LIU TAK KIN AND ANOTHER v. CHAN YIU KAI AND ANOTHER

H.C.M.P. No. 1825 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MICELLANEOUS PROCEEDINGS NO. 1825 OF 1998

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J U D G M E N T

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Introduction

1. This is a vendor-purchaser summons taken out by the Plaintiffs (purchasers). By a written sale and purchase agreement dated 30 April, 1997, the Plaintiffs agreed to purchase and the Defendants agreed to sell the property referred to in the title of this action ("the suit property"). Mr. Lee for the Plaintiffs agreed that the suit property was part of a village type house with one unit on each floor. Completion of this transaction was scheduled to be on 30 September, 1997.

2. Several clauses in the agreement are relevant to this action:-

(a) Clause 4(a)

"The [Defendants] shall make a good title to the [suit property] at his expense and at the like expense shall make and furnish the [Plaintiffs] with such certified copies of any deeds or documents of title wills and matters of public record as may be necessary to complete such title .... ";

(b) Clause 14

"Time shall in every respect be of the essence of this Agreement.".

3. By the time of the hearing before me, 3 requisitions are still in dispute:-

(a) whether the Defendants should have furnished certified copies of the consent letter from the District Officer;

(b) whether the Defendants should have registered the certificate of compliance;

(c) whether the Defendants should have rectified the Assignment dated 2 February, 1996.

The Law

4. It seems that there is no dispute between the parties as to the applicable principles in law. In any event, I find the following to be the correct legal propositions relevant to the determination of this action:-

(a) there was a duty on the part of the Defendants, as vendors, not only to show good title but also to answer reasonable and relevant requisitions satisfactorily within a reasonable time, and in any event before completion: see, for example, Koh Chong-ho v. Double Value Development Ltd. [1993] 2 H.K.L.R. 423, 432; Active Keen Industries Ltd. v. Fok Chi-keong [1994] 1 H.K.L.R. 396, 405;

(b) there was a duty on the part of the Defendants as vendors to produce certified copies of documents necessary for proving the chain of title: clause 4(a) of the agreement and s. 13, Conveyancing and Property Ordinance, Cap. 219;

(c) there was a duty on the part of the Plaintiffs, as purchasers, to raise requisitions which have substance. They must also be formulated with reasonable precision if they were to be effective: see Chan Chik Sum v. Great Pearl Ltd. [1997] 1 H.K.C. 27, 32B to F and 33B to D.

Requisition 1: Certified Copies of Consent Letters

5. The Lot over which the suit property was built was granted by Government by a New Grant No. 5965 to the then assignees, the Defendants' predecessors in title. No Government Lease (formerly called Crown Lease) was executed but there was an "Agreement & Condition of Grant" executed by the Land Officer (pp. 117-28, Bundle of Affirmations). Special Condition No. 3 of the Conditions of Grant provided inter alia the grantee should not, within 5 years of the issue of the Compliance Certificate, assign or otherwise dispose of the Lot or any interest therein except with the prior consent of the District Officer and in compliance with any conditions he may impose, including the payment of premium.

6. The Letter of Compliance was dated 8 May, 1978. The 5-year period referred to above would expire by 8 May, 1983. According to the records in the District Lands Office, there was an assignment executed by the then assignees in April, 1979. There would therefore be a need for consent from the District Officer regarding this transaction.

7. There was a series of correspondence passing between the respective solicitors acting for the Plaintiffs and the Defendants relating to this. The Plaintiffs' solicitors insisted the Defendants should provide a certified copy of the Consent Letter from the District Officer. On the other hand, the Defendants' solicitors responded that they only needed to give a satisfactory answer to this requisition and to provide "sufficient conveyancing evidence". They contended, as Mr. Tam also did, they had done so by sending on 30 September, 1997 to the Plaintiffs' solicitors faxed copies of letters from the District Officer confirming consent had been given and premium had been paid (pp. 70-3 and pp. 157-8, Bundle of Affirmations). The Defendants' solicitors further undertook to provide the certified copies of the documents upon receipt.

