Ng Wai Kwan v. Hui Yuk Chi Addy
Read the full judgment text of HCMP 2453/2013 on BabelCite. This High Court CFI judgment was delivered on 17 March 2014.
1. This is a vendor and purchaser summons.
Cited by 1 case · Cites 4 cases
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HCMP 2453/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 2453 OF 2013 ________________________
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________________________ JUDGMENT ________________________ 1.This is a vendor and purchaser summons. 2.House D3 (“the House”) was erected on sub-section 27 of Section B of Lot No 1305 in DD 123 at Yuen Long, New Territories (“the Lot”). The property in question is the Ground Floor and Garden of the House (“the Unit”). The plaintiff was the purchaser (“the Purchaser”) and the defendant was the vendor (“the Vendor”). 3.Following the termination of the sale and purchase, the Purchase took out the present summons for determining the dispute as to whether the Purchaser’s requisition on title has been satisfactorily answered by the Vendor; and whether the Purchaser had shown a good title to pass on completion. On the basis that it was the Vendor who repudiated the sale and purchase, the Purchaser also claims for consequential relief. BACKGROUND 4.The Lot was one of many which together formed the development of a single estate called Ting Fook Villas (“the Estate”). Building licences were apparently granted to the indigenous villagers to erect village type houses on their respective lots within the Estate. Pursuant to the building licence No 2784 dated 25 January 1989, Wong Shing Ip (“Wong”) was given such permission to erect House D3 on the Lot (“the Building Licence”). The locations of the various lots were mapped out in the plan of the Estate attached to the Building Licence. 5.Typically House D3 consists of the Ground Floor (and garden), the 1st Floor as well as the 2nd Floor (and roof). Construction of the house was apparently completed in the same year of the issuance of the Building Licence. Wong was granted a certificate of compliance in respect of the Lot on 17 November 1989. 6.By then, there has already been in place a deed of mutual covenant (“the Head DMC”) and a management agreement (“the Management Agreement”) governing the rights and obligations of the owners of the various lots in the Estate, both dated 14 July 1989 and registered with the Land Registry on 2 August 1989. 7.The Lot was subsequently assigned away. By an assignment dated 4 December 1991, the predecessor in title of the Vendor became the registered owner of the Lot in its entirety (ie the Lot and House D3). The Vendor’s predecessor in title subsequently assigned the various floors of House D3 separately to individual owners. The Vendor became the owner of the Unit in 2007. 8.All the above assignments were so far made subject to and with the benefits of the Building Licence, the Head DMC and the Management Agreement. The Head DMC contained, among others, the following provisions:
9.On 5 May 2013, the Vendor and the Purchaser entered into a provisional agreement for the sale and purchase of the Unit at the price of HK$3,500,000. HK$100,000 was paid as the initial deposit. 10.On 16 May 2013, the parties entered into a formal sale and purchase agreement; and a further deposit of HK$250,000 was paid. The Vendor has thus in hands HK$350,000 representing 10% of the purchase price. 11.Completion was agreed to take place on 5 July 2013. 12.The Purchaser, through her then solicitors, Messrs W L Lai & Co (“WLL”), raised various requisitions. The one that eventually stood in the way between the parties arose out of the apparent breach of condition 4(e) of the Building Licence, which reads:
13.WLL first raised requisition in this respect by letter dated 22 May 2013, asking for the production of a deed or sub-deed of mutual covenant showing the allocation of shares, defining the common areas and setting out the rights and obligations of the owners within the Lot in compliance with condition 4(e). The same was repeated by letter dated 5 June 2013. 14.By letter dated 6 June 2013, Messrs Leung Kin & Co (“LK”) for the Vendor referred to the terms of the Head DMC mentioned above; and argued that the 3 units of House D3 were assigned to 3 owners by separate assignments; and that the area for each assignment was shown on the plans annexed to the assignment. It was argued that those areas which were not specifically included in the 3 assignments would be common areas among the owners of the Lot (and the house). With or without a sub-DMC, they argued, the Vendor’s title in the Unit would not be affected. 15.By letter dated 10 June 2013, WLL disagreed. The position was reiterated by letter dated 28 June 2013. 16.By letter dated 28 June 2013, LK on behalf of the Vendor offered, without prejudice to their previous answer, that the owners of the 3 floors of House D3, including the Vendor, would now enter into a sub-DMC in respect of the Lot. The draft sub-DMC was supplied for reference. 17.WLL replied on 2 July 2013, whereby they requested for the District Land Office (“DLO”)’s confirmation of waiver of the breach and its consent to the remedy now proposed by the Vendor. 