DE MONSA INVESTMENTS LTD v. WHOLE WIN MANAGEMENT FUND LTD

CACV 251/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 251 OF 2010

(ON APPEAL FROM HCMP NO. 2603 OF 2008)

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BETWEEN

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J U D G M E N T

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Hon Tang VP:

1.  By a preliminary sale and purchase agreement dated 11 January 2008 ("the Preliminary Agreement") made between Whole Win Management Fund Limited ("the Defendant") and De Monsa Investments Limited ("the Plaintiff") the Defendant agreed to sell and the Plaintiff to purchase the property known as Rooms 1, 2, 3, 4 and 5 on Penthouse 37^th Floor Bank of America Tower No. 12 Harcourt Road Hong Kong ("the Property"), at a price of $138,000,000. Completion was agreed to be at 2.30 pm on 17 June 2008, time being of the essence of the contract. The Defendant was selling as confirmor having agreed to purchase the Property for completion on the same day.

2.  Although the Preliminary Agreement provided for a formal sale and purchase agreement to be signed, no formal sale and purchase agreement had been signed for reasons with which we are not concerned.  The Plaintiff has paid a deposit of $13.8 million.

3.  The Plaintiff's solicitors were Messrs Woo, Kwan, Lee & Lo ("WKLL"), and the Defendant's Messrs Lo, Wong & Tsui ("the LWT").

4.  The Plaintiff claimed that the Defendant had failed to answer certain requisitions or to show and/or give a good title to the Property under the Preliminary Agreement.  As a result, there was no completion.  The Defendant purported to forfeit the deposit.  In this action, the Plaintiff claimed, inter alia, the refund of the deposit.

5.  Yam J decided in favour of the Defendant.  This is the Plaintiff's appeal.

6.  There is no dispute that we are concerned with the following main issues which were identified by Mr Godfrey Lam, SC, who appeared for the Defendant with Ms Liza Jane Cruden, both here and below:

“(1) No copy was produced of the Pump Pit Tenancy Agreement dated 24.8.1979. [referred to in WKLL letter dated 29.2.08 B1/16]

(2) No certified copy made directly from the original was produced for each of :

(a)   an agreement relative to the operation and maintenance of Joint Pumphouse supplying Hutchison House and Gammon House dated 9.7.1975 [B1/8; 117-122]

(b)   the Pipeline Wayleave Agreement dated 24.8.1979 [B1/8; 124-132]

(c)   the Pipeline Wayleave Agreement dated 27.7.1988 [B1/11; 134-146]

(d)   the Pump Pit Tenancy Agreement dated 27.7.1988 [B1/11, 148-159]

(3) Only a certified copy and no original was produced for each of :

(a)   Assignment Memorial No.2799428 [B1/35]

(b)   Legal Charge Memorial No.4460364 [B1/13]

(c)   Legal Charge Memorial No.4460370 [B1/13]

(d)   20 documents referred to in requisition no.26 in WKLL’s letter dated 8.4.2008 [B1/2/47]

(e) 28 documents referred to in requisition no.25 in WKLL’s letter dated 16.6.2008 [B1/2/76]”[1]

I.  No copy of Pump Pit Tenancy Agreement dated 24 August 1979 ("the 1979 Pump Pit Tenancy Agreement")

7.  To put the missing 1979 Pump Pit Agreement in context, one should note that amongst the documents of title, the vendor has copies of:

1.  a Pipeline Wayleave Agreement dated 24 August 1979 ("the 1979 Pipeline Wayleave Agreement");

2.  a Pipeline Wayleave Agreement dated 27 July 1988 ("the 1988 Pipeline Wayleave Agreement"); and

3.  a Pump Pit Tenancy Agreement dated 27 July 1988 ("the 1988 Pump Pit Tenancy Agreement").

