LOYAL HOPE LTD v. LEUNG PUI MING AND OTHERS

HCA 136/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 136 OF 2007

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J U D G M E N T

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1. This is an Order 86 Application.

2. The plaintiff was a purchaser and the defendants were the vendors of a property at the ground floor of 267 Castle Peak Road in Kowloon.  The defendants are tenants in common of the property in question.  The defendants acquired the said property in the year of 1989. The parties have signed a provisional agreement on 27 September 2006 in which the plaintiff agreed to buy and the defendants agreed to sell the property at a price of HK$7.5 million.

3. Pursuant to the provisional agreement, the parties signed a formal agreement for sale and purchase on 12 October 2006. Completion was scheduled for 30 November 2006.  Deposits totalling HK$750,000 have been paid towards the purchase.

4. Dispute arose between the parties on a slightly distorted focus at the title requisition stage.  There was difference in opinion between the solicitors on whether the vendors had the obligation to provide pre-intermediate root of title instruments of the property beyond the 15 years duration specified in section 13 of the Conveyancing and Property Ordinance, Cap 219 (“the Ordinance”).

5. The whole case focused on:-

Chronology of the Events

6. On 16 October 2006 the plaintiff’s solicitors received various title documents of the premises from the defendants’ solicitors.

7. On 21 October 2006 requisition of title began.  Details of the correspondence exchanged would be referred to at a later stage.  In gist, the plaintiff’s solicitors requested for the supply of 30 title documents beyond the 15 years duration specified in section 13 of the Ordinance. These 30 title documents were registered between the years of 1957 and 1971.

8. There was also no dispute between the parties that those 30 pre-intermediate root instruments deal exclusively with the title of the property.  

9. The defendants’ solicitors took the view that the documents requested by the plaintiff’s solicitors were pre-intermediate root of title instruments which the plaintiff was not entitled to demand.  The defendants’ solicitors first wrote to refuse to provide those pre-intermediate root of title instruments. Further exchanges resulted in a proposed supply of statutory declaration, on a without prejudice basis, by the defendants to deal with the missing documents.

10. The plaintiff’s solicitors concluded the defendants have failed to prove and give good title of the property.  On 1 December 2006 (one day after the scheduled completion date) the plaintiff’s solicitors wrote to the defendants’ solicitors to rescind the agreement for the defendants’ failure to satisfactorily answer the title requisitions, give, prove or show good title to the property. The plaintiff further demanded repayment of all deposits made.

11. On 19 January 2007 the plaintiff took out the present action to seek declaratory relief of rightful rescission of the agreement, repayment of the deposits and damages for breach. 

12. On 8 March 2007 the defendants filed their defence and counterclaim.  The defendants counterclaimed the plaintiff for wrongful rescission and sought declaration for rightful forfeiture of deposits, right to resell the property, damages for breach of agreement, and vacation of the registration of the memorials concerning the present sale.

13. On 31 July 2007 the parties obtained an Order of the Court by consent in the following terms: -

14. On 10 September 2007 the plaintiff filed the present application under Order 86 for the following: -

15. The defendants resisted the plaintiff’s application on a number of grounds.  Issues worth mentioning are: -

Requisitions made

16. In defence counsel’s submission the plaintiff’s solicitors had not raised proper requisition of title.  To understand the parties’ dispute it would be more useful to recite the original text in some of the letters exchanged between the parties.

17. After delivery of the title deeds by the defendant’s solicitors on 16 October 2006 the plaintiff’s solicitors wrote on 21 October 2006 to ask for production of 30 of the original title documents, all over 15 years old,

“… The following are documents relating exclusively to the subject property, please kindly let us have the originals….”

On 24 October 2006 the defendants’ solicitors responded,

“… We are not prepared to let you have those pre-intermediate root instruments.”

On 25 October 2006 the plaintiff’s solicitor wrote back:

“… Pursuant to Yiu Ping Fong’s decision, your client is obliged to provide all original title documents relating exclusively to the subject property.”

