XCHRX GRAND MONEY LTD. v. TANG TAK SHUN

1995, No.A7791

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By an agreement for sale and purchase dated 25 April 1995, the defendant agreed to sell and the plaintiff agreed to purchase the property known as 5/F and the roof of No.35 Sharp Street East, registered in the Land Office as one equal undivided sixth part or share of and in The Remaining Portion of Inland Lot No.5457 ("the Property"). Completion was to take place on 25 July 1995 and at the purchase price of $8 million. In addition to the initial deposit of $300,000 that was already paid, a further deposit of $1,300,000 was paid on signing the Agreement. In the event, the sale was not completed and the plaintiff took out the present proceedings for the return of the $1.6 million deposit together with a further sum of $337,500 representing stamp duty, estate agent commission and legal expenses wasted by the aborted purchase.

2. The plaintiff claimed that the defendant was in wrongful breach of the Agreement in that he had failed and refused to show a good title and/or answer satisfactorily the requisitions. The dispute centred on a Deed of Surrender dated 27 January 1969, registered under Memorial No.660216 ("the Deed"). It was the plaintiff's submission that the Deed was required to complete the chain of root of title to the Property, pursuant to s.13 of the Conveyancing and Property Ordinance, Cap.219. In reply, the defendant submitted that the Deed did not come within the class of documents required by the section; and the plaintiff had, in any event, waived any such requirement. It was also alleged by the plaintiff that forfeiture of a 20% was, in any event, a penalty.

3. The plaintiff applied under Order 86, or alternatively under Order 14A, for summary judgment. There was virtually no dispute on the facts relevant to the determination of the dispute.

Section 13

4. It was common ground that the dispute could be decided by a consideration of the meaning of "Crown Lease"; i.e. whether such a term included a document such as the Deed? It was common ground that the defendant refused to provide a copy of the Deed as proof of title to the Property, alleging that it could not come within the meaning of "Crown Lease relating to the land sold".

5. It was the plaintiff's submission that because of the extended meaning given to "Crown Lease" by s.3 of the Interpretation and General Clauses Ordinance, Cap.1, the Deed was part of the Crown Lease. Section 3 of Cap.1 provided :

" 'Crown Lease' means any lease granted by the Crown, any instrument whereby the term of a Crown lease may have been extended or the provisions thereof varied and any agreement for a Crown lease. (emphasis added)"

The issue was : Were the provisions of the Crown Lease varied by the Deed?

6. By a Crown Lease dated 26 January 1940, Inland Lot No.5457 was granted by the Crown to one Kwong Leung Shi for a term of 999 years at an annual Crown rent of $10.00. In the Crown Lease the area of the Lot was stated to be 748 sq.ft. in the plan annexed thereto. In 1969, and by the Deed, the then owners (nine persons holding in tenancy in common) surrendered a portion of the Lot that was described as Section A of Inland Lot No.5457 to the Crown. Section A of Inland Lot No.5457 was stated in the Deed to be of an area of 34 sq.ft. The Deed did not refer to the description of the remaining part of the Lot still held by the tenants in common, save a reference in the annexed plan to "I.L. 5457 R.P." at the position of such part on that plan. No new Crown Lease was ever granted, nor was any other form of document created between the Crown and the owners of the remaining portion of the Lot. The consideration stated in the Deed for the surrender was "The release of the Surrenderers from all obligations imposed upon them in respect of all that the said piece or parcel of ground described in the Third Schedule hereto by the Said Crown Lease under which the said piece or parcel of ground is held." The Third Schedule set out the surrendered portion of the Lot.

7. The defendant submitted that the surrender operated as a reassignment of Section A to the Crown and thus was not a variation of the Crown Lease. I found the reference to the surrender taking effect as a reassignment to be of no relevance in the determination of the issue at hand. As far as Section A was concerned, it was true that it was reassigned to the Crown and thus there was no variation of any provision in the tenancy over that portion of land. It was a destruction of the tenancy of Section A. However, there could have no bearing at all on the issue of whether the provisions of the Crown Lease, as an instrument embodying the tenancy agreement, was altered? The issue of legal effect of the surrender relating to the surrendered portion of land, and the legal effect such surrender had on the provisions of the lease over the entire piece of land (including the surrendered portion), are two distinct issues.

