XCHRX LEE YUEN CHEUNG AND ANOTHER v. CHAN CHI MING AND ANOTHER

HCA 12747/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12747 OF 1997

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J U D G M E N T

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1. This is an application for summary judgment for the return of deposits paid for the purchase of a property. The agreement was terminated by the purchasers on the ground that the vendors had failed to answer requisitions satisfactorily. The requisitions in question related to (i) the modification of the Government Lease and (ii) a deed of surrender.

Facts

2. The Defendants are the registered owners of Block C, 5th Floor, Gilly Garden House (also known as Kai Yuen Block B), 36 Kai Yuen Street, Hong Kong ('the Property'). The Property stands on Inland Lot No.2168 Section A Remaining Portion.

3. By an Agreement dated 17th October 1997, the Plaintiffs ('the Purchasers') agreed to buy the Property from the Defendants ('the Vendors'). Completion was originally due to take place on 17th November 1997.

4. The title deeds included an Assignment dated 8th June 1964 whereby the Property was assigned by Li Pui Nung ('the Lessee') to one Yeung Yim Fong. This Assignment contained the following recital ('the Recital'):-

"AND WHEREAS by 2 several Letters addressed to the Vendor by the Director of Crown Land and Survey Offices Public Works Department respectively dated the 21st day of March 1957 and 15th day of August 1957 (hereinafter referred to as 'the said Letters') certain terms and conditions contained in the said Crown Lease as regards Inland Lot No.2168 Section A Remaining Portion only were varied and Extension thereto and the premium specified therein had been fully paid by the Vendor per Government Receipt No.56125 and dated the 22nd day of August 1957 ..."

5. The letter dated 15th August 1957 referred to in the Recital is the subject-matter of the 1st requisition in question.

6. As for the other letter mentioned in the Recital i.e. the letter dated 21st March 1957, a letter of that date had been registered in the Land Office under Memorial No. 354050, and a Certified Copy of that letter had been sent as part of the title deeds. This letter bore the letterhead of 'The Land Office, Registrar General's Department' and was signed by a representative of the Registrar General (Land Officer). It was addressed to the Lessee. It stated that Government had approved that an area of 7,000 sq. ft be granted as an extension to I.L. No.2168 Sec. A R.P. on the terms stated therein. A premium in respect of the grant of the Extension and the modification of the Lease Covenant so as to allow the Lessee's re-development scheme amounting to $246,000 was payable within 14 days of demand. The Lessee was asked to sign to signify his acceptance of those terms. His signature can be seen on the copy registered in the Land Office.

7. No requisition on this letter was raised by the Purchasers' solicitors, notwithstanding the fact that it was a letter from the Registrar General (Land Officer), and not from the Director of Crown Land and Survey Offices Public Works Department, as stated in the Recital.

Requisition on the letter dated 15th August 1957

1st Answer - included in Government Lease

8. Reverting to the letter dated 15th August 1957, when the Purchasers' solicitors first raised a requisition for the supply of that letter, the Vendors solicitors' reply was that that letter had been included in the Government Lease.

2nd Answer - Demand Note

9. When the Purchasers' solicitors pointed out that that letter was not included, the Vendors' solicitors then supplied a copy of a Demand Note No. L-41 of the same date from the Acting Superintendent of Crown Lands and Survey, which demanded payment of $246,000 as additional premium for the grant of the extension and the modification of the terms for I.L. 2168 Sec. A R.P. Imprinted on that Demand Note was a receipt No.56125 dated 22nd August 1957 (as per the Recital).

10. The Purchasers' solicitors did not accept that the Demand Note was the letter dated 15th August 1957 referred to in the Recital.

3rd Answer - demand letter dated 15th August 1957 supplied

11. The Vendors' solicitors then supplied a copy of a letter dated 15th August 1957 addressed to the Lessee and signed by a D.L.T. Musson 'for Director of Public Works'. This letter referred to the 21st March 1957 letter referred to above regarding the grant of extension and modification, and forwarded for settlement Demand Note No.L-41.

12. The Purchasers' solicitors also did not accept that this was the letter referred to in the Recital. They noted:

" ... it is only a covering letter ... . From any point of view, it cannot be regarded as a Modification Letter by which certain terms and conditions contained in the Crown Lease ... were varied (as referred to in the Assignment ...)

