CHIAP HUA FLASHLIGHTS LTD. v. MARKFAITH INVESTMENT LTD.

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J U D G M E N T

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Clough, J. A. delivered the judgment of the court:

1. This is an appeal by the defendant, Markfaith Investment Limited, against the order of Godfrey. J. made on the 8th September 1988 giving summary judgment under Order 86 to the plaintiff, Chiap Hua Flashlights Limited against the defendant; for failure to complete the purchase of a multi-storey tenanted industrial building known as Chiap House, 23 Bailey Street, Kowloon ("the property") which was the subject of a sale and purchase agreement dated the 31st March 1988 made between the parties.

2. The judge declared that the defendant had been in breach of the agreement by not completing the transaction in accordance with its terms. He further declared that the plaintiff had been entitled to rescind the agreement and forfeit the defendant is deposit of $10 million and that the plaintiff was entitled to re-sell the property and recover damages against the defendant to the extent of any loss sustained by the plaintiff over and above the amount of the deposit. The judge also ordered an inquiry as to damages (if any) and that the registration of the plaintiff's writ in High Court Action No. A4765 of 1988 (an earlier action concerning the agreement in relation to which the defendant's action was a cross-action) as a lis pendens under the land Registration Ordinance (Cap. 128) be vacated. A stay of his order was granted by the judge pending this appeal.

3. The matter was argued before the judge by leading counsel for one day and was followed by an extempore judgment. On appeal we have beard no less that four days of argument by leading counsel and the issues have widened. Before the judge the arguments proceeded on the footing that the issues between the parties arose in circumstances where the tenants of the property (or at least the tenants of the ground and first floors of the property) were entitled to options to renew their tenancies which were not required to be registered under the land Registration Ordinance in order to maintain their priority. At any rate no point appears to have been taken that the options were so registrable and liable to lose their priority for want of registration. In this court the point was taken by the plaintiff and, for the reasons, we give below, it seems to us that if this argument succeeds, as we consider it should, the basis for the judge's decision and most of the argument below and before this court falls away.

4. The property in question comprised a ground a and nine additional floors which, together with the roof were tenanted at all material times by a total of five tenants. None of the tenancy occupied several floors they did so under separate tenacy agreements was before the court but the evidence indicates tenancy agreements.  I  immediately before the date of the agreement the combined monthly rental of the property was $858.300. None of the tenancies was for a term in excess of three years and, subject to the question of options to renew, the longest running term was that of the tenant of the ninth floor which was due to expire in July 1989.

5. Both below and on appeal argument proceeded on the footing that the following options to renew affected the tenancies. The tenant of the ground floor held under a tenancy agreement containing an option to renew for one or two years at the same rent exercisable six months before the expiration of its two year term which was due to expire in April 1989. The tenant of the first floor held under a tenancy agreement containing an option to renew for two years at a rent to be agreed exercisable six months before the expiration of its three year term which was due to expire in May 1989. The terms of the remaining floors (but not the roof which was held on a monthly basis) were all two years and their respective tenancy agreement (except in the case of the roof ) all contained options similar to that contained in the tenancy agreement relation to the first floor.

6. In early March 1988 Mr. Lam Chi Chun. a director of the plaintiff put the property in the hands of Mr. Lee Sing Man, a real estate broker, for sale. Mr. Lee seems to have then been in torch with Mr. Patrick Wong, another real estate broker, who in touch approached the defendant some time after the 20th March 1988 and informed it that the property was for sale subject to tenancies. Mr. Lam had, at Mr. Lee's request, given him a list containing particulars of the existing tenancies. This list made no reference to any of the options to renew. It only set out the monthly rental for each floor and the "due date "of each tenancy agreement. Mr. Patrick Wong gave the list to Mr. Stephen Yen the defendant's manager. The defendant company is a subsidiary of Henderson Development Limited whose activities include the purchase of sites of sites for redevelopment. Having seen that, according to the list of tenancies. The last term was due to expire in July 1989 Mr. Yen pursued the matter and the Defendant agreed to purchase the property.

7. On the 29th March 1988 the defendant's solicitor, Mr. C. T. Chan of C. T. Chan & Co., sent a letter to Messrs. Susan Liang & Co. the plaintiff's solicitors containing an offer by the defendant to purchase the whole of the property "with existing tenancies" for $100 million. A deposit of $10 million payable on the signing of the agreement and completion on or before the 30th June 1988 was proposed. The defendant was evidently keen to get on with the transaction because Mr. C.T. Chan's letter concluded with a request, if the proposed terms were acceptable, for all the title deeds and documents relating to the property, together with the draft agreement for sale and purchase for perusal and approval.

