TANG WING LAM DAVID AND ANOTHER v. CHUNG CHI KEUNG FREDERICK

MP 2766/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2766 OF 1998

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J U D G M E N T

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1. This is a vendor and purchaser summons involving a flat in a development known as Hongkong Garden at 100 Castle Peak Road, Tsing Lung Tau. The development consists of 28 multi-storey residential blocks containing some 2,830 units. The flat itself is in Block 12 which contains 22 storeys with 6 flats on each storey. There was concern on the part of the Plaintiff purchasers that the development might be liable to re-entry or other sanction on the part of the Government for breach of condition of grant by the developer.

2. On 1st April 1998, the parties entered a provisional sale and purchase agreement at a price of HK$2.4m. A deposit of $20,000.00 was paid. Completion was to be on or before 29th May 1998. On 17th April, the Defendant's solicitors sent the title deeds and documents to the Plaintiffs' solicitors. On 21st April, a formal sale and purchase agreement was signed and a further deposit of $150,000.00 was paid.

3. Clause 6 of the formal agreement contained the common provision that "requisitions or objections in respect of the title shall be delivered in writing to the vendor's solicitors within 7 working days after the receipt (of) the title deeds by the purchaser's solicitors ..."

4. Clause 10(a) provided

5. Clause 11 provided that time should be of the essence.

6. Clause 26(a) contained confirmation by the Defendant that there were no third party claims to the flat. The clause then continued

7. The title deeds began with New Grant No.5712 Tsing Lung Tau Lot No. 60 dated 12th July 1979 in favour of Tsing Lung Investment Company Limited. General Condition 5 of the New Grant provided

8. General Condition 6 then provided for the Crown's right of re-entry.

9. Special Condition 6 prohibited the grantee from assigning, letting, mortgaging or otherwise dealing with the lot except with the prior written consent of the Registrar General (Land Officer) until all the grantee's obligations under the new grant had been fulfilled. Special Condition 12 required the grantee to submit a master layout plan to the Secretary for New Territories (the Secretary) within 6 months of the new grant and upon approval by the Secretary to register the plan by memorial.

10. Special Condition 21(a) required all buildings on the lot to comply with the Buildings Ordinance while (b), among other things, provided that "except with the special consent of the Secretary for the New Territories, no building shall exceed 12 storeys in height and neither shall the height of any building on any part of the lot exceed the height of the lowest point of the adjacent section of the Tuen Mun Road ..."

11. Special Condition 39(a) required a site to be provided within the lot for a primary school and (b) provided that "the grantee shall upon demand, and in any event not later than 3 years from the date hereof, form and surrender to Government" the primary school site.

12. On 22nd April 1998, the Plaintiffs' solicitors wrote to the Defendant's solicitors with a number of requisitions. They asked for proof that the covenant contained in Special Condition 21(b) relating to building height had not been breached and that consent of the Secretary had been granted. They also asked for evidence that the General and Special Conditions contained in the new grant had been complied with, in particular, the provision of a site for a primary school pursuant to clause 39(a). Although this was all part of one requisition, the two components came to be dealt with separately. I shall refer to them as the height and school requisitions respectively. The height requisition was buttressed by a further enquiry seeking clarification of the discrepancy between the height restriction and the occupation permit which provided for 22 floors.

13. The Plaintiffs' solicitors also asked for a certified copy of a power of attorney which had been registered under a particular memorial number.

14. No response having been received from the Defendant's solicitors, on 11th May the Plaintiffs' solicitors sent a reminder about the requisitions and reserved their right to have 7 working days to peruse documents which they had sought and to raise requisitions.

15. On 20th May, the Defendant's solicitors replied. As to the height requisition, they said that in view of the occupation permit which had been issued on 5th January 1988, the Government's consent and approval must have been obtained. Further, the building had been erected for more than 9 years and no enforcement action had been taken by the Government. Therefore, the Government was deemed to have given its acquiescence and was estopped from instituting any re-entry action in future.

16. As to the school requisition, the Defendant's solicitors said that there was no requirement that the Condition should be fulfilled before any assignment, so there was no duty to prove compliance. They also said they were sending a number of documents which the Plaintiffs' solicitors had asked for including the power of attorney. In fact, the power of attorney was not included.

17. What the Defendant's solicitors did not mention was that, on 2nd May, they had written to the relevant District Lands Office to enquire whether the Secretary had given his consent to the height restriction being exceeded.

18. The Plaintiffs' solicitors were less than impressed by the answer to their requisitions. On 21st May, they replied. In relation to the height requisition, they noted that there was no proof that the height covenant had not been breached or that the consent of the Secretary had been granted. They took the view that acquiescence and estoppel did not arise and, for failure to comply with the height restriction, the grant was liable to be forfeited and re-entered by Government. They emphasized that it was for the Defendant to prove that the height covenant had not been broken or that the consent of the Secretary had been granted.

