DE MONSA INVESTMENTS LTD v. WHOLE WIN MANAGEMENT FUND LTD

Press Summary (English)

Press Summary (Chinese)

FACV No. 6 of 2012

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 6 OF 2012 (CIVIL)

(ON APPEAL FROM CACV NO. 251 OF 2010)

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Chief Justice Ma:

1.  I agree with the conclusion and orders set out in the judgment of Mr Justice Litton NPJ.  So far as the reasons for the conclusions reached on the main issue in the appeal are concerned, I agree with the views set out in the judgment of Mr Justice Ribeiro PJ and Mr Justice Gleeson NPJ.  I agree with the reasons contained in the judgment of Mr Justice Litton NPJ in relation to the cross appeal.

Mr Justice Chan PJ:

2.  I agree that this appeal should be allowed and that the Court of Appeal’s orders should be set aside and the orders made by the Judge restored.

Brief facts

3.  I would gratefully adopt the facts (which are not seriously in dispute) as set out in detail in the judgment of Mr Justice Litton NPJ. In brief, on 11 January 2008, the appellant and the respondent entered into a preliminary agreement whereby the appellant agreed to sell to the respondent the property at Rooms 1 to 5 of the Penthouse on the 37^th floor of the Bank of America Tower, together with a car park space on the 4^th floor (“the Property”) at the price of $138 million. The appellant was selling as confirmor, having entered into an earlier agreement (on 14 November 2007) to purchase the Property from Nesco Ltd. Both agreements were to be completed on 17 June 2008. The respondent had paid $13.8 million to the appellant as deposit. No formal sale and purchase agreement was signed pursuant to the preliminary agreement but no issue was taken by the parties.

4.  In accordance with conveyancing practice, the appellant’s solicitors delivered to the respondent’s solicitors a total of 97 title deeds and documents as set out in a list, including the originals of the assignments executed in 1990 and 1991 which were accepted as the intermediate root title of the Property for the purpose of s.13 of the Conveyancing and Property Ordinance, Cap 219 (“the Ordinance”). The respondent’s solicitors raised various requisitions and the appellant’s solicitors purported to answer them.

5.  On 17 June 2008, Nesco Ltd and the appellant completed the sale and purchase between them, but the respondent declined to complete, claiming that the appellant had failed to answer satisfactorily their requisitions, to show and prove good title to the Property and to produce the originals of certain documents. The appellant forfeited the deposit and the respondent demanded its return.

Present appeal

6.  It is now no longer necessary to deal with all the matters raised in the requisitions. The only grounds relied on by the respondent’s solicitors which are relevant to the present appeal are:

(1) The appellant failed to produce on completion the originals of 20 pre-intermediate root title documents and 9 post-intermediate root title documents or to provide a satisfactory explanation for their absence. The respondents’ case is that the appellant had failed to comply with the common law obligation to deliver the originals of all title documents; and

(2) The appellant failed to show and prove good title to the Property in that it had failed to produce the original or a certified copy of the original of 4 documents which were agreements entered into in 1979 and 1998 relating to the sea water cooling system of the Bank of America Tower. In this connection, the respondent contends that the absence of the 1979 Pump Pit Tenancy Agreement is fatal and that certified copies of the certified copies of the originals of the other documents is not acceptable under s.13(2) of the Ordinance.

7.  The Court of Appeal (reversing the trial judge) held in favour of the respondent on the 1^st ground mentioned above, holding that the appellant was under a common law obligation to deliver on completion the originals of all title deeds and documents, both pre-root and post-root, or to provide a satisfactory explanation for their absence but had failed to discharge such an obligation. The appellant appeals against this conclusion.

8.  The Court of Appeal decided against the respondent on the 2^nd ground above, holding that the 1979 agreement had ceased to have effect and that s.13(2) of the Ordinance permits the production of a certified copy of a certified copy of the original. The respondent seeks to overturn these findings in resisting the appeal. 

Showing and proving of title

9.  There is no dispute that a vendor in a sale and purchase of real property transaction is under a duty to show and prove his title in the property before the date of completion and a duty (a separate and distinct duty) to give a good title to the purchaser on completion. The object of the transaction is to enable the purchaser to acquire all the rights and interests in the property which flow from the vendor’s title in the property according to the terms and conditions of the agreement on the agreed date of completion. The purchaser must be given a reasonable opportunity to examine the vendor’s title before completion and raise requisitions and ask questions relating to the title.

10.  The practice in Hong Kong in the showing and proving of title is for the vendor’s solicitors to produce all the relevant documents of title to the purchaser’s solicitors for examination before the date for completion upon the undertaking that they would be returned to the vendor’s solicitors for the purpose of completion. The title documents required for showing and proving title are set out in s.13(1) of the Ordinance (namely, the Government lease and the post root documents of title). Under s.13(2), it is sufficient compliance of s.13(1) to produce attested or certified copies of the relevant title documents. However, although the production of attested and certified copies of title documents would suffice for the showing and proving of title, it is seldom that the vendor would choose to produce only the attested or certified copy of a relevant title document at this stage and keep the original for the completion stage if he has the original in his possession or power. Where the property is, for instance, still under a legal charge to a bank, the practice, I am given to understand, is for the vendor’s solicitors to “borrow” the originals of the title documents from the bank for the purpose of this stage of the transaction. Hence, if only the attested or certified copy but not the original of a title document is produced, it would be legitimate, where appropriate, for the purchaser’s solicitors to raise this with the vendor’s solicitors in advance so that the purchaser would know whether he can expect to receive the original of that document on completion.

11.  This was apparently what happened in the present case. The respondent’s solicitors asked to see the originals of 29 title documents and were told that the vendor did not have them in its possession or power. The draft statutory declaration prepared by the vendor’s solicitors in connection with their absence was admittedly not satisfactory or acceptable. The respondent argued that the appellant had failed to comply with the obligation to deliver those original title documents and was thus entitled to treat the agreement as repudiated and to refuse to complete.      

Main issue in the appeal

12.  The main issue in the appellant’s appeal concerns the obligation of the vendor to deliver the originals of the documents of title on completion. The parties accept that there is at common law an obligation on the part of the vendor to hand over the original documents of title in his possession or power but differ on the scope of such obligation and the consequence of a failure to comply with such obligation. This dispute involves a consideration of 3 separate but related aspects of this obligation: what documents are required to be delivered by the vendor to satisfy this obligation; whether the vendor is required to provide a satisfactory explanation for the absence of any original title document; and whether the purchaser is entitled to refuse completion if the vendor fails to comply with this obligation.  

Appellant’s position

13.  The appellant’s position appears in paragraph 23 of its Written Case, that is:

(1) A purchaser is entitled to insist on the vendor handing over to him the original documents of title which are in the vendor’s possession or power; and

(2) A purchaser may be entitled to insist on the best explanation possible as to why the original of a title document cannot be produced if there is a realistic possibility that his failure to do so could lead to his being affected with notice of a prior equitable interest.

14.  Mr John McDonnell QC (leading Ms Liza Cruden) for the appellant argues that a vendor is only obliged to deliver on completion those original documents of title which are in his possession or power; that if the original of any title document is not in the vendor’s possession or power, he is not required to provide any explanation for its absence and the purchaser is not entitled to refuse completion. However, he accepts that if there is a realistic possibility that the absence of the original of a title document could lead to the purchaser being affected with notice of a prior equitable interest and there is no satisfactory explanation for its absence, then the purchaser is entitled to refuse to complete. He submits that with the registration system under the Land Registration Ordinance in Hong Kong and on the facts of this case, there is no realistic possibility that the respondent would be taken to have notice of any prior equitable interest as a result of the appellant’s failure to provide the originals of the title documents in question.

Respondent’s arguments

15.  On the other hand, Mr Edward Chan SC (leading Mr Paul Lam SC) for the respondent quite fairly puts forth 4 alternative propositions: first, a vendor is under an obligation to deliver the originals of all title documents, both pre root as well as post root title documents; second, a vendor is obliged to deliver the originals of all post root title documents; third, a vendor is obliged to deliver the originals of all title documents which are material to the giving of his title to the purchaser; and fourth, a vendor is only obliged to hand over the originals of all title documents which are in his possession or power. He submits that he would succeed if the common law is represented by either the first or the second proposition. For the first proposition, he relies on Re Duthy and Jesson’s Contract [1898] 1 Ch 419 and Yiu Ping Fong & another v Lam Lai Hing [1999] 1 HKLRD 793 (and the cases which followed Yiu Ping Fong); and for the second proposition, he draws an analogy with s.13A of the Ordinance (although this provision which was enacted after the dispute in this case arose does not apply to the present case). He submits that the Court should accept either the first or the second proposition and reject the third and fourth as they are not supported by any authorities.  

