LO MIU LING CINDY and Another v. TAM HUNG PING

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3698 OF 1997

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J U D G M E N T

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1. This is a vendor and purchaser summons.

2. The Plaintiffs were the purchasers of two properties in Sai Kung in the New Territories and the Defendant was the vendor. By an agreement for sale and purchase dated 19th June 1997 the Plaintiffs as purchasers agreed to buy and the Defendant as vendor agreed to sell Flat A on the 2nd floor including the corresponding portion of the roof in the building at Lot no. 248 in Demarcation District 227, Sai Kung, New Territories. By another agreement of the same date, the Plaintiffs agreed to buy and the Defendant agreed to sell another flat in the same building, namely Flat B, 2nd floor including the corresponding portion of the roof, Lot 248 in Demarcation District 227, Sai Kung, New Territories.

3. Both agreements for sale and purchase contained identical terms, save for the price and the particular flat purchased. The purchase price under the first agreement was $1,600,000 of which an initial deposit of $20,000 had been paid and a further deposit of $140,000 was paid on the signing of the first agreement. The purchase price under the second agreement was $1,900,000 of which an initial deposit of $20,000 had been paid and a further deposit of $170,000 was paid on the signing of the second agreement. The Plaintiffs therefore paid to the Defendant a total sum of $350,000 as deposit under both agreements. Completion under the agreements was to take place on or before 24th September 1997 and by clause 8 thereof it was provided that time should in every respect be of the essence of the agreements.

4. This summons relate to two requisitions raised by the Plaintiffs' solicitors and which they say were not satisfactorily answered by the Defendant or his solicitors and that the Defendant has failed to prove a good title before completion. They ask for declarations and the return of their deposit together with consequential relief. The Defendant says that the requisitions have been satisfactorily answered and that good title has been shown. The Defendant says that the deposit has been forfeited for non-completion by the Plaintiffs.

5. Clause 15(1) of the agreements expressly imposed an obligation on the Defendant to give good title to the property in accordance with section 13 of the Conveyancing and Property Ordinances (Cap. 219). It is clear that the vendor has an obligation to show good title. The obligation to show good title includes the obligation to answer requisitions satisfactorily before completion.

6. Two requisitions were raised by the Plaintiffs in their solicitor's letter dated 12th August 1997 to the Defendant's former solicitors. The first requisition was a request for the supply of a certified copy of the Block Crown Lease covering Lot 248 in Demarcation District 227 ("the Block Crown Lease") which was not among the deeds supplied. The second requisition was a request for a certified copy of the occupation permit of the building issued under the Buildings Ordinance.

The first requisition

7. I shall first deal with the first requisition raised. In their reply, the Defendant's solicitors in their letter dated 14th August 1997 said that they would let the Plaintiffs' solicitors have a certified copy of the Block Crown Lease in due course and would send a copy thereof on receipt from the Land Registry. They also enclosed a copy of a letter from another firm of solicitors Anthony Kwan & Co. advising, inter alia, that certified and plain copy Crown Lease could be obtained from the Land Registry.

8. By letter dated 8th September 1997, the Plaintiffs' solicitors sent to the Defendant's solicitors a copy of a letter dated 15th January 1993 from the Sai Kung District Land Registry addressed to another firm of solicitors. That letter made it clear that the Block Crown Lease was not available for inspection. It went on to say that the Block Crown Lease was found to have been mislaid or lost sometime in July 1987 but had never been retrieved since then and that there was available in the Land Office a photocopy reproduced from a "plain" photocopy of the Block Crown Lease which members of the public might borrow for reference only. It also stated that a certified copy of the Block Crown Lease could not be supplied under the circumstances.

9. As the Defendant's solicitor had in their earlier letter dated 14th August 1997 said that they would let the Plaintiffs' solicitors have a certified copy of the Block Crown Lease in due course, the Plaintiffs' solicitors in their letter dated 8th September 1997 enquired of the Defendant's solicitors whether in the light of the matters set out in the said letter dated 15th January 1993 from the Sai Kung District Land Registry a certified copy of the Block Crown Lease had been obtained and if not, how they would procure to let them have a certified copy thereof to complete title.

