistent with the principle of ‘buyers beware’ in land transactions.  In my view the test as to whether the vendor is legally required to disclose a fact will ultimately depend, first, on whether it is a material fact which is known or ought to have been known to the vendor and which affects the title and, second, whether this fact can be ascertained by the purchaser with reasonable inquiry.  If the purchaser cannot with reasonable inquiry ascertained this material fact, the vendor is under a duty to make disclosure before the agreement is signed.  In coming to this view, I derive great assistance from authorities such as Carlish v Salt [1906] 1 Ch 335 and Chit Kit Co. Ltd and Another v. Lucky Health International Enterprise Ltd [2003] 3 HKCFAR 268 which I will deal with later.

The present case

4.The twin obligation of a vendor in a sale of land is to show good title and prove it by way of evidence.  An occupation permit is clearly a document that ‘affects the title’, see : Chen Paul v. Lord Energy [1998] 1 HKC 702 (Court of Appeal) per Godfrey JA at pg 708 F-H; [1999] 1 HKLRD 205 (Court of Final Appeal) per Li CJ at 211I-212A; Lui Kwok Wai v. Chan Yim Hing [1995] 1 HKC 197.  In conveyancing practice an occupation permit is generally one of the documents that the vendor produces to the purchaser in showing that he has a good title to the property. 

5.However, as this case shows, the absence of the occupation permit does not necessarily mean the vendor has a defective title if he is able to demonstrate that any risk of enforcement action by the Building Authority is so minimal that it can be discounted because, for example, of the reason for the absence of the occupation permit; the long lapse of time since the building was built and the likely knowledge of the absence of the occupation permit by the Building Authority. 

6.In this case I do not regard that there is a legal obligation on the part of the plaintiff to disclose the absence of the occupation permit to the defendant before the parties entered into the agreement because this is not a material fact which affects the title.

7.Further the presence or absence of the occupation permit is something that can be easily ascertained by the purchaser with an inquiry with the Building Authority.  In fact the defendant found out the absence of the occupation permit through its own inquiry.  This reinforces the view that the plaintiff was not legally required to make such disclosure to the purchaser.

Authorities

8.Ms Tong, counsel for the defendant, relied on a number of cases to support her argument that the plaintiff was required to disclose to the defendant the absence of the occupation permit.  I fully agree with the principle stated in these cases but the actual application of the principle depends on the facts of the case.  I will deal with two of them.  In Carlish v. Salt Joyce J held that,

‘In the case of the sale of a chattel, the law as stated by Bramwell B. in Horsfall v. Thomas (1) is that if there be a defect known to the manufacturer, and which cannot be discovered on inspection, he is bound to point it out.  Upon consideration of the authorities, I am of opinion that the vendor of real estate is under a similar obligation with respect to a material defect in the title, or in the subject of the sale, which defect is exclusively within his knowledge, and which the purchaser could not be expected to discover for himself with the care ordinarily used in such transactions.’

9.In that case the vendor in an open contract delivered an abstract of title to the purchaser.  It did not disclose that there was already in existence before the agreement a ‘party wall notice’ which eventually resulted in the condemnation of the property by the authority.  The decision requiring disclosure was clearly explicable by the facts of the case.  The ‘party wall notice’ was only known to the vendor.

10.Likewise in Chi Kit Co. Ltd and Another v. Lucky Health International Enterprise Ltd, the vendor failed to disclose to a prospective purchaser the existence of a personal injury claim that had been brought against the incorporated owners of the building.  Eventually a judgment of over $25 million was entered against the incorporated owners.  The Court of Final Appeal held that there was a blot on the title of the property by reason of the liability arising from the judgment.

11.Bokhary PJ and Mason NPJ held that

‘Another matter which might be urged against the respondent is that an intending purchaser should make inquires before contract and protect himself either by not entering into a contract or by entering into a contract with an appropriate contractual provision.   There are two answers to this suggestion.  First, the management committee of the corporation is under no obligation to answer inquiries about the financial position of the corporation or the likely amount of contributions to be sought from unit owners.  It is therefore unlikely that inquiries will prove a fruitful source of relevant information.  Secondly, and more importantly, the practice in Hong Kong according to which binding contracts for the sale of units are ordinarily brought into existence does not allow for the making of inquiries by purchasers before contract.  In the ordinary run of cases, a provisional but legally binding contract, produced by a property agent, anxious to clinch a deal, is signed by the parties.  It is against this background that the relevant principle governing the vendor’s obligation to show and give a good title is to be ascertained.

