ZHANG XUESHUAI v. LAI MOON WING

DCMP 2400/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2400 OF 2012

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JUDGMENT

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1. This is a vendor-purchaser summons taken out by the plaintiff against the defendant for the following reliefs:-

(1)    a declaration that the defendant has failed to answer or alternatively failed to satisfactorily answer a requisition contained in a letter dated 23 February 2012 from the plaintiff’s solicitors to the defendant’s solicitors, as repeated in divers letters dated 28 March 2012, 3 April 2012, 10 April 2012 and 18 April 2012 from the plaintiff’s solicitors to the defendant’s solicitors (“the said Requisition”);

(2)    further or alternatively, a declaration that the defendant has failed to prove and show good title to the Property in accordance with Clause 14 of the Agreement on any or all of the grounds set out in the aforesaid letters;

(3)    further or alternatively, a declaration that the defendant has failed to give good title to the Property in accordance with Clause 14(1) of the Agreement on any or all of the grounds set out in the aforesaid letters;

(4)    further or alternatively, a declaration that, the defendant having failed to answer or alternatively failed to satisfactorily answer the requisitions as aforesaid, the plaintiff was entitled to determine and did effectively determine the Agreement;

(5)    further or alternatively, a declaration that, the defendant having failed to prove and show good title to the Property in accordance with Clause 14(1) of the Agreement as aforesaid, the plaintiff was entitled to determine and did determine the Agreement;

(6)    further or alternatively, a declaration that, the defendant having failed to give good title to the Property as aforesaid, the plaintiff was entitled to determine and did effectively determine the Agreement;

(7)    an order that the defendant:-

(a)    pay to the plaintiff the sum of HK$220,000 being the deposits paid by the plaintiff to the defendant for the purchase of the Property and interest thereon under section 49 of the District Court Ordinance (Cap 336);

(b)   Pay to the plaintiff the costs of and incidental to this application; and

(8)    further or alternatively, such further or other relief as this Honourable Court shall deem fit.

2. On 10 February 2012, the plaintiff and the defendant entered into a formal sale and purchase agreement (“the Agreement”) in respect of  the premises known as Flat 4, 6^th Floor, Block G, Yuk Po Court, No 10, Choi Yuen Road, Sheung Shui, New Territories (“the Property”) at a consideration of $2,200,000.  Completion was to take place on 12 April 2012.  The plaintiff had paid a deposit of $210,000 upon the Agreement.  An initial deposit of $10,000 was paid by the plaintiff upon the signing of the provisional agreement of the sale and purchase of the Property.

3. On 20 February 2012, the defendant’s solicitors sent the relevant title deeds and documents to the plaintiff’s solicitor.  In its letter dated 23 February 2012, the plaintiff’s solicitors raised a number of requisitions concerning the title of the Property.  One of the requisitions concerns certain missing title deeds and the plaintiff’s solicitors requested that an original Statutory Declaration be made by the defendant concerning the missing title deeds.  The missing title deeds are:-

(1)    Cancellation Agreement dated 25 August 2006, which was registered on 13 September 2006;

(2)    Sealed Copy Charging Order: Notice to Show Cause dated 13 December 2006, registered on 21 December 2006 (“the 1^st  Charging Order”);

(3)    Sealed Copy Charging Order Absolute dated 17 January 2007, registered on 15 February 2007 (“the 2^nd Charging Order”); and

(4)    Amended Sealed Copy of Order dated 24 March 2011, registered on 23 May 2011 (“the Discharge Order”).

4. An agreement for sale and purchase effecting the sale of the Property to one Currency Fortune Property & Finance Limited was registered on 25 March 2004.  A cancellation agreement (dated 25 August 2006) of the transaction was registered.  An agreement for sale and purchase (dated 25 August 2006) effecting the sale of the Property to one Currency United Property & Investment Limited was registered on the same day.

5. In September 2006, the mentally incapacitated person (“the MIP”) was diagnosed and confirmed to be mentally incapacitated.