We wish to put on record that you had previously sent to us a Debit Note dated 15th August 1957 ... and you also repeatedly alleged that the Debit Note is the Modification Letter dated 15th August 1957.

In order to prove that the Letter enclosed in your letter dated 19th November 1997 ('the Letter') is the Modification Letter in question and to substantiate your allegation this time, please let us have a written confirmation from the relevant Government authority confirming that:-

1. the Letter is the Modification Letter in question; and

2. apart from the Modification Letter dated 21 March 1957 and the Letter, there is no other Modification/Variation/Extension Letter affecting the Lot."

4th Answer - Government Records Service copy of Environment Branch file

13. The Vendors solicitors' reaction was first to assert that the document supplied was the Modification Letter in question and that it had been supplied to them by the 'relevant Government authority'.

14. When this assertion was rejected by the Purchasers' solicitors, the Vendors' solicitors sent on 21st November 1997 (3 days before the extended completion date)

"a copy of the whole set of document [sic] (including the Modification Letter dated 15 August 1957) which we obtained from the relevant Government Authority and have proposed to extend completion till 28th November 1997 whilst we, on an ex gratia basis, shall use our best endeavours to locate a written confirmation regarding the Modification Letter in question from the relevant authority".

15. What was enclosed by the Vendors' solicitors was a copy of a file from the Environment Branch bearing the title 'Inland Lot No.2168 Sec. A - North Point Proposed extension and modification of the Crown Lease terms'. The cover page of the photocopy bore a stamp whereby the Director of Government Records Service certified that it was a true copy of a document in his custody.

16. Within the file was a copy of the 21st March 1957 letter containing the terms of the modification and registered as Memorial No.354050 (but not signed) as well as a copy of the demand letter of 15th August 1957 supplied with the 3rd answer to the requisition. There was no other letter dated 15th August 1957.

17. The Purchasers' solicitors replied 2 days before completion saying they could not locate 'the Modification Letter dated 15th August 1957' and asked the Vendors' solicitors to 'pinpoint' which document it was. They returned the file which they said 'served no purpose' in clarifying the matter. There was no reply to this letter from the Vendors' solicitors.

Rescission

18. On the extended completion date (24th November 1997), the Purchasers asserted that the Vendors had not discharged their duty to prove and show good title to the Property by failing to produce 'the Modification Letter dated 15th August 1957 and the relevant written Government confirmation' and rescinded the Agreement.

19. In my judgment, the Purchasers were entitled to do so. Having examined the matter in some detail at the hearing, it appears to me that there probably was no other letter dated 15th August 1957 containing terms of modification distinct from the letter dated 21st March 1957, and the demand letter supplied with the 3rd answer to the requisition was probably the one referred to in the Recital. I derive this conclusion from the fact that the letter referred expressly to the March letter, and enclosed a Demand Note No. L-41 which corresponded with the one for which receipt No.56125 was issued, as stated in the Recital.

20. Further it would have been unlikely for there to have been another letter of the same date from the Public Works Department (albeit from another department) containing different terms from the March letter, but which did not find its way into the file disclosed.

21. Thus, the March letter (containing the terms of the modification), the August letter (containing the demand for premium) and the receipt (evidencing payment of the premium) together completed the modification process, and that was probably what was intended to be communicated by the draftsman of the Recital.

22. But the primary issue before me was not whether the Vendors have or do not have a good title. The primary issue is whether the Vendors have shown and proved good title before completion on 24th November 1997.

Failure to answer 1st requisition satisfactorily

23. In my view, they have not. First, they have not satisfactorily answered the requisition. It was obvious from the Purchasers solicitors' correspondence that they were looking for a letter which contained terms of modification. This is understandable because the Recital stated that 'by 2 several Letters ... certain terms and conditions contained in the said Crown Lease ... were varied ...'.

24. Thus, when they received the demand letter dated 15th August 1957 with the 3rd answer, they did not consider that to be the 'modification letter' in question. And when they received the file, they reacted consistently by saying that they could not locate 'the modification letter' in the file and asked the Vendors' solicitors to 'pinpoint' it to them.

