Ipsofactoj.com: International Cases [2002] Part 8 Case 14 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Flywin Co Ltd

- vs -

Strong & Associates Ltd

CHIEF JUSTICE LI

MR. JUSTICE BOKHARY PJ

MR. JUSTICE CHAN PJ

MR. JUSTICE RIBEIRO PJ

SIR ANTHONY MASON NPJ

7 MAY 2002


Judgment

Mr Justice Bokhary PJ

INTRODUCTION

  1. One of the questions in this case concerns the practice governing a party's ability to raise a new point on appeal. Another goes to what can constitute

    1. a purchaser's acceptance of a defective title to land despite a contractual entitlement to a good title and/or

    2. waiver of his right to object to the defect and/or

    3. his affirmation of the contract despite the defect.

    BACKGROUND

  2. The property concerned in this case are shop premises. They consist of the ground floor and cockloft at 53 Granville Road in Tsimshatsui. There was an existing tenancy due to expire on 9 July 1998. On 6 March 1997 Flywin Co. Ltd entered into a provisional agreement for sale and purchase with the then owner of the premises, Mark Glory Investment Ltd. By this agreement Mark Glory agreed to sell and Flywin agreed to purchase the premises subject to the existing tenancy. The price was $53.5 million. Completion was fixed for and eventually took place on 26 September 1997.

  3. Meanwhile, on 20 August 1997, Flywin entered into a provisional agreement to sell the premises on for a substantial profit. By this agreement Flywin agreed to sell and Strong & Associates Ltd agreed to purchase the premises subject to the existing tenancy. This time the price was $63.7 million. The terms of this agreement were later incorporated into a formal agreement dated 29 October 1997. These terms include a term (clause 3) that the premises were being sold "free from encumbrances" and a term (clause 11) that they were being sold "on an 'as is' basis".

  4. Nothing more need be said about Mark Glory. And from now on I will refer to Flywin as "the Vendor" and to Strong & Associates as "the Purchaser".

  5. The Purchaser paid the Vendor a total of $9.555 million by way of deposit and part-payment of the purchase price. Completion was to take place by 3 April 1998. But a dispute between the parties arose before that day arrived, and remained unresolved when it arrived. Completion did not take place. Instead there ensued the legal proceedings which have culminated in the appeal now before the Court. Before outlining the course of these proceedings, I will summarise the dispute which has resulted in them.

  6. The dispute was over an encumbrance constituted by unauthorised extensions to the premises. These unauthorised extensions were structural, and may be described as follows. An open area had been enclosed by slabbing at the mezzanine and ground floor levels. A canopy over the pavement had been enclosed so as to extend both the cockloft and the covered area of the ground floor shop. The level of what used to be an open yard had been adjusted so as to match the level of the internal ground floor. The shop front and fascia had been extended so as to encroach about 18 inches onto the pavement.

  7. As provisional agreements normally do, this one contemplated the signing of a formal agreement. On 1 September 1997 the Vendor's solicitors sent a draft formal agreement to the Purchaser's solicitors. Clauses 7, 9 and 10 of this draft were designed to exclude any right in the Purchaser to object to unauthorised extensions to the premises.

  8. 11 September was the day fixed by the provisional agreement for

    1. the signing of a formal agreement and

    2. payment of the second sum by way of deposit and part-payment of the purchase price. Such sum was duly paid. But 11 September passed without any formal agreement being signed.

    Instead the Purchaser's solicitors returned the draft formal agreement to the Vendor's solicitors with a number of proposed amendments, and suggested that the signing of the formal agreement be postponed to 15 September.

  9. On 13 September the Vendor's solicitors countered with other proposed amendments. These proposed amendments reflected the Vendor's stance that the Purchaser had inspected the premises and fully understood their state and condition, so that the Vendor was not to be taken as giving any warranty as to the state, condition or structure of the premises.

  10. Then on 18 September the Vendor's solicitors wrote again. After reiterating their client's stance set out in their letter of 13 September, the Vendor's solicitors continued thus in their letter of 18 September:

    Our client is given to understand that certain alteration works have been done to the property. However, she does not have the exact details of the alteration. We hereby give you formal notice that your client is allowed to rescind the Provisional Agreement within 7 days from the date hereof for the reason of the existence of the alteration works which may or may not be authorized by the relevant authorities. Your client may within such period employ an authorised person to check the approved plan and to rescind the Provisional Agreement should it be discovered that there is any unauthorised structure or alteration. In the event of our or our client not having received your notice for rescission within 7 days from the date hereof, your client shall be deemed to have agreed to purchase the above premises notwithstanding the existence of the alteration works and our Clauses 7, 9 and 10 should be retained in the Agreement for Sale and Purchase.

