ULTRA ETERNAL LTD. v. LIU TAI CHEONG

1996, No.MP 1188

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. By an Agreement for Sale and Purchase dated 2 February 1996, the Plaintiff agreed to purchase and the Defendant agreed to sell Shop A, Ground Floor and Cockloft, No.100 Woosung Street, Kowloon ("the Property") for the purchase price of $3 million. A deposit of $200,000 had been paid before execution of the agreement, and a further deposit of $300,000 was paid upon execution of the same. Completion was to take place between 9:30 a.m. and 10:00 a.m. on 21 March 1996. The Plaintiff was selling as 2nd confirmor under a Head Agreement and a Sub-Sale Agreement both dated 22 January 1996. Requisitions were served upon the Defendant by the Plaintiff before completion. It was the Plaintiff's case that two of the requisitions were not satisfactorily answered, and the Defendant had failed to show a good title to the Property. On the other hand, the Defendant alleged the Plaintiff was in breach of the agreement by failing to complete, and such repudiation had been accepted. Consequently, the $500,000 deposit was forfeited by the Defendant. The Plaintiff's demand for refund of the deposit was rejected, and, hence a vendor and purchaser summons was taken out by the Plaintiff seeking, inter alia, various declarations and for the refund of the said deposit.

2. In defence, the Defendant submitted that one of the requisitions was made out of time; and, in any event, all requisitions had been satisfactorily answered. It was the case of the Defendant that good title had been shown, and could be assigned to the Plaintiff at completion.

Terms of the Agreement

3. Time was made of the essence of the agreement by Clause 8 thereof. By Clause 13, the Defendant agreed to give and prove good title to the Property in accordance with s.13 of the Conveyancing and Property Ordinance, Cap.219.

4. Clause 15 regulated the delivery and answer of requisitions in the following manner :

5. Consequences of a failure to comply with the agreement were provided in Clauses 20 and 21 in the following terms :

6. By Clause 25, the Conveyancing and Property Ordinance was incorporated into the agreement in so far as it would not be inconsistent with the provisions therein.

The Facts

7. It is not disputed that documents of title to the Property were delivered to the Plaintiff's solicitors, Messrs Tang and Lee on 30 January 1996. Before execution of the agreement, the Plaintiff's solicitors delivered the first requisitions by letter dated 1 February 1996. These were not answered by the Defendant's solicitors and a reminder was sent on 8th March 1996. The requisitions were answered by the Defendant's solicitors by letter dated 18 March 1996, three days before completion date. The Plaintiff's solicitors replied by letter dated 19 March 1996 indicating their dissatisfaction with one of the answers, as well as raising yet another requisition. The Defendant's solicitors further answered the requisitions by letter dated 20 March 1996. This was responded to by the Plaintiff's solicitors by letter dated the same date. The following day, 21 March 1996, the sale and purchase was not completed as agreed and by letter of the same date the Defendant notified the Plaintiff of the forfeiture of the said deposit.

The Issues

8. It was the Plaintiff's case that one of the requisitions raised in the letter of 1 February 1996 had not been satisfactorily answered. This requisition ("the First Requisition") queried the power of sale of an executor who had purported to sell the Property as executor of an estate when the will devised the Property as a specific gift to two brothers. It was common ground that the Defendant could not provide evidence of any consent from the said brothers to sell the Property.

9. The other requisition in issue was the late requisition raised in the letter of 19 March 1996, two days before completion ("the Second Requisition"). In this requisition the Plaintiff queried a possible encumbrance over the Property arising from a demolition order made by the Building Authority on 12 June 1992 against the cockloft of the Property for failure to obtain approval before construction. The demolition order was suspended by the Building Authority pursuant to a letter dated 26 May 1993.

10. As against the Second Requisition, the Defendant submitted the encumbrance if substantiated would have been waived by the Plaintiff pursuant to Clause 15 of the agreement, the same having been made out of time.

The First Requisition

11. It was common ground that one San Jose Limited ("SJL"), a predecessor-in-title of the Property, acquired the building of which the Property formed part thereof ("the Building") from one Chan Jook Lam ("the Executor") who was the surviving executor of the will of one Dan Charn Ping, deceased ("the Deceased"). The Executor was the third son of the Deceased and the other executrix was his mother. The will of the Deceased dated 22 July 1959 ("the Will") purported to dispose of two properties of the Deceased. A property in Yee Wo Street was devised to the Executor solely. The second property, the Building, was devised to the other two sons of the Deceased, namely, Chan Chock Ching and Chan Chock Bun ( Che Brothers") in tenancy-in-common. Both devised properties were to be held on trust by the trustees subject to the life interest of the mother. There was no residuary estate mentioned in the Will. No power of sale was conferred by the Will. The Deceased died on 14 April 1967 and his wife died almost 10 years later on 24 August 1976.