8.  The Defendant's case was that the 1988 Pump Pit Tenancy Agreement had overtaken the 1979 Pump Pit Tenancy Agreement. 

9.  Yam J explained in his judgment:

"18.  Both Hutchison House and Gammon House, as the latter was called in 1979, wanted to connect seawater supply at the position marked X[2] on the 1979 Pipeline Agreement [see B1/7/131]. …

19.  … Thereafter there was a branching out into 2 pipes, one into Hutchison House and the other one continued in a straight line in the same direction into Gammon House in 1979.  This same building had been renamed as the Bank of America Tower in 1988.  Since the connection to the main, the pipelines, and the pump pit would be in Government land, the occupiers of these two buildings would have to pay Government rental for these installations for the supply of seawater for cooling their air-conditioning systems.

20.  On such analysis it is inconceivable that the 1979 pump pit would be different from the 1988 pump pit.  The purpose and position of the pump pit and the pipes coming from the main towards the pump and branching out into the two buildings are the same.  To my mind, it is beyond reasonable doubt that the 1979 Pump Pit Agreement had already been overtaken by the 1988 Pump Pit Agreement …"

10.  Mr Edward Chan, SC, together with Mr Paul Lam, for the Plaintiff, did not seriously dispute that both the 1979 and the 1988 Pump Pit Tenancy Agreements concerned the same pump pit. However, Mr Chan drew attention to the fact that the 1988 Pump Pit Agreement was made between (the Hong Kong Government) and the owners and mortgagee of Bank of America Tower, under which the owners were liable to pay an annual rent of HK$1,000 on a yearly tenancy.  Also, that under the 1988 Pipeline Wayleave Agreement made between the same parties, the owners were liable to pay a sum of HK$217,600 per annum.  However, the 1979 Pipeline Wayleave Agreement was made between (the Hong Kong Government) on one part and the respective owners of Hutchison House and Gammon House on the other part and these owners were liable to pay an annual sum of HK$102,000 to (the Hong Kong Government).  Since no copy of the 1979 Pump Pit Tenancy Agreement was available, it is not known whether any sum was payable thereunder.

11.  Mr Chan went on to submit that although both the 1979 and 1988 Pump Pit Tenancy Agreements concerned the same pump pit, since they were made between different parties, the later tenancy would not have operated as a surrender of the earlier one.  Rather, the later tenancy would be a pro tanto disposition of the reversion and created a relationship of landlord and tenant between the respective lessees, with all the rights and liabilities as to rent and other matters which are capable of running with the tenancy. 

12.  Mr Chan further made the point that, in any event, LWT had not answered WKLL's requisition satisfactorily and that a vendor's duty to show good title by answering requisitions satisfactorily is separate and distinct from the question whether, in fact, the vendor has a good title (Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396 at 405, 413).

13.  It is sufficient to refer to WKLL's requisition of 10 June 2008 and LWT's reply of 12 June 2008:

WKLL:

"6.  We do not agree with your view that the interest under the Pump Pit Tenancy Agreement dated 24^th August 1979 has ceased.  Please let us have evidence to prove your assertion. …"  [B1/66]

LWT:

"We enclose herein a copy of letter from the Lands Department (dated 14 April 2008) to us in response to our inquiry on the Pump Pit Tenancy Agreements dated 24 August 1979 and 27 July 1988 respectively, showing that the Lands Department has only kept the Pump Pit Tenancy Agreement dated 27 July 1988.  The absence of the Pump Pit Tenancy Agreement dated 24 August 1979 obviously shows that the interests created thereunder has ceased."  [B1/72]

14.  I believe it is obvious that LWT's answer meant that if the 1979 Pump Pit Tenancy Agreement had not expired, the landlord would have kept the original or a copy.  I do not believe LWT's answer could be said to be inadequate. 

15.  I turn from the adequacy of the answer to whether the absence of the 1979 Pump Pit Agreement affected the Defendant's title.

