LEUNG KAI YIP v. HOP WIN DEVELOPMENT LTD.

HCMP1606/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1606 OF 2000

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J U D G M E N T

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1. This is a vendor and purchaser summons for a determination of whether the plaintiff, as vendor, sufficiently answered a requisition on title raised by the defendant as purchaser of land, and a determination of whether the plaintiff has shown a good title to the land.

2. The property concerned is a plot of land registered in the Yuen Long New Territories Land Registry as Lot No.3588 in Demarcation District No.116. The parties entered into an agreement for sale and purchase dated 4 October 1999. By Clause 7 of the agreement, the vendor was required to "give, show and prove good title to the Property in accordance with Section 13 of the Conveyancing and Property Ordinance, Cap. 219". There was the usual provision that the purchaser should raise any requisitions or objections in respect of the title within seven days from receipt by his solicitors of the title deeds.

3. By a letter dated 7 October 1999 the defendant's solicitors raised a requisition on the title. After setting out the various instruments down to a conveyance on sale of a one-third share of the property by one Enrique Chan, selling as mortgagee on 31 May 1965 and recorded under Memorial No.156015, they continued:

"Enrique Chan sold as mortgagee 1/3 share of the subject land (among other lands), but unless he had power to sell, the purported assignment would be invalid.

At common law, a mortgagee's remedies are confined to foreclosure and the power to enter into possession of the mortgaged property... The statutory power of mortgagee to sell, pursuant to s30(a) of the applicable 1964 edition of the New Territories Ordinance (Cap 97), was only available where the mortgages were made in accordance with the Form B in the Schedule to that Ordinance (of the 1964 edition).

We could not obtain copies of the two documents, second mortgage m/n 139605 and mortgage m/n 150474, from the land registry, and only the memorials for their registration are kept in the land registry, and there was no indication on both memorials (copies attached) that the two mortgages were made in the said Form B.

In the circumstances, we have to ask you to provide documentary evidence to show that the mortgagee Enrique Chan did have power to sell the mortgaged property."

The plaintiff's solicitors replied on 13 October 1999 referring to section 13(3) of the Conveyancing and Law of Property Ordinance, Cap 219 and continuing:

"...in the Conveyance On Sale Memorial No.156015, we note that in the column 'Particulars of incumbrances to which the premises are subject, and other special Covenants or particulars mentioned in the Instrument', the following comment was recorded 'FREE and absolutely discharged of and from Mortgage dated the 16th day of January 1959 and registered by Memorial No.139605, Transfer thereof dated the 25th day of February 1965 and registered by Memorial No.155493 and Second Mortgage dated the 9th day of May 1963 and registered by Memorial No.150474 and freed from the right of redemption thereunder.

Secondly, we wish to point out that the Conveyance On Sale took place on 31st March 1965 and even if the mortgagee had no power of sale, the situation would fall under Section 7 of the Limitation Ordinance Cap.347. The mortgagor is barred from taking action to recover the land.

Therefore, the title our client has over the property is a good one and no documentary evidence regarding the mortgagee's power of sale is necessary."

The defendant's solicitors did not accept this, and ultimately invited the plaintiff's solicitors to apply for a declaration.

4. Section 13 of the Conveyancing and Property Ordinance (Cap.219) provides:

"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."

It is not in dispute that in this case the intermediate root of title required by section 13(1) is a Division of Property dated 17 September 1965, Memorial No. 156715 between the then six owners of the various lots and shares in them, whereby the plaintiff with a trustee became the owner of the suit property. There was a Removal of Trusteeship dated 3 May 1973, but this did not affect the title.

5. The plaintiff argues that the defendant was not entitled to raise the requisition because if a purchaser wishes to go beyond the intermediate title, the onus is on him to show that the pre-intermediate title was defective. There is nothing in the documents to show that Enrique Chan as mortgagee had no power to sell. If, however, the defendant was entitled to raise the requisition, the plaintiff says that it was adequately answered by reference to the "particulars of incumbrances" in the Memorial of the Conveyance on Sale and the reference to section 7 of the Limitation Ordinance, which would, after the period of 20 years then applicable, bar the mortgagor from seeking to regain possession. For the same reasons, the plaintiff says that he has shown a good title.

6. The defendant argues that it was entitled to raise the requisition. There was nothing on the documents to indicate that Enrique Chan had a power of sale under the mortgage itself, or that it was in Form B of the Schedule to the New Territories Ordinance which would have given a statutory power of sale. The plaintiff, having answered without reservation, was under a duty to answer adequately and he had not. The record in the Memorial was not a recital, so section 13(3) of the Conveyancing and Property Ordinance did not apply. The record in the Memorial did not bind the mortgagor who was not a party to the Conveyance on Sale, so the right of redemption remained with him. If the mortgagee had no power of sale, what he sold was the mortgage and nothing more. The mortgagor would have no right of action until he repaid the mortgage debt, and since it was never paid, the 20 year limitation period has not started to run.

7. Both parties rely on various dicta in the case of Lo Shea Chung & Anor. v. Lo Hung Biu, [1997] 2 HKC 723.

The Requisition

8. Once the vendor complies with section 13(1) by producing the Crown lease and the intermediate root of title, it is for the purchaser to establish any defect in the pre-intermediate title. However, this is not the end of the matter. See Lo Shea Chung at page 734G where Cheung J said :

"In my view, although because of s 13(1), the purchaser has to establish a defective title in respect of pre-intermediate matters, the right by the purchaser to raise requisitions is not taken away except by legislation or by agreement between the parties."