What we have just said is a sufficient response to an argument based on the maxim caveat emptor.  The maxim should not be applied so that it leaves a purchaser exposed to a serious detriment the risk of which, is solely within the knowledge or the means of knowledge of the vendor.’

12.Again the facts speak for themselves as to why disclosure was required in that case.

Disclosure as a matter of prudence

13.Having said that the plaintiff here was not legally required to disclose the absence of the occupation permit, I would have thought that any vendor who is aware that his property is not covered by an occupation permit would, as a matter of prudence, disclose this fact to an intended purchaser.  This is done to avoid any dispute that is most likely to occur when the purchaser finds out that the property does not have an occupation permit.  Such a dispute is likely to be costly and time consuming even if the vendor is able at the end to show and prove that he has a good title to the property.

Hon Yeung JA:

Introduction

14.This case arose out of an aborted sale of the property at G/F No 9 Sing Woo Road, Happy Valley, Hong Kong (“the property”).

15.The plaintiff – Forever Business Ltd (“Forever”) was the vendor, and the defendant – Long Surplus International Investment Limited (“Long Surplus”), the purchaser.

16.By a provisional sale and purchase agreement in Chinese dated 16 April 2005 (“the Agreement”), Long Surplus agreed to purchase the property for $22 million, and, pursuant to the Agreement, paid the initial deposit of $1 million.

17.Clause 3 of the Agreement stipulated that the property was sold “free from incumbrances or indebtness”, but there was no provision as to how a good title was to be shown or as to the making of requisitions by the purchaser.

18.The parties agreed to execute the formal agreement on 3 May 2005 with the payment of the further deposit of $1.2 million, and completion was scheduled for 28 October 2005.

19.Before the execution of the formal agreement, Long Surplus was informed that the cockloft in the property was likely to be an illegal structure.

20.On 20 April 2005, Messrs Kok & Ha (“Kok & Ha”), Long Surplus’s solicitors, wrote to Forever’s then solicitors – Messrs K C Ho & Fong (“Ho & Fong”) seeking a confirmation, with satisfactory evidence, that the cockloft was an authorised structure. There was the further allegation of a misrepresentation by the estate agent who had concluded the deal.

21.By a letter dated the 28 April 2005, Ho & Fong suggested that the property was sold “as is”, and therefore Forever had no obligation to reply to Kok & Ha’s query. Ho & Fong further sought the execution of the formal agreement.

22.Kok & Ha, in a letter dated also the 28^th April 2005, rejected Ho & Fong’s assertion and purported to given them the opportunity to prove that the cockloft was an authorised building work, otherwise Forever would be regarded as in repudiation of the Agreement. Kok & Ha did not specify the period for Ho & Fong to respond.

23.Within three working days and by another letter dated the 3 May 2005 (there being an intervening weekend between the 28 April and 3 May 2005), Kok &Ha stated that they were convinced that the cockloft was an unauthorised building work, which “is extremely unlikely (if not impossible) to be rectified (i.e. approved by the Building Authority) prior to the agreed completion date”.

24.Kok & Ha, suggested that Forever was in repudiation of the Agreement and that Long Surplus had accepted such repudiation. Kok & Ha demanded the return of the $1 million deposit.

25.Messrs Wilkinson & Grist (“Wilkinson & Grist”), who had by then replaced Ho & Fong, took the view that the payment of the further deposit and the execution of the formal agreement on 3 May 2005 were not conditional upon proof of title and that good title need only be shown at completion.

26.Wilkinson & Grist gave Long Surplus until 13 May 2005 to execute the formal agreement and to pay the further deposit, otherwise it would be treated as in repudiation and the $1 million deposit would be forfeited.

27.In the meantime, Kok & Ha was notified that there was no record of an occupation permit in respect of the property. They took the view that Forever could not prove or show a good title at completion, and was therefore in repudiation of the Agreement. By a letter dated 12 May 2005, Kok & Ha claimed to have accepted the repudiation and again sought the return of the $1 million deposit.

28.Wilkinson & Grist took a different stance, having obtained certain professional advice.

