CHIU HONG DEVELOPMENT LTD v. WONG TSUI HA

HCMP 1044/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1044 OF 2009

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J U D G M E N T

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Introduction

1.  This is a Vendor Purchaser Summons.  The Plaintiff is the purchaser and the Defendant is the vendor of a property known as Unit F, 1^st Floor, Central House, Nos 270-276 Queen’s Road Central, Hong Kong (“Property”).  For convenience, I shall refer to the parties as the Purchaser and the Vendor.

2.  The parties entered into a Provisional Sale and Purchase Agreement dated 6 February 2009 for the sale and purchase of the Property for a consideration of $1,468,000 (“SPA”).  The consideration was payable as follows: initial deposit of $80,000 was paid upon signing the SPA; further deposit of $66,800 to be paid upon signing the formal sale and purchase agreement on or before 20 February 2009, and the balance of the purchase price to be paid upon completion on or before 19 March 2009.[1]

3.  The parties were not able to agree on the terms of the formal sale and purchase agreement, hence no formal sale and purchase agreement was executed.  Nothing turns on that. 

4.  On 16 February 2009, the Vendor’s solicitors provided “all the title deeds and documents in respect of the [Property]” to the Purchaser’s solicitors.

5.  The Purchaser paid the further deposit of $66,800 on 20 February 2009. 

6.  By letter dated 27 February 2009, the Purchaser’s solicitors raised a number of requisitions.  The Purchaser claims that four of the requisitions have not been satisfactorily answered.

7.  Completion did not take place on 19 March 2009 as agreed. The Purchaser claims that the Vendor has breached the SPA by failing to answer requisitions satisfactorily or to prove title by the time of scheduled completion, and served notice terminating the SPA on 20 March 2009. The Vendor, in turn, claims that the Purchaser was in breach and purported to terminate the SPA and forfeit the deposits paid.

8.  The Purchaser issued the originating summons on 4 June 2009, seeking the following relief (amongst others): (i) a declaration that the Vendor has failed to answer title requisitions satisfactorily, or failed to prove or show good title prior to completion, and (ii) the repayment of the deposits paid, a further sum of $80,000 pursuant to clause 8 of the SPA[2] and $8,510 being costs of the conveyance.

The Requisitions in question

9.  The four requisitions in issue broadly fall into the following 3 groups:

9.1 Requisition 1 – this concerns alleged missing title documents;

9.2 Requisitions 3 & 7 – these relate to the partitioning of the 1^st Floor and an Architect’s Certificate dated 9 December 2008 relating to the partitioning of units on the 1^st Floor including the Property (“Architect’s Certificate”);

9.3 Requisition 5 – this is about the absence of a Sub-Deed of Mutual Covenant (“Sub-DMC”) for the 1^st Floor.

10.  I propose to deal first with the Architect’s Certificate issue.

Requisitions 3 & 7 – Architect’s Certificate

11.  The Purchaser raised this requisition by letter dated 27 February 2009, in the following terms:

“Upon perusing the title deeds and documents of the Property, we wish to raise the following requisitions:

…

(3) Assignment with Plan dated 15/12/1977 (Memorial No 1469686) and Occupation Permit No H3/75

(a) It is noted from the floor plan attached to the above Assignment that the entire 1^st Floor has been divided into 11 units but the Occupation Permit only permits 2 shops and 1 transformer room for non-domestic purpose.  Please clarify the discrepancy.

(b) In view of above, please also let us have the evidence to show the alteration of the partition of the units on 1^st Floor had been duly approved by the Building Authority …

(7) Architect Certificate dated 19/12/2008

It is noted that a plan to be attached to the above Architect Certificate is missing.  Please let us have a fresh Architect Certificate with the colour plan(s) for our perusal.”

12.  The Vendor’s solicitors replied on 2 March 2009 as follows:

“3. We have sent you an Architect Certificate dated 19/12/2008 on 16/2/2009…

7. We take the view that whether the Plan has been missing or has been lost or not, it does not affect the validity and effectiveness of the Architect Certificate, since the existence of plan only shows seemingly the erection of the partitioning wall at the Property and it is only the last part of the Certificate really relating to the title to the Property because it has certified that the Property per se has not breached the Occupation Permit.”

13.  The Architect’s Certificate that was sent to the Purchaser’s solicitors on 16 February 2009 was in the following terms:

“This serves to certify that the sub-division of the First Floor of Central House into Eleven (11) units as shown on the attached plan which Unit No F being one only involved non-structural alterations and therefore qualified as exempted building works under the provision of Section 41(3) of the Buildings Ordinance Cap 123 the carrying of which did not require the approval and consent of the Building Authority.” [Emphasis added]

However, the Certificate that was provided to the Purchaser’s solicitors did not have any plan attached to it.