16.  M.E.P.C. Ltd v Christian-Edwards [1981] AC 205 was concerned with a sale of a property in 1973 by the vendors as trustees for sale under the will of M who died in 1911.  On examination of the title, it came to light that in about 1912, the then trustees had entered into a contract with M's son, P, to sell him the property subject to and with the benefit of a 21-year lease granted by the trustees to P on 14 December 1911.  No copy or note of the contract had survived, but it was referred to in two deeds of 1912 and 1930 respectively, the latter of which also recited that it had been suspended, without however, setting out the terms of the suspension.  In January 1933, P had taken a second lease for 21 years from 25 December 1932.  P died in 1942, without ever having been in possession or occupation of the premises as purchaser, and no one had taken out representation to his estate or sought to enforce the contract.  Neither the second lease nor an appointment of new trustees in 1936 contained any reference to the contract of 1912, although the latter recited that P's option to purchase had never been exercised.

17.  On a Vendor and Purchaser Summons, Goulding J held that since the trustees were unable to show the terms on which the completion of the contract on 1912 was suspended, they failed to provide a good title in accordance with the contract of sale of 1973.  On appeal by the trustees, the Court of Appeal allowed the appeal.  On appeal by the purchaser company, the House of Lords dismissed the appeal.  Lord Russell (whose judgment had the concurrence of the other members of the court), after stating that the purchaser's contention; "here is clear evidence that there was in 1912 created an encumbrance on the title in the form of a contrary to sell to Percy: of that the purchaser has notice: it is not clearly established that the contract was ever abandoned, or that if a representative of Percy turned up with the contract of sale having obtained a grant to his estate specific performance would not be ordered: and this is especially so since there is evidence in the 1930 document that performance of the contract was suspended on terms unknown.  The title should not be forced upon the purchaser in those circumstances, even if it was thought that on balance of possibilities there had been abandonment or that specific performance would not be granted.  The proper course would have been for the vendor to clear the matter up in proceedings against someone appointed to represent Percy's estate." 218G to 219A,

said:

"In my opinion 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."  220C-D

18.  This is such a case.  Mr Chan submitted that the Plaintiff was not merely concerned with the risk of a successful adverse assertion, but that since rent might have been payable under the 1979 Pump Pit Tenancy Agreement, his client as a co-owner would have an interest in such rent.  I do not believe that makes any difference because I am satisfied beyond reasonable doubt that the 1979 Tenancy is no longer extant.  It is inconceivable that the government and the owners of the Bank of America Tower intended to create, or unwittingly had created, a concurrent lease.

19.  Moreover, in Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109, Litton PJ said at page 117:

"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 stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain. …"

20.  This approach was described by Bokhary PJ at 118 as:

"… a significant contribution towards the case law which serves to preserve bargains. …"

21.  Mexon also supports the view that the absence of the 1979 Pump Pit Agreement would not affect the Defendant's ability to give a good title.

II.  Certified copiesof certified copies

22.  These relate to certain documents, in relation to which the vendor was only able to supply copies of certified copies, as opposed to certified copies of the original.

23.  This turns on the interpretation of section 13(2) of the Conveyancing and Property Ordinance (Cap 219) ("the CPO") which provides:

"(2) Where this section requires the production of any document, it shall be sufficient to produce a copy-

(a) attested, before 1 November 1984, by 2 solicitors' clerks; or

(b) certified by a public officer or a solicitor,

to be a true copy."

24.  Mr Chan submitted that, as a matter of construction, the phrase "a copy attested or certified to be a true copy" must mean "a copy attested or certified to be a true copy of the original document".  He relied on Lo Miu Ling & Another v Tam Hung Ping [1998] 2 HKLRD 541 and on an earlier decision of Patrick Chan J (as he then was) in Wong Wai Ming v Tang Tat Chi [1993] 1 HKC 341 at page 346B-C, where Patrick Chan J said:

"… It is the duty of the certifying public officer or solicitor to ensure that the document which he certifies is a true copy of the original."

