A-MAYSON DEVELOPMENT CO LTD v. BETTERFIT LTD

[A purchaser who before the date fixed for completion discovers a fundamental defect in title, or some other fundamental breach of contract by the vendor, may thereupon call off the contract; he need not wait to do so until the date fixed for completion]

1990, No A7293

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. This case, which has been ably and tenaciously argued on both sides, arises out of a contract made between the plaintiff ("the vendor") and the defendant the purchaser") on 7th September 1990 for the sale and purchase of the ground floor, 16A, Peking Road, Kowloon ("the property"). The purchase price was $25.75m. The deposit was $2.575m. The date fixed for completion was 18th October 1990.

2. On 12th October 1990, the purchaser, claiming that the vendor had failed satisfactorily to deal with certain matters of title and conveyance raised by the purchaser, purported to rescind the contract.

3. On 15th October 1990, the vendor, refusing to treat the contract as at an end, dealt (or at any rate attempted to deal) with the outstanding matters.

4. On 18th October 1990 (the completion date) the purchaser, claiming that it was now too late for the vendor to insist on completion since the contract had been rescinded, and claiming that anyway some of the purchaser's objections remained outstanding, maintained its refusal to complete and confirmed that it proposed to treat the contract as at an end.

5. The issues which I have to consider are these

(1)     Is a purchaser who has raised objections to matters of title or conveyance bound to give the vendor until the date fixed for completion to come up with satisfactory answers to the purchaser's objections, or may there be circumstances under which the purchaser may become entitled to call off the contract-without waiting for the completion date?

(2)    If there may be circumstances in which the purchaser may become entitled to call off the contract without waiting for the completion date, did such circumstances exist here?

6. If the purchaser was, in all the circumstances of the case, entitled to call off the contract on 12th October 1990 (or, alternatively, on 18th October 1990), it is  entitled to the return of its deposit. But, if the purchaser never became entitled to call off the contract, it must be treated as having repudiated the contract and the vendor held entitled to keep the deposit. So the central question is : Was the purchaser here entitled to call off the contract as it did?

7. The facts are as follows.

8. By an agreement dated 5th August 1990 ("the principal agreement") a company called Orientking Investments Limited agreed to sell the property to the vendor for HK$23.5m. The date fixed for completion was 18th October 1990.

9. By the agreement dated 7th September 1990 under which the present dispute arises ("the sub-sale agreement"), the vendor agreed to sell the property to the purchaser at the enhanced price of $25.75m, again with completion on 18th October 1990.

10. In the sub-sale agreement the vendor is described as "the sub-vendor" and Orientking Investments Limited is described as "the principal vendor". I shall, for convenience, retain these descriptions of these parties in what follows.

11. By the sub-sale agreement, it was recited that by the principal agreement the sub-vendor had agreed to purchase the property and had agreed with the purchaser for the sale to the purchaser of its interests in the principal agreement and the property on the terms of the sub-sale agreement.

12. The sub-sale agreement contained provisions relating to the purchase price, the deposit, and the date of completion, to all of which I have already referred. It provided that time should in every respect be of the essence of the agreement.

13. By clause 9, the sub-sale agreement provided for matters of title and requisitions. Clause 9(a) and (b) are in the following terms:

"9 TITLE AND REQUISITIONS

(a)     Notwithstanding anything herein and in the Principal Agreement contained, Section 13 of the Conveyancing and Property Ordinance Chapter 219 shall apply to this Agreement.

(b)    The Sub-Vendor shall deliver all the deeds and documents required to prove title to the Property (including the Occupation Permit and (if appropriate) the Certificate of Compliance) to the Purchaser's solicitors as soon as the Sub-Vendor received the same from the Principal Vendor's solicitors PROVIDED THAT in the event the said deeds and documents are not available to send to the Purchaser's solicitors on or before the 8th day of October 1990 the Sub-Vendor shall furnish the copies of the said deeds and documents to the Purchaser's solicitors on or before the 9th day of October 1990. Any requisition or objection in respect of title under this agreement shall be delivered in writing to the Sub-Vendor's solicitors as soon as practicable after delivery of the title deeds to facilitate requisitions and objections to be made under the Principal Agreement PROVIDED ALWAYS the Purchaser shall have not less than 7 days from the date of delivery of all the said deeds and documents to raise such requisition or objections."