8. On the 30th March Miss Susan Liang sent "the title deeds and documents" required to prove title for the purposes of section 13 of he Conveyancing and Property Ordinance (Can. 219) to Mr. C. T. Chan, copies of the tenancy agreements were not sent, to him. On the same day the agreement, which came to be dated the 31st March 1988, was signed in duplicate by the defendant and it paid the required deposit of $10 million.

9. Under clause 2 of the agreement the purchase price was stipulated to be $100 million of which $10 million was required to be paid as a deposit and part payment to the plaintiff's solicitors as stakeholders on the signing of the agreement. The balance of the purchase price was payable on the 30th June 1988 which was the date stipulated under clause 3 for completion. Clauses 3 and 11 provided that the property was sold free from incumbrances save for the existing tenancies specified In Schedule II to the agreement which made no reference to any option for renew any of the tenancies.

10. Clause 5 of the agreement was in the following terms:

"5.     Any requisition or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's Solicitors not later than seven (7) days after delivery, of the title deeds to the Purchaser's Solicitors otherwise the same shall be considered as waived (in which respect time shall be of the essence of the Agreement) and if the it Purchaser shall make and insists on any objection or requisition which the Vendor shall be unable or (on the ground of difficulty delay or expense or on any other reasonable ground) unwilling to remove or comply with or if the title of the Vendor shall be defective the Vendor shall notwithstanding any previous negotiations or litigation be at liberty on giving to the Purchaser or his Solicitors not less than seven days' notice, in writing in annul the sale in which case unless the objection or requisition shall have been in the meantime withdrawn the sale shall at the expiration of the notice he annulled the purchaser being in that svent entitled to the return of the deposit but without interest costs or compensation. No error mis-statement or mis-description shall annul the sale nor shall any compensation be allowed in respect thereof."

11. Clause 6 provided that if the defendant should "fail to observe or comply with any of the conditions" contained in the agreement the deposit should he absolutely forfeited to the plaintiff who might rescind the sale, resell the property and recover any deficiency and the costs of the resale from the plaintiff. Clauses 7 and 8 safeguarded the remedies of the defendant as purchaser if the plaintiff should "(for any cause save as herein provided) fail to complete the said sale in accordance with the terms of the agreement.

12. Clause 10 provided that time should in every respect he of the essence of the agreement. Clause 18 provided inter alia that any notice to any party to the agreement was to be sent to him or his solicitors. Clause 23 was in the following terms:

"23(a) The parties hereto are fully aware that Messrs C. T. Chan & Co., Solicitors for the Purchaser have not yet perused the title deeds and documents of the said premises and agreed that the deposit in the sum of HK$10,000,000.00 pail by the Purchaser on the signing of this Agreement shall be held by Messrs. Susan Liang & Co., as stakeholders pending the perusal of such title deeds and documents.

(b)    If Messrs. C. T. Chan & Co., Solicitors are not satisfied with the Vendor's title and/or if the Vendor shall be unable or unwilling to comply with the said Solicitors requisitions' then the purchaser shall have the right to rescind this Agreement whereupon the parties shall sign a memorandum or Agreement for Caucellation and the said deposit and the said further deposit shall be returned to the purchaser without interest or compensation provided that in such event neither party shall have any claim against the other of them.

(c)    If Messrs. C.T. Chan & Co are satisfied with the vendor's title, or if no requisitions or objections in respect of the title or otherwise is raised within 7 days' after the delivery of the title deeds to the purchaser's Solicitors pursuant to clause 5 herein …then the said deposit shall be released to the vendor without notice to the purchaser."

13. By a letter sent to the plaintiff's solicitors on the 31st March, but mistakenly dated the 31st May, Mr. C. T. Chan raised a number of matters on the title which are not material and added a postscript to his letter saying that his firm had no odjection to the plaintiff's solicitors releasing the deposit money to the plaintiff.

14. On the 8th April the plaintiff's solicitors wrote to the defendant's solicitors requesting agreement for certain corrections which are not now material, to be made to schedule II to the agreement. On the 12th April the defendant's solicitors expressed the defendant's consent to the replacement of Schedule II by the corrected version.

15. The position at this stage was therefore that the defendant had purported to accept the plaintiff's title but had not been sent or requested copies the tenancies which had been represented in Mr. Lau's original schedule, and in schedule II to the agreement, to have a fixed date of expiration.

On the 18th April l988 the defendant registered the agreement in the hand Registry, At that time none of the tenancies mentioned in schedule II to the agreement were registered against the property. Indeed such registration has never been effected.