19. As to the school requisition, the Plaintiffs' solicitors pointed out that the grantee developer was obliged to surrender a site for the school not later than 3 years from the date of the grant, failing which the grant was liable to be forfeited and re-entered. They asked for evidence that the condition had been complied with.

20. Finally, they pointed out that the copy power of attorney had not been enclosed with other documents. As to this, they again reserved their right to have 7 working days to read the documents and raise requisitions upon it.

21. The Defendant's solicitors then supplied details of the financial arrangements for completion on 29th May. On 25th May, the Plaintiffs' solicitors reminded the Defendant's solicitors that they required satisfactory replies to prove good title within a reasonable time and in any event on or before 27th May. Again, they reserved their rights to have reasonable time to peruse requested documents and raise requisitions. They emphasised, however, that they were not waiving their right to 7 working days for this purpose.

22. The Defendant's solicitors replied to the earlier letter of 21st May on 26th May, although the letter and its contents were not received until the following day, 27th May. They enclosed a certified copy of the master layout plan of Lot No.60 and a copy of a letter from the District Lands Office dated 12th May 1987. They made no comment upon these documents in relation either to the height or the school requisitions. They also sent a copy of the power of attorney which the Plaintiffs are prepared to accept was properly certified.

23. The master layout plan was not, in my view, difficult to understand. It shows two things. First, that Block 12, as well as other blocks, were of 22 storeys. Second, a site had been designated for the school. The letter from the District Lands Office confirmed that the layout plan had been approved.

24. The Plaintiffs' solicitors were again not impressed. On the same day, they replied to the Defendant's solicitors saying that the documents which had been produced did not answer their enquiries about the height and school requisitions. As to the power of attorney, they reserved their right to have reasonable time to read the document and raise requisitions. Again, they did not waive their right to 7 working days.

25. The Defendant's solicitors replied the same day, 28th May, although their letter was wrongly dated 29th May. As to the height and school requisitions, they pointed out that the layout plan was duly approved and signed by the competent Government department so there should be no difficulty in concluding that Block 11 consisted of 22 Floors. Further, the layout plan made it obvious that a site had been reserved for school purposes. The solicitors suggested that a site visit would verify the position. (The plaintiffs did visit and found an unformed area on a slope).

26. The Defendant's solicitors also enclosed a copy of a letter dated 22nd May from the District Lands Office replying to their own letter of 2nd May. This letter confirmed that the Secretary had given the necessary consent.

27. In relation to the power of attorney, the Defendant's solicitors did not accept that reasonable time necessarily meant 7 working days. They doubted if 7 days would be needed to read a standard power of attorney and thought 3 working days to be not unreasonable. The document having been provided on 26th May, they looked forward to completion.

28. The Plaintiffs' solicitors replied the same day, 28th May. They took the view that the height and school requisitions had not been answered by the provision of the layout plan, particularly when it had been supplied without any explanation. They considered no attempt had been made to answer the requisitions. In the meantime, they asked for certified copies of the Defendant's letter of 2nd May and the District Lands Office's letter of 22nd May.

29. The solicitors further asked for evidence that the school site had actually been formed and surrendered to Government within 3 years from the date of the grant.

30. As to the power of attorney, the Plaintiffs' solicitors referred to clause 6 of the agreement stating that they had 7 working days within which to raise requisitions in relation to that document.

31. Finally, the solicitors recorded that requisitions were raised on 22nd April but remained unanswer for 29 days until a first attempt to answer was made on 20th May. They took the view that that period was unreasonable; while the 2nd attempt to deal with the requisitions, although sent by fax, did not arrive with the additional deeds until 27th May. They said that the requisitions had not been answered within a reasonable time or sufficiently.

32. On 29th May, the date scheduled for completion, the Defendant's solicitors wrote to say they thought the requisition had been sufficiently answered. As a matter of courtesy, they supplied a certified copy of the letters dated 2nd and 22nd May. They also referred to two authorities: Attorney General of Hong Kong v. Fairfax Ltd. (1997) HKLRD 243 in support of their contention of acquiescence; and Active Keen Industries Ltd. v. Fok Chi Keong (1994) 1 HKLR 396 concerning the duty to answer requisitions.

33. As to the power of attorney, the Defendant's solicitors said that, without prejudice, they were taking instructions about extending the completion date.