14. Clause 11 of the sub-sale-agreement dealt with the consequences of failure of the sub-vendor. Only subclause (a) is material. The relevant provisions read as follows

"11 FAILURE OF THE SUB-VENDOR

    In the event of the Sub-Vendor or the Principal Vendor failing to complete the sale in accordance with the terms of this Agreement and of the Principal Agreement respectively or if the Sub-Vendor shall otherwise commit a breach of the terms hereof :-

(a)     all moneys paid by the Purchaser to the Sub-Vendor pursuant to the provisions of this Agreement shall be returned to the Purchaser who shall also be entitled to recover from the Sub-Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Sub-Vendor or the Principal Vendor;"

15. Clause 16(b) of the sub-sale agreement contained a warranty and declaration on the part of the vendor. It reads as follows:-

"(b) The Sub-Vendor hereby warrants and declares that :-

(i)    the Sub-Vendor is not aware of any part of the Property or any alteration addition or fixture therein or thereto being an illegal or unauthorised structure the removal or re-instatement of which may be ordered or demanded by the Building Authority or other Government or public authority or the manager or a co-owner of the buildings of which the Property form part; and

(ii)     the Sub-Vendor has not received and is not aware of there being any notice from any Government or other competent authority requiring the Principal Vendor to demolish repair or re-instate any part of the Property.

If it should be discovered that :

(i).    such illegal or unauthorised structure existed before the date for completion; or

(ii)    such notice existed prior to the date hereof or if any such notice shall be served before the date for completion;

the costs for such removal demolition repair or re-instatement shall be borne by the Sub-Vendor and the Purchaser shall have the option EITHER (i) to rescind this Agreement whereupon all deposit money paid hereunder shall be returned by the Sub-Vendor to the Purchaser in full but without any compensation or costs and if such refund is made within 7 days of this Agreement being rescinded, without any compensation, interest or costs and neither party shall have any claim against the other or against either. party's solicitors hereon and the parties hereto shall at their own cost enter into and cause to be registered in the Land Office an Agreement for Cancellation OR (ii) to complete the purchase of the Property but. without any abatement in purchase price and on the terms herein contained.

16. Clause 16(e) contained a further declaration. It reads as follows:

"(e) The Sub-vendor declares that he is not aware of anything in the Occupation Permit or the Deed of Mutual Covenant or in any of the other deeds and documents affecting the Property whereby the use of the Property (i) as a self-contained unit and (ii) for shop purposes may be prohibited restricted or unauthorised. If it should be ascertained prior to the date for completion the use of the Property in the manner specified in paragraphs (i) and (ii) may be prohibited restricted or unauthorised, the Purchaser shall have the option EITHER (i) to rescind this Agreement whereupon all deposit money paid hereunder shall be returned by the Sub-Vendor to the purchaser in full but without any compensation or costs and if such refund is made within 7 days of this Agreement being rescinded, without any compensation, interest or costs and neither party shall have any claim against the other or against either party's solicitors hereon and the parties hereto shall at their own cost enter into and cause to be registered in the Land office an Agreement for Cancellation OR (ii) to complete the purchase of the Property but without any abatement in purchase price and on the terms herein contained."

17. Clause 18 of the sub-sale agreement contained a provision relating to existing encumbrances. It reads as follows:

"18. The Parties hereto are aware that the Property is presently subject to the Rent Assignment and Charge on Rent Account, the Legal Charge and the Second Legal Charge in favour of The China State Bank Limited by the Sub-Vendor respectively registered in the Land Office by Memorials No s.4393241, 4393142 and 4393143 (the Existing Liabilities'). The Sub-Vendor undertakes to obtain prior to completion a discharge and/or release and/or reassignment of the Existing Liabilities and (if appropriate) to procure the Principal Vendor to make a statutory declaration pursuant to section 5(4)(b) of the Powers of Attorney Ordinance CaP31, all at his own costs and expenses. The Sub-Vendor undertakes not to create Or permit to be created any charge mortgage pledge or any Other encumbrance Of whatever nature affecting the Property Other than the Existing Liabilities."

18. The solicitors who had Originally acted for the principal vendor in its acquisition Of the property were a firm called J Fang & CO (I shall refer to this firm as "the principal vendor's Original solicitors"). The solicitors who acted for the principal vendor in its sale to the sub-vendor was a firm called TC Lau & CO (I shall refer to this firm as "the principal vendor's solicitors"). The solicitors who acted for the sub-vendor On its sale to the purchaser was a firm called SO & CO (I shall call this firm "the sub-vendor's solicitors"). The solicitors who acted for the purchaser On its purchase from the sub-vendor was a firm called CP Lin & CO (I shall refer to this firm as "the purchaser's solicitors").

19. On 7th September 1990, the date Of the sub-sale agreement, the sub-vendor's solicitors asked the principal vendor's solicitors for all the relevant title deeds and documents.

20. On 8th September 1990, the principal vendor's solicitors sent to the sub-vendor's solicitors 24 title deeds and documents listed in a schedule, which I now reproduce.