On 25 October 2006 the defendants’ solicitors replied,

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

On 1 November 2006 plaintiff’s solicitors wrote again,

“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.”

On 1 November 2006 the defendants’ solicitor replied,

“We find nothing in the judgment of the Yiu Ping Fong case ruling that the duty of giving good title by producing the original title deeds is extended beyond the statutory period as laid down in Section 13 of the Conveyancing and Property.  Hence we maintain our view.”

18. Further letters were exchanged between the 2 firms of solicitors back and forth when they were at loggerhead as to whether the decision in Yiu Ping Fong was applicable to compel the vendor to provide all original title documents beyond the 15 years duration stipulated in section 13 of the  Ordinance.  The parties also pulled into their discussion the later case of Guang Zhou Real Estate as well as the consultative paper of the Law Society in April 2006.  The parties, however, made no reference to the contractual terms in the agreement for sale and purchase in their letters in exchange.

19. Despite the disagreement, no vendor-purchaser summons was taken out by either party to seek the court’s adjudication. Neither did the parties seek to exercise their contractual rights under clause 8 of the sale and purchase agreement to annul the sale.

20. On 6 November 2006 (about 3½ weeks before the completion date) the defendants’ solicitors wrote to the plaintiff’s solicitors to state, on a without prejudice basis, that they were proposing to send certified copies of the requested documents with a statutory declaration made by the vendors declaring that the vendors did not possess the original of the requested documents since the date of their purchase of the said property.

21. There was another chain of some 18 letters exchanged between the 2 firms of solicitors debating over the sufficiency of the contents of the statutory declaration and whether copies of the memorials would sufficiently satisfy the requirement of the supply of certified copies of the actual instruments registered by way of the memorials.

22. The letters exchanged between the parties concerning the dispute about the sufficiency of the statutory declaration were as follows:-

On 6 November 2006 the defendants’ solicitors wrote:

“   We maintain our view. On a without prejudice basis, however, we propose to undertake to send you certified copies of the requested documents together with a statutory declaration to be made by our clients declaring that they had all along not possessed the originals of the requested documents since the date of their purchase of the above property….”

On 8 November 2006 the plaintiff’s solicitors replied:

“  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.”

On 8 November 2006 the defendants’ solicitors’ response was:

“   We wonder why the Statutory Declaration to be made by our clients is not acceptable. Your attention is drawn to the fact that our clients purchased the above property in 1989 under Assignment Memorial No. UB 4159640 (re-registered by Memorial No. UB 6125172) without creating any Mortgage at the same time. Our clients only made a Mortgage in 1994 under Mortgage Memorial No. UB 6118721. Therefore, they should have possessed the relevant title deeds and documents at the material time.”

On 10 November 2006 the plaintiff’s solicitors wrote:-

“  In your letter of 6/11/2006, you mentioned that your client will declare that they did not possess the document in question since they purchased the property i.e. in 1989. However, in you(r) letter of 8/11/2006 you said that your client should have possessed the title deeds at the material time which seems contradictory. In any event, we would accept certified copy of the documents in question together with a declaration of lost made by the party/parties who have actually received and taken possession of the documents in question but subsequently has/have lost them. A declaration that since the acquisition of the property the documents have never been received will not be accepted.”

On 28 November 2006 the defendants’ solicitors answered,

“…. We maintain our view as expressed in our previous letters.  On a without prejudice basis, however, we enclose our third draft Statutory Declaration to be made by our clients for the purpose of explaining the loss of the requested title deeds and documents.

We also enclose certified copies of the requested documents, subject to your undertaking to hold the same to our order and return to us forthwith on demand.

We trust that we have satisfactorily answered all your requisitions and therefore, that good title to the above property has been proved and given.  As completion is scheduled to take place on or before 30th November 2006, please let us have your draft Assignment and Undertaking Letter for our approval as soon as possible.”

