SOUTH PERFECT LTD. v. CHAN YAU HOY and Others

1996, No.MP3034

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is an application by way of originating summons for a declaration that certain requisitions raised by the purchasers of property have not been sufficiently answered by the vendor's solicitors; that good title to that property has not been shown; and for an order that the vendor repay the deposit, and the costs of investigating title.

2. The question which I am asked to determine today are issues which arose as long ago as March this year, and although there has been correspondence since, the plaintiff has waited until 6th September to launch its application, with a hearing date but one working day away from the time of completion. I was yesterday afternoon presented by both sides with a significant number of authorities, all said to be relevant, most of which can only properly be understood by an appreciation of the facts, and this particular subject matter is one by virtue of which the facts in those cases are invariably complex. This morning I was handed a document entitled "Further Submissions" drawn by counsel for the defendant. It in turn refers to authorities. The bundle in the case arrived only yesterday morning. I made it clear at the outset today that it was unacceptable to provide documents, particularly complex authorities, so late and I proposed to adjourn the matter to a future date. I proffered, however, a preliminary view on the validity of the requisitions raised by the plaintiff. That view proved helpful to some extent. Mr Mak on behalf of the plaintiff urged me to address nevertheless today the question whether, requisitions apart, good title had been shown. The matter was urgent, for completion is, as I say, one working day away, and the vendor declines to extend the time for completion. The good title issue, however, if I may call it that, requires a full appreciation of at least one authority upon which Mr Mak relies. Cajoled in these circumstances, I read that authority over the lunch hour, but I remain of the view that it would have been preferable to have had the opportunity of studying the other authorities so as to put that particular case and the arguments in relation to it in full context. So that is the background against which this judgment is delivered.

3. The sale and purchase agreement, which I shall call "the agreement" in this case, is dated 15 March 1996. By it, the vendors, who are the defendants to this application, agreed with the plaintiff ("the purchaser" ) to sell a one undivided 20th part of land registered in the Land Registry as Section A of Inland lot No.7419, and of the buildings thereon known as 221 Wan Chai Road, together with the sole and exclusive right " ... to hold use occupy and enjoy all that first floor of ..." that building. It is convenient to note here that on Section A of Inland lot No.7419 was constructed one building, of ten storeys, Nos. 221 and 221A Wan Chai Road with, however, 20 separate floors. The purchase price was $5,450,000; and the completion date is 16th September 1996.

4. Clause 4(a) of the agreement provides that the vendor shall show good title to the property, and at his own expense shall furnish to the purchaser such deeds or documents of title as may be necessary to prove such title.

5. Clause 12 of the agreement provides that :

"Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor's solicitors as soon as practicable within seven (7) days after receipt of the title deeds in the possession of the Vendor by the Purchaser's solicitors otherwise the same shall be considered as waived and the Purchaser shall be deemed to have accepted the Vendor's title (in which respect time shall be of the essence of this Agreement)."

6. Documents relevant to the question of title had already, by the date of the agreement, been sent to the purchaser's solicitors. That had been done under cover of a letter date 7th March, for the parties' solicitors had already been in correspondence about the proposed purchase of the property. What was sent were the following :

(1) A copy of a Deed of Mutual Covenant, date 1st May 1962;

(2) An assignment dated 1st May 1962 (Memorial No.368337);

and two other assignments.

7. It is the Deed of Mutual Covenant that gave rise to the suggested problems in this case. There were five individuals who were party to the Deed : a Mr Ng, a Mr Leung, a Madam Liu, Mr Kuan Ka Pack and Mr Kuan Ka Yue. The last two named individuals feature prominently in this application, and I shall refer to them as Mr K.P. Kuan and Mr K.Y. Kuan respectively. The Deed has annexed to it two schedules. The preamble in the Deed of Mutual Covenant refers to the Second Schedule and says that the premises which are the subject of the Deed are described by the Second Schedule and are held upon such terms and conditions as are set out in that schedule.