6. On 13 December 2006, there was a judgment against the MIP and the 1^st Charging Order was made against the Property.  It was made absolute on 17 January 2007.  On 23 May 2011, an amended sealed copy of order discharging the abovementioned Charging Order was registered.

7. By a letter dated 26 March 2012, the defendant’s solicitors gave a draft Statutory Declaration for the perusal and approval of the plaintiff’s solicitors.  By a letter dated 28 March 2012, the plaintiff’s solicitors informed the defendant’s solicitors that they were not satisfied with the draft Statutory Declaration, stating that it was not an adequate explanation as to why the originals could not be handed over.  The Statutory Declaration could not provide adequate explanation because the declarant, namely Lai Chan Wing, never had possession of the original title deeds and it is not correct to say in the declaration that “I have not deposited the title deeds and documents of the Property or pledged the same by way of security”.  Further, the declarant had only enquired with the MIP regarding the whereabouts of the original of title deed but was unable to obtain a clear and rational answer.  Hence, it was not an adequate explanation as to why the originals could not be handed over.

8. In a reply dated 2 April 2012, the defendant’s solicitor made reference to the Order made by Mr Justice Fung dated 1 September 2011 that the reading of the said Order together with the draft Statutory Declaration would give a full explanation of the missing deeds.

9. By a letter dated 3 April 2012, the plaintiff’s solicitors pointed out to the defendant’s solicitors that the said Order was only an authority that the Vendor was authorized to make a statutory declaration in respect of the missing title deeds, but not anything else.

10. The defendant’s solicitors replied by letter on 10 April 2012, enclosing with a revised Statutory Declaration made by the defendant  stating that the defendant had performed a proper investigation with his best endeavor and had explained sufficiently how the title deeds came to be missing.  Hence, the requisition raised by the plaintiff’s solicitors had been satisfactorily answered and the defendant’s solicitors urged the completion to take place on 19 April 2012.  On the same day, the plaintiff’s solicitors wrote to the defendant’s solicitors, stating why the produced Statutory Declaration was still not sufficient to satisfactorily answer the raised requisition:-

“(1) After the release of previous mortgage on 14 May 1999, the whole title deeds and documents shall be delivered to the MIP for his custody. Hence, Easy Fortune Property Limited was not the only reasonable party who may be in possession of the title deeds as stated under para 9 of the produced Statutory Declaration.

(2) MIP had entered into two Agreements for Sale and Purchase with two different finance companies on 5 March 2004 and 25 August 2006 respectively. Both Agreements were duly signed by MIP without any evidence to indicate the mental incapacity. The Agreement executed on 25 August 2006, which was just a few days before the MIP was claimed to have diagnosed and confirmed to be mentally incapacitated in or about September 2006.

(3) It was clearly indicated that there was no mortgage/legal charge was attached to the Property, ie no other person, except the MIP, was in possession of the title deeds at that material time.

(4) Upon perusal of the Sealed Order in favour of Easy Fortune Property Limited, it is clear that the MIP have involved into several debts with finance companies with amount of over HK$303,000.

(5) Based on the aforementioned, there is no doubt that :

(a) After May 1999, it is highly possible that the MIP was in possession of the title deeds of the Property;

(b) From March 2004 to August 2006, there was clear evidence to show that the MIP have had intention to sell the Property and might aim to settle all his debts; and

(c) It is highly possible that, in order to settle his then debts, the MIP has deposited the title deeds and documents of the Property or pledged the same by way of security in favour of any person or financial companies.

We thus opine that the draft Statutory Declaration is insufficient to explain the doubt regarding the whereabouts of the original of title deed.  We also opine that there is real and reasonable risk in that the Property is subject to an equitable mortgage which in the possession of the original title deeds.”