On 29 November 2006 the plaintiff’s solicitor replied,

“We note that the third draft Statutory Declaration is still not satisfactory as it is still uncertain on who has lost the missing documents.  It may be kept/lost by Messrs. Fred Kan & Co, the subsequent mortgagee(s) and/or their solicitors.  We reiterate our requisition.  We are perusing the certified copies provided by you under your said letter and reserve the right to raise requisitions thereon.”

23. On 30 November 2006 (the date due for completion) the plaintiff’s solicitors wrote:

 “Further to our letter of 29/11/2006, after perusing the certified copies you provided on 28/11/2006, it is noted that some of them contain only the memorial box without the full documents.  They are of Memorial Nos. 769954, 712040, 381619, 365496, 360193, 423093, 356677, 341439, 334737, 356676, 332871, 332870 and 319965.  Please let us have the full documents for our perusal.  We put on record that our requisitions have not been satisfactorily answered up to date.  All rights of our client are hereby reserved.”

24. On 30 November 2006 the defendants’ solicitors gave the following answer:

“… We would like to put on record that we have not received any payment of the balance of purchase price up to the present moment.  Moreover, please return all the certified copies of title deeds and documents sent under our covering letter dated 28 November 2006.  All our clients’ rights are reserved.”

25. On 1 December 2006 (1 day after the day due for completion), the purchaser’s solicitor stated:

“ We wrote to put on record that despite the scheduled completion date, i.e. 30^th November 2006 has passed, your clients have failed and/or refused to

(1)	give prove or show a good title to the above property and
(2)	answer our title requisitions satisfactorily and
(3)	provide the original documents requested under our letter of 21/10/2006 which are relating exclusively to the above property in accordance with clause 9 of the Agreement for Sale and Purchase dated 12th October 2006.
	We are instructed that our client has decided to rescind the purchase and we are instructed to demand your client to return forthwith all deposits paid by our client.
	……”

26. It can be seen from the letters exchanged, the defendants’ solicitors first proposed to supply an affirmation by the defendants to depose to the fact that they never possessed those missing instruments. The plaintiff’s solicitors refused to accept such declaration as a satisfactory declaration to explain the absence of the missing instruments. It was the demand of the plaintiff’s solicitors that the declaration of loss had to be made by the person who had custody of the instrument and lost the same subsequently. The defendants’ solicitor subsequently changed their stance and said the defendants should have possessed all those title documents at all material times.

Parties’ common law obligations

27. Under common law the vendors have an obligation to deliver good title.  As stated by Madam Justice Yuen (as she then was) in Yiu Ping Fong [1999] 1 HKLRD 793 at page 798G – J:

“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) at 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 not 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.

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.”

28. To enable the purchaser to approve and accept title, the purchaser should be entitled to raise requisition on issues concerning title.  Falling short of statutory enactment or contractual agreement to the contrary, parties in a land transaction ought to supply title proof from root. The established practice under common law is for proof of good title for a period of not less than 60 years prior to the current land sale contract.

29. A portion of the legal practitioners was under the impression that the giving of title went hand in hand with the proof of it.  When the incidence of proof was removed, the corresponding incidence of furnishing the documents in support would be alleviated. When the incidence of proof was reduced to 25 years in 1984 and further reduced to 15 years in 1988 by way of amendments made to section 13 of the Ordinance a number of the practitioners believed the vendor’s obligation to provide and supply the original title documents was correspondingly reduced to the period of 15 years before contract. 

30. In Yiu Ping Fong [1999] 1 HKLRD 793 Madam Justice Yuen made clear to the profession that the incidence of proving title was not to be equated with the incidence of giving title.  The enactment of section 13 of the Ordinance does not exempt the vendors from their common law obligation to deliver the original title documents upon completion of the land transaction in order to give title.  But of course, the incidence of proof as well as the incidence of giving title (by way of delivery of the title instruments) can be varied by the parties’ clear intention to the contrary.