25. The Vendors' solicitors never sought to explain to the Purchasers' solicitors by reference to the process of modification why the demand letter supplied with the 3rd answer was indeed (or at least beyond reasonable doubt) the letter referred to in the Recital. Mr. Leong SC says now that it was self-evident. I am not sure if it was so self-evident at the time when one considers the fact that the Vendors' solicitors had first put forward the Demand Note as the relevant letter.

26. Further, although the file bore the relevant title, the Vendors' solicitors had merely put forward the file as having been obtained from 'the relevant Government Authority' without specifying which authority that was, something to which the Purchasers should be entitled without having to trawl through the file for themselves to decide what that authority was and whether that file should have contained the information sought.

27. But even if it had been self-evident, it would have been apparent from the last letter of the Purchasers solicitors that they did not appreciate the connection between the demand letter and the March letter containing the terms of modification. They thought there was a separate letter dated 15th August 1957 with distinct terms of modification, rather than a chain of documents in the modification process.

28. In the absence of any suspicion that the Purchaser' solicitors were not acting bona fide, I would have thought that the Vendors solicitors should have pointed out any misconception to the Purchasers' solicitors. It would not have taken much time or costs, and might have saved the transaction. Instead, they did not reply at all to the Purchasers' solicitors.

29. I find in the circumstances that the Vendors have failed to answer the 1st requisition satisfactorily by failing to explain to the Purchasers why the demand letter sent with the 3rd answer was indeed the letter referred to in the Recital.

Failure to provide original or certified true copy of letter of 15th August 1957

30. Secondly, in any event, even if I am wrong in holding that the Vendors have failed to answer the 1st requisition satisfactorily, they have failed to produce at completion either the original or (if the original was lost) a certified true copy of the demand letter dated 15th August 1957.

31. Even assuming that the original was lost, the only certification of the copy demand letter of 15th August 1957 was the certification on behalf of the Government Records Service Director that it was a true copy of 'a document in my custody'. That is not certification that the copy produced is a true copy of the original, or of a copy that has itself been certified as a true copy of the original. As such, it is not a proper certified true copy within the meaning of s.13 of the Conveyancing and Property Ordinance cap.219.

32. Mr Leong SC for the Vendors has first argued that a certified true copy was not necessary because it was not an instrument whereby the terms of the Government Lease were extended or varied within the meaning of s.3 Interpretation and General Clauses Ordinance cap.1. However the Recital treated that letter as part of the modification process and indeed, it provided the necessary connection between the March letter (containing the terms of modification) and the demand note (which did not identify which modification was being paid for, as it did not refer to the March letter). Quite apart from that, the Vendors never asserted before completion that the demand letter dated 15th August 1957 did not require production as it did not come within the definition of 'Government Lease'.

33. Mr Leong SC also argued that the Purchasers had waived compliance with s.13 of the Conveyancing and Property Ordinance because at one stage, the Purchasers' solicitors had indicated that they would be content with a photocopy subject to an undertaking from the Vendors' solicitors. However, it is apparent from the ensuing correspondence that the Vendors' solicitors never gave that undertaking sought, and subsequently the Purchasers insisted on production of a certified true copy before completion, which never materialised.

34. Accordingly, I find that the Vendors have failed to answer the 1st requisition satisfactorily and have failed to comply with s.13 of the Conveyancing and Property Ordinance before completion. The Purchasers were therefore entitled to rescind the Agreement.

Deed of Surrender

35. As for the 2nd requisition dealing with the Deed of Surrender, it would appear to me that this was a pre-root document which probably did not require production. The Vendors' solicitors however did not answer the requisition this way. They merely asserted that the Deed of Surrender 'did not form part of the title documents', an assertion which is so wide as to be almost meaningless.

36. The Purchasers' solicitors expressly rejected that answer but thereafter the Vendors' solicitors did not make further reply.

37. Subsequently the Vendors' solicitors asserted on a number of occasions that they had answered all requisitions satisfactorily. There was no express rebuttal from the Purchasers' solicitors as far as the 2nd requisition was concerned.

38. Mr Leong SC argued that that showed the Purchasers' waiver of the 2nd requisition. I do not think that is so. The Purchasers' solicitors had rejected the earlier 'answer'. Their clear, announced position was that their requisition was still unanswered. Their silence thereafter is not clear and unequivocal enough for me to conclude that they had changed their position.

Order

39. In the light of my findings, I would make an order in terms of the Minutes of Judgment.