8. The Second Schedule reads as follows :

"ALL THAT piece or parcel of ground registered in the Land Office as SECTION A OF INLAND LOT NO.7419 is now vested in the parties hereto as Tenants in Common in the following shares that is to say as to One equal undivided twentieth part or share thereof in the said Ng Chow Ming, as to One equal undivided twentieth part or share thereof in the said Leung Siu and Liu Lai Yung between themselves as tenants in common in equal shares and as to the remaining eighteen equal undivided twentieth parts or shares thereof in the said Kuan Ka Pack and Kuan Ka Yue between themselves as tenants in common in equal shares for the residue now to come and unexpired of the term of 75 years from the 14th day of September 1957 with the right of renewal for a further term of 75 years created therein by a Crown Lease dated the 12th day of December 1961 and made between Her Majesty Queen Elizabeth II of the one part and the said Kuan Ka Pack and Kuan Ka Yue of the other part."

So that was an agreement by the owners of the property that they held the land, namely the Inland Lot, and the building on it, in those respective shares.

9. The Deed of Mutual Covenant then goes on as follows :

"AND WHEREAS there is now constructed on the said premises a building of ten stories known as Nos.221 and 221A Wanchai Road (hereinafter called 'the said building').

AND WHEREAS the parties hereto have agreed to enter into these presents to define their respective rights and interest in the said premises and the said building.

NOW THIS INDENTURE WITNESSETH as follows :-

1. Each of the parties hereto for himself and his executors administrators and assigns hereby grant unto each of the other parties hereto their or his respective executors administrators and assigns full right and privilege to hold and enjoy to the exclusion of the grantors the part of the said building set out in the Second Column of the First Schedule hereto opposite to the respective names of the grantees as set out in the First Column of the said First Schedule TO THE INTENT that each of the parties hereto shall be entitled to the exclusive use occupation and enjoyment of the part of the said building so set out opposite to his name as aforesaid."

10. There then follows provision, as is common in deeds of mutual covenant for sharing of common parts and for payment, in proportion of the shares held, of outgoings which arise in relation to the building as a whole.

11. Clause 10 provides :

"Each party hereto shall have the fullest right and liberty without reference to the other owners and without the necessity of making the other owners parties thereto to sell mortgage or otherwise dispose of his share in the said premises together with the benefit of and subject to these presents and to let or demise any part of the said building to which such party is entitled hereunder to any tenant or lessee Provided that such party shall be responsible to the other owners for the due performance and observance on the part of such tenant or lessee of the terms and conditions hereof. "

12. The First Schedule to the Deed of Mutual Covenant appears as follows :

13. The assignment dated 1st May 1962 which was one of the documents sent by or referred to in the letter of 7th March is also relevant, for there one finds the genesis of the 1/20th share which the vendor purports to convey by the agreement now in issue. It is made between Mr K.P. Kuan and Mr K.Y. Kuan of the one part and somebody called Kwong Kan of the other. For a consideration of $41,000, the Kuans assigned to Mr Kwong

"... one equal undivided twentieth part or share of and in ALL THAT portion of the said piece or parcel of ground registered in the Land Officer as Inland Lot No.7419 ... and ... the buildings thereon known ... at the date hereof as Nos.221 and 221A Wanchai Road ... and ... that in further pursuance of such agreement and for the consideration aforesaid the Vendors DO and each of them DOTH hereby assign unto the Purchaser ALL THAT the right to the exclusive use occupation and enjoyment of ALL THAT the FIRST FLOOR of the said No.221 Wanchai Road. ..."

That is what the vendor now seeks to convey to the purchaser, namely, that 1/20th share, and exclusive use of the first floor.

14. It is the First Schedule to the Deed of Mutual Covenant which has caused the plaintiff's solicitors anxiety from the outset. By letter dated 13th March 1996, they voiced to the vendor's solicitors their concern which they expressed as a requisition. It noted that the requisition, if that is what it was, was made within seven days of supply of the documents of title. This is what they said :

" In Deed of Covenant Memorial No.368336 (copy enclosed) we note that pursuant to the First Schedule of the said Deed of Covenant Kuan Ka Pack was the sole legal and beneficial owner of the Eighth Floor of No.221 Wanchai Road, Fifth and Seventh Floors of No.221A Wanchai Road whereas Kuan Ka Yue was the sole legal and beneficial owner of the First, Second and Ninth Floors of No.221A Wanchai Road. The two Kuans were Tenants in Common in equal shares only for the remaining Ground, First, Second, Third, Fourth, Sixth, Seventh and Ninth Floors of Nos.221 Wanchai Road and Ground, Third, Fourth and Eighth Floors of No.221A Wanchai Road.