16. At some time the latter part of April 1988 Miss Liang learned, after enquiring from Mr. Lam that all the tenancy agreements contained options to renew. At about this time there were potential buyers who were willing to pay a higher price for the property if the defendant were to object to the options and rescind the agreement. As seen as she learned of the options Miss Liang spoke to Mr. C. T. Chan on the telephone. There is a conflict of evidence concerning what was said. Miss Liang's evidence was that she told Mr. C. T. Chan that all the tenancy agreements contained options and that she would send him the details by way of additional information in a schedule. According to her Mr. C. T. Chan told her he would take instructions from the defendant and come back to her.

17. Mr. C. T. Chan's evidence was to the effect that Miss Liang only him that there were options to renew in the ground and first floor tenancies and that upon hearing this he asked Miss Liang to write to his firm about this with supporting documents, if any, so that he could take instructions from the defendant. According to him be told Mr. Yen about his conversation with Miss Liang and Mr. Yen's reaction was that they should wait for the information to be supplied by the plaintiff's solicitors

18. Mr. Yen's evidence referred to what he said be vaguely remembered Mr. C. T. Chan told him in the relevant conversation. He deposed inter alia that at the time there was a boom in the property market and that he had been informed by Mr. Patrick Wong that since the date of the agreement the plaintiff had found another potential purchaser who was prepared to pay a higher price for the property. He added that he was therefore wary that if he mentioned the options to renew at that time it might provide an excuse for the plaintiff to resile from the agreement.

19. However it is indisputable that on the 30th April 1988 Miss Liang sent to Mr. C. T. Chan additional information abort the tenancy agreement in the form of a schedule which included a reference to the terms of the options to renew the tenancies of the ground and first floors to the property. By use of the expression "do" the schedule indicates that the options relating to the tenancies affecting she second to ninth floors were in the same terms as that affecting the first floor. Although Mr. C. T. Chan insisted in his evidence that Miss Liang had only told him about the options affecting the ground and first floors he did not in terms depose that he did not understand the meaning of "do" in the schedule.

20. As regards the terms of the options to renew contained in the schedule, it has been disclosed in the evidence in support of an unsuccessful application made by the defendant earlier to-day to adduce a copy of the relevant tenancy agreement as further evidence in this appeal, that whereas the schedule describes the option affecting the first floor tenancy as an option to renew for a further two year term on six months notice before expiry, in fact the option was for a term of three years exercisable on not less than three month notice before expiry. This discrepancy, which gives rise to uncertainty as to the precise nature of the options in the remaining tenancy agreements which are the subject of the "do" entries in the schedule, was revealed too late to be taken into consideration. Clearly, howerver, it does not assist the defendant in the context of registration.

21. Mr. C. T. Chan's evidence was that on the 3rd May 1988 he sent a letter to the defendant enclosing a copy of Miss Liang's letter dated the 30th April 1988 and the schedule which had been enclosed with her letter. By his letter dated the 3rd May Mr. C. T. Chan asked if the defendant had any comment or further instructions. As he received no instructions from the defendant in response to his letter Mr. C.T. Chan did not go back to Miss Liang on the matter of the options. Mr. Yen's evidence was that the defendant did not receive Mr. C. T. Chan's letter and he did not see it until the 29th June when Mr. C. T. Chan told him about it after Mr. Yen had visited the property and discovered the existence of the options to renew affecting the ground and first floors.

22. It was not until the 15th June 1988 that Miss Liang received the actual tenancy agreements from the plaintiff. She deposed that as Mr. C. T. Chan did not come back to her about the options for renewal she was under the impression that he and the defendant had no objection to them. In the absence of any request for the tenancy agreements from Mr. C. T. Chan she would have given them to him on completion. The tenancy agreements were never in evidence before the judge or this court.

23. Between the 20th and 29th June, by which time the date for completion was approaching, matters seem to have proceeded as if the defendant had every intention to complete. There were negotiations by letters and telephone between the solicitors regarding the tenant's deposits in the hands of the plaintiff. It was agreed that the plaintiff and defendant should deal with this matter by entering into novation agreements (the terms of which were agreed between the solicitors) with the tenants whereby the tenants would consent to their deposits being transferred by the plaintiff to the defendant when the defendant became the landlord of the tenants.

24. There was correspondence between the solicitors regarding the terms upon which the plaintiff might lease back some office space on the second floor of the property after completion. By the 29th June agreement had been reached in the solicitors' correspondence for a monthly tenancy at a rent to he negotiated between the clients. On the 23rd June Mr. C.T. Chap had sent the draft assignment to Miss Liang for approval and on the 24th June. Miss Liang had returned the draft which was approved as slightly amended.

