KAN YUI MAN ALLEN AND ANOTHER v. NG HIU NAM

DCMP 174/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 174 OF 2011

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JUDGMENT

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Introduction

1.  This is a Vendor and Purchaser Summons issued under section 12 of the Conveyancing and Property Ordinance, Cap 219 (“the Ordinance”) by the Purchasers (Plaintiffs) who claim, inter alia, declaration that the Vendor (Defendant) as seller have repudiated the Provisional Agreement for Purchase and Sale (“the Agreement”) between the parties dated 17 October 2010 in respect of the property known as ALL THAT piece or parcel of ground registered in the Land Registry as THEREMAINIG PORTION OF SHAU KEI WAN INLAND LOT NO. 648 (Flat C, 23^rd Floor, Tower 1, Lai Man Court, Shaukeiwan Plaza, No. 17 Nam Hong Street, Hong Kong) (“the Property”). The initial completion date on 1 December2010 under the Agreement was postponed by agreement to 24 December 2010.

2.  Purchasers seek for declarations that:-

(a) the Vendor is in breach of the Agreement;

(b) the Agreement was repudiated by the Vendor on the 24 December 2010 because;

(i) Vendor failed to provide all the title deeds of the Property to the Purchasers and;

(ii) the Vendor failed to prove, show and give good title to the Property.

(c) the Vendor had on 24 December 2010 wrongfully forfeited the deposits paid by the Purchasers in the total sum of $238, 800 under the Agreement.

3.  The Purchasers also seek for an order that:-

(i)   the Vendor shall repay the Purchasers the said sum of $238,800 with interest;

(ii)   the Vendor shall further pay the Purchasers damages in a sum of $238,800 or other sums as the Court deems fit.

4.  Purchasers also seek costs.

5.  The extended completion was scheduled to take place on or before 24 December 2010. Title deeds of the Property were provided by the Vendor’s solicitors initially on 19 November 2010 (“1^st Delivery”). Subsequently, Vendor’s solicitors demanded return of these title deeds and they were referred. Later, on 22 December 2010, the Vendor’s solicitors again sent title deeds to the Purchasers’ solicitors (“2^nd Delivery”). It is not disputed and as pointed out by the Purchasers, some of the title deeds sent under the 1^st Delivery were absent in the 2^nd Delivery, including inter alia, Certified Copy of Special Power of Attorney dated 3^rd October 2001 and Certified Copy of Deed of Delegation dated 11^th October 2001.

6.  The Purchasers were required under the Agreement to pay $72,000 on signing of the Agreement and further deposit in sum of $166,800 on or before 1 November 2010, which the Purchasers did. The Purchasers had therefore paid total deposits of $238,800 and the same was released to the Vendor.

7.  No formal Sale and Purchase Agreement was signed by the parties.

8.  Clause 9 of the Agreement reads, under the heading “Vendor fails to perform” as follows:-

“Should the Vendor fail refuse or not intend to complete the sale of the said Premises in the manner herein contained, the Vendor shall immediately refund the deposit(s) paid hereunder to the Purchaser and compensate the Purchaser with a sum equivalent to either the deposit(s) paid hereunder or 10% of the purchaser prove whichever is the lower as liquidated damages and the Purchaser shall not thereafter take any further action to claim for damages and/or to enforce specific performance against the Vendor.”

9.  Purchasers say that despite their willingness and readiness to complete, the Vendor failed to answer requisitions raised so as to prove, show and give good title to the Property on or before completion or at any time thereafter or at all.

10.  Purchasers say therefore that the Vendor was in breach of the Agreement.

11.  They further say that they accepted the wrongful repudiation of the Agreement by the Vendor via their solicitors’ letter issued on the completion date to the Vendor. Purchasers also say that the Vendor had also wrongfully forfeited the deposits paid by the Purchasers.

12.  In reply, the Vendor says that they had already answered the requisitions on title raised by the Purchasers and that as the Purchasers failed to complete they forfeited their deposits paid.

13.  I now deal with the requisitions of the Purchasers.

Requisition One

Failure to provide the Articles and/or Board Resolution showing the authorized signatory as so appearing in the Power of Attorney of Chase Manhatten Trustees Limited dated 7 May 1998 (“7-May PoA”) been so authorized

14.  According to Mr. Jonathan Chang, counsel for the vendor, the land search record shows that the Property was mortgaged to First Pacific Bank Limited. Later, First Pacific Bank Limited’s interest as mortgagee of the Property later changed hands as appeared in the Recital of the Deed of Release dated 8 January 1999 as follows:-

(a) First Pacific Bank Limited transferred its interest as mortgagee to Deutsche Morgan Grenfell Capital Markets Limited;

(b) On 11 May 1998, Deutsche Morgan Grenfell Capital Markets Limited assigned the benefits to German Hong Kong Grenfell Capital Markets Limited, who, on the same day, assigned the same to the Chase Manhattan Trustees Limited.

15.  The said Release was executed by First Pacific Bank Limited for itself and as the attorney for, inter alia, Chase Manhattan Trustees Limited pursuant to the power under a Power of Attorney executed on 11 May 1998 (“11-May PoA”) whereby Chase Manhattan Trustees Limited appointed First Pacific Bank Limited as its lawful attorney to execute documents relating to, inter alia, the mortgage of the Property to First Pacific Bank Limited.

