Chan Choi Fung and Another v. Huge Base Investment Ltd

CACV 168/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 168 OF 2009

(ON APPEAL FROM HCA NO. 1711 OF 2005)

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BETWEEN

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Before: Hon Rogers VP, Kwan JA and Stone J in Court

Date of Hearing: 10 February 2010

Date of Handing Down Judgment: 24 February 2010

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J U D G M E N T

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Hon Rogers VP:

1.This is an appeal from a judgment of Suffiad J given on 30 June 2009. The claim before the judge was for a declaration that the plaintiffs had duly rescinded the agreement dated 31 March 2005 (“the agreement”) for the sale of shop 11 on the ground floor and cockloft of Ever Wealth Building, 9-11 Fat Tseung Street (“the property”). The plaintiffs also sought a declaration that they had duly forfeited the deposit of $565,000 and an order that the registration in the Land Registry against the property.

2.The judge gave judgment in favour of the plaintiffs.

Background

3.The property was completed in 1994 and the occupation permit was issued on 4 November of that year. Since then the property has been used as a butcher’s shop in a street market.

4.The agreement was, as might be expected, predicated upon the requirement under clause 20 (A) to show and give good title to the property. Under the agreement requisitions or objections on title were to be delivered to the vendors’ solicitors within 7 working days after the receipt of the title deeds. Clause 13 of the agreement provided:

“13.  (A)  If the Purchaser (other than due to the default of the Vendor) shall fail to complete the purchase in accordance with any of the terms and conditions of this Agreement, the deposit money paid by the Purchaser to the Vendor shall be absolutely forfeited as and for liquidated damages (and not as a penalty) to the Vendor who may (without being obliged to tender an assignment to the Purchaser) determine this Agreement and either retain the Property the subject of the agreement or any part or parts thereof or resell the same either as a whole or in lots...”

5.Clause 16 (a) read:

“16.  (a)  The Vendor hereby warrants and declares that the Vendor has not received and is not aware of there being any notice or order from any Government or other competent authority or the management office requiring the Vendor to demolish or reinstate any part of the Property.  If it should be discovered that such notice or order existed prior to the date hereof or if any such notice or order shall be served and/or issued on or before the date for completion, the costs for such demolition or reinstatement shall be borne by the Vendor.

...

(c)  The Vendor undertakes to notify the Purchaser forthwith upon receipt or becoming aware of any of the aforesaid notice or order.”

Clause 18 read:

“18.  The Purchaser hereby declares and confirms that the Purchaser has inspected and accepts in all respects the existing physical state, condition and finishes of the Property and the fixtures and fittings therein and the Furniture and Chattels (if any) and is fully aware that he is purchasing the Property and the Furniture and Chattels (if any) in their present state and condition.  The Property is and will be sold on an “as is” basis and in the physical state and condition as it stands and no warranty or representation whatsoever has been given or is made by the Vendor or his agents regarding the physical state and condition thereof or of the building of which the Property forms part (“the Building”).  In particular and without limiting the generality of the foregoing, no warranty or representation is given or made by the Vendor or his agents on any of the following matters, namely:-

(a)  The physical state and condition, quality or fitness of the Furniture and Chattels (if any) the fittings and finishes or the installations and appliances (if any) incorporated in the Property or in the Building;

(b)  The physical state and condition or the legality or the user of the Property or of the Building or of any structures or erections therein or thereto;

(c)  The area of the Property; and

(d)  The composition of the Property or of the Building or the nature or manner of their construction.”

6.The scheduled completion date was 29 July 2005 but that was later postponed to 1 August 2005. On 4 May 2005 the title deeds were delivered to the defendant’s solicitors. On 9 May 2005 the defendant’s solicitors raised the following requisition:

“1.  It has recently come to our client’s notice that there had been structural alterations to the premises namely the wall on the right side of the entrance had been removed.  A copy of the floor plan, identifying the said alteration marked in pink is enclosed herewith for your reference.  Please confirm if a consent had been obtained from the Building Authority.”

