PRIVETT SPENCER JOHN v. KING SUCCESS LTD

DCCJ 3584 of 2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3584 OF 2006

------------------------

------------------------

------------------------

 JUDGMENT

------------------------

1.  This is an application by the Defendant pursuant to Order 14A of the Rules of District Court, Cap. 336.

2.  The issue is whether the Defendant - Vendor of property known as Flat A, 25^th Floor of Le Village, 49 Village Road, Hong Kong together with Car Park Space Number 6 on the 2^nd Floor (“the Property”) - had sufficiently and satisfactorily answered requisition on title raised by the Plaintiff Purchaser. In the Statement of Claim, the Plaintiff alleges that the Defendant failed to do so and prayed for, inter alia, return of  total deposit paid ($580,000, “the Deposit”) and damages. By its Defence and Counterclaim, the Defendant maintained the opposite, insisting that a good and sufficient title had been shown. The Defendant counterclaimed for, inter alia, declaration of the right to forfeit the Deposit, an order vacating registration in the Land Registry of the Writ of Summons against the Property and damages.

3.  The material facts are not in dispute. Counsels agree that it is appropriate to proceed under Order 14A. In my view, the issue really involves a question of law as to whether good and sufficient title had been shown (in answer to requisition raised). I join Counsels in their agreement.

4.  Counsels for both parties conducted their case in a robust and fair manner. Their arguments were forceful, crisp and to the point. I should make special mention of Mr. Liu Man Kin for the Plaintiff. He was ready to concede when he felt it fair and proper to do so. I express my thanks to both Counsels for their conduct of the case and the assistance they gave me.

5.  The question to be answered here is that recited under paragraph 1 of the Inter-Partes Summons, namely –

“whether by reason of the title deeds and documents together with the answers and the related materials provided to the Plaintiff’s solicitors in the Defendant’s solicitors’ letters dated 2^nd June to 9^th June 2006, the Defendant had sufficiently and satisfactorily answered the Plaintiff’s title requisition raised in the Plaintiff’s solicitor’s letter dated 29^th May 2006 on the validity of execution of the assignment Memorial No. UB6982015 and dated 24^th February 1997 purportedly by the attorney of the vendors thereunder pursuant to a power of attorney dated 1^st March 1995.”

6. I answer that question in the affirmative. The Plaintiff’s Claim is dismissed. I enter judgment for the Defendant against the Plaintiff for:

a)     A declaration that the Defendant has shown and given good title to the Property;

b)    A declaration that, by reason of the Plaintiff’s wrongful repudiation of the formal agreement made between the Plaintiff and the Defendant on 18^th May 2006 for the sale and purchase of the Property (“the Formal Agreement”), the Defendant is entitled to rescind the Formal Agreement and to forfeit the deposit in the sum of HK$580,000 paid by the Plaintiff;

c)     An order that the registration of the Writ of Summons herein against the Property in the Land Registry be vacated forthwith and

d)     Damages (and interest thereon) to be assessed. 

7.  I make an order nisi on costs in favour of the Defendant with certificate for Counsel, such costs are to be taxed if not agreed.

8.  I will now explain the reasons for my judgment. This is the appropriate time to state the material facts of the case:

a)      The relevant piece of land is known as Remaining Portion of Section B of Inland Lot No. 2559;

b)       A building stood on the Lot (“the Old Building”);

c)       Donor 1 and Donor 2 (known collectively hereinafter as “the Donors”) as tenants-in-common owned the ground floor plus portions of the basement and roof of the Old Building (amounting to 1/3 undivided share of the Old Building, “the Relevant Part”);

d)       By a power of attorney dated 1 March 1995 (“Power of Attorney”), the Donors appointed Donee as their attorney with the power to, inter alia, sell and dispose of the Relevant Part (see Bundle B page 177 to 184);

e)       By an Agreement of Sale and Purchase dated 31 December 1996 (“the Agreement of Sale and Purchase”, Bundle B page 163 to 176), the Donors sold the Relevant Part to Jade Castle Enterprises Limited (“Jade Castle”). The Agreement of Sale and Purchase was signed by Donee as attorney for the Donors;

f)        Messrs. Gallant Y.T. Ho & Co. (“Gallant Ho”), solicitors, represented Jade Castle in the completion of purchase of the Relevant Part. Messrs. P.C. Woo & Co. (“PC Woo”), solicitors, represented the vendor;