29.The upshot was that the sale and purchase did not go ahead. Forever sought to forfeit the $1 million deposit and Long Surplus sought a refund, hence the claim and the counterclaim.

Long Surplus’s Case

30.It was Long Surplus’s case that Forever, by Ho & Wong’s letter dated 28 April 2005 in refusing to answer the requisitions relating to the cockloft, had evinced an intention not to perform its obligation under the Agreement, and was therefore in anticipatory breach of the Agreement.

31.The suggestion was that as Long Surplus had accepted Forever’s breach by the letter dated 3 May 2005, the Agreement was brought to an end and could not be resurrected by the subsequent showing that the cockloft was in fact an authorised structure. 

32.Alternatively, Forever’s failure to disclose the lack of the occupation permit also gave Long Surplus the right to terminate the Agreement which right was exercised.

33.In any event, the absence of the occupation permit rendered it impossible for Forever to show and give a good title. In the circumstances, Long Surplus was entitled and did terminate the Agreement by Kok & Ha’s letter dated 12 May 2005.

Forever’s Case

34.Forever argued that, as the cockloft was in fact a legal structure, there was no misrepresentation and there was no defect in the title. Forever further argued that despite the absence of an occupation permit, there was no defect in title and there was no real risk of any enforcement action by the Building Authority in the light of the history of the building concerned.

The Judge’s Decision

35.The judge pointed out it was still at an early stage when Kok & Ha raised requisitions about the cockloft when there was not yet the formal agreement with provisions, express or implied, on the question of raising requisitions and showing good title.

36.Whilst Ho & Fong might have erroneously asserted that the property was sold as “as is”, there was no unequivocal renunciation of the agreement, particularly when they sent Kok & Ha a draft formal agreement for sale and purchase, along with their request for the payment of the further deposit.

37.The judge rejected the suggestion that Ho & Fong’s letter dated 28 April 2005 constituted an anticipatory breach and that it could be accepted to bring an end to the Agreement.

38.The judge accepted that the absence of an occupation permit could mean that a good title had not been shown. However, the judge opined that the vendor might prove compliance by other means, relying on Chen Paul v Lord Energy [1998] 1 HKC 702.

39.The judge pointed out that building concerned was erected in or before 1947 and therefore it did not need an occupation permit under the current Building Ordinance, which was only enacted in 1956. The judge further took the view that the Building Authority could not take action under the earlier Building Ordinance.

40.The judge took the view that even if the building concerned, when erected, did not comply with the then Building Ordinance, the Building Authority could not take any action and therefore the non production of an occupation permit in respect of a building erected in or before 1947 was irrelevant and unnecessary.

41.In any event, the judge took the view that there was no risk of any possible enforcement action by the Building Authority.

42.The judge concluded that there was no ground, whether arising from the presence of the cockloft or the absence of the occupation permit, upon which the agreement could be rescinded. The judge found that Long Surplus was in repudiation of the Agreement and that Forever had validly accepted the repudiation.

43.The judge therefore gave judgment for Forever.

Grounds of Appeal

44.Ms Sara Tong, on behalf of Long Surplus maintains the position that the requisitions relating to the cockloft were reasonable made and Forever was therefore obliged to respond to them in the discharge of its duty to show a good title.

45.Ms Tong suggests that Ho & Fong’s letter dated 28 April 2005, with the absolute refusal to answer Long Surplus’s requisitions, evinced a clear intention not to fulfil its contractual obligation to show a good title by the completion date, and therefore constituted an anticipatory breach of the Agreement.

46.It is further suggested that as Long Surplus had clearly and unequivocally accepted the Forever’s repudiation of the Agreement by Kok & Ha’s letter dated 3 May 2005, what happened thereafter could not revive the Agreement.

47.Ms Tong points out that the Building Ordinance of 1935 contained similar provisions that an occupation permit would be issued if the relevant building works had been carried out in compliance with the relevant provisions and/or approved plans. She emphasizes that without an occupation permit, it would not be possible to show that the building was constructed in accordance with the provisions of the Building Ordinance/Regulations.