  11. Each party dealt with this matter through one of its directors, namely the Vendor's Madam Ho Ko John Hwa and the Purchaser's Mr Wong Hing Sun. It is obvious that it was to Madam Ho's understanding that the Vendor's solicitors were referring in their letter of 18 September.

  12. The Purchaser's solicitors replied on 19 September. They said that clauses 7, 9, and 10 would leave the Purchaser in a position less favourable than the one which it enjoyed under the provisional agreement. They rejected the Vendor's proposal. And they denied that any failure to respond to the Vendor's formal notice would mean that the Purchaser was agreeing to purchase the premises notwithstanding the existence of alteration works.

  13. Eventually, on 29 October, the parties signed a formal agreement. This formal agreement simply incorporated the terms of the provisional agreement which they had entered into on 20 August. It was silent on the matter of requisitions on title. And it contained nothing of the kind set out in clauses 7, 9 and 10 of the draft put forward by the Vendor's solicitors on 1 September.

  14. I come now to what happened in 1998. On 20 February an architect retained by the Purchaser inspected the premises. On 27 February he reported in writing on the unauthorised extensions which had been made to the premises. On 2 March the Purchaser's solicitors forwarded the architect's report to the Vendor's solicitors and raised requisitions on title by reference to the unauthorised extensions on which the architect had reported.

  15. The Vendor's solicitors replied on 7 March. They asserted that since the Purchaser had acknowledged in the provisional agreement that it had received a set of the approved building plans for the premises and were purchasing the premises on an "as is" basis, the Purchaser had agreed to purchase the premises notwithstanding the unauthorised extensions. They continued by putting forward an offer by the Vendor "to remove the extension portion at [the Vendor's] own cost in order to avoid any further argument upon the expiration of the existing tenancy". That tenancy, as I noted earlier, was due to expire on 9 July 1998.

  16. On 10 March the Purchaser's solicitors responded by saying that the removal of the unauthorised extensions would mean that the Purchaser would not receive the property which it had contracted to purchase. And on 13 March the Vendor's solicitors replied by saying that the Purchaser had known of the unauthorised extensions from the outset, and that it was too late for it to object to them.

  17. By now the date fixed for completion, 3 April, was drawing very close. On 28 March the Purchaser offered to extend the completion date from 3 April to 3 June in order for the Vendor to obtain the necessary approvals for the unauthorised extensions. But on 1 April the Vendor rejected this offer.

  18. On 3 April the Purchaser commenced legal proceedings against the Vendor. And on the following day, 4 April, the Vendor stated that the deposit totalling $9.555 million paid by the Purchaser had been forfeited.

  19. Originally, the main items of relief which the Purchaser claimed were

    1. specific performance,

    2. alternatively damages and

    3. the return of the $9.555 million with interest.

    But the claim for specific performance was later abandoned. The main items of relief counterclaimed by the Vendor were

    1. damages and

    2. a declaration that it was entitled to forfeit the $9.555 million.

    IN THE COURTS BELOW

  20. On 14 December 2000 the trial judge (Deputy Judge Muttrie) decided in favour of the Vendor. He declared that the Vendor was entitled to forfeiture of the $9.555 million, damages to be assessed and costs. On 9 October 2001 the Court of Appeal (Rogers VP, Le Pichon JA and Yuen J) allowed the Purchaser's appeal, holding that the Purchaser was entitled to repayment of the $9.555 million with interest, damages to be assessed and costs there and below. I turn now to the reasons which each of the courts below gave for deciding as it did: the trial judge in favour of the Vendor, and the Court of Appeal in favour of the Purchaser.

  21. The trial judge decided in favour of the Vendor on two discrete bases. Waiver is one. Estoppel is the other. As to waiver, the trial judge found that the Purchaser knew, before the formal agreement was signed, that there might be some unauthorised extensions to the premises which might constitute a defect in title on which it could raise a requisition. And he held that the Purchaser had, by signing the formal agreement in such knowledge, waived its right to raise any requisition or objection based on unauthorised extensions. As to estoppel, he held that the Purchaser was estopped from raising any such requisition or objection because it had, in his view, failed to do so within a reasonable time or, in other words, with due diligence.