31. The ruling in Yiu Ping Fong was adopted and applied by Deputy Judge Chu (as she then was) in Guang Zhou Real Estate [2000] 2 HKLRD 855 was well as by Deputy Judge To in Goldmex Limited [2006] 2 HKLRD 795. Though Mr. Justice Reyes in C & W Watch HCMP-920/2005 made some observations about the decisions in Yiu Ping Fong and Guang Zhou, Mr. Justice Reyes did not rule against the decision in YiuPing Fong or that of Guang Zhou concerning the vendors’ common law obligation to give title.

32. Counsel on behalf of the defence sought to argue the ruling in Yiu Ping Fongshould be confined to land sales within the 15 years duration contemplated in section 13 since the parties in Yiu Ping Fong were executing a land sale effected within the 15 years period.  I do not agree such limitation can be imposed on the ruling of Madam Justice Yuen since Yuen, J was acknowledging the existence of a general common law right.  It is trite law that a common law right remains unless and until removed, amended or altered by clear and express statutory enactment. There simply is no statutory provision within the Ordinance to limit the common law obligation to give title.

33. Thus unless and until the Statute Law (Miscellaneous Provisions) Bill 2008 tabled at the Legislative Council on 6 February 2008 were to become law in its suggested new section 13A of the Ordinance this court is unlikely to entertain any argument against the subsistence of a purchaser’s common law right (falling short of contractual provision to excuse the same) to insist production of original title documents relating exclusively to the property on the date of the completion of the land sale.

Contractual Variation of the Parties’ common law rights?

34. Clause 7 of the sale and purchase agreement reads: -

“The vendor shall give prove and show a good title to the Property and shall prove the same at his own expense in accordance with Section 13 of the Conveyancing and Property Ordinance and shall at the like expense make and furnish to the Purchaser such certified copies of any deeds or documents of title wills as may be necessary to prove 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 he requires certified copies of any documents in the Vendor’s possession relating to other properties retained by the Vendor as well as to the Property pay the costs of such certified copies.”

35. Clause 9 of the agreement reads: -

“Such of the documents of title as relate exclusively to the Property and as may be necessary to prove good title shall be delivered to the Purchaser at the expense of the Vendor.  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 production safe custody and delivery of certified copies thereof to be prepared by and at the expense of the Purchaser.”

36. Clause 10 of the agreement reads: -

“Save and except those title deeds relate exclusively to the Property, it is hereby expressly agreed: -

a. that for the purpose of enabling the Purchaser to approve title and raise requisition or objection in respect of title to the Property, delivery to the Purchaser or his solicitors of photocopies of title deeds or documents of title to which the Purchaser is entitled by law (hereinafter called “the said title deeds”) by the Vendor before completion shall be sufficient, provided that the Vendor gives an undertaking to the Purchaser to furnish certified copies of the said title deeds within reasonable time but in any event not later than 60 days from the date of completion.  The cost and expense for procuring photocopies and certified copies of the said title deeds shall be borne by the Vendor; and

b. that the failure of the Vendor to furnish certified copies of the said title deeds to the Purchaser on the date of completion shall not by itself be a ground for delay of completion by the Purchaser or be treated as or constitute a default or failure on the part of the Vendor to complete the sale and purchase in accordance with the terms of this Agreement.”

37. Contractually the parties acknowledged by way of clause 7 the vendors’ obligation to give, prove and show good title. In the same clause the parties stipulated their contractual method of proof with reference to section 13 of the Ordinance. In clause 7 the parties also specified the incidence of costs payment. Whilst the parties have qualified the method of proof, they remained silent about the means of giving of title. In the absence of contrary intention, common law rights remain.

38. In clause 9 the parties spelt out what documents were required to be delivered.  Title documents which relate exclusively to the property and which were required for proof of good title should be delivered to the purchaser. In relation to all other title documents which were in the possession of the vendors, the vendors should, if so required by the purchaser, give to the purchaser a convenant for production, safe custody and delivery of certified copies of the same.