10. In reply by a letter dated 19th September 1997 the Defendant's present solicitors sent what was stated to be a certified copy of the Block Crown Lease to the Plaintiffs former solicitors. It is, however, accepted by the Defendant that this was not a certified copy obtained as a result of an examination of the original Block Crown Lease. It was a certified copy of a plain copy of the Block Crown Lease as was pointed out by the Plaintiffs' solicitors in the letter dated 23rd September 1997. The point was made that the requirements of section 13 of the Conveyancing and Property Ordinance and clause 15 of the agreements had not been complied with. The Defendant's solicitors took the view in their letter dated 23rd September 1997 that the document that they had supplied was sufficient to prove title. In their reply by a letter of the same date, the Plaintiffs' solicitors took issue with this and maintained the view that a certified copy of a plain copy of the Block Crown Lease was not sufficient in proving title.

11. Section 13(1) of the Conveyancing and Property Ordinance provides, inter alia, that unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor as proof of title to that land production of the Crown Lease relating to the land sold. This must mean the original Crown Lease. Section 13(2) provides as follows:

"Where this section requires the production of any document, it shall be sufficient to produce a copy -

(a) ...............................

(b) certified by a public officer or a solicitor,

to be a true copy."

12. Thus, by this subsection the vendor can instead of producing the original Crown Lease produce a copy certified by a public officer or a solicitor.

13. It cannot be doubted that unless the contrary intention is expressed, the vendor's obligation is to produce as proof of title the Block Crown Lease or as permitted by Section 13(2) of the Ordinance a copy certified by a public officer or a solicitor to be a true copy. This has been decided in a number of cases see Chan Kam Shing and another v. Lam Ping Ping [1990] 1 HKC 373 a case where Deputy Judge Findlay (as he then was) was dealing with the same Block Crown Lease as in this case. See also Wong Wai Ming v. Tang Tat Chi [1993] 1 HKC 341.

14. The document that was supplied in this case by the Defendant's solicitors was a photocopy of the Block Crown Lease. At the third page of the document, there is a notation "examined and certified to be correct" with a signature. It appears that at some stage the original Block Crown Lease dated 27th March 1905 had been examined and the copy was certified to be correct. At the fourth page of the document supplied, these words appear " the original of this Block Crown Lease was lost or mislaid. This is only a copy" with the signature of Miss Sophia Yiu for Land Registrar and dated 29th November 1995. There is a certification at the last page of the document supplied that the document was a certified true copy with the date 10th September 1997 and the signature of Miss Alice Leung for Land Registrar. In view of the fact that on the evidence the original Block Crown lease had been mislaid or lost sometime in July 1987, there can be no doubt that what Miss Alice Leung was certifying as a true copy was based not from an examination of the original Block Crown Lease but from an examination of a photocopy reproduced from a plain photocopy of the Block Crown Lease. This was the document available in the Land Office as evidenced by the letter dated 15th January 1993 from the Sai Kung District Land Registry which I have referred to above.

15. It has been submitted on behalf of the Defendant that production of that document was a sufficient compliance of his obligation. In my judgment, that cannot be right. The obligation to produce documents under section 13(1) of the Ordinance is to produce the original document or as is permitted by subsection (2) a copy certified to be a true copy. The question is: a true copy of what? It must mean, as matter of construction, a true copy of the original document. It is, in my judgment, incumbent on the public officer or solicitor who certifies a copy to be a true copy of an original document to examine the original document and to satisfy himself that what he is satisfying is indeed a true copy of the original document.

16. I would also refer to what Patrick Chan J., (as he then was) said in Wong Wai Ming v Tang Tak Chi (supra) at page 346:

"It is the duty of the certifying public officer or solicitor to ensure that the document which he certifies is a true copy of the original. He compares the copy with the original and if he is satisfied they are the same, he can certify as to that."