8. The defendant further argued that as the Deed did not specifically make express references to the particular provisions of the Crown Lease that had been varied, it could not be relevant for the purpose of s.3 of Cap.1. I found such a submission to be wholly void of merits. It is the legal effect and not the form of the amending document that should determine such an issue. The defendant was not able to refer me to any known cases or principle of law that support such a bold contention. In any event, the defendant was wrong even on the facts. In the Second Schedule of the Deed, express reference was made that the consideration for the surrender was the release of "all obligations imposed upon (the Surrenderers) in respect of (the surrendered part) by the Crown Lease under which the said (surrendered part) is held."

9. I have no doubt that one of the effects of the Deed was to release the owners of the surrendered part from all obligations relating to the surrendered part that were formerly imposed by the Crown Lease. If there had been a new Crown Lease granted at the same time of the surrender, it would then be opened for one to argue that there had not been any variation of the provisions of the old Crown Lease, as the old Crown Lease had been superseded by the new grant and was no longer in existence. Without any new grant for the remaining portion, the provisions of the existing Crown Lease must necessarily have been varied in that all provisions dealing with the obligations of the lessee would be reduced by the release. All such obligations would be reduced from being applicable to the whole Lot, i.e. Inland Lot No.5457, to that of affecting only the remaining portion, i.e. The Remaining Portion of Inland Lot No.5457, as defined in the Deed. Without looking at the Deed, it would be impossible to ascertain the size and boundary of The Remaining Portion of Inland Lot No.5457 as well as the extent of the obligations continuing to bind the said remaining portion. The liability of the lessee over matters such as rates, that would be calculated by area, and maintenance over the surrendered part under the Crown Lease dated 1940 was clearly altered by the Deed.

10. The defendant further submitted that the Deed related only to Section A, i.e. land not the subject of the sale; and thus failed to come within the meaning of "Crown Lease relating to the land sold". Again, I was unable to find any merits in such argument. It was submitted that one would have to apply the s.13 restriction over the definition of Crown Lease, i.e. a document could not come within that definition unless that document also relates to the land sold. The defendant was correct to submit that the instrument varying the provisions of the Crown Lease must relate to the land to be sold. If the Crown Lease covers two distinct and separate parcels of land, a subsequent instrument varying provisions solely and exclusively applicable to parcel A cannot be relevant to the intended sale of parcel B. However, if the altered provisions can be applicable to both parcels, the altering instrument would be a "Crown Lease" relating to the land sold. The Deed varied the obligations of the owners in their Crown Lease relating to the whole lot, including the remaining portion which is the land to be sold; and particularly, the conditions under which such land to be sold were to be held by the said owners. The boundary of the land to be sold could not be found in the Crown Lease, and could only be ascertained with reference to the Deed. The release of the obligations relating to Section A that were formerly imposed upon the owners of the land to be sold could not be found in the Crown Lease, but could only be found in the Deed. Unless one examined the Deed, it was impossible to ascertain if the release was absolute, or were the owners of the remaining portion still bound by some of the obligations over Section A, e.g. maintenance. No reference to any parcel of land under the description of "The Remaining Portion of Inland Lot No.5457" could be found in the Crown Lease dated 1940. There could be no doubt that the Deed was an instrument affecting, and thus, relating to the land to be sold.

11. Mr Cheung for the defendant attempted to suggest that a ruling against his client would bring chaos to the profession. There is no evidence before the court to support such speculative chaos. Most importantly, such a consideration would not be appropriate if the statute is plain and there is no room for ambiguity in interpretation. If the unambiguous effect of a statute is to bring chaos to the profession, it would be a matter for the legislature to correct the error, not for the court to misinterpret the clear intent of the statute. No doubt the purpose of s.13 was to simplify the previous laborious task of requiring the production of many less important documents as proof of title. However, it could not be the intent of the legislature not to require necessary proof of title. The Crown Lease is the very root of all titles. And, an instrument varying the provisions of a Crown Lease is a necessary integral part of the Crown Lease to enable a purchaser to ascertain the full extent of his obligations and rights to the property. I found s.13 of Cap.219 as expanded by s.3 of Cap.1 to contain no ambiguity nor an intent to the contrary.

