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Chi Kit Co Ltd And Another v Lucky Health International Enterprise Ltd

Judgment Cited authorities 16 Cited in Precedent Map Related
Vincent
Judgment Date19 July 2000
Year2000
Citation[2000] 2 HKLRD 503; (2000) 3 HKCFAR 268
Judgement NumberFACV18/1999
Subject MatterFinal Appeal (Civil)
CourtCourt of Final Appeal (Hong Kong)
FACV000018/1999 CHI KIT CO LTD AND ANOTHER v. LUCKY HEALTH INTERNATIONAL ENTERPRISE LTD

FACV000018/1999

FACV No. 18 of 1999

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 18 OF 1999 (CIVIL)

(ON APPEAL FROM CACV No. 10 OF 1999)

_____________________

Between:

CHI KIT COMPANY LIMITED 1st Appellant
LOONG HOCK LIMITED 2nd Appellant
AND
LUCKY HEALTH INTERNATIONAL ENTERPRISE LIMITED Respondent

_____________________

Court: Chief Justice Li, Mr Justice Litton PJ, Mr Justice Ching PJ, Mr Justice Bokhary PJ and Sir Anthony Mason NPJ

Date of Hearing: 25, 26 and 30 May 2000

Date of Judgment: 19 July 2000

__________________

J U D G M E N T

__________________

Chief Justice Li :

1. I agree with the judgment of Mr Justice Litton PJ and the joint judgment of Mr Justice Bokhary PJ and Sir Anthony Mason NPJ.

Mr Justice Litton PJ :

Introduction

2. Sun Hing Building, built in the early 1960s, is a 27-storey composite building standing on Nathan Road, Mongkok. From the 11th floor upwards the building is for domestic use. The lower floors are for commercial use. It has two basements for car-parks.

3. Since about September 1966 the appellants (vendors) have been owners of various units comprising an 11.5% share in the land and building as follows: 53 car parking spaces in the lower basement, various units on the 9th and 10th (commercial) floors, 24 domestic flats in the upper floors. These (described in the tender documents as "the Property") were offered for sale by tender in July 1997.

4. The title deeds and documents relating to the property were made available for inspection by prospective purchasers when the invitation to tender was published. The units were offered for sale subject to existing tenancies. The Conditions of Sale (later incorporated into the agreement as part of its terms) provided in clause 19 that upon payment of the purchase price the vendors would "execute to the purchaser an assignment of the property subject as enumerated in the Conditions of Sale but otherwise free from encumbrances".

5. Clause 26 of the Conditions of Sale states :

"26. The Purchaser shall not be entitled to raise any objection or requisition in respect of the title to the Property and shall be deemed to have accepted the Vendor's title to the Property prior to the Purchaser's submission of his tender. The Purchaser further declares confirms undertakes and warrants that the Purchaser shall complete the purchase of the Property in accordance with the terms contained herein irrespective of whether the Vendor's title to the Property is good or defective notwithstanding any rule of law or equity to the contrary."

6. The respondent (purchaser) submitted a tender for $118 million. This was accepted and an agreement for sale and purchase dated 19 August 1997 was signed, pursuant to which the purchaser paid deposits totalling $11.8 million. Completion was due to take place on 20 November 1997.

7. After the agreement was signed the title deeds and documents were delivered to the purchaser's solicitors who raised no objections or requisitions with regard to the vendors' title upon perusal of the material. On the face of such material, the vendors' title was unimpeachable.

How the litigation arose

8. In February 1994 an action for damages for personal injuries was instituted against The Incorporated Owners of Sun Hing Building, a body corporate formed under s.8 of the Building Management Ordinance, Cap. 344. This arose from an accident 3 years earlier when a workman fell from bamboo scaffolding erected against the outside wall onto a scavenging lane at the back of the building and sustained very serious injuries. The scaffolding was old and disused. The workman had, at the suggestion of an employee of the incorporated owners, climbed up to the 3rd floor to help locate a burst pipe on the outside wall of the building. The bamboo collapsed. He fell and was rendered quadriplegic. In his action against the incorporated owners for damages, he based his cause of action on the fact that the corporation was an occupier of the common parts pursuant to the Occupiers Liability Ordinance, Cap. 314, and was negligent in allowing the scaffolding to remain and become dangerous. He also claimed that the corporation was vicariously liable for the actions of their employee in suggesting that he should use the scaffolding in tracing the leak.