11. On 16 April 2012, the defendant’s solicitors produced a revised draft Statutory Declaration.  On 18 April 2012, the plaintiff’s solicitors replied to the defendant’s solicitors that the said Statutory Declaration was still not sufficient to explain the doubt regarding the whereabouts of the original of title deeds and that there is no real and reasonable risk in that the Property is not subject to an equitable mortgage which in the possession of the original title deeds.

12. On 18 April 2012, the defendant’s solicitors provided a letter of Mayer Brown JSM dated 10 April 2012, confirming that Mayer Brown JSM had not retained any title deeds and documents in respect of the Property.  The plaintiff’s solicitors immediately replied to the defendant’s solicitors that the letter did not assist in solving the doubts raised.  The letter only emphasized the fact that the original of title deeds had been returned to the MIP on 21 July 1999 but no further.  Hence, the doubt still exists.

13. On 19 April 2012, the plaintiff’s solicitors sent a letter to the defendant’s solicitors, stating that the vendor (defendant) had failed to give a good title to the Property pursuant to Clause 14(a) of the Agreement, and s 13 and 13A of the Conveyancing and Property Ordinance (Cap 219) (“the Agreement”).  Hence, in accordance with Clause 21 of the Agreement, the paid deposit shall be returned to the plaintiff.  On the same day, the defendant’s solicitors sent a letter to the plaintiff’s solicitors, stating that the plaintiff had failed to complete the transaction, and hence, the plaintiff had been in breach of the Agreement and the defendant shall forfeit the paid deposit of HK$220,000.

The duty to show good title

14. It is the duty of the vendor (the defendant) to show good title.  This includes the duty to answer requisitions reasonably raised by the purchaser. In Chen Paul v Lord Energy Ltd (HCA 7124/1991), the court stated that :-

“It has to be borne in mind that at the requisition stage, the obligation is upon the Vendors to show good title by satisfactorily answering requisitions irrespective of the Vendors’ ability to pass good title on the date for completion.”

15. The following three of the title documents being dated before 2008, the MIP was the person who had custody of them rather than the defendant:-

(1)    Cancellation Agreement dated 25 August, 2006, registered on 13 September 2006;

(2)    Sealed copy Charging Order: Notice to show cause dated 13 December 2006, registered on 21 December, 2006 (the 1^st Charging Order); and

(3)    Sealed copy of Charging Order Absolute dated 17 January 2007, registered on 15 February 2007.

In Yiu Ping Fong & Another v Lam Lai Hung [1999] 1 HKLRD 793 at 799H, the Court said:-

“The purpose of the statutory declaration accompanying a missing title deed is to explain the circumstances in which the deed was lost and to show how the person who ought to have custody of it could not find it despite proper endevours. The vendor here can only say that she personally never had the original 1986 assignment. She cannot of her own knowledge explain the circumstances of the loss because she was not the person who had custody of it. That was Chiu, and as I have held, there was no valid statutory declaration made by Chiu.”

16. The defendant became the Committee of the MIP under a court order in 2008.  But he was unable to tell how the four title documents in question had came to be missing in his Statutory Declaration.  He could only say that he “had made numerous enquiries with him in relation to the whereabouts of the title deeds of the Property, but was unable to obtain a rational answer.”

17. In his submission, the defendant’s counsel argues that:-

“64. In all the circumstances of the present case, Lai Chan Wing was the appropriate person to make the Statutory Declaration and the content of the Statutory Declaration was clear, cogent and sufficient.

65. It is important to bear in mind Lai Chan Wing was appointed the Committee of the estate of Lai Moon Wing (ie the registered owner of the Property) as early as on 20 March 2008 when Lai Moon Wing was adjudged Mentally Incapacitated Person who was incapable of managing and administering his property (including the Property) and affairs… … …. And under para. 7 of the Order of Hon Fung J, Lai Chan Wing was :-

empowered to take such steps as it deems necessary or appropriate to ascertain and verify the extent of LMW’s assets in Hong Kong and elsewhere (including assets owned jointly with others) and be authorized to make such enquiries in the name of LMW and on his behalf as it considers appropriate for such purpose.