  22. In allowing the Purchaser's appeal to it, the Court of Appeal (by a judgment which Le Pichon JA gave and with which Rogers VP and Yuen J agreed) held that there had been neither waiver nor estoppel. For the purpose of disposing of the present appeal, it is not necessary to rehearse the detailed reasons given by the Court of Appeal for so holding.

    WHAT EACH PARTY ASKED FOR IN THIS COURT

  23. The Vendor asked that this appeal be allowed, that the Court of Appeal's order be set aside, that the trial judge's judgment be restored, and that it be awarded its costs here and below. The Purchaser asked that this appeal be dismissed with costs.

    THE VENDOR'S ARGUMENT AS TO WHAT WAS BEING SOLD:

    "THE SUBJECT MATTER OF THE SALE" POINT

  24. In this Court, the Vendor sought to advance a point which I will call the "subject-matter of sale" point. After argument, the Chief Justice announced at the hearing that the Court unanimously ruled (for reasons to be given later) that this was a new point which was not open to the Vendor. To explain why the point is a new one not open to the Vendor, it is necessary to outline the point and the submissions by which the Vendor proposed to support it.

  25. When Mr John McDonnell QC (who appeared for the Vendor in this Court but had not appeared in either of the courts below) was invited to state the gist of the Vendor's primary point, he said that it was to be found in paragraph 31 of the Vendor's printed case. Subsequently he dictated to us a reformulation of that paragraph.

    As so reformulated, the paragraph reads:

    When there is a contract for sale which includes an implied obligation or an express obligation in general terms to convey free from encumbrances or to show and make a good title, but where there is an encumbrance or defect in title which was either known to the purchaser at the date of the contract or was so obvious that he must be taken to have known of it and which was of a kind which could not be removed by the Vendor without a third party's cooperation/agreement, we submit that the right approach to construction is to consider objectively what the parties as reasonable people intended to be the subject-matter of the sale.

  26. Continuing, the Vendor said that the first thing to identify is the subject-matter of the sale. So the first question is whether the premises were being sold:

    1. with the unauthorized extensions or

    2. without the unauthorized extensions (in other words, subject to an obligation to reinstate the premises before completion to the state shown in the approved building plans) or

    3. with the unauthorized extensions but on the basis that the Vendor would obtain authority for them before completion.

  27. The Vendor said that the premises were being sold in sense (a) i.e. with the unauthorised extensions. It conceded that in England (at least until the abolition in 1989 of the rule in Bain v Fothergill (1874) LR 7 HL 158) the conventional answer would have been in sense (b) or (c). Such an answer, the Vendor said, would have been based on the decision of the English Court of Appeal in Cato v Thompson (1882) 9 QBD 616 where, expressing a view shared by the other members of the court, Sir George Jessel MR said this at pp 619-620:

    [Where] there was no express contract as to a marketable title, there was only a presumption arising from the fact of sale, which was rebutted by actual knowledge .... [But it was otherwise where] it was known that it was improbable that the restrictive covenant could be got rid of, yet there is an express contract to make a marketable title. It comes to this, 'I know that there is a serious defect in your title, but I will buy if you can make it marketable'.

    In this connection, the Vendor also referred to Fry J's decision In re Gloag and Miller's Contract (1883) 23 Ch D 320.

  28. It can be seen, the Vendor said, that the questions under consideration in Cato v Thompson and In re Gloag and Miller's Contract were regarded by the respective courts as questions of contractual construction using the term "construction" to embrace both interpretation and implication.

  29. That the courts held as they did in Cato v Thompson and In re Gloag & Miller's Contract is, the Vendor said, accounted for by the parol evidence rule and the rule in Bain v Fothergill (the effect of which had been that where a vendor was incapable of completing his contract to sell land because it turned out that his title was defective, the purchaser's remedy against the vendor was confined to the return of his deposit with interest and the recovery of his conveyancing expenses).

  30. According to the Vendor, the only possible justification for the distinction drawn in Cato v Thompson and In Re Gloag & Miller's Contract between an express obligation to convey free from encumbrances and an implied obligation to do so would be the parol evidence rule. And, the Vendor said, the parol evidence rule has been much weakened by cases decided since the Victorian era. In particular, the Vendor relied on what Lord Hoffmann said in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at pp 912F-913E as to the principles by which contractual documents are nowadays construed.