Obligation to deliver originals 

16.  The vendor’s obligation to deliver the original title documents on completion was described by Romer J in Re Duthy and Jesson’s Contract [1898] 1 Ch 419 as “the ordinary obligation of handing over on completion all title deeds in their possession or power” (p.422). They are, according to him, “prima facie the deeds [which] the vendors would in the ordinary course be obliged to hand over on completion to the purchasers.” (See also the note to the judgment in Parr v Lovegrove (1857) 4 Drewry 170at 182-183.) Obviously, the title documents to be handed over are only those which “related solely” or “exclusively” to the land being sold (Emmet and Farrand on Title, #21.008 and Williams’ Title to Land (4^th ed) p.547) and do not extend to title documents relating to any other land.

17.  The vendor’s obligation to hand over on completion the original title documents in his possession or power was also considered in Yiu Ping Fong, where Yuen J (as she then was) said at p.798:

“However, a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over.

The handing over of original title deeds and documents (or at least those which relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land. That obligation is well established in the common law.”

18.  The reasons for such an obligation are not difficult to understand: the purchaser has a proprietary right to these title documents after he has become the owner of the land to which these documents relate; the title documents are his; they run with the land; they are the evidence of his title. (See e.g. Re Williams and Newcastle’s Contract [1897] 2 Ch 144; Clayton v Clayton [1930] 2 Ch 12.) As Yuen J in Yiu Ping Fong put it at 798H:

“A purchaser of land is entitled as a matter of proprietary right to possession of the original title deeds, Williams on Title (4^th ed.) at p.547, which is the best evidence of ownership.”

19.  There is another reason for imposing such an obligation: to ensure that the title is a good title which would be free from any encumbrance. The learned judge in Yiu Ping Fong added at 798I:

“Further, it is important for him to get possession of the original title deeds so that he can be sure that the property is not subject to an equitable mortgage by deposit of title deeds. If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (see Emmet on Title, # 5. 147).”

20.  It must be noted that it is far from clear from what the learned judge said in Yiu Ping Fong that she required that all title deeds, whether pre root or post root title deeds, must be handed over on completion. That was not a case concerning pre root title documents; the missing original title deed there was an assignment from the developer to a predecessor in title in 1986 which was a post root title document. This was pointed out by Cheung JA in Downpower Trading Ltd v Apexcom Ltd [2010] 1 HKLRD 915, #29. I would add that in view of what is required to be shown and proved under s.13(1), the absence of pre root title documents will now seldom, if ever, have any impact on the title to be acquired by a purchaser. I believe it is unlikely that Yuen J had in mind pre root title documents when discussing the vendor’s obligation and purported to lay down a requirement for the handing over of pre root title documents. 

21.  I should also mention that as a result of the decision of Yiu Ping Fong, s.13A was added to the Ordinance. The enactment of this provision would seem to acknowledge the existence of such a common law obligation on the part of the vendor to deliver the relevant title documents in his possession or power on completion. However, it would also appear that legal practitioners were worried that this decision would have the effect of requiring as a matter of law delivery of all the originals of even pre root title documents and that this would cast an overly onerous, if not impossible, burden on a vendor and his solicitors. The effect of s.13A (which is not applicable in this case) is to restrict the title documents to be handed over by the vendor to the purchaser on completion to those which the vendor is required to produce for showing and proving title under s. 13(1)(a) and (c).       

Satisfactory explanation for absence of original

22.  If the vendor’s solicitors produces only a certified copy of a relevant title document at the showing of title stage, as discussed above, it is legitimate, where appropriate, for the purchaser’s solicitors to enquire whether the original is in the vendor’s possession or power and whether he, the purchaser, would receive it on completion. If the vendor has the original in his possession or power, he is obliged to hand it over to the purchaser on completion. But if he does not have the original in his possession or power, he is expected to give an explanation for its absence. There may be good reasons for its absence, such as loss or destruction over the years. This may already be obvious from the rest of the title documents. What if the vendor refuses to explain or cannot offer a satisfactory explanation?

23.  This aspect of the vendor’s obligation did not arise for consideration in Re Duthy. In that case, the owner mortgaged the property in 1848 to certain settlement trustees to secure a loan which was subsequently paid off but no reconveyance was executed. Some of the mortgagee trustees had died and the mortgage deed and other title deeds were in the custody of the solicitors for the mortgagee trustees or their representatives. The purchaser required these deeds to be handed over on completion. The vendors applied to the solicitors for the return of these documents without success. The Court held that the vendor had a duty to obtain these documents at their own expense but had failed to take steps to do so. The documents in question were clearly in existence and within the powers of the vendors to obtain. There was no question in that case of requesting the vendors to provide a satisfactory explanation for not able to hand over those documents.

24.  In Yiu Ping Fong, the learned judge considered that “it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain [the loss of a title document]” (p.798J). However, she took the view that the vendor could not make or give good title “without an adequate explanation as to why the original cannot be handed over” (p.798F). What the judge said must be read with caution and in context. The title document whose original was missing in that case was the assignment in 1986 from the developer of the land to the first predecessor in title. There was a statutory declaration made in Taiwan explaining the loss, but the judge found that it could not be validly used in Hong Kong, suggesting that the vendor could supply the explanation through another means. 

When is a purchaser entitled to refuse to complete?

25.  The question, which is the crucial question in the present appeal, then arises: whether the purchaser is entitled to refuse to complete if the vendor refuses to give any explanation or if he cannot offer a satisfactory explanation for the absence of an original title document. Mr Chan argues that the purchaser can refuse to complete, relying on what the judge said in Yiu Ping Fong. However, Mr McDonnell submits that the purchaser cannot rescind and is relegated to his right to sue the vendor in detinue.    

26.  It is important to bear in mind that we are not dealing with the situation where there is no evidence of the title document in question or it contents – the vendor is able to produce a certified copy of that document pursuant to s.13(1) of the Ordinance. We are dealing with the situation where the vendor is unable to deliver the original of the title document on completion and refuses to explain or cannot offer an explanation for its absence.

27.  Obviously it would defeat the very object of a sale and purchase transaction if a purchaser is entitled to refuse completion even if the originals of the most insignificant title documents which have no realistic possibility of affecting good title are missing and the vendor cannot for some reason offer any satisfactory explanation for their absence. Several examples were discussed during the hearing of this appeal, Take the common example of an owner who had for some reason failed to pay management fees and as a result, the owners incorporation imposed a charge on his property and registered it at the Land Office but the arrears were later paid and the charge was removed. It would defy common sense to say that the purchaser is entitled to require delivery of these documents or a satisfactory explanation for their absence, failing which he can refuse completion.

28.  This is to be contrasted with the example raised by the Chief Justice during argument of a vendor who had only acquired the property a few years prior to the sale and purchase in question but had without satisfactory explanation failed to hand over the original of the assignment to him and could only offer a certified copy of that title deed. The purchaser in such a case will legitimately be concerned as to whether there would be any problem with his title after the purchase is completed. If there is a problem with his title to the property, detinue is neither a sufficient relief nor consolation if the original is not in the vendor’s possession or power.

29.  In my view, the fact that the purchaser has a right to the delivery of the title documents does not necessarily mean that he is automatically entitled to rescind and refuse completion if the vendor fails to do so or explain why. Whether the purchaser can do so must depend on the circumstances of each case. In considering whether he is entitled to refuse completion, one should bear in mind that the object of the transaction is for the purchaser to acquire a good title in the property. As discussed earlier, the purchaser as the owner of the property has a proprietary right in the relevant title documents which is evidence of his title in the property. As the Master of the Rolls said in Bryan v Busk (at p.4), the title deeds are the ordinary and primary means for asserting the owner’s title and defending his possession. In Yiu Ping Fong, Yuen J also said, the purchaser is naturally concerned that his title to the property is not subject to an equitable mortgage by deposit of title deeds by his predecessor. All this is the purpose of requiring the vendor to hand over the original of the title documents. 

30.  In Moulton v Edmonds, the Lord Chancellor said at p.249:

“Perhaps the test may be, whether the recited deeds not produced cast any reasonable suspicion upon the title shown by the deeds produced.”

31.  In my view, if there is a reasonable suspicion on the title where the vendor cannot deliver on completion the original of a relevant title document or to provide a satisfactory explanation for its absence, the purchaser should not be compelled to complete the transaction, running the risk that his title may in future be validly questioned. In such a case, but only in such a case, he is entitled to refuse completion.