25.  In Wong Wai Ming,

"… The original of the Crown Lease of the whole lot, ie, Inland Lot No 116, is obviously not in the possession of the plaintiff.  It has never been.  What she can produce to the defendant is a certified copy of a certified copy of the Crown Lease of Inland Lot No 116.  Quite unfortunately, this certified copy is almost entirely illegible.  Hence, the defendant requests for a fresh certified copy."  Page 343

26.  The plaintiff then produced certified true copies of the original Crown Lease.  It was also not entirely legible.  It was in that context that the observation, relied on by Mr Edward Chan, was made.  This is what Patrick Chan J said at page 346:

"… Where the original is not clear or where reproduction of the original into a copy is not very well done, difficulties may arise in trying to make out what it says on the certified true copy.  But whether a document is a certified true copy of the original is one thing. Whether one can make out clearly what that document says is another.  It is the duty of the certifying public officer or solicitor to ensure that the document which he certifies is a true copy of the original.  He compares the copy with the original and if he is satisfied they are the same, he can certify as to that. In normal circumstances, he should be able to read both documents before he makes the certification.  But that is not essential.  It is not his duty to ensure that the true copy which he certifies is clearly legible, so long as he is satisfied that the copy is the same as the original.  There may be many reasons why a certified true copy is not clear or even legible."

27.  In Lo Miu Ling at 546H-I, Sakhrani J said:

"It has been submitted on behalf of the defendant that production of that document was a sufficient compliance of his obligation.  In my judgment, that cannot be right.  The obligation to produce documents under s.13(1) of the Ordinance is to produce the original document or as is permitted by sub-s.(2) a copy certified to be a true copy.  The question is: a true copy of what?  It must mean, as matter of construction, a true copy of the original document.  It is, in my judgment, incumbent on the public officer or solicitor who certifies a copy to be a true copy of an original document to examine the original document and to satisfy himself that what he is satisfying is indeed a true copy of the original document."

28.  Sakhrani J then referred to what Patrick Chan J said in Wong Wai Ming.

29.  However, in Lo Miu Ling, because the Crown Lease had been mislaid, a certified copy could not be supplied.  Instead, the Land Office held a photocopy reproduced from a "plain" photocopy of a lease (542A). And it was a certified copy of this plain copy of the lease which was produced, and that was rightly held by the learned judge to be an insufficient compliance with section 13(2).

30.  In my view neither Wong Wai Ming nor Lo Miu Ling is authority that a certified copy of a certified copy would not comply with section 13(2).

31.  On the other hand, in practice, it has been generally accepted that a certified copy of a certified copy falls within section 13(2).  Thus Law Society Circular No.87-48 [B2/24/799] stated:

"Section 13(2) requires the production of a certified copy of the original document or a certified copy thereof: a certified copy of a plain photocopy will not suffice."

32.  This is also the position stated in Annotated Ordinances of Hong Kong, Conveyancing and Property Ordinance (Cap 219), §13.51; Hong Kong Conveyancing and Property Law Handbook (3rd ed.), p.111; Sihombing & Wilkinson, Hong Kong Conveyancing Law and Practice, Chap VI, para [79]-[79.3] and note 5.  

33.  I agree with Mr Godfrey Lam that the Law Society's view is wholly consistent with the rationale of section 13(2), which is to recognise that for the purpose of proof of title, a certification by a solicitor or public officer can be relied upon to ensure that the source document and the copy document are the same.  Applying this rationale, there is no reason to suppose that a certified copy of a certified copy should not suffice.

34.  Indeed, in Yeung Sau Chuen Sammy v Chung Chun Ting & Anor [1997] 4 HKC 34 at 37C-D, Godfrey J (as he then was) accepted, as sufficient under section 13(2), a copy certified by a public officer or a solicitor to be a true copy of a document which is itself a certified true copy of the original.

35.  Yam J was right to point out that if it had been intended by the legislature that the document must be certified to be a true copy "of the original", it would have been easy for it to say so (Judgment §24).  Section 3(1) of the Powers of Attorney Ordinance (Cap 31) provides an example.  

III.  Only certified copies and not originals to be produced on completion

36.  This issue concerns three post-intermediate root documents and two lists of 20 and 28 pre-intermediate root documents respectively. 