16.  Chase Manhattan Trustees Limited appeared to have executed the said 11-May PoA through an attorney, who appeared to be one of the its two named attorneys appointed under the 7-May PoA.

17.  It follows therefore that any challenge towards the due execution of the 7-May PoA may be directed at the validity of the appointment of First Pacific Bank Limited as the attorney of Chase Manhattan Trustees Limited by way of the 11-May PoA, which affects the issue of due execution of the Release dated 8 January 1999.

18.  Mr. Chang says that the Release was executed back on 8 January 1999, which was almost 12 years before the subject transaction. He says throughout these years, there had been numerous changes in hands and creation of different types of interests in the Property involving different parties, including sale and purchase, mortgage, discharge and even a mortgage sale and that it is inconceivable that the Release was executed without full payment of redemption money. Mr. Chang says therefore there is simply no real issue on want of authority on execution of the Release. He therefore submits that the Purchasers’ requisition is totally unnecessary.

19.  He further contends that it was unnecessary to supply the Articles or Board Resolution to the Purchasers since the 7-May PoA appeared on its face to have been duly executed and as such, this instrument is presumed to have been duly executed until the contrary is proved by operation of section 23 of the Ordinance.

20.  Mr. Chang says the 7-May PoA appeared on its face to have been duly executed because:-

(1)   It bore the common seal of the company.

(2)   The common seal of the company was described as being affixed in the presence of (a) a director [of the company]; and (b) a person described as an “authorized” signatory [of the company].

(3)   The general rule is that a corporation is bound by an instrument under seal, unless it can be shown that the execution was obtained by fraud, or there is some illegality in the transaction.

He says there is no evidence of fraud or illegality in this case.

(4)   The instrument contained the following description:-

“IN WITNESS WHEREOF the undersigned have caused this power of attorney to be duly executed on 7^th May 1998.”

21.  He submitted that the words “duly executed” used in the above description prima facie showed that the instrument was indeed duly executed.

22.  Mr. Chang persuades this Court that there was nothing in the circumstances of the present case that would rebut the presumption raised under section 23 of the Ordinance and therefore the Purchasers were not entitled to demand for sight of the Articles of Association (“AA”) or any underlying Board Resolution in relation to the execution of the 7-May PoA as part of their requisition on title.

23.  He further cited to this Court, the case of Mexon Holdings Ltd v. Silver Bay International Ltd [2000] 2 HKC 1 at 8G-H where Litton PJ observed:-

“A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the standpoint of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

24.  Mr. Chang also referred to the case of Jumbo Gold Investment Ltdv. Yuen Cheong Leung & Anor [1999] 3 HKLRD 825 at 833F-G, where Liu JA observed:-

“…the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title. It is not troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned. Conveyancing practice must be geared to uphold bargains.”

25.  He submits that in the circumstances of this case, taking into account the commercial reality and with robust commonsense, the suggestion that anyone will challenge the validity of the 7-May PoA almost 12 years after its execution is no more than a remote, fanciful risk that can be disregarded.

26.  In any event, Mr. Chang says the 7-May PoA is clearly presumed to have been duly executed by operation of section 23 of the Ordinance and there is nothing in the circumstances of this case that rebuts the said statutory presumption.

27.  Section 23 of the Ordinance reads:-

“An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed.”

28.  Mr. Chang says the section should receive a “fair, large and liberal construction” in Leung Kwai Lin v. Wu Wing Kuen [2001] 4 HKCFAR 55 at 66C (per Litton PJ) and 67E (per Sir Anthony Mason NPJ).

29.  Sir Anthony Mason NPJ noted at 67E-F as follows:-

“Such a construction entails that a rebuttable presumption arises once evidence establishes that the instrument appears at any time on its face to have been duly executed. It is that fact and that fact alone which attracts the statutory presumption. Other circumstances may serve to reinforce the presumption or to rebut it.”

30.  Mr. Chang submits that where it appeared on the face of the instrument that the director who signed the instrument had been duly authorized, section 23 of the Ordinance will extend to presume the existence of a valid board resolution authorizing its execution, Tread East Limited v. Hillier Development Limited, HCA 907/1991 (unreported, 23 November 1992) at p.8 per Godfrey J (as he then was) as follows:-

“… it appeared on the face of the assignment that Chan Bing Fai had been authorized by the Board of Directors of Oliver Paris so to sign it. In my judgment, in these circumstances the presumption of due execution referred to in s 23 of the Conveyancing and Property Ordinance, Cap. 219, applies, and the purchaser was not entitled to call for sight of a resolution authorizing the assignment to be signed in this way. A purchaser is not entitled to enquire into matters of internal management of a limited company…”

          On appeal Hillier Development Ltd v. Tread East Ltd [1993] 1 HKC 285 at 294A-G, Penlington JA stated as follows:-

“Godfrey J held that s 23 of the Conveyancing and Property Ordinance had the effect of presuming that the execution of assignment … by Chan alone was due execution by Oliver Paris. That, in my opinion, must also mean that there was a proper resolution of the board of directors of Oliver Paris authorizing the sale to Chan, otherwise it could not be said to be ‘duly executed’… It must be presumed that the board of directors of Oliver Paris did have power to sell the Property to Chan and did so without fraud on their part.”

          Sears J concurred (297F).”

31.  Mr. Chang said in the premises, the Purchasers were not entitled to call for sight of the AA or any underlying board resolution in relation to the execution of the 7-May PoA part of their requisition on title.

