XU XIAOQI AND OTHERS v. TSUI YUET LAI TERESA

HCA1352/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1352 OF 2011

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JUDGMENT

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1. To most people, buying a home is the biggest acquisition in their life. It ought to be a happy event. Regrettably, it is not always so in reality. Conveyancing in Hong Kong remains a tedious exercise involving the assistance of solicitors who have to comb through many documents, some very old, to ensure that the title to the property in question is a good one. Not infrequently, arguments will erupt during this process and, worse still, litigation ensues. This is one such unfortunate case. However, the arguments here are fairly confined, turning upon the legal effect of the absence of the original of a document.

Background

2. There is very little factual dispute.  What dispute there is concerns only the quantum of some of the damages claimed by the plaintiffs. 

3. By an Agreement for Sale and Purchase dated 10 June 2011 (“Agreement”), the defendant agreed to sell the property at Flat 12F, Block 4 of Wai Wah Centre, Shatin (“Property”) to the plaintiffs at HK$3,100,000.  Completion of sale was to take place on 29 July 2011.  Deposits totalling HK$310,000 had been paid by the plaintiffs under the Agreement.

4. The relevant terms of the Agreement are:

“(a) Clause 15.01 provided that the defendant shall prove and give good title to the Property in accordance with Sections 13 and 13A of the Conveyancing and Property Ordinance, Cap. 219 (‘Ordinance’) –

‘The Vendor shall give title to the Property in accordance with Section 13A of [the Ordinance] and the Vendor shall, in accordance with Section 13 of [the Ordinance], prove his title to the Property at his own expenses and shall at the like expense make and furnish to the Purchaser such certified copies of any deeds or documents of title, wills and matters of public records as may be necessary to prove and complete such title. The costs of verifying the title by inspection and examination, including search fees, shall be borne by the Purchaser who shall also, if the Purchaser requires certified copies of any documents in the Vendor’s possession relating to other premises retained by the Vendor as well as to the Property, pay the costs of such certified copies.’

(b) Clause 15.04 stated that such documents of title as are required for the purpose of giving title to the Property shall be delivered to the plaintiffs –

‘Such of the documents of title as are required for the purpose of giving title to the Property shall be delivered to the Purchaser. All other documents of title in the possession of the Vendor shall be retained by the Vendor who shall, if so required on completion of the sale, give to the Purchaser a covenant for safe custody thereof and for production and delivery of certified copies thereof, such covenant to be prepared by the Purchaser.’

(c) Clause 16.01 provided that requisitions on title should be raised within 7 working days after the date of receipt of title deeds and documents by the plaintiffs’ solicitors or within 7 working days after the date of receipt of any reply by defendant’s solicitors.

(d) Clauses 20.02, 20.03 and 20.04 set out the defendant’s liability if she failed to complete the sale in accordance with the terms of the Agreement –

‘If the vendor fails (other than due to the default of the Purchaser) to complete the sale of the Property in accordance with the terms hereof then all the deposits paid shall forthwith be returned to the Purchaser who shall also be entitled to recover from the Vendor such damages over and above the said deposits paid as the Purchaser may sustain by reason of failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor for execution before taking proceeding to enforce specific performance of this Agreement or for damages for breach of this Agreement.

…

If any party hereto fails to complete the sale and purchase of the Property, the defaulting party shall be liable for all stamp duty and estate agent’s commission in respect of the present transaction.’”

5. Due to a dispute concerning a requisition over the original of a Power of Attorney (“POA”), completion did not take place on 29 July 2011.  The defendant terminated the Agreement on that day on the ground that the plaintiffs had failed to complete the transaction.  In turn, the plaintiffs asserted that the defendant had failed to answer the requisition satisfactorily within a reasonable time and had terminated the agreement prematurely.  Eventually, on 12 August 2011, the plaintiffs accepted the alleged repudiation of the Agreement on the part of the defendant and demanded the return of the deposits.

