Mexon Holdings Ltd. v Silver Bay International Ltd.

Court:Court of Appeal (Hong Kong)
Judgement Number:CACV76/1999
Judgment Date:27 Jul 1999
CACV000076/1999 MEXON HOLDINGS LTD. v. SILVER BAY INTERNATIONAL LTD.

CACV000076/1999

CACV 76/1999

HEADNOTE

Land law and conveyancing. Whether requisition goes to root of title.

CACV 76/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 76 OF 1999

(ON APPEAL FROM HCMP 589 OF 1998)

BETWEEN
MEXON HOLDINGS LIMITED Plaintiff
(Respondent)
AND
SILVER BAY INTERNATIONAL LIMITED Defendant
(Appellant)

---------------------------

Coram: Hon Nazareth V-P, Mayo and Rogers JJA in Court

Date of Hearing: 8 July 1999

Date of handing down Judgment: 27 July 1999

----------------------

J U D G M E N T

----------------------

Nazareth V-P:

1. This is an appeal from the order of Findlay J made upon a vendor and purchaser summons. The appellant vendor ("the defendant") claimed inter alia a declaration that the requisitions of the respondent purchaser ("the plaintiff") in respect of title to the property concerned had not been sufficiently answered; that the defendant had failed to show good title to the plaintiff in accordance with their sale and purchase agreement ("the agreement"); and that the plaintiff as purchaser was entitled to determine and did effectively determine the agreement by a letter dated 31 January 1998 that its solicitors sent to the plaintiff's solicitors.

2. By his order made on 2 February 1999 Findlay J inter alia granted those three declarations. He also ordered that the defendant repay the plaintiff's deposit in the amount of HK$8,120,000 together with interest and costs.

The background

3. The property to which these proceedings relate is Room 3301 Lippo Tower ("the property"). It was formed by the partition of the 33rd floor of the Lippo Tower in 1992 in the context of a deed of mutual covenant dated 28 December 1992 ("the DMC"). The property then having passed through the hands of other purchasers was acquired by the plaintiff. By the agreement which was dated 29 May 1997 the plaintiff agreed to sell and the defendant to purchase the property. The purchase price was $40,600,000. The plaintiff paid a deposit of $8,120,000. Completion was to be on 31 January 1998. Clause 13 of the agreement provided that:

"Requisitions and objections (if any) in respect of the title or description of the said Property or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors within 7 working days after receipt of all the title deeds and documents by the Purchaser's Solicitors. Any requisition or objection not so delivered shall be deemed to have been waived."

4. The title deeds were sent and received on 3 June 1997. They included some 127 separate documents. Among these was one of particular significance to these proceedings. It was a certificate issued by Mr Gary Chung, an architect/authorised person, dated 10 November 1992, in the following terms:

"Partitioning of 33rd Floor
Lippo Tower
I.L. 8615, 89 Queensway, Hong Kong

I, Gary C.K. Chung, authorised Person Architect of 1205-6 Dah Sing Financial Centre, 108 Gloucester Road, Wanchai, Hong Kong hereby certify as follows:

1) The sub-division of the captioned premises into 6 units (as shown in the attached plan) complies in every respect with the present Building Ordinances and Regulations.

2) The partition walls as illustrated in the attached plan and indicated in red making such sub-division do not involve structural alteration and are exempted works under the present Building Ordinances and Regulations. These partitionings do not require the submission of plans for the approval of the Building Authority under the present Building Ordinances and Regulations.

3) The partition wall between 2 units abut upon the window mullion only.

Dated the 10th day of November 1992

(signed by Gary C.K. CHUNG)"

5. The seven working day period expired on 11 June 1997. It was very much later, on 6 November 1997 that the requisition with which these proceedings are concerned was raised for the first time by the plaintiff's solicitors in their letter to the vendor's solicitors. It was in these terms:

"Re: Room 3301, 33rd Floor, Lippo
Tower, Lippo, Centre, No. 89
Queensway, Hong Kong

We refer to the above property and to the Architect Certificate dated 10th November 1992 in relation to the partitioning of the 33rd Floor on which the above property is located.

We noticed that the said Certificate did not specify that such partitioning did not contravene the Fire Regulations applicable.

Please let us have a fresh Architect Certificate to confirm same.