34. At about 3:59 p.m. the same day, the Plaintiffs' solicitors by fax advised the Defendant's solicitors that the requisitions had not been satisfactorily answered and that good title had not been proved. The Defendant's solicitors replied at about 4:45 p.m. insisting that the requisitions had been satisfactorily answered and seeking completion by 5:00 p.m. The Plaintiffs' solicitors not having completed, at 5:35 p.m. the Defendant's solicitors advised them that the sale was terminated and the deposit forfeited. The Plaintiffs'solicitors replied about 20 minutes later repeating that the requisitions had not been satisfactorily answered and demanding refund of the deposit. The deposit not having been refunded, the Plaintiff's commenced these proceedings.

35. It will be helpful first to consider what Litton, J.A. said about requisitions in the Active Keen. At page 405, he said that, although in the case before him there was no contractual requirement

36. At page 406, Litton, J.A. said

37. Finally, at page 413, Litton J.A. said

38. With these remarks and a careful reading of the whole decision in mind, I come to the conclusion that answers such as estoppal acquiescence, waiver or abandonment are very much answers of last resort. A vendor, faced with proper requisitions, must take all reasonable steps and make all proper and reasonable enquiries to enable him to answer the requisitions. If the vendor can then produce the complete answer, well and good. If having taken all such steps, however, the vendor is unable to provide the complete answer, he can then legitimately say to the purchaser: "on the basis of all the information and documents which I now make available, I invite you to infer as I do that there is no risk of another party bringing a successful action against you". From the outset, it is vital that the vendor or his solicitors should explain to the purchaser or his solicitors what he is endeavouring to do.

39. Translating those views to the present case, the vendor's solicitors' reliance upon acquiescence or estoppel in their letter of 20th May was wholly inadequate. They were asserting from the first that upon which they would have to rely if they failed to receive a satisfactory answer from the District Lands Office. Further, they failed to explain to the purchasers' solicitors that they were endeavouring to obtain proper confirmation of the Secretary's consent. In my judgment, that lacked the candour called for by Litton, J.A. As a result, the Plaintiff's solicitors were wrong footed and were obliged to raise further requisitions, which would eventually become redundant, and put in the position of having to advise their clients about what turned out to be misplaced fears of Government action.

40. It is fair to say that Mr. Yeung, who appeared for the Defendant, acknowledged that the replies to the height and school requisitions contained in the solicitor's letter of 20th May were not satisfactory. He contended, however, that with the documents supplied on 27th May, satisfactory answers had been given.

41. By 27th May, the purchasers' solicitors had the occupation permit, the master layout plan and a letter from the District Lands Officer, albeit uncertified, confirming the plan had been approved. They also knew the flat and the development had been in existence for 9 years. In my judgment, even without explanation from the Defendant's solicitors, it was clearly demonstrated that the Government had acquiesced in any breach of condition in relation to height or the school so that the purchaser could safely take the title without fear of enforcement or other action against them. Although the period during which the buildings had been erected was rather less than the period of 40 years in Fairfax Ltd., I have no doubt that, having regard to the nature of the development, the same conclusion is to be reached.

42. Equally, however, I have no doubt that the Defendant's solicitors did not answer the requisitions in sufficient time to allow the Plaintiffs reasonable time to consider the answer before completion. On 27th May, the Plaintiffs' solicitors were faced with the task of considering the new documents and giving appropriate advice to their client. The following day, their dilemma was compounded when they received an uncertified copy of the letter dated 22nd May from the District Lands Office. By that time, completion was but 24 hours away. In Active Keen, a letter from the Building Authority upon which the vendor placed reliance was provided two days before the day fixed for completion. As Litton, J.A. said at page 413: "to expect the purchasers' solicitors to have given such robust advice at such short notice, would have been expecting too much"

43. In my judgment, it was expecting too much of the Plaintiff's solicitors properly to consider and give advice upon the position in relation to the height and school requisitions with not more than two days left before completion. It was open to the Defendant to agree to extend time for completion. It chose to live by the sword of time and by that sword it must perish.

44. In the circumstances, it was the Defendant who was in breach of agreement and therefore not entitled to forfeit the deposit. The Plaintiffs must have the relief which they have claimed.

45. In relation to the requisition concerning the power of attorney, Mr. Yeung raised an interesting argument which, in other circumstances, may have had an effect upon the other requisitions. It was his position that on a proper interpretation of the formal sale and purchase agreement, the Plaintiffs were not entitled to insist upon production of a certified copy of the power before completion. He said that, as s.13 of the Conveyancing and Property Ordinance itself contemplates, the law in respect of the production of title deeds or documents necessary for proof of entitled is subject to contrary intention. The land search showed that the power was given to Dah Sing Bank, that it was the last relevant document in the land search and that no document had been executed pursuant to the power. The power enabled the bank to sign releases of certain mortgages, including one by the Defendant. The power, however, only became relevant upon discharge or release of that mortgage. Discharge of the mortgage was governed by the provisions of Clause 26(b) of the agreement while production of the power was governed by Clause 26(c). The power therefore only became relevant upon execution of the discharge or release which, it was contemplated, might take place after completion. In deed, said Mr. Yeung, a new power might replace the existing one before it had been invoked.