"THE SCHEDULE

Re: Ground Floor of NO 16A Peking Road Kowloon

1.    Copy Conditions Of Regrant NO 7522;

2.    Certified copy Occupation Permit. No K299/62;

3.    Attested copy Deed of Mutual Covenant Mem No 392262;

4.    Assignment Mem. No 390420;

5.    Mortgage Mem. NO 390421 with Further Charge and Reassignment endorsed;

6.    Second Mortgage Mem. No 393510 with Certificate Of Satisfaction endorsed;

7.    Agreement for Sale and Purchase Mem. NO 77674 with Cancellation Agreement endorsed;

8.     Deed Of Release Mem. No 1380528;

9.     Mortgage Mem. No   2026191;

10.    Agreement for Sale and Purchase Memorial No 3384405;

11.    Certified copy Power Of Attorney dated 3-3-1986 given by The Bank Of Tokyo Limited;

12.    Certified copy Letter Of Confirmation as to non-revocation Of Power Of Attorney dated 8th April 1990 given by The Bank Of Tokyo Limited;

13.    Release Mem. NO 343705;

14.    Assignment Mem. No 3437706;

15.    Copy Declaration Of Frank Chi Yuen Cheung Mem. NO 3301090;

16.     Copy Declaration Of Frank Chi Yuen Cheung Mem. No 3636793;

17.     Copy Tenancy Agreement dated 18th January 1990;

18.     Legal Charge Mem. NO 3437707;

19.    Duplicate Legal Charge dated 20th June 1987;

20.    Assignment Of Rental Mem. No 3437708;

21.     Duplicate Assignment Of. Rental dated 20th June 1987;

22.     Certified copy Power Of Attorney dated 20th March 1978 given by The Chartered Bank to Peter Norman Simpson;

22.     Certified copy Letter Of Confirmation as to [sic] non-revocation of Power of Attorney dated 27th April 1990 given by Standard Chartered Bank; and

23.    Copy Release Mom. No 4393140 (Original is lodged with the Companies Registry for filing purposes)."

21. On 8th September 1990, the sub-vendor's solicitors sent to the purchaser's solicitors the same title deeds and documents, which they described as "the relevant title deeds and documents".

22. On 13th September 1990, the purchaser's solicitors wrote to the principal vendor's solicitors stating that on perusing the title deeds they noted as follows

"1. Under Occupation Permit dated 17th November 1962, the Ground Floor Of the building On Kowloon Inland No 8058 is permitted for occupation as '5 shops'. In fact, the Ground Floor is and has been partitioned into 8 shops. Please let us have a copy of the consent from the Building Authority to the re-partitioning of the Ground Floor. We enclose for your information photocopies of the following -

i) Occupation Permit;

ii) Ground Floor Plan annexed to Assignment Memorial No 390420; and

iii) page 1 and back-page of Deed of Mutual Covenant Memorial No 392262.

2     The words 1A and 3 Lock Road should be corrected to 1A, 3 and 3A Lock Road in the following places -

i) last page of Mortgage Memorial No 390421; and

ii) first page of Reassignment Memorial No 664016.

We enclose herewith the original Mortgage Memorial No 390421 with (inter alia) Reassignment Memorial No 664016 endorsed thereon. Kindly arrange for the documents to be corrected in the above manner and return the same to us with the corrections initialled in the usual way together with the signed memorials and the Land Office fees for the re-registration therefor.

3.     The words 1A and 3A Lock Road should be corrected to 1A 3 and 3A Lock Road in the following places -

i) page 25 of Mortgage Momorial No2026191; and

ii) page 2 of Release Memorial No3437205.

We enclose the originals of both documents. Kindly arrange for the documents to be corrected in the above manner and return the same to us with the corrections initialled in the usual way together with the signed memorials and the Land office fees for the re-registration therefor.

4.     The certified copy Power of Attorney dated 3rd March 1986 from The Bank of Tokyo, Limited is incomplete in that there is no certified translation of the certificate signed by S. Watahiki, Notary Public. We return the certified copy Power of Attorney (with letter confirming its non-revocation dated 9th April 1990 annexed) for your attention. Please let us have a fresh certified copy with the Notarial Certificate duly translated.

5 . We note that the above property is subject to -

i). a Rent Assignment Memorial No4393141;

ii)    Legal Charge Memorial No4393142; and

iii)    Second Legal Charge Memorial No4393143. To enable us to approve title, please let us have copies of the above documents together with the following -

iv)     draft Release and/or Discharge and/or Reassignment by The China State Bank Limited;

v)     copy/copies of the Power of Attorney and/or other document(s) of authorisation if such Release and/or Discharge and/or Reassignment is to be executed by an attorney; and

vi)     draft Statutory Declaration pursuant to section 5(4)(b) of the Powers of Attorney Ordinance CaP31 if any such Power of Attorney or other document of authorisation is given more than 12 months prior to the intended date of such Release and/or Discharge and/or Reassignment.

To complete title, we also require that the original or (if affecting other property) a certified copy of each of the above documents be delivered to us on completion.

