FAITHWAY ENTERPRISE LTD v. LEE WAN

HCMP 1021/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1021 OF 2006

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J U D G M E N T

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1.  By an Agreement dated 31 March 2006, the plaintiff agreed to purchase and the defendant to sell a property known as Flat C, 5^th Floor, No. 107 Broadway, Kowloon (“the Property”).  Completion was to take place by 5 p.m. on 15 May 2006.  The plaintiff’s solicitors, Messrs Yaddy Cheung & Co. (“YC”) raised various requisitions on the title.  One such requisition (“the Requisition”) the defendant’s solicitors, Messrs Gary Mak, Dennis Wong & Chan (“GM”) did not answer to YC’s satisfaction.  The completion date passed without resolution of the matter, and the defendant forfeited the plaintiff’s deposit.

2.  The plaintiff now applies by Originating Summons dated 22 May 2006 for declarations that the Requisition was not sufficiently and satisfactorily answered; that good title was not shown before completion; that the plaintiff is entitled to rescind the Agreement and recover its deposit; and that the plaintiff has a lien over the Property by virtue of payment of the deposit.  As well as repayment of the deposit the plaintiff seeks damages including conveyancing costs.

The Requisition

3.  This is contained in YC’s letter to GM dated 8 May 2006 and it reads:

“Upon perusal of the above Assignment Memorial No. UB2618049 and Deed of Trust Memorial No. UB2618051, we note that the property was held by Chan Koon Ying as Trustee for herself, Ng Yuk Chan Michael and Ng Yuk Chiu Stephen, the Beneficiaries and will assign the property to themselves as joint tenants and when the said Ng Yuk Chan Michael and Ng Yuk Chiu Stephen shall both attain majority and without giving any power of sale to the Trustee.

As only the said Chan Koon Ying as trustee for herself, Ng Yuk Chan Michael a minor and Ng Yuk Chiu Stephen a minor executed the above subsequent Assignment Memorial No. UB 2715579 since Ng Yuk Chan Michael and Ng Yuk Chiu Stephen were minor without join in as confirmors and/or cannot give their consent and confirm the sale and purchase of the above property.  In this connection, we are of the view that without such consent, Ng Yuk Chan Michael and Ng Yuk Chiu Stephen, the beneficiaries have a right to claim for their share(s) in the said property which may result in the transaction be void and render the Vendor’s title defective.

We take the view that, unless further evidence such as a court order or a rectification or authorisation can be produced, the Trustee may be in breach of her fiduciary duty, and acting outside the scope of authority in such case, the said Assignment Memorial No. UB 2715579 may be voidable.”

The Deed of Trust

4.  In the Deed of Trust, Memorial No. UB 2618051, Chan Koon Ying recited that:

(1)   the Property assigned to her on the same date by Pong Chung Toi was purchased by herself for $490,000, and mortgaged to Hang Seng Finance Ltd for $190,000;

(2)   the premises were in fact purchased by herself as Trustee, for and on behalf of the Beneficiaries, who were herself, Ng Yuk Chan, Michael and Ng Yuk Chiu, Stephen;

(3)   the purchase price of $490,000 was money provided and contributed by the beneficiaries save for the $190,000 borrowed on the mortgage.

5.  There followed a declaration of trust under which the Trustee covenanted with the Beneficiaries that she would assign the premises to them as joint tenants as and when Michael and Stephen both attained majority.

6.  Michael and Stephen were both designed as students, and holders of Hong Kong Identity Cards, whose numbers were given.

Background

7.  Chan Koon Ying had bought the Property on 22 May 1984; it was assigned to her by an Assignment with Memorial No. UB2618049, dated 22 May 1984, the date on which she executed the Deed of Trust.  In the Assignment both the vendor and the purchaser are shown as having the same address, namely the Property itself.

