LIN WAI LAI v. HUNG MEI LAI

HCMP 1310/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1310 OF 2017

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J U D G M E N T

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1.  The plaintiff (“Purchaser”) entered into an agreement for the purchase of the property at 2^nd floor, No 64 Wharf Road (“Property”) from the defendant (“Vendor”). Under their sale and purchase agreement dated 30 March 2016 (“Agreement”), completion of the purchase was to take place at 5 pm on 13 June 2016 (“Scheduled Completion”). Under clause 5 of the Agreement, time was stated to be of the essence of the Agreement.

2.  Completion did not take place on 13 June 2016.  According to the Purchaser, this was because the Vendor had failed to prove good title to the Property, and had failed to answer sufficiently and satisfactorily the requisitions raised by the Purchaser’s solicitors.  The requisition in question, which is the subject of the dispute in these proceedings, concerns a letter dated 8 February 1957 (“Letter”) from the Land Officer to one Fong Chue Shing (“Fong”) with regard to a new Crown Lease in respect of the subject lot on which the Property was situated.

3.  On the Vendor’s part, it is claimed that the Purchaser was in breach in failing to complete the purchase.  The deposits of HK $822,000 were accordingly forfeited by the Vendor on 19 July 2016.  These proceedings were instituted by the Purchaser on 5 June 2017, seeking relief which includes declarations that the relevant requisition had not been answered, that good title to the Property had not been shown by the Vendor on or before 5 pm on 13 June 2016, that the deposits had been wrongfully forfeited, and that the Purchaser had lawfully terminated the Agreement on 16 June 2016.  The Purchaser seeks (inter alia) an order for specific performance of the Agreement, and alternatively, return of the deposits and damages.

4.  By the time of the trial, the Vendor no longer disputes that the Letter forms part of the root documents of title in respect of the Property.  The only issues in dispute are whether the Requisition had been satisfactorily answered, whether and by whom the Agreement had been wrongfully terminated, and the relief to which the Purchaser is entitled in the event that the Agreement had been wrongfully terminated by the Vendor.

The relevant documents of title

5.  In legal jargon, the Property is known as one equal undivided 12^th part or share of and in all that piece or parcel of ground registered in the Land Registry as the remaining portion of subsection 1 of section R of Marine Lot No 431 (“Subject Lot”).  On 28 August 1948, Conditions of Grant No 4315 was granted with respect to the remaining portion of Marine Lot No 430 and Marine Lot No 431 (“Lot 431”).  On 11 January 1954, the Government re-entered sections of Lot 431, including the Subject Lot, by a deed of re-entry. 

6.  On 8 February 1957, the Land Officer wrote to Fong, informing him that the Government had re-entered the Subject Lot due to default in payment of the Crown rent.  The Government informed Fong by the Letter that Government was ready to offer a new Crown Lease to Fong for the portion of the lot held by him before the re-entry, if Fong was willing to accept the terms and conditions of the new Crown Lease contained in the Schedule annexed to the Letter (“Schedule”) within 14 days.  According to the relevant correspondence, Fong agreed to accept the terms and conditions of the new Crown Lease, and the Schedule to the Letter (entitled “Terms and Conditions for the grant of new Crown Lease to the former holders of Portions of Marine Lot No 431”) was duly stamped, and signed by Fong to acknowledge acceptance. 

7.  An Occupation Permit was issued on 22 January 1958 in respect of 2 six-storey buildings now known as No 64 and No 66 Wharf Road which were constructed upon the Subject Lot.  On 17 July 1958, a deed of mutual covenant (“DMC”) was executed.  The 2^nd Schedule to the DMC stated that the Subject Lot was vested in the parties as tenants-in-common, “subject to and with the benefit of the terms and conditions as contained in a letter dated the 8^th day of February 1957 and addressed by the Land Officer to Fong”.

