HO SUK LING DORIS v. YEUNG WUN YEE

HCMP 2244/2023

[2024] HKCFI 2344

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2244 OF 2023

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JUDGMENT

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Introduction

1.  This is the hearing of Plaintiff’s Originating Summons dated 28 November 2023 (the “OS”) seeking:

(1)  a declaration that the plaintiff (“P”) has proven a good title to the Property (as defined below); and that

(2)  P has duly accepted the defendant’s repudiation, rescinded the formal sale and purchase agreement, and forfeited the deposits.

Undisputed Background Facts

2.  The land search record of the Property shows P’s father, the late Ho Yee Yoong (the “Father”) acquired the Property from the developer by an assignment in 1994. The Father had 4 children (the “4 Children”). After the Father passed away, Ho Kwok Hin Dominic (“Dominic”), one of the Father’s sons, P’s brother and the executor of the Father’s estate, obtained probate on 25 April 2019.

3.  By the Father’s will, the 4 Children were the sole beneficiaries to his Estate in equal shares. The wife of the Father (the “Mother”) subsequently also passed away and Dominic was also the executor of the Mother’s Estate. Probate of the Mother’s Estate was obtained on 10 November 2020.

4.  The 4 Children agreed by a Deed of Family Arrangement dated 30 January 2023 (the “DFA”) and a Supplemental Deed of Family Arrangement dated 11 April 2023 (the “SDFA”) that the Property shall be held and vested in P solely.

5.  Pursuant to the DFA and the SDFA, P became the registered owner by an assent dated 12 June 2023 (the “Assent”). The Assent was executed by Dominic in his capacity as the executor of Father’s estate as the Assignor, P as the Assignee and the other 3 children as Confirmors. P has submitted the Assent to the Inland Revenue Department’s Stamp Office for adjudication.

6.  On 14 June 2023, a power of attorney (“POA”) was entered into between Ho Kwok Pui (one of the 4 Children) and P, whereby Ho Kwok Pui was granted the rights to act as attorney (the “Attorney”) for P to deal with the Property.

7.  Inspection was carried out at the Property by D on 5 July 2023.

8.  By a provisional agreement for sale and purchase dated 6 July 2023 (the “PSPA”), P as vendor agreed to sell and the Defendant (“D”) as purchaser agreed to purchase the Property known as Flat E, 10/F, Block D, Grandview Garden Phase 2, Kowloon (the “Property”) at the price of HK$6.38 million. A deposit of HK$200,000 was paid upon signing of the PSPA. A formal sale and purchase agreement (the “FSPA”) was executed on 20 July 2023 whereupon a further deposit of HK$438,000 was paid. Completion was scheduled to take place on or before 22 September 2023, when D has to pay the balance of HK$5,742,000 or 90% of the purchase price.

9.  P is represented by Messrs Tso Au Yim & Yeung (“TAYY”). D is represented by Messrs Raymond T.M. Lau & Co. (“RTML”). The history of requisitions is as follows:

(1)  On 7 July 2023, RTML requested all relevant title deeds and documents and draft FSPA from TAYY.

(2)  On 11 July 2023, TAYY sent a certified copy of the POA to RTML.

(3)  On 13 July 2023, RTML requested a copy of the Assent, which was sent by TAYY on the same day. RTML further requested certified copies of the DFA and the SDFA, which was refused by TAYY, but instead agreed to provide redacted copies of the DFA and the SDFA.

(4)  On 20 July 2023, the FSPA was entered into.

(5)  On 27 July 2023, RTML requested, amongst other things:

(a)  The duly adjudicated stamped and registered DFA;

(b)  The duly adjudicated stamped and registered SDFA;

(c)  The duly stamped and registered Assent;

(d)  Confirmation that Special Stamp Duty (“SSD”) had been paid or not chargeable of the Plaintiff’s sale of Property pursuant to the Assent.

(6)  On 9 August 2023, TAYY refused to provide the documents sought and only agreed to deliver the certified copy of Probate of the Father’s Estate and the original POA within 7 days upon completion. TAYY contended that the DFA and the SDFA are not title documents. TAYY refused to answer requisitions as to SSD and indicated that they would refuse to answer or deal with such requisitions unless RTML can show in law that the P is liable to pay such SSD.

(7)  On 16 August 2023, RTML insisted that TAYY should produce certified copies of the DFA and the SDFA pursuant to section 13(1)(b) of the Conveyancing and Property Ordinance (Cap 219) (the “CPO”). RTML further insisted the production of the original POA before completion.

(8)  On 18 August 2023, TAYY referred to paragraph 33(d) of the Stamp Office Interpretation and Practice Notes No.5 (Revised) and asserted that no SSD was chargeable. TAYY refused to provide full and unredacted certified copies of the DFA and the SDFA on grounds that they “have ceased or expired” because of the Assent.