g)       By a letter dated 14 January 1997, Gallant Ho asked whether the Donors or Donee would be prepared to give a statutory declaration to prove that the Power of Attorney was still valid and effective (“Gallant Ho Letter”, Bundle B page 130);

h)       By a letter dated 18 January 1997, PC Woo replied, inter alia, that they had instructions from “our client” that the Power of Attorney was still valid and effective. PC Woo went on to make reference to Section 5(4)(b) of the Powers of Attorney Ordinance (“the Ordinance”), Cap.31, advising that Jade Castle should be the one making the statutory declaration within the specified time to establish ignorance of any revocation (of the Power of Attorney). PC Woo went on to say that Donee would not give a statutory declaration (“PC Woo Letter”, Bundle B page 131 and 132).

[I digress to mention that Section 5(2) of the Ordinance provides “Where a power of attorney has been revoked and a person, without knowledge of the revocation, deals with the donee of the power, the transaction between them shall, in favour of that person, be as valid as if the power had been in existence. Section 5(4) provides “Where the interest of a purchaser depends on whether a transaction between the donee of a power of attorney and another person was valid by virtue of section (2), it shall be conclusively presumed in favour of the purchaser that that person did not at the material time know of the revocation of the power if - …(b) that person makes a statutory declaration, before or within three months after the completion of the purchase, that he did not at the material time know of the revocation of the power”];  

i)      By a letter dated 14 February 1997, the Donors gave instructions to PC Woo on how to deal with the proceeds of sale of the Relevant Part (“Letter of Instructions from Donors”, Bundle page 159);

j)      The Assignment between the Donors and Jade Castle was registered in the Land Registry by Memorial Number 6982015 (“the Assignment”, Bundle B page 155 to 158). The Assignment was signed on 24 February 1997 by Donee as attorney of the Donors;

k)     By a subsequent assignment dated 3 February 1998, the Relevant Part was assigned by Jade Castle to the Defendant (Bundle B page 134 to 152);

l)      By a statutory declaration of 15 February 2000, Jade Castle declared that at no time did they know of any revocation of the Power of Attorney (“Jade Declaration”, Bundle B page 127 to 133);

m)    The Defendant acquired the remaining parts of the Old Building. The Old Building was demolished and replaced by another building (“the New Building”);

n)     The New Building consisted of a number of flats and car park spaces including the Property;

o)     By a provisional sale and purchase agreement dated 30 April 2006, the Plaintiff agreed to buy and the Defendant agreed to sell the Property (Bundle B page 49 to 50);

p)     The Plaintiff and the Defendant entered into the Formal Agreement on 18 May 2006 (Bundle B page 53 to73) with completion date in June 2006;

q)     The Defendant was bound to show a good title;

r)      Messrs. Haldanes (“Haldanes”), solicitors, represented the Plaintiff in completion of the purchase. Messrs. Y.T. Chan & Co. (“YT Chan”), solicitors, represented the Defendant vendor;

s)      YT Chan sent to Haldanes various documents including certified copies of title deeds, the Power of Attorney, the Agreement of Sale and Purchase, Gallant Ho Letter, PC Woo Letter, Letter of Instructions from Donors and Jade Declaration;

t)      Haldanes requisitioned, inter alia, regarding the Power of Attorney. Haldanes wanted proof that the Power of Attorney had not been revoked (the present application is only concerned with this particular requisition);

u)     YT Chan and Haldanes exchanged correspondence on the matter of the Power of Attorney (and other matters relating to title, Bundle B page 73 to 114);

v)     YT Chan maintained that based on the Power of Attorney, Gallant Ho Letter, PC Woo Letter, Letter of Instructions from Donors and Jade Declaration as well as the fact that some 9 years had passed since assignment to Jade Castle (see subparagraph j), a good and sufficient title had been shown. YT Chan also maintained that since the New Building had been erected, the case of Lau Siu Ying v Wong Cheung Tai, MP669 of 1993, indicated that there could not be a successful challenge to title by the Donors or those claiming under them (see in particular Bundle B pages 84 to 85, 87 to 88 and 101 to 102) and

w)   There was no completion and litigation commenced (see paragraph 2 above).