17. In my judgment, the document that was produced was not a sufficient compliance of the Defendant's obligation under section 13 of the Conveyancing and Property Ordinance as proof of title.

18. It was also submitted that by the clause 15(2) of the agreements a contrary intention was expressed and production of the document that was supplied was a sufficient compliance of the vendor's obligation. As I have said earlier, clause 15(1) of the agreements expressly imposed an obligation on the Defendant to give good title to the property in accordance with section 13 of the Ordinance. Clause 15(2) of the agreements provided as follows:

"Notwithstanding the above sub-clause in the event that any of above documents are not in the Vendor's possession then for the purposes of proof of title, the Purchaser shall accept a plain copy issued by the appropriate Land Registry provided that the Vendor shall undertake to provide the Purchaser with a certified copy thereof on receipt from the appropriate Land Registry."

This provides for the situation where the original document is not in the vendor's possession. In that case, the purchaser shall accept the plain copy issued by the Land Registry provided the vendor undertakes to provide a certified copy on receipt of the same from the Land Registry.

19. In my judgment the intention of the parties is clear. When the certified copy of the document is received by the vendor from the Land Registry it should be provided to the purchasers. That is the reason for the vendor's undertaking and in the meantime the Plaintiffs have to accept the plain copy issued by the Land Registry. Here, the Defendant could not properly give and perform an undertaking to provide the Plaintiffs with a certified copy of the original Block Crown Lease from the Land Registry. That would involve an examination of the original Block Crown Lease which was not possible in view of the fact that it was mislaid or lost in July 1987. In my judgment, a contrary intention has not been expressed by clause 15(2) of the agreements. It also noteworthy that the Defendant did not rely on this sub-clause in his solicitors' letters in dealing with the requisition raised before completion.

20. Furthermore, as regard clause 15(2) of the agreements, I accept the submission made by counsel for the Plaintiffs that before the Defendant can rely on the clause in the agreements to restrict or limit his obligation imposed by law i.e. under section 13 of the Conveyancing and Property Ordinance, there must be full disclosure by the Defendant before the agreements were entered into so as to enable the Plaintiffs to consider and determine whether a reduced obligation was acceptable to them. It was never disclosed to the Plaintiffs before the agreements were entered into that the original Block Crown Lease had been mislaid or lost and that the document which would be produced as proof of title would not be a certified copy based on an examination of the original Block Crown Lease but based on an examination of a photocopy. If this was not known to the Defendant at the time, it was something that he ought to have known as his solicitors could easily have ascertained what the position was as regard the Block Crown Lease before the agreements were entered into.

21. I derive assistance from what Danckwerts L.J. said in Becker v. Patridge [1996] 2Q.B. 155 at 171:

"There is no doubt that by a clearly drawn special condition put in the contract by a vendor who acts in good faith, and disclosing a possible defect in the title, the purchaser may be compelled to accept the title offered by the vendor. But the vendor must have disclosed the defects of which he knew. In this case the vendor did not know of the breaches which would give rise to forfeiture. But he ought to have known that such breaches might exit."

22. At page 172, Danckwerts L.J. said:

"The position is covered by the decision of Byrne J. in In re Haedicke and Lipski's Contract [1901] 2 Ch. 666. In a reserved judgment Byrne J. ordered return of the deposit with interest and the costs of investigation of title on the ground that a purchaser has a right to assume when a condition of this kind is inserted that the vendor has disclosed what it is his duty to disclose. That case has stood for over sixty years and, so far as we know, has not been criticised.

In our view the principle was stated by Lord Eldon in Bousfield v. Hodges (1863) 33 Beav. 90, 94, in a passage quoted by Byrne J., namely, that there should be no surprise upon the purchaser, and that there has been a full and fair representation as to the title on the part of the plaintiff."