However, it can be seen from the Second Schedule that apart from the 2 equal undivided twentieth shares being allocated to the Fifth Floor of No.221 Wanchai Road and Sixth Floor of No.221A Wanchai Road which were purchased by others, the two Kuans held the remaining eighteen equal undivided twentieth shares as Tenants in Common in equal shares."

15. The plaintiff's solicitors wrote again on 21st March 1996 and said :

"Due to the discrepancy and the observe of clear allotment of undivided shares please provide documents or allotment of undivided shares herein."

They had by that date not received a reply to their letter of 13th March. That reply did not come until 1st April, and pointed out the difference between a shareholding in the entire building on the one hand, and on the other, the right to sole and exclusive use of a particular floor of the building.

16. By a further letter, dated 1st April the vendor's solicitors referred to the purchaser's request dated 21st March, and said that the time limit for raising the requisition had expired.

17. On 3rd April, the purchaser's solicitors returned to the theme. Central to the theme was the assertion that the First Schedule showed that Mr K.P. Kuan was to have sole ownership of the 8th floor of No.221 Wanchai Road, and of the 5th and 7th floors of No.221A Wanchai Road, and that K.Y. Kuan was to have sole ownership of the 1st, 2nd and 9th floors of No.221A Wanchai Road. They asserted that their requisition, which went to the root of title in the matter, had not satisfactorily been answered.

18. The matter was not resolved, which is why we are all here today.

19. In support of the application is an affirmation by a partner of the firm of solicitors who act for the purchaser. If I understand it correctly, the essence of the concern advanced by that affirmation is that "18 of the 20 undivided shares were allotted to 12 separate floors owned by [the two Kuans], ... that 6 separate floors held by the Kuans in their respective own names were not allotted any share at all, and that the location of the 18 shares in the 12 separate floors was absent as well."

20. In late March 1996, the purchaser's solicitors wrote to the Land Registry asking whether there was on the Registry's books a memorandum of allocation of shares to the various units of 221 Wanchai Road. The answer received was that there was no such record. Accordingly, says the purchaser, there is no evidence that the 1/20th share was assigned without any prior allocation of a unit of the building to that share; or if there is such a record, it has not been disclosed to the purchaser, and that accordingly the requisition has not been answered and good title has not been shown.

21. I have some difficulty with the purchaser's approach, both as advanced in correspondence and in the affirmation. In written submissions, it is said that the First Schedule deals exclusively with the assignment of the different flats to five parties, and that by application of the share distribution effected by the Second Schedule, 18 shares have been allocated or allotted to 12 flats, namely only those 12 which the First Schedule says are held by the Kuans as tenants in common.

22. There seems to me to have been a fundamental misunderstanding on the part of those acting for the purchasers about the nature of the interest created. There is and never was any question of anyone, whether the Kuans or others, owning individual flats as separate units. The First Schedule of the Deed did not purport, as was alleged in correspondence, to render Mr K.P. Kuan the sole legal and beneficial owner of the eighth floor of 22 Wanchai Road, nor upon a proper reading of the Schedules is their effect to allot 18 of the 20 shares to only 12 flats. The flats as such were never sold. What was sold at the outset was an undivided share, or a number of undivided shares, in the land and buildings as a whole. The Second Schedule effects the division of those shares by the original owners of the land and buildings so that the two Kuans at all material times held 18/20ths of the whole. That division having been made, all that then happened, as is normally the case with this type of arrangement in respect of multi-storey buildings, is that the shareholders amongst themselves then agreed upon the grant of exclusive use and possession of a floor or a flat as the case may be. That is what the First Schedule did. It was agreed that as to three identified floors, Mr K.P. Kuan would have exclusive use of three floors, Mr K.Y. Kuan would have exclusive use of another three, and that the two Kuans would have together exclusive use of 12 of the available floors. It so happens that one of the floors in respect of which the two Kuans were given, by that Deed, exclusive use, was the 1st floor of 221 Wanchai Road. That is the same floor in respect of which the vendors in this case intend to grant the sole and exclusive right in the premises to use and occupy.