37.  Mr Lam submitted that the questions here are:

(a)   whether the Plaintiff was entitled to demand upon completion delivery of the originals of the pre-intermediate root documents;

(b)   whether the Plaintiff was entitled to rescind the sale and purchase agreement on the ground that the vendor was unable to deliver the pre-intermediate root documents and/or 3 post-intermediate root documents.

38.  I have no doubt that the Plaintiff is entitled to the originals of all documents of title which related exclusively to the Property, as the following passage from Emmet & Farrand on Title (Vol 2) shows:

  "21.008  Documents handed to purchaser—A purchaser is entitled to have all the deeds and documents, however ancient, in the possession or power of the vendor, and relating solely to the land, handed over to him on completion (Parr v Lovegrove (1858) 4 Drew 170; Re Duthy and Jesson's Contract [1898] 1 Ch 419); and this is notwithstanding that the commencement of the title is limited by special condition.  The documents should include 'all documents produced for the purpose of verifying the abstract in proof of any fact stated therein; such as certificates of baptism, marriage or burial, statutory declarations as to matters of pedigree or as to the identity of the property sold, or certificates of the result of an official search in the registers kept under the LCA or otherwise' (Williams on Vendor and Purchaser, 4th ed., vol 3, p 695).  Section 45(4) of the LPA 1925 does not affect this right, and, therefore, the mere fact that obtaining the deeds for the purpose of handing them over on completion may cause the vendor trouble and expense is no answer to the purchaser (Re Duthy and Jesson's Contract, ante)." page 21/7 in para 21.008

39.  In Oliver v Hinton [1899] 2 Ch. 264 an equitable mortgagee by deposit of a title deed which did not relate exclusively to the property in suit, was held to have priority over a bona fide purchaser of the legal title, who had failed to ask for the production of the title deeds for inspection.  That was because if title deeds are not in the possession or control of the vendor, when they should be, and there is no satisfactory explanation, the purchaser will be put on notice. 

40.  In Yiu Ping Fong & Another v Lam Lai Hing [1999] 1 HKLRD 793, Yuen J (as she then was) explained the difference between the showing and the giving of a good title and why the handing over of original title deeds and documents remained important notwithstanding section 13(2):

"In my view, the real position is this.  Unless there are express stipulations exonerating him from so doing, a vendor has an obligation to make or give a good title.  There are 2 steps in the making or giving of good title.

The first is to show a good title.  In England, that is done by the vendor’s solicitor producing an abstract of title.  The title shown by that abstract is then proved by producing the title deeds and by proving such other facts as are necessary to make a good title. 

In Hong Kong, as a matter of practice, no abstracts are produced, and the two steps of showing and proving title are telescoped into one by the vendor’s solicitor sending title deeds and documents to the purchaser’s solicitor for his perusal of title. 

The proving of title by the production of title deeds and documents is therefore but one step in the making or giving of title, and proving of title is not to be equated with making or giving title.  A vendor does not make or give title simply by producing the documents referred to in s.13(1). 

The effect of s.13(2) is, in my view, to facilitate the proving of title when the vendor’s solicitor sends title deeds and documents to the purchaser’s solicitor for perusal after the formal agreement for sale and purchase is executed.  The vendor’s solicitor can simply send certified true copies of title deeds and documents instead of originals.

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.

That is clearly so because s.13(1) refers (only) to proof of title.  And s.13(2) provides explicitly that it is only “where this section requires the production of any documents” that it would be sufficient to produce certified true copies.  The words which I have emphasised show clearly the limited circumstances in which s.13(2) applies.

When s.13(2) is understood this way, I do not think my view conflicts with that of the learned Deputy Judge in Ip Fung Yee v The Norwegian Missionary Society [1998] 1 HKLRD 94.  A vendor’s solicitor can as part of proof of title under s.13(1) send certified true copies of title deeds and documents to the purchaser’s solicitor for perusal, without having to prove that the originals are lost. 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 whish relate exclusively to the property being sold) is an important part of the vendor’s obligation in a sale of land.  That obligation is well established in the common law. 

A purchaser of land is entitled as a matter of proprietary right to possession of the original title deeds (Williams on Title, 4^th ed. p.547), which is the best evidence of ownership. 