23. In my judgment, the first requisition was not satisfactorily answered and the Defendant failed to prove a good title before completion.

The second requisition

24. It is common ground between the parties that the relevant Ordinance applicable to the properties was the old Buildings Ordinance (Application to the New Territories) Cap. 322. Section 21 of the Buildings Ordinance (cap. 123) requires an occupation permit to be issued by the Building Authority in respect of a new building before it can be occupied. Under the Buildings Ordinance (Application to the New Territories) Regulations, the provisions of section 21 of the Buildings Ordinance does not apply to any building situated in the New Territories provided it does not exceed a certain height. In this case, it is common ground that the building exceeded that height. In the circumstance, an occupation permit issued by the Building Authority was required. Hence, the second requisition was raised.

25. The stand taken by the Defendant was that an occupation permit was not required. In their letter dated 14th August 1997 the Defendant's then solicitors enclosed the said letter from Anthony Kwan & Co. also of the same date. The view was taken that an occupation permit was not required and a letter said to be dated 8th April 1982 from the District Lands Office was enclosed and the point was made that the District Office had waived the breach if any, by the acceptance of $5,000. The letter from the District Lands Office, is in fact dated 28th April 1982 and was addressed to another firm of solicitors. The point was made in that letter that by virtue of payment of a fine of $5,000.00, the writer of the letter was not prepared to take further action under the lease condition.

26. In their letter dated 15th August 1997, the Plaintiffs' former solicitors maintained the view that an occupation permit was required and insisted on production of the same. By a letter dated 25th August 1997, the Defendant's solicitors again sent another letter from Anthony Kwan & Company of the same date and in answer said that the building having been in existence for over 15 years, no action for demolition would be taken and if it was regarded as an illegal structure, an action for demolition would have long been taken before that.

27. By their letter dated 25th August 1997, the Plaintiffs' solicitors took the view that the risk of Government enforcement action still existed even though the building had been in existence for over 15 years. By a letter dated 6th September 1997, the Defendant's solicitor took the view that the risk of enforcement action was not real but fanciful. In their letter dated 8th September 1997, the Plaintiffs' solicitors referred to the case of Lui Kwok Wai and another v. Chan Yiu Hing and another [1995] 1 HKC 197 where it was held that an occupation permit was a relevant and necessary document to prove title whenever the Buildings Ordinance applied. It was also mentioned in that letter that as an occupation permit could only be issued by the Director of Buildings, the letter dated 28th April 1982 from the District Lands Office could not be construed as an indication that the District Lands Office had assumed the statutory authority of the Director of Buildings and come to a view that an occupation permit was not necessary. The point was made also that there was no written confirmation from the Buildings Department that no enforcement action would be taken in respect of the building and that therefore, a good title had not been shown. In the correspondence that followed, that point was not answered by the Defendant's solicitors. They simply reiterated the point that an occupation permit was not necessary and in their letter dated 19th September 1997 the Defendant's present solicitors enclosed a letter dated 14th June 1982 from the District Lands Office. This was another letter from the District Lands Office advising that the writer of the letter had no objection to the house being occupied but it went on to say that the letter was given without prejudice to all or any rights of the Crown whether under the conditions of the Block Crown Lease under which the Lot was held or otherwise, in respect of any breach or failure to observe any of the conditions which may exist at the date thereof or which may thereafter occur. And in then their letter dated 22nd September 1997, the Plaintiffs' solicitors took the point, rightly in my view, that the letter dated 28th April 1982 from the District Lands Office could not be construed as an indication that the District Lands Office has assumed the statutory authority of the Director of Building and come to a view that an occupation permit was not necessary.