32.  In the present case, the originals of the title documents in question are clearly not in the appellant’s possession or power. But it is not contended that there is any realistic possibility that the absence of the originals of these title documents has any impact on the title to be acquired by the respondent. It is also accepted that the possibility of the creation of an equitable charge by the deposit of title deed is quite remote. In such circumstances, the respondent should not be allowed to refuse completion. For these reasons, the appellant’s appeal must succeed.  

Respondent’s other grounds

33.  The respondent’s submissions can be disposed of very briefly. For the reasons given by Mr Justice Litton in his judgment, I agree that there is no substance in Mr Chan’s arguments. I would just add the following observations. First, in respect of the missing 1979 Pump Pit Tenancy Agreement, there are concurrent findings (beyond reasonable doubt) by the lower courts that it had ceased or expired. There is also not the slightest possibility that it would still have any legal effect. Secondly, the object of s.13(2) of the Ordinance is to facilitate the showing and proving of title. The very purpose of attestation and certification is to ensure that the copy which is produced for use after it has been duly attested or certified is the same as the original. Once it is accepted that attestation or certification involves a conscious verification process, there is no reason why an attested or certified copy of an attested or certified copy of the original should not be acceptable for the purpose of showing and proving title under s.13.    

Mr Justice Ribeiro PJ and Mr Justice Gleeson NPJ:

34.  We have read the reasons for judgment of Mr Justice Litton NPJ, and agree with his conclusion and with the orders he proposes.  He has dealt in detail with the facts and the issues that were argued, and we will confine ourselves to a brief statement of our views on what we regard as the central question in the appeal.

35.  Although s 13A of the Conveyancing and Property Ordinance (“the CPO”) does not apply to this case because it did not come into effect until 11 July 2008, it is convenient to use the language of the CPO, including s 13A, to explain the issue that arises.

36.  Sections 13 and 13A of the CPO refer to three different, but related, subjects:

(a)   the documents a purchaser is entitled to require a vendor to produce as proof of title at the stage of showing title (s 13);

(b)   the documents a purchaser is entitled to require the vendor to deliver upon completion for the purpose of giving title (s 13A(1) and (2)); and

(c)   the purchaser’s proprietary right in a document (s 13A(3)).

37.  The language of s 13A(1), in referring to a purchaser’s entitlement to require the delivery of a document for the purpose of giving title, addresses the question whether a purchaser may refuse to complete if there is a failure to deliver a particular document, or, to put it in another way, whether a court will force title upon a purchaser without the delivery of the document.  At common law, that may depend upon the availability of secondary evidence of the document.  We note for future reference that s 13A(2) allows recourse to the common law if the specified originals cannot be delivered.

38.  In Re the Halifax Commercial Banking Company Limited and Wood (1898) LT 536, Lord Lindley MR said at 539:

“The purchaser was willing to complete, but the vendors could not produce the deeds, they having been unfortunately lost by their solicitors after the contract had been signed. There is no condition providing for the non-production of lost deeds. But the mere fact of their loss does not release the purchaser from the performance of his contract. He can be compelled to complete if he is furnished in proper time with satisfactory secondary evidence of the lost documents. This was decided in Bryant v Busk (4 Russ 1) and Moulton v Edmonds (1 De G.F & J 246).”

39.  In the same case, Chitty LJ said, at 539-540:

“The two authorities cited of Bryant v Busk and Moulton v Edmonds show that the court of equity will force a purchaser where the deeds are supposed to have been lost to take the title upon secondary evidence as to the contents of the deeds, and their having been duly executed and duly stamped. But in my opinion the secondary evidence produced ought to be clear and cogent … so that the purchaser may maintain his title against all those who may attack him when he is in possession and so that he may pass on the title in the ordinary way in the market to a purchaser or to a mortgagee.”

40.  The existence of the secondary evidence qualification, and the rationale for it as explained by Chitty LJ, shows that the principle concerning the purchaser’s entitlement to refuse to complete is not co-extensive with the purchaser’s proprietary right to title deeds.  As was submitted for the appellant in the present appeal, statements of the law sometimes tend to conflate the two.  For some purposes that may not matter, but in the present case it does.  The purchaser’s proprietary interest in documents of title is qualified in an important respect.  The relevant principle was stated by Romer J in Re Duthy and Jesson’s Contract [1898] 1 Ch 419 at 422 as follows:

“The purchaser is not asking to have these deeds produced for the verification of or for information as to the title, but is calling upon the vendors to fulfil the ordinary obligation they are under of handing over on completion all title-deeds in their possession or power.”

The purchaser’s right to the title deeds as chattels, which may be vindicated, for example, by an action in detinue, is subject to the qualification in the concluding words of that passage. Secondary evidence does not come into it.  The purchaser as the new owner will be entitled to all the title deeds that relate exclusively to the property, and, insofar as they are in the possession or power of the vendor, the vendor must hand them over.  On the other hand, the purchaser’s interest in obtaining a good and marketable title, referred to by Chitty LJ, is protected by the requirement of clear and cogent secondary evidence, sometimes referred to as a “satisfactory explanation” of the absence of a document.

41.  In this case, there is no argument about the matters referred to in para 36(a) and (c) above.  Section 13 of the CPO dealt with showing or proving title, and the appellant-vendor was willing to hand over all the documents that were in its possession or power.  The issue concerns para 36(b), and arises because, although the appellant had certified copies of certain documents of title, and although the register kept under the Land Registration Ordinance contained memorials of all such documents, the statutory declaration which the appellant intended to provide concerning the missing original documents did not satisfy the requirements for secondary evidence.  It showed that the original documents were not in the possession or power of the appellant, but did not contain clear and cogent evidence of their loss or destruction (cf Phipson on Evidence, 17^th ed., 41-23).  It was, however, accepted in argument by the respondent that there were no grounds for suspecting that any of the original documents which were not in the appellant’s possession or power had been used in any unwritten and unregistered transaction giving rise to rights which could still be enforced in 2008 against the respondent if it had taken title.

42.  The case of Moulton v Edmonds, referred to by Lord Lindley MR and Chitty LJ, left open a question which is of present importance.  Lord Campbell LC ((1859) 1 De GF & J 246 at 249), after referring to missing title deeds that could not be produced, said: “Perhaps the test may be, whether the recited deeds not produced cast any reasonable suspicion upon the title shown by the deeds produced”. That question did not have to be decided because his Lordship went on to hold that it was shown or accepted in that case that due search had been made and that there was sufficient secondary evidence of the due execution and contents of the missing deeds.

43.  The test that Lord Campbell raised as a possibility is consistent with what Chitty LJ later said was the rationale for the requirement of secondary evidence.  It is to protect the purchaser against a risk of some future challenge to his title.  If there is such a risk that, in turn, affects the marketability of the title. 

44.  The purchaser’s capacity to “maintain his title against all those who attack him while he is in possession” is related to questions of actual or constructive notice that may affect priorities in the case of an outstanding and competing interest.  (See Agra Bank v Barry (1874) LR 7 HL 135 and Oliver v Hinton [1899] 2 Ch 264.)

45.  In the present case, there was a combination of the following circumstances.  First, the vendor satisfied all the requirements of s 13 of the CPO by way of proof of title.  The vendor proved its title to the land by the means prescribed by the statute.  Secondly, the vendor was willing to hand over on completion all documents of title in its possession or power.  Thirdly, there were no grounds for suspecting that any of the original documents which were not in the appellant’s possession or power had been used in any unwritten and unregistered transaction giving rise to rights which could still be enforced in 2008 against the purchaser.  Why, in those circumstances, should the purchaser not be required to complete?  In our view, the vendor’s inability to produce an original document of title rather than a certified copy, and to account for the absence of the original to the standard required for secondary evidence, would only have justified refusal to complete where the absence of the original would indicate the realistic possibility of some transaction affecting the land which could affect the purchaser if it took title.

46.  At the hearing, there was much discussion of the judgment of Yuen J (as Yuen JA then was) in Yiu Ping-fong v Lam Lai-hing [1999] 1 HKLRD 793 at 798.  After pointing out that s 13(2) facilitates proving title by allowing certified copies, her Ladyship stated that that section “does not ... exonerate the vendor from producing at completion the originals of such title deeds and documents, at least those that relate exclusively to the property being sold.” And that “a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over.”  Yuen J also noted the purchaser’s proprietary right to possession of the original title deeds and that the requirement for originals was to ensure that the property is not subject to an equitable mortgage by deposit of title deeds.