18.LK by letter dated 3 July 2013 reiterated the Vendor’s stance; but offered by way of completion undertakings to use their best endeavours to procure the relevant waiver or retrospective consent from the DLO. 19.Seeing that WLL’s reply dated 4 July 2013 was not favourable, LK by letter on the same day argued that the breach was minor and technical and therefore there would be no real risk of enforcement action by the Government. The worst scenario, they believed, would be the imposition of a penalty; and they have secured sufficient sum from the Vendor to pay for the same, if any. They also confirmed that the request for confirmation by the DLO has been sent. 20.On the completion day, 5 July 2013, WLL essentially reiterated that the Purchaser could not be expected to accept a doubtful title and potential lawsuit as a result of the breach of the Building Licence, whereas LK essentially reiterated that the Vendor’s title was good given that the breach was remedied by the entry into of the sub-DMC among the owners of House D3 and the Lot as well as the proposed completion undertaking. 21.Eventually WLL gave notice that the Purchaser accepted the Vendor’s alleged repudiation and terminated the deal. They demanded the return of the deposit paid. 22.WLL repeated the demand on 9 July 2013. On the same day, LK gave notice that the Vendor considered the Purchaser to be in breach and thus exercising his right to forfeit the deposit. 23.The Purchaser took out the present originating summons on 23 September 2013. 24.The land search reveals that the Vendor has since sold the Unit to another purchaser, which was completed in October 2013. DISCUSSION 25.It is the vendor’s obligation to show and prove a good title of the property contracted to be sold, including that to answer requisitions on title satisfactorily. If the requisitions are not answered satisfactorily, the purchaser is entitled to rescind irrespective of whether the vendor may well have a good title to the property: see Active Keen Industries Ltd v Fok Chi Keung [1994] 1 HKLR 396 (at 413, per Litton JA). 26.A good title does not mean a perfect title. The question of title should be approached from the standpoint of a willing vendor and a willing purchaser, both possessed of reasonably robust commonsense: see Mexon Holdings Ltd v Silver Bay International Ltd [2000] 2 HKC 1 (at 8G, per Litton PJ). 27.The Purchaser submitted that a deed of mutual covenant is a necessary document of title: Polyson Jewellery Co Ltd v Liu Song Carlos [2002] 2 HKC 182 (at §34, per Rogers VP). So is a sub-deed of mutual covenant, if this is what sets out the rights and obligations of the vendor while providing for his right to exclusive possession: Silver Pioneer International Ltd v Good Onwards Co Ltd, HCMP 4807/2003 (27 September 2004) (at §12, per Deputy High Court Judge To (as he then was)). 28.There is no dispute as to the above principles. 29.As mentioned, when the Lot (and House D3) was first assigned in its entirety and subsequently the floors of House D3 were assigned to separate owners, including the Vendor, the assignments were invariably made subject to the Head DMC. The Head DMC defines the rights and obligations of the owners of the various lots within the Estate, but not those of the co-owners within the individual lots. 30.In the circumstances, the purpose of condition 4(e)(i) of the Building Licence was arguably be served by the incorporation of the Head DMC which, in the definition section, deemed that each of the lots within the Estate has 3 equal undivided shares with one share allocated to each unit (floor). Nevertheless condition 4(e)(iii), which required, among other things, the provisions for the right of access and common areas within the Lot, was apparently not satisfied. 31.The certificate of compliance issued to Wong in respect of the Lot contained terms to the following effect:
32.Condition 4(e) was a restriction, not a positive obligation referred to in (1) above. By virtue of (2) above, the DLO reserved its right of action in respect of any breach occurring after the issuance of the certificate. That would include any breach of condition 4(e). 33.In view of the apparent breach of condition 4(e), this was and perhaps still is a prima facie case entitling the DLO to take enforcement action. The parties disagree as to whether the risk of such enforcement action is real. If there is a real risk, the court will not force the title upon the purchaser. This is one of fact and degree; and of common sense: see Kok Chong Ho v Double Value Developments Limited, HCMP 2857/1990 (19 December 1990, per Godfrey J at p.6). 34.The Purchaser relied heavily on 2 cases: Polyson Jewellery Co Ltd (above) and Wong Kwok Yan & Anor v Poon Chi Lok [2009] 2 HKLRD 18. 35.Relying on Polyson Jewellery Co Ltd (at §32), the Purchaser submitted that if those answering a requisition wish to rely on the absence of a realistic possibility of successful litigation, it is not sufficient simply to assert a bald proposition. In the present case, the Purchaser argued that the Vendor’s proposition that the breach of the Building Licence was minor and technical entailing no risk of enforcement action by the Government was nothing but a bald assertion. 36.Polyson Jewellery Co Ltd concerned a property in a multi-flat development. Requisition was raised for the proof of due execution of the deed of mutual covenant. The Court of Appeal (at §31) actually found force in the argument that if the deed was ever going to be challenged and declared invalid, the rights of exclusive possession of all the lots and flats would be called into question. Such circumstances could have been brought forward in the correspondence between the parties to support the assertion that the risk of future litigation was illusory. But unfortunately the answer by the vendor in that case was merely that the deed was dated 1997 and had been in existence for over 20 years without any challenge. It was in view of such simple answer that the Court of Appeal made the above remark that the Purchaser now relied on in the present case. 37.This also explains what the Court of Appeal continued to say in the same paragraph, namely, that all the surrounding circumstances leading to a conclusion had to be taken into consideration; and the key points should at least be referred to in the correspondence between the parties, such as whether the execution issue had caused difficulties previously. In the absence of those, the answer of the vendor was nothing but bare proposition. 