Channel Green Ltd v Huge Grand Ltd

Court of Appeal
Civil Appeal No. 174 of 2013
Lam V-P, Kwan JA and Jeremy Poon J
Land Law
29 December 2014

Land law — title/sale of land — requisitions — whether, in light of express terms in sale and purchase agreement, purchaser barred from raising requisitions in respect of unauthorised alterations and additions and illegal structures — construction of relevant terms

P agreed to purchase a commercial property from V under a sale and purchase agreement dated 17 June 2011 (the “ASP”). Clause 30 of the ASP provided that the property was sold on an “as is” basis; P had inspected it and understood its existing state; and P could not raise any requisitions or refuse to complete or delay completion on the ground that there were any unauthorised additions, alterations or illegal structures. Clause 8(a) provided that the giving of title was subject to cl.30. P paid deposits totalling 15 percent of the purchase price (the “Deposit”). Completion did not take place as scheduled on 14 October 2011. V forfeited the Deposit, asserting that cl.30 operated as a bar to the requisitions raised by P concerning breaches of two special conditions of sale (the “SCs”) under the Government Lease, namely that contrary to SC7, car park spaces in the forecourt had become occupied by stalls; and some shops had extended into the areas required by SC8 not to be built over. P brought proceedings against V, claiming it had failed to answer its requisitions and show and/or give good title. The Recorder ruled in favour of V. P appealed, arguing that the Recorder erred in inter alia: (a) construing cl.30 as encompassing breaches of the SCs and the DMC, as P submitted that it applied only to title defects arising from a breach of the Buildings Ordinance (Cap.123) (the “BO”) (the “Construction Issue”); and (b) holding that the Deposit was not a penalty and so V was entitled to forfeit it (the “Forfeiture Issue”).

Held, dismissing the appeal, that:

  • On the Construction Issue, the requisitions were within the scope of cl.30 and V was entitled to rely on it. On its natural and ordinary meaning, cl.30 was not confined to breaches of the BO. “Illegal structure” meant any structure erected against the law whether in breach of the BO, the terms of the Government Lease or the DMC. “Unauthorised additions” or “unauthorised alterations” could include those in breach of the Government Lease or the DMC, irrespective of their status under the BO. Moreover, cl.30 was wide enough to encompass additions or alterations which did not involve the erection of a structure, such as the stalls-on-wheels.
  • The plain meaning of cl.30 was that it applied to any unauthorised physical state of the property irrespective of whether authorisation by the relevant authorities could have been obtained as a matter of law. As regards breaches of the BO, the Building Authority was not empowered to authorise any illegal structure.
  • Further, “unauthorised alterations” included alterations by way of converting car park spaces into stalls or common areas into part of a private unit. The substance of the requisitions, read in their proper context, was the same whether based on the presence of unauthorised additions, alterations or illegal structures or on the non-provision of car park spaces and conversion of common areas. There was no sound reason to confine the effect of cl.30 to one facet of the underlying source of the problems but not another.
  • Here, a reasonable person, taking into account the factual background, would have understood the parties to ascribe the ordinary and natural meaning to cl.30. There was no reason not to give effect to that language.
  • In any event, the Recorder was entitled to take account of P’s knowledge as evidence of the “genesis” and the “aim” of the transactions. The extent of V’s obligation to show and give a good title was defined by cl.30 and the Court could have regard to the objective fact that P was aware there were problems with the physical state of the property stemming not only from the BO.
  • P could not complain about the non-disclosure of serious defects in title by V. Before the provisional sale and purchase agreement was signed, V’s agent had informed P’s representative of the terms of the SCs; use of the forecourt contrary to SCs and other unauthorised structures; and provided copies of the Government Lease and the DMC. P’s case was not that V had in any way misled it as to the risk flowing from the SCs and the DMC nor that it was unaware of such risks.

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