48.Ms Tong repeats the suggestion that there is still a real risk of enforcement action by the Building Authority despite:

1. the fact that the Building Authority had not previously taken any enforcement action, particularly when there is no evidence as to when the Building Authority became aware of the absence of the occupation permit;

2. the approval of the cockloft by the Building Authority in 1964;

3. the grant of the new Crown Lease by the Government in 1988; and

4. the grant and renewal of the restaurant/bakery licences for the property by the relevant Government Departments.

49.Ms Tong emphasizes that the absence of an occupation permit is not something that a prudent purchaser can ignore and therefore constitutes a defect in title, which cannot be remedied or removed.

50.Ms Tong reiterates that Forever’s certain inability to produce an occupation permit constituted anticipatory breach of the Agreement and Long Surplus was entitled to terminate the Agreement and to a refund of the deposit.

51.Ms Tong also suggests, albeit as a fall-back position, that Forever’s failure to disclose the absence of an occupation permit was a non-disclosure of a material defect in title, which also entitled Long Surplus to terminate the Agreement. She said if Long Surplus was aware of the absence of an occupation permit, it would not have agreed to purchase the property, not at the agreed price anyway as there might be difficulties in reselling the property.

Discussion

The Cockloft

52.Litton JA (as he then was), made the following observation in the leading case Active Keen Industries Ltd v Fok Chi-keong [1994] HKLR 396 at 405:

“It follows that this obligation falling on the vendor to properly answer requisitions and inquiries, if reasonably raised by the purchaser, must be discharged within a reasonable time, to enable the purchaser to satisfy himself on the matter, get his money ready and complete on the day fixed.”

53.The Agreement, executed on 16 April 2005, stipulated for the signing of a formal agreement on 3 May 2005 and completion on 28 October 2005.

54.The Agreement made no reference to the supplying of documents of title, or the question of objections and requisitions as to title, which as observed by the judge, would no doubt have been provided for in the formal agreement. The proposed formal agreement had indeed made such provisions.

55.Yet before the formal agreement was signed and without reference to any document of title, and purely based on certain comment by the intending mortgagee bank, and without any objective and independent evidence, Long Surplus alleged that the cockloft was an illegal structure and sought confirmation, with satisfactory evidence that it was an authorised structure. 

56.By a letter dated 20 April 2005, Kok & Ha asked Forever to show a good title. By another letter dated 28 April 2005, Kok & Ha purported to give Ho & Wong the opportunity to prove that the cockloft was an authorised building work, yet within less than three working days and by a letter dated the 2 May 2005, they alleged that Forever had committed an anticipatory repudiation of the Agreement and sought the return of the deposit.

57.In our view, the requisitions relating to the cockloft were not reasonably raised. They certainly had not given Ho & Wong or their successors a reasonable opportunity to respond to their requisitions even if they were reasonably raised.

58.If Long Surplus or those acting for it had waited for, or taken the trouble of examining, the documents of title, it would have been apparent to them that Building Authority had approved the cockloft as early as 1964 and there was no need to raise any requisition about it. 

59.If they had given Ho & Wong or their successors a reasonable opportunity to respond to their requisitions, Ho & Wong or their successors might well be able to persuade them that the cockloft was not unauthorised.

60.As the requisition relating to the cockloft was not reasonable raised, Ho & Fong’s failure to properly respond to the requisition could not, in the circumstances, constitute a breach of the Agreement, anticipatory or otherwise.

61.As the judge quite rightly pointed out, Ho & Fong, in their letter sent on 28 April 2005, enclosed a draft formal agreement and asked Forever to execute it, yet Kok & Ha insisted that the cockloft was unauthorised and alleged that there was a misrepresentation on Forever’s part. Kok & Ha claimed to have accepted Forever’s repudiation and sought the return of the deposit.

62.In our view, as on 3 May 2005 and on the whole of the circumstances, Forever was not, but Long Surplus was in repudiation of the agreement.

63.However, Wilkinson & Grist did not accept Long Surplus’s repudiation and kept the agreement alive by extending the time for the execution of the formal agreement and the payment of the further deposit until 13 May 2005. Hence it is necessary to consider if Forever was in anticipatory breach by its failure to provide the occupation permit.

The Occupation Permit

64.Our observation about Long Surplus’s pre-mature attempt to ask Forever to prove a good title in respect of the cockloft before the execution of the formal agreement applies with equal force to the issue relating to the lack of an occupation permit.