9. In January 1997 the trial of the workman's claim was imminent. At a meeting of the management committee of the corporation on 30 January 1997 it was decided that counsel should be instructed and money raised from the owners. On 15 August 1997 (4 days before the memorandum for sale of the property was signed) the committee published a notice to the effect that the claim (for over $30 million) had been set down for trial and substantial fees had to be collected from the owners.

10. The trial began on 6 October and lasted 2 weeks. The incorporated owners were not legally represented as the management committee had failed to raise the necessary funds, though two members of the committee were heard in person. On 30 October 1997 Seagroatt J gave judgment in the workman's favour for $25.7 million together with interest and costs. It was a record sum and much prominence was given to it in the news media.

The purchaser's action

11. On 21 October 1997 the purchaser's solicitors wrote to the vendors' solicitors drawing attention to the legal proceedings and (1) asking what "remedial action" was proposed so that the property could be sold "free from all encumbrances" and (2) complaining that the failure to disclose the existence of the claim constituted "material non-disclosure". The vendors' solicitors replied on 3 November enclosing a copy of Seagroatt J's judgment and offered to set aside a sum of $4 million out of the proceeds of sale, based upon the vendors' proportionate share of liability pursuant to the judgment, to be held by the solicitors as stakeholders.

12. On 10 November 1997 the purchaser's solicitors wrote rejecting the vendors' proposal and stated:

"The judgment sum is HK$25,725,287.00 together with interest and costs to be taxed. Under section 17(1)(b) of the Building Management Ordinance Cap. 344, the judgment creditor is entitled to apply to Court to levy execution to enforce the Judgment against any owner. Our client is particularly worried by declarations made by a number of small owners to the mass media to the effect that they have no money to satisfy the Judgment. Upon completion, our client may well be faced with the prospect of having execution of the Judgment levied against itself with the consequence of having the abovementioned properties charged by the judgment creditor."

13. The letter went on to say that by clause 19 of the Conditions of Sale the vendors had agreed to assign the property "subject as enumerated in these conditions but otherwise free from encumbrances"; as a result of the vendors' failure to disclose the existence of the proceedings they were guilty of "material non-disclosure and misrepresentation"; if the purchaser had been made aware of the proceedings it would not have tendered for the property. In these circumstances the purchaser gave notice of rescission and demanded the return of the deposit of $11.8 million.

14. By letter dated 11 November the vendors' solicitors replied saying that as the purchaser was not an owner at the time of the accident and as no act or omission giving rise to the corporation's liability could be attributed to the purchaser, there was no possibility of leave being given under s.17(1)(b)1 of the Building Management Ordinance to enforce the judgment against it. However, to "cater for the most unlikely situation" of a charge arising against the property after completion, the vendors undertook to set aside a sum of $33,025,758 out of the proceeds of sale, or make available a bank guarantee for that amount, or any reasonable amount as the purchaser might suggest. This was subject to the condition that the purchaser would co-operate at the vendors' expense in opposing any application for leave to enforce the judgment.

15. This offer was rejected.

16. The deadline for completion - 3 p.m. on 20 November 1997 - expired. No completion took place. By letter dated 21 November the vendors' solicitors gave notice of rescission and forfeiture of the deposit.

17. Thus the battle lines were drawn.

18. On 25 November 1997 the purchaser issued an originating summons seeking, among other reliefs, a declaration (1) that the vendors had not shown good title to the property and (2) that the purchaser was entitled to rescind the agreement "by reason of the material non-disclosure and/or misrepresentation on the part of the [vendors]". On the eve of trial those reliefs were amended by deleting the reference to "misrepresentation" and adding an averment to the effect that the purchaser was entitled to rescind on account of the vendors' inability to assign the property "free from encumbrances in accordance with Condition 19 of the Conditions of Sale ...".

The proceedings in the courts below

19. The matter went before Barnett J who, by his judgment dated 23 November 1998, dismissed the purchaser's claim. He held that the possibility of the vendors having the judgment (or a proportionate part thereof) enforced against them was a potential liability which was personal to them; this was not a defect in title or an encumbrance upon the title; hence there was no obligation falling on the vendors to disclose the claim prior to the contract.

20. The purchaser, being aggrieved, appealed to the Court of Appeal. That court by a majority (Mortimer VP and Godfrey JA), Rogers JA dissenting, allowed the purchaser's appeal with costs. Hence...

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