8. Mr. Lee for the Plaintiffs submitted it is not enough to provide "sufficient conveyancing evidence". He submitted that apart from a duty to answer requisitions satisfactorily, the Defendants have a separate duty to show good title. At common law, the Defendants would have to do so by producing the title documents for examination: see Emmet on Title, Vol. 1, para. 5.090; Farrand: Contract and Conveyance 4th ed., pp. 125-6; Barnsley's Conveyancing Law and practice 4th ed., pp. 286-7. The object of examining the original documents has been set out in Barnsley, pp. 358-60. Mr. Lee submitted that in the present case, the Defendants' duty has been reduced by virtue of Clause 4(a) of the agreement but they still needed to provide certified copies of the relevant documents.

9. In Ng Chek-kok v. Kiu Wai-ming [1992] 1 HKLR 5, the Court of Appeal observed that a vendor is under a duty to "show" good title (by production of copies of all documents relating to his good title) and a duty to "make" good title (by proving it as a matter of evidence) (see p. 15 of the law reports). I consider that this "requisition" of the Plaintiffs was related to the duty of the Defendants to "show" good title and could only be discharged by the production of the original title documents (at common law) or their certified copies (as stipulated in Clause 4(a) of the agreement). I also agree with Mr. Lee's submissions that faxed copies, being secondary evidence, are inadequate. This is because there has not been any suggestion that the original documents were missing or had been lost so that secondary evidence can be relied upon: see Emmet, Vol. 1, para. 5.091; Yeung Dallah Rudia v. Copiluck Ltd. [1992] 2 HKC 575, 578D-H. In relation to such a document, therefore, it is not a sufficient answer to say that "sufficient conveyancing evidence" has been provided or to give an undertaking to provide a certified copy after the transaction has been completed.

10. In relation to the last point, Mr. Tam did not seek to argue that the vendor's duty to show title must be met by the time of completion in an ordinary case: see also the Ng Chek-kok case at pp. 14 and 15; Williams on Title 4th ed., p. 757; Barnsley 4th ed., p. 441; Emmet, Vol. 1, para. 8.011. However, he submitted that completion by way of undertaking (in place of formal completion) has been a common practice of Hong Kong conveyancers and that the time for proving good title was also extended because of this. I do not find that this assists the Defendants at all.

11. First, Mr. Lee drew my attention to Chong Kai Tai Ringo v. Lee Gee Kee [1996] 1 HKC 105, 114E-116A (in the C.A.) and [1997] HKLRD 462 (in the P.C.). The Courts decided that there was no express or implied term to enable the parties to depart from formal completion. Mr. Tam did not seek to adduce any evidence that the written agreement in this case had been varied by trade custom and the like. I certainly do not regard the relevant Law Society Circular (or the widespread practice to follow it) could be incorporated as an implied term of this agreement. I therefore do not consider that completion by undertaking was part of the agreement.

12. Secondly, even if completion by undertaking be applicable to this transaction, I do not find that it affects the time by which the Defendants had to prove their title. This is because "completion by undertaking" only relates to the supply by the vendor's solicitors of assignments and other necessary documents to be executed by the vendors and nothing else. That this was the intention of the practice can be inferred from what was stated in para. 3, 6 and 8 of Law Society Circular No. 91/82. These paragraphs stated that:-

"3. The main reasons why solicitors fail to honour their undertakings [particular in relation to conveyancing transactions] fall, for the most part, into two areas ....

(a) Delay on the part of mortgagees .... in executing and returning Reassignments ....

(b) Delay on the part of developers in executing and returning Assignments and other necessary documents .... ”

"6. A practice has grown up among developers whereby they delay in executing and returning Assignments and other necessary documents to their solicitors, although no such delay exists in the handover of the purchase money .... ”

"8. As a guide, the Council has prepared two series of standard forms of undertaking which are attached to this Circular [it was then stated that the first series was designed to cover completion of the first sale by a developer and the second series to cover all other cases] .... ”.

13. I am therefore of the view that this "requisition" of the Plaintiffs was properly raised and has not been satisfactorily dealt with by the Defendants.

14. I should add that if a vendor wants to be able to "show" good title by way of an undertaking to produce certified copies of relevant document after completion, this would have to be provided for as a term in the agreement. I understand that such kind of clauses have in fact been expressly inserted in some of the formal sale and agreements in Hong Kong.