6. To enable us to approve title, please let us have copies of the following documents -

i) a letter from the Public Works Department confirming that the positive obligations in conditions of Regrant No7522 have been complied with;

ii) Contributory Second Mortgage Memorial. No416107;

iii) Satisfaction Memorial. No484755;

iv). Government Notice Memorial No811338; v) Guarantee Memorial No1129066; and

vi) Tenancy Agreement Memorial No2354327. To complete title, we also require that the original or (if affecting other property) a certified copy of each of the above documents be delivered to us on completion.

7.     We reserve the right to raise further requisitions on title at any time, whether within or outside the period of 7 days allowed in the Agreement for Sale and Purchase for making requisitions on title, which may arise from your reply to any of the above requisitions or from our perusal of any of the additional documents requested by us above.

8.     You have provided us with plain photocopies of the following -

i) Conditions of Regrant No7522;

ii) Statutory Declaration Memorial   No3301090;

iii) Statutory Declaration Memorial No3636793;:

iv) Tenancy Agreement dated 18th January 1990; and

v) Agreement for Sale and Purchase dated 30th August 1990.

To complete title, we require that the original or (if affecting other property) a certified copy of each of the above documents be delivered to us on completion.

9.    You have provided us with a photocopy of Release Memorial No4393140. To complete title, we require that the original document duly endorsed by the Companies Registry be delivered to us on completion.

10.    We reserve the right to raise further requisitions o?whatever nature at any time within the period of 7 days allowed in the Agreement for Sale and Purchase for making requisitions on title."

23. On the same day, 13th September 1990, the purchaser's solicitors sent to the principal vendor's solicitors a copy of their letter of the same date to the sub-vendor's solicitors. They said that, insofar as the requisitions on title on behalf of the pruchaser should properly be addressed to the principal vendor, or the principal vendor's solicitors direct, their letter made requisitions in identical terms to those contained in the letter of 13th September 1990 which they had written to the sub-vendor's solicitors.

24. On 14th September 1990, the sub-vendor's solicitors themselves sent to the principal vendor's solicitors a letter containing the requisitions which had been raised by the purchaser's solicitors in their letter of 13th September 1990.

25. On 18th September 1990, the principal vendor's solicitors wrote to the sub-vendor's solicitors, referring to their letter of 14th September 1990 and answering the queries therein raised as follows

" Our answers to your queries are as follows :-

1.    An occupation permit is permissive in nature and not restrictive. The fact that the Assignment was registered in the Land Office will speak for itself that there is no problem with the partition of the shop space into the number of shop spaces.

2.    The two documents are dated more than 15 years ago. Section 13 of the Conveyancing and Property Ordinance requires the vendor to produce documents of title of up to 15 years only. We are therefore of the view that no amendment to the two documents is necessary.

3.     The mistakes are clearly typing mistakes which are not so material as to affect the title to the property. The very fact that the mortgage was released by the Release Memorial No3437205 will necessarily estop the Bank from denying that it has not received the redemption money. We are therefore again of the view that no amendment is necessary.

4.     The power of attorney is duly translated and certified. We do not think that the omission to have the copy of the certified translation is of any particular significance as to affect the 'validity of the document.

5.     The original of the documents will be sent to you shortly after completion. We regret that we cannot at this stage let you have the aforesaid documents, nor can we send you draft copies of the documents because the reassignment is handled by another firm of solicitors.

6.    We are not prepared to supply the documents to you except the tenancy agreement Memorial No 2354327 because the documents are more than 15 years old:

8.     Originals or certified documents will be delivered to you in due course.

9.    We undertake to return the original document to you after registration at the Companies Registry."

26. On 19th September 1990, the sub-vendor's solicitors sent to the purchaser's solicitors a copy of the letter dated 18th September 1990 which they had received form the principal vendor's solicitors.

27. Also on 19th September 1990, the principal. vendor's original solicitors wrote to the vendor's solicitors about the requisitions 1 to 4 which had been raised by the sub-vendor's solicitors' letter of 14th September 1990. The principal vendor's original solicitors stated as follows

"1.     For our conveyancing view, the partition of shops on Ground floor of the building does not affect the structure of the building. In this circumstance, we are of the opinion that there are no need for obtaining the consent from the Building Authority to re-partition the ground floor. Further more, the relevant Occupation Permit had been issued 27 years ago and also had not yet been registered in the Land Office, the said Occupation Permit did not form part of the title or did not include in the chain of title under the Conveyancing And Property Ordinance (CaP219);

2.     Rectifications on Mortgage Memorial No 390421 and Reassignment Memorial No664016 are no need because the said documents were executed 21 years ago and also did not include in the chain of title;

3.     The omission of the word '3' before the words and 3A lock Road on page 25 of Mortgage Memorial No2026191 and page 2 of Release Memorial No3437205 were due to the clerical mistakes but the above premises were properly described and assigned under the said Mortgage and the said Release. We are of the opinion that such omission does not affect the title thereof and rectification is not required;

4.    The certified translation of the Certificate signed by the Notary Public is annexed on the, last page of the said Power of Attorney."