Requisition on title

6. Title deeds and documents of the Property were sent to the plaintiffs’ solicitors on 11 June 2011. 

7. The plaintiffs’ solicitors raised, amongst others, a requisition on title on 13 June 2011 (“Requisition”) in connection with an assignment dated 25 September 1997 (Memorial No. 1002271) (“Assignment”).  This was the first assignment in the “intermediate root” (see para below 20).  It was supplied to the plaintiffs’ solicitors with a certified true copy of the POA.  On the face of those documents, it appears that the Property was jointly owned by two persons by the names of Wan and Leung as tenants in common.  Leung executed the Assignment as vendor on behalf of himself as well as Wan.  Leung was empowered by the POA given in his favour by Wan to do so.  The plaintiffs’ solicitors requested the production of the original POA which was executed on 23 May 1997.  On the face of that document, it appears that it was created for purpose of the sale in question.  A firm of solicitors, Messrs T L Ip & Co (“Ip & Co”) was responsible for the creation of the POA.  A partner of that firm (“L Ip”) was the certifier in respect of the copy of the POA which was sent with the Assignment.

8. Between 14June 2011 and 29 July 2011, the parties corresponded on the Requisition and the answers thereto.  In short, defendant’s solicitors insisted that the production of a certified copy of the POA was sufficient for the purposes of s.13 of the Ordinance.  There was no real risk on the defendant’s title in that the original POA could not be used to create an equitable charge by way of depositing the same to a third party as security.  Further, the POA was not a document of title.

9. The plaintiffs’ solicitors, however, maintained that the defendant was under a contractual duty to give good title by producing original documents of title that related exclusively to the Property.  Production of the original POA was necessary for proving title and they requested the production of a statutory declaration if the original document was lost.

10. On 28 July 2011, a day before completion, the defendant’s solicitors sent a letter on a “without admission of any liability” basis to the plaintiffs’ solicitors enclosing a draft statutory declaration by L Ip explaining the loss of the original POA.  However, the defendant’s solicitors were unable to give an undertaking to provide the plaintiffs with the signed statutory declaration because the same would not be given by Ip & Co –

“Without prejudice to our views of in (sic) our previous letters and without admission of any liability, we were informed by [Ip & Co] that their partner agrees to make a Statutory Declaration explaining the loss of the [POA] (copy enclosed) but no undertaking will be given by [Ip & Co] and thus, we will not and are unable to give the same undertaking.

We shall forward to you the same after our receipt of the same from [Ip & Co].”

11. In a second letter dated 28 July 2011, the plaintiffs’ solicitors reiterated that the defendant had not properly answered the Requisition either by producing the original POA or an original statutory declaration as to its loss.  The solicitors stated they were in the course of considering the draft statutory declaration and that the plaintiffs were not bound to complete the purchase until the Requisition was properly answered in sufficient time before completion –

“We must stress that our client is entitled to have a reasonable period of time before completion to consider your reply to our requisitions (the decision of Yeung Sau Chuen Sammy v Chung Chun Ting is referred). We hereby reserve our client’s right to postpone the completion until our outstanding requisitions are answered to our satisfaction.”

12. The parties were unable to resolve the impasse. At 17:44 hours on the day of completion (29 July 2011), the Agreement was terminated, and the deposits forfeited, by the defendant on the ground that the plaintiffs had failed to complete the transaction in accordance with the same.

13. Before the issues are identified, I should mention a few established principles of law, which are undisputed, so as to set the scene.

Law

14. In a conveyancing transaction, there is an obligation on the vendor to show and give a good title to the property to the purchaser.  It is important to bear in mind that showing and giving good title are two different steps, although as a matter of conveyancing practice in Hong Kong they are “telescoped into one by the vendor’s solicitor sending title deeds and documents to the purchaser’s solicitor for his perusal of title” (Yiu Ping Fong & Anr v Lam Wai Hung, [1999] 1 HKLRD 793 at 798A).

15. The duty to show good title includes the obligation to answer requisitions satisfactorily.  Without satisfying the same, the vendor would not have discharged his obligation to show good title and it did not matter if he did in fact have good title (Lo Shea Chung & Anr v Lo Hung Biu [1997] 2 HKC 723 at 734B).

16. A good title is one which is “without any blot, or possibility of litigation to the purchaser” (In re Stirrup’s Contract [1961] 1 WLR 449) and it can “at all times and in all circumstances be forced upon an unwilling purchaser in an action for specific performance” (Kan Wing-yau & Another v Hong Kong Housing Society [1988] 2 HKLR 187).

17. A purchaser is entitled to have the originals of all documents of title which relate exclusively to the property delivered to him on completion (De Monsa Investments Ltd v Whole Win Management Fund Ltd, [2011] 4 HKLRD 478 at 490, para 38).  In Tang Wing Lam David & Anr v Chung Chi Keung Frederick [1999] 3 HKC 533, Barnett J held at 564F:

“It seems to me, therefore, that in Hong Kong, by convention, the phrase ‘title deeds’ embraces not only documents by which title or interest is actually transferred but also documents which contain evidence necessary to complete the title.”

