Oct 4, 2023
Resources Leader Limited v. Ho Ngo Ying  HKCU 3318
Matthew represented a vendor defendant in an action brought by plaintiff purchaser in respect of a property. In this case, the parties entered into a Preliminary Agreement for sale and purchase of a property at HK$ 35 million. The plaintiff claims that the defendant had failed to show and to give good title to the property.
The plaintiff’s claim, in gist, consists of the following grounds:
(i) there is cockloft (with staircase accessing thereto) in the property which is an unauthorized building works (“UBW”);
(ii) there are building orders registered at the Land Registry against the property and a Letter of Withdrawal (withdrawing the building orders), as opposed to a letter of compliance, does not remove defect in the defendant’s title to the property, relying on the authority of Heung Sui Kei & Anr v Benefit Charter Ltd  3 HKC 543; requisition was raised in this matter but it was not satisfactorily answered;
(iii) there are other UBWs existed in the property which constitutes defect in the defendant’s title to the property; requisitions were raised but they were not satisfactorily answered.
The defendant’s case in summary is as follows:
(i) the requisition in respect of the cockloft is barred by virtue of a commonly known Cockloft Clause (買賣雙方知悉並同意該物業以現狀交易，買方知悉該物業內現有一自建閣樓，而該閣樓未經政府有關部門批核/批准興建。買方同意並接受不可以此為理由要求扣減樓價或拒絕交易。雙方同意簽訂本合約後至完成交易期間如該物業有任何維修或接到屋宇署發出的命令一概由賣方(業主)負責。)
(ii) The Letter of Withdrawal does not amount to any defect in title as the letter itself evidenced no risk of enforcement action by the authorities;
(iii) Requisitions in respect of other UBWs were raised out of time (less than 14 days before scheduled completion), relying on the authority of Goldmex Ltd v. Edward Wong Finance Co Ltd  2 HKLRD 795 where it was held that requisitions should be raised 14 days prior to the completion date;
(iv) Even if those UBWs can be established, the cost of removal would be minimal and good title could still be given should the requestions were not raised out of time.
The trial went through 5 days involving experts for the parties giving evidence in relation to the UBWs.
Ng J handed down decision on 4th August 2023 and his lordship dismissed the plaintiff’s claim.
In respect of the cockloft and the Cockloft Clause, the court accepted the defendant’s submissions that, by the Cockloft Clause, (i) the Plaintiff acknowledged that the cockloft was built without any approval from the relevant government department; and (ii) the Plaintiff had agreed and accepted that the same could not be used as an excuse not to complete the transaction. Thus, reference to the Cockloft Clause is a sufficient answer to requestion relating to the cockloft (at , -).
Regarding the requisition relating to the Letter of Withdrawal, the court viewed that, a proper reading of Heung Sui Kei will show the plaintiff’s reliance on it is unjustified since the circumstances of that case, as well as the issues argued there, are very different from the present case (at ).
Most importantly, the court held that ultimate consideration was, on the facts, whether there was such a risk of enforcement which could not be regarded as negligible and hence title could not be forced on an unwilling purchaser; risk should be a real one as opposed to a fanciful risk of enforcement action by the authorities (at -).
Following such principle, the court found that (at -):
(i) The letter itself does not concern chain of title, but merely whether there would be real risk of enforcement action from the authority;
(ii) Letter of Withdrawal did not threaten to take action in relation to UBWs named in the building order as such; it threatened prosecution action if “further unauthorised building works are carried out”; and
(iii) there was a time gap of almost 11 years between the Letter of Withdrawal and the Preliminary Agreement and there is no suggestion that in the meantime the authority has changed its mind and taken or threatened to take further enforcement action in relation to the UBWs named in the building order.
His lordship then went on and held that “…… this court does not consider it should be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in the matters requisitioned. In these circumstances, guided by reasonably robust common sense in light of the commercial or in this case administrative reality, this court is of the view that any perceived risk of enforcement action by the [authority] in relation to the [building order] would not be a real risk.” Requisitions in this regard has been satisfactorily answered. (at ).
Regarding the requisitions with respect to other UBWs, the court accepted that such requisitions were raised out of time and there was no explanation on such late requisition on UBWS (at -). The Court also ruled that the defendant did not waive any rights to challenge the requisitions which were raised out of time (at -).
Given the above, the court held the view that the defendant had sufficiently answered the requisitions which the plaintiff was reasonably entitled to raise within a reasonable time and has shown a good title to the property.
Further, the court also accepts that the UBWs (if established) could be removed and/or reinstated without difficulty and at no great expense. It was owing to the plaintiff’s extremely late requisition, in breach of an implied term of the Preliminary Agreement, that the defendant was unable to take remedial action about those alleged UBWs. In these circumstances, the court is of the view that the plaintiff should be precluded from taking advantage of its own wrong in asserting the right to rescind the Preliminary Agreement and not to complete, assuming the alleged UBWs were indeed UBWs which affect title to the property: Kensland Realty Ltd v. Whale View Investment Ltd (2001) 4 HKCFAR 381 (at -)
The full judgement is availabe here.
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