39. “All other documents” in the 2^nd sentence of clause 9 was not qualified with reference to exclusiveness or for proof of title. “All other documents” here referred to all title documents which did not fall within the description given in the 1^st sentence of this clause. It covers both title documents relating exclusively and non-exclusively to the property. The handling of the non-exclusive title deeds was subsequently set out in clause 10 of the agreement.

40. The 2^nd sentence in Clause 9, however, was drafted specifically for title documents in possession of the vendors. Clause 9 was silent about documents not in the possession of the vendors. The parties’ common law rights cannot be removed or varied falling short of clear agreement to the contrary. Thus for documents not in the possession of the vendors, the vendors’ common law obligation remains. The vendors had a duty to give and supply those original title documents at the day of completion, alternatively an undertaking at the requisition stage for the production of the same upon completion.

41. It was said by Mr. Recorder Tang, SC (as he then was) in Wu Wing Kuen HCMP-646/1999 (9 July 1999 unreported) at paragraph 16 of his judgment  “At common law on an open contract, the vendor must bear the expense of obtaining title deeds required by the purchaser to be handed over on completion, although such title deeds are not in the vendor’s possession, and are not referred to in the abstract. See Re Duthy & Jesson’s Contract [1989] 1 Ch 419.”

42. The common law requirement for the supply of missing documents can be seen as an obvious step to avoid non-disclosure of equitable mortgages by way of depositing title deeds.

43. When title documents are missing, lost or destroyed, the vendors do have an obligation to provide sufficient conveyancing evidence to account for the non-production of those missing documents [see WU Wing Kuen HCMP-646/1999, [1999] 3 HKLRD 738 (CA), [2001] 1 HKLRD 212 (CFA)].

Proper Requisiton of Title?

44. Thus at title requisition stage, in contemplation of the ultimate production of the original title deeds upon completion, the plaintiff’s solicitors should be entitled to raise requisition about the existence or the absence of those title documents as opposed to demanding production of the original title documents beyond the 15 years period.

45. The demand by the plaintiff’s solicitors on 21 October 2006 for the supply of the original title deeds beyond the 15 years period was not a valid requisition.

Failure to give Title?

46. Of these 30 missing documents, the defendants were capable of providing photocopies of 17 of them.  In respect of the remaining 13 instruments the defendants were only able to provide copies of the memoranda of registration.

47. The 3^rd draft of statutory declaration (as recited by the plaintiff’s solicitors) reads:-

“1.	We are the registered and beneficial owner of the property briefly described in the First Schedule hereto (“the Property”).
2.	We received all the title deeds and documents relating to the Property from Messrs. Fred Kan & Co, Solicitors sometimes in 1989.  We took the said title deeds and documents to our residence for safe-keeping.
3.	Lately, we had agreed to sell the Property.  We were informed by our solicitors, Messrs. Ng, Tam Ko & Chan, Solicitors that some title deeds and documents as more particularly described in the Schedule hereto (“the said Missing Documents”) are not among the said title deeds and documents.  We therefore looked for the said Missing Documents in our present residence but could not find the same.
4.	We have made an exhaustive search for the said Missing Documents amongst all our papers and documents and belongings kept in our residence and elsewhere but so far we have not been able to trace or find the said Missing Documents.
5.	We hereby declare that despite our reasonable effort to trace the said Missing Documents, we have no knowledge of the whereabouts of the same and that the said Missing Documents have not been pledged by way of security to any person or corporation.
6.	We verily believe that the said Missing Documents have been lost and cannot be found.”

48. The statutory declaration proposed was not from the person who had knowledge about the missing document.  Madam Justice Yuen in Yiu Ping Fong said at page 799H “ …  The purpose of the statutory declaration accompanying a missing title deed is to explain the circumstances in which the deed was lost and to show how the person who ought to have custody of it could not find it despite proper endeavours.  The vendor here can only say that she personally never had the original 1986 assignment.  She cannot of her own knowledge explain the circumstances of the loss because she was not the person who had custody of it.”

