CHAN SIU HAN v. TONG YUK LAN

DCCJ 3432/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3432 OF 2008

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DECISION

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1.  The Plaintiff applies under Ordinance 86 rule 1, Rules of District Court for a declaration that the agreement for Sale and Purchase has been rescinded in respect of the sale of property situate at Flat 5 on 2/F of Block A, Hilton Plaza, 3-9 Shatin Centre Street, N.T. (“the property”). The Defendant opposes the Plaintiff’s application for the return of the deposit paid, commission and other expenses.

Undisputed Facts

2.  The Plaintiff (“the Purchaser”) entered into a formal sale and purchase agreement for the purchase of the property from the Defendant (“the Vendor”) on 12 June 2008 at $1,380,000 (“the agreement”).  A deposit in the total sum of $138,000 had been paid to the Vendor by the Purchaser.  Under the agreement, completion would take place on or before 5 p.m. on 15 July 2008.  Time was made the essence under the agreement.

3.  On 7 July 2008, the Vendor’s solicitors delivered a set of title deeds and documents to the Purchaser’s solicitors.  On 9 July 2008, the Plaintiff’s solicitors raised requisitions concerning three missing documents relating to the property namely:

(a)  Mortgage – memorial No. 05112501520021 (“the mortgage”);

(b)  Receipt on Discharge of a charge : memorial No. 08070303 160062 discharging mortgage memorial No. 05112501520021 (“the Receipt”);

(c)  Release - memorial No. 0806300 3010143 discharging legal charge/mortgage memorial No. 08022903380144 (“the Release”).

(“the missing documents”)

4.  On 14 July 2008, the Vendor’s solicitors sent by fax to the Purchaser’s solicitors a copy of the Receipt and the Release.

5.  On 15 July 2008, the completion day, the Vendor’s solicitors informed the Purchaser’s solicitors the reason why the originals of the missing documents could not be produced on completion was they had been lodged with the Land Registry for registration.  They undertook to deliver the missing documents within 7 days after receipt of the documents from Messrs. Darin Leung & Partners, enclosing a letter from Messrs. Darin Leung & Partners in reply to the Defendant’s request for the missing documents.

6.  The Purchaser refused to complete the sale on 15 July 2008 on the ground that the Vendor had failed to prove title in answer to the requisitions raised by the Purchaser.

7.  The Purchaser’s solicitor demanded the refund of deposit on 16 July 2008.  On 17 July 2008, the Defendant’s solicitors by letter denied the Vendor had failed to satisfactorily answer the Purchaser’s requisitions and give notice for completion within 7 days from the date of the letter.  The Purchaser’s solicitor replied by letter on 21 July 2008, re-iterating the Purchaser’s position and demanding the return of the deposit paid.  The Vendor’s solicitors by letter to the Purchaser’s solicitors on 29 August 2008 accepted the Purchaser’s repudiation and notified the Purchaser that the Vendor had forfeited the deposit under the agreement.

The Plaintiff/Purchaser’s Claim

8.  The Purchaser claimed that the Vendor has an obligation to make or give a good title and she had failed to do so when she failed to produce the missing documents at the time of completion.  He further claimed that he is entitled to be given the originals of the missing documents so that he can be sure at completion that the property was not subject to an equitable mortgage by deposit of title deeds.

9.  Mr. Au Yeung, counsel for the Purchaser, relied on the case of Yiu Ping Fong v. Lam Lai Hing [1991] 1 HKLRD 793 and section 13A(1) of the Conveyanceing and Property Ordinance.  S.13A(1) provides that:-

“Unless the contrary intention is expressed, a purchaser of land shall be entitled to require the vendor to deliver to him, for the purpose of giving title to that land, the original of both of the following only –

(a)……….. and

(b)  any document that relates exclusively to the land and is required to be produced by the vendor as proof of title to that land under section 13(1)(a) and (c).”

10.  Mr. Au Yeung argued that s.13A only exonerated the Vendor from delivering the original title deeds and documents made before the intermediate root of title, but not the original title deeds and documents which were made since the intermediate root of title.  He insisted that the common law position and the new s.13A obligation as to the process of giving title is the same so far as the original deeds and documents made since the intermediate root of title are concerned.  Failing to produce the original missing documents amounted to a breach of the Vendor’s obligation to give good title, and the Purchaser is entitled to rescind the agreement and demand the return of the deposit.

The Defence

11.  Mr. Dawes, counsel for the Defendant, argued that the parties had by Clause 3 of the agreement to completion by undertaking according to the Law Society of Hong Kong’s Circular to members No. 91/82 of 28 December 1982 (“the Law Society’s Circular”).  Unless one of the parties gave a 7 days notice in writing calling for formal completion, an undertaking from the Vendor’s solicitor to deliver the release or discharge of the mortgage or legal charge within a specified period would constitute the discharge of the Vendor’s obligation under the agreement.

12.  Mr. Dawes distinguished the present case with the case of Liu Tak Kin v. Chan Yiu Kai [1998] 4 HKC 362 and argued that the parties have expressly provided for completion by undertaking in accordance with the Law Society Circular under Clause 3 of the agreement.