32.  I first consider section 20 of the Ordinance which reads:-

“(1) In favour of a person dealing with a corporation aggregate in good faith, his successors in title and persons deriving title under or through him or them, a deed shall be deemed to have been duly executed by the corporation if the deed purports to bear the seal of the corporation affixed in the presence of and attested by its secretary or other permanent officer of the corporation and a member of the corporation's board of directors or other governing body or by 2 members of that board or body.

(2) Where a person is empowered to execute a deed by a corporation, he may execute the deed as agent by signing the name of the corporation or his own name and by affixing his own seal. (Amended 31 of 1988 s. 11)

(3) Where a corporation aggregate is empowered to execute a deed by another person, an officer appointed for that purpose by the board of directors or other governing body of the corporation may execute the deed in the name of such other person; and where a deed purports to be so executed then the deed shall, in favour of a person dealing with the corporation in good faith, be deemed to have been executed by an officer duly authorized.

(4)  This section applies to transactions wherever effected, but only to deeds executed after the commencement of this section; except that, in the case of powers of appointment of an officer, they apply whether the power was conferred or the appointment was made before or after the commencement of this section.”

33.  The 7-May PoA was not executed in accordance with Section 20(1) of the Ordinance which requires the attestation by 2 directors or 1 director and 1 secretary /permanent officer.

Can the Vendor here invoke the presumption of due execution in section 23 of the Ordinance?

34.  It must be noted that in the Hillier case, the purchaser was in possession of the AA and the same provides that:-

“All deeds or instruments requiring the seal of the company shall be signed by two directors or in such manner as the directors shall from time to time by resolution determine.”

35.  Notwithstanding that, the Purchasers in that case pressed for resolution of the board of directors so authorizing the single director to execute.

36.  Godfrey J (as he then was), held in that case that :-

“… under the relevant provision of its Articles (Article 22) all deeds and instruments requiring the seal of Oliver Paris had to be “signed by two of its directors or [emphasis added] in such manner as the directors shall from time to time by resolution determine.” It was, therefore, within the powers of the Board of Directors of Oliver Paris to resolve that such a deed as the assignment of 12^th September 1984 might be signed by one only of its directors. And it appeared on the face of the assignment that Chan Bing Fai had been authorized by the Board of Directors of Oliver Paris so to sign it. In my judgment, in these circumstances the presumption of due execution referred to in s. 23 of the Conveyancing and Property Ordinance, Cap. 219, applies, and the purchaser was not entitled to call for sight of a resolution authorizing the assignment to be signed in this way. A purchaser is not entitled to enquire into matters of internal management of a limited company; it is enough for him to satisfy himself that the power to do what has been done did exist.”

37.  In Lee Chat & Cheung Loi Ying v. China Roll Industries Limited, HCMP 1334/1997, the document was executed by one director alone. The purchaser asked for AA but was turned down. The vendor relies on Section 23 for presumption of due execution.

38.  It was said by Le Pichon J as she then was that:-

“My first observation is that the deeming provision in section 20(1) of the CPO does not apply it only arises if the deed:

“purports to bear the seal of the corporation affixed in the presence of and attested by a secretary or other permanent officer of the corporation and a member of the corporation’s board of directors or other governing body or by two members of that board or body.”

The deeming provision does not arise because there is but one attesting signature. Turning now to section 23, that provides that:

“An instrument appearing to be duly executed shall be presumed, until the contrary is proved, to have been duly executed.” ”

39.  She further said:-

“The present case is of course factually different from Hillier because here the Purchasers’ solicitors did not have a copy of the articles of association in their possession at the time of the requisition. In fact, they specifically asked to be provided with such a copy. This request was refused and no copy of the article was ever provided. So the question arising on the facts is whether the Vendor was under any obligation to supply a copy as requested.

In my judgment, the Purchasers were entitled to ask to see a copy of the articles in order to verify whether it was within the powers of the company to authorise one director only to sign the agreement. The articles in the form prevailing at the date of the Assignment is thus part of the Vendor's title. Without them, there is no question of section 23 being triggered. By refusing to supply a copy of the articles of association, the Vendor failed to discharge its obligation and so disabled itself from being in a position to rely on any presumption that might otherwise have arguably arisen under section 23. Had the articles been provided, the further question would have arisen, namely, whether the presumption of a due execution referred to in section 23 applies in the absence of words showing due authorisation as in the execution clause in Hillier or whether the words "as director" were sufficient to trigger the presumption. In the events that have happened, it is unnecessary to express any view on this further question.”

40.  In this case before me, the Purchasers were not, despite requests, provided with the AA of Chase Manhattan Trustees Limited and therefore adopting the reasonings of Le Pichon J (as she then was), the Purchasers in this case is entitled to have sight of the AA. The Vendor had therefore failed to discharge their obligation to supply a copy of the AA for the Purchasers to be satisfied that the mode of execution of the 7-May PoA was possibly the authorized mode within the terms of the AA. In the circumstances, the Vendor had disabled itself from being in a position to rely on the presumption of due execution under section 23 of the Ordinance. As the presumption is not triggered, the 7-May PoA cannot be said to appear duly executed.

41.  Mr. Chang also ventures to argue that this failure to prove due execution of the 7-May PoA will be merely a blot on title and is still good title, though not a perfect title. He further argues that there is no real risk of the title being successfully challenged in view of the numerous transactions affecting the Property in the last 12 years following the execution of the 7-May PoA.