8.  On 14 December 1984 Chan Koon Wing agreed to sell the Property to Kwok Chun Ping for a price of $540,000, of which $500,000 represented the price of the premises and $40,000 the fixtures, fittings, furniture and electrical effects.  She undertook to deliver vacant possession on completion.  Madam Chan executed the Assignment with Memorial No. UB 2715579 on 9 January 1985 in favour of Kwok Chun Ping, the consideration being shown as $500,000.  In it she designed herself as “married woman as trustee for Chan Koon King, Ng Yuk Chan Michael a minor and Ng Yuk Chiu Stephen a minor (“the Vendor”).  In 2005, Kwok Chun Ping sold the Property to the defendant; the land search shows an assignment in the defendant’s favour dated 16 July 2005.

9.  In both these transactions, the purchaser accepted the title.  It is not known whether, when the Property was sold to Kwok Chun Ping or when it was later sold it to the defendant, the then purchaser’s solicitor raised any requisition similar to that raised here, or if he did, what answer was given.  Nor is anything known about the relationship of Chan Koon Ying to the two minors, or the ages of those minors at the date of the Deed of Trust or the subsequent Assignment to Kwok Chun Ping.

The correspondence

10.  In brief, YC took the position that because there was no power of sale in the Deed of Trust, the sale to Kwok Chun Ping appeared to be in breach of the trust, and they called on GM to show a court order, authorisation or rectification to show that there had been no such breach.  GM took the position that even if there was a breach of trust, any action by the beneficiaries would be time-barred under the Limitation Ordinance, Cap. 347.  YC then pointed out that such action would not be time-barred, under sections 20, 22 or 26 of that Ordinance; and GM replied that risk of an action for breach of trust was negligible.  YC did not agree, and stalemate ensued.

Breach of trust

11.  On the face of the Deed of Trust, there was no power to sell, so the sale would be in breach of the trust.  The minor beneficiaries could not consent unless, in the meantime, they had reached majority.  Whether they had reached that age or had consented is not known.  If they had not, then Kwok Chun Ping and the defendant would have taken the title subject to the rights of the minor beneficiaries.

The issue

12.  The issue is whether the defendant, through GM, sufficiently and satisfactorily answered the Requisition.  In effect, GM’s answer to the requisition was, at the end of the day, that if there was a breach of trust there was nevertheless no real risk to the plaintiff of a successful assertion against him of the incumbrance.

13.  There is no dispute that section 13 of the Conveyancing and Property Ordinance, Cap. 213 applies.  There is no doubt that the plaintiff as purchaser had the right to raise a requisition in respect of a pre-intermediate title which was, on its face, defective.  Further, the obligation to show a good title includes the obligation to answer requisitions satisfactorily; and if they are not so answered, it does not matter whether the vendor has a good title to the property or not; see Lo Shea Chung v Lo Hung Biu [1997] 2 HKC 723.

14.  However, where a purchaser raises an objection, and there is self-evidently is no substance in it, it is sufficient for the vendor’s solicitor to say so, and the purchaser’s solicitor cannot insist on a fuller reply.  See Active Keen Industries Ltd v Fok Chi-keung [1994] 1 HKLR 396.  That was a case in which the vendor had in fact a good title, but failed to show it.  The Court of Appeal held that the judge below was correct in concluding that there was no real risk of enforcement action, but wrong to hold that the requisition, properly raised, had been satisfactorily answered.  At pp 406-407 Litton JA said this:

“But assume the objection to have no substance.  In such a case, as Godfrey J remarked, this presents considerable difficulties.  Is it enough for the vendor to say, ‘there is no substance in the purchaser’s objection’? The judge answered this question as follows:

‘If there is nothing the vendor can usefully add, I would hold that it is enough.  Certainly, a sufficient answer to the purchaser’s objection would have been this, ‘You will see from the deed of mutual covenant dated 21 March 1964, and from the assignment to the vendor’s predecessor in title dated 16 July 1964, that the building of which this property forms part was laid out in its present arrangement some 28 years ago.  The Building Authority is aware of the position and has raised no threat of enforcement proceedings.  In the premises, the purchaser’s objection is without substance.’’