7.On the following day, the defendant’s authorised person issued a certificate certifying that a 900 mm width End Wall was required to be reinstated in accordance with the requirements of the Buildings Ordinance and Regulations. That letter was forwarded to the plaintiffs’ solicitors on 12 May and, on 17 May, the defendant’s authorised person wrote to the Buildings Department drawing its attention to the removal of the wall, which it was said had been done after the issuance of the Occupation Permit and referring to the code on Fire Resisting Construction. Despite having already certified that the removal of the wall had been in contravention of the Buildings Ordinance and Regulations, that question was asked of the Buildings Department, which was also asked whether it would “exercise their duties in the roles of control and enforcement of existing Buildings”. The letter concluded by saying that, if the answer was in the positive, the authorised person would like to launch a formal complaint “such that a Building Order could be issued as soon as possible to protect the fire risk of the adjoining building.”

8.On 4 June 2005 the defendant’s solicitors wrote to the Buildings Department saying that they acted for the defendant, who was identified as being purchaser of the premises, and stating that they had instructions from their client to make a complaint in respect of the removal of the wall. Seemingly rather incongruously, they concluded that letter by saying that they reserved the right to raise requisitions on the title to the property. That last matter was, no doubt, something which caused no concern to the Buildings Department. The Buildings Department responded on 10 June 2005 assuring the defendant’s solicitors that they would deal with their complaint expeditiously. That they did. On 14 June the Buildings Department issued an advisory letter to the plaintiffs requiring them to reinstate the End Wall immediately. The Buildings Department also notified the defendant’s authorised person, stating in the letter that not only had the advisory letter been issued but that a statutory order would be issued if the reinstatement were not carried out. That letter was forwarded to the plaintiffs’ solicitors by the defendant’s solicitors on 28 June 2005. In that letter the defendant’s solicitors drew specific attention to the requirement to reinstate the wall failing which a statutory order would be issued.

9.In compliance with the demand from the Buildings Department, which was thus issued following the complaint from the defendant, the plaintiffs caused the End Wall to be reinstated. That was duly reported to the Buildings Department. On 25 July 2005, after inspection by the Buildings Department, the Buildings Department confirmed by letter to the plaintiffs’ authorised person that the required reinstatement works had been complied with.

10.That having been done, the defendant’s solicitors then raised another requisition by letter dated 26 July 2005 in the following terms:

“We have just been instructed that the void space at the front of the shop has also been built up to form an extension of the original cockloft.  This amounts to an unauthorised building work which is liable to the enforcement action by the Building Authority.  Again, your client has never disclosed this material fact to our client at any material times.  Your client is now requested to produce such satisfactory proof that the extension of the cockloft is authorized by the Building Authority and properly approved by the Incorporated Owners or Manager of the building respectively.  A copy of the assignment plan of the cockloft is enclosed.”

11.On the basis of the plaintiffs’ pleadings the judge concluded that the void space at the front of the cockloft had been filled in. On the other hand, on the basis of the evidence from the defendant’s authorised person he also concluded that the extension to the cockloft had been demolished at the end of July.

The judgment below

12.In the court below, the main point taken on behalf of the defendant was that the premises were not in the state which the defendant had contracted for. Specifically, reliance was placed upon clause 18 of the agreement. It was said that the premises were sold on an “as is” basis and that they should be in the same physical state and condition that they had been at the time the agreement had been entered into. On the basis of established authority the judge rejected that argument. Referring to the decision of Yuen J (as she then was) in Leung Wing Fai v Onlink Investment Ltd [2000] 1 HKLRD 725, the judge held that clause 18 did not give the purchaser a right to restrain a vendor from demolishing what was an undisputed unauthorised building work. In the present case the judge considered that the matter was even clearer because the Buildings Department had served a notice requiring reinstatement of the End Wall. In so saying, the judge did not lose sight of the fact that that had been as a consequence of the defendant’s own complaint.

13.As regards the requisition in relation to the extension of the cockloft, the judge held that, in the first place, the requisition was out of time and in the second place that the extension had been removed by the time that completion was to take place.

14.The judge further dismissed any suggestion that the defendant could rely upon any misrepresentation. He said, quite simply, that in the absence of proving that there had been any representations, the defendant’s case on misrepresentation collapsed.