42.  The test, as the Court of Appeal in the case of KanWing-yau v. Hong Kong Housing Authority [1988] 2HKLR 187 stated is whether the Court is satisfied beyond reasonable doubt that the purchaser will not be at risk of a successful challenge.

43.  In the case of Yook Lu Fong and Another v. Lau Po Ching, HCMP 4603/2001 Ma J (as he then was)said:-

“Issue 3

25. A "blot" on the title of a vendor (as in the present case where one of the crucial links in the title chain is prima facie voidable) is not necessarily fatal to a finding that there exists good title. In what circumstances can this arise?

26. A "blot" on title in the sense that a previous transaction in the title chain is voidable (as in the present case), carries with it the risk of litigation by interested persons. The court's role in determining whether such a "blot" is fatal to good title being shown, is to assess that risk.

27. Where the risk is slight and there is no probability of an adverse claim being made, a good holding title is shown and the relevant property "can usually be sold and forced on a purchaser under a special condition requiring him to assume facts ..... upon which the title depends" : see Kan Wing-yau v. Hong Kong Housing Authority [1988] 2 HKLR 187, at 199A-C per Clough JA. However, apart from such special conditions in the relevant contract, a holding title is not good enough as the court has no jurisdiction to accept a mere holding title in a vendor and purchaser summons : see Kan Wing-yau at 199C. Only a good title will be accepted (and in the present case, of course, this was the plaintiffs' obligation under the Sale and Purchase Agreement dated 8 June 2001 : cf. section 13 of the Conveyancing and Property Ordinance, Cap.219). Thus, where there exists the risk of an adverse claim being made, even if slight, in the absence of special conditions along the lines mentioned above, good title will not be shown.

28. But where it can be demonstrated beyond reasonable doubt that the risk of litigation is non-existent or is "ridiculous" or that it would be "laughed out of court", then it will be disregarded and a good title will be shown : see Kan Wing-yau at 198F-I referring to In re Heaysman's and Tweedy's Contract (1893) 63 LT 89, at 91 per Lindley LJ.

29. The modern statement of this principle is contained in the speech of Lord Russell of Killowen in MEPC Limited v. Christian-Edwards [1981] AC 205, where at 220C-D, he said, "In my opinion if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title shown".

30. Once it is shown beyond reasonable doubt that the purchaser will not be at risk of litigation, the "blot" on the title becomes merely theoretical and not practical. The consequence of such a finding is that good title is shown and this can be forced on an unwilling purchaser.”

44.  The requisition on due execution of 7-May PoA will affect the issue of valid execution of the Deed of Release which clearly goes to the root of title of the Property offered by the Vendor as it affects the assignment of the Property dated 8 January 1999 in favour of Chan Yuen Tung Sammy and Share Ka Fung (Joint Tenants), predecessor - in title of the Vendor.

45.  The fact that since the execution of 7-May PoA 12 years ago there was no challenge does not mean that there will not be any risk of successful litigation or challenge.

46.  Who would have the interest to litigate? Clearly, the answer would be the donor of the 7-May PoA. There has been no confirmation before the Court from them to the effect that all redemption monies were fully paid.

47.  I must say that it cannot be demonstrated by the Vendor reasonable doubt that the risk of litigation is non-existent or is “ridiculous” or that it would be “laughed out of Court”. Good title therefore is not shown here and cannot be forced on an unwilling purchaser.

48.  For completeness, I now deal with the other requisitions.

Requisition Two

Failure to provide all title deeds on 24 December 2010 ie. the Completion Date

49.  Purchasers say the Vendor had failed to provide the Special Power of Attorney dated 3 October 2001 in favour of Liu Jinbao and the Deed of Delegation dated 11 October 2001 by Liu Jinbao as required of the Vendor under section 13 of the Ordinance.

50.  Section 13 of the Ordinance reads:-

“(1) Unless the contrary intention is expressed, a purchaser of land shall beentitled to require from the vendor, as proof of title to that land, onlyproduction of the Government lease relating to the land sold and- (Amended 29of 1998 s. 105)

(a) proof of title to that land-

(i) where the grant of the Government lease was less than 15 years before the contract of sale of that land, extending for theperiod since that grant; or (Amended 29 of 1998 s. 105)

(ii) in any other case, extending not less than 15 years before thecontract of sale of that land commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest in that land; (Replaced 31 of 1988 s.6)

(b) production of any document referred to in the assignment, mortgage or charge mentioned in paragraph (a) creating or disposing of an interest, power or obligation, which is not shown to have ceased or expired and subject to which any part of that land is disposed of; and

(c) production of any power of attorney under which any document produced is executed where that document was executed less than 15 years before the contract of sale of that land. (Amended 31 of 1988 s. 6)

(2) Where this section requires the production of any document, it shall besufficient to produce a copy-

(a) attested, before 1 November 1984, by 2 solicitors' clerks; or

(b) certified by a public officer or a solicitor, to be a true copy. (Amended 31 of 1988 s. 6)

(3) Subject to subsection (1), where any document produced as proof of titleto any land contains a recital of any document dated or made before the datefrom which a vendor is required to prove title, the purchaser of that land shall assume, unless the contrary is proved, that-

(a) the recital is correct;

(b) the recital gives all the material contents of the document recited;and

(c) the document recited was duly executed and perfected.