9.  Parties agree that the burden of proving title rests on the Defendant. In this context, the only issue is whether the Defendant had proved non-revocation of the Power of Attorney. In the course of communicating with YT Chan over this, Haldanes by a letter dated 9 June 2006 (Bundle B page 99 to 100) wrote to the effect that they did not see the PC Woo Letter and the Letter of Instructions from Donors (see paragraph 8 h) and i) above) “as satisfactory evidence to prove non-revocation of the Power of Attorney, since these two letters can prove that up to 14^th February 1997 (10 days before the execution of the Assignment), there was no revocation. However, neither…can serve as evidence showing that at the time of the Assignment (i.e. 24^th February 1997), the Power of Attorney has not been revoked.” Mr. Liu conceded that because of this response of Haldanes, the sole issue is narrowed down to whether the Defendant has shown non-revocation of the Power of Attorney for the period 15 to 24 February 1997 when the Assignment was executed by Donee.

10.  Parties are also agreed, rightly I think, that in proving title the Defendant is not confined to solely relying on provisions of the Ordinance but can rely on circumstantial evidence (e.g. PC Woo Letter and Letter of Instructions from Donors).

11.  Defendant Vendor’s Burden and Standard of Proof

The Defendant has to show in answer to the requisition a good and sufficient title. As explained in the preceding paragraph, the sole issue here is a very narrow one. We are concerned with a period of 10 days from 15 to 24 February 1997 (“the Period”).

12. “A good title does not mean a perfect title, free from every possible blemish.Whenever a question like this arises, it must be approached from the standpoint of a willing purchaser and a willing vendor, both possessed of reasonably robust common sense, both intending to see the transaction through to completion in terms of their bargain” per Litton PJ in Mexon Holdings v Silver Bay International Ltd. (2003) 3 HKCFAR 109, 117 (the question in the case was whether the unauthorised partitioning of a floor in a building constituted a title defect).

13.  “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. A doubtful title includes not only a title on which the court entertains doubts, but also one in respect of which the court entertains a favourable opinion but may yet be reasonably and fairly questioned by other competent persons. In this connection the court bears in mind that its decision binds the parties but not other adverse claimants who are not parties to the proceedings. A purchaser will not therefore be forced to take a title which will expose him to risk of hazard…” see Kan Wing-yau v Hong Kong Housing Society (1988) 2 HKLR 187, 193.

14.  “…if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title shown”:  M.E.P.C. Ltd. v Christian-Edwards and others (1981) AC 205, 220. This test has been adopted  by the Court of Final Appeal in such cases as Kan Wing-yau v Hong Kong Housing Society (1988) 2 HKLR 187 and Chi Kit Co. Ltd. v Lucky Healthy International Enterprise Ltd. (2000) 3 HKCFAR 268. See also the Court of Appeal in Tang Ying Ki v Maxtime Transportation Ltd. (1996) 3 HKC 257 and Spark Rich (China) Ltd. v Valrose Ltd. (2006) 2 HKC 589.

15.  Godfrey JA in Spark Rich (China) Ltd., supra, at page 598 said : “It is impossible to formulate any test as what is a real risk and what is a risk which is not real…the burden of showing a good title falls on the shoulders of the vendor. He must, therefore…satisfy the purchaser (or, failing him, the court) that the risk of such action is one which a purchaser can safely be advised to disregard...So the test may be usefully framed as follows: If the purchaser asks his solicitor: ‘Can I be sure that I can safely disregard the risk?’ then, unless his solicitor (being a prudent and experienced solicitor) can properly advise him that he can, the purchaser cannot be obliged to accept the vendor’s title…” In the circumstances of the case before him, Godfrey JA considered that a prudent and experienced solicitor might hold the view that “it was more probable than not that such action would not be taken; he might perhaps add that the risk was small. But he could not properly exclude the possibility altogether: he could not advise the purchaser that he could be sure the risk could safely be disregarded.”

(I do not think Godfrey JA was propounding a test different from that stated in paragraphs 9 to 11 above. It is just a case of the same wine in a different bottle. I note that both M.E.P.C. Ltd. (supra) and Kan Wing-yau (supra) were adopted by the learned judge. I do not think it relevant for present purposes that the case was concerned illegal or unauthorised structures.)

