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

Judgment Cited authorities 7 Cited in Precedent Map Related
Vincent
Judgment Date23 November 1998
Year1998
Judgement NumberHCMP4041/1997
Subject MatterMiscellaneous Proceedings
CourtHigh Court (Hong Kong)
HCMP004041/1997 LUCKY HEALTH INTERNATIONAL ENTERPRISE LTD. v. CHI KIT CO. LTD. AND ANOTHER

HCMP004041/1997

HCMP 4041/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4041 OF 1997

____________

IN THE MATTER of an Agreement for Sale and Purchase dated 19th August 1997 and made between Chi Kit Company Limited and Loong Hock Limited as the Vendor of the one part and Lucky Health International Enterprise Limited as the Purchaser of the other part for the sale and purchase of certain property interests in a property described as ALL THOSE pieces or parcels of ground registered in the Land Registry as KOWLOON INLAND LOT NO. 7983 and KOWLOON INLAND LOT NO. 7335 ("the Land") And of and in the messuages erections and buildings thereon known as SUN HING BUILDING (新興大厦) No. 607 NATHAN ROAD ("the Building")
BETWEEN
LUCKY HEALTH INTERNATIONAL ENTERPRISE LIMITED Plaintiff
AND
CHI KIT COMPANY LIMITED

LOONG HOCK LIMITED

 1st Defendant

2nd Defendant

____________

Coram: The Hon. Mr. Justice Barnett in Court

Dates of Hearing: 9, 10 and 11 November 1998

Handing down of Judgment: 23 November 1998

______________

J U D G M E N T

______________

1. In July or August 1997, the Defendants, who separately owned a number of units in Sun Hing Building, Nathan Road, offered these units (the units) for sale by tender. On 12th August, the Defendants decided to accept the Plaintiff's offer of $118m. Acceptance of the offer was communicated to the Plaintiff on 12th August creating an agreement for the sale and purchase of the units on the conditions which accompanied the offer by tender. A memorandum recording this agreement was executed by the parties on 19th August and registered in the Land Registry. Completion was due on 20th November.

2. In the meantime, the Plaintiff discovered that a personal injury action which had been commenced in 1994 was pending against the incorporated owners of Sun Hing Building (the Corporation) and that the damages claimed were between $20m and $30m. The trial of the action in fact took place before Seagroatt J. on 6th to 19th October. On 21st October the Plaintiff's then solicitors drew this to the attention of the Defendants' solicitors complaining of non-disclosure. Judgment was given against the Corporation on 30th October in the sum of $25.7m together with interest and costs.

3. The Plaintiff's current solicitors were then instructed. Because of the amount involved and because of the provision of Section 17(1)(b) of the Building Management Ordinance Cap. 344 (BMO) which allows a judgment creditor to apply to the court to enforce a judgment obtained against incorporated owners of a building against any individual owner, the Plaintiff might be faced with the prospect of having execution levied against it and the units charged. The solicitors took the view that the Defendants would be unable to assign the units free from encumbrances and that the Defendants had been guilty of material non-disclosure. By letter dated 10th November, that is 10 days before the date for completion, the Plaintiff's solicitors advised the Defendants' solicitors of the position and gave notice that the Plaintiff rescinded the agreement. Return of the deposit of $11.8m was demanded within 7 days. The Defendants, hardly surprisingly, did not accept the Plaintiff's contentions. The Plaintiff therefore commenced these proceedings in which it seeks various declarations, principally, that the Defendants have not shown good title; that the Defendants would not have been able to assign the units free from encumbrances; that the Plaintiff was entitled to rescind the agreement by reason of material non-disclosure; and that the Plaintiff has effectively rescinded the agreement.

4. Mr. Denis Chang, S.C. who appeared on behalf of the Defendants, accepted that a vendor must disclose any defect in title of which he is aware. A vendor cannot rely upon a condition of sale to exempt him from this duty. Mr. Chang did not rely on Condition of Sale 26 in this case which provided that the Plaintiff "shall be deemed to have accepted the vendor's title to the property prior to the purchaser's submission of his tender". Two principal issues, therefore, arise for determination. They are whether the Defendants were aware of the proceedings and, if so, whether they were obliged to disclose that knowledge to the Plaintiff.