38.In the present case, the Vendor indeed argued in his answer that the sale of the Lot (and House D3) as an entirety and the subsequent sale of the 3 floors of House D3 separately were all registered with the Land Registry. The DLO could be taken to have notice of those. There has been no enforcement action in all these years. That was similar to the argument of the vendor in Polyson Jewellery Ltd. But unlike the vendor in that case, the Vendor in the present case actually offered more in his answer. 39.First, the Vendor explained that the assignments of the various floors have all been made subject to the Head DMC, which, as mentioned, served the purpose of condition 4(e)(i) of the Building Licence. 40.Second, the Vendor in his answer argued that the 3 floors of House D3 were assigned to different owners by 3 separate assignments; and the area for each assignment was shown on the plans annexed to it. The areas not specifically included in the assignments are thus common areas. The Purchaser apparently did not seek to dispute that fact in the correspondence. Nor did she do so in these proceedings. Therefore neither party found it necessary to produce those previous assignments in this hearing. 41.Third, the Vendor in any event offered to rectify the situation by the execution of Sub-DMC by all the co-owners of the Lot, including himself. The draft was also produced to the Purchaser before execution. The Sub-DMC was executed on 28 June 2013 and registered on 10 July 2013. There was no contention that the Sub-DMC did not serve the purpose of condition 4(e) of the Building Licence. Nor was there complaint that the Sub-DMC so executed in any way rendered the interest being sold to the Purchaser different from what was contracted for. 42.Then relying on Wong Kwok Yan, the Purchaser argued that the threat of re-entry by the Government, even if low and a risk which many purchasers might be prepared to take, could not be excluded, particularly as the Government had expressly reserved its rights in respect of any breaches. The court could not compel a purchaser to take a title about which there was some doubt or which might involve the purchaser in litigation. 43.Referring to the reservation of rights by the DLO in the certificate of compliance and the lack of written confirmation of waiver of breach by the DLO in the present case, the Purchaser argued that the court equally could not compel her to take the Vendor’s title subject to such risk of enforcement action. 44.Wong Kwok Yan concerned one of the floors of a village type house in the New Territories. Typically the conditions of grant contained, among other terms, a restriction on alienation subject to payment of premium. A mortgage in 1996 and then sale was contracted in 2005 in breach of such restriction. The relevant deeds were registered. Subsequently the sale but not the mortgage was cancelled. Upon the payment of the premium, the DLO advised in 2006 that the condition would no longer apply. However, at the same time, the DLO made clear that that constituted no waiver of any rights of the DLO in respect of any breaches or failure to observe any terms or conditions of the grant. The property was later sold; and the purchaser of the property raised requisition as to the breach of the conditions of grant. 45.Besides explaining the above history, the vendor in Wong Kwok Yan wrote to the DLO. The DLO replied that the advice of the senior solicitor of the legal advisory and conveyancing office was being sought regarding the breach in question. The purchaser offered to extend the completion date to await the confirmation from the DLO; but the vendor rejected that. The deal fell through as a result. 46.The vendor in Wong Kwok Yan argued that the 1996 mortgage and the 2005 sale were registered and thus the DLO should be taken to have notice of the facts giving rise to the breach of the conditions of grant. Following the cancellation of the 2005 sale and the payment of the premium, the DLO confirmed that the conditions ceased to apply. The risk of re-entry was thus nil. 47.The vendor’s argument was rejected by the Court of Appeal. First the DLO expressly stated in 2006 that there was no waiver of any rights in respect of any breaches or failure to observe any terms or conditions. There was attempt to rectify the breach by the cancellation agreement of the 2005 sale. But it was not possible to say that the Government could not exercise the right arising particularly from the breach constituted by the creation of the mortgage. The fact that the advice of the senior solicitor was being sought demonstrated that the threat of re-entry could not be excluded. That brought the appellate court to the conclusion that the Purchaser now relied on as mentioned above. 48.It should be apparent that the circumstances that gave rise to the real risk of enforcement action in Wong Kwok Yan were peculiar. First, the remedial steps involved the cancellation of the 2005 sale but not the 1996 mortgage. Second, notwithstanding the remedial step of payment of premium and the indication of cessation of application of the conditions of grant, the DLO specifically reserved the right of enforcement for breach at the same time. Third, when asked for confirmation of waiver of the breach, the DLO explained that advice of the Senior Solicitor had to be sought about that. In short, the DLO was indeed seriously considering whether to take action in respect of the specific breach. 