8.  By an assignment dated 10 October 1958, Fong as vendor assigned the Property to Chan Tse Yeut Ying as purchaser (“1^st Assignment”). The recitals to the 1^st Assignment stated that “by a Letter dated the 8^th day of February 1957 and addressed by the Land Officer to the Vendor a new Crown Lease of all that portion hereinafter more particularly described of the said premises was offered to the Vendor on the terms and conditions as more particularly set forth in the schedule attached thereto (hereinafter referred to as ‘the said Conditions’ which had been duly accepted by the Vendor”.  The 1^st Assignment also refers to “the benefit of the said Conditions… subject to and with the benefit of (the DMC)”.

The requisitions

9.  By a letter dated 5 April 2016, the Vendor’s solicitors (“VS”) provided all the relevant title deeds and documents in respect of the Property to the Purchaser’s solicitors (“PS”).  Amongst these was a copy of the Letter.

10.  PS raised requisitions in their letter dated 12 April 2016 to VS.  One of the requisitions was to seek a certified true copy of the Letter before completion, since only a plain copy of the Letter had been supplied by VS with their letter of 5 April 2016 (“Requisition”).  VS’s initial response was that the Letter is a “pre-root document” and that it was not necessary to produce the same for proving title.  The Vendor has now conceded that the Letter forms the root of title.

11.  As a result of the Requisition, enquiries were made by VS with the Land Registry (“Registry”) and the District Lands Office (“DLO”), and VS were informed that the Letter could not be located in the Registry, and that the DLO had no record of the Letter.  Accordingly, VS wrote to PS on 7 June 2016, to say:

“We have try (sic) our best endeavor to obtain the certified copies from the relevant Department but in vain. We enclosed (sic) herewith certified copies Letters from Land Registry and District Lands Office for your client kind perusal.”

The certified true copies of the letters provided to PS were only of letters from the Registry and the DLO, to the effect that the Letter could not be located in the Registry, and that the DLO had no record of the Letter. 

12.  There was further correspondence between the solicitors.  In their letter of 10 June 2016, VS claimed that secondary evidence was acceptable by way of proof of title in the case of loss of title documents, and suggested that the recitals in the 1^st Assignment constituted the necessary secondary evidence of the new Crown Lease and the existence of the Letter and the Schedule.  PS disagreed. 

13.  The certified copy of the Letter was not produced by 5 pm on 13 June 2016.  On 13 June 2016, by a letter marked “2^nd letter”, PS asked VS for a statutory declaration by an appropriate person in respect of the loss of the Letter, and to produce evidence of the enquiries made with former solicitors handling transactions in the Property.  By a “3^rd letter” dated 13 June 2016, PS drew attention to the provisions of the Agreement, which state completion to be at or before 5 pm on 13 June 2016, that time is of the essence, and which provide for return of the deposits if the Vendor should fail to complete the sale in accordance with the terms of the Agreement.  In the same letter, PS recorded that up to the time of writing at 5:31 pm on 13 June 2016, the Vendor had still failed to prove title to the Property, to answer the requisitions raised satisfactorily, and further, that the Vendor was in breach of the terms of the Agreement.

14.  On 15 June 2016, VS wrote to inform PS that the Vendor agreed to extend the completion date to 22 June 2016.  The letter was marked “without prejudice”, and commenced by saying:

“We refer to your 2^nd letter dated 13 June 2016 which was sent to us by fax at 17:05 and by hand at 5:17 pm on 13 June 2016 after the completion date of 13 June 2016 at or before 5 pm as scheduled in the Agreement for Sale and Purchase dated 30 March 2016 thus the further requisitions further raised in your letter is invalid. On without prejudice basis, we would reply as follows…” (Emphasis added)

15.  By their letter dated 16 June 2016, PS stated that the Purchaser had never agreed to postpone the completion date from 13 June 2016 to 22 June 2016.  They further notified VS that the Purchaser accepted the Vendor’s breach of the Agreement, and demanded return of the deposits.

16.  Proceedings for relief were instituted by the Purchaser about a year later, on 6 June 2017.

Issues for determination

17.  The issues raised in the correspondence and which remain in dispute between the parties are:

(1) whether the Requisition had been answered sufficiently;

(2) whether the Vendor had shown and proved good title;

(3) whether time ceased to be of the essence;

(4) whether the Vendor was in breach of the Agreement and the deposits had been wrongfully forfeited;

(5) remedies to which the Purchaser is entitled, if the Vendor was in breach.