28. On 2nd October 1990, the principal vendor's solicitors sent to the sub-vendor's solicitors a copy of the letter dated 19th September 1990 which they had received from the principal vendor's original solicitors.

29. On 3rd October 1990, the sub-vendor's solicitors sent to the purchaser's solicitors a copy of the same letter.

30. By a letter dated 12th October 1990, addressed by the purchaser's solicitors to the sub-vendor's solicitors, the purchaser's solicitors, being dissatisfied with the answers they had received to their requisitions, called the contract off. They wrote to the sub-vendor's solicitors in the following terms

"We refer to the Sub-Agreement for Sale and Purchase dated 7th September 1990 (the Sub-Agreement) between your client A-Mayson Development Company Limited as Sub-Vendor and our client Betterfit Limited as Purchaser.

1. a)     Under clause 9(b) of the Sub-Agreement, the Sub-Vendor agreed to deliver all the deeds and documents required to prove title to the Property (including the Occupation Permit and (if appropriate) the Certificate of Compliance) or copies thereof to our firm no later than 9th October 1990. Up to today's date, you failed to deliver to us the Certificate of Compliance or any of the deeds and documents referred to in paragraphs 5 and 6 of our letter to you dated 13th September.

b)     In order to prove title the Sub-Vendor is required under section 13 of the Conveyancing and Property Ordinance Cap219 to give proof of title extending not less than 15 years commencing with an assignment, a mortgage by assignment -or a legal charge, each dealing with the whole estate and interest in that land. In other words, the Sub-Vendor is required to produce firstly an assignment or mortgage or legal charge dealing with the whole estate and interest in the Property dated not later than 7th September 1975 and secondly all the deeds and documents affecting the Property subsequent to the root of the title up to the present date.

c)     In the Sub-Agreement, the root of title is Mortgage Memorial No390421 dated 14th February 1963 because there is no subsequent  assignment/mortgage/legal charge dealing with the whole estate and interest in the Property until Assignment Memorial No3437706 dated 20th June 1987. Other than the Certificate of Compliance, all the deeds and documents referred to in paragraphs 5 and 6 of our letter to your dated 13th September are subsequent to this root of title. Your client has therefore failed to deliver all the deeds and documents required to prove title and the Certificate of Compliance as agreed in clause 9(b) of the Sub-Agreement.

d)    Under clause 11 of the Sub-Agreement, if the Sub-Vendor shall commit a breach of the terms thereof, all moneys paid by our client to the Sub-Vendor pursuant thereto should be returned to the Purchaser. On behalf of our client the Purchaser, we hereby call upon your client the Sub-Vendor to return the deposit of $2,575,000.00 to us on behalf of our client the Purchaser. We also reserve the right of our client to recover damages (if any) from the Sub-Vendor which our client may have sustained by reason of the Sub-Vendor's breach.

2. a)     Under clause 16(b) of the Sub-Agreement, the Purchaser has the option to rescind the Sub-Agreement if there had been any unauthorised alteration to the Property in which event all the deposit money paid thereunder should be returned by the Sub-Vendor to the purchaser in full. We are instructed that the toilet originally forming part of the Property has now been removed. You have not provided us with any Building Authority consent to such removal.

b)    On behalf of our client the Purchaser, we hereby give you notice on behalf of the Sub-Vendor that the Purchaser hereby exercises the option to rescind the Sub-Agreement under clause 16(b) thereof. On behalf of our client the Purchaser, we hereby call upon your client the Sub-Vendor to return the deposit of $2,575,000.00 to us on behalf of our client the Purchaser.

3. a)     Under clause 16(e) of the Sub-Agreement, the Purchaser has the option to rescind the Sub-Agreement if the use of the Property as a self-contained shop unit may be prohibited restricted or in which event, all the deposit money paid thereunder should be returned by the Sub-Vendor to the Purchaser in full. Under the Occupation Permit relating to the Proeprty, the permitted user for the whole of the ground floor of the building is 5 shops'. In fact, the Property is one of 8 shop units on the ground floor of the building. Unless the re-partitioning of the ground floor had the prior consent of the Building Authority, the use of the Property as one of 8 self-contained units might be prohibited restricted or unauthorised. We assume from your letters dated 19th September and 3rd October that you will not provide a copy of such consent.

b)     On behalf of our client the Purchaser, we hereby give, you notice on behalf of the Sub-Vendor that the Purchaser hereby exercises the option to rescind the Sub-Agreement under clause 16(e) there of. On behalf of our client the Purchaser, we hereby call upon your client the Sub-Vendor to return the deposit of $2,575,000.00 to us on behalf of our client the Purchaser."