Knowledge

5. This issue can be disposed of quickly. The directors of the Defendants all live in Singapore. In an affirmation which was admitted in evidence for the purpose of these proceedings, Mr. Ko Teck Siang, a director of both Defendants, affirmed that the directors had no knowledge of the action which had been brought against the Corporation. Although Mr. Ko was not cross-examined (he was medically unfit to travel) I see no reason to doubt what he says about the directors' knowledge. The Defendants, however, maintained an office in the building. This was staffed by a Mr. & Mrs. Fung and at least one other assistant. This office was responsible for collecting the rent from and managing the other units owned by the Defendants. It appears Mr. Fung used to collect the rent and liaise with the tenants. Mrs. Fung had represented the Defendants on the committee of the Corporation since at least May 1992 when she was elected as first vice chairlady. Mrs. Fung (or Madam Wong as she was also known) remained as vice chairlady until 9th May 1996 when she became an ordinary committee member. After that meeting, Mrs. Fung did not attend any meeting either of the committee or of the owners generally.

6. Evidence was given by Mr. Hui Chiu Ming, the present chairman of the Corporation. He said that through Corporation's management office, notices of meetings, minutes and other matters are placed on notice boards near the building's lifts and also distributed by post or by placing in the mail boxes in the building.

7. From the minutes and other documents produced by Mr. Hui, I find that, because of her attendance at meetings, Mrs. Fung knew on 24th February 1994 that a writ had been issued against the Corporation in which the person who had been injured by a fall at the rear of the building claimed compensation. She knew from a meeting held on 10th July 1995 that the injured person was seeking "a large sum of compensation amounting to over $10m". At that meeting the owners decided to instruct solicitors to defend the case. The matter was further discussed at a meeting on 19th July 1995. At a meeting on 24th January 1997, at which Mrs. Fung was not present, it was noted that the claim was for over $30m. On 30th January 1997, it was decided that counsel would have to be instructed and some $600,000.00 raised from the owners.

8. On 15th August 1997, the Corporation's committee published a notice to the effect that the claim for over $30m had been set down for trial on 9th October and that lawyers' fees amounting to $800,000.00 had to be collected by 6th September. The notice stated "it now all relies upon the co-operation and support of all owners with a view to gathering the said sum before 5th September 1997". The matter was discussed at a meeting of the owners on 9th September when it was noted that only 1/3 of the necessary sum had been collected.

9. A number of urgent meetings followed at which the Corporation's predicament was discussed. Then, on 30th October, it was reported in a committee meeting that the injured person intended applying to the court for an order that the judgment be enforced directly against individual owners pursuant to section 17 of the BMO.

10. So, by May 1996, Mrs. Fung knew of the pending action against the Corporation and that a substantial amount of damages might be involved. I also have no doubt that, after May 1996, Mr. and Mrs. Fung were aware of the progress of the action and the steps which the Corporation was taking. This they would have learned from notices posted on the building's notice boards or from documents delivered to their mail box. In any event, as the Defendants' representatives in the building, they should have made it their business to find out not just how the action was progressing but about the business of the Corporation generally. So they had or should have had full knowledge of these matters. That knowledge became the Defendants' knowledge because it was only through Mr. and Mrs. Fung, as servants and agents of the Defendants, that the Defendants as companies could acquire such knowledge.

11. On the balance of probability, therefore, I find that the Defendants knew of the pending action; of the amount potentially involved; of the call by the notice of 15 August 1997 for contributions towards costs; and by 30th October of the threat that the judgment might be enforced against individual owners.

Was there a defect?

12. Section 17(1) of the BMO provides that

"(1) If a judgment is given or an order is made against a corporation, execution to enforce the judgment or order may issue -

(a) against any property of the corporation; or

(b) with leave of the tribunal, against any owner."

13. A number of things may be noted. First, whereas under (a) the judgment can be enforced against property of the corporation (i.e. the incorporated owners), under (b) enforcement is against the owners personally and then only with leave. Second, enforcement need not necessarily be sought against all the owners. So, third, an owner's liability would not necessarily be restricted pro rata his share in the building. Fourth, enforcement against an owner might, but not necessarily would, be by way of charging order on any units he owns in the building.

14. Unlike the cases involving the Estate Duty Ordinance and the...

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