On the 29th June Mr. Yen visited the property in order to verify the rental positions of all existing tenants. He deposed that it was then that he learned of two options to renew affecting the ground and first floors respectively. He took the matter up with Mr. C. T. Chan. It was Mr. Yen's evidence that he new learned for the first time from Mr. C. T. Chan of the latter's letter dated the 3rd May enclosing Miss Liand's letter dated the 3rd May enclosing Miss Liang's letter dated the 30th April and accompanying schedule. There was a conflict of evidence between Mr. C. T. Chan on the one hand and Miss Liang and her partner Miss Hung on the other as to whether Mr. C. T. Chan then requested Miss Liang's firm to supply copies of all the tenancy agreements which contained options to renew or only a copy of the tenancy agreement in respect of the ground floor of the property. Suffice it to say that on the 29 June Miss Liang's firm supplied Mr. C. T Chan's clerk with a copy of the tenancy agreement in respect of the ground floor of the property.

25. There followed a crucial sequence of three letters in which the parties took their respective stands on the 30th June, the day for completion, time being of the essence. The defendant began with a letter from Mr. C.T Chan enclosing the assignment of the property. In that letter it was asserted that the defendant had learned at the premises on the previous day of the Mr. C. T. Chan continued as follows:

"We wish to put on record that since the signing of the Agreement for Sale and Purchase on 31st March 1988, we have never received any Tenancy Agreement from you and as such, our client relied solely on the tenancy particulars disclosed in Schedule II of the said Agreement."

26. It is to be observed that these assertions seem to conveniently ignore the fact that with Miss Liang's letter dated the 30th April Mr. C. T. Chan had received a schedule containing information (possibly not all of it accurate) of all the options. After drawing attention to the non-disclosure of the options in the agreement and to the serious jeopardy which the renewal options caused to the defendant's intended redevelopment of the property the letter proposed that:

"Our client is able, willing and ready to complete the sale and purchase of the above premises and we enclose herewith a Cashier Order in the sum of HK$88,000,000.00 in favour of your client to be held by your firm as stakeholders pending the rectification of the aforesaid breach or alternatively arrange for the cancellation of the renewal options evidenced by documents acceptable to our client."

27. The sum of $88 million mentioned above represented the balance ($90 million) of the purchase price less a $2 million broker's fee which is not in  issue in these proceedings.

28. The defendant's proposal was rejected in a fax letter from Miss Liang contending that the defendant was not entitled to impose the condition's it stipulated. The defendant was not on notice that it was in, breach of the agreement and warned that the plaintiff intended to forfeit the deposit and return the defendants' cashier order for $88 million and the assignment unless by 5 p.m. the defendant withdrew the conditions imposed by it for the release of the cashier order to the plaintiff.

29. On the same day Mr. C. T. Chan replied in letter confirming that the defendant insisted on completion and claiming that full payment of the balance of the purchase price had already been made by the defendant and that the plaintiff was not entitled to forfeit the deposit because the defendant had never been in breach of the agreement. The letter went on to make the following new proposals:

"However, our client is prepared to withdraw the condition imposed by us on behalf of our client provided always that tile completion hereof is subject to:-

(1)    Our client's express right to claim against yours for whatever damages and loss that our client may suffer as a result of the existence of the options mentioned in our previous letter to you.

(2) (a) Deduction of Hk$5 million from the balance of purchase price to be held by you as stakeholders until the cancellation if the renewal options in question.

     (b)Or alternative postpone the completion for 3 or 5 days as the case may be for the cancellation of the said renewal options.

Subject as aforesaid you may release the balance of the purchase price to you client."

30. On the 1st July, when the date for completion had passed, Miss Liang replied rejecting these proposals on behalf of the plaintiff, returning the defendant's cashier order and stating that:

"By not making an unconditional payment of the balance of purchase price to our client yesterday in accordance with clause 3 of the Agreement, your client has repudiated the same which repudiation our client accepts without prejudice to its rights under clause 6 of the Agreement to forfeit the deposit (which they have done), rescind the (which they now do), resell the property and sue your client for damages."

31. The letter goes on to remind Mr. C. T. Chap that it cannot be alleged that he learned of the options to renew for the first time on the 29th June because Miss Liang had told him about the options at the end of April. Miss Liang reminded him that she had asked him if in the circumstances the defendant wanted to rescind, because the plaintiff had received a higher offer for the property. She pointed out that Mr. C.T. Chan had said he would take instructions on the matter and that, in the meantime, she had sent him her letter dated the 30th April enclosing details of the options to renew. She continued:

"Not only did your firm not come back to us to say that your client would like to rescind the Agreement, but on the 27th June 1988 you actually agreed on behalf of your client to execute Novation Agreements in relation to all the tenants which have the effect of substituting your client as landlord to the tenants in place of our client. In the circumstances, your client must be taken to have waived any misdescription there may have been in the Agreement (which is denied)."

