MINCHEST LTD v. LAU TSUI KWAI

HCMP 236/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 236 OF 2006

BETWEEN

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HCMP237/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 237 OF 2006

BETWEEN

HCMP238/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 238 OF 2006

(Consolidated pursuant to the Order of Mr Recorder A. Ho dated 3 April 2006)

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J U D G M E N T

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1.  There are three vendor and purchaser summonses which have been consolidated.  They involve different premises in the same building which is situated in Kwai Chung.  The plaintiff was the purchaser and the defendants the vendors.

2.  The parties entered into three provisional agreements on 6 May 2005.  Pursuant to the provisional agreements, they entered into three formal agreements on 27 May 2005.  Completion was supposed to take place on 28 October 2005 with time of the essence.  The vendors were selling the properties absolutely or, as the case may be, for the residue of the terms of years created by the relevant government lease free from encumbrances together with all the estate, title, interest, claim and demand of the vendors in the properties.

The requisitions and answers

3.  Clause 14 of the formal agreements required the vendors to show and give good title to their properties according to section 13 of the Conveyancing and Property Ordinance, Cap.219 at the vendors’ own costs.

4.  The purchaser’s solicitors on 27 September 2005 raised four requisitions on title.  The first requisition was for delivery of a number of original title deeds and documents for inspection.  That did not create any difficulty.

5.  The second requisition asked for a certified copy of the Certificate of Compliance of the new grant of the lot on which the building stands.  This requisition was not resolved and it developed into these proceedings.

6.  The third requisition dealt with a right of way which was subsequently resolved.  The fourth requisition referred to the existence of certain structures on the roof and that was also resolved.  There was however no requisition on whether the conditions of the new grant had been complied with up to the time when the requisitions were made.

7.  The vendors’ solicitors replied to the requisitions on 6 October 2005.  Regarding the second requisition, they said:

“(2)  We note that New Grant No. 4699 was dated 13 November 1969.  Pursuant to section 14(2) of the Conveyancing and Property Ordinance, any conditions precedent of New Grant No. 4699 should be deemed to have been complied with on 1st November 1984.  Therefore, production of Certificate of Compliance of the said New Grant is unnecessary in proving title to the above property.”

8.  The purchaser’s solicitors did not accept this answer.  They responded on 10 October 2005 and said that:

“(2)   Production of Certificate of Compliance is necessary.  Section 14(2) of the Conveyancing and Property Ordinance does not dispense with the physical production of certificate of compliance or other matters of title.”

However, they did not state any reason that made it necessary for the Certificate of Compliance to be produced. 

9.  Further correspondence ensued with each side repeating the previous stance without elaboration.  The vendor solicitors on 25 October 2005 added that no Certificate of Compliance had been registered in the Land Registry.  This, I believe, was already known to the solicitors for the purchaser as they must have conducted a search on the properties at the Land Registry.

Arguments

10.  Since the arguments of the parties related to section 14(2), I set out below sections 14(1) and 14(2) for reference:

“(1) Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions-

(a) the equitable interest under that right shall become a legal estate in that land as if held under a Government lease issued in accordance with that right; and (Amended 31 of 1988 s. 7)

(b) for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.

(2) Where, under an agreement for a Government lease entered into before 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent he shall be deemed, for the purposes of this section, to have complied with those conditions on the commencement of this section.”

This section commenced on 1 November 1984. 

11.  The purchaser referred me to the Lord Energy cases in [1997] 3 HKC 270 (First Instance), [1998] 2 HKLRD 751 (Court of Appeal) and [1999] 1 HKLRD 205 (Court of Final Appeal).  I am in particular referred to the statement by Godfrey, JA at page 757J to 758A:

“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.  The refusal of the vendor to supply the purchaser with a copy of this instrument was, in my opinion, a failure satisfactorily to answer the requisition raised in respect of it.”

12.  The Chief Justice agreed with this statement (see [1999] 1 HKLRD 205 at 211).  However, this case concerned a conditions of grant issued after 1970 (see the First Instance judgment at page 280F).  Without the Certificate of Compliance, there was no conversion of the equitable interest into a legal estate under section 14(1)(a) or the deemed issue of the Government lease under section 14(1)(b).  However, in the present case, the deeming effect of section 14(1) had operated in favour of the vendors over these matters. 

13.  Nevertheless, leading counsel for the purchaser submitted that the deeming effect in section 14(2) would only be for the purpose of the section.  It is confined to the deemed conversion of the equitable interest into a legal estate and the deemed issue of a Government lease.  Counsel submitted that the section did not deem that the conditions in the New Grant had actually been complied with for any other purpose.