12. In any event, the alleged chaos was founded on examples that had no application under the present ruling. Those examples dealt with wholly different factual circumstances. A subsequent instrument between the Crown and one only of many individual owners of individual parcels of land under one Bloc Crown Lease could not be an instrument relating to every one of the parcels covered by such Bloc Crown Lease. Such an instrument can only affect the parcel owned by that particular owner and be an instrument relating only to his parcel. In the premises, a waiver of height restriction granted to parcel A only under a Bloc Crown Lease could not be an instrument relating to parcel B for the purpose of s.13, and would not be a required document for proof of title in the sale of parcel B. Nor would the example of sub-division of land by a Crown lessee be relevant. Any private agreement made between the Crown lessee and one only of many of his sub-division assignees could not be binding nor would it have any effect on other sub-division assignees that had not joined such agreement. Such private agreement would also not affect the Crown lessee's obligations under the Crown Lease unless the Crown is a party to such an agreement. In the premises, such a private agreement would not be an instrument relating to the land held by the other assignees for the purpose of s.13. It is abundantly clear from the above analysis that no undue hardship could be caused to the profession. The restriction in s.13 that the instrument required would be one that relates to the land to be sold would render any irrelevant and remote documents unnecessary.

13. I have no hesitation to hold that the Deed was an instrument varying the provisions of the Crown Lease dated 1940 relating to the land to be sold and was thus a document required to be produced by the defendant under s.13 of Cap.219 as proof of title. In the premises, the defendant had failed to answer the requisition for the Deed satisfactorily or at all, having refused to supply any copy to the plaintiff. The defendant had failed to show and prove title. Though the statement of claim did not rely on a failure to prove title, the defendant did not object to the plaintiff's reliance on such a failure in addition to the failure to show title, and submissions were advanced by both sides on the issue. It was conceded by the defendant that in the event it was held that the Deed formed part of the Crown Lease, it was of such a fundamental nature that such a waiver of requisition, even if substantiated, would not be sufficient per se to amount to a waiver of such defect of title. However, in view of the failure of the defendant to substantiate a waiver of requisition, the issue becomes academic.

Waiver

14. The requisition for the Deed was first raised by the plaintiff by letter dated 6 June 1995. By letter dated 5 July 1995, the defendant refused to provide any copy of the Deed alleging that the same was not "the kind of documents required to be produced pursuant to s.13 of the Conveyancing and Property Ordinance". A fortnight later and by letter dated 19 July 1995, the plaintiff requested a postponement of completion date "without prejudice to the previous requisitions". Five days later, in a letter dated 24 July 1995, the plaintiff expressly stated the further steps taken in preparation for completion were "without prejudice to our requisitions raised under our letters dated 6 June 1995 and 30 June and your reply to us thereto are still not considered satisfactory". It was against such common facts that the defendant submitted that there had been a waiver of requisition by conduct.

15. A fortnight after the refusal to produce a copy of the Deed, the plaintiff already reserved its right to insist on the requisition whilst seeking a postponement for completion. That was followed quickly by another letter five days later expressly refusing to accept such refusal by the defendant. The defendant was relying on implied waiver by inaction. I did not find such waiver substantiated as alleged or at all. The minimal delay in responding to the defendant's refusal, against the background of other negotiations going on at the same time between the parties, was wholly insufficient to give rise to a waiver. No reasonable man would have concluded that the plaintiff had so conducted himself to have led the defendant to believe it was waiving the requisition. I was not satisfied the defendant had made out a case of waiver.

16. In the premises, the issue of penalty did not fall to be determined, and I would express no views on it save to observe that in applying an authority like Workers Trust & Merchant Bank Ltd. v. Dojap Investment Ltd. [1993] A.C. 573, it is important to note the particular social and economic background as well as the customs of the society in question. The judgment of the Judicial Committee can be summarised by the following passage at page 580 : "In their Lordships' view the correct approach is to start from the position that, without logic but by long continued usage both in the United Kingdom and formerly in Jamaica, the customary deposit has been 10 per cent. A vendor who seeks to obtain a larger amount by way of forfeitable deposit must show special circumstances which justify such a deposit." However, in applying this principle, one should perhaps bear in mind that customs are not static, but a dynamic process. Is there a justification to frozen the anomaly at any particular point of history? Or should such an anomaly be permitted, as any customs would, to evolve with time to reflect the needs of the current society?

17. For reasons given supra, judgment was entered for the plaintiff for the refund of the $1.6 million deposit and damages in the liquidated sum of $80,000. The claim for stamp duty was adjourned by consent, and the defendant's right to challenge the legal expenses by way of assessment was reserved. Costs were awarded in favour of the plaintiff.

(Jerome Chan)

Judge of the High Court