49.In the present case, the reservation of the DLO was that contained in the certificate of compliance. Unlike Wong Kwok Yan, this is not specific reservation of rights regarding certain known breach. 50.Then the Purchaser relied on a letter from the DLO to the Law Society of Hong Kong dated 26 January 2011 on the topic of breaches of land grant terms. As the letter suggested, that was to set out the DLO’s position on various types of breaches set out in the letter of enquiry from the Society. What the Purchaser relied on was the section on restriction on alienation. As to that, the DLO stated that breach of restriction on alienation would be considered as a serious breach and no blanket waiver of such breach could be given. 51.In my view, the absence of confirmation of waiver of breach by the DLO does not inevitably lead to the conclusion that the risk of re-entry is real, as the Purchaser seems to suggest. Rather, the court still has to assess the risk of re-entry in the circumstances of the case as mentioned above. Indeed the DLO added in the above letter to the Law Society that each breach would be dealt with on a case by case basis. 52.Stone J indeed explained in Wong Kwok Yan (above) (at §§25-27):
53.One should not lose sight of the nature and purpose of the various restrictions contained in the conditions of grant or building licence. Conditions such as building conditions or the restriction against alienation subject to payment of premium exist for obvious policy reasons. The stance taken by the DLO in respect breach of such conditions should therefore be understood accordingly. Likewise the Building Licence in the present case contained restriction on alienation, for instance subject to payment of premium. There was no suggestion that the previous assignments in the present case were in breach of such provision though. 54.Condition 4(e) essentially required the putting in place of a deed of mutual covenant governing the rights and obligations of the co-owners of each lot within the Estate. Once put in place, the deed would have been a contract amongst the owners within the lot governing the designation of undivided shares, exclusive possession, common areas and their management. So long as a deed of mutual covenant satisfied condition 4, there was no further requirement for approval of the deed. If all the co-owners of the Lot, being those who could be possibly be affected, entered into the Sub-DMC serving the purpose of condition 4(e), albeit only now, I see no reason for the DLO to seek to re-enter the Lot. 55.I can therefore understand why the Vendor argued that this was a case of technical breach, which could be and has been remedied by the time of completion. As far as enforcement action by re-entry is concerned, the contention that such risk is real, in my view, is not a bald assertion. Supposing there is still the risk of some other forms of enforcement action, I am satisfied that the Vendor’s offer to set aside a fund with appropriate completion undertaking for such purpose sufficed to remove the doubt. But the Purchaser has decided to reject that. CONCLUSION 56.I am satisfied that the requisition in question has been satisfactorily answered by the Vendor. I am also satisfied that good title has been shown. It follows that it was the Purchaser who has repudiated the formal sale and purchase agreement by refusing to complete. RELIEF 57.The Purchaser’s claim for relief fails. For completeness, I should mention that the Vendor disputes the liability to pay the estate agent’s commission being claimed by the Purchaser. 58.The Purchaser apparently bases her claim on the provisions of the provisional sale and purchase agreement. According to Mr Choi, which was not disputed by Mr Chu, the agreement contained the usual terms that the parties should respectively pay certain commission to the estate agent. If sale fell through, the party in default would be liable to pay the agent the commission payable by both sides of the deal. Mr Choi also confirmed that his client had in fact yet to pay the commission payable by her upon completion. 59.I would not have granted the relief as claimed. As counsel acknowledged, the provisional agreement was a tripartite agreement amongst the two sides of the deal and the agent. The obligation of the party in default to pay all the commission to the agent was one enforceable by the agent or, if somehow already paid by the other party, by the other party. As the Purchaser has not paid the agent, she would have had no basis to claim that amount as damages for breach. 60.An order that the Vendor should pay that to the agent would not have served the purpose as the agent that expects to be benefited from the order is not a party. At the best, the Purchaser would have been entitled to a declaration of his right to be indemnified, but this is not what she claims. 61.Now the Vendor succeeds. Nevertheless, in the absence of any notice of counterclaim in these proceedings, his entitlement as a consequence of the above determination is not before me. ORDER 62.The claim is dismissed. I make a nisi order that the Purchaser pay the Vendor’s costs of this action, to be taxed if not agreed. In the absence of application within 14 days to vary, this costs order shall become absolute.
Mr Danny CHOI, instructed by Messrs Wong & Lawyers for the plaintiff Mr George CHU, instructed by Messrs Leung Kin & Co for the defendant | |||||||||||||||||
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