  31. The Vendor said that on those principles laid down by Lord Hoffmann, the distinction drawn in Cato v Thompson and In re Gloag & Miller's Contract between express and implied obligations to convey free from encumbrances cannot be supported. Moreover, the Vendor stressed, the rule in Bain v Fothergill influenced the decisions in Cato v Thompson and In re Gloag & Miller's Contract, but (as the Court of Appeal held in Grand Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759) that rule does not apply in Hong Kong. A consequence of the absence of the protection which that rule gives to vendors is, the Vendor said, this. The absence of a rule enabling the vendor to call off the sale if the purchaser insists on a requisition or objection which it is impossible or impractical for the vendor to satisfy makes it even more difficult to construe a stipulation that a property is to be sold "free from encumbrances" as meaning that the vendor has to remove encumbrances which the parties knew at the date of the contract existed and were irremovable.

  32. The Vendor said that in a situation like the present one, the proper approach to construction was to consider objectively what the parties as reasonable people intended to be the subject-matter of the sale. Adopting that approach, a court ought, the Vendor said, to hold that the subject-matter of the sale was the property with such encumbrance or defect in title. Applying that to the view which it invited us to take of the factual circumstances of the present case, the Vendor said that the premises here in question were sold with the unauthorised extensions thereto.

    NOT A NEW POINT, THE VENDOR SAYS

  33. Mr McDonnell recognised that his point that the premises were sold with the unauthorised extensions is not addressed in the judgments of the courts below. And he anticipated in his printed case that it might therefore be suggested that the "subject-matter of sale" point is a new point. But he submitted that it is not really a new point. What had happened, he submitted, is that the point was disguised below by having the somewhat misleading label of "waiver" attached to it. Mr McDonnell pointed to this statement in "Megarry & Wade: The Law of Real Property", 6th ed. (2000) at p.697, para. 12-081:

    A purchaser under an open contract is held to have waived his right to object to an incumbrance if (i) he knew that it was irremovable, and (ii) despite this, he contracted to purchase the property or took some other step inconsistent with his right to terminate the contract, such as entering into possession or exercising some other right under the contract.

    [Emphasis supplied]

    That, Mr McDonnell said, is an example of the use of the term "waiver" to describe the effect of a purchaser's knowledge that the property which he is contracting to purchase is affected by an irremovable encumbrance.

  34. As to why he chose to articulate his client's case as he did, Mr McDonnell explained as follows. It is odd to describe a party as having waived a contractual right which he never acquired. Therefore he preferred to approach the question as one of identifying the property sold. That makes more sense legally than the proposition that agreeing to purchase the premises "as is" knowing of irremovable unauthorised extensions means waiving the right to object to such encumbrance.

  35. In substance, however, the point which the Vendor seeks to make in this Court is, Mr McDonnell submitted, the same as the one which it made both at first instance and in the Court of Appeal. It is in substance, he submitted, the point pleaded by the Vendor that the Purchaser had waived any right to object to the unauthorised extensions by entering into the provisional agreement knowing that those extensions were there.

    A NEW POINT WHICH CANNOT NOW BE RAISED

  36. Mr Michael Thomas SC (who appeared for the Purchaser in the Court of Appeal as well as in this Court although not at the trial) cited The Tasmania (1890) 15 App Cas 223 in which Lord Herschell said this (at p.225):

    My Lords, I think that a point such as this, not taken at the trial, and presented for the first time in the Court of Appeal, ought to be most jealously scrutinised. The conduct of a cause at the trial is governed by, and the questions asked of the witnesses are directed to, the points then suggested. And it is obvious that no care is exercised in the elucidation of facts not material to them.

    It appears to me that under these circumstances a Court of Appeal ought only to decide in favour of an appellant on a ground there put forward for the first time, if it be satisfied beyond doubt, first, that it has before it all the facts bearing upon the new contention, as completely as would have been the case if the controversy had arisen at the trial; and next, that no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity for explanation had been afforded them when in the witness box.

  37. Mr McDonnell submitted that what Lord Herschell said was confined to the circumstances of that case and how the Court of Appeal went about reversing the view of the facts taken by the trial judge sitting with nautical assessors. I am unable to accept that submission. What is involved is a general principle. Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.