31. On 15th October 1990, the sub-vendor's solicitors replied to the purchaser's solicitors' letter of 12th October 1990 as follows

"1 (i)     By virtue and under Section 14(2) of the Conveyancing and prooperty Ordinance, CaP219, the Conditions of Regrant No7522 was entered into before 1st January 1970 and thus, the same shall be deemed to have been complied with.

(ii)    we now send you herewith copies of the following :-

i)     a Rent Assignment Memorial No4393141;

ii)     Legal Charge Memorial No4393142; and

As to documents 5(iv), (v) and (vi) as referred to in your said letter of 13th September 1990, you will note that, the said documents are not prepared by us or-the Vendor's solicitors and thus we are unable to provide you with the same at this stage. We have written to the Vendor's solicitors to enquire whether the same is now available. Once we obtain the same from the Vendor's solicitors, we shall send the same to you. Anyway, it will be the normal practise that upon completion, we will give our firm's personal undertaking to let you have the original of the same duly signed and properly attested within 21 days after completion.

(iii)     Although most of the documents were more than 15 years old, we now send you herewith the following copy of documents as sought by you in your letter of 13th September 1990 under item 6 thereof :-

i)     Contributory Second Mortgage Memorial No 416107;

2.(a)     We are instructed that your requisition as to the alleged unauthorised alteration to the toilet of the Property is totally unfound and unsupported. There is, in fact, no toilet inside the Property and it is also supported or can be shown as in the Floor Plan annexed to the Assignment Memorial No 390420.

3.    We share the same view of the Vendor's solicitors Messrs TC Lau & Co as stated in their letter of 18th September 1990 and of Messrs J Fang & Co as stated in their letter of 19th September 1990. Furthermore, please identify exactly which part of the Property is alleged to have been unauthorised partitioned.

    We are hereby instructed to give you notice, which we hereby do that unless your client shall on or before 16th October 1990 before 3.00 pm. withdraw those requisition and inform us that your client shall proceed to complete the sale and pruchase herein, otherwise our client shall treat it as evidence as your client's repudiation of the agreement. In such event, our client shall proceed to complete the sale as purchaser under the Principal Agreement with the Vendor accordingly and shall exercise it right to forfeit your client's deposit without further notice. Our client further reserves all its right."

32. On 16th October 1990, the purchaser's solicitors replied to the sub-vendor's solicitors letter of 15th October 1990 commenting as follows

"1(i) (a)     Your client the Sub-Vendor is in breach of clause 9(b) of the Sub-Agreement which expressly requires the Sub-Vendor to deliver the Certificate of Compliance to the Purchaser.

(b)    The Certificate of Compliance is required to show that the positive covenants in New Grant No 7522 are in fact complied with. Section 14(2) of the Conveyancing and Property Ordinance CaP219 states that pre-1970 conditions precedent are deemed to be complied with for the purposes of this section ie for the purposes of ascertaining whether the Property is a legal estate or an equitable interest.

(ii)    Under clause 9(b) of the Sub-Agreement, your client is required to produce all the documents between the root of title and the date of the Sub-Agreement no later than 9th October. By delivering certain outstanding documents on 15th October, your client is in breach of the Sub-Agreement. Moreover, under the proviso to clause 9(b), the Purchaser shall have not less than 7 days. from delivery of all the said deeds and documents to raise requisitions or objections. By delivering certain title deeds 3 days prior to the Completion Date, your client has failed to give our client such 7 days in which-to raise requisitions.

2.    We re-iterate that we are instructed that in fact there was a toilet when the building was completed.

3.    Under clause 16(e) of the Sub-Agreement, the Purchaser has the option to rescind if use of the Property as a self-contained shop unit may be prohibited restricted or unauthorised. It is sufficient to show that there is a. possibility that such use may be prohibited restricted or unauthorised. The re-partitioning of the Ground Floor clearly give rise to such a possibility.

Under the Sub-Agreement, the Sub-Vendor is entitled to call on the Purchaser to withdraw a requisition only under clause 9(c) in which case the deposit should be returned to the Purchaser. You are not entitled to call on our client to withdraw his requisition at the same time saying that your client will forfeit our client's deposit which you purported so to do in your letter. We do not agree that your client may treat it as our client's repudiation of the agreement if :-

(a)     our client fails to withdraw its requisitions; or

(b)    our client fails to notify you at this stage whether it will proceed to complete the sale and purchase herein."

33. On 17th October 1990, the sub-vendor's solicitors wrote to the purchaser's solicitors in the following terms

"     In your letter dated 12th October 1990, you called upon our client to return the deposit on three different grounds. Regarding the first ground, we have since by letter dated 15th October 1990 delivered all the documents requested to you and in your letter dated 16th October 1990 written after receipt of the same, you have not commented further on the matter. Since our client has now fully complied with your request regarding copies of title deeds, your client is required to complete the sale and purchase under the Sub-Agreement. We are further instructed to give you notice that should you or your client insists on have a full 7 days to peruse the documents we delivered on 15th October 1990 our client is prepared to extend the completion dated to 23rd October 1990, thereby giving your client a full 7 days to raise requisitions even though all those documents are in perfect order.