14.  The Purchaser’s solicitors did not agree with the Vendor’s solicitors’ response, and on 3 March 2009 wrote to say that:

“(3) … It is submitted that the Architect Certificate dated 19/12/2008 is not conclusive.  Please let us have the confirmation of the Building Authority to support the conclusive opinion stated in the Certificate.

(7) … It is submitted that the plan to be [sic] attached to the Architect Certificate is material and crucial to show how the 1^st Floor have been partitioned or altered.  In the circumstances, please let us have the certified copy of the complete Architect Certificate with plan.”

15.  On 4 March 2009, the Vendor’s solicitors responded in the following way:

“3. We do not see the substance of your requisition in this regard. Please note that our client is not obliged to prove a negative in the absence of some evidence of irregularity of the transaction concerned.  Furthermore, we opine that the present case is similar to the case of CACV000042/1993.  As such we are not prepared to entertain your requisition in this regard.

7. We do not agree with your view and reiterate our answer. Furthermore, the partition or altered [sic] of the 1^st floor has already been shown on the plan annexed to the Assignment Memorial No UB1469686.”

16.  The reference to CACV00042/1993 is of course to the well-known case of Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396 (CA).  The Assignment Memorial No UB1469686 is an assignment of the Property dated 15 December 1977 in favour of one of the Vendor’s predecessors in title.

17.  It is not necessary to set out the further correspondence on the issue that followed, suffice to say that neither party retracted from their respective positions.

18.  In my view, the Architect’s Certificate provided is plainly incomplete without the plan referred to. 

19.  According to the Occupation Permit, the 1^st Floor was originally sub-divided into 2 shops and a transformer room.  Thereafter, the floor was sub-divided into 11 shop units and the Property was first assigned to Mr Chan Kim Ho on 15 December 1977 by an assignment Memorial No UB1469686 (ie the Memorial referred to in the Vendor’s solicitors letter dated 4 March 2009).  The assignment had annexed to it a floor plan of the 1^st Floor showing 11 shop units and indicating which one was the Property (being Unit F).  But there is nothing in the documents supplied to the Purchaser’s solicitors to show that the partitioning referred to in the Architect’s Certificate was the same as the partitioning shown in the assignment plan.

20.  In my judgment, the Purchaser is entitled to know that the partitioning existing at the time of completion is not unauthorised building work as certified by the Authorised Person, or if it was, that there was no real risk of enforcement action.  That obviously goes to whether good title has been shown and proved. 

21.  In the circumstances, the Vendor has failed to answer these requisitions properly and has failed to discharge her burden to show and prove good title upon completion.

22.  It is not clear from the materials placed before me why the Vendor refused to provide the Architect’s Certificate with the proper plan attached if one were available. What happened was that on 20 March 2009, after the scheduled completion date, the Vendor did provide the Certificate with plan (as well as copies of the User Letter and Government Notice referred to below) on a “without prejudice basis”.  However, that came too late and was not accepted by the Purchaser.

23.  Accordingly, in my judgment the Purchaser is entitled to succeed on this ground.

24.  That being the case, it is strictly speaking unnecessary for me to consider the other issues.  Nevertheless, I shall express my view on the Missing Title Documents issue because it may have some relevance to the relief to which the parties may be entitled following from this judgment.

Requisition 1 – Missing Title Documents

25.  The Purchaser raised this requisition by letter dated 27 February 2009, in the following terms:

“(1) Outstanding documents

In order to complete the chain of title, please let us have the following:-

…

(c) letter relating to prohibition of domestic use of premises dated 2/1/1975 (Memorial No 1132663);

(d) Government Notice No2737 dated 11/11/1977…”

26.  The Vendor’s solicitors replied on 2 March 2009 in the following terms:

“1. (i) We consider that the root of title of the above property commenced from Further Charge Memorial No UB2241864 [dated 16 April 1982 and registered on 22 April 1982] and therefore your requested documents (a) to (d) are regarded as pre-root title and your requisitions in this regard will not be entertained.”

27.  The Purchaser’s solicitors did not accept that answer.  By letter dated 3 March 2009, they responded as follows:

“(a) Even if Further Charge (Memorial No 2241864) amounts to the intermediate root, the Vendor is still obliged to produce and deliver items (c) and (d) for proof of title as they might affect the compliance of the terms of the Government Lease.”

