DAWSON PROPERTIES LTD v. HONG KONG NIIROKU LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

-----------------

-----------------

JUDGMENT

-----------------

Facts

1. The Plaintiff purchaser ("Purchaser") and the Defendant vendor ("Vendor") entered into a Sale and Purchase Agreement dated 29^th July 1996 ("the Agreement") for the purchase of the property known as the shop on the ground floor and the external walls of the shop at No.22 Caine Road, Hong Kong ("the Property"). The purchase price was HK$4,100,000. The initial deposit of HK$80,000 and a further deposit of HK$1,560,000 were paid. The completion date was on or before 12^th September 1996. The following are relevant clauses of the Agreement.

2. Clause 8:

Clause 13:

          "Time shall in every respect be of the assence of this agreement."

3. Clause 23:

4. Clause 9 of Part A of the Second Schedule of the Conveyancing and Properties Ordinance ("Ordinance") provides, inter alia, that" The vendor shall give good title to the property. The vendor shall prove his title to the property at the vendor's own expense and shall at the like expense make and furnish to the purchaser such copies of any deeds or documents of title, wills and matters of public record as may be necessary to prove such title."

5. Prior to the Agreement, the parties entered into a Provisional Agreement for Sale and Purchase dated 12^th July 1996 in respect of the Property. On 24^th July 1996, the Vendor's solicitors Finley & Co. ("Finley") supplied the title deeds of the Property to the Purchaser's solicitors Weir & Associates ("Weir"). Among the title deeds supplied to Weir were the certified copy of the Crown Lease of the Property and the certified copy of Assignment Memorial No. 123689 ("The Assignment"). The Assignment was dated 9^th February 1931 between Fung Wo In as vendor and The Kwong Sang Hong Limited as purchaser. The parties agreed that under s.13(1) of the Ordinance, the Assignment constituted the intermediate root of title to the Property.

6. On 26^th July 1996, Weir raised requisitions as to title. The one that was relevant for the purpose of these proceedings is this -

I will refer this as the first requisition. The response came from Finley on 12^th August 1996:

7. Weir, however by letter dated 13^th August 1996, continued to press Finley on the requisition:

"We however are not satisfied with your explanation in respect of Assignment Memorial No.123689. Section 13(1)(a)(ii) of the Conveyancing and Property Ordinance (Cap.219) is a provision which specifies the liability of the vendor to produce a certain number of documents. The section however can not be construed as to prevent the purchaser from tracing back to the events prior to the 15 year title deed production period. In the present case, we have much doubt on the devolution of title between 23.6.1898 and 9.2.1931. Unless and until you have produced all the documentary proof on the devolution of title since 1989, we are of the view that you have not discharged your duties to proof good title to the above premises."

8. Finley in its letter of 22^nd August 1996 repeated that the Vendor's duty to show good title was limited to producing the intermediate root of title and the Crown. Lease and that the Vendor had proved good title.

9. After a further request by Weir. Finley by letter of 4^th September 1996, stated that "without prejudice to previous correspondence, we are endeavouring to make inquiries to satisfy your concerns."

10. By a letter dated 10^th September 1996, Finley set out the details of the transfer of the title between the Crown lessee, Sin Tak to Fung to Fung Wo In.

(This Assignment is subject to the aforesaid first and second Mortgages)

The parties agreed that the reference to Fung Wo "Yin" in the letter was a typing mistake and the reference should be to Fung Wo "In". The Crown Lease was not produced at the hearing.

11. By letter dated 10^th September 1996, Weir asked Finley to supply the documents referred to in their previous letter. The documents, consisting of memorials of the title deeds were supplied on 11^th September 1996. By a letter of the same day, Weir informed Finley that:

"We refer to your letter of even date and write to inform you that the documents provided cannot be taken as title deeds. Please let us have the relevant Assignment deeds and Mortgage deeds instead of the Memorial Forms for perusal."

In the same letter Weir referred to a requisition raised by the solicitor of the intended mortgagee of the Property. This related to the change of the user of the Property from that of a nursery which was described in the Deed of Mutual Covenant to the shop which the Defendant was selling to the Plaintiff. This was the second requisition. By a letter of 11^th September 1996, Finley wrote to Weir:

"Further to your of even date that we are of the view that the title requisitions raised by your goodselves have been sufficiently and adequately dealt with."

