Directions issued by Fire Services Department: effect on title

In E-Global Ltd v Trenda Ltd ([2013] HKEC 145, CFI) E and T entered into a provisional sale and purchase agreement under which E was to buy a commercial unit from T. The sale was of 75 / 32,426 shares in the relevant building (it was one of hundreds of other units in the building). The Fire Services Department had issued to the Incorporated Owners directions under the Fire Safety (Commercial Premises) Ordinance requiring a significant number of alterations in the building. These works had not been completed even by the date of the hearing but progress was being made and the Fire Services Department granted extensions of time when requested to do so. E argued that the directions meant that T did not have good title. It refused to sign the formal agreement. T made an offer to the effect that HK$50,000 should be retained to meet T’s share of the eventual cost of the works. It also offered an unlimited commitment to meet its share of the eventual cost. E rejected these offers outright.

E was in breach of contract and T was entitled to forfeit the deposit paid on the signing of the provisional sale and purchase agreement.

The directions did not constitute a blemish on the title:

‘[G]iven that the risk of enforcement measures being taken against the I.O. (because of the history of the matter and the nature of the works themselves) was minimal it seems to me that the duty on the vendor was limited to offering reasonable and adequate provision to meet the financial consequences of the eventual compliance with the Directions by the I.O.’ ([27] Deputy Judge Burrell)

E was entitled to reasonable assurance that T would bear its share of any cost. On the face of it, the offers made by T amounted to a reasonable attempt to meet E’s concerns. Although the offer to retain HK$50,000 was not adequately justified on its own (how was it calculated?) it had been buttressed by an unlimited commitment. If E thought that it needed further comfort (such as security for T’s open-ended commitment) then it should have asked for it rather than rejecting the offers out of hand.

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