28.  The Vendor’s solicitors replied on 4 March 2009, stating that they did not agree with the view expressed by the Purchaser’s solicitors and reiterated their answer.  Further correspondence followed but the two sides respective positions remained unchanged.

29.  The Purchaser accepts that the “intermediate root of title” is the mortgage dated 15 December 1977.  Its case is that the two documents requested, albeit pre-dating the intermediate root, nevertheless affects the Property as they deal with user of the Property and obligation to pay government rent.  As such, they could affect the title of the Property or were (at least potentially) encumbrances.

30.  The Purchaser relies on Chen Paul v Lord Energy Ltd (1997-1998) 1 HKCFAR 365 for the proposition that if a document is needed to show good title, it has to be produced.  Li CJ, with whom all other members of the court agreed, observed at 372F-373B:

“… the judge (Le Pichon J) relied on the following statement of Mr Recorder Edward Chan QC in Wong Bik Ching v Yu Hon Chung ([1997] 4 HKC 38 at 45F):

I am of the view that prima facie when an instrument was registered against the property and it was not apparent from the land search that the document had ceased to affect the property, the document ought to be treated as part of the title deeds which the vendor should make available to the purchaser.

It should be emphasised that on this approach, the matter is only prima facie and it may therefore be displaced on examination.  Provided this approach is understood to apply to registered instruments that are property registrable under the Land Registration Ordinance (Cap 128), I think it is sound.  I agree with Godfrey JA in the Court of Appeal (with whom Mortimer VP and Rogers JA agreed) when he referred to documents that are properly registrable and said ([1998] 1 HKC 702 at 780F):

Occupation Permits, Certificates of Compliance and other instruments of that sort which demonstrate that the vendor is entitled to a legal estate in the premises and that his title is not defeasible are instruments by which the premises ‘may be affected’ (see s 2(1) of the Land Registration Ordinance (Cap 128)).  They are properly registrable at the Land Office and ought to be produced to the purchaser when he asks for their production.”

31.  The Purchaser contends that the 2 January 1975 letter (“User Letter”) has to be produced because prima facie it restricts domestic user in certain parts of the building in which the Property is located, and there is no indication that its effect had ceased.  It is noted that the land search of the Property shows the following remark to this document: “In contravention of Approved Building Plans”.  The Purchaser argues that without seeing it, one cannot tell which units or floors are subject to the restriction on domestic user and whether the government lease has been breached or not.

32.  As to the Government Notice No 2737 of 1977, it can be seen from the land search of the Property that the notice was issued pursuant to s 22(1) of the Crown Rent and Premium (Apportionment) Ordinance (Cap 125).[3]  It is argued that without seeing the document, one cannot tell what sort of order it was, or whether it had been satisfied or otherwise ceased to have effect.

33.  The Vendor’s only answer to this requisition was short and simple: by reason of s 13A of the Conveyancing and Property Ordinance (Cap 219) (“CPO”), the Vendor is not obliged to produce documents which pre-date the “intermediate root” title, which in this case is agreed to be 15 December 1977.  In this connection, the Vendor relies on the recent decision of Saunders J in Donpower Trading Ltd v Apexcom Ltd [2009] 1 HKLRD 476.

34.  In my view, the Vendor’s reliance on Donpower is misplaced.  In the Donpower case, the issue was whether the newly added s 13A to the CPO, which came into effect on 11 July 2008, applied to a sale and purchaser agreement entered into prior to that date, but with a completion date after that date: see judgment paras 22-24.  Saunders J held that s 13A applied to the agreement in that case, and the obligation to deliver (as opposed to produce – which is covered by s 13) original deeds or “documents of title” for the purpose of giving title to the land is limited to those post intermediate root of title: see judgment para 34-35.  The relevant document of title in that case was a mortgage: see judgment para 45, which is a “document of title” specifically referred to in s 13(1) and s 13A(1).  The learned judge held that the combined effect of s 13 and s 13A is that in order to prove and give title to the purchaser, a vendor is only required to produce (s 13) and deliver (s 13A) the documents referred to in s 13(1) and s 13A(1) up to the intermediate root of title: see para 36-43.

35.  It is unnecessary for me to decide whether Saunders J’s decision in Donpower is correct, and I express no view on that.  The two documents in question in this case are not documents covered by s 13 and s 13A.  They are documents which may affect the title to the Property: ie, a potential encumbrance.  It seems to me that s 13A is inapplicable on the facts of this case.

36.  Hence one turns to the nature of the documents in question and whether they are required to be produced to prove that there are no encumbrances. 