The letter goes on to make further points which do not require mention now.

32. Although Miss Liang had used the language of repudiation in the first passage of her letter cited above, we think it is clear from the context and having regard to the terms of her earlier fax letter that the plaintiff was claiming that the defendant was in breach of clause 3 of the agreement by refusing to complete unconditionally and that the plaintiff had invoked clause 6 of the agreement under which it was entitled to forfeit the deposit and re-sell in accordance with the provisions of that clause.

33. On the 5th July the defendant issued a writ claiming (1) a declaration that the agreement was stilt subsisting, (2) specific performance, (3)specific performance with abatement, (4) alternatively repayment of the deposit and (5) damages for breach of the agreement. On the same-day the defendant registered a lis pendens in the Land Office register. On the 16th July the defendant's solicitors notified the plaintiff's solicitors of the issue of the writ and re-asserted the merits of their case. On the 8th July the plaintiff countered with a cross-action by issuing the writ in these proceedings which was indorsed with a statement of claim and sought the relief which we have indicated at the beginning of this judgment as having been granted by the judge. The same relief was specified in the minutes annexed to the plaintiff's summons for summary judgment under order 86 which was issued on the 11 the July.

34. We have endeavoured to summarise above the substance of the material evidence which was before the fudge in numerous affidavits and to identify the common factual ground between the parties. We mention that, although the question whether the relevant options (assuming them or one or more of them to have been others rise valid and effective) were required to registered to maintain their priority was not argued before tile judge, both parties and their advisrs seem to have given thought to it. Thus Miss Liang, who had made a search in the Land Office register on the 11th July, exhibited a copy of it to her second affidavit filed on the 10th August and commented in that affidavit that:

"It will be noted that none of the tenancy agreements in question has ever been registered against the property."

35. This comment seems to have given the defendant and its advisers food for thought and to have prompted the second affirmation of Mr. Yen which was filed on the 7th September, the day before the hearing before Godfrey J.. His evidence seems to us to be highly material to this appeal and we therefore set it out in extenso :

"2.     At all material times and up to now, the Defendant is ready, willing and able to complete the purchase of the said property from the Plaintiff. However, such completion must be without prejudice to the Defendant's right to claim against the plaintiff for damages if any, including damages arising out of or suffered by the Defendant as a result of it being held (contrary to the Defendant's contention) that some or all of the options to renew are purchase of the said property)notwithstanding the failure to register any of these options to renew in accordance with the land registration Ordinance cap. 128. Accordingly, the Defendant is prepare to pay over the balance of the purchase price on completion without prejudice to such claims it may have against the plaintiff out of the said options to renew and /or its failure to disclose the same to the Defendant prior to the Sale and Purchase Agreement.

3. However, on 30th June 1988, I understood the Plaintiff as contending that the Defendants should either rescind the purchase or be bound by the options to renew (at that time I was only aware of the options relating to the ground and first floors). I have been advised by the Defendant's legal advisers an do verily believe that the Plaintiff was not entitled so to contend, inter alia, because the existence of such options was not disclosed to the Defendant before the Sale and Purchase Agreement was signed by the. parties thereto."

36. The defendant's stance here was different from that adopted on the 30th June by its second letter when it demanded inter alia the cancellation of the options and refused to release all the purchase money to the plaintiff. Paragraph 2 of Mr. Yen's affirmation indicates a subsequent change of attitude regarding the efficacy of the options.

37. Be that as it may, when the plaintiff's application for summary judgment was hears before Godfrey J. on the 8th September 1988 no issue seems to have been takes by either side on the question of registration.

The defendant; which appeared by different leading counsel below, appears to have argued that the reference due date" for the termination of the tenancy agreements mentioned in Schedule II to the agreement amounted to a misdescription having regard to the existence of the options to renew. The judge was prepared to assume this against the plaintiff for the purposes of the application before him.

38. However here regarded the defendant as having been given notice of the options by Miss Lianrs letter dated the 30th April which was accompanied by the schedule referring to them. This view was fully justified, at the very least as regards the options affecting the ground and first floors which were expressly mentioned that the schedule (and not by reference to "do") and which the defendant purported to rely on when insisting on attaching conditions to completion on the 30th Julie. Clause 18 of the agreement has the effect of requiring the information given to Mr. C.T. Chan to the imputed to the defendant: see also Strover v. Harrington [1988] 2 W. L R. 572 at pp. 584 and 586E.