In my judgment, the judge’s approach must in principle be correct.  If the matter was self-evident, the purchaser’s solicitor cannot insist upon a fuller reply.  But the vendor’s solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed.  A requisition as to title is not an occasion for the parties’ solicitors to bandy propositions of law; each party must decide for himself, ultimately, what the legal position is, based upon the facts known to himself, although, obviously, if one party can persuade the other to his own point of view on the law, so much the better.”

15.  The issues for decision here therefore come down to whether the court can be satisfied that there was no real risk to the plaintiff of a successful challenge to his title by one or more of the two minors, and whether that was or should have been self-evident to YC from the answers given by GM.

16.  In the words of Lord Russell of Killowen in MEPC Ltd v Christian-Edwards[1981] AC 205:

“In my opinion, if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title.”

17.  The courts have stressed the robust, common-sense approach to be applied in this kind of case.  In Mexon Holdings Ltd v Silver Bay International Ltd [2000] 2HKC 1, at page 8G-H Litton PJ held:

“First principles:

A good title does not mean a perfect title, free from every possible blemish.  Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

18.  In Jumbo Gold Investment Ltd v Yuen Cheong Leung and Another [1999] 3 HKLRD 825 at 833F-G Liu JA said:

“In a vendor and purchaser summons under s.12 of the Conveyancing and Property Ordinance (Cap.219), the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title.  It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned.  Conveyancing practice must be geared to uphold bargains.”

Though Liu JA gave the dissenting judgment in the Court of Appeal in that case, his approach was approved by the Court of Final Appeal in its decision in the same case reported at [2000] 1HKLRD 763.

Limitation

19.  Sections 20, 22 and 26 of the Limitation Ordinance were mentioned by the parties’ solicitors in the course of the correspondence.

20.  The effect of section 20 of the Limitation Ordinance is that there is no period of limitation in respect of an action by a beneficiary under a trust in respect of any fraud or fraudulent breach of trust by the trustee, or to recover trust property from the trustee.  Subject to this, the limitation period is 6 years from the date on which the right of action accrued.

21.  There is nothing to indicate fraud or fraudulent breach of trust here, and any action would not be against the trustee, but against a subsequent owner who took title subject to the rights of the beneficiaries.  It therefore seems that section 20 is irrelevant here.

22.  Section 26 provides for extension of the period of limitation where the action is based on fraud or concealment by the defendant or for relief from the consequences of a mistake.  In any event, by subsection 4 it has no application in an action against a purchaser to recover property, where the property has been purchased for value by an innocent third party since the fraud, concealment or mistake took place.  I cannot see that section 26 has any relevance here either.

23.  Section 22 is relevant.  The limitation period concerned is 6 years.  But by section 22, the limitation period in respect of a person under disability is extended to 6 years from the date when that person ceases to be under a disability.  In other words, in this case the limitation period, in respect of each of the minors, would extend to 6 years from the date on which the minor attained the age of majority.

What is the risk?

24.  As I have indicated, we know nothing about Chan Koon Ying or the minors, save what can be deduced from the documents.  That the assignment in her favour showed both vendor and purchaser residing at the same address suggests a sale within the family; and of course the obvious, though not necessarily the only inference is that the two minors were Madam Chan’s sons.  That she sold the Property on to Kwok Chun Ping with fixtures and fittings suggests that she and the minors moved out when she sold up.  This in turn suggests that the minors would know that the Property had been bought and sold.  As I have indicated there is nothing to indicate fraud or fraudulent breach of trust, and concealment is also not indicated.

25.  There was some argument about the fact that while vacant possession is provided for in the agreement with Kwok, it is not mentioned in the assignment, so there could have been a sitting tenant; but I do not think anything turns on that.