  38. Clearly the foundational imperative of the "state of the evidence" bar, as I propose to call it, is fairness. Even where a new point is not barred on that basis, there is still a hurdle facing a party who seeks to raise in the final appellate court a point which was not pursued in the intermediate appellate court. As Chief Justice Li said in Wong Tak Yue v Kung Kwok Wai (1997-98) 1 HKCFAR 55 at p.66 E-G:

    The Court of Final Appeal as a court of final appeal should be very reluctant to consider an issue which was not duly raised and considered in the Court of Appeal. The circumstances must be very exceptional. The statement made by the Privy Council in Ahamath v Sariffa Umma [1931] AC 799, p.803 which it applied in Attorney General v Cheng Yick Chi [1983] 1 HKC 14 on an appeal from Hong Kong, is apposite:

    It must only be under very exceptional circumstances that an issue dropped in the intermediate Court of Appeal and for that reason not dealt with or referred to by that Court can be revived before this Board.

  39. This is especially so when entertaining the new point and accepting it would constitute a major development of the law. In such an exercise, it is to be expected that having the intermediate appellate court's view on the point of law involved would be of assistance to the final appellate court. Therefore where the question of a major development of the law is involved, the foundational consideration underlying the "not considered on intermediate appeal" hurdle, as I propose to call it, is that when the courts develop the law, it is best that they do so with all their intellectual resources fully deployed.

  40. I am unable to accept Mr McDonnell's argument that the "subject-matter of sale" point had been taken, whether in disguise or otherwise, at the trial. At the trial the Vendor won on waiver and estoppel. That was on the basis that the Purchaser had acquired a contractual right which it then waived or became estopped from insisting upon. The "subject-matter of sale" point involves the notion that the Purchaser had never acquired that contractual right in the first place. The two notions are wholly different. Even for that reason alone, the "subject-matter of sale" point is obviously a new point. Moreover, the point calls for a departure from Cato v Thompson and In re Gloag & Miller's Contract which have been followed for over a century. None of the points taken below made any call for such a development of the law.

  41. Mr McDonnell contended that the Vendor was raising the "subject-matter of sale" point as a response to the Purchaser's reliance in the Court of Appeal on clause 3 of the provisional agreement which expressly provides that the premises were sold free from encumbrances. Clause 3 was never mentioned at the trial. In the Court of Appeal, the only reference to clause 3 was the one made when Mr Thomas intervening in the course of the Vendor's then counsel's argument mentioned that the provisional agreement contained an express provision that the premises were sold free from encumbrances. As it happened, the Court of Appeal did not call upon Mr Thomas, and nothing more was said by either party or the Court of Appeal itself about clause 3.

  42. For two reasons, I am satisfied that the Vendor's decision to raise the "subject-matter of sale" point was not prompted by Mr Thomas's intervention in the Court of Appeal.

    • First, the notion that it was so prompted does not sit well with Mr McDonnell's contention that the point had been taken at the trial.

    • Secondly, the Vendor's then counsel had obviously come to the Court of Appeal armed with the point well-prepared.

    As we shall see, he raised the point but then abandoned it.

  43. On the question of whether the "state of the evidence" bar arises, the broad submissions made by Mr Thomas were along the following lines. The "subject-matter of sale" point involves construing the Vendor's obligation in regard to title under the provisional agreement in the light of the extrinsic evidence as to the surrounding circumstances and facts known to both parties. That means that such obligation would depend on each party's pre-contractual knowledge of the nature and extent of the extensions, whether they were authorised and whether authority for them could be obtained. Had the facts material to those matters been pleaded, there would have been an opportunity for them to be fully explored in evidence and for the trial judge to make full findings of fact on them. But the facts material to the "subject-matter of sale" point were not investigated at the trial stage as they could and would have been if the point had been taken at that stage. And as a result, the Purchaser would be unjustly hampered in meeting the "subject-matter of sale" point if it were to be entertained by this Court.

  44. The waiver and estoppel points did, it is true, lead to some investigation at the trial of what the Purchaser knew or ought to have known of the unauthorised extensions. But there is, in my view, at least a reasonable possibility that such knowledge would have been investigated more fully if the "subject-matter of sale" point had been taken at the trial. And there is, in my view, at least a reasonable possibility that such fuller investigation would have resulted in the relevant evidence being materially more favourable to the Purchaser. In my view, therefore, the "state of the evidence" bar operates to preclude the Vendor from now raising the "subject-matter of sale" point.