    Regarding the second ground, we are instructed by our client to inform your client that there are no unauthorized alterations to the captioned property and therefore your client is not entitled to rely on clause 16(b) of the Sub-Agreement. On the third ground, we are further instructed by our client to inform yours that there is nothing to prohibit or restrict the use of the captioned property as a self-contained shop unit and therefore your client is not entitled to rely on clause 16(e) of the Sub-Agreement.

    Subject to the last sentence of the 2nd paragraph above, your client is required to complete the sub-sale and purchase in accordance with the Sub-Agreement, failing which our client will exercise all the rights thereunder."

34. After a further exchange of letters in which each side maintained its position, the purchaser's solicitors wrote to the sub-vendor's solicitors on 18th October 1990 in the following terms

"1(a)     We re-iterate that your client is in breach of his express agreement to deliver to our firm all the deeds and documents on or before the 9th October 1990 pursuant to clause 9(b) of the Sub-Agreement (in respect of which time is the essence). By our letter to you dated 12th October, your client was notified that under clause 11 of the Sub-Agreement all the moneys paid by the Purchaser to your client should be returned to our client who should also be entitled to recover damages from your client. So far, you have not commented on this matter.

(b)    Under the Sub-Agreement, your client is not entitled delay delivery of the title deeds and documents by offering to defer completion. Our client does not agree to such delay.

2.    We re-iterate paragraphs 2 and 3 of our letter to you dated 16th October.

3.(a)     We are further instructed that whereas the plan annexed to Assignment Memorial No 590420 shows the Property to be 11 feet wide, in fact, the Property is now over 11 feet 9 inches wide. You have not provided us with any Building Authority or Government consent to such relocation of the shop wall or to the. subsequent encroachment on crown land. Such structural alteration is also a breach of the Deed of Mutual Covenant.

(b)    On behalf of our client the Purchaser, we hereby give you notice on behalf of the Sub-Vendor that the Purchaser hereby exercises the option to rescind the Sub-Agreement under clause 16(b) thereof. On behalf of our client the Purchaser, we hereby call upon your client the Sub-Vendor to return the deposit of $2,575,000.00 to us on behalf of our client the Purchaser.

4.    We wish to remind you that under clause 16(b) and 16(e), interest is payable on the deposit unless the same is refunded within 7 days.

We hereby return to you the deeds and documents relating to the Property as shown on the Schedule annexed hereto. Kindly acknowledge receipt."

35. On 27th October 1990, the sub-vendor instituted this action against the purchaser, claiming that the purchaser had failed to complete the purchase and that its deposit was forfeited.

36. By its amended defence and counterclaim, the purchaser in justifying what it had done abandoned reliance on some of the requisitions raised in its solicitors' letter of 13th September 1990, and before me it relied only on those numbered 1, 5 and 6.

37. It will be recalled that the purchaser purported to rescind the sub-sale agreement by its-solicitors' letter dated 12th October 1990. On 12th October 1990, the purchaser was either entitled then to call off the contract; or it was not. If it was not then entitled to call off the contract, it must follow that by purporting to do so, it repudiated the contract; and the vendor must be entitled to the deposit. The question then is whether there was any ground on which the purchaser was, on 12th October 1990, entitled to call off the contract.

38. The obligation of a vendor to prove title is an obligation which he has to perform at completion. But it is an obligation which in practice "ought properly to be performed by the vendor well before the date fixed for completion" : see In re Priestlev's Contract [1947] Ch 469, per Romer J at P476. There are circumstances in which the purchaser may call off the contract at once, without waiting to see whether the vendor can succeed in proving title on or before completion : see Price v Strange [1978] Ch 337 per Goff LJ at P355. For example, in my judgment the purchaser does have a right to call off the contract as soon as he discovers a fundamental defect in the title, or some other fundamental breach of contract by the vendor. However, although, upon discovering before completion a fundamental defect in the vendor's title, the purchaser may thereupon treat the contract as at an end, in my opinion he may not do so merely for minor deficiencies, removable defects, matters of conveyance and so on : compare Pips (Leisure Productions) Limited v Walton (1981) 260 EG 601, per Megarry V-C, at pP603, 604. Where proof of title is insufficient, but the title is not necessarily defective, the purchaser is in my judgment bound in the ordinary way to give the vendor a proper opportunity of establishing the title : see In re Balen and Sheperd's Contract (19241 2 Ch 365, per Tomlin J at P378.

39. So I would hold, in relation to the first of the two issues which I have outlined above, that a purchaser is not always bound to give the vendor until the date fixed for completion to come up with satisfactory answers to the purchaser's objections to the title. There are circumstances under which the purchaser can properly call off the contract without waiting for the completion date.