Relevant legal principles

18.  The applicable legal principles are not in dispute.  By the time of the hearing, the Vendor no longer disputes that the Letter forms part of the root documents of title in respect of the Property, which have to be produced.  It is not disputed that VS were not able to provide either the original or a certified copy of the Letter before the Scheduled Completion.  Only a plain copy of the Letter was produced, but the Vendor claims that the Vendor was entitled to rely on the 1^st Assignment and its reference to the Letter and the Schedule as secondary evidence of the Letter, and that title had accordingly been sufficiently proved.

19.  Whilst the Purchaser does not dispute that secondary evidence is admissible for showing title in the event that title documents are lost, the Purchaser maintains that the secondary evidence must be clear and cogent, and there should be satisfactory explanation of the absence of the Letter.  These, it is claimed, were never provided by the Vendor.

20.  The Purchaser relies on Wu Wing Kuen v Leung Kwai Lin Cindy; Ip Foo Keung Michael & Anor v Chan Pak Kai [1999] 4 HKC 565, and the judgment of Ribeiro J (as he then was) at pp 582E-G:

“I fully agree with the construction of section 13 of the Conveyancing and Property Ordinance adopted by Godfrey JA. In particular, I agree that where a document of title, including a document in one of the classes mentioned in section 13 itself, has been lost or destroyed, the common law rule which allows resort to secondary evidence of that document has not been abrogated by the section.

…

For the common law rule to be successfully invoked, the secondary evidence relied upon must prove the contents of the missing document, its due execution and the fact of its loss or destruction. The evidence of these matters must be clear and cogent: Re The Halifax Commercial Banking Company Limited and Wood (1898) 79 LT 536.” (Emphasis added)

21.  The rationale for the requirement of clear and cogent secondary evidence to prove title in the case of loss of relevant title documents was explained by Yuen J (as she then was) in Yiu Ping Fong & Anor v Lam Lai Hung [1999] 1 HKLRD 793, where Her Ladyship examined the effect of s 13 (2) of the Conveyancing and Property Ordinance (“Ordinance”) at pp 797I -798E, and went on to explain, at p 798E:

“… A vendor’s solicitor can as part of proof of title under s 13 (1) send certified true copies of title deeds and documents to the purchaser’s solicitor for perusal, without having to prove that the originals are lost. However, a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over.

The handing over of original title deeds and documents (or at least those which relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land. That obligation is well established in the common law.

A purchaser of land is entitled as a matter of proprietary right to possession of the original title deeds, Williams on Title (4^th ed) at p 547, which is the best evidence of ownership.

Further, it is important for him to get possession of the original title deeds so that the property is not subject to an equitable mortgage by deposit of title deeds. If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (see Emmet on Title, para 5.147).

Where, therefore, as in this case, the vendor has given notice that she would not be able to produce the original 1986 assignment on completion, it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain its loss.

… The purpose of the statutory declaration accompanying a missing title deed is to explain the circumstances in which the deed was lost and to show how the person who ought to have custody of it could not find it despite proper endeavors.”

Whether the Requisition had been answered sufficiently and whether the Vendor had shown and proved good title

22.  I accept the submissions made on behalf of the Purchaser, that it is incumbent on the Vendor in this case, when the original Letter cannot be produced, to explain how the Letter came to be lost, identify the contents of the Letter with regard to the material terms and conditions in the Schedule, and explain the endeavors made to find the Letter.  In my view, the Vendor and VS have in this case failed to produce sufficient evidence to explain the loss of the Letter and the reasonable efforts made by the appropriate parties to locate the Letter.

23.  When PS asked for the certified true copy of the Letter by the letter of 12 April 2016, VS only claimed in their letter of 28 April 2016 that the Letter is a pre-root document, and that a certified copy of the same was unnecessary. In their subsequent letter of 7 June 2016, VS only stated that they had tried their best endeavors to obtain certified copies of the documents from the relevant government departments, and only enclosed certified copies of letters from the Registry and from DLO (paragraph 11 above) which explained that the document could not be located, and that there was no record of the Letter.  There was no statutory declaration from any relevant party, whether relating to the results of the enquiries made with solicitors who had previously handled the 1^st Assignment of the Property, or relating to the circumstances of the loss of the Letter.  Nor did the 1^st Assignment relied upon by the Vendor and VS refer to or identify the contents of the Letter and Schedule, namely the terms and conditions of the re-grant of the Crown Lease.