47.  All judgments must be read bearing in mind the question which the court is actually having to decide.  Yuen J was concerned with a case where the original of a key document in the chain of title – the first assignment from the developer in 1986 executed some 12 years before the relevant contract of sale – could not be delivered and where satisfactory secondary evidence was found to be unavailable. 

48.  Yuen J was not concerned with any questions regarding the giving of good title in relation to pre-intermediate root documents and certain first instance decisions which took her Ladyship to be suggesting that there was an obligation to deliver or explain the absence of the originals of documents relating exclusively to the property, however ancient, and whether or not they gave rise to any realistic risk that title may be affected, have erroneously taken that judgment out of context.

Mr Justice Litton NPJ:

Introduction

49.  We are concerned here with a preliminary agreement for sale and purchase dated 11 January 2008.  The Respondent is the purchaser.  It was a confirmor sale: In other words, the vendor (Appellant) had earlier entered into an agreement to purchase the same property from a head vendor (Nescon Ltd), for completion of the sale earlier on the same day, 17 June 2008.  The property comprises the Penthouse of Bank of America Tower, a 37-storey building standing on IL8294 Central Hong Kong: Described in the agreements as Rooms 1, 2, 3, 4 and 5 on the 37^th Floor of the high-rise building together with a car parking space on the 4^th Floor, being in total 76/10,000 share of IL8294.  The vendor in Clause 3 of the agreement undertook to sell the property free from encumbrances.  By Clause 4 the vendor undertook at completion to give vacant possession of the property to the purchaser except for Room 5[1].

50.  The purchase price for the property was $138 million.  The deposit totalling $13.8 million was to be paid in two tranches: $4,267,800 upon signing the preliminary agreement and $9,532,200 upon signing a formal sale and purchase agreement on or before 18 February 2008.  When the parties signed the preliminary agreement the vendor was represented by the solicitors’ firm Lo Wong & Tsui but the purchaser was not legally represented.  The parties failed to agree upon the terms of the formal sale and purchase agreement but the sale still went ahead and the purchaser paid the second tranche of the deposit.

$13.8 Million Forfeited

51.  Nescon Ltd duly completed the sale on 17 June 2008 but the Respondent on its part repudiated the sale and demanded the return of the deposit paid of $13.8 million which the Appellant had forfeited.

The Buyer’s Case

52.  In essence, the buyer’s case was that because the vendor:

(i)    failed to produce “certified copies” of agreements dating back to 1979 and 1988 relevant to the sea-water cooling system of Bank of America Tower (and, in relation to a 1979 agreement any copy), and

(ii)   was able to produce only certified copies but not the originals of a whole host of other documents, the vendor had failed to answer the objections and requisitions satisfactorily and/or was not able to show, prove or give good title. 

 The buyer repudiated the sale on these grounds and demanded the return of its deposit.

53.  The vendor subsequent sold the property for $88.8 million.

Legal Proceedings

54.  The Respondent (buyer) commenced proceedings in the Court of First Instance for repayment of the $13.8 million (plus $86,910 for the costs of investigating title).  The Appellant (vendor) counterclaimed for damages for wrongful repudiation.  The matter went before Yam J who, by his judgment dated 20 October 2010, dismissed the buyer’s claim and gave judgment on the vendor’s counterclaim for damages to be assessed.

55.  The buyer appealed.

56.  The Court of Appeal (Tang VP, Fok JA and Lam J) agreed with the trial judge that the buyer’s repudiation based upon the ground referred to in para 52(i) above was baseless, but reversed Yam J on the objections and requisitions as mentioned in para 52(ii) above: More particularly, on what the Court of Appeal categorized as failure to produce before completion the originals of title documents (falling both inside and outside the period of 15 years referred to in s 13(1)(a)(ii) of the Conveyancing and Property Ordinance, Cap 219[2], CPO) or provide any satisfactory explanation for such failure.

57.  The original documents which the vendor failed to produce were as follows[3]:

(a) Two legal charges dated 30 May 1990 (evidenced by Memorials No. UB4460364 and UB4460370 registered in the Land Office) and a deed of release dated 12 October 1998 (Memorial No. UB7600635).  The 30 May 1990 documents executed by Delvincourt Ltd, charged Rooms 4 and 5 in favour of Standard Chartered Bank in support of a loan. 

(b) The deed dated 12 October 1998 re-assigned Rooms 4 and 5 back to Delvincourt Ltd as absolute owner.

(c) Four assignments:

·        27 May 1985 Assignment of Room 4 and 15/10,000 share by National Bank of Canada to Hong Kong Carpet Manufacturers Ltd

·        30 July 1985 Assignment of Room 5 and 15/10,000 share by Bank of Nova Scotia to Hong Kong Carpet Manufacturers Ltd

·        26 August 1986 Assignment of Room 4 and 15/10,000 share by Hong Kong Carpets (Holdings) Ltd to Tai Ping Carpets Ltd

·        26 August 1986 Assignment of Room 5 and 15/10,000 share by Hong Kong Carpets (Holdings) Ltd to Tai Ping Carpets Ltd

58.  Originally, the purchaser also required the production of the originals of three tenancy agreements dated respectively 12 June 1993, 28 May 1994 and 1 November 1996.  The terms under those agreements had long expired.  Counsel before us did not pursue the point relating to these three instruments any further.

59.  No question arises as regards Rooms 1, 2 and 3 of the Penthouse, and the carparking space on the 4^th Floor.

60.  The Court of Appeal found that the vendor’s failure to account for the originals of the documents (referred to in paras 57(a) (b) and (c) above) was fatal to the vendor’s case.  Hence the vendor’s appeal to this court.  Before us, the Respondent maintains its case on the original grounds before the trial judge and cross-appeals on the basis that the vendor’s failure to produce the “certified copies” as mentioned in para 52(i) above entitled it to succeed.

The Chain of Title

61.  The agreement for sale by Nescon Ltd (the head vendor) to the Appellant is dated 14 November 2007.

62.  Nescon Ltd derived its title to the property from Delvincourt Ltd under an assignment about nine years earlier dated 12 October 1998.

63.  Delvincourt Ltd in turn took its title from Tai Ping Carpets Ltd under two assignments: one dated 30 May 1990 relating to Rooms 4 and 5 with 30/10,000 share of IL8294, the other dated 20 August 1991 relating to Rooms 1, 2 and 3 and the carparking space on the 4^th Floor, with 46/10,000 share of IL8294.

64.  As mentioned earlier, the date for completion of both the head agreement and the agreement in question was 17 June 2008.  Nearly four months before that date, on 21 February, the Appellant’s solicitors sent to the Respondent’s solicitors “all the title deeds and documents” set out in a list comprising 97 deeds and documents.  This included originals of the assignments referred to in paras 62 and 63 above:   The assignments by Tai Ping Carpets Ltd to Delvincourt Ltd (para 63 above) went back some eighteen years from the time of the agreement in question: Sufficient, prima facie, to satisfy the requirements of s 13(1)(a)(ii) of the Conveyancing and Property Ordinance for proof of the title of the head vendor Nescon Ltd and for the vendor to pass good title to the buyer.

Objections to Conveyance

65.  By letter dated 29 February, the buyer’s solicitors raised a whole series objections and requisitions.  These will be dealt with in segments of this judgment below.

Objections to Copies

66.  These objections relate to matters in the 1970s and 1980s when arrangements were made between three parties: The Hong Kong Government, the owner of an adjoining high-rise building Hutchison House and the owner of Bank of America Tower (then known as Gammon House).  These arrangements are referred to in para 52(i) above.  They concern the sea-water cooling systems for the two buildings, serviced by pipes under government land.  These arrangements were embodied in what were called Pump Pit Tenancy Agreements and Pipeline Wayleave Agreements.  The Respondent’s solicitors wanted certified copies of those documents “for perusal”.  In relation to a 1979 document the vendor had no copy.  In relation to the 1988 copies, the solicitor’s certificate was appended on a copy previously attested by two solicitors’ clerks (what counsel calls “copies of copies”).

67.  The buyer’s solicitor asserted the right to see those documents for this reason: The agreement of 11 January 2008 contained a schedule forming part of its terms.  Clause 1 of the schedule says that the subject property was the same property as set out in an assignment registered by Memorial No. 7599026.  When one turns to that assignment, dated 12 October 1998, between Delvincourt Ltd as vendor and Nescon Ltd as purchaser, one sees that the sale is said to be inter alia subject to and with the benefit of the agreements relating to the pump pit and pipe-lines (as referred to in para 52(i) above).