  45. Having said that, I would add this. In the Court of Appeal, the Vendor's then counsel did at one stage contend that his client's obligation under the provisional agreement was to give "a title subject to the alterations". But eventually he said that he would "forego" that contention. That, in my view, is abandonment. Even if the Vendor had not abandoned the point but had simply refrained from pressing it, the consequence would still be that the point which is one of wide implication was not considered by the Court of Appeal. That alone would raise the "not considered on appeal" hurdle as a high one. The fact of the Vendor having abandoned the point raises the hurdle even higher.

  46. That being so, it would be inappropriate to entertain the "subject-matter of sale" point even if all the evidence relevant to it lay before us. To entertain and accept the point would be to develop the law in a major way without the assistance of the intermediate appellate court's view on the matter. In such a situation, the "not considered on intermediate appeal" hurdle would arise as a particularly high one. And the abandonment of the point raises it higher still. It would take something very exceptional indeed to surmount such a hurdle raised so high. I see nothing of the sort in the circumstances of the present case.

  47. Since the Vendor has been precluded from relying on the new point, it is unnecessary to address the Purchaser's contention that the point is in any event unsound in law. It is likewise unnecessary to address the Purchaser's contention that the Vendor's reliance on the point must in any event fail on the facts.

    THE VENDOR'S ALTERNATIVE POINT:

    THE "ACCEPTANCE/WAIVER/AFFIRMATION" POINT

  48. In case the "subject-matter of sale" point were wrong or a new point not open to the Vendor, Mr McDonnell came here armed with an alternative point. Shortly stated, this alternative point is that the title was accepted and/or that the encumbrance or defect in title was waived and/or that the contract was affirmed by the Purchaser. I will call this the "acceptance/waiver/affirmation" point.

  49. It will be remembered that the trial judge took the view that waiver arose by reason of the Vendor's act of signing the formal agreement. Wisely Mr McDonnell expressly disavowed any reliance on that view. It will also be remembered that the trial judge also thought that an estoppel arose. Mr McDonnell again wisely expressly disavowed any reliance on estoppel. What Mr McDonnell did once we ruled that the "subject-matter of sale" point was a new one not open to the Vendor was to advance his alternative point.

  50. In advancing it, Mr McDonnell began by making these broad submissions. As part of its doctrine of specific performance, which gave rise to much of the law of vendor and purchaser, equity required objections to title to be promptly raised and was always ready to hold, where that had not been done, that title had been accepted and the objections waived. These equitable features of the law of specific performance are distinct from and independent of the common law doctrines of waiver and affirmation which are part of the ordinary and universal law of contract.

  51. Having made those broad submissions by way of introduction, Mr McDonnell turned to the circumstances of the present case as he invited us to view them. As we have seen, when the clauses to be included in a formal agreement were under discussion after the provisional agreement had been signed, the Purchaser refused to accept clauses to the effect that it had agreed to purchase the premises with full notice of the unauthorised extensions and was not entitled to object to them. And, as we have also seen, the Vendor offered the Purchaser an opportunity to rescind, but that was not accepted either. Therefore, Mr McDonnell said, the Purchaser was attempting to have the best of both worlds in a rising market.

  52. Next, Mr McDonnell turned to two matters on which he placed heavy reliance. One is the trial judge's finding that the Purchaser must have known from the outset of the unauthorised extensions. The other is that despite the unusually long interval between contract and completion, it was not until four weeks before the completion date and after the collapse of the property market that the Purchaser raised requisitions on the unauthorised extensions. On those matters, Mr McDonnell submitted as follows. By not objecting to the unauthorised extensions for the next 6 1/2 months or until the property market had begun to collapse, the Purchaser waived any right to object to them, affirmed the contract and accepted the Vendor's title.

  53. Mr McDonnell said that in traditional English conveyancing under an open contract any act required to be done by either party in order to carry out the contract, such as the statement of the requisitions on or objections to the title, or the acceptance of the title, had to be done within what was, in all the circumstances of the case, a reasonable time. Upon that foundation, Mr McDonnell turned to the position in Hong Kong. He cited the Court of Appeal's decision in Chan Chik-sum v Great Pearl Industries Ltd [1997] 1 HKC 27 for the proposition that requisitions on title must be raised within a reasonable time before the completion date or else they would be treated as waived and the title as accepted.