37.  Amongst the documents produced to the Purchaser is the Occupation Permit of the building dated 2 January 1975 (ie, the same date as the User Letter), which expressly stated that the whole of the Ground and 1^st to 15^th Floors were for exclusively non-domestic use whereas the 16^th to 23^rd Floors were for domestic use exclusively.  The DMC in recital (2) repeats the same user of the various floors in the building.  My attention has not been drawn to anything that would indicate that there might have been any non-compliance with the Occupation Permit or the DMC.  There is nothing to suggest or which may indicate that the User Letter would not be consistent with the Occupation Permit, both of which were issued on the same date.

38.  In my view, the User Letter is not a document which has to be produced by the Vendor.  In other words, I do not regard this requisition as a legitimate one which has to be answered.

39.  As to the Government Notice, Ms Dora Chan, counsel for the Plaintiff, in her skeleton submissions referred to:

“S22(1) Crown Rent and Premium (Apportionment) Ordinance (Chapter 300), which provides:

‘22(1) Subject to the provisions of this Ordinance, any order made in favour of the Crown against any person in any civil proceedings to which the Crown is a party may be enforced in the same manner as an order made in an action between subjects and not otherwise.’”

40.  On that basis, the submission is made that a failure to pay government rent would be a breach of the government lease and would attract a risk of forfeiture.  The Court of Appeal has held that a purchaser is entitled to know that there is no failure to pay government rent: see Summit Link Ltd v Sunlink Group (Hong Kong) Co Ltd [2000] 2 HKLRD 724, paras 38-39.  It is therefore suggested that without seeing the Government Notice, one does not know whether there is any extant claim for government rent affecting the Property.

41.  The submission is misconceived. The wrong section has been relied upon. Chapter 300 is not the Crown Rent and Premium (Apportionment) Ordinance but the Crown Proceedings Ordinance, and the s 22(1) quoted by counsel is from the Crown Proceedings Ordinance.

42.  I have already set out the correct s 22(1) of Cap 125.  Plainly that section deals with the determination of the amount of government rent.  It has nothing to do with any government action for the recovery of unpaid government rent.

43.  Although the Vendor has failed to answer the requisition properly, in my view it was not a proper requisition in the first place.  It would, of course, have been helpful if the Vendor’s legal representatives had pointed out the error to the Purchaser, but her failure to do so would not have availed the Purchaser.

44.  Accordingly, I reject the Purchaser’s submissions in relation to this requisition.

Requisition 5 – Sub-DMC

45.  As stated above, it is unnecessary for me to express a final view on the Sub-DMC issue.  Suffice to say that I am far from persuaded that the absence of a Sub-DMC affects the title of the Property. 

46.  The Purchaser relies on a decision of Deputy Judge To (as he then was) in Silver Pioneer International Ltd v Good Onwards Co Ltd [2004] 4 HKC 253.  But the point decided in that case is that where there is a sub-DMC, it is a title document and must be produced by the vendor: see judgment para 12.  It does not assist in determining whether the absence of a sub-DMC affects the title to the Property.  Indeed, in Goodtex Land Co Ltd v Lung Kwong Emporium Co Ltd [1992-93] CPR 452, a case referred to by Deputy Judge To, Godfrey J (as he then was) held that the absence of a DMC did not affect title to the property in that case.

47.  This point may have wide-ranging implications but was not really argued properly by either side.  Since it is unnecessary for me to determine this question, I do not propose to do so.

Result

48.  The Purchaser succeeds in proving that the Vendor was in breach of its obligations under the SPA. The Vendor accepts that the Purchaser is entitled to recover the sum of $235,310 claimed by the Purchaser.  Accordingly, I give judgment in favour of the Plaintiff in that sum, with interest thereon at 1% above prime from the date of the originating summons to date.

49.  I am, however, reluctant to grant the declaration sought.  I do not think it is necessary to do so in the circumstances of this case, particularly when the Property has been on-sold to another purchaser.  Nor have I heard any submissions on this point.

50.  I would give the parties liberty to apply in relation to the precise terms of the order to be made if they are unable to agree on it.

51.  I also make a costs order nisi that the Plaintiff shall have its costs, to be taxed if not agreed.

1.    The completion date was originally 20 March 2009 but there is no dispute that it was changed to 19 March 2009 by agreement.

2.    Clause 8 provides: “Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchase with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages … and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

3.    Section 22(1) reads: “(1) Where, under section 5, the Director of Lands has determined the Government rent, and the annual instalment of premium if any, payable in respect of a section, he shall - (a) cause notice of the determined Government rent, and determined annual instalment of premium if any, to be published in the Gazette; and (b) cause particulars of the determined Government rent, and determined annual instalment of premium if any, to be noted in the Land Registry records against the section.”