40. As to the second issue, whether there were any such circumstances here, I am of the opinion that there were.

41. In the first place, the sub-sale agreement contained a specific and unusual provision, in clause 9(b), of which the vendor was in breach. The obligation imposed on the sub-vendor by clause 9(b) was expressed to extend to "all the deeds and documents required to prove title" . [emphasis added]. I do not find the point an easy one, but in the end I do not think I can read clause 9(b) in the restricted sense urged on me by counsel for the sub-vendor, when he suggested that the only deeds and documents to which clause 9(b) refers are those deeds and documents received by the sub-vendor from the principal vendor's solicitors. If (and this is what happened) there were deeds and documents required to prove title to the property which were missing from those supplied by the principal vendor's solicitors to the sub-vendor, then, in my opinion as to the true construction of clause 9(b), its provisions must be treated as having been intended to include such missing deeds and documents. If this construction is correct, the sub-vendor must accept that it was in breach of the provisions of clause 9(b) before 12th October 1990; for the sub-vendor had not supplied certain of those deeds and documents to the purchaser's solicitors, or copies of them, before 9th October 1990, and in fact did not supply them until 15th October 1990.

42. The sub-vendor's counsel argued that this was only what he called "a technical breach". Maybe. But breach it was. The purchaser stipulated, as I read clause 9(b) for production of all the deeds and documents of title, or copies of them, by 9th October 1990; and (it will be recalled) in all respects time was of the essence. There is I think no legitmate ground on which I can deny the purchaser the benefit of that stipulation, which can only have been made because the purchaser considered it to be of fundamental importance.

43. In the second place (though this does not call for decision if I am right on the first point) the purchaser was in my judgment entitled to call off the contract on 12th October 1990 because of the failure of the vendor satisfactorily to answer the purchaser's concern about the state of the property. The occupation permit had allowed for 5 ground floor shops but in fact the ground floor had been divided into 8 shops. The purchaser was in my judgment entitled in these circumstances either to proof that the Building. Authority had consented to the creation of the 8 shops or to proof that no such consent was required. It was plain by 12th October 1990 that the vendor could provide neither. Evidence that the 8 shops had been created without making any structural alterations to the property might have sufficed but by 12th October 1990 it was clear that the vendor was not going to provide any such evidence to the purchaser by the date fixed for completion. The problem was one not of conveyance but of title; nothing done by the vendor between 12th October 1990 and 18th October 1990 could have removed the difficulty. The views expressed by the principal vendor's original solicitors in their letter of 3rd October 1990 about this 27 year old building (although in my view persuasive) cannot be regarded as evidence: compare Kok Chung Ho and Anor v Double Value Developments Ltd, 5th December 1991, unreported (a decision of the local Court of Appeal). Such a difficulty as this is in my opinion sufficiently serious to entitle a purchaser to refuse to complete and to do so before the date fixed for completion if by then it has become obvious (as it had here) that the vendor neither would nor could do anything more, in the time available, to get over it.

44. In the third place (if I am wrong on both the first and second points) I would hold that the purchaser was entitled, as it did, to call off the contract on the date fixed for completion if it had not succeeded in doing so earlier. If the letter of 12th October 1990 had constituted a repudiation of the sub-sale agreement, the sub-vendor had refused to accept the repudiation at that stage; and the contract had remained on foot. But by the date fixed for completion the sub-vendor was still unable satisfactorily to deal with the outstanding matters of title and (save as to documents supplied on 15th October 1990) the outstanding matters of conveyance, for it was still unable to hand over all the necessary original deeds and documents and it was not entitled under the contract to require the purchaser to accept instead its undertaking to do so after completion.

45. For these reasons I must dismiss this action. The purchaser's counterclaim, for the return of the deposit, succeeds. Unless the sub-vendor requires the case to be restored to the list so as to argue otherwise, I shall order that the purchaser's costs of the action and counterclaim are to be taxed if not agreed and paid by the sub-vendor to the purchaser.

46. I would add this. Too many sales are aborted here because the vendor cannot, before (or even at) completion, prove his title; not because there is anything wrong with it, but because he cannot supply the original, or even copies, of all the relevant documents in time. The most common cases are those like the present, where the sale is a sub-sale, and all the relevant documents are held by the principal vendor's mortgagees. It would, in my opinion, be perfectly fair for a vendor to protect himself in such a case, and in similar cases, by insisting that the contract provide for the relevant documents to be delivered to the purcahse after completion, in so far as they could not be delivered at completion, so long as such a provision was buttressed by a solicitor's undertaking. However, the vendor's solicitor would, of course, want to satisfy himself that he could safely give such an undertaking before he did so. it may be, that in the light of these comments, the Law Society would want to reconsider the contents of its circular No  91/82 dated 28th December 1985 on the subject of solicitor's undertakings.