(4) A recital, statement, and description of any fact, matter or party

contained in any document of title, mortgage, declaration or power of attorneyrelating to any land and dated or made not less than 15 years before thecontract of sale of that land shall, for the purposes of any question as toproof of title concerning the parties to that contract and unless the contraryis proved, be sufficient evidence of the truth of that recital, statement anddescription.

(4A) Where any document is or has been produced by a vendor as proof of title

to any land and that document purports to have been executed, not less than 15 years before the contract of sale of that land, under a power of attorney, itshall for the purposes of any question as to the title to that land beconclusively presumed-

(a) as between the parties to that contract; and

(b) in favour of the purchaser under that contract as against any other person, that the power of attorney-

(i) was validly executed;

(ii) was in force at the time of the execution of that document; and

(iii) validly authorized the execution of that document. (Added 31 of1988 s. 6)

(5) This section affects only the rights and obligations of the parties to acontract for the sale of land entered into after the commencement of thissection.”

51. The Vendor first sent title deeds of the Property to the Purchasers on the 19 November 2010 upon the undertaking of the Purchasers’ solicitors to return the same on demand.

52. Later, on 30 November 2010, the Vendor requested for return of these documents which the Purchasers did on 1 December 2010. On 22 December 2010, the Vendor again sent title deeds of the Property to the Purchasers, the same did not include all title documents sent under the 1^st Delivery. In fact, the Purchasers in their letter dated 24 December 2010 had complained that same of the missing documents were in fact included in the 1^st Delivery.

53. The Vendor’s solicitor by letter of same date replied that the title deeds were sent to the Purchasers in discharge of their duty as Vendor under section 13A of the Ordinance.

54. It was not disputed that documents such as the Special Power of Attorney dated 3 October 2001 and the Deed of Delegation dated 11 October 2001were included in the 1^st Delivery but were missing in the 2^nd Delivery.

55. It is also not disputed that these documents relate to the Property and were within 15 years period prior to the Agreement.

56. Mr. Simon Lam, counsel for the Purchasers say therefore that the Vendor is obliged under section 13 of the Ordinance to provide these documents.

57. Mr. Chang however submitted that the Special Power of Attorney and the Deed of Delegation in question are not title documents required to be produced.

58. He further contends that though these documents are said to be necessary to prove due execution of the assignment of the Property by Bank of China when it exercised its power of sale under the First Charge in favour of Fung Siu Hong in year 2003, i.e. assignment memorial no. 89116735, the Vendor relied on section 23 of the Ordinance to invoke the presumption of due execution of the subject assignment.

59. The assignment was executed by a Mr. Ho Liu Ki as an attorney for and on behalf of Bank of China.

60. The said special Power of Attorney appoints Liu Jinbao alone as an attorney to execute all documents on behalf of Bank of China. Liu is also authorized under the said Special Power of Attorney to delegate his power to other persons a he thinks fit.

61. In the said Deed of Delegation, Liu delegates his power to certain persons, including the Ho Liu Ki who subsequently executed the Assignment in favour of Fung Siu Hong.

62. These are clearly title documents which the Vendor is therefore obliged under the Ordinance to produce and he has failed.

63. I find the second requisition of the Purchasers valid and proper.

64. In passing, I will add that as far as the missing second mortgage of the Property dated 8 January 1999 is concerned, I agree with Mr. Chang that since the Bank of China, had as the first mortgagee, executed its power of sale of the Property under the First Charge, also dated 8 January 1999, by operation of section 53 of the Ordinance, the Property would be free from the Second Mortgage.This was the answer given by Vendor’s then solicitors, Cheung Fung &Hiu solicitors on 29 November 2010 which I agree. The absence of the second mortgage does not affect the title of the Property.

RequisitionThree

Failure to provide a full set of the certified copy of the Government Lease

65. The Purchasers first raised this requisition that the page of “marginal note” was found missing from the certified copy of CrownLease provided by the Vendor in their solicitors’ letter to the Vendor’s former solicitors dated 20 November 2010.

66. Mr. Chang for the Vendor submitted that since section 13(1) of the Ordinance stipulates that the Vendor shall produce to the Purchasers, inter alia, a certified copy of the government lease relating to land sold and that according to section 3 of Interpretation and General Clause Ordinance Cap. 1, government lease includes “Crown Lease” and that Crown Lease means:-

“(1) any lease granted by the Crown before 1 July 1997;

  (2) any instrument whereby: (a) the term of a Crown lease may have been extended or; (b) the provisions thereof varied;

  (3) any agreement for a Crown lease.”

67. Mr. Chang said a certified copy of the original Crown Lease dated 26 August 1975 was produced to the Purchasers. The same was later varied by a Licence dated 15 November 1989 and a certified copy of the Licence was also produced to the Purchasers.

68. Mr. Chang submitted that the contents of the missing “marginal note” from the Crown Lease was no more than a record made on 13 December 1989 by a Land Officer and inserted into the docket in the Land Registry containing the Crown Lease as some kind of an explanatory memo to anyone retrieving the Crown Lease that the Crown Lease contained the Licence.

69. He contended that the “marginal note” was not part of the Crown Lease nor was it an instrument which varied the provisions of the Crown Lease that need to be supplied to the Purchasers.

70. Mr. Lam contended however that a complete copy of the Crown Lease from the Land Registry consists of 10 pages, including the marginal note and the Licence dated 15 November 1989 but then the certified copy of the Crown Lease produced by the Vendor to them consisted of 7 pages only.