26.  We know that the minors were designed as students and holders of Hong Kong identity cards.  It is suggested that the recital that the purchase monies apart from the mortgage loan were provided and contributed by the beneficiaries indicates that they must have been old enough to earn money, but this does not follow because the beneficiaries included Madam Chan herself.  That they were called students suggests that they were of school age, i.e. at least 5 years old.

27.  A child under 11 years of age is not required to hold an identity card.  See regulations 2, 3 and 25 of the Registration of Persons Regulations, Cap. 177, sub. leg.; a child under 11 is an exempted person under regulation 25.  Under the proviso to that regulation an exempted person may, if he so desires and the Commissioner allows, be issued with an identity card.  The normal situation is, however, that a child under 11 does not hold an identity card in Hong Kong.

28.  It is argued for the defendant that the minors were, therefore, most probably at least 11 years old on 22 May 1984.  At that time the age of majority was 21; but on 11 October 1990, the Age of Majority (Related Provisions) Ordinance came into force and its effect was reduce the age of majority to 18 years.  Persons who had already reached that age, but had not yet reached the age of 21 years, were also to attain full age.

29.  If one were to assume the latest possible date of birth for the younger minor in the normal situation for the issue of identity cards, i.e. that he reached his 11^th birthday on 21 May 1884 and was issued with an identity card on that date, it would follow that he would have been 18 on 21 May 1991.  On that date he would have attained majority and on that date the limitation period would have commenced in respect of any action which he might have taken against a purchaser of the Property.  That period would expire on 21 May 1997.

30.  It is true that the minors might have been issued with identity cards under the proviso, when they were less than 11 years old.  In that case the possibility exists that the limitation period would not have expired by the date of completion, i.e. 15 May 2006.  Supposing that it expired the following day, one would have to count back 24 years, i.e. to 15 May 1982, to obtain the hypothetical date of birth of the younger minor.  This would mean that he would have had to have an identity card issued to him at the age of two years.  But as I have indicated, the designation of the minors as students suggests that they had reached school age.

31.  Now, I do not know the circumstances under which the Commissioner for Immigration would have issued an identity card to a child of under 11 years of age, in 1984.  I expect that, since the proviso contains the words “if he so desires and the Commissioner allows”, some good reason would have to be advanced to the Commissioner for him to allow the identity card to be issued.  I cannot see why a child, living in Hong Kong and going to school here, would need an identity card in the normal way.  I suppose a child who needed to be taken in and out of Hong Kong might need one, but I can safely take judicial notice, because it is notorious, that the cross-border flow of persons, and the immigration arrangements for entering and leaving Hong Kong were very different in 1984 from what they are today.  In other words, while it is possible that the minors were under 11 years of age, the possibility is an exceedingly small one.

32.  The facts are few, but when one looks at them in the round, and takes into account the history which can be deduced from the documents, and the fact that in over 20 years, neither of the minors has come forward with any claim against Kwok Chun Ping or the defendant in these proceedings, it seems to me that there is no real risk to the purchaser of a successful assertion against him of the incumbrance.

Was it self-evident?

33.  The facts are few, but they were known to both parties.  This is not a case where the vendor has concealed the fact of a good title from the purchaser.  Such facts as are available were available to both sides all along.  When the requisition was raised, both solicitors fell to bandying propositions of law.  GM took the limitation point in their letter of 10 May 2006, and in their letter of 12 May they said there was no real risk.  They took some bad points, it is true, but I do not see that they could have done more.  I do not see that it was for the vendor, as suggested by YC, to take proceedings under section 56 of the Trustee Ordinance, Cap. 29, to obtain a court order to approve the sale by Chan Koon Ying, more than 20 years after the event, and when the likelihood of the minors still being minors is vanishingly small.  In my view, therefore, it should have been self-evident to the purchasers’ solicitors, as it was to the vendors’ that there was no real risk.

Result

34.  In the result I am satisfied that the Requisition was sufficiently and satisfactorily answered.  The plaintiff’s claims are dismissed with costs to the defendant (nisi) to be taxed if not agreed.