This appeal

15.On this appeal Mr Jin Pao, who did not appear in the court below, sought to argue that the judge had been wrong to refer to “substantial performance”. He said that matters of substantial performance could only be relevant in relation to matters of specific performance. On the other hand, if the plaintiffs relied upon its contractual and common-law rights, the question of substantial performance did not arise. Mr Pao stated specifically that the defendant did not rely upon the “as is” argument which had been the focus in the court below.

16.In my view, the whole premise of this appeal was misconceived. A careful reading of the judgment below will show that although the judgment had a passage referring to substantial performance from paragraphs 55 to 64 of the judgment, when it came to his decision which commenced at paragraph 65 the judge did not rely on any matter of substantial performance.

17.Put quite simply, the question is whether the plaintiffs had answered the requisitions which they were required to answer and whether at the time when the plaintiffs treated the contract as at an end, namely on 5 August 2005, they were in a position to comply with their obligations under the agreement in relation to the property to be transferred.

18.As regards answering the requisitions, it is clear that by 25 July 2005 the plaintiffs had reinstated the End Wall to the satisfaction of the Buildings Department and there was no further defect in respect of it. Hence, the requisition had been satisfactorily dealt with. The requisition in relation to the cockloft which was raised for the first time on 26 July 2005 was clearly too late. It can be observed in this regard that the defendant, through its authorised person, was well aware of the nature of the cockloft very much earlier. The timing of the requisition in relation to the rectification of the removal of the End Wall is sufficient to raise conjecture as to the motive for so raising the new requisition at such a late stage.

19.The plaintiffs’ obligation in relation to the agreement was to show and give good title to the property. Once the End Wall had been reinstated, and given the judge’s holding in relation to the removal of the extended cockloft, it could no longer be argued that there was any defect in the title to the property which the existence of the previous state of the property might have caused. Hence, in my view, the plaintiffs were in a position to show and give good title to the property contracted to be purchased. Although, as I have indicated, Mr Pao disavowed any reliance upon the “as is” argument, time and again his argument returned to the proposition that the defendant would not have been getting the property which it had contracted to get and, each time, the only thing that he could point to was the fact that the property was not in the same condition as it had been when the agreement had been made. It only needs to be said that the defendant, by raising a complaint with the Buildings Department and drawing the plaintiffs’ attention to the requirement to reinstate the End Wall, following its success in respect of that complaint, forced the plaintiffs to reinstate the End Wall. In this way, it was in reality ensuring that it got precisely what it contracted for, namely a property with good title.

20.In the circumstances, I would dismiss this appeal with an order nisi of costs in favour of the plaintiffs.

Hon Kwan JA:

21.I agree with the judgment of the Vice-President.

22.Substantial performance is a ‘red herring’ in this case. The rights and obligations of the parties were to be found in the agreement. Mr. Pao was unable to point to any provision in the agreement that would give the purchaser an absolute and unqualified right to have an assignment of the property in the same physical state and condition it was in at the time the agreement was made. Clause 18 would not have assisted him. It did not just provide that the property “is and will be sold on an ‘as is’ basis and in the physical state and condition as it stands”. It also went on to provide that no warranty or representation was given by the vendors on any of the matters in (a) to (d). Clause 18 should also be read with clause 16(a), which clearly envisaged that before completion of the sale and purchase, the vendor might be required to demolish or reinstate any part of the property and it provided that the costs of so doing shall be borne by the vendor.

Hon Stone J:

23.I agree with the judgments of the Vice-President and of Kwan JA and have nothing substantive to add.

24.As to Mr Jin Pao’s sterling efforts to persuade to the contrary, it is difficult to discern the merit in the appellant’s argument. It strikes me as a curious inversion of the state of affairs normally prevailing in such cases that in this instance the defendant purchaser should seek to justify its non-completion on the basis not that the property contained illegal and/or unauthorized structures but, to the contrary, that in fact the suit property had been rendered regulatorily compliant by the plaintiff vendors – who thus were able to give good title – precisely by reason of the defendant’s specific complaint to the Buildings Department.

25.I too would dismiss this appeal.

Mr Hylas Y F Chung, instructed by Messrs Huen & Partners, for the Plaintiffs/Respondents

Mr Jin Pao & Ms Queenie Lau, instructed by Messrs Kok & Ha, for the Defendant/Appellant