71. Defendant did not dispute this fact. They just challenge the Purchasers as to how the Purchasers could prove the original Crown Lease was with these extra pages.

72. The marginal note as appeared on the copy of Crown Lease extracted from the Land search reads:-

“C/L of S. T. L. 648

MARGINAL NOTE

This Crown Lease contains the following note:

For modification,

see Licence

dated 15.11.1989

attached.

 

73. It is noted that the marginal note was signed by a Land Officer on 13 December 1989 and it stated that “This Crown Lease contains the following note.”

74. My view is the Purchasers are entitled to know the full terms and conditions of the Crown Lease. Without the missing pages, including in particular the marginal note, the Purchasers would be left in doubt as to what the contents of the missing pages are and would be doubtful to what are the full terms and conditions of the Crown Lease.

75. The marginal note serves to link the original Crown Lease to the Licence dated 15 November 1989 and from the wordings of the marginal note, the original Crown Lease, the marginal note and the Licence together, in my view, constituted the present Crown Lease, as modified. If one retrieves the Crown Lease, as registered, from the Land Office, the same would include the marginal note as shown in exhibit marked “MW-25” to the Affirmation of Wong Kwai Ying, Monica (“Wong”), one of the Purchasers dated 21 January 2011.

76. The Vendor in refusing to accede to the Purchasers’ request to provide a certified copy of the Government Lease, in the same form as one retrieved from Land Registry although he had also furnished the Purchasers the Licence as a separate document and even though both the Crown Lease as supplied and the Licence supplied referred to the same piece of lot, had failed their duty under section 13 of the Ordinance. The requisition by the Purchasers was again properly raised and the same has not been sufficiently/satisfactorily dealt with by the Vendor who had therefore again failed his obligation to show and prove good title.

Requisition Four

Existence of High Court Action No. 672/2008 (“the Action”) when Incorporated Owners of the Property sued as Defendant

77. The Purchasers say the Vendor has failed to answer the requisition raised in relation to the Action against the Incorporated Owners of Shaukeiwan Plaza within which the Property situate.

78. There is no reference to the Action in the Agreement.

79. Clause 14 of the Agreement states that “This agreement supersedes all prior negotiation representation, understanding and agreements of the parties hereto.”

80. In the letter from Purchasers’ solicitors to Vendor’s former solicitors dated 26 November 2010, the letter from Kolot Property Services Ltd (“Kolot”) dated 24 Nov 2010 was referred to. The letter from Kolot disclosed an ongoing action against the Incorporated Owners of Shaukeiwan Plaza within which the Property situate, i.e. the Action. The Vendor was asked how he proposed to settle and resolve the matter.

81. The Purchasers say they were not informed of the Action at time of Agreement.

82. In reply to the letter, the Vendor’s former solicitors alleged that the Purchasers are agreeable to purchase the Property subject to the Action.

83. On 30 November 2010, Purchasers’ solicitors replied and denied the Purchasers having agreed to purchase the Property subject to the Action.

84. On the same day, Vendor’s former solicitors write to the Purchasers’ solicitors and included a note from the Purchasers dated 30 November 2010 signed by Wong Kwai Ying, Monica, one of the Purchasers (“Wong”) on behalf of the Purchasers.

85. The Vendor maintains that by the confirmation, the Purchasers have agreed to purchase the Property subject to the Action.

86. The note reads:-

“買方得知上述單位有關管理公司之訴訟及接受有關之條款。”

87. By letter dated 1 December 2010, the Purchasers’ solicitors again replied denying the Purchasers having agreed to purchase the Property subject to the Action.

88. The Purchasers say what the Purchasers acknowledged in the note was merely the Purchasers are aware that the management company of the Property was involved in a legal action.

89. Wong explained in her 2^nd Affirmation dated 14 March 2011 that she was never informed nor does she have knowledge of the Action. She stated that on 30 November 2010 when she asked to collect keys of the Property for renovation before completion, she was told that she had to sign a note acknowledging a lawsuit involving trivial matter between two management companies. She says, as she then understood, the Property itself is not subject to any lawsuit.

90. Wong said the note was prepared by the estate agent, presumably upon the instruction of the Vendor. She says as the same does not affect the Property, she did not consult her legal adviser.

91. She said on the 1 December 2010, she also signed the licence agreement, paid the licence fee and collected the keys to the Property for renovation.

92. Firstly, if the Purchasers were made aware of the Action at or prior to the Agreement, there is no reason that there is no mention of the same in the Agreement.

93. Secondly, the note only refers to “an Action against the management company” which therefore should not affect the interests of the Purchasers of the Property.

94. In my view, although the estate agent was agent for both parties in the sale and purchase, when he drafted the note, he was then acting as the agent of the Vendor. In any event, on literal and fair reading of the note, it is indeed hard to stretch the interpretation of the note so that the management company would really mean Owners Incorporated and I refuse so to construe.

95. Moreover, there is no evidence even up to time of completion that the Purchasers or their solicitors were given copy of the Writ of Summons, the Statement of Claim or other pleadings of the Action and/or was informed of the stage of proceedings. The Vendor only disclosed the Statement of Claim of the Action for the first time in the Affirmation of Chau Chung Yee, Eddie i.e. after the present action was instituted. In the circumstances, this Court could not see how the Purchasers could be said to have given an informed consent to purchase the Property subject to the Action against the Owners Incorporated. Neither the Purchasers their adviser were not informed or made aware of the magnitude of the possible judgment which might be entered against the Owners Incorporated.