12. On 12^th September 1996, Weir repeated the requisition concerning the change of user. The letter stated that:

The response of Finley came by two letters all dated 12^th. September 1996. The first letter stated that:

However, the next letter from Finley stated that:

13. The Purchaser took out the Vendor and Purchaser Summons seeking, inter alia, a declaration that the requisitions to the title of the Property has not been sufficiently answered by the Vendor and a declaration that good title to the Property has not been shown in accordance with the Agreement. There were other reliefs dealing with the forfeiture of the sum of $1,640,000. Le Pichon J. ordered that a preliminary issue as to whether good title has been shown by the Vendor was to be determined first. I will now deal with this issue.

First requisition

14. In respect of the first requisition, the fundamental question to be asked is this: what is the obligation of an vendor when the contract provides that the vendor is to give good title to the property; is the obligation discharged by complying with s.13(1) of the Ordinance or whether the vendor has a more onerous duty. In an open contract, i.e., one where there is no contractual provision on the duties of the vendor, the law implies that the vendor has the obligation to show and make a good title: Active keen Industries Ltd. v. Fok Chi Keong [1994] 1 HKLR 396. In that case the judgment did not show, and it was not necessary to do so, whether the vendor's duty was to be discharged by the operation of s.13(1).

15. In paragraph V [166] of Hong Kong Conveyancing Law and Practice by Sihombing and Wilkinson the learned authors stated that:

"If the vendor does agree to give good title, the vendor must give a good title extending right back to the ultimate root of title - the Crown lease - unless such obligation is varied by the sale and purchase agreement. This obligation is not affected by the provisions of section 13 of the Conveyancing and Property Ordinance, which only serves to delimit the documents that the vendor is obliged to produce to the purchaser by way of proof of title. Section 13 does not affect either the obligation of the vendor to give a good title or his contractual duty in respect of pre-intermediate root defects."

I relied on this passage in Au Fung Yee v. Cheng Yick Keung High Court No.MP3624 of 1996 (Decision 26^th November 1996). The passage does not refer to any authority. The statement that the vendor must give a good title extending right back to the ultimate root of title if he agrees to give good title needs re-examination.

English position

16. I will start with the common law position in England on the vendor's duty to show a good title in an open contract. Again, care must be exercised in examining the English cases because of the distinction between freehold and leasehold properties. Farrand on Contract and Conveyancing 4^th Edn. at pages 94 to 136 gives a very good summary of the English position. Before the intervention by legislation, in respect of freehold property, the length of time a vendor had to establish his good title was 60 years. Heath J. in Barnwell v. Harris [1809] 1 Taunt 430 (127 ER 90), stated that "It is a technical rule among conveyancers, to approve a possession of 60 years as a good title to a free simple." In the mid-19 century the practice was 40 years which received statutory recognition by s.1 of the Vendor and Purchaser Act 1874. Section 44(1) of the Law of Property Act 1925 further reduces to 30 years. The Law of Property Act 1969 s.23 reduces the period further to 15 years in respect of contracts made after 1^st January 1970. This statutory provision applied to open contracts.

17. In respect of leasehold titles, a distinction was drawn between lease of more than 60 years old and lease of less than 60 years old. Farrand at page 131 stated that:

"The old conveyancers' practice which became law, of requiring title to be shown for at least a sixty-year period (see p 95), used to apply as much to leaseholds as to freeholds. Hence, the alternatives depended on the age of the leaser. On the one hand, if the lease was more than sixty years old, the vendor would always have to show the lease itself but then only the leasehold title for the sixty years before the contract, the freehold title was not shown, leases of that age being presumed validly granted although having themselves to be produced 'in order to prove that the vendor could assign the very interest which he sold' (Williams on Vendor and Purchaser, 3^rd ed, at p 91; Frend v Buckley (1870) LR 5 QB 213; also Williams v Spargo [1893] WN 100). This was not too onerous for vendors. On the other hand, however, if the lease was less than sixty years old, then the vendor would, in addition to both the lease itself and the leasehold title, have to show the freehold title for the balance of the full period (Purvis v Rayer (1821) 9 Price 488; Souter v Drake (1834) 5 B & Ad 992). Equally, if the sale was of an underlease not yet sixty years old, the purchase was entitled to see the title of the underlessor and of every superior lessor for the period between the grant of the underlease and the beginning of the sixty years. The elementary explanation for all this is that unless he sees that the lease or underlease was validly granted, the purchaser simply has not been shown sufficient evidence that he will get the property sold."

Hong Kong position

18. In Hong Kong, when the Ordinance was first introduced in 1984 the period specified by s.13(1) was 25 years. This was reduced to 15 years by the 1988 amendment. Prior to the Ordinance, I understand the conveyancing practice in Hong Kong was not uniform, but the vendor was usually required to adduce title for a period of 20 years prior to the contract of sale. This was to cover the limitation period for causes of action.