39. The judge expressed no view on the question whether the defendant would have been entitled to rescind the agreement before the completion once it had notice of the options (or at least two of them) but he concluded that even if the defendant had had such a right it had been in breach of the agreement when it insisted on attaching conditions to completion. He observed:

"But I have no doubt that, after 30th April 1988, the purchasers had to elect either to affirm the contract or (if they had any right to do so) to rescind it or to treat the acts or omissions of the vendors as a repudiation of the contract. They have themselves made no bones about this before me. They have accepted that they have at all times affirmed the contract, that is indeed still their position. What they say is they are entitled to affirm the contract (and thus lose any right they might have to rescind themselves) but that then they are entitled to an abatement of the purchase price or to a remedy in damages against the vendors. In my judgment, they are not so entitled. I say nothing about what the purchasers position might have been between 30th April 1988 and 30th June 1988, if they had taken objection to the options to renew during that period. But the fact of the matter is they took no steps at all."

40. After emphasising that all the actions of the defendant after the 30th April were consistent only with their affirmation of the agreement and acceptance of the tittle (without actually holding that the defendant had waived its right, if any, to rescind) the judge said :

"They did nothing else whatever. They did nothing, whatever until 30th June 1988; when they agreed to complete subject only to two different sets of conditions of their own devising. In my Judgment, this is not an acceptable course for the purchasers to have taken. What is the result? The 30th June 1988 came and went and completion has not taken place. It has not taken place because the purchasers have refused to complete in accordance with the contract. They were prepared to complete only on conditions unacceptable to the vendors. That was a breach of contract; a breach of a term of the contract as to the date of completion of which time was of the essence. On 1st July 1988 the vendors were therefore entitled to treat the contract as at an end. They were, entitled to rescind the contract and to forfeit the deposit. (Whether or not they are entitled to damages is not for me to decide at this stage).

41. He mentioned that this result might seem harsh upon the defendant but felt that no other conclusion was possible when the defendant had done nothing until the guillotine came down on the 30th June. There being in the judge's view no defence to the action, he gave judgment for the plaintiff accordingly.

42. On appeal the defendant seeks to have this judgment reversed and to obtain leave to defend the action. All its numerous grounds of appeal and all the elaborate arguments advanced by Mr. Litton on its behalf proceed on the footing that in addition to misrepresentation inducing the agreement this was more than a case of mere misdescription because the plaintiff was unable to transfer the title it had contracted to transfer. This was because the notions to renew contained in the relevant tenancy agreements would have been an and impediment on the defendant's title if it had completed the sale, either because the tenants could have enforced the options against the defendant or because the defendant would have bought the prospect of doubtful litigation against the tenants when it acquired the property. In accepting for the purposes of his judgment that the tenancies had been the subject of misdescription in the agreement the judge had clearly also accented for those purposes (because the contrary was not contended) that the options to renew would have been enforceable against the defendant after completion.

43. However by its amended respondent's notice the plaintiff not only introduced the issues of waiver and estoppel in the appeal but also contended that the judgment below should be affirmed on the basis that there had been no misdescription of the property because, in the absence of prior registration of the tenancy agreements containing the options to renew, the registration of the agreement on the 18th April enabled the defendant to take the property unaffected by the options. On this new issue Mr. Litton argued the contrary. He also contended that in the absence of the actual tenancy agreements it would be wrong to "second guess" their terms and to decide the registration issue in proceedings to which the tenants were not parties. He further contended that the defendant should not be obliged to buy litigation.

It seems to us that if, as we consider to be the position, Me. Mill-Owens' argument for the plaintiff on the registration issue is to be upheld and the arguments of Mr. Litton are to be rejected, then this appeal mast be dismissed, albeit on a basis which is fundamentally different from the basis upon which the he was required to decide the issues between the parties. Furthermore, if it is firmly held, as we consider it should be, that the plaintiff is right on the registration issue it follow that the judge was required to deal with the matter on a false basis.

44. The absence of the actual tenancy tenancy agreements does not deter us from determining the registration issue. If there are no options renew in any of the tenancy agreements which are enforceable, apart from the question of registration, then a fortiori, there can be no option which is an impediment on the title. The plaintiff has represented to the defendant, albeit after the making of the agreement, that the tenancy agreements contain options and the defendant is entitled to hold the plaintiff to that represented, so that if it were to be held that the options had not lost their priority for want of registration, the defendant would succeed on the registration issue and the appeal would have to be decided on the other issues raised below and on anneal on that basis.

