CHENG CHUN CHUN v. CHOW CHUNG TAO AND ANOTHER

HCA12016/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12016 OF 1999

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J U D G M E N T

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1. The matter was heard in chambers. I now deliver the judgment in court.

THE APPEAL

2. This is the plaintiff's appeal against the decision of the master setting aside the judgment entered against the defendants in default of defence.

REGULAR JUDGMENT

3. The first issue is whether the judgment was a regular one. The Statement of Claim was filed and served on 1 September 1999. The plaintiff gave consent to the defendants to serve and file the defence on or before 5 October 1999. An order was made to that effect. On 5 October 1999, the defendants applied by summons for further extension of time. The return date was 14 October 1999. The Defendants' request to the plaintiff to extend time to file the defence was rejected by the plaintiff. The defendants' solicitors in fact had offered to serve the defence if extension was granted by the plaintiff. The plaintiff's solicitors informed the defendants that they would apply for judgment. On 6 October 1999, the plaintiff applied for judgment in default of defence. Judgment was granted on 13 October 1999.

4. The filing of a time summons was clearly not capable of preventing the plaintiff from obtaining the judgment. The only possible way is to serve and file a defence notwithstanding the time to do so had expired. Paragraph 19/7/4 of the Supreme Court Practice 1999 stated that :

"A defence served after expiration of the prescribed time but before judgment has been given cannot be disregarded, and will generally prevent the plaintiff from entering judgment, even though it is not served until after the plaintiff has served his summons or notice of motion for judgment under these rules ........

In such a case, the court will have regard to the contents of the defence served out of time, and deal with the case in such a manner that justice can be done (Gibbings v. Strong [1884] 26 Ch.66 ...)."

5. An offer to serve the defence without actually serving it is clearly not good enough. Further, under Order 19, rule 8A of the High Court Rules ("the Rules"), the plaintiff did not need to give further notice to the defendants before it applied for judgment because there was already a previous order extending time for the service of the defence.

6. Jerome Chan J in Ho Yuen Tsan & Others v. Hopwing Transport Company Limited [1996] 4 HKC 259, at 265 stated that :-

"It is difficult to envisage a master agreeing to entertain a stay of proceedings pending the hearing of the time summons."

7. My own view is that such an application should be made in the first place after the time summons has been taken out but before the matter can be heard. In any event, the defendants' solicitor should take steps to expedite the hearing of the time summons by attending the practice master and obtain an early date. Solicitors must take heed of the urgency of the matter.

8. The judgment was a regular one and the defendants must show that they have a meritorious defence before the judgment can be set aside. The defence must be one that has a real prospect of success : The Saudi Eagle [1986] 2 Lloyds 221; Graham Harry Fountain v. The Bank of America National Trust and Saving Association [1992] HKLR 158 and Premier Fashion Wears v. Chow Cheuk Man [1994] 1 HKLR 377.

MERITS

FACTS

9. The parties entered into an agreement dated 9 June 1999 ("the Agreement") in which the defendants agreed to sell and the plaintiff agreed to buy the property known as Flat B, 2nd Floor, Tsing Wan Building in 334-336 King's Road, Hong Kong ("the property") for $1,288,000. It is not disputed that a building had been constructed on the site of the property since the 1920s. It was rebuilt in around 1989. Team Ho Investment Limited ("Team Ho") was the developer of the property. An Occupation Permit was issued by the government in respect of the property.

10. The plaintiff contended that the defendants had failed to show a good title to the property. The default judgment he had obtained was for the deposit that he had paid to the defendants under the Agreement. Four matters were relied upon by the plaintiff.

TWO LETTERS DATED 31 DECEMBER 1923 AND 24 APRIL 1924 RESPECTIVELY

11. The plaintiff contended that the defendants had failed to produce the certified copies of the Letter of Extension dated 31 December 1923 and the Confirmation Letter dated 24 April 1924 respectively ("the two letters"). Although these two letters cannot be found in the title deeds and documents supplied by the defendants to the plaintiff, the nature of these two letters can be gathered from two documents.

ASSIGNMENT DATED 21 MARCH 1955

12. First, the assignment dated 21 March 1955 where the parties to the assignment were the former owners of the land on which the property is now situated. The recital of this assignment stated that on 13 February 1922, Kwik Djoen Eng ("Mr Kwik") acquired Inland Lot No.2366 ("the lot"). The Crown Lease of this lot is the root of title of the property. The recital further stated that the government agreed to grant Mr Kwik an extension of the lot in a letter from the Director of Public Works dated 31 December 1923 for the price and terms mentioned in the letter. The extension was confirmed by a letter to the Director of Public Works dated 24 April 1924.

AUTHORITY NO.940

13. Second, a document described as Authority No.940 ("the Authority"), which was registered in the Land Office on 16 December 1926. It contained memos exchange between the government officials on the extension granted to Mr Kwik.