18. In addition to these principles of law, there are important provisions under the Ordinance which go hand in hand with the same. 

19. S.13(1) of the Ordinance provides some assistance to vendors (and thereby simplifying the cumbersome conveyancing process) in respect of the proof of title:

“(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor, as proof of title to that land, only production of the Government lease relating to the land sold and–

(a) proof of title to that land–

(i) where the grant of the Government lease was less than 15 years before the contract of sale of that land, extending for the period since that grant; or

(ii) in any other case, extending not less than 15 years before the contract of sale of that land commencing with an assignment, … each dealing with the whole estate and interest in that land;

(b) production of any document referred to in the assignment … mentioned in paragraph (a) creating or disposing of an interest, power or obligation, which is not shown to have ceased or expired and subject to which any part of that land is disposed of; and

(c)  production of any power of attorney under which any document produced is executed where that document was executed less than 15 years before the contract of sale of that land.”

20. The effect of those provisions was explained in Donpower Trading Ltd v Apexcom Ltd [2010] 1 HKLRD 915 at 918, para 6:

“6. As a property may be acquired many years ago, s.13(1) of the Conveyancing and Property Ordinance (Cap.219) does not require the vendor, as proof of title to the property, to provide to the purchaser all the title documents from the date of the first acquisition of the property by his predecessors from the Government. Instead, production of the Crown Lease by which the property was first disposed of by the Government to the first owner and title documents of the property (such as assignment, mortgage by assignment or a legal charge) of not more than 15 years before the contract of sale of the property is sufficient. The latter documents are known as the intermediate root of title documents.”

21. S.13A of the Ordinance provides further assistance to vendors in respect of the production of original title documents:

“ (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.”

22. In a recent Court of Appeal decision, De Monsa Investments Ltd v Whole Win Management Fund Ltd[2011] 4 HKLRD 478, Tang VP (as he then was) said at p 497-8:

“53. Section 13A was enacted to ameliorate the difficulty which the requirement to produce on completion original pre-intermediate root title documents might pose, presumably, because if a purchaser is not entitled to delivery of the original of any pre-intermediate root title document, he could not be put on notice by their absence.[1]

…

60. … I am in respectful agreement with the views expressed in Emmet & Farrand on Title quoted in para.38 above and the views expressed by Yuen J in Yiu Ping Fong v Lam Lai Hing. In other words neither s.13(1) nor 13(2) relieves a vendor of its obligation to deliver original title deeds unless there is adequate evidence showing their loss or destruction[2]. Indeed, the enactment of s.13A supports these views. The relief provided by s.13A(1) … is only applicable to the pre-intermediate root original documents.

61.   In my view, the consequence of a failure to produce the originals or explain their destruction or loss, is that the plaintiff was entitled to refuse to complete.”

23. I have been informed by Mr Lau, who appeared for the defendant, that De Monsa is under appeal to the CFA and the hearing will take place on 3 June 2013.  However, I know little about that appeal and I see no good reason to defer the determination of these matters until the outcome of the appeal is known as suggested by Mr Lau. 

The Issues

24. The resolution of this dispute turns upon 2 main issues, namely, whether the POA was a document of title and, if it was, whether the defendant was relieved from producing its original.

Document of title

25. This is not a difficult issue to determine.  The POA must be considered in conjunction with the Assignment because the latter could only have been properly executed by Leung with the benefit of the former.  Considered in that light, there can be no real argument that the POA was a document of title. 

26. The position is fortified by the combined effect of s.13(1)(c) and 13A(1)(b) of the Ordinance, under which the original of the POA had to be produced by the defendant to the plaintiffs in giving title to the Property.

Production of the original POA

27. Mr Lau submitted that the defendant was not obliged to produce the original of the POA because the absence of it did not give rise to any reasonable doubt that the plaintiffs would not be at risk of any prior equitable claims based on that document.  Mr Lau relied on MEPC Ltd v Christian-Edwards & Ors [1981] AC 205 at 220C:

“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 shown.”

28. In De Monsa, the “MEPC principle” was advanced and dealt with by the Court of Appeal (see p 500-501, paras 75-80). In other words, notwithstanding the law that it is a purchaser’s proprietary right to have all the originals of all the title documents (see Yiu Ping Fong, p 798H), in circumstances where there is no reasonable doubt that the missing original document would not affect the title to the property the vendor may be relieved of the obligation to produce it upon completion (it goes to the giving of good title)[3]. 