45. The registration issue raises no questions of fact it is an issue of fact, it is an issue of law. On the authority of Cmith v. Colbourne [1914] 2 Ch 533 (C. A.) and Johnson v. Clarke [1928] Ch. 847 applied in M E. P C. Ltd. v. Christian-Edwards [1981] A.C. 205 (H. L.) at p. 219 it is the duty of the court, unless in very erceptional circumstances, to decide questions of law concerning title arising between a vendor and purchaser notwithstanding that a third party who is not a party to the action will not be bound by the decision. In our opinion there are no exceptional circumstances in this case and the issue should be decided as between the parties.

46. In his helpful work on Conveyancing in Hong Kong Mr. Hartley Bramwell mentions an page 198 that the registration system now in force under the Land Registration Ordinance (Cap. 128) dates from the first Land Registration Ordinance of 1844 which was evidently based at that time partly on the system operating in Van Dieman's Land (Tasmania), partly on that in Western Australia and also with some features from an Irish Act of 1707.

47. The system is somewhat archaic, even in its present form and, as Mr. Litton emphasised, it provides not a system of land or title registration but only a system for the registration of instruments affecting land. Thus section 2(1) of the Land Registration Ordinance (under which the Land Office is constituted a Public office for registration purposes) provides inter alia that all instruments in writing by which any parcels of ground, tenements or premises in Hong Kong may be affected may be entered and registered in the Land office in the prescribed manner.

48. Regulation 5 of the Land Registration Regulations (made under section. 28 of the Ordinance) provides that registration of an instrument, under the Ordinance is to be effected by delivering it into the Land Office together with memorial of the instrument in the form prescribed in the First Schedule to the Regulations and by compliance with the Ordinance and Regulations The particulars which a memorial is required to contain under regulation 6 (1) (b) and in the First include the particulars of the nature and object of the instrument.

49. The tenancy agreements affecting the property which was the subject of the agreement are therefor, registrable under section 2 of the Ordinance as being instruments which affect the property by (1) ranting tenancies affecting the proporty and (2) granting options to renew the terms of those tenancies, such options constituting offers to grant new terns which the plaintiff was contractually precluded from withdrawing so long as the options remained exercisable: see Reesly v. Hallwood Estates Ltd. [1960] 1 W. L R. 549 at p. 556.

50. Under section 3(1) of the Ordinance "all such deeds conveyances, and other instruments in writing, and wills and judgments made, executed, or obtained, and registered" pursuant to the Ordinance are given priority according to their respective dates of registration. The effect of section 3(2) is that all such instruments which are not registered are rendered absolutely null and void against any subsequent bona fide purchaser for valuable consideration section is qualified by the following proviso:

"Provided that nothing herein contained shall extend to bona fide leases an rack rend for an term not exceeding 3 years."

51. Section 4 precludes actual or constructive notice of a prior unregistered instrument from affecting the priority of a duly registered instrument.

52. Mr. Litton's argument amounts to this. Sections 2 and 3 of the Ordinance refer specifically and generally to written instruments. It is the instrument affecting land (not the actual interest in land created by the instrument ) which may be registered and which will obtain or lose priority according to whether it is registered under the Ordinance. It follows that when the proviso to section 3 (2) speaks of bona fide leases at rack rent for any term not exceeding 3 years it speaks of an instrument which does not lose priority for want of registration. Accordingly as the proviso extends in the present case to the tenancy agreements it must also extend to the options to renew contained in those instruments.

53. Considering the meaning of sections 2 and 3 of the Ordinance in the light of section 19 of the Interpretation and General Clauses Ordinance (cap.1) and seeking to interpret them in such "fair, lame and liberal" a manner as to accord with the "true intent, meaning and spirit" of the Land Registration Ordinance, we are unable to accept that there is any substance in Mr. Litton's argument, or in his additional argument that the options themselves being, options to renew for terms not exceeding three years were within the proviso.

54. Given that an instrument containing only an option to renew is registrable under. section 2 and, if not registered, will lose its priority under section 3(2) against a subsequent bona fide purchaser of the property for valuable consideration (see Hang Tak Comoany Limited v.Chu ying-wa [1965] H. K. L. R 650 at p. 657), it seems to us clear beyond doubt that, as Mr. Mills-Owens argued, it cannot make any difference if the option happens to be contained in an instrument which also creates or describes itself as a lease of such a character as to come within the terms of the proviso to section 3(2). The proviso is only expressed to extend to "bona file leases at rack rent for any term not exceeding 3 years". It cannot, in our opinion be extended by construction beyond its actual unambiguous terms to mean any instrument which is or creates such a tease either with or without any other interest in the Land. This would produce the strange result that it would be possible to defeat the object of the Ordinance and facilitate fraud by insert in an option to purchase the reversion into such a lease and thereby maintain the priority of the option to purchase without the need for registration.