And later on 1 September 2011, the Court further authorized Lai Chan Wing as Committee to sell the Property and make the Statutory Declaration of Lost of deeds [BD369-373].

In the premise, there is no doubt that Lai Chan Wing was the person who had custody (as an alter ego of Lai Moon Wing) or ought to have custody of the lost deeds.

It does not matter (contrary to the plaintiff’s contention) whether Lai Chan Wing had ever had physical possession of the originals so long as he could (of his own knowledge) explain the circumstances in which the deeds were lost and he could not find them despite proper endeavours, like what he did in the Statutory Declaration.” 

Para 66 of the submission is wrong.  Lai Chan Wing in fact did not have physical possession of the missing title deeds. There is no basis to say that he ought to have custody of the lost deeds.  In respect of para 67, the 1^st Agreement and the 2^nd Agreement were prepared by the firm of solicitors Lan Chan & Ko.  There is no evidence that the defendant make enquiry with that firm.  It is not known whether that firm did or did not have the originals of those title documents.  So the defendant did not make proper effort to locate the missing title deeds.  What he said in the Statutory Declaration in this respect is not correct.

18. A statutory declaration requires the person who is last known to have had possession of the document to explain, to the best of his ability, how the document has come to be lost or destroyed (Hong Kong Conveyancing Law and Practice 1(A), VI [106]).  The defendant has never had the missing title documents in possession before and so he could not tell how the title documents have come to be missing with firsthand knowledge.  Hence, his Statutory Declaration is invalid as he has failed to fulfill of adducing the secondary evidence.  Hence his Statutory Declaration is inadequate.  It cannot provide evidential value in relation to proving and giving good title as he is not the appropriate person to make the Statutory Declaration.

19. In respect of the loss of the missing title documents, the defendant only said that he had no idea where the title documents are, although he had conducted an exhaustive search.  Due to his failure to provide a clear and cogent explanation about the loss of the title documents, the plaintiff is entitled not to complete the transaction.

Whether the defendant can give good title to the Property.

20. By operation of s 13 of the Conveyancing and Property Ordinance, the vendor needs to show title to the purchaser by producing all necessary documents. This requires the vendor to hand over the original documents and if not possible, an adequate explanation must be provided in a form of conveyancing evidence, ie, Statutory Declaration.

21. The defendant gave notice that he is unable to produce the missing title documents on completion.  Therefore, the plaintiff is entitled to examine whether there is any sufficient conveyancing evidence regarding their loss.  In Yiu Ping Fong, Yuen J (as she then was) stated that:-

“A purchaser of land is entitle as a matter of proprietary right to possession of the original title deeds, Williams on Title (4^th ed) at p 547, which is the best evidence of ownership.

Further, it is important for him to get possession of the original title deeds so that he can be sure that the property is not subject to an equitable mortgage by deposit of title deeds. If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (see Emmet on Title, §5.147).

Where, therefore, as in this case, the vendor has given notice that she would not be able to produce the original 1986 assignment on completion, it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain its loss.”

The defendant has only provided an invalid statutory declaration because he is unable to produce the original title documents. Therefore, the loss of the title document is lack of supportive explanation. It is a fundamental blot on the title to the Property.  He cannot fulfil his obligation as a vendor.  Hence the plaintiff is entitled not to complete the Agreement.

22. Due to the aforesaid reasons, I dismiss the reliefs sought by the defendant.  I make an order in terms of paragraphs (1) to (6) of the summons.  I order that the defendant do return to the plaintiff the deposits of HK$220,000, paid by the plaintiff for the purchase of the Property, with interests thereon, at judgment rate, commencing from 27 April 2012, until payment.

Costs

23. I make an order nisi for costs that the defendant do pay costs of and incidental to this application (including all costs reserved), to be taxed, if not agreed, with certificate for Counsel.