14.  Counsel further submitted that the vendors were obliged to produce the Certificate of Compliance as prima facie evidence of compliance with such conditions as at the date of the issue of the certificate. 

Analysis

15.  However, the purchaser’s requisition or its response to the vendors’ reply to requisition never suggested that, despite section 14(2), the vendors still had to produce the Certificate of Compliance and it was to give prima facie evidence of compliance with the conditions of the New Grant at the date of its issue.  Counsel said that the mere mention of the name of the document and the nature of the document were sufficient for the vendors’ solicitors to understand the requisition properly and hence the need to supply the Certificate of Compliance to prove prima facie compliance at its date of issue.

16.  I do not agree.  Without an explanation by the purchaser’s solicitors, the vendors’ solicitors might not have understood the purchaser’s contention that the effect of section 14(2) was restricted to the conversion of the equitable interest into a legal estate and the deemed issue of the Government lease.  Their reply to the requisition showed that their understanding of the effect of section 14(2) was a deemed compliance with the conditions of the New Grant on 1 November 1984 generally, and not only for the restricted purpose as contended by the purchaser.

17.  Since there was no requisition on the vendors’ compliance with the conditions of the grant up to the time of requisitions, the question of compliance with the conditions at a time in the past was even more remote.  It would be difficult to imagine that the purchaser was concerned about actual compliance in the past but not with the up to date position.  One would only understand the purchaser’s requisition to be on the compliance with conditions of the New Grant which would justify the issue of the Government lease.  That was how the vendors’ solicitors understood the requisition and they provided the proper answer to it. 

18.  The purchaser’s solicitors, in their response to the reply, never explained their position.  They did not say that the requisition was for a copy of the Certificate of Compliance as prima facie evidence of compliance at the date of issue.  If the vendors’ solicitors had the intention to raise this requisition, they had failed to translate it into action.  The vendors cannot be faulted for not answering a requisition that had not been raised. 

19.  In fact, with section 14(2), the issue of the Government lease has been deemed.  One wonders why the purchaser should have been so keen to know whether there was prima facie evidence of compliance with the conditions of the grant at a date in the past but not ask for the up-to-date position.  I think this argument about prima facie evidence of actual compliance with the conditions at a date in the past is more a matter of legal argument than requisition.

No need to produce certificate of compliance

20.  I would go further to say that with a deeming effect in section 14(2), it is not necessary to produce the Certificate of Compliance.  Otherwise section 14(2) will become useless, all purchasers can ask for production of the Certificate of Compliance despite the grant was issued before 1 January 1970 and they can back out from the transactions if the vendors cannot produce it or produce other evidence of compliance with the conditions of the grant at some date in the past as may be stipulated in the grant.

21.  However, I am not saying that the purchaser is not entitled to raise requisition on the compliance or otherwise by the vendor with any condition in the grant at any time if that is a matter that may have a current effect on the title.  Even an actual Certificate of Compliance will not waive the Government’s right to forfeit the grant on the ground of any breach or failure to observe any of the conditions which may exist at the date of the certificate or later (see Sunlink Group (Hong Kong) Ltd v Sorrayo Investments Ltd [1999] 2 HKLRD 468 at 471J to 472A.  The deeming effect in section 14(2) cannot be more extensive than the effect of an actual certificate. 

Judgment

22.  In the premises I dismiss the plaintiff’s three originating summonses.  The vendors have made counterclaims.  I give the following relief to the counterclaims.  I declare that the plaintiff has repudiated the sale and purchase agreements with the defendants in the three sets of proceedings.  I also order that the provisional sale and purchase agreements, the formal sale and purchase agreements and the originating summonses in all three proceedings as registered against the three properties in the Land Registry be vacated. 

23.  For HCMP236/2006 and HCMP 237/2006, I also declare that the defendants are entitled to forfeit the deposits and have forfeited the same.  I do not make this declaration for HCMP238/2006 because the amount of deposit was at 20% of the purchase price and there did not appear to be any special circumstances justifying forfeiture.  I leave this for set off at the assessment of damages that I am going to order.  I do not order any indemnity by the plaintiff to the defendants for the commission that the defendants may have to pay the estate agent.  The provisional agreements to which the estate agent was a party have made it plain that it is only the party in default which is liable to pay the commissions to the agent.  Since I have held that the purchaser was in the wrong, there is no basis for the agent to pursue the vendors for the commission pursuant to the provisional agreements. 

24.  I also order that there be assessment by a Master of the damages that the defendants may have suffered.

25.  I further make a costs order nisi that the plaintiff do pay the costs of the defendants in all three sets of proceedings and in the counterclaims.