16. The Plaintiff insisted that the Defendant failed to prove that during the Period the Power of Attorney had not been revoked by the Donors themselves or by operation of law (e.g. death or bankruptcy of the Donors). I conclude the risk of a successful challenge to title in this case by the Donors or those taking under them (e.g. personal representative or trustee in bankruptcy) to be fanciful and can be ignored altogether. In arriving at this conclusion, I took into account the following:

a)      Haldanes accepted that the Defendant succeeded  in proving the Power of Attorney was valid up to 14 February 1997. It was only in relation to the succeeding 10 days that the question of revocation reared its head. There is no perfection or certainty in life and the law does not so demand. I consider the chance or risk of the Power of Attorney being revoked by the Donors or by operation of law during those 10 days illusory so that it can be safely ignored;

b)      Some 9 years have passed since the Assignment. The Old Building had been torn down and replaced by the New Building. No one has ever come forward to challenge title.

An absence of complaint against title for 50 to 60 years did not deter the local Court of Appeal in Tang Ying Ki, supra, from finding that title had not been proved. In Spark Rich (China) Ltd., supra, the Court of Appeal concluded that the fact the Building Authority had not taken action against unauthorised or illegal structures for some 40 years did not mean a good title had been shown. I accept the submission of Mr. Au for the Defendant that these cases (and others like Aberdeen Town Council v Aberdeen University et al (1877) 2 App Cas 544 and In re Sherman, decd. et al (1954) Ch 653) can be distinguished on the basis that they involved clear blots on title. Tang Ying Ki, supra, involved a mortgagee selling to himself the mortgaged property in circumstances not authorised by the law.  Spark Rich (China) Ltd., supra, involved unauthorised or illegal structures; and

c)      Most importantly, Donee had authority under the Power of Attorney to enter into the Agreement of Sale and Purchase (see paragraph 8 e) above. The Plaintiff, through Haldanes, accepted that the Power of Attorney had been proved to be valid to a date beyond the date of the Agreement of Sale and Purchase). In such circumstances, I cannot see how the Donors or anyone taking under them can successfully challenge the Assignment.

17.  In the course of argument, Mr. Au referred to the case of Lau Siu Ying v Wong Cheung Tai, MP669 of 1993, as a further or alternative ground in submitting that there was no real risk of any successful challenge to title. This was on the basis that the Old Building had been demolished and replaced by the New Building containing a number of flats with new owners.

18.  Lau Siu Ying, supra, was concerned with trust property comprising 2 lots of land with an old building. The Trustees transferred the 2 lots. “…the entity of the landed interest had undergone a drastic change. Instead of an old building standing on the two lots of land, a new building consisting of a number of flats has since December 1991 been standing on the two lots and five other lots of land. The subject of the landed interest has been mingled with that of the other five Crown leases and the identity of the building which stood on the subject of the Landed interest had disappeared”  (see paragraph 15 of the judgment). The plaintiff vendor sold one of the flats (“the Flat”) and the defendant purchaser requisitioned on title. The Court had to decide whether there was a real or only a fanciful risk that the title to the Flat would be attacked and attacked successfully (by beneficiaries of the trust).

19.  The Court held that the risk was fanciful and went on to hold that the plaintiff vendor had shown a good title. In arriving at this conclusion, the Court considered that

a) In the circumstances of the case, the beneficiaries’ right to challenge the transfer must be already barred;

b) For over 30 years there had been no claim by any of the beneficiaries; and

c) “…the entity of the landed interest had undergone a drastic change…” (see paragraph 18 above). The Court felt that if the beneficiaries could successfully challenge the transfer then “Third party interests would be affected, and these interests are not limited to those of the developer and the present plaintiffs, but also those of the owners of all other flats in the new building” (see paragraph 15 of the judgment).

The Court went on to hold that Equity would not permit the right of tracing to be exercised where the effect would be to work an injustice or create practical problems. The Court considered that if title to the Flat was allowed to be interfered with by the beneficiaries, there could not be a just practical solution. It was felt that no court would enforce the beneficiaries’ charge by ordering sale of all the flats in the new building contrary to the wishes of flat owners oblivious of any possible attack on title. The Court also felt insurmountable the problem of estimating the value of the beneficiaries’ charge on the land as a share of the proceeds of sale of the new building. 

20.  I think the decision of Lau Siu Ying, supra, must be read in the light of its own particular facts. I do not consider it authority for saying that where a new building is erected on land with third party interests involved (e.g. flat owners oblivious of any possible attack on title), then there cannot be any successful attack on title.  I cannot help but note that Mr. Au did not pursue this further or alternative argument with anything approaching fervour.

21.  Other points and arguments were put forward during the hearing before me. I do not think it necessary to deal with them.