68.  From a commonsense point of view, the purchaser’s request may seem surprising.  The whole estate and interest in the land vested in Nescon Ltd, which the Appellant had contracted to sell on as confirmor, was no more than 76/10,000 share of the land and building (together with the exclusive right to use occupy and enjoy the Penthouse and the carparking space on the 4^th Floor).  How such an owner could be expected to have – or be able to procure – in 2008 copies of such documents, beyond those he already had (some of them going back 30-odd years) is difficult to understand. 

69.  The practical reality is that if, through some breach of the arrangements embodied in those tenancies and wayleave agreements, the cooling system failed, it would have affected the entire building and all its occupants.  Likewise other arrangements for servicing a multi-storeyed office block, such as electricity supply and the servicing (and perhaps replacement) of the lifts if those failed.  This is simply an incident of the management of high-rise buildings in multiple ownership, of which all buyers (and their solicitors) must be aware.  A careful buyer, before entering into a contract to buy units in such a building, would have made inquiries as to the arrangements for such services, and whether a special fund[4] has been set up to provide for exceptional expenditures and the amount in such fund.  These arrangements, good or bad, might well affect the price the buyer is willing to pay but do not affect the title of the owner to his units: unless of course some charge has been levied by the manager of the building, which has been registered against the owner’s units under the Land Registration Ordinance, Cap 128.

70.  The fact that the pump pit tenancies and wayleave agreements appear as recitals to the assignment of 12 October 1998 (see para 67 above) does not take the matter any further.  The fact that those arrangements exist is not in dispute.  The question, at the end of the day, is whether they have any effect on the title sought to be conveyed.  The answer is plainly No.

71.  And yet, when it came to litigation between the parties, that was apparently the first point taken by the buyer.  The trial judge Yam J devoted many pages of his judgment in disposing of this point against the Respondent, though not on the grounds outlined above.  It was apparently assumed by all counsel that those documents were relevant to the title that the vendor had contracted to convey.  So the argument at trial focussed on two matters:

(i)    whether contractual arrangements for the supply of sea-water for the cooling system in 1988 had replaced the earlier arrangements, making the absence of any copy of a 1979 Pump Pit Tenancy Agreement irrelevant, and

(ii)   whether the requirements of s 13(2)[5] of the CPO were satisfied by the production of certified copies of the 1988 agreements, where the solicitor’s signature is appended to a copy attested by two solicitors’ clerks.

72.  The Judge was upheld in this regard by the Court of Appeal.  Hence the Respondent’s cross-appeal.

The Respondent’s cross-appeal

73.  Mr Edward Chan, SC has focussed his submissions solely upon para 71(ii) above.

74.  As the Court of Appeal said (para 23) the point turns on the construction of s 13(2)⁵.

75.  This point can be tested by reference to one of the documents in issue, an agreement between the developers of Hutchison House and Gammon House (as the Bank of America Tower was then called).  The document produced by the vendor bears two endorsements.

(i) An endorsement made on 7 July 1981 whereby two clerks of the firm of solicitors Deacons asserted that they had examined the original document and “certified and attested” that the document was a true and correct copy of the original.

(ii) A solicitor’s certificate, endorsed on either the same document or a copy thereof, dated 10 July 1985 (that is to say, after 1 November 1984, in terms of s 13(2)(b) of Cap 219) whereby he stated that having examined the document he was able to say that it was a true and complete copy “of the said Attested copy”.

76.  As the Judge said, and the Court of Appeal agreed, what s 13(2) required was the production of a copy attested or certified to be a true copy.  It did not in terms require an attested or certified copy of the original[6]: Although, in this case, the attestation was clear evidence that the two clerks had examined the original.  What in effect the solicitor in turn was stating was this: On the evidence before him he was satisfied that it was a true copy of the original and so certified that it was “true”.  Thus, even where a public officer or solicitor certifies as true a copy of a certified copy of a relevant document for the purposes of s 13(2)(b), what is being certified as a true copy is the copy of the original.  The whole thrust of s 13(2) is to facilitate conveyancing.  The section places reliance on the integrity and judgment of public officers and solicitors.  When they have certified that a copy is true, the parties can rest content that it is so, unless extraneous evidence shows otherwise.

77.  I would dismiss the Respondent’s cross appeal.

A Common Law Rule: Yiu Ping Fong v Lam Lai Hing

78.  I now turn to what appears to be the more substantial part of this appeal: A supposed common law rule which solicitors in Hong Kong thought had been laid down by Yuen J in Yiu Ping Fong v Lam Lai Hing [1999] 1 HKLRD 793 at 798 F – H to this effect: Unless excluded by express contractual provisions, a vendor at completion was duty bound to deliver to the purchaser all original title documents going back to the root of title, however remote, if those documents relate exclusively to the property sold.  If, prior to completion, the vendor was unable to provide a satisfactory explanation as to why he would not be able to do this at completion, the purchaser was entitled to rescind.  The way the learned judge puts it is this:

“…A vendor’s solicitor can as part of proof of title under s.13(1) send certified true copies of title deeds and documents to the purchaser’s solicitor for perusal, without having to prove that the originals are lost. However, a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over.

The handing over of original title deeds and documents (or at least those which relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land. That obligation is well established in the common law.

A purchaser of land is entitled as a matter of proprietary right to possession of the original title deeds (Williams on Title, 4th ed. p.547), which is the best evidence of ownership.

Further, it is important for him to get possession of the original title deeds so that he can be sure that the property is not subject to an equitable mortgage by deposit of title deeds. If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (SeeEmmet on Title, para 5.147).

Where, therefore, as in this case, the Vendor has given notice that she would not be able to produce the original 1986 assignment on completion, it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain its loss.” 

79.  As will be noted, Yuen J in Yiu Ping Fung stated (at 798 H) that the vendor’s obligation was “well established in the common law”.  This is a very wide statement: And, as such statement, it was thought binding by solicitors and was followed in a number of subsequent cases, with unfortunate results for the vendor. 

Guang Zhou Real Estate v Summit Elegance

80.  For example, Guang Zhou Real Estate v Summit Elegance [2000] 2 HKLRD 855 (Deputy Judge Chu):  It concerned the sale of five lots of vacant land.  The contract was made on 4 September 1997, for completion on 31 January 1998.  The purchaser made requisitions, identified as No. 10 and 14.  No. 10 related to the Crown lease of one of the lots.  The vendor was only able to produce a certified copy of the original.  The original was never in its possession.  Requisition No. 14 concerned a deed of release relating to a right of way over one of the lots.  The vendor could only produce a certified copy.  It never had the original.

81.  The sale agreement in Guang Zhou Real Estate (clause 7) required the vendor to “show and give good title…pursuant to s 13 of the Conveyancing and Property Ordinance….and furnish to the purchaser such attested or certified copies of any deeds or documents of title,..as may be necessary to prove such title.” [Emphasis added]

The deputy judge construed Yiu Ping Fong as laying down a common law rule that to give good title, the vendor had to deliver the originals of title documents or provide a satisfactory explanation for their absence, however remote in time such documents might be.

As will be noted later on in this judgment, the delivery of originals of documents, which deals with the right of property in those documents as chattels, is a different matter from the obligation to give good title.

82.  Take another example where the application of the principle articulated in Yiu Ping Fong had unravelled the parties’ bargain: Loyal Hope Ltd v Leung Pui Ming and 2 others [HCA 136/2007, 20 March 2008 Master M Yuen, unreported] where the agreement for the sale of a ground floor unit at 267 Castle Peak Road Kowloon was made in October 2006.  The ultimate root of title went back to the year 1957.  The purchaser’s solicitor required the production, before completion, of the originals of 30 documents dated between 1957 and 1971, on the authority of Yiu Ping Fong.  The vendor’s solicitor replied (p.6-H in the unreported judgment):

“We opine that the Yiu Ping Fong case is distinguishable as the document in question in that case is not pre-intermediate root instrument”.

In reply the purchaser’s solicitor said:

“With respect, Yiu Ping Fong’s implication extends to all original title deeds relating exclusively to subject property reaffirms the common law position that a purchaser is entitle(d) to all title documents and there is no destination (distinction) between pre-root or post-root documents. We reiterate our requisition.” [p.6-L]

83.  Eventually the vendor’s solicitor offered to produce certified copies of the requested documents with a statutory declaration by the vendors that they never had the originals ever since the date of their purchase of the unit back in 1989.  To this offer, the purchase’s solicitors replied as follows:

“We reiterate our stance for the original documents. The declaration of lost being conveyancing evidence to account for the non-production must be made by the person who has personal knowledge on how the document(s) was received and lost. The declaration proposed by you, according to Yiu Ping Fong’s ruling is not acceptable by our client.”