46. I am afraid I am unable to agree with this argument. Clause 26(b) contemplates the vendor redeeming the mortgage on or before completion. The only document which it was contemplated might be supplied after completion is the statutory declaration required in certain circumstances under Clause 26(c). The power was a document that the vendor would certainly have to invoke in order to show that he was passing an unencumbered title to the Plaintiffs. Further, the document was registered. It seems to me plain that the Plaintiffs were entitled to call for a certified copy.

47. A similar conclusion was reached by Mr. Recorder Edward Chan, Q.C. in his unreported judgment in Wong Bik Ching v. Yu Hon Chung & anor. (1996 MP 2969) handed down on 15th May 1997. At page 8, the learned recorder said

48. With respect, I share that view.

49. The second limb of Mr. Yeung's argument was that, as a matter of law and upon the interpretation of the sale and purchase agreement, the Defendant was not entitled as of right to have up to 7 days to consider the power of attorney as provided in Clause 6 of the agreement. He relied upon the authority of Clayton v. Clayton (1930) 2 Ch.12 for drawing a distinction between title deeds and other documents necessary for proof of title. In that case, Maugham J. said at page 21

50. The distinction, said Mr. Yeung, is consistent both with s.13 or the Conveyancing and Property Ordinance and the sale and purchase agreement itself. Thus Clause 6 of the agreement refers to title deeds, Clause 8 refers to muniments of title, distinguishing between those which relate exclusively to the premises and others; while Clause 10(a) refers to deeds, documents of title, wills and copies of matters of public record necessary to complete title.

51. Therefore, said Mr. Yeung, document such as assignments or sale and purchase agreements are title deeds properly so called because the interest in land is dealt with or assured; whereas other documents such as occupation permits, plans or powers of attorney are simply documents necessary for proof of title. Accordingly, Clause 6 of the agreement, which provides the purchaser with up to 7 days to make requisitions, is triggered by the supply of a "title deed" in the narrow sense. The provision of any other document entitles the purchaser only to a reasonable time to deal with it.

52. Again, I am afraid that I am unable to accept that argument. First, I venture to suggest that there is a considerable difference in conveyancing practice and procedure in England in the 1930's and in modern Hong Kong. In my judgment, the decision in Clayton does not apply in Hong Kong. It seems to me doubtful whether the problems faced by a Hong Kong conveyancer, who deals predominantly with flats in multi-storey buildings the title to which is dealt with by way of undivided shares, are very different from the problems faced by conveyancers of tidy parcels of freehold land in England. Documents such as occupation permits or the consents of public officials are crucial to title in Hong Kong. Such documents would rarely, if ever, have featured in earlier English conveyancing. It seems to me, therefore, that in Hong Kong, by convention, the phrase "title deeds" embraces not only documents by which title or interest is actually transferred but also documents which contain evidence necessary to complete the title.

53. Happily, my view again seems to have the support of Mr. Recorder Chan in Wong Bik Ching. In that case, one of the issues was whether a certified true copy of an order creating a statutory easement formed part of the title deeds. The learned recorder came to the view which I have already set out. I accept that that view was confined to registered documents. Thus, in the present case, both the layout plan and the power of attorney would fall within the rubric "title deeds". But I consider that in Hong Kong any other document which affects a title falls within the definition of title deeds.

54. In coming to this conclusion, I have not overlooked the references which Mr. Yeung made to the sale and purchase agreement. I do not, however, find the various distinctions helpful. As Mr. Lam, for the Plaintiffs, submitted, Clause 8 appears to relate to the giving of title and not to the showing thereof. Clause 10(a) combines both showing and giving good title so the description of the documents must be looked at in that context. Further, no provision is made as to time. Equally, there is no provision as to time in Clause 26. I am quite satisfied that it is Clause 6 which governs these other clauses as to time.

55. Accordingly, it was necessary for the Defendant to supply a certified copy of the power of attorney. Further, the purchasers were entitled to rely upon Clause 6 and claim up to 7 days for dealing with this document. There appears to be no dispute that the decision of Le Pichon J. in Li Chat & anor. v. China Road Industries Limited (1988) 1HKC 269 is good law. That followed the decision of Godfrey J. (as he then was) in Yeung Sau Chuen Sammie v. Chung Chun Ting & anor. (MP 4080/92, unreported).

56. I grant the Plaintiff the following relief

57. I make an order nisi that there be interest on the sums awarded at the rate of 11% from 29th May 1998 until the date of this judgment and hereafter at the rate prescribed by the Chief Justice.

58. I also make an order nisi that the Plaintiffs have the costs of these proceedings.