96. The Vendor has clearly failed his obligation to answer requisitions satisfactorily or show good title.

Will the existence of the Action constitute an encumbrance on title?

97. Vendor relied on the Court of Appeal case of Chi Kit Co Ltd v. Lucky Health International Enterprise Ltd [1999] 3HKLRD 473 where in his dissenting judgment, Rogers JA observed as follows:-

“At the stage of the issue of the writ however, the possibility of registration of a charge against the title of any of the owners in respect of any damages awarded remains just that, a possibility of something which may occur in the future if a number of events were to occur. In my view, even after the issue of a writ, where the incorporated owners are being sued on a claim for monetary damages such as Ta Xuong’s claim, that claim does not constitute an encumbrance on the title to any property in the building. Under the heading ‘Good title’ commencing at p 81 (HKC), p 409 (HKLR), Litton PJ (then JA) in the case of Active Keen Industries Ltd v Fok Chi Keong[1994] 2 HKC 67 ; [1994] 1 HKLR 396 explained that the expression ‘encumbrance’ in relation to land invariably means some claim to the property or charge which could be imposed on the property. He then went on to analyse in relation to s 24 of the Buildings Ordinance that a liability arising because of common ownership created ‘a possibility that, sometime in the future, the owner of (a particular) flat might have to share with the other co-owners the cost arising out of something done to the building but does not affect the title to the flat: no more than if, for instance, the lifts should fail and the co-owners had to share the cost of repair or replacement.’ In my view, where action is taken against the incorporated owners in a situation such as the present, the potential liability or liability which is sought to be enforced against the incorporated owners does not become an encumbrance on any owner’s title, at least not until the time when the Lands Tribunal gives leave to execute against an owner.”(at 482C-G)

His Lordship further noted (at 483J-484B):-

“the liability to reimburse damages to one who has a claim against the incorporated owners is no more than a possibility that at some time in the future, the owner of a particular property within the building might have to share with his co-owners the cost arising out of something done in the building. In the Active Keen case, Litton PJ likened that to sharing the costs of repair of the lifts.

In my view, therefore, there was no encumbrance affecting the vendor’s title on the issue of Ta Xuong’s writ.”

98. However, majority of the Court of Appeal in the Chi Kit case actually ruled that the litigation against the Incorporated Owners in that case constituted an encumbrance on title. In that case, even before completion, there was already judgment entered against the Incorporated Owners for a substantial sum in excess of $27 million (at 477G) such that individual owners at that time were clearly exposed to a liability to contribute and this was probably the basis upon which the Court of Appeal made the decision. The decision was subsequently upheld by the Court of Final Appeal. The Court of Appeal was mindful of the “extraordinary” nature of the exposure in view of the magnitude of the claim which exceeds what any reasonable purchaser might be expected to have in contemplation and thus held the exposure as an encumbrance on title.

99. Mr. Lamalso relied on the Chi Kit case. He submitted that in the ordinary cause of event, the Purchasers will need tocontribute to a contingency fund a sum determined by the management committee to satisfy a possible judgment against the Incorporated Owners as the same would normally be met from the funds of the corporation under section 20 of the Building Management Ordinance, Cap. 344 (“BMO”).

100. He said further that, under section 17(1)(b) of the BMO, the Lands Tribunal might give leave to execute any judgment against an owner for the time being, i.e. one who was an owner at the time of application for leave.

101. In the present case, there is no evidence that judgment had already been entered against the Incorporated Owners by 24 December 2010, i.e. the extended Completion Date but on the other hand, the Purchasers were not informed of the stage of proceedings of the Action at the time nor the magnitude of the claim. It was held by the majority in Court of Appeal in Chi Kit case that:-

“(1) From the date on which Ds became aware of the issue of X’s writ, they came under a duty to disclose to any prospective purchaser the fact that such proceedings had been issued. The issue of the proceedings manifested the existence of a claim which was capable of being enforced against any such purchaser as the owner for the time being of the units sold. Going back to first principles, it was unconscionable for a vendor to withhold the existence of such a claim (going not to the quality of the property sold, but to the quality of the vendor’s title) from the purchaser (Rignall Developments Ltd v. Halil [1988] 1 Ch 190 applied; McInnes v. Edwards [1986] VR 161, Huang Ching Hwee v. Heng Kay Pay & Another [1993] 1 SLR 100 considered). (See p. 479C-E)

(2) Solicitors acting for a vendor should inquire whether their client was aware of anything which might give rise to a liability, on the part of any owner for the time being of the property agreed to be sold, under the Ordinance. If the answer was yes, the contract should disclose the existence of the potential liability; if the answer was no, the contract should contain a declaration that the vendor was not aware of any such potential liability. (See p. 479E-G)

(3) Ds’ obligation as vendor – apart from the express terms to convey “free from encumbrances” was to make good title, ie one which at all times and circumstances” could be forced on an unwilling purchases. If a right or obligation could be enforced against the owner of land as owner, and therefore against the purchaser as owner, at the time of completion, the vendor would not be able to make good title. It was the duty of the vendor to disclose to the purchaser any right or liability which could be enforced against it as owner as this would amount to an encumbrance. (See p. 490H-J)”

102. Mr. Lamsaid the Vendor should disclose the particulars of the Action to the Purchasers when requisition was raised as it was held in the Chi Kit case that:-

“(1) Pursuant to s. 17(1)(b), the Lands Tribunal might give leave to execute any judgment against any owner for the time being, ie someone who was an owner at the time of the application for leave.