The Law

13.  It has been well established that the Vendor has an obligation to make or give good title.  The production of copies or certified true copies of the original title deeds without explanation of the loss of the original title deeds cannot be regarded as proving good title.  In the U.K., this is done by the production of an abstract of title, the title shown is then proved by the production of the title deeds.

14.  In Hong Kong, the Vendor’s solicitor would send title deeds and documents to the Purchaser’s solicitor for his perusal.  Proving of title is then followed by the production of the original documents if to facilitate the proving of title the Vendor’s solicitor had only delivered certified true copies of the title deeds and documents to the Purchaser’s solicitor at an earlier stage.

15.  Madam Justice Yuen (as she then was) held at p.798 C-D of Yiu Ping Fong and another v. Lam Lai Hing [1999] 1 HKLRD 793 that “Section 13(2) does not in my judgment, exonerate the vendor from producing at completion the originals of such title deeds and documents, at least those that relate exclusively to the property being sold.”

She went on to say at p.798F :

“However, a vendor cannot make or give good title, by handing over only certified true copies at completion without an adequate explanation as to why the originals cannot be handed over. 

The handing over of original title deeds and documents (or at least those relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land.  That obligation is established in the common law.”

16.  The Vendor’s defence in the present case is the party had agreed to an undertaking under the Law Society’s circular under Clause 3 of the agreement.  Therefore, the undertaking to deliver the original title deeds after completion would satisfy the purchaser’s requisitions on title.

17.  Mr. Dawes argued that the demand for delivery of original title deeds amounted to a formal completion, but the Vendor had failed to give seven days’ notice under Clause 3 of the agreement because the request for the original of the missing documents was only made on the day of completion. Consequently, the Purchaser should have accepted the Vendor’s offer of delivery of title deeds seven days after the Vendor’s solicitors received them from the Vendor’s former solicitors.

18.  Mr. Au Yeung on the other hand argued that the undertaking under the Law Society circular refers to newly executed documents such as documents of discharge of a charge or release from the mortgagee bank and deposit taking companies or developers’s assignments in new developments.  As the missing documents under requisition belonged to a former mortgage the discharge of which was executed in February 2008, the undertaking under the Law Society Circular does not assist the Vendor in the present case.

19.  Mr. Au Yeung referred to paragraph 2 of the Law Society Circular which stated:-

“3.  The main reasons why solicitors fail to honour their undertakings fall, for the most part, into two areas, namely:

(a)  Delay on the part of mortgagees, particularly banks and deposit-taking companies, in executing and returning Reassignments to their solicitors.

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

20.  Mr. Au Yeung further referred to paragraph 12-13 of the circular which stated:-

“12.  It will be assumed that completion will take place by way of undertaking unless the solicitors concerned notify the other side in good time that standard undertakings will not apply and that formal completion is required.  In all cases, the right to require formal completion remains, but in such event, as a matter of professional courtesy, a solicitor should use every endeavour to give at least three working days’ notice before the date fixed for completion.

13.  In future, the usual time limits between receipt of the consideration money and delivery of duly executed documents will be as follows;

(a)  Where only two solicitors’ firms are involved, the period is 21 days.

(b)  Where three or more solicitors’ firms are involved, the period is 21 days for the first solicitor giving the undertaking, 17 days for the second solicitor and 12 days for the third solicitor.”

21.  Mr. Au Yeung pointed out that even if the Law Society Circular undertaking applied in the present case, the Vendor’s solicitors had failed to specify that the missing documents would be delivered within 21 days after completion.  The Vendor’s solicitors’ letter of 15 July 2008 only agreed to delivery within 7 days of receipt of the missing documents from Messrs. Darin Leung & Partners (the former solicitors for the Vendor). 

Decision

22.  The position in law has been set out in the dictum of Yuen J. in Yiu Ping Fong where she held at p. 800 A-B:-

“However, in my view, the loss of the title deed does not just give rise to a question of possible adverse interests in the property.  It is well established that ownership of the title deeds pass by conveyance of the land.  The purchasers here have a proprietary right to ownership of the title deeds when they complete.  If they are told that one will be missing, they are entitled to decline to complete unless provided with satisfactory evidence that the missing title deed is lost and unlikely to re-emerge.”

23.  The Defendant’s defence raised two issues, they are:-

(1)  Whether in law the Law Society Circular undertaking is applicable in the present case to the three missing documents.

(2)  If it does, did the Vendor’s solicitors fail to specify it would comply with the requirement for delivery within 21 days of completion under paragraph 13 of the circular.

24.  These are issues clearly more suitable for the trial judge who would examine the authorities against the facts and the Law Society Circular undertaking in detail.  I find the Vendor has raised an arguable defence.  It is unsuitable and unsatisfactory to dispose these issues summarily.  Consequently, I would allow the matter to go to trial unconditionally.

25.  Costs to be in the cause with certificate for counsel, to be taxed if not agreed.