14. On 4 December 1923, the Director of Public Works wrote to "Hon. C.S." (one can safely assume this to be the Colonial Secretary at that time) stating that Mr Kwik had asked to develop an adjoining area ("the area") of the lot. The Director recommended that the area be granted as an extension to the lot subject to the payment of premium and the construction of buildings on the lot and extension. On 13 December 1923 the Colonial Secretary requested the Governor to give his approval to the recommendation. The word "Yes" and a signature appeared at the bottom of the request.

15. On 13 March 1924, the Director of Public Works further wrote to the Colonial Secretary stating that Mr Kwik had asked for amendments to the conditions of the granting of the extension. Approval was given on 14 March 1924.

16. On 24 April 1924, the Director of Public Works wrote to the Colonial Secretary stating that "I now forward the usual return for treasury together with a copy of a letter sent to Mr Kwik".

THE STATUTORY DECLARATION

17. These two documents clearly indicated the nature of the two letters. These two documents are contained in a Statutory Declaration of Mr Fung Nai Lok, the solicitor who handled the acquisition by Team Ho of the property in 1988. In this Statutory Declaration, Mr Fung stated that the two letters were not found in the title documents which his firm were given by the vendor's solicitors. He asked for the two letters but was advised by the vendor's solicitors that "the vendor was not in possession of them". He further wrote to the Registrar General's Department, Land Office ("the Department") and asked for the two letters but was informed by the Department that the two letters could not be found. During the enquiry, he managed to obtain the Authority from the Department. The Department stated that the Authority "can be regarded as evidence of title to the said extension area. I would therefore confirm that the first extension of 62,000 square feet was granted upon and subject to the terms and conditions of Authority No.940".

18. Mr Chan, counsel for the plaintiff, argued that the secondary evidence contained in the Statutory Declaration is not admissible because the conditions for adducing the secondary evidence has not been fulfilled. In the recent decision of Wu Wing Kuen v. Leung Kwai Lin & Other [1999] 3 HKLRD 736, the Court of Appeal affirmed that proof of loss is one of the prerequisites before secondary evidence can be relied upon. Further, there must be proof of the due execution of document and the content of the document. Mr Chan complained that there was no evidence of how the two documents were lost by the vendor or how the loss was discovered or any search conducted to locate the documents.

19. In my view, the Statutory Declaration clearly can be used to prove the content of their two letters. Although Mr Fung did not use the word "lost", surely the purpose of the Statutory Declaration is to show that the two documents cannot be found and the enquiries he had conducted to locate them. When he said that the vendor informed him that the two documents were not available, clearly one cannot construe this as meaning the vendors had the documents but somehow decided not to make them available to him. After all, it was the vendor who was selling the property to Team Ho at that time. The need to produce the two documents must be of concern to the vendor as well. The only conclusion one can reach is that the two documents could not be found.

20. What is more important is that the government itself, by the letter dated 9 August 1999, had recognized and confirmed that the extension to the lot was granted upon and subject to the terms and conditions of the Authority. This being the case, there could not be any possible challenge to the title which was devolved from 1924 onwards. This approach, in my view, is in accordance with the approach adopted by the Court of Final Appeal in the recent cases of Jumbo Gold Investment Ltd. v. Leung Yuen Cheong Warren & Another [2000] 1 HKC 539 and Mexon Holdings Limited v. Silverbay International Limited, FACV16/1999 decision, 11 April 2000. In my view, the defendants clearly had shown a meritorious defence to the first point.

CERTAIN PARTS OF AUTHORITY NO.940 WAS ILLEGIBLE

21. Related to the first issue is the complaint by the plaintiff that certain parts of the Authority is illegible. The part related to the conditions imposed for the granting of the extension to Mr Kwik. Again, the matter can be clarified by the subsequent approval of the amendments to the conditions. What matters most is this : how would the so-called illegible parts affect the title of the property when the Department had expressed no concern whatsoever on whether the conditions imposed and amended in the Authority had been fulfilled by Mr Kwik or not. This is a non-issue.

PROOF OF EXECUTION OF A DEED OF MUTUAL COVENANT DATED 30 MARCH 1989 ("THE DMC")

22. Article 21 of the Memorandum and Articles of Association of Team Ho provided that :-

" 21. Every document required to be sealed with the Seal of the Company shall be deemed to be properly executed if sealed with the Seal of the Company and signed by the Chairman of the Board of Directors, or such person or persons as the Board who from time to time authorise for such purpose."

23. The execution clause of the DMC stated that :-

"Sealed with the common seal (of Team Ho) and signed by Miss Mai Mai Chew, one of its directors for and on its behalf ......."

24. The plaintiff stated that there is no indication that Ms Chew was the chairman of the Board or someone authorised to sign the DMC. A number of cases were cited, namely, Hillier Development Limited v. Treads East Limited [1993] 1 HKC 285, Li Ying Ching v. Air Sprung (Hong Kong) Limited [1996] 4 HKC 418, Ho So Yung v. Lei Chon Un [1998] 2 HKC 697 and Wong Yuet Wah Mandy v. Lam Tsam Yee & Another [1999] 3 HKC 268.