The current position

19. This review showed that in England under a open contract the vendor was required to show the lease and then only the leasehold title for the 60 years before the contract. There was no requirement for the vendor to show a title starting from the lease all the way down to the contract. In Hong Kong the ultimate root of title is the Crown Lease (I do not wish to deal with the Conditions of Sale in this judgment). However, if the position before 1984 was for the vendor to show good title of up to 20 years immediately before the contract of sale, strong arguments must be advanced that, notwithstanding the Ordinance, in an open contract, the vendor is still required to prove title starting from the Crown Lease all the way down to the contract of sale.

20. Section 13(1) of the Ordinance is subject to the expression of contrary intention. In the case of an open contract it can hardly be argued that the vendor's obligation regarding title is the one set out in the sub-section. There is no contrary intention expressed. Where the contract provides that the vendor is to show a good title either by express stipulations or by reference to Condition 9 of Part A of the Second Schedule of the Ordinance, my view is that the obligation is also discharged by compliance with s.13 (1). As a matter of principle, I see no difference in the vendor's duty in an open contract and where the contract provides that the vendor is to give a good title to the property without specifying any period of time.

21. Under common law, the vendor is required to produce the lease, (or in the context of Hong Kong, the Crown Lease), but there is no obligation for him to prove title from that point all the way down to the contract. I cannot see how Condition 9 of Part A of the Second Schedule, which was introduced at the same time as s.13(1), will impose a more onerous burden on the vendor.

22. Different terms such as showing, giving, making or proving title are used in describing the duty of vendor in regard to good title. Williams on Vendor and Purchaser refers to the twin obligations of showing a good title i.e. by the delivery of abstracts (or in the context of Hong Kong, by the delivery of title deeds) and making a good title i.e. to prove by proper evidence the matters stated in that abstract. S.13(1) refers to proof of title by the production of the relevant documents. In my view s.13(1) is a statutory provision as to how the vendor's duty is to be discharged. It does not affect the concept of showing and making a good title. There is no conflict involved.

23. What I have said earlier in Au Fung Yee must be qualified. In so doing, one must bear in mind that, notwithstanding the provisions of s.13(1), the purchaser is always entitled to show aliunde i.e. from another source that the pre-intermediate root of title is defective and to raise requisitions thereof: In Re Cox and Neve's Contract [1891] 2 Ch.109 and Lo Hung Biu v. Lo Shea Chung & Li Hoi Sing (Civil Appeal No.258/1996, Decision 5^th June 1997).

The present case

24. In the present case there is no dispute that the Vendor had supplied the Crown Lease to the Purchaser. It was, however, not obliged by law to prove its title between the Crown Lease and the intermediate root of title. It was not necessary for the Vendor to show how the title was devolved from Sin Tak Fan to Fung Wo In or to produce the title deeds in that regard. Mr Chung, Counsel for the Purchaser, argued that if the Vendor chose to answer the requisition of the Purchaser, then it must provide proper evidence of the ownership of the Property, the memorials were only secondary evidence of the assignments and as these documents had not been supplied by the Vendor, the Vendor could not insist on the completion. He argued that the Vendor had waived the condition that time was of the essence of the contract because the Purchaser under Clause 8(C) of the Agreement had seven days to raise requisitions upon receipt of the title deeds and documents.

25. The memorials were, of course, secondary evidence and the vendor must show that there was good reason for not producing the assignments to justify proof by secondary evidence: Kok Yun Kuen v. Au Yeung Pik Tai and Lo Hung Pui [1991] 2 HKC 522 (Judgment of Godfrey J. (as he then was).) However, in this case the Vendor, when they agreed to deal with the first requisition, had clearly shown by the letter dated 4^th September 1996 that it was on a without prejudice basis. I do not consider the production of the memorials on 11^th September 1996 constituted a waiver of the contractual stipulation of completion on 12^th September 1996.

26. In Yeung Sau Chuen Sammy v. Chung Chun Ting and Cheung Sai Mui HCMP No.4080 of 1992, Godfrey J (as he then was) held that:

In the present case, the memorials were not documents which the Vendor was obliged to disclose. I do not find that the disclosure of such documents on 11^th September 1996 would extend the period of completion by seven days.

27. In Active Keen Litton JA held that:

" Obviously, if a purchaser raises a substantial objection as to the vendor's title and there are facts within the vendor's knowledge which, if revealed, might meet the objection, and the vendor chooses to withhold that from the purchaser, the vendor clearly cannot, on the day fixed for completion, turn round and say to the purchaser: 'Now I will both show you a good title and make you good title, you pay the balance of the purchase price today or I will rescind.' The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion."