23. I see no discrepancy between the two Schedules, and in my judgment, the requisitions themselves have been adequately answered. There is in this case, in my judgment, nothing which restricts the right of the owners of undivided shares to dispose of those shares as they saw fit. That right could only be constrained by clear wording or by necessary implication (see Sheenip Industries Ltd. v. Champion Billion Development Ltd. HCMP No.1390, 1995.) No such limitation is demonstrated here. Indeed, Clause 10 of the Deed of Mutual Covenant gives to each party to that Deed :

"... the fullest right and liberty without reference to the other owners and without the necessity of making the other owners parties thereto to sell mortgage or otherwise dispose of his share in the said premises together with the benefit of and subject to these presents and to let or demise any part of the said building to which such party is entitled hereunder to any tenant or lessee ..."

The reference to "part of the building to which [he] is entitled" relates to his right to create a lease, and in my judgment is referable exclusively to that part of the building to which he has the sole right of occupation.

24. The question then seems to me to be whether the Kuans had a 1/20th share to divest. That they clearly had, and it follows that the vendors in this case have that same right. Then the question is whether in relation to the Kuans' disposition of a 1/20th share, they were empowered to confer in relation to any such disposition an exclusive right to occupy particular floors of the building. The only restriction on that was whether by the Deed they had been given the exclusive right to occupy that floor. That, too, is clear. The two Kuans were granted the exclusive use of the first floor of this building, and that right and use or privilege was expressed by the Deed to be one available to their assignees. And that is what the vendor in this case has contracted to sell to the purchaser - a 1/20th share and exclusive use of the first floor.

25. I have over the luncheon adjournment had the opportunity of perusing the judgment in Lee Tak Chun v. East Weal International Limited and another [1994]1 HKC 72. The facts are not entirely straightforward. Mr Mak is concerned on the plaintiff's behalf about the ramifications of the case for the question of title in the instant situation. That is because Mr Justice Jerome Chan said in his judgment that it was simply not good enough for the vendor in that case to say that all he had to show was that he had 20 undivided shares of which to dispose. That has an echo of the reasoning which I have advanced. There is, however, it seems to me, a difference between the two cases, namely that in the Lee Tak Chun case there was an obvious missing link. There was clear evidence that shares had been allocated, as it were to parts of the towers that were built so that, for example, 227 shares were tied to Level 35 of one of the towers, and that 147 shares had been assigned or designated as connected with 8 of the 12 units of that Level. There clearly had, in that case, been a further subdivision by reason of which the vendor said that he was able to dispose of 20 shares tied or allocated to one unit. But there was, as I say, a missing link. There was evidently some documentation which must have shown some agreement that with 20 shares came the right to occupy that one unit. That documentation was not produced, and accordingly the vendor failed to show good title. It was a case in which there were a very large number of units and a very large number of shares, where no doubt units were of different sizes and locations, and there was no obvious division of 8 units into 147 shares. It was not surprising, therefore, that the purchaser was entitled to know by what virtue it was said that with 20 shares came that one unit.

26. The situation here is quite different. There were only 20 shares and 20 floors, and I think that the necessary inference can readily be drawn that in so far as allocation was effected to various floors, it was contemplated by all that one share was tied to the exclusive use of one floor. The fact that on the very day of execution of the Deed of Mutual Covenant, there was assignment by the Kuans of 1/20th of the shares with use and occupation of one floor is further evidence of that allocation. The control document which I have seen does not derogate from that conclusion.

27. In my judgment, the requisitions have been answered, and it seems to me that the second point raised by Mr Mak is, in the circumstances of this case, not sufficient to raise the kind of doubt about title which would warrant the grant of the second declaration sought. Accordingly, these applications are dismissed. I shall order that costs of the originating summons and of this hearing be to the vendor.

(F. Stock)

Judge of the High Court