Probate was thus granted to the Executor as the sole surviving executor and trustee on 5 March 1979. By an Assignment dated 15 October 1986, the Building was sold by the Executor to SJL "as such surviving Executor" allegedly "for the purpose and in the course of administering the estate of the Deceased". The Defendant was not able to provide any evidence of consent from the Brothers to the Executor's sale of the said building to SJL.

12. The Plaintiff submitted a doubt on title arose from the lack of power of sale by the Executor absent consent from the Brothers. The Will made a specific gift of the Building to the Brothers subject only to the mother's life interest, and without giving any power of sale to the Executor. Both properties were free from the life interest upon death of the mother in 1976. Thereafter the trustees were instructed to "hand over" the properties to the beneficiaries. It was therefore submitted the Executor had no lawful right to sell the Building without the consent of the Brothers. The absence of evidence of any consent from the Brothers would render the title of the Defendant defective.

13. The Defendant submitted there is a presumption in law that until the contrary is proved, an executor selling part of the estate is to be deemed to be selling in due performance of his duty as executor; and a purchaser could be compelled to accept such title. However, that was not the answer given by the Defendant's solicitors in reply to the First Requisition. In the letter of 18 March 1996, the Defendant's solicitors answered in the following terms :

14. Instead of a rebuttable presumption of law, reliance was placed upon an alleged "absolute right" to sell as surviving executor and trustee. At the hearing of this originating summons, Mr Cheung very properly no longer sought to rely on any alleged absolute right as suggested by the Defendant's solicitors.

15. In reply to the Defendant's solicitors' alleged absolute right, the Plaintiff's solicitors alleged breach of trust and the constructive trusteeship arising thereunder. In response, the Defendant's solicitors elaborated on the alleged absolute right by saying :

16. Again, none of the principles of law alleged in the Defendant's solicitors' said letter was relied upon by Mr Cheung. By so doing, Mr Cheung effectively conceded the answers provided by the Defendant's solicitors were not satisfactory answers to the First Requisition at all. I am of the view that Mr Cheung had rightly made the concession. There could certainly be no such absolute right for an executor and trustee to dispose of the estate as alleged by the Defendant's solicitors. Section 54(4) conferred no such right at all. All powers of an executor, be it statutory or under the will, could only be exercised by him in accordance with law and for the proper administration of the estate. There can be no question of an absolute right to an executor to do whatever he likes to the estate. "Executors, no doubt can sell virtute officii, but that must be with a view to performing their officium." (See : In re Molyneux & White 15 L.R.Ir. 383 at 386.) In any event, the statutory power under s.54(4) was expressly made subject to restrictions in the will. The Will clearly instructed the Executor to "hand over to (the Brothers) the Building", i.e. that the Executor was to hold the Property on trust to be assigned to the Brothers. There could not be any clearer restriction upon a disposal by the Executor "as he thinks proper".

17. Mr Cheung submitted that we do not live in a perfect world and the Defendant's solicitors should be forgiven in using imprecise terms in answering the First Requisition. I cannot accept that to be an excuse to a failure to answer satisfactorily and adequately requisitions properly raised by the purchaser.

18. The real defence submitted by Mr Cheung was that the requisition was not properly raised in view of the presumption of law upon which he relied. Heavy reliance was placed on the case of In re Venn [1894] 2 Ch 101 which held that "where a person who fills the position of an executor is found selling or mortgaging part of his testator's estate, he is to be presumed to be acting in the discharge of the duties imposed on him as executor, unless there is something in the transaction which shows the contrary; and further, that the contrary is not made out merely from the circumstance that the conveyance or mortgage does not purport to be executed by him in that capacity." (See judgment of Stirling J. at 114). It was also argued in that case that due to the lapse of time, it could not be assumed that the disposition by the executor was to pay off debts of the estate. It was held that the lapse of time would also not be sufficient to show the contrary. In the premises, it was held the abstract had shown a good title and the purchasers could not insist upon their requisition. This authority had been cited by various authors as having laid down a presumption in law of due discharge of an executor's duty.

19. However, it must be noted that in that case, no will was ever abstracted. In the premises, it was unknown to the court what powers and duties were imposed by the will. It was also unknown to the court if the will contained any restriction upon disposition of any part of the estate. Nothing was known about the contents of the will. In the present case, the Will clearly contained restriction against any discretion to sell the Building. Furthermore, the Schedule of Property for estate duty purpose revealed no outstanding debts against the estate. An amount of $2,000 was claimed to be deductible from the net value of the estate, which sum could be off-set by the cash and value of personal effects of the Deceased listed therein. The net value of the estate exceeded that of the total value of the two properties devised by the Will. In the premises, there is evidence of the absence of any debt against the estate requiring sale of any of the two devised properties. Estate duty was said by the Schedule dated 25 June 1973 to have been paid. There could, therefore, be no suggestion that the Building was sold in 1986 to pay off estate duty.