The present case is obviously different. The devolution of title from Sin Tak Fan to Fung Wo In is a matter of public record which the public can gain access. These were not matters within the particular knowledge of the Vendor which it was under an obligation to disclose. Between 1898 (the granting of Crown Lease to Sin Tak Fan) and 1931 (the Assignment by Fung Wo In), can it seriously be contended that change in ownership would not have taken place? Further the Assignment of 9^th February 1931 clearly recited that the Property was vested in Fung Wo In. Reliance can be made on the presumption under s.13 (4) of the Ordinance. In my view the first requisition is not a matter of substance and the Vendor had answered the first requisition.

Second requisition

28. By a letter dated 10^th September 1996, Finley wrote to Weir:

"As the completion date of the captioned property is on Thursday 12^th September 1996, kindly furnished us with the draft assignment for approval as soon as possible."

29. On 10^th September 1996, Weir sent the draft assignment to Finley for approval. The letter stated that:

"The draft assignment we sent to you for approval shall not be regarded as withdrawal of our requisitions on title which we have made on behalf of our client."

At that time the only requisition raised was that of the first requisition.

Late requisition

30. The second requisition was raised for the first time on 11^th September 1996 when the completion was to take place on the following day. The letter from Finley dated 11^th September 1996 did not answer the requisition. However, this has no effect on the outcome of the case. The second requisition arose from documents which were supplied by the Vendor to the Purchaser on 24^th July 1996. The relevant documents were the Occupational Permit and the Deed of Mutual Covenant. In my view the second requisition was raised too late. Under Clause 8(C) of the Agreement, the Purchaser had seven working days on receipt of the title deeds to make the requisition. The time had by then expired.

31. In In Re Cox & Neve's Contract, the agreement provided that the purchaser should within 14 days of the delivery of the abstract, send to the vendor's solicitors all his objections and requisitions as to title. After the expiration of that 14 days, the purchaser discovered that there was a restrictive covenant as to the right to build on part of the property and objected to the title on those grounds. North J held that under those circumstances the 14-day time limit did not apply. During the course of argument, at p 114, he said:

"The covenant ought to have been disclosed in the abstract of title, if it had been the purchaser would have had 14 days within which to make the objection; why should he have less time because the covenant was not disclosed?"

Here the situation is entirely different. If there was any defect in title it was apparent from the deeds delivered on 24^th July 1996.

Approval of title

32. In any event, the second requisition was raised after the Purchaser had supplied the draft assignment to the Vendor for its approval. The approval came on the same day when the requisition was received. In Hillier Development Ltd. v. Tread East Ltd. [1993] 1 HKC 285 Penlington JA at page 291 referred to Farrand which stated that:

"An inplied acceptance of title depends on whether it appeared from the purchaser's conduct that he intended to waive any objections. This is a question of fact only to be determined in the light of the whole of the circumstances of the case. The quality of conduct to be looked for involves the performance by the purchaser of acts which a prudent purchaser would not normally perform until a good title has been shown, ie not until completion would be bound to take place."

He held that since the further requisitions were sent after delivery of the draft assignment, it must be implied from the circumstances that the purchaser's solicitors had accepted title by forwarding the draft assignment. The case was followed in Lai Chi On v. Strong Sing Development Ltd. [1994] 3 HKC 568 in which requisitions for title were raised for the first time after the draft assignment was sent to the vendor's solicitors for approval. Kwong Ka Hung and Another v. Lai Wah Development Ltd. (HCA 10566 of 1994) is another example where the court held that the purchaser's act in tendering a draft assignment for approval could only be consistent with the acceptance of the vendor's title.

33. In the present case, the only qualification imposed by Weir when it sent the draft assignment to Finley for approval was in respect of the first requisition. The Purchaser must have accepted title subject to the first requisition only and hence the second requisition was raised too late.

34. In respect of the second requisition the Vendor produced evidence that approval for the change of user had been sought. This evidence was not available before the Agreement was terminated. However, in view of my ruling, it is not necessary to deal with this matter further.

35. In respect of the second requisition the Vendor had not answered the requisition but in my view it was not necessary to do so.

Conclusion

36. In the circumstances I find that the Vendor has shown a good title to the Property.

Deposit

37. The outstanding matter is the one regarding the deposit. The amount forfeited by the Vendor after it had terminated the Agreement amounted to 40% of the purchase price of the Property. In view of the order of Le Pichon J. this matter remains to be heard and I shall give liberty to the parties to restore this matter within 14 days. There shall be costs nisi of the application to the Vendor.