84.  The outcome was that the buyers refused to complete.  Of the 30 missing documents the vendors were able to produce photocopies of 17.  As to the remaining 13 all they could do was to provide copies of the memoranda of registration, as appearing in the Land Office register.

85.  Multiply parties were involved, going back to 1957.  To require the vendor, who had acquired the property in 1989, to explain who, why and how those other parties had lost the originals would seem an impossible task.  The Master nevertheless gave judgment in favour of the buyers.  At para 55 of the judgment the Master said:

“55. The [vendors] were unable to give good title to [the purchaser] unless [they] were able to provide a satisfactory declaration to account for the loss of the title documents”

86.  In so concluding the Master was following Guang Zhou Real Estate (supra) and Deputy Judge To in Goldmex Ltd [2006] 2 HKLRD 795, whilst noting that Reyes J in C & W Watch Company [HCMP 920/2005, 10 October 2005, unreported] had doubted the correctness of Yiu Ping Fong.

87.  Here, the Court of Appeal, in allowing the buyer’s appeal against Yam J’s judgment, affirmed the formulation of the common law duty in Yiu Ping Fong.  At para 47 Tang VP said:

“…I also agree with Yiu Ping Fong and Guang Zhou Real Estate Development (HK) Co Ltd. I am also of the view that the obligation to produce original title deeds and documents extend beyond the intermediate root. In other words, notwithstanding section 13, a vendor is required to supply all the original title deeds which relate exclusively to the property sold which should be in his possession or power. Otherwise, the vendor must provide clear and cogent proof of: the contents of the missing document; its due execution; and the fact of its loss or destruction. Wu Wing Kuen and Ors v Leung Kwai Lin and Another [1999] 3 HKLRD 738.”

88.  This common law obligation is formulated in the leading Hong Kong text book on Hong Kong ConveyancingLaw and Practice by Sihombing and Wilkinson (Butterworths) Chapter VI para 79.5 in these terms;

“The common law position

[79.5]

At common law, unless otherwise agreed, a vendor, who has agreed to give good title, has an obligation, by way of giving such title, to deliver to the purchaser the originals of all title deeds that relate exclusively to the property to be assigned right back to the ultimate root of title.  If such original title documents are missing, the vendor must provide a statutory declaration as to how they have come to be missing….”

89.  As the authors later on noted (para 79.6), solicitors (and their clients) faced serious problems in complying with the common law rule enunciated in Yiu Ping Fung, since, in many instances, vendors could not trace the original title deeds relating to the property extending back to the ultimate root of title.

90.  This could mean going back as far as 1844, with a World War in between, during which Hong Kong was occupied by enemy forces.

s.13A CPO

91.  Seeing the unsettling effect on conveyancing practice caused by Yiu Ping Fong as applied in later cases the legislature amended s 13 of the CPO by adding s 13A in July 2008 which provides:

“Section 13 A

(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require the vendor to deliver to him, for the purpose of giving title to that land, the original of both of the following only-

(a) if there is a Government lease that relates exclusively to the land, the lease; and

(b) any document that relates exclusively to the land and is required to be produced by the vendor as proof of title to that land under section 13(1)(a) and (c).

(2) Subsection (1) does not affect any rule of common law under which the vendor may discharge his obligation to give title to that land otherwise than by delivering the Government lease or document to the purchaser.

(3) If the vendor is not required to deliver to the purchaser a document in giving title to that land, the purchaser has no proprietary right or ownership in the document.

(4) The fact that-

(a) the vendor is not required to deliver to the purchaser a document in giving title to that land; and

                   (b)        the purchaser has no proprietary right or ownership in the document,

does not affect the right or interest of any other person in that land.”

The Common Law Rule

92.  The effect of s 13A will be discussed later. Here, I confine myself to an analysis of the common law rule, which is the crux of this aspect of the appeal.

The Two Extremities

93.  The completion of a contract for the sale of land entails the execution of the conveyance by the seller and the payment of the purchase price by the buyer[7]. Or, perhaps more accurately, the delivery into the purchaser’s hands of a duly executed deed of assignment, against the payment of the purchase price.

94.  As a note in the report of Parr v Lovegrove [1858] 4 Drewry 66 at 70 says: “In general a purchaser on completing is entitled to have delivered up to him the title-deeds, assuming that they are in the vendor’s power.  His right to them rests on the fact that when he has become complete purchaser, the title-deeds are his; they are the evidences of his title, not of the vendor’s who has by the transaction ceased to have any estate or title.”  In other words, on completion, the right of property in the title deeds passes to the purchaser who has immediate right of possession over them.

95.  The question is this: To fulfill the vendor’s obligation to give title, is the delivery of the title deeds part of the process of giving good title, or is it merely an incidence of conveyancing?  In a preliminary agreement such as we have in this case, where it makes no mention of the delivery of title deeds into the buyer’s hands, can the seller simply say to the buyer: “I have given you title by handing over to you a duly executed deed of assignment. As to the title documents in my custody, I acknowledge your proprietary rights over them. Sue me in detinue if you will, but pay me the balance of the purchase price in the meanwhile.”  This treats the title documents as mere chattels, the ownership of which passes with the land; but the giving of title is achieved by delivery of the executed deed of assignment and not by delivery of the title documents.

96.  This is one view, adumbrated by Mr McDonnell QC in the course of argument before us.

97.  At the other extremity is the broad proposition in Yiu Ping Fong – at least as understood by the profession and followed in subsequent cases: To repeat the proposition in para 78 above: Unless excluded by express contractual provisions, a vendor, in order to give good title, must deliver to the purchaser at completion all original title documents going back to the root of title, however remote, if those documents relate exclusively to the property sold.  Unless the vendor is able to provide certified copies of such documents and provide a satisfactory explanation as to why the originals cannot be produced, the purchaser is entitled to rescind.

98.  The harshness of such a rule is self-evident.

99.  The common law abhors extreme or unreasonable outcomes[8].  If, to give good title, the common law requires the delivery of title deeds (as an act that goes to the giving of title) some middle ground, resulting in balanced justice, must be found.

What Is The Rule or Principle?

100.  A contract for the sale of land depends upon the ordinary law of contract.  As Lord Hoffmann said in Jumbo King Ltd v Faithful Properties [1999] 2 HKCFAR 279 at 299C: “Contracts for the sale of land are not exceptions to the principle that parties have freedom of contract and may agree to whatever terms they like.”   Where the parties have, through their solicitors, entered into a formal contract of sale, it would generally be assumed that they have provided for all the essential terms.  This leaves little room for implication of terms.

101.  But here we have only a preliminary agreement which by clause 2 envisaged that the parties would, on or before 18 February 2008, enter into a formal agreement.  This never took place.  But it is a binding legal agreement nevertheless.  It is then the court’s function to give effect to the parties’ bargain, according to law.

102.  In Clause 3 the vendor “undertook” to “sell the premises to the purchaser…. free from encumbrances”.  It says nothing about giving good title to the buyer at completion.  But, to make the contract work, that is an obligation which is necessarily implied.

103.  Given that the vendor has an obligation to convey good title to the purchaser on completion, how is this to be accomplished?  To make the contract work there must be a further implied obligation to be undertaken by the vendor: That it must, some reasonable time before 17 June 2008 (the day fixed for completion), deliver to the purchaser or its solicitors all the title documents the vendor was able to get from Nescon Ltd the head vendor, to enable the purchaser (with the advice of its solicitors) to be satisfied that the purchaser would have good title on completion.  This is the so-called Hong Kong conveyancing practice (see Yiu Ping Fong at 798A) whereby title deeds and documents are delivered to the other side for the purchaser’s solicitors’ inspection and approval, those solicitors impliedly undertaking to hold the deeds and documents to the vendor’s solicitors’ order and to return the same on demand.  This is what Deputy Judge J. Chan said in Lau Mui Fun v K.C. Chan & Co. [HCMP No. 572 /1992, 6 July 1992, unreported] at p.10 as:

“the special and unquestioned trust one solicitor reposes on another in respect of custody of title deeds in conveyancing transaction is a cornerstone in the conveyancing practice established in Hong Kong.”

104.  The system works upon trust.  At the stage of showing title, the delivery of the documents is for the purpose of perusal by the purchaser’s solicitors.  There is an implied representation that at completion these are all the documents the buyer will get with the executed assignment.