(2) In the ordinary course of events, a liability (including an unexpected liability) of the corporation would be met from the funds of the corporation established under s. 20. The management committee of the corporation decided whether to establish and maintain a contingency fund under s. 20(2) to meet a liability of the corporation, and contribution might be required from the owners from time to time. Any amount payable by an owner constituted a debt due to the corporation. Once a demand for payment was made of an owner, the liability attached to his interest in land and passed to his successors-in-title.

(3) The liability of a unit owner to meet a contribution was a liability which went to the ownership of the unit and bound successful owners so long as the contribution remained unpaid. Such a liability, if it were so extraordinary having regard to matters such as its nature or magnitude as to be wholly outside the contemplation of a reasonable purchaser, would constitute a defect in title (Jones v. Barnett [1899] 1 Ch 611, Rignall Developmemts Ltd v. Halil [1988] Ch 190 applied; Active Keen Industries Ltd v. Fok Chi Keong [1994] 1 HKLR 396 distinguished).”

103. Concerning the requisition raised by the Purchasers on the Action, the Vendor has simply maintained the Purchasers have consented to purchase the Property subject to the Action. He did not further answer the requisition by disclosing particulars of the Action such as the pleadings, stage of proceedings the amount of the claim etc for the Purchasers and their solicitors to assess the proximity and magnitude of the risk of judgment against the Incorporated Owners and following that, liability that the Purchasers as owner of the Property might possibly need to meet.

104. On the issue of assessing the risk of this potential liability, one may consider the case of Spark Rich (China) Ltd v Valrose Ltd [2006] 2 HKC 589 where Godfrey JA said:-

“Now, the burden of showing a good title falls on the shoulders of the vendor. He must, therefore, in an ‘unauthorised structure’ case, satisfy the purchaser (or, failing him, the court) that the risk of such action is one which a purchaser can safely be advised to disregard.”

105. Godfrey JA says if the answer to the question whether a purchaser can safely be advised to disregard is no, then the Purchasers cannot be obliged to accept the Vendor’s title.

106. Adopting the same legal principle here, although the Action here is one brought against the Incorporated Owners and not the Purchasers direct, the Purchasers in the absence of information on the Action should not be obliged to accept the Vendor’s title.

107. Further, in the Million Genius Ltd v. Cheerbond Development Ltd HCMP 864/2010, Suffiad J said:-

“In Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396, Litton JA had this to say at page 406 :

“But assume the objection to have no substance. In such a case, as Godfrey J remarked, this presents considerable difficulties. Is it enough for the vendor to say: ‘there is no substance in the purchaser’s objection’? The judge answered this question as follows:

‘If there is nothing the vendor can usefully add, I would hold that it is enough…’ [A proposed answer was put forward to deal with the facts of that case.]

In my judgment the judge’s approach must in principle be correct. If the matter was self-evident, the purchaser’s solicitor cannot insist upon a fuller reply. But the vendor’s solicitor must act with total candour, so that the purchaser can be reasonably certain that there are no facts and material relevant to the requisition known to the vendor which have not been disclosed.”

47. This proposition of the law has been followed by Chung J in the case of Excel Wood Limited v Charmed Investments Limited (HCMP No. 4130 of 1997) where he said in paragraph 4 of his judgment :

“… At one extreme is a requisition for which the answer is so self-evident, or clearly related to non-existing difficulties, that it need not be answered. …”

108. Clearly the Vendor’s solicitors in the present case has not acted with total candour so that the Purchasers can be reasonably certain that there are no facts and material relevant to the requisition known to the Vendor which have not been disclosed. The Vendor in the present case had failed in his duty to satisfactorily answer the requisition properly raised relating to the Action prior to scheduled completion date and good title was not shown.

Summary

109. Having regard to the above, I find the Vendor in breach of its obligation under the Agreement i.e. to show and prove good title and to provide the Purchasers all title deeds and documents of the Property. The Purchasers is therefore entitled to accept their repudiation, as they did by their letter to Vendor’s solicitors dated 24 December 2010.

110. The conduct of the Vendor no doubt evinced their intention not to complete the transaction.

111. Pursuant to the Agreement, the Purchasers are entitled to the return of the $238,800 deposit paid as well as payment by the Vendor of a like sum pursuant to clause 9 of the Agreement.

112. Accordingly, I grant a declaration that the Vendor has failed to show, prove and give good title of the Property and failed to provide the Purchasers all title deeds and documents of the Property.

113. I do not find it necessary or useful to grant any other declaration prayed.

114. I also order that the Vendor shall pay the Purchasers:-

(a) the sum of $238,800 being return of deposit;

(b) interest on the sum of $238,800 in paragraph (a) above at 8% per annum from the date of Originating Summons to the date hereof and thereafter at judgment rate till date of payment;

(c) the sum of $238,800 being damages pursuant to paragraph 9 of the Agreement;

(d) interest on the sum of $238,800 in paragraph (c) above at 8% per annum from the date of Originating Summons to the date hereof and thereafter at judgment rate till date of payment.

115. The Counterclaim of the Vendor is dismissed.

116. I also make a costs order nisi that the Vendor shall pay the Purchasers costs of these proceedings, the same to be taxed if not agreed, with certificate for counsel.