Requisition 2: Registration of the Certificate of Compliance

15. The second requisition is related to the first one. As stated above, the New Grant was made by way of an "Agreement & Conditions of Grant". No Government Lease has been executed. According to General Condition No. 10(a), when the conditions in that document had been complied with to the satisfaction of the District Officer, the grantee shall be entitled to a Crown Lease of the Lot. General Condition No. 10(b) went on to provide that the grantee was to execute and take up a Crown Lease of the Lot when called upon by the District Officer to do so.

16. On the basis of these Conditions, Mr. Lee argued that the document was merely an agreement for a lease between Government and the then assignees, under which only the equitable interests in the Lot were conveyed to the then assignees. Mr. Lee said that the legal title to the Lot could only be conveyed to the then assignees by either of two ways: the execution of a Government Lease, alternatively, reliance on ss. 14(1) and (3) of Cap. 219. Since no Government Lease has been executed, the latter method was the only possible way available to the owner of the Lot.

17. S. 14(1) of Cap. 219 stated that:-

"Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions -

(a) the equitable interest under that right shall become a legal estate in that land as if held under a Government lease .... ; and

(b) for the purposes of s. 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.".

S. 14(3) of Cap. 219 stated that:-

"Where under an agreement for a Government lease entered into on or after 1 January, 1970, a person has a right to a Government lease upon compliance with any conditions precedent, he shall be deemed, for the purposes of this section, to have complied with those conditions -

(a) upon the issue by the Government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry .... " (bold type and italics supplied).

18. As at the date of completion, there was no evidence that the Certificate of Compliance had been registered in accordance with s. 14(3)(a) of Cap. 219. Mr. Lee submitted that the Plaintiffs' solicitors were entitled to contend in correspondence that those provisions could not be relied upon by the Defendants.

19. Mr. Tam did not challenge Mr. Lee's argument that there was merely an agreement for a Government Lease. He argued, however, that:-

(a) the Defendants could rely on the deeming provisions of ss. 14(1) and 14(3)(b);

(b) it was sufficient for the Defendants' solicitors to inform the Plaintiffs prior to the date of completion that (1) the certificate had already been sent to the District Lands Office for registration, (2) to give an undertaking that they would provide evidence of the registration and (3) the certificate was in fact registered on 28 August, 1997.

Nevertheless, he agreed that the fact that the certificate was registered was unknown to the Defendants' solicitors (and hence the Plaintiffs' solicitors) until after the date of completion.

20. With respect to Mr. Tam, I do not agree with his submissions. As regards his first point above, s. 14(3)(b) requires inter alia two things: (1) the existence of a Government lease; and (2) the endorsement thereon by the Government of a note. In this case, no Government lease had been executed. Mr. Tam relied upon the words "CONDITIONS COMPLIED WITH" stamped on the back of the "Agreement & Conditions of Grant" and a signature below those words (p. 128, Bundle of Affirmations). However, this document is not a Government lease and the identity of the signatory is unknown. As regards his second point above, I agree with Mr. Lee that before s. 14(3)(a) can be relied upon, the certificate must have been registered. Further, the law is that a vendor must show good title latest by the date of completion. Unless there is agreement between the parties to the contrary, a purchaser should be entitled to know whether he has purchased a property with a good title latest by that time: see the Ng Chek-kok case at p. 15; the Active Keen Industries case at p. 405. Thus, it was insufficient for the Defendants' solicitors to give an undertaking that the Plaintiffs would be provided with evidence of registration after the date of completion.

21. Mr. Lee agreed that the doctrine of "feeding the estoppel" may be a valid answer open to the Defendants: see 16 Halsbury's Laws of England, 1034-35; see also MacLey v. Nutting [1949] 2 KB 55 and Church of England v. Piskor [1954] Ch 553. He submitted the Defendants' solicitors have however never relied on this doctrine in their correspondence, and it would be too late for the Defendants to do so now. This is because quite apart from the vendor's duty to show good title, there is also a duty on his part to answer reasonable requisitions satisfactorily before the date of completion: see the Koh Chong-ho case and Active Keen Industries case, above.