105.  In this case the vendor’s solicitors, following normal practice, delivered on 21 February the deeds and documents (97 in number) to the purchaser’s solicitors for perusal, they having previously obtained the deeds and documents from Nescon Ltd and given an identical undertaking themselves to Nescon Ltd’s solicitors.

106.  The obligations imposed on the vendor in this case to show good title and give good title arise by necessary implication, in order to make the contract work, and give effect to the parties’ bargain[9].

107.  What then is meant by the vendor’s obligation to make good title?  The principle as stated in the leading textbook in Hong Kong, Hong Kong Conveyancing Law and Practice Chapter VI para 2 is as follows:

“In a case where the vendor has agreed to give or make good title, his duty is to ensure that, by the completion date….the nature of his title is neither defective nor defeasible. He must deal, in a way acceptable ultimately to the court, with all defects in that title so that, paraphrasing the words of Lord Russell of Killomen in MEPC Ltd v. Christian Edwards [1981] AC 205, the facts and circumstance are to compelling that, beyond reasonable doubt, the purchaser will not be at risk of a successful assertion against him of any encumbrance…”

108.  This is the principle under which a buyer would have acquired the property; it is entirely reasonable that, when he came to be the seller, he should be under the same obligation.

“Real Risk”

109.  There have been many cases in the past where, on an objection as to title, the question boiled down to this: Is there a real risk that a third party might assert some right over the property, thereby encumbering it or defeating the title altogether?  Take the instance where structures have been added to buildings after the occupation permit was issued.  Might this give rise to the Building Authority asserting its rights under section 24 of the Building Ordinance, Cap 123 to order the demolition of the structure and having the order registered in the Land Registry against the premises[10]? As Godfrey JA observed in Jumbo King Ltd v Faithful Properties Ltd [1999] 3 HKLRD 231 at 244 G:

“ ‘Unauthorised structures’ are all too common in Hong Kong and present a real problem for conveyancers. A vendor whose title is, or may be, open to objection because there is, or may have been, erected on the property of which he is granting exclusive use to his purchaser some unauthorised structure is well advised to protect himself by precluding his purchaser, by contract, from raising any requisition or objection to the title based on an ‘unauthorized structure’ point....”

On a further appeal in that case, this Court left it open as to whether the presence of unauthorized structures within the premises constituted risk of encumbrance so as to affect the vendor’s obligation to pass a good title: see Jumbo King Ltd v. Faithful Properties Ltd [1999] 2 HKCFAR 279 at 294.  This Court said that it was a matter of degree.  In that case the contract itself precluded the objection being raised.

110.  A clear example of a case where the court held that there was no risk is Jumbo Gold Investment Ltd v Yuen Cheong Leung [2000] 3 HKCFAR 52 where a block of flats had been erected many years ago in apparent breach of a height restriction in the Crown Lease.  The question was whether there was a real risk of the government taking action to re-enter by registering a memorial of re-entry under s 4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap 126, extinguishing the interest of the owner (and that of every other owner in the building).  The unanimous answer of the Court was No.  As Bokhary PJ said (at p.60-61):

“In my view, the evidence….did not exclude a reasonable possibility of an unwaived breach of condition which gives the Government a right of re-entry. The question is therefore whether, assuming that the Government has that right, there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Mr Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessarily like that. Accordingly it is safe to proceed on the basis that the Government would never do so.

The way in which this Court has decided the present case will, I trust, prevent cases of this type arising in future.”

111.  In the context of the present case, the question of risk focusses on the possibility that an original deed of assignment might have been deposited with a third party as security for money borrowed.  This question cannot be examined in a vacuum.  It must be seen against the background of the Land Registration Ordinance, Cap 128 and in particular s 3 and s 4 which provide:

“Section 3 Priority of registered instruments; effect of non-registration

(1) Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2) All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes.

Section 4 Notice of unregistered instrument not to affect registered instrument

No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered.”

112.  The Court of Appeal in this case (para 39) thought that there was a real risk of the purchaser’s title being blemished by a prior encumbrance created by deposit of title deeds.  Tang VP referred to Oliver v Hinton [1899] 2 Ch. 264, the headnote of which accurately summarizes the position in English law:

“In order that a purchaser for value, who has acquired the legal estate without notice of a prior equitable mortgage of the property, may be postponed to that mortgage, it is not necessary to shew that he has been guilty of fraud, or negligence amounting to fraud; it is sufficient that he has been guilty of negligence so gross as to render it unjust to deprive the prior mortgagee of his priority.”

What the Court of Appeal appears to have overlooked (perhaps because the case was never cited by counsel) was this: A situation like that in Oliver v Hinton could not have arisen in Hong Kong.  In that case the deposit of title deeds to secure the repayment of £400 was accompanied by a memorandum of the deposit, with an undertaking to execute a legal mortgage if asked to do so.  In Hong Kong the memorandum would have been registrable.  (The properties in Oliver v Hinton were not located in counties which had a system of registering deeds and documents).  And when, two years after the deposit of the title deeds, the owner executed a conveyance of the property to a purchaser, whose agent (a former solicitor’s clerk) never asked to see the deeds, the equities in that case depended on whether the purchaser had acted with such with gross negligence that she had to be postponed to the equitable rights of the chargee.  In Hong Kong, once the assignment to the purchaser is registered the purchaser takes priority over an unregistered chargee. 

113.  This position was entrenched a hundred years ago in the case of Kwok Siu Lau v Kan Yang Che [1913] HKLR 52.  The purchaser of a property had his agreement for purchase registered with actual knowledge of the existence of a prior 5-year lease (unregistered) over part of the property.  He completed the purchase and registered his assignment.  By section 4 of the Land Registration Ordinance, 1844 – the equivalent of the present-day section 4 – “no notice … either actual or constructive, of any prior unregistered deed … shall affect the priority of any such instrument… as is duly registered in pursuance of this Ordinance”.  Rees Davies CJ held, affirmed by the Full Court, that the purchaser took the property free of the 5-year lease.  As Havilland de Sausmarez J, said in the Full Court (p 65) the Ordinance had, at a stroke, cut off the application of the equitable doctrine of notice to an registered deed.  Assuming that a purchaser like the one in Oliver v Hinton had, prior to completion, actual knowledge of the existence of an unregistered memorandum of deposit covering the property and went ahead nevertheless to complete the sale and then had his assignment registered, he would take the property free of the equitable mortgage.

114.  Many generations of solicitors have practised conveyancing under the registration system in Hong Kong, well aware of the importance of having instruments registered.  The Land Registration Ordinance (Ord No 3 of 1844) is one of the oldest laws passed in Hong Kong.  At trial no suggestion was raised in this case that the head vendor Nescon Ltd’s title could have been blemished by any prior encumbrance effected by deposit of title deeds.  The passing reference to the possibility of equitable mortgages being created by the deposit of title deeds in Yiu Ping Fong (at para 798-I) was not made with regard to the circumstances of conveyancing in Hong Kong.  The learned judge merely cited a passage in Emmet on Title, para 5.147 (now para 5.129 in the latest edition).  This dealt with the position in England generally, without any system of registration of instruments affecting land[11].  The Hong Kong practice of conveyancing, like that in Ireland where there is a similar system of registration, gives “a premium to diligence in registration”, using the words of Lord Cairns LC in Agra Bank Ltd v Barry [1874] LR 7 HL135 at 149.  Hong Kong conveyancers would be well aware of this.

115.  Take a hypothetical case.  Mr X buys a newly completed flat from a reputable developer.  The flat (and an undivided share of the land and building) is assigned to him and the deed of assignment is forthwith registered in the Land Office.  Two years later he sells the flat to Y.  In the normal course of events, when X’s solicitors deliver the title documents to Y’s solicitors for perusal, prior to completion, the original deed of assignment would have been included.  But it is missing. There is only a certified copy.  The purchaser’s solicitors might well ask why.  This springs from the common experience of solicitors, and from common sense.  The important point to note is this: In this example, there has been no intermediate transaction: Hence the priority of registered instruments under the Land Registration Ordinance does not apply.  If X, before completion, had deposited the original assignment with a lender, accompanied by a note saying: “I hereby deposit my assignment with you as lender by way of security for a loan of $2 million, repayable on demand” and the lender registered the note in the Land Office prior to the assignment to Y being registered, Y would take the flat subject to the equitable charge.