Yours faithfully,
(signed)"

The defendant's solicitors refused to answer the requisition. In numerous letters they maintained that (i) the requisition was late; and (ii) it did not go to the root of the title.

6. In the face of that refusal, the plaintiff's solicitors instructed a Mr Andy Leung, an authorised person/architect to give his opinion on the matter. Following a preliminary indication from him, the plaintiff's solicitors arranged for a site inspection of the property through the defendant's solicitors. An inspection was carried out and by a letter dated 20 January 1998, Mr Leung confirmed that the property contravened reg. 41(1) of the Building (Planning) Regulations ("the Regulations")by failing to comply with clause 12(b)(ii) of the Code of Practice on Provision of Means of Escape, since the maximum travel distance from the property to the entrance of the escape staircase exceeded 18M.

7. I pause to mention here that the judge preferred Mr Leung's evidence to that of Mr Gary Chung. In any event, it is accepted by the plaintiff that the property contravenes the Regulations mentioned although it is submitted that there are ways in which the position can be regularised.

8. Returning to the sequence of events, notwithstanding Mr Leung's certificate, the defendant's solicitors maintained their refusal to answer the requisition. On 31 January 1998 the plaintiff accepted the defendant's "repudiation", terminated the agreement and forfeited the plaintiff's deposit of $8,120,000, which resulted in the plaintiff's originating summons.

9. The judge took the view that there was a prima facie case of unauthorised partition because no proper provision had been made for adequate means of escape. He referred to the defendant then producing evidence and arguing that in fact there was almost proper provision for adequate means of escape and that the Building Authority was therefore unlikely to take enforcement action. The judge was sceptical about this and thought that if the Building Authority was minded to be strict in any area, it would have been in relation to proper means of escape in case of fire. But he did not find it necessary to decide that point because such evidence had not then been produced and it was too late for the defendant to attempt to show good title at the hearing. The obligation was to answer requisitions and show good title before the time of completion and not afterwards.

10. He also mentioned that the defendant sought to argue that compliance could be achieved by surrendering part of Room 3301 so that the route to the nearest fire escape was reduced. He did not regard it as a satisfactory answer to say to a customer that the vendor is only able to provide a useable area less than that sold. In the end he found the situation before him the same as that in Kok Chong-ho v Double Value Developments Ltd (1993) 2 HKLR 423 (CA). There the High Court had held that a requisition regarding unauthorised structures had been satisfactorily answered because the risk of enforcement by the Government was so remote as to justify it being ignored; but the Court of Appeal decided at p.433 that no evidence had been proffered of the unlikelihood of enforcement of the legislation, and by the time the agreement was rescinded, it was too late for the vendor to rely on evidence of a practice of non-enforcement.

The submissions

11. I turn now to Ms Audrey Eu SC's submissions on behalf of the defendant. She submits that the purchaser's requisition was outside the agreed period and does not go to the root of the title; that in any case even if it does, the plaintiff here did not use due diligence, or it would have been aware of the breach of the Building Regulations. For the legal basis of the latter submission, she relies upon Hillier Development Ltd v Tread East Ltd [1993) 1 HKC (CA) 285; 293C per Penlington JA. She seeks to reinforce that submission by invoking the sanctity of the contract with reference to the express time limit of 7 working days in clause 13 of the agreement for requisitions to be delivered, and for waiver of any requisition or objection not so delivered.

12. For his part, Mr John Griffiths SC, who with Mr Wilson Chan, appears for the plaintiff, contends that a purchaser is entitled to proof of all matters which affect the title (Qualihold Investments Ltd v Bylax Investment Ltd [1991]2 HKC 589, 591G), including proof that there is risk of enforcement action with regard to the premises, so that they may not be "quietly enjoyed"; moreover that the purchaser was unaware of the breach of the Regulations notwithstanding due diligence on its part.

13. Although counsel's submissions appear to focus upon the time limit for requisitions, the propriety of the requisition was also a matter in contention, i.e. in the sense of whether if went to the root of title. It is convenient to begin first with this matter. As indicated, Mr Griffiths contended that any breach of the fire safety requirements of the Buildings Regulations could have consequences for quiet enjoyment, a matter affecting the title.

14. The authority commonly cited with respect to requisitions going to the root of title is the following passage from Emmett on Title (19th Ed.)...

To continue reading

Request your trial