28. There was further correspondence, and in the letter dated 23rd September 1997 from the Defendant's solicitors to the Plaintiffs' present solicitors, they expressed the opinion that the property was an exempted house upon payment of penalty and said it was sufficient to prove that the property has complied with conditions of the Crown Lease and no further documentary evidence was necessary. This does not deal with the requisition raised at all because the point was made by the Plaintiffs' solicitors that the District Lands Office did not have the authority to assume the statutory function of the Building Authority. The parties maintained their positions and on 24th September 1997, the Plaintiffs' solicitors gave notice to the Defendant's solicitors saying that they had failed to prove a good title before completion and asking for the return of their deposit. On 25th September 1997, the Defendant's solicitors wrote saying that they had forfeited the deposit paid.

29. The case that was referred to by the Plaintiffs' solicitors in the correspondence was Lui Kwong Wai and another v. Chan Yiu Hang and another (supra). As I have said it was held there that an occupation permit was a relevant and necessary document to prove title. It also held that it was wrong to rely on a letter in that case from the District Lands Office as an indication that the Crown had waived the requirement for an occupation permit or that the District Lands Office had assumed the statutory authority of the Director of Building and come to a view that an occupation permit was not necessary. It was after all for the Building Authority to issue the occupation permit.

30. That case was followed by Le Pichon J. in the case of Wong On v. Lam Shi Enterprises Limited HCMP 2549 of 1995. She also said at page 6 and 7 of her judgment as follows:

"In the absence of any provision which empowered the DLO to make decisions on behalf of, or to override the Building Authority where the subject matter is the development of small houses in the New Territories or any evidence that this was in fact the practice, there is nothing to warrant the conclusion or inference that the DLO had authority to assume the statutory functions of the Building Authority and make decisions that are solely within the domain of the Building Authority under the relevant statutory provisions."

This was certainly the point that the Plaintiffs' solicitors were raising with the Defendant's solicitors but no satisfactory answer was given. Although the risk of enforcement action by the Government in this case is not great, there is nevertheless a risk. I do not see why the purchasers should endure that risk. I cannot say that I am satisfied beyond reasonable doubt that the purchasers would not be at risk in the absence of any evidence that the Building Authority has said that no enforcement action would be taken. In the circumstances, the second requisition has not been answered satisfactorily and again good title has not been shown.

31. The Plaintiffs are, in my judgment, entitled to judgment. I grant a declaration that the Defendant was not entitled to forfeit the deposit paid by the Plaintiffs under the two agreements dated 19th June 1997 made between the Plaintiffs and the Defendant in respect of the sale and purchase of the properties known as (i) Flat A, 2nd Floor including the corresponding portion of the roof Lot No. 248 Demarcation District 227 Sai Kung New Territories; and (ii) Flat B, 2nd Floor including the corresponding portion of the roof, Lot No.248 Demarcation District 227 Sai Kung New Territories ("properties") by reason of the failure of the Defendant,

(a) in showing a good title by the time of completion on account of the Defendant's failure to answer satisfactorily the requisitions raised in the letter dated 12th August 1997 from the Plaintiffs' solicitors as to the occupation permit for the properties;

(b) In complying with the requirement of section 13 of the Conveyancing and Property Ordinance, in respect of the production of the Block Crown Lease relating to the properties.

32. I also grant a declaration that the Defendant wrongfully repudiated the agreements by purporting to forfeit the deposit paid by the Plaintiffs in the letter dated 25th September 1997 from the Defendant's solicitors to the Plaintiffs' solicitors. I make an order for repayment of the deposit in the total sum of $350,000.

33. As to stamp duty, conveyancing legal costs and commission, I am of the view that the correct order to make is to give the Plaintiffs liberty to apply for assessment of damages arising out of any loss of stamp duties and claim by the estate agent for commission. I order that the Defendant reimburse the Plaintiffs in respect of conveyancing legal costs in the sum of $17,770 upon production of a receipt.

34. I also grant the declaration that the Plaintiffs have a lien over the properties for the said sum of $350,000. I make an order that the costs of the proceedings be paid by the Defendant to the Plaintiffs to be taxed if not agreed.

(Arjan H. Sakhrani)

Judge of the Court of First Instance