The Obligation To Explain

116.  Of course, in a case like that outlined above, the purchaser could choose to take a chance and not raise an objection.  The nearer to completion, the less his chance of being over-reached by a third party registering a memorandum of deposit before he can have his assignment registered.  But a court would not require a purchaser to take such a chance and, in the circumstance outlined above, might well hold that the requisition was properly raised.  The burden would then fall on the vendor to explain why he was unable to produce the original deed of assignment.  There is nothing oppressive in the request.  Had the matter been formulated in terms of the “officious bystander”[12] test, both parties would have said “of course the missing deed must be found, or the loss explained”.  The matter was within the personal knowledge of the vendor. The obligation to explain springs from the circumstances of the particular case.

117.  The matter is one of degree. The risk is that of a lender emerging from the dark with an original title deed in his hands and registering a memorandum of deposit ahead of the purchaser. The degree of risk – whether it can be regarded as “fanciful” – depends on the circumstances.  Hence the importance of candour in the course of requisitions as to title: Facts known to the vendor material to the requisition must be disclosed: A principle emphasized in Active Keen Industries Ltd v Fok Chi-keong [1994] HKLR 396 at 407.

118.  So far, the risk discussed is that of a lender with an unregistered memorandum of deposit: A lender who does not wish his transaction made public, for one reason or another, by registering a memorandum of deposit, revealing its terms.  What of the position of a loan by parol, without a scrap of paper evidencing the loan and its terms: A situation also covered by the passage in Emmet on Title cited in Yiu ping Fong (referred to in para 78 above)?

119.  As Mr Mcdonnell QC, counsel for the Appellant said at the hearing (and not contradicted by Mr Edward Chan SC) there is simply not one instance in the reports going back to the earliest days in Hong Kong of equitable mortgagees by deposit of title deeds having defeated the title of purchasers.

120.  It is difficult to imagine a situation where a person would lend a substantial sum of money with nothing more than an oral commitment and a deposit of title deeds, when he could have safeguarded his security by requiring a memorandum of deposit and having it registered.  One is not dealing here simply with the transaction between the lender and the borrower, against whom there is a personal right of action to recover the loan.  One is dealing with the lender’s rights against a third party, the owner of the land.  If it is security for the loan which the lender wants, why does he not secure it by having a written instrument and having that registered against the property?

The Rule in Yiu Ping Fong

121.  Pulling the threads together and returning to the broad principle of common law stated in Yiu Ping Fong, the foundation of that wide proposition, according to counsel, is the case of Duthy and Jesson’s Contract [1898] 1 Ch. 419, Romer J, where the contract to sell a freehold house was made in 1897.  Nearly 50 years before it had been mortgaged and the mortgage deed and other title documents were in the custody of the solicitors for the mortgagees, but by the time of the sale of the house in 1897 the mortgagees were all dead.  The mortgage had been paid off.  The solicitors were holding the documents as bare custodians, claiming no lien over the documents.  The vendor had an undoubted right of possession over those title deeds, being the owner of the freehold.  And at completion the purchaser would equally have had a right of possession over those deeds.  So it was simply a matter of trouble and expense in taking physical possession of the deeds on the vendor’s part.  The solicitors claimed no right over the deeds but said they could not hand them over without the consent of the mortgagees’ personal representatives.  Had the vendor asserted his right of possession over those deeds by court proceedings, he would unquestionably have obtained physical possession.  But he did nothing.

122.  Duthy and Jesson’s Contract has nothing to do with lost deeds.  The deeds were within the vendor’s power because he had the right of possession over those deeds.  What he did not have was physical possession.

123.  The question raised before Romer J (see p. 419) was simply whether the vendor was bound at his own expense to get hold of the deeds for the purpose of handing them over to the purchaser on completion.  No question of title was involved in the case (see p.423).  It is no foundation for the broad principle stated in Yiu Ping Fong at 798-F:

“… a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over. ”

124.  The judgment in Yiu Ping Fong dealt with two requisitions, only one of which is relevant to this case.  As to that, the judge after saying that the issue before her was the effect and extent of s 13(2) of CPO, went on as follows:

“There has been much debate in this Court as to the true meaning and effect of s.13(2), and a number of authorities have been quoted to me, in particular, Ip Fung Yee v Norwegian Missionary Society [1998] 1 HKLRD 94, which on one reading seems to suggest that so long as certified true copies are produced, it is not necessary for a vendor to explain the loss of original title deeds.”

125.  It appears that counsel on both sides treated the matter as one of law rather than one turning on the facts of that case. That probably explains why the facts are so sparse on the point.  The sale in issue took place in 1998.  The missing deed of assignment was made well within the 15 years in s 13(1)(a)(ii) of the CPO:  The vendor had taken an assignment of the flat from a person called Chiu two years before, in 1996; Chiu had acquired the flat from her mother in 1990, the mother having bought the flat from developers a few years before that – in 1986. 

126.  The risk to the purchaser in Yiu Ping Fong was what the vendor might have done with the deed: She had bought the flat only about two years before the sale in 1998, presumably through solicitors.  Those solicitors would have on record what title documents passed on conveyance.  They would have known what took place in 1996, when they acted for the vendor in acquiring the flat from Chiu. But they seem not to have been asked.  There might well have been grounds in Yiu Ping Fong for the judge to conclude that the vendor’s bare assertion – that she never had the original 1986 assignment (see p.799-H) – was not good enough.  But the requisition was not focussed in this way.  This might yet be another case where the process of requisitions was not centered upon the essential point of the case.

127.  In so far as Yiu Ping Fong has been taken as authority for the broad proposition in para 78 above that must be over-ruled.

Section 13A CPO

128.  Where section 13A(1) imposes an obligation on the vendor, for the purpose of giving title, to deliver to the purchaser an original title deed[13], that requirement is subject to the common law rule: see subsection (2).  If an original in the chain of title is missing, and such loss gives rise to no risk that the title to be passed to the purchaser might be blemished, then the vendor would have fulfilled his obligation of giving good title under s.13A(1).

The Objection to Title In This Case

129.  The question boils down to this: is there a real risk that, in taking an assignment from Nescon Ltd, with the Appellant as confirmor, the purchaser was not receiving a good title to the property in this case?

130.  The intermediate root of title went back to May 1990 (see para 63 above) and the vendor was able to prove title by producing the original title deeds.  As regards the charges referred to in para 57(a) above, the evidence shows conclusively that they had been discharged.  This leaves the deeds of assignment referred to para 57(c) above.  Take the instance of the assignment of Room 5 to Tai Ping Carpets Ltd.  Is it conceivable that someone might, over 20 years later, come forward to say that he holds the deed of assignment dated 26 August 1986 because he had lent money to Tai Ping Carpets Ltd: A loan by parol, without a memorandum evidencing the loan: a memorandum which would have been registrable under the Land Registration Ordinance and “absolutely null and void to all intents and purposes” (s.3(2) of that Ordinance) as against subsequent bona fide purchasers for value?

131.  Take further the assignments of Rooms 4 and 5 to Tai Ping Carpets Ltd both dated 26 August 1986 (Memorials No. 3146075 and 3146074), of which the originals were missing. Assume that, prior to the completion of the subsequent sales of those Rooms by Tai Ping Carpets Ltd to Delvincourt Ltd on 30 May 1990, Tai Ping Carpets Ltd had deposited the originals of its deeds of assignment with a lender in the circumstances adumbrated in para 115 above: Once the deed of assignment to Delvincourt was registered (as it was by Memorial No. 4460361) any rights which the lender might have had over those two Rooms as equitable chargee would have been extinguished.  The title deeds in the lenders’ hands would have been of no worth.  And a loan by parol can for practical purposes be disregarded.

132.  In this case, ignoring the three tenancy agreements referred to in para 58 above, the missing title documents went back some twenty years, with many registered instruments affecting title in between.

133.  Objections and requisitions proceed on practical realities, not theoretical possibilities.  Solicitors need on each occasion to ask themselves whether their client the purchaser is taking a real risk when the vendor, in showing title, is able only to produce a certified copy of a title document and not the original.

Conclusion

134.  In my judgment in so far as the common law rule as stated in Yiu Ping Fong always requires a satisfactory explanation for the absence of an original title document before the court could order a purchaser to take title on completion, it is far too wide.  The cases following that statement of principle were wrongly decided.

135.  I would allow this appeal and restore Yam J’s judgment, though not on his grounds.  I would direct that the parties have 14 days from the date of handing down our judgments to lodge written submissions as to costs, with any written submissions in reply within 14 days thereafter.

Chief Justice Ma:

136.  This appeal is unanimously allowed.  The Court also makes the orders set out in para.135 above.