  54. As to the facts, Mr McDonnell submitted as follows. The Purchaser is condemned by its own solicitors' letter of 28 March 1998. By that letter, written less than a week before the completion date, the Purchaser demanded that the Vendor should obtain approval for the unauthorised extensions and proposed that the completion date should be extended by two months for that purpose. If (as that proposal implies) two months was a reasonable period to allow for obtaining such approval, the Purchaser should have made that requisition at least two months before the completion date under the contract. This is so for three reasons.

    • First, as the trial judge found, the Purchaser must have known of the unauthorised extensions since before the provisional agreement of 20 August 1997.

    • Secondly, the Purchaser was legally advised from at least 21 August 1997 (when its solicitors first wrote).

    • Thirdly, the Purchaser would have been allowed to inspect the premises if it had asked for an inspection at any time after completion of the Vendor's own purchase on 26 September 1997.

  55. As to the law on acceptance, waiver and affirmation, Mr McDonnell said that he had no quarrel with the way in which the Court of Appeal articulated the same. Where the Court of Appeal went wrong, he submitted, was either in unjustifiably reversing, or in failing to understand, the trial judge's findings as to the Purchaser's pre-contractual knowledge of the unauthorised extensions.

    NO ACCEPTANCE, WAIVER OR AFFIRMATION

  56. The Purchaser's printed case contains an attack upon those findings, but we did not require Mr Thomas to develop that attack. As we have seen, the Purchaser rejected the Vendor's attempt to introduce into the formal agreement clauses which would have precluded any objection to the unauthorised extensions. As we have also seen, very shortly after its architect's report on the unauthorised extensions and a month before the completion date, the Purchaser raised requisitions on title by reference to the unauthorised extensions on which the architect had reported. I see no basis for saying that those requisitions came too late. As for the Purchaser's offer to extend the completion date by two months for the Vendor to seek authorisation for the extensions, it is plain that this offer did not involve waiving the right to object to the unauthorised extensions. On the contrary, the offer was predicated on the premise that extensions which were unauthorised were objectionable unless and until authorisation for them were obtained.

  57. The legal concepts of acceptance, waiver and affirmation have their particular qualities and incidents. But such concepts are not wholly divorced from the ordinary understanding of the words "accept", "waive" and "affirm". I find nothing in the circumstances of this case which would entitle one to conclude that the Purchaser had in any sense or at any stage

    1. accepted an encumbered title,

    2. waived its right to object to encumbrances or

    3. affirmed any contract for an encumbered title.

    The "acceptance/waiver/affirmation" point must therefore fail.

    CONCLUSION

  58. For the foregoing reasons, I was a party to the Court's unanimous decision, announced by the Chief Justice at the conclusion of the hearing, dismissing this appeal with costs.

    Mr Justice Chan PJ

  59. I agree with the judgment of Mr Justice Bokhary PJ.

    Mr Justice Ribeiro PJ

  60. I agree with the judgment of Mr Justice Bokhary PJ.

    Sir Anthony Mason NPJ

  61. I agree with the judgment of Mr Justice Bokhary PJ.

    Chief Justice Li

  62. I agree with the judgment of Mr Justice Bokhary PJ.

  63. The Court's reasons for not allowing the Vendor to raise the "subject-matter of sale" point and for dismissing the Vendor's appeal with costs at the hearing are set out in the judgment of Mr Justice Bokhary PJ.


Cases

Bain v Fothergill (1874) LR 7 HL 158; Cato v Thompson (1882) 9 QBD 616; In re Gloag and Miller's Contract (1883) 23 Ch D 320; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896; Grand Trade Development Ltd v Bonance International Ltd [2001] 2 HKLRD 759; The Tasmania (1890) 15 App Cas 223; Wong Tak Yue v Kung Kwok Wai (1997-98) 1 HKCFAR 55; Chan Chik-sum v Great Pearl Industries Ltd [1997] 1 HKC 27

Authors and other references

Megarry & Wade: The Law of Real Property, 6th ed. (2000)

Representations

Mr John McDonnell QC and Mr Patrick Fung SC (instructed by Messrs Baker & McKenzie) for the appellant vendor

Mr Michael Thomas SC and Mr Godfrey Lam (instructed by Messrs Kok & Ha) for the respondent purchaser


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