65.Even if the lack of an occupation permit is prima facie evidence of a defective title, Forever must be given reasonable opportunity to show or prove a good title by other means, such as by showing that there was no risk of any enforcement action.

66.We do not accept the suggestion that the absence of an occupation permit is conclusive evidence of a defective title and therefore constitutes an anticipatory breach.

67.We do not accept that the absence of an occupation permit, even if constituting a defect in title, is “irremediable” or “irremovable” as suggested by Ms Tong.

68.If Ms Tong’s contention is correct, there must be thousands of property owners who can never show a good title to their properties because the occupation permits of their properties had been lost.

69.Le Pichon J (as she then was) in Wong On v Lam Shi Enterprises Ltd HCMP 2549/1995 talked about “In the absence of special factors which effectively removes the probability of enforcement action, I am bound to hold that the Vendor’s title is defective because of the absence of occupation permits”.

70.There are certainly special factors in our case.

71.It is important to bear in mind the following undisputed facts:

1.     The building concerned was likely to be erected in or before 1947;

2.     It is likely that the Building Authority had lost the records of the building concerned, just as they had lost the records of most properties in Hong Kong completed during the pre-war and immediate post-war period;

3.     The Building Authority had approved structural changes to part of the building as early as 1964 and must therefore aware of the construction and occupation of the building;

4.     The Government lease in respect of the building concerned was extended in 1988; and

5.     There has never been any action or threat of action for the non-availability of an occupation permit and/or for enforcement action for such non-availability for 43 to 60 years.

72.It is not disputed that a vendor is obliged to show good title to a legal estate that it had contracted to convey under the agreement, and that occupation permits, certificates of compliance and the like are documents affecting the legal estate and therefore, prima facie, ought to be produced to a purchaser when requested (see Chan & Another v Lord Energy Ltd [1999] 1 HKLRD 205).

73.It is also right to observe that the absence of an occupation permit under the Building Ordinance could render the vendor’s title defective (see Lui Kok Wai and Another v Chan Yiu Hing and Another [1995] 1 HKC 197).

74.However, Li CJ in Chan v Lord Energy Ltd (supra) clearly recognised that the aforesaid approach “is only prima facie and it may therefore be displaced on examination” (p 211 H-I).

75.A good title does not have to be a perfect title. As rightly pointed out by Ms Lisa Wong SC, Lord Russell commented in MEPC LTD v Christian-Edwards [1981] AC 205:

“…if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title shown.”

76.Ms Tong’s suggestion, that the absence of an occupation permit means that there is insufficient evidence to demonstrate that the building concerned was constructed in accordance with all relevant provisions in force at the time, i.e. 1947, or that it was structurally safe and/or that its use may not be a permitted use, is in our view fanciful in the light of the undisputed evidence hereinbefore identified.

77.The suggestion that the Building Authority would approve the cockloft in 1964 when the building had not been constructed in accordance with the relevant provisions is also fanciful.

78.Even if the absence of the occupation permit means that the relevant provisions were not complied with when the building was completed in 1947 and that the Government retains the right to take enforcement action, is there still a real risk that the Government would take such “enforcement action” on the facts of this case, adopting a common sense approach to the issue?

79.We wish to echo the sentiment of Bokhary PJ in Jumbo Gold Investment Ltd v Yuen Cheong Leung & Another [2000] 1 HKLRD 763 at p 771:

“In my view, the evidence in this case did not exclude a reasonable possibility of an unwaived breach of condition which gives the Government a right of re-entry. The question is therefore whether, assuming that the Government has that right, there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Mr Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessary like that. Accordingly it is safe to proceed on the basis that the Government would never do so.”

80.If it were the Building Authority’s contention that the building concerned had failed to comply with any relevant provision, action and/or threat of action against such non-compliance would have been taken a long time ago.

81.The judge was also right to conclude, on the evidence, that there was no real risk of an enforcement action by the Building Authority.

82.The judge was right in concluding that the production of an occupation permit was unnecessary.

83.It would have been better for Forever to disclose to Long Surplus the absence of an occupation permit. However, we are not persuaded that it was obliged to do so and that Forever’s failure to disclose the absence of an occupation permit, in the circumstances of the case, did not constitute an anticipatory breach.

84.There was no objective evidence that the absence of an occupation permit would in any way affect the usefulness and value of the property nor was it a defect in title.