(9)  On 29 August 2024 TAYY referred to Wong Suet Foon Shirly v Collector of Stamp Revenue[1]and refused to give undertaking as to liability to SSD. TAYY also stated, that the DFA and the SDFA did not pass any legal, equitable or beneficial interests in the Property and the Plaintiff’s title is derived from the Assent, not the DFA or the SDFA.

(10)  On 30 August 2023, RTML received a letter from the Inland Revenue Department, which explained that:

“Sections 29CA(11)(b) and 29DA(11)(b) of the [Stamp Duty Ordinance] provide that an agreement for sale or conveyance on sale is not chargeable with SSD if the residential property in respect of which the agreement or the conveyance made relates solely to the estate of a deceased person…”

(11)  On 14 September 2023, P offered to release certified copies of the full DFA and SDFA to D, subject to the undertaking by RTML and D to keep confidential the information contained in the DFA and the SDFA. On 20 September 2023, RTML refused to give such undertaking and took the position that the DFA and the SDFA form title documents under section 13 of the CPO.

(12)  On 17 September 2023, D inspected the property and discovered water seepage from the external wall.

(13)  On 18 September 2023, RTML sent over photos of the inspection and a quotation for repairs.

(14)  On 20 September 2024, TAYY asserted that P should not be liable for loss and damage from the water seepage as it was the responsibility of the incorporated owners.

(15)  Eventually, shortly before completion, Clause 10.2 was added into the FSPA, providing that any stamp duty payable would be payable by P as vendor.

(16)  On 21 September 2024, TAYY refused to: a) provide unredacted certified copies of the DFA and the SDFA; and b) to undertake to bear damages for rectifying the external wall issues.

10.  D did not proceed to completion by paying the balance of purchase price by 5 pm on 22 September 2023. On 22 September 2023 at 7:35pm, RTML purported to rescind the FSPA on the ground that P failed to answer requisitions and demanded the return of deposits totalling HK$638,000.

11.  On 25 September 2023, TAYY gave notice that P accepted D’s wrongful repudiation of the Agreement for Sale and Purchase and forfeited the deposits.

12.  D then commenced the District Court writ action DCCJ 4427/2023 against P on 11 October 2023, which was stayed pending the disposal of these proceedings.

Issues in Dispute

13.  D’s stance is that P failed to prove title and answer requisitions as:

(1)  P refused to provide the full unredacted DFA and SDFA, so that the Assent gave rise to title defect (the “Assent Issue”);

(2)  P failed to answer requisitions on whether SSD was payable on the Agreement for Sale and Purchase (the “Stamp Duty Issue”); and

(3)  there was water seepage (the “Water Seepage Issue”)

The Stamp Duty Issue

14.  It is curious that this was an issue at all since Clause 10.2 of the FSPA clearly provided that if P is liable to pay stamp duty for the FSPA or the PSPA, the liability is with P as the vendor. Mr Matthew Choi, counsel for P, accepted that if stamp duty is payable, P will be liable to pay such duty under Clause 10.2 of the FSPA. There is no utility in D demanding an agreement or confirmation from P that stamp duty was payable on the sale and purchase of the Property. Ms Mathilda Kwong, counsel for D, confirmed at the hearing that the Stamp Duty Issue was not the thrust of their complaint.

The Water Seepage Issue

15.  Clause 12.1 of the FSPA clearly provided that “Immediately after the signing of [the FSPA], the Property shall as between the Vendor and the Purchaser be at the Purchaser’s risk.”

16.  Clause 13.1 of the FSPA also provided that “The Purchaser confirms that he has inspected the Property prior to the entering into [the PSPA] … The Property is and will be sold on as ‘as is’ basis.”

17.  With the existence of these two clauses it is difficult to see on what basis could D assert that that the alleged water seepage constituted a title defect.

18.  Ms Kwong’s reliance on the cases concerning the obligation of an incorporated owners to manage common parts is misplaced, as this is not the scenario where there is already a mandatory building inspection notice issued before the entering into of the PSPA such that P ought to be responsible for the associated costs. This is something that happened to the Property (even assuming there was such water seepage) after the PSPA: “The general principle is well-recognised that as from the date of the contract for the sale of land, if anything happens to the estate between the time of sale and the time of completion, caused without the vendor’s fault, it is at the risk of the purchaser.”[2].

19.  There is no suggestion nor evidence pointing to the alleged water seepage having been caused due to P’s fault. No title defect arose out of the Water Seepage Issue.

The Assent Issue - Applicable Legal Principles

20.  Only the Assent Issue remains. The argument between parties lies in whether P failed to give good title by refusing to provide an unredacted copy of the DFA and the SDFA.