49. The same statement of law was adopted by Deputy Judge To in the later case of Chor Kar Yin in HCMP 1728/2006.  

50. In accordance with the requirement specified by Madam Justice Yuen, the defendants’ proposed statutory declaration would not be a satisfactory statutory declaration to affirm to the circumstances of the loss of the documents.

51. Can one possibly run the argument that the standard of proof differs when one is seeking to aver to a missing title document at the proof of title stage as opposed to the title giving stage? This point has not been raised by the parties nor has any authority been advanced either for or against the said proposition. I do not find it necessary to deal with this point for the resolution of the present dispute. The degree of conveyancing evidence required would likely differ according to the special fact circumstances of the case before Court.

52. Unless the parties gave clear explanation as to why first hand information was not available, one would normally expect an affidavit of loss of documents to be attended to by the person who lost the documents. This, of course, is not an inflexible rule. One can certainly envisage the situation such as the demise of the person losing the title deeds which makes it impossible to have first hand information from him or her on the circumstances surrounding the actual loss. As long as clear evidence was given to account sufficiently for the loss removing the risk of unforeseen prior equity, that could constitute good explanation for the missing documents.

53. With reference to the letters in exchange between the solicitors, the reasonable inference to accept was the defendants were never in possession of the missing title documents. There was, however, no explanation in the proposed 3^rd draft of the vendors’ statutory declaration to account for the circumstances under which the defendants were not given the missing title deeds, whether explanation had been given by Fred Kan & Co to the vendors of the whereabouts of those documents, and why the staff of Fred Kan & Co would not be in a better position to explain the missing documents. When so much first hand informations were missing from the explanation in the proposed statutory declaration, one cannot possibly come to other conclusion but to accept the proposed statutory declaration to be insufficient for the purpose of accounting for the missing circumstances.

54. There can be no dispute that the memorials cannot be equated with the actual instruments which were registered by way of the memorials (see Godfrey, J’s decision in Lai Chung Yue [1987] 3 HKC 406 at p-408D). Whether the memorials could be equated with the documents or whether the memorials could be accepted as secondary evidence to establish the contents of the documents is a red herring in this hearing since we are not concerned with the proof of title here. When the party has no obligation to prove the contents of the documents, all that would be required would only be a statutory declaration to account for the circumstances of the loss.

55. The defendants were unable to give good title to the plaintiff unless the defendants were able to provide a satisfactory statutory declaration to account for the loss of the title documents.

56. Though the plaintiff has failed to raise proper requisition on 21 October 2006 in demanding production of the original title deeds over 15 years old and the defendants had fulfilled their obligation to prove title within the 15 years duration, the defendants were however unable to make or give title in accordance with their common law obligation.  The plaintiff was therefore correct to accept the anticipatory breach of the defendants in their failure to give good title to the property.

57. There was no argument before this court as to whether the title was marketable.

Orders of the Court

58. The plaintiff is entitled to reliefs (1) (2) and (5) of the Minutes of Order. Relief (3) ought to read as “Damages, of a quantum to be assessed, be awarded to the plaintiff for the defendant’s breach of the aforesaid agreement”.

59. Counsel acting on behalf of the plaintiff has indicated in the course of his submission that the only damages the plaintiff was seeking were the conveyancing fees and the estate agency fees paid by the plaintiff.  If those two were the only heads of liquidated damages, I do not feel the parties need to go through the assessment exercise. I grant leave for a further order of “liberty to apply” to be included in relief (3) to enable the parties to attend to the issue of quantum more economically should there be no substantial dispute of facts about the quantification. However, should there be substantial dispute of facts over the amount of damages, the parties have to proceed to a proper assessment hearing.

60. I also grant costs order nisi for the plaintiff to be awarded costs of this action and this Order 86 application, with certificate for counsel.