85.Clearly Long Surplus had determined not to complete the Agreement in early May 2005 and had conveyed its determination by Kok & Ha’s letter dated 3 May 2005, and repeated such determination in the letter dated 12 May 2005.

86.Whether Long Surplus found it necessary to abort the sale because of its failure to obtain funding from the bank as identified by the judge is perhaps not entirely relevant.

87.In our view, Long Surplus was not entitled to do so as Forever had not failed to answer any requisitions properly raised. On the facts of the case, Forever’s title to the property was not defective. There was no valid basis upon which Long Surplus could rescind the agreement.

Conclusion

88.In the circumstances, the appeal is dismissed with costs to be taxed if not agreed.

Hon Lam J:

89.For the reasons given by Yeung JA, I agree that the title to the property was not defective and there had not been any repudiation of the agreement by the vendor.

90.Normally, the duty to show a good title has to be performed in accordance with the terms of the contract. I respectfully agree with the observations of Godfrey J in A-Mayson Development Co Ltd v Betterfit Ltd [1992] 2 HKC 533 at p.535-6 as regards the time limit for proving title. In the absence of any specific or unusual provision, a vendor can show a good title at a reasonable time before completion. In other words, in an open contract setting a vendor is not required to show good title before the signing of the formal sale and purchase agreement and the payment of the further deposit. Thus, if a purchaser wishes to insist on that, he should insert a specific term to that effect in the provisional sale and purchase agreement.

91.The purchaser in this case did not include any special requirement for showing title prior to the payment of the further deposit. Ms Tong submitted that the manner in which the vendor’s then solicitors dealt with the cockloft problem evinced an intention on the part of the vendor not to perform the contract. For the reasons given by Yeung JA, I do not think the misconceived reply given by Ho & Fong on 28 April 2005 amounted to an intimation that the vendor would refuse to deal with a properly raised requisition regarding the cockloft. In fact, Kok & Ha’s letter of 28 April 2005 indicated that they did not regard the said reply of Ho & Fong as a resolute refusal to deal with the legality of the cockloft since a further opportunity was purportedly given to the vendor to deal with it.

92.Given the circumstances set out by Yeung JA and the lack of specific provision for showing title prior to the signing of formal agreement, the letter of Ho & Fong of 28 April 2005 did not evince any intention on the part of the vendor to repudiate the contract. Hence, the purchaser had no right to unilaterally impose a time limit on the vendor to deal with the legality of the cockloft. More importantly, if there was a real concern about the cockloft, the purchaser should set out a proper basis for the concern and the vendor should have a reasonable opportunity to deal with it. The purchaser did not have a proper basis for the concern and Kok & Ha did not give the vendor a reasonable opportunity when they purported to terminate the contract on 3 May 2005.      

93.It is also contended that the absence of the occupation permit constituted an irremediable defect in title. As explained in the judgment of Yeung JA, the failure to produce the occupation permit before the signing of the formal sale and purchase agreement in the special circumstances of this case did not mean that the title was defective or that the vendor resolutely refused to prove a good title in accordance with the contract. The non-production of occupation permit at that stage presents a potential problem. But it is a problem that may at the end proved to be solvable. Hence, the case falls within the same category as removable defects alluded to by Godfrey J in A-Mayson Development. The purchaser was bound to give the vendor a proper opportunity of establishing title. It had no right to decline to proceed with the transaction in terms of the signing the formal agreement and payment of further deposit. 

94.As regards the duty of disclosure discussed in the judgment of Cheung JA, I agree that since the absence of occupation permit does not necessarily mean that the title was defective, this is not a case of latent defect in title. I also agree that if there is a latent defect in title known to the vendor that is not discoverable by the purchaser despite reasonable diligence, the vendor is obliged to disclose it before the contract. But this principle should not be applied to the absence of a document which may or may not create a blot in the title.

95.Lastly, I wish to echo Cheung JA’s remarks that it is certainly good practice for a vendor to disclose the absence of occupation permit prior to the making of contract. It is hoped that the decision in this appeal will allay some conveyancers’ undue concern regarding the absence of occupation permit for some old buildings.

Ms Lisa K Y Wong, SC and Mr Bernard Man instructed by Messrs Wilkinson & Grist for the Plaintiff.

Ms Sara Tong instructed by Messrs Kok & Ha for the Defendant.