21.  Pursuant to section 13(1) of the CPO,

“(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the vendor, as proof of title to that land, only production of the Government lease relating to the land sold and—

(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 the period since that grant; or

(ii) in any other case, extending not less than 15 years before the contract 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;

(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.”

22.  It is trite that a vendor generally is obliged to show good title before completion and to give (or make) good title on completion. The first obligation is to show good title. In Hong Kong, this is done by the vendor sending the relevant documents themselves to the purchaser’s solicitors for perusal[3].

23.  The obligation to give or make a good title requires the vendor to show that he alone, or with the concurrence of some person or persons whose concurrence he can compel, can convey the whole legal estate and equitable interest in the land sold, free from encumbrances except for those disclosed by the contract. This is an implication arising from the obligation to make a good title: Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 3 HKLRD 757, 771A-C.

24.  A good title is one which can at all times and in all circumstances be forced upon an unwilling purchaser in an action for specific performance, but the court will not force a doubtful title on a purchaser: Kan Wing Yau & Anor v Hong Kong Housing Society [1988] 2 HKLR 187, 193G-H.

25.  A duty to give good title is distinct from the duty to show good title. It follows that a vendor who has a good title but failed to show good title by answering requisitions is still in breach of the agreement. A purchaser can still rescind in such circumstances: So Mariko v Tse Chun Chung John & Anor unrep, CACV 212/2010, 15 April 2011 at §29; Yuen Kwok Leung Eric & Anor v Ming Chor Pao & Anor [2021] HKCA 476 at §31.

Discussion

26.  Section 13(1)(a)(ii) and (b) of the CPO are applicable to the present dispute as the government lease was not less than 15 years before the contract of sale was entered into. Under these provisions, the vendor will need to provide:

(1)  The Government lease[4];

(2)  the contract 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;

(3)  any document referred to in the assignment, mortgage or charge mentioned in section 13(1)(a) of the CPO 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.

27.  There is no dispute that the Assent is required to be produced under section 13(1)(a)(ii) and it was duly produced.

28.  Ms Kwong submitted that the DFA and the SDFA were mentioned in the Assent and they created an interest, which is not shown to have ceased or expired and subject to which any part of that land is disposed of. As such, P was required as vendor to produce the DFA and the SDFA under section 13(1)(b).

29.  Mr Choi submitted that neither the DFA nor the SDFA created any interest. Alternatively, even if they did, the part in the DFA and the SDFA that the Property was the subject of have ceased or expired.

Creation/Disposal of Interest?

30.  Ms Kwong submitted that:

(1)  P’s beneficial interest in the Property does not come from the Will itself, but by operation of the DFA which creates an excess of her entitlement from the Will (from 25% to 50%) and the extinguishment of the entitlement by the 3^rd and 4^th Beneficiaries. The DFA thus varied the beneficial interest of the 4 Children.

(2)  The SDFA has further extinguished Dominic’s 50% interest in the Property and created and/or transferred that excess 50% shares onto P.

(3)  Therefore it was submitted that the DFA and the SDFA were clearly documents of title proving the chain of title from the intermediate root to the date of completion pursuant to section 13(1)(a) of the CPO and a failure to provide an unredacted certified copy of the DFA is a failure to show and to give good title.

31.  Mr Choi submitted that there was no “creation or disposal” of interests by virtue of the DFA and the SDFA. The DFA and the SDFA are simply agreements between the beneficiaries and are not documents which “create or dispose of any interest, power or obligation” in the Property.

32.  I am of the view that based on the case of Wong Suet Foon Shirly, the DFA and the SDFA did not create any interest:

(1)  In the case of Wong Suet Foon Shirly v Collector of Stamp Revenue[5] the issue was whether an assent from a deed of family arrangement was chargeable with ad valorem duty. In that case, the deceased died intestate, leaving 5 surviving children. The 5 children entered into a deed of family arrangement where it was agreed that 3 children would abandon their rights and interests in the property, leaving the property to the remaining 2 children. It was originally argued by the Inland Revenue Department that duty was chargeable as 60% of the property was in excess of the transferees’ entitlement on the estate, because but for the deed, the 2 remaining children would have been only entitled to 40% of the property.

(2)  The Court of Appeal in the judgment clearly, albeit by way of obiter, held that the deed was not chargeable as it evidently contemplated that there would be an execution of an assent to carry into effect” the deed[6]. This is the same as the present case, as Clause 2.03 of the DFA and Clause 2.01 of the SDFA also contemplated and provided for the vesting of all rights in the Property by way of assents.