25. There really is no need to go into these cases because there is no uniform Articles of Association on the execution of deeds by companies. For a start, I am not convinced that the capacity in which Ms Chew signed the document must be stated on the document itself. At the very least, the signature by one person is not inconsistent with the terms of Article 21. However, the crucial question is this : how would any defect in execution affect the title of the property? On 14 September 1989, Team Ho assigned the property to three purchasers. The recital of the assignment expressly stated that the assignment was subject to and with the benefit of the DMC. If the challenge is that Ms Chew was not duly authorised by Team Ho to sign the DMC, we have here a situation that Team Ho had expressly recognised the validity of the DMC and its binding effect. Any argument that DMC was not validly executed must fall by the way. In my view, before solicitors start questioning about whether executions had properly been made, they must take an overview of the matter and see whether their challenge really has any effect on the title of the property. In my view, the defendants have again a meritorious defence to the plaintiff's claim on this issue.

FAILURE TO PRODUCE THE MORTGAGE CURRENTLY REGISTERED AGAINST THE PROPERTY

26. The defendants had mortgaged the property to a bank. The plaintiff's solicitor requested a copy of the mortgage. The defendants' former solicitor stated that the mortgage was in his possession, but as he was in the process of preparing the discharge of the mortgage, he undertook to supply the original upon the completion. In Chen & Another v. Lord Energy Limited [1997-1998] 1 HKCFAR 365, Li CJ approved the view that prima facie when an instrument is registered against the property, and it is not apparent that the document has ceased to affect the property, then the document should be treated as part of the title deed which the vendor should make available to the purchaser. In Wong Yan Yan Amy v. Modern Park Limited, HCA11920/1998, Waung J was of the view that a requisition on title was not answered when the vendor failed to produce a copy of the mortgage. There are a number of cases on whether an undertaking to produce documents is sufficient : Liu Tak Kin v. Chan Yiu Kai & Another [1998] 4 HKC 362, Sunlink Group (Hong Kong) Limited v. Sorrayo Investment Limited [1999] 2 HKLRD 468, Chu Wing Yip v. Leung Siu Yuk [1997] HKLRD 29 and Ip Fung Yee v. Norwegian Missionary Society [1998] 1 HKC 334.

27. In this case, the duty of the defendants to show a good title to the property can simply be discharged by their former solicitor producing a certified copy or plain copy of the mortgage to the plaintiff. Rather surprisingly, this was not done. The defendants raised a rather ingenious argument. Under Clause 26 of the Agreement, they had undertaken that they would, on or before completion, pay to the mortgagee the amount required to obtain a discharge or release of the unit, and obtain a discharge or release of the mortgage so that the property would be sold free from the mortgage on or before completion. The defendants argued that if the purpose of showing the mortgage to the plaintiff was merely to enable it to ascertain whether the property would in any way be affected by the mortgage, then this concern would not be necessary if the defendants were under an express obligation to convey the property free from the mortgage.

28. In my view, this over simplifies the situation. Quite apart from the duty to discharge the mortgage, the defendants were under a duty to show and prove a good title to the property. As Clough JA in Ng Chek Kok v. Kiu Wai Wing [1992] 1 HKLR 5, at 14 held :-

"Vendor was required to show a good title (by production of copies of all the documents) relating to his good title and make a good title (by proving it as a matter of evidence) at the completion date."

29. In the context of the Hong Kong conveyancing practice, instead of extracts of title, the vendor's solicitors would provide copies of documents relating to the vendor's title in order to show a good title.

30. Under Clause 5 of the Agreement, the defendants were also required to :

"show and give a good title to the property at his own expense and at the light expense shall make and furnish to the purchaser such certified copies of any deeds or documents of title, wills, Occupation Permit and matter of public record as may be necessary to prove such title."

31. In my view, the obligation imposed on the defendants by common law and under clause 5 of the Agreement had to be discharged first. Before a purchaser can accept the release or discharge of the mortgage, he must be able before completion to ascertain the terms of the mortgage. For example, he should know whether early redemption is allowed (see the discussion on redemption in Fisher & Highwood's, Law of Mortgage (10th Ed.) at page 545-549). Further, the purchaser is entitled to know that the release or discharge covers all the conditions of the mortgage. The purchaser ought to be able to ascertain all these well before completion. The vendor is under a duty to show the title documents which includes the mortgage. This duty is not discharged if the mortgage is merely given to the purchaser at the completion.

32. There was some dispute on whether it was a normal conveyancing practice to supply the mortgage to the purchaser before completion. Irrespective of the conveyancing practice, the law is quite clear that the vendor has to show a good title to the property. This particular issue is not a matter which can only be decided by the calling of evidence. In my view, the defendants had not shown a meritorious defence on this issue. As a result, the plaintiff was clearly entitled to say that the defendants had not shown a good title to the property.

CONCLUSION

33. Accordingly, the appeal is allowed and the order of the master setting aside the judgment is discharged.

COSTS

34. There shall be an order nisi that the costs of and occasioned by the setting aside of the judgment and of the appeal be to the plaintiff.