55. There can be no doubt on the facts before the court that if the defendant had completed the agreement on the 30th June it would been a bona fide purchaser for valuable consideration for the purposes of section 3(2) of the Ordinance. Furthermore the options were never registered and the effect of section 4 of the Ordinance would have been that the notice of the options given to the defendant at and after the end of April would not have affected its priority. Accordingly by registering the agreement on the 18th April the defendant had established its priority and after that date the holders of the options were unable to establish their priority by registering the tenancy agreements containing the options see Ho King-yin v. Lau King Mo [1980] H. K. L R. 42 (C. A.).

56. The effect of all this seems to us remove any vestige of a triable issue between the parties. It can be said that through the medium of Mr. Lam's original schedule of tenancies there was a misrepresentation of the date of determination of the tenancies affecting the property because the options to renew were not disclosed. Likewise it can be contended that there was an error, mis-statement or misdescription to the same effect in the agreement because the schedule annexed to the agreement. Until the 18th April, when the defendant registered the agreement and thereby secured its priority, it could have been said that the options constitute an undisclosed incumbrance or impediment on the plaintiff's title, but after the 18th April the defendant was, in a position where it could complete without fear of any loss.

57. We add that if and to the extent that it could be said that the terms of the option to renew contained in any or all of the tenancy agreements were not enforceable by the tenants independently of the registration issue and that the plaintiff did not disclose the actual terms of the options to the defendant, that would be nihil ad rem because the effect of the failure by the tenants to register the options was in any event to make them unenforceable (whatever their terms) sgainst the defendant if it had completed the transaction.. The parties were on equal terms in this respect.

58. This conclusion on the registration issue disposes of the appeal and it is not therefore necessary to deal with all the other elaborate arguments that were advanced below and on appeal on the footing that the options to renew were not required to be registered to maintain their priority. However in deference to the judge below we all the following observations.

59. In the context of the case argued below and before us, an alternative approach, equally destructive of the defendant's chances, would have been by way of the doctrine of waiver. We are satisfied that the conduct of the defendant after it had become appraised of the existence of the options was consistent only with its having accepted the plaintiff's title subject thereto, thereby waiving any objections that it might otherwise have raised. We have in mind the remittance on the 23rd June of the draft assignment to the plaintiff's solicitors for approval, the agreement on the 27th June to the novation contracts with the sitting tenants, and the further agreement on the same day to lease to the plaintiff office space in the premises upon monthly basis. Thereafter the plaintiff was not only willing, but would have been able to fulfill its side of the contract as far as was necessary.

60. No question of title was raised before the judge below, nor was reliance placed upon the provisions of the Misrepresentation Ordinance Cap. 284 which have been argued to some extent before us. The hearing below proceeded on the footing that the sole issue was one of misdescription. Upon that hypothesis them defendant contended, as it did again before us, that it was entitled to enforce the contract with an abatement of the purchase price. Our attention has been drawn by counsel for both sides to many authorities in which one party has been seeking to enforce a contract wherein the property in question has been misdescribed.

61. We observe that in general the authorities draw a distinction based on whether it is the purchaser or the vendor who is seeking the assistance of the Court. We venture to think that the true principle to be derived from them is that even though the contract contains a provision whereby it shall not be annulled by reason of misdescription, the court wall nevertheless not enforce it at the behest of the vendor against an unwilling purchaser, unless the misdescription in unintentional and not substantial: Jacobs v. Revell [1900] 2 Ch. 858. 1f such a contract contains as well a provision that no compensation is to be allowed, the purchaser can only enforce it in accordance with that term, i.e. upon payment of the full purchase price: in re Terry and White's Contract (1986) 32 Ch. D. 14 and Curtis v. French (1929) 1 Ch. 253. We note with some comfort that a similar view is taken by the learned authors of Williams on vendor and purchaser, 4th Edition at pages 74 and 727, and by professor Farrand in his book "Contrect and conveyance" 4th Edition at page 54. Clause 5 of the present contract would thus have been fatal to the defendant's claim.

62. We do not think the defendant would have been saved by the contention that Clause 5, being predicated upon delivery of documents to the defendant's solicitor is ineffective in view of the failure of the plaintiff's solicitors to deliver the tenancy agreements (except perhaps one which in any event came too late for the proper operation of the clause). It is true that the provision as to misdescription and compensation is, by some quirk of the draftsman, placed at the end of Clause 5, but in substance it is a separate and distionct provision, in no way dependent upon the preceding words.

63. Fore these, reasons we dismiss the appeal but would be Pleased to hear counsel now or at some other convenient time, as to costs.