(3)  Further, the Court of Appeal also endorsed the principle that “until the residue has been ascertained, the expectant beneficiaries of an intestate estate only have an entitlement to a chose in action, or an inchoate right, to compel administration of the estate. They have no entitlement to any beneficial interests in an unadministered estate.”[7]

(4)  Insofar as Ms Kwong’s reliance on Dr Lau Yue Chiu v Lau Kin Shun Freeman[8]for the proposition that a deed of family arrangement would confer beneficial interests upon the relevant parties to the arrangement, I am of the view that the case is distinguishable on the basis that the 8 fongs in that case had already taken possession of the properties, whereas in our present case there is no evidence that the conditions had been satisfied pursuant to the DFA and the SDFA until the time of the Assent.

(5)  I therefore reject the submission of Ms Kwong that the DFA and the SDFA had created or disposed of a beneficial interest.

33.  Even if I were wrong and if the DFA and the SDFA did create excess interest for P or dispose of interest of the other children, I am of the view that such interest under the DFA and the SDFA had in any event “ceased or expired” when the Assent was executed:

(1)  The DFA was an agreement between the 4 Children to settle the disputes between P and Dominic over the administration and distribution of the Father’s Estate and the Mother’s Estate.

(2)  It was provided that the appropriation and vesting of the Property would be carried out by way of an assent.

(3)  At the time when the DFA and the SDFA were entered into, at that point in time, conditions contained in the DFA and the SDFA had not yet been fulfilled and there was not yet an outright transfer of any beneficial interest to P by reason of the DFA or the SDFA alone.

(4)  I am of the view that transfer of both beneficial and legal interest took place when the Assent was executed. The parts concerning the Property in the DFA and the SDFA have thus already been carried out by way of and subsumed in the Assent.

34.  I am therefore of the view that the DFA and the SDFA do not fall within documents that need to be produced under section 13(1)(b) of the CPO.

35.  There is thus no obligation for P to provide the unredacted DFA or SDFA to D.

Risk of Encumbrance on Title?

36.  Ms Kwong submitted that the redacted parts of the DFA and the SDFA relate exclusively to the Property and the Purchaser is entitled to see the unredacted parts to ascertain if the redacted parts would create an encumbrance on title. It is said that there could be potential disputes arising out of the fact that appropriation of certain Property to P and Dominic may not have taken place in accordance with the provisions. It is said that this was a clear violation of the duty to show and give a good title and the existing evidence point strongly that there are real reasonable doubts as to the risks of encumbrances on title.

37.  It is also said that Dominic is only entitled to deal with and administer the Property in accordance with the Father’s Will upon completion of the payment of all administrative and funeral expenses. This is relevant to the capacity and authority of the Executor under the Father’s Will to deal with the Property. Nevertheless, the entire part is redacted and the Defendant cannot ascertain if Dominic’s authority is valid under the DFA.

38.  Clauses 6.1, 6.2 and 7 of the DFA are under the headings “Legal Costs and Expenses” and “The Interim Estate Accounts”; were redacted. Ms Kwong submitted that with the entire redaction of such expenses, D cannot ascertain if all balances of debts, liabilities, funeral and testamentary or administration expenses, duties, and legacies of the Father’s Estate have been duly paid such that the DFA attempting to deal with the Property is valid; and/or that such debts, liabilities, funeral and testamentary or administration expenses, duties, and legacies of the Father’s Estate will not be higher than that of the value of the Property of which the Father’s Estate will thereupon have an encumbrance on the Property.

39.  I do not accept that these “risks” are relevant and can be considered as giving rise to a defective title:

(1)  There is no dispute that the DFA and the SDFA were entered into to settle the disputes on the administration and distribution of both the Father’s Estate and the Mother’s Estate.

(2)  Recitals (5) and (6) of the Assent stated that the 4 Children agreed by the DFA and the SDFA that the Property should be vested in P solely and this was achieved by the Assent. Prima facie, this must indicate that the 4 Children were happy to transfer the Property to P. Without evidence to the contrary, D cannot point to some hypothetical or potential risk which is unsubstantiated and assert that there was thus a title defect.

Disposition and Costs

40.  Based on the above, the Originating Summons is hereby allowed with the following orders:

(1)  A declaration that the plaintiff has shown and proven a good title to FLAT E, 10^TH FLOOR of BLOCK D of GRANDVIEW GARDEN PHASE 2, BLOCK D in accordance with the agreement dated 20 July 2023 entered between the plaintiff and the defendant (the “Agreement”).

(2)  A declaration that the plaintiff has duly accepted the defendant’s repudiation and has effectively rescinded the Agreement, and the deposits of HK$638,000 were forfeited to P in accordance with the Agreement.

(3)  P do have costs of and occasioned by the Originating Summons to be taxed if not agreed on a nisi basis.