See also Nazareth V.P. at page 739 B-E:

"It is not suggested before us, even by Mr Horace Wong for the appellant vendors, that s 13(1) means that the purchaser has no right whatsoever to raise requisitions as to the pre-intermediate root of title. What he contended for, however, is that the purchaser had to first prove a defective title before the vendors became subject to a duty to comply with a requisition. But that cannot be right, for, as Ching JA has pointed out in his judgment, there would then be hardly any point to a requisition.

At the other extreme, if a bare possibility of a defect in the title entitles the purchaser to raise requisitions (as in effect Mr Yau for the respondent purchaser suggests in contending that the standard, criteria and relevant duty to provide answers is the same in relation to intermediate title as to pre-intermediate root of title), then as Mr Wong complains, s 13(1) will become pointless.

Of necessity, the criteria must lie between the two extremes."

9. In Lo Shea Chung there was a power of attorney which did not authorize the attorney to assign the property by way of gift, and therefore there was on the face of the documents a defect in title. Here, there is no such obvious defect; there is no evidence that the mortgagee Enrique Chan did not have a power of sale. Looking at the matter practically, it seems unlikely that he would not have had it.

10. If the mortgage was in the statutory Form B, and it might well have been given the ease and simplicity of using this statutory form, then there would be a statutory power of sale. Prior to the coming into force of the Conveyancing and Property Ordinance in 1984, the common law applied. So if the mortgage was not in Form B, it would either be a legal or an equitable mortgage. If it was a legal mortgage at common law, that would involve the assignment of the mortgagor's estate and the power of sale would flow from that. If it was an equitable mortgage or a legal charge which did not assign the property, the position might have been different but in any event, on the face of the Memorial, the witness was a solicitor. The Memorial does not show if the solicitor acted for Enrique Chan or the purchasers, or both, but it seems unlikely that a solicitor would allow his client either to sell as or buy from a mortgagee without a power of sale.

11. While there is a possibility of a defect in title, therefore, there is hardly a probability. It seems to me no more than the "bare possibility" mentioned by Nazareth V.P. Therefore, all the plaintiff had to do was to comply with section 13(1), which he did, and the defendant was not entitled to raise the requisition which it did in respect of the pre-intermediate title.

12. In case I am wrong in this, I have to consider the next question, namely, whether the plaintiff answered the requisition adequately.

13. It is conceded that the plaintiff's reliance on section 13(3) was not correct because the subsection deals with recitals and not information contained in the Memorials. However the plaintiff did refer to the information contained in the "Particulars of incumbrances" section of the Memorial which purports to show that the property was conveyed free from the mortgage and second mortgage.

14. In Kok Yun Kuen v. Au Yeung Bik Tai & Anor. [1991] 2 HKC 522 Godfrey J said as follows:

"... In particular, it must be said that, although the memorial of an instrument must not be confused with the instrument itself, the memorial may constitute secondary evidence of the fact that the instrument was made and (in so far as the contents of the memorial make it possible) secondary evidence of its contents. To get this far, you must get over the 'best evidence' rule; that is to say, you must show that there is some good reason for not producing the instrument itself, so as to justify your attempt to prove it by secondary evidence.

In Hong Kong, it has for a long time been the practice of solicitors acting for a vendor who cannot produce an instrument which proves a link in the chain of his title to offer the memorial of that instrument, not as the link itself, but as secondary evidence of it. And it has for an equally long time been the practice of solicitors acting for the purchaser to accept such evidence as sufficient and satisfactory. This practice of conveyancers here in Hong Kong ought to be recognized as perfectly legitimate and I so recognize it. A refusal to recognize it would destroy many, if not most, of the titles to land in the New Territories for no good reason."

15. Obviously what is contained in Memorial No.156015 is good secondary evidence that the property which Enrique Chan sold was free from the two mortgages. It is true that the defendant's solicitors did not say, in terms, that the documents could not be found, but it turned out later that the solicitors acting for Mr Chan in 1965, Messrs. P.C. Woo, were approached for the mortgages and other documents and declared themselves unable to locate the file.

Limitation

16. If the arguments of the defendant, as set out above, are correct, the mortgage could be extended for ever. The right to redeem would last as long as there was non-payment of the debt. This seems a strange proposition given that the right to recover the debt would have expired 20 years from the due date of payment, i.e. 8 May 1964.

17. No one has been in possession of the land, according to the plaintiff, since he obtained ownership of it (by Division of Property dated 17 September 1965). The mortgagor must have discontinued his possession by that date at the latest. The limitation period would by section 8(1) run from that date.

18. Further, if the plaintiff holds as mortgagee then presumably he is a mortgagee in possession. No one else is in possession and he would not have to prove the intention to exclude all the world, as would a squatter, because as mortgagee, he would have the right of possession. Section 12 would apply to provide a limitation period of 20 years from 17 September 1965.

Conclusion

19. I conclude that the defendant was not entitled to raise the requisitions and objections which it did but that in any event the plaintiff has adequately answered them for the reasons given above. Further, for the same reasons, the plaintiff has shown a good title to the land. There will be judgment in favour of the plaintiff for the determinations sought.