24.  In Wu Wing Kuen v Leung Kwai Lin Cindy; Ip Foo Keung Michael & anor v Chan Pak Kai [1999] 4 AC 565, the judgment of Godfrey JA states (at p 572G-573C):

“Before section 13 was enacted, the law was that:

‘… when a party proves that he is not in a position to adduce primary evidence, for example, that the document in question is lost or cannot be found… he is at liberty to give secondary evidence of its contents.’

(See Halkett v Earl of Dudley [1907] 1 Ch 590 per Parker J at p 604, cited by the Recorder).

Unless his contract with the vendor provides that the purchaser shall be entitled to primary evidence of the document (ie the production of the original), a provision I have never seen, or even heard of, in 40 years’ conveyancing experience, the purchaser must, when primary evidence is not available, accept sufficient secondary evidence in its stead, though such evidence will be sufficient only if it is “clear and cogent” (as Chitty LJ remarked in In re The Halifax Commercial Banking Co Ltd and Wood (1898) 79 LT 536, at p 539, also cited by the Recorder). What is required, in the case of a document of title which is lost or cannot be found, is (clear and cogent) secondary evidence of the contents of the instrument and of its having been duly executed: see Bryant v Busk (1827) 4 Russ 1.

That, in my judgment, is still the law as well after as before the enactment of s 13. Section 13 (1) was intended simply to facilitate conveyancing by reducing the length of time for which the vendor has to prove his title. He must start with the Crown (now Government) Lease from which he derives his title. If it is lost, or cannot be found, he must produce clear and cogent secondary evidence of its contents and due execution (the same applies to an agreement for a Crown Lease which is to be treated as a Crown Lease: see section 14 of the Ordinance).” (Emphasis added)

25.  Based on the clear authorities as to what is required for secondary evidence, there was, in my judgment, no clear and cogent secondary evidence of the Letter and its contents, produced prior to the Scheduled Completion, for the purpose of showing and proving good title.  The Requisition had not been answered sufficiently by the time of Scheduled Completion, and the Vendor had not shown and proved good title.

Events after the Scheduled Completion

26.  On 15 June 2016, after the Scheduled Completion at 5 pm on 13 June 2016, VS wrote to PS, expressly on “without prejudice” basis (“WP Letter”).  In the WP Letter, VS referred to the 2^nd letter from PS dated 13 June 2016, stating that the said letter had been faxed to them at 5:05 pm on 13 June 2016, “after the completion date of 13 June 2016 at or before 5 pm as scheduled in (the Agreement)”, and that the requisitions raised therein were invalid.  On a without prejudice basis, they replied to these requisitions, by enclosing a plain copy of the Letter which they had obtained from other solicitors handling a recent completion.  In the same WP Letter, VS stated (for the first time) that the Vendor agreed to extend the completion date to 22 June 2016.

27.  The Vendor argued that time had ceased to be of the essence, and that the Purchaser was not entitled to claim that the Agreement had been lawfully terminated on 16 June 2016, on the purported ground of the Vendor’s breach.  The Vendor relies on the 2^nd letter of 13 June 2016 from PS, by which PS had (inter alia) asked for further evidence of enquiries made on the Letter, for a statutory declaration on the loss of the Letter, and for money to be stakeheld in respect of liabilities for works to be done under a building order affecting the Property.