20. It was beyond peradventure the contrary had been amply shown in the present case; that there could be no justification to suggest it was in the due discharge of his duty as executor that the Building was sold to discharge outstanding debts against the estate. Mr Cheung had not suggested there could be any other testamentary duty to be performed by the Executor requiring a sale of the Building. No other grounds giving rise to a lawful power of sale, entitling the Executor to sell the Building without the consent of the Brothers, was relied upon by the Defendant. Fifteen years had not lapsed under s.13(4) since the 1986 assignment by the Executor to enable the Defendant to rely upon any statement in that assignment as sufficient proof of the truth of that statement. In any event, the statutory protection is not irrebuttable, and can be of no use if the contrary is proved. The contrary had been proved by the contents of the Will and the probate documents containing the Estate Duty Schedule. In the premises, the Executor could only have lawfully sold the Building if the Brothers consented to such sale.

21. For reasons given supra, the First Requisition was properly and validly raised by the Plaintiff. The Defendant having failed to answer the same satisfactorily or sufficiently, nor within a reasonable time, had failed to show a good title to the Property.

The Second Requisition

22. Admittedly, the Second Requisition was made only two days before completion, and was thus made out of time. In their letter of 20 March 1996, the Defendant's solicitors pointed out the Second Requisition was not made within 7 days after receipt of title deeds and any objection to title thereunder would have, pursuant to Clause 15(1), deemed to be waived and title in that respect accepted. However, they then went on to give a purported answer "as a matter of courtesy". They further concluded by saying "A ll your requisitions have been satisfactorily answered. Kindly let us have your draft Assignment for our approval the soonest the possible" (emphasis added). Such statements might fairly mislead the reader to believe that the writer had waived the non-compliance with time restrictions under Clause 15(1). This was apparently the case with the Plaintiff when its solicitors continued to argue the Second Requisition with the Defendant's solicitors in their reply letter of the same date. In view of the Plaintiff's success on the First Requisition, it was not necessary for me to decide the Second Requisition. However, if necessary, I would have held that the Defendant's solicitors had waived the non-compliance with time restriction for raising the Second Requisition. It is advisable that solicitors should avoid answering out-of-time requisition "as a matter of courtesy". Any reply to such invalid requisitions, if not accepted as a properly raised requisition, should only be "answered" subject to very clear statement that such answer was to be wholly without prejudice to the rejection of such requisition on ground of lateness. Such a warning can also be found in Emmet on Title, 19th ed., para.5080.

23. The Plaintiff further submitted that a condition limiting time will not preclude the purchaser from making a requisition of this nature after time has expired. Reliance was placed on a statement to the same effect in the aforesaid paragraph of Emmet on Title. In GiantRiver Ltd v. Asie Marketing Ltd [1986-88] CPR 543, the English principle was applied to Hong Kong. The justification for relaxation of time for raising requisitions relating to root of title can be readily understood. However, I am not satisfied that the Second Requisition related to a matter going to the root of title. The Second Requisition concerned only a possible encumbrance on the Property and no more.

24. By the order dated 12 June 1996, registered in the Land Registry by Memorial No.5492765, the Building Authority required the demolition of the cockloft, to remove a door opening into the staircase from the cockloft and to reinstate the affected walls in accordance with the approved building plans. By a letter dated 26 May 1993, registered by Memorial No.5753979, one Mr Woods of the Building Authority stated :

25. The Plaintiff alleged in the Second Requisition that the unauthorised structures were illegal and liable to enforcement actions at any time should the Building Authority see fit. It was alleged such a risk rendered the title of the Defendant bad. In answer, the Defendant said "Order Memorial No.54927656 is being withdrawn by Letter Memorial No.5753979 and there is no new order issued in the said Property." It was not wholly accurate for the Defendant's solicitors to allege that the demolition order had been "withdrawn". The Building Authority only indicated a withholding from further enforcement. The promise was qualified by a statement that new order for complete removal of all unauthorised structure will be issued should changes in circumstances required. As the basis for withholding was that modification work had been carried out to the satisfaction of the Building Authority, and the indication that a new order would be required for further action, such withholding was as good as a withdrawal. I am satisfied that any risk of further enforcement without a new order being issued by the Building Authority would be negligible. In the premise, in answering that no new order had been issued, the Defendant had sufficiently dealt with the Second Requisition.

26. For reasons given supra, I have concluded the Defendant had failed to show a good title. In the premises, declarations were made that the First Requisition was not sufficiently answered by the Defendant, that the Plaintiff was not precluded by Clause 15(1) from delivering the Second Requisition and that a good title to the Property had not been shown by the Defendant. Orders for the refund of the deposit of $500,000 with interest at the judgment rate and payment of costs of investigating title to the Property were also made against the Defendant. Costs of the proceedings were also ordered against the Defendant.