22. I agree with Mr. Lee's submissions and consider that this was also a reasonable requisition and it has not been satisfactorily answered by the Defendants.

Requisition 3: Discrepancy in the Assignment dated 2 February, 1996

23. The third requisition is related to an Assignment document dated 2 February, 1996 ("the Amended 1996 Assignment") (pp. 130-35, Bundle of Affirmations). The Defendants acquired the suit property as assignees through this document.

24. As stated above, the suit property is the second floor and the whole roof of a self-standing village type house. The suit property was described in the "Schedule" of the Amended 1996 Assignment as follows:-

"TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT the SECOND FLOOR and the ROOF thereof of the Building" (bold type and italics supplied).

25. Further, under the part "Exceptions and reservations etc:-”, it was stated that:

"Excepting and reserving unto the Vendor and his assigns the sole and exclusive right and privilege to hold use occupy and enjoy All Those the other Floors and Roof of the Building .... ”(bold type and italics supplied).

26. Having noticed these matters, the Plaintiffs' solicitors raised the requisition that the "Schedule" and the reservation clause would create a doubt as to whether the then assignor had assigned the roof to the Defendants or whether they reserved it to themselves. The Defendants' solicitors then caused (1) the word "thereof" in the "Schedule" to be crossed out and (2) the words "and Roof" in the reservation clause to be crossed out. However, only the assignees (the Defendants) and their attesting solicitor signed against such deletions but the then assignors did not do so.

27. The Plaintiffs insisted that any amendments must be acknowledged by the then assignors: see the correspondence from 17 May, 1997 to 30 September, 1997 (pp. 34 to 76, Bundle of Affirmations). During his submissions, Mr. Lee for the Plaintiffs accepted that the words "the Roof thereof" in the "Schedule" would not per se create much doubt because the suit property is part of a self-standing house. There would be little practical difference (if any) between a description "the Roof" and "the Roof thereof".

28. The stance taken by the Defendants' solicitors in the correspondence was that the errors were only typographical and therefore the signatures of the then assignors were unnecessary. I do not agree and consider that the "Schedule" and the reservation clause (if not amended) taken together, would create a doubt as to whether the Defendants have title to the roof and were in a position to convey title thereof to the Plaintiffs.

29. Mr. Tam embarked upon a new argument in his submissions relating to this requisition. He argued that there was no doubt as to the Defendants' title even if the two descriptions were not amended, relying on the cases of Sheenip Ltd. v. Champion Billion Development Ltd., HCMP No. 1390 of 1995 and Lai Wing Ho v. Chan Siu Fong [1993] 1 HKLR 319. These cases decided that there was no doubt in an assignee's title despite a possible reservation of part of the interest conveyed by the assignor. The reason was a co-owner (that is, the said assignor) who assigned his shares in the land conveyed cannot in law establish any right in himself inconsistent with or adverse to the rights conveyed.

30. In relation to this new argument raised by Mr. Tam, Mr. Lee repeated his point that this answer had never been given in the correspondence of the Defendants' solicitors, and it is too late for the Defendant to raise this now. Further, not only was the argument not raised, the Defendants' solicitors have caused the Defendants and the attesting solicitor to sign on the Amended 1996 Assignment and sent it for registration. I agree with Mr. Lee and find that this requisition was properly raised and not satisfactorily answered.

Conclusion

31. For the above reasons, I find that the Plaintiffs have established their case against the Defendants. The parties agreed that in such event, I should make an order in terms of paragraphs 1 to 3 and 4(a) of the Originating Summons and, as regards paragraph 4(b) of the Originating Summons, I should enter interlocutory judgment against the Defendants with damages to be assessed. I will therefore make these orders.

Costs Order

32. Counsel for the respective parties agreed that costs of the Miscellaneous Proceedings should follow the event. In view of the conclusion reached above, costs of these proceedings are to be paid by the Defendants to the Plaintiffs to be taxed if not agreed. I understand that there will be other costs which are subject to argument. For the avoidance of doubt, these will not be dealt with here.

(Andrew Chung)

Deputy Judge of the Court of First Instance