28.  It is indisputable that the Agreement provides, in clause 5, that time shall in every respect be of the essence of the Agreement.  VS had failed satisfactorily and sufficiently by the Scheduled Completion at 5 pm on 13 June 2016 to show and prove a good title to the Property.  By the 2^nd letter of 13 June 2016, PS stated their views on the secondary evidence required of the Letter, and claimed that they maintained their Requisition.  The proposal for money to be held on stakeholder account in respect of liabilities for works to be carried out under the relevant building order was stated expressly to be “on an entirely without prejudice basis and without admitting any liability whatsoever and on subject to contract basis”.  By the 3^rd letter of 13 June 2016, PS drew attention to clause 5 of the Agreement with regard to time being of the essence, and to clause 17 which refers to the Purchaser’s right to the return of the deposit and to recover damages, in the event of the Vendor failing to complete the sale in accordance with the terms of the Agreement.  The 3^rd letter of 13 June 2016 put on record, in the penultimate paragraph, that up to the time of the letter at 5:31pm of 13 June 2016, the Vendor had still failed to prove title to the Property and to answer the Requisition, and that “undoubtfully, (the Vendor) was in breach of the terms and conditions of the Agreement”.

29.  Reading the 2 letters of 13 June 2016 from PS to VS, it cannot be inferred in any way that either the Purchaser or PS did not then consider the Scheduled Completion to be of the essence, or that they had in any way waived the Vendor’s breach, or that the Purchaser was agreeable to extend the time for completion under the Agreement.  To the contrary, PS had expressly stated in the 3^rd letter of 13 June 2016 that the Vendor was in breach of the Agreement, for failing to answer the Requisition.  There was nothing in the Purchaser’s conduct which can reasonably be taken to mean that the Purchaser had waived or consented to the delay in completion.  I fail to see how Lord Energy Limited v Paul Chen & Another, HCA 7124/1991 unreported, 4 June 1997, can assist the Vendor on the facts of this case.

30.  It was only after the Scheduled Completion that VS indicated, on 15 June 2016, in the WP Letter, that she agreed, unilaterally, to extend completion to 22 June 2016.  PS responded the next day, to say that the Purchaser had never agreed to postpone completion to 22 June 2016.  PS reiterated in the same letter of response of 16 June 2016 (“16/6 Letter”) that the Purchaser had accepted the Vendor’s breach of the Agreement, as particularized in their 3^rd letter of 13 June 2016, and demanded for return of the deposits paid under the Agreement. 

31.  Needless to say, any postponement and extension of the Scheduled Completion must be by mutual agreement, and the Vendor had no right to impose the extension on the Purchaser. 

32.  It follows that on my finding, the Vendor was in breach of the Agreement by failing to answer the Requisition and to show title to the Property by the Scheduled Completion, and that the Purchaser had accepted the Vendor’s breach by the 16/6 Letter.  Being in breach of the Agreement, the Vendor had no right to forfeit the deposits of $822,000 on 19 July 2016. 

Remedies to which the Purchaser is entitled for Vendor’s breach

33.  Since PS had by the 16/6 Letter given notice of the Purchaser’s acceptance of the Vendor’s breach and repudiation of the Agreement, I agree with Counsel for the Vendor that the Purchaser had made an election and that the Agreement had been terminated.  The Vendor pointed out that in view of the lapse of time between the acceptance of repudiation (in June 2016) and the commencement of the present proceedings (one year later, in June 2017), whereby the Purchaser sought to include specific performance in the relief claimed, it would be unjust, inequitable and unconscionable for the Purchaser to be allowed to have specific performance of the Agreement, and to take benefit of the rise in the property market in the interim.  I agree, and for these reasons, I decline to grant the order for specific performance sought.

34.  The Purchaser is entitled to damages in respect of the Vendor’s breach. The only evidence of the Purchaser’s damages, as deposed to in the Purchaser’s affirmations, are the deposits of $822,000 wrongfully forfeited by the Vendor, legal conveyancing costs and disbursements of $6,000, and estate agent’s commission of $80,000 for which the Purchaser was liable.  These are allowed, together with the costs of this action (which will include certificate for counsel) for which I make an order nisi.  Interest on the damages awarded will be allowed at judgment rate from the date of the Originating Summons. 

35.  I will further grant the declarations sought in paragraphs 1 to 4 and 8 of the Originating Summons, and order that the Vendor should indemnify the Purchaser in respect of stamp duty of $616,500 if the same is not refunded by the Stamp Office. 

36.  There is no evidence of any rental or other loss which was referred to by the Purchaser and produced before the court at the time of trial, and I see no justification for there to be a separate trial or hearing for assessment of further damages.