29. However, paras 75 to 79 of the judgment in De Monsa stated as follows:

“75. Mr Lam submitted that, in any event, the risk of an equitable mortgage is so remote that it should be disregarded, relying on MEPC Ltd v Christian-Edwards. Can it be said that having regard to the identity of the chargee and the covenant referred to in para.63 above as well as the parties involved in the pre-intermediate assignments, one is entitled to say any risk of an equitable mortgage is so extremely remote that it should be disregarded?

76. I have not found this easy but in the end, and with great respect, I am unable to agree with Mr Lam.

77. I believe it is invidious to have to decide such and such a chargee or assignee is more or less likely than others to be fraudulent. It is not a task on which a purchaser should be required to embark.

78. It lies ill in the mouth of a vendor to say that the risk is remote, when it is within its power, to remove the risk completely, for example, by properly accounting for the absence of the originals. I do not rule out the possibility that in a suitable case, a vendor, who, in spite of all reasonable efforts, is unable to explain a missing title deed, may be permitted to show that there was no reasonable doubt about the title.

79.  Moreover, if a vendor wishes so to assert, he should do so during the requisition.  In that case, no doubt, the parties would examine all the circumstances and decide whether in the circumstances, good title has been shown.”

30. Those paragraphs suggest that the MEPC principle will only avail a vendor as a last resort.  With respect, although the reason for the proposition had not been stated, it is reasonably clear that it must be based upon the vendor’s duty to show and give good title.  If the vendor is unable to produce the original of a title document, he is obliged to adequately explain its loss or destruction so as to remove any risk to the title of the property (see para 60 of De Monsa quoted in para 22 above).  Only when all reasonable efforts have been made, the vendor may then resort to the MEPC principle.

31. In this case, I regret to say that the defendant did not fulfil her obligation to show or give good title.  It was maintained on her behalf that the POA was not a title document.  That was a bad point in light of the provisions of s.13(1)(c) and 13A(1)(b).  On the evidence, no attempt was made to explain the loss of the original document until the day before completion.  There was no undertaking that a statutory declaration in terms of the draft would be made and provided to the plaintiffs upon completion.  Further, the plaintiffs were clearly entitled to reasonable time to consider the adequacy of the draft statutory declaration (see Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396).  No such time was allowed. 

32. In these circumstances, I cannot begin to see how the defendant had fulfilled her obligation to answer the Requisition satisfactorily or to give good title.

33. For completeness, I should deal with two further points.  Firstly, although it was asserted on behalf of the defendant in the course of dealing with the Requisition that there was no real risk on the title in question, the defendant was not entitled to rely on the MEPC principle at that stage (see para 30 above).

34. Secondly, if it were permissible for the defendant to rely upon the MEPC principle, I am inclined to agree with Mr Lau that the absence of the original of the POA presented no reasonable doubt as to the integrity of the title in question.  I cannot see how that document could be used to create an equitable mortgage. 

35. However, Ms Wong, who appeared for the plaintiffs, submitted that there was a risk of “not being able to satisfy the requisition from the next purchaser down the line when [the plaintiffs] want to sell the property in the future”.  In response, Mr Lau submitted that by then the POA would fall outside the intermediate root and there would be no obligation to produce the original document.  Prima facie, it appears that, based on s. 13A of the Ordinance, the answer is a good one.

36. Further, assuming that the defendant was entitled to rely upon the MEPC principle, the position will not be different when it comes to the resale of the Property by the plaintiffs.  They will be able to say that, despite all reasonable efforts, the loss of the original POA cannot be explained but there is no reasonable doubt on the title. 

37. For these reasons, I give judgment in favour of the plaintiffs.  A declaration in terms of para 1 of the prayer to the Statement of Claim is granted, and it should be sufficient for the present purpose.  As to the damages (which include the deposits paid under the Agreement) set out in para 48 of the opening submissions of the plaintiffs, para 48(c) is no longer pursued.  I make a deduction of HK$1,000 in respect of para 48(d) because I believe that the claim for accommodation expenses is unjustified. The remainder is upheld in full. 

38. I award interest on the damages at judgment rates to run from the date of the writ until payment.  The plaintiffs are entitled to the costs of this action.  The counterclaim is dismissed with costs to the plaintiffs.

39. Last but not least, I am grateful to both Ms Wong and Mr Lau for their assistance in these matters.