Further, it is important for him to get possession of the original title deeds so that he can be sure that the property is not subject to an equitable mortgage by deposit of title deeds.  If the deeds are in the hands of some person other than the vendor, the purchaser is thereby placed on enquiry as to the reason for this, and he has constructive notice of the facts which such enquiry would disclose (SeeEmmet on Title, §5.147).

Where, therefore, as in this case, the Vendor has given notice that she would not be able to produce the original 1986 assignment on completion, it is legitimate for the purchaser to examine whether there is sufficient conveyancing evidence to explain its loss."  (pp. 797I-798J)

41.  Yuen J's decision was followed by Deputy Judge Chu (as she then was) in Guang Zhou Real Estate Development (HK) Co Ltd & Anor v Summit Elegance Ltd [2000] 2 HKLRD 855.  Chu J said at page 872:

 "Secondly, it is plain that the proprietary right to possession of the original title documents is an important right on the part of an owner: Yiu Ping Fong, op cit, at pp.798H-I and 800A-D. …

The plaintiffs are therefore not entitled to deliver certified copies of the Crown Lease and of the Deed of Release for the purpose of giving a good title.  The inability of the plaintiffs to deliver the originals at completion amounts to a breach of their obligation to give good title.  The defendant is entitled not to complete and to rescind the Agreement."

42.  On the other hand, Reyes J said in C & W Watch Co Ltd v Chu Kwok Tai, HCMP 920/2005 (unreported, dated 10 October 2005) at para 24:

"24.  I confess to doubts about the correctness of Yiu and Guang Zhou Real Estate on the point raised by Mr. Lee.  In particular, I am unsure whether there is a distinction between 'giving' and 'showing' good title.  The supposed distinction would emasculate CPO s.13 of practical effect.  But, given my conclusion based simply on the construction of Agreement cl.6(a), it is unnecessary and undesirable for me to explore the question further here."

43.  Mr Godfrey Lam, SC, also relied on the following passages from the judgment of Saunders J in Donpower Trading Ltd v Apexcom Ltd [2009] 4 HKLRD 476 at page 490:

"16.   The decision in Yiu Ping Fong was followed by Deputy [High Court] Judge Chu, (as she then was), in Guang Zhou Real Estate Development (Hong Kong) Company Ltd & Anor v Summit Elegance Ltd [2000] 2 HKLRD 855.

17.   Consequently, in so far as s 13 was thought to relieve a vendor of the onerous burden of producing title documents older than the pre-intermediate root of title, at least 15 years old, it has not had that effect.

18.   The decisions in Yiu Ping Fong and Guang Zhou Real Estate, were doubted by Reyes J. in C & W Watch Co Ltd v Chu Kwok Tai [2005] HKEC 1603, but it was not necessary in that case to explore the issue, as the decision turned upon the construction of the particular contract in question. The judge noted however that the interpretation given to the provisions of s. 13(1)(CPO) by both Yiu Ping Fong and Guang Zhou Real Estate, in so far as they drew a distinction between 'showing' and 'giving' good title, would:

…emasculate CPO s 13 of practical effect.

I agree with his conclusion, although with respect to the Judge I accept the distinction between 'showing' and 'giving' good title.

19.  In time, the effect of the decisions in Yiu Ping Fong and Guang Zhou Real Estate were recognised by both the Law Society and the Government.  In order to alleviate the problem that had apparently arisen the CPO was amended by adding s. 13A, in the following terms:

13A.  Delivery of original deeds or documents of title

(1)   Unless the contrary intention is expressed, a purchaser of land shall be entitled to a 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)  if there is a Government lease that relates exclusively to the land, the lease; and

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

44.  In the Court of Appeal in Donpower Trading Ltd v Apexcom Ltd[2010] 1 HKLRD 915 (CA), Cheung JA said (in para 30):

"30.  It is not necessary for me to discuss whether the decision [in Yiu Ping Fong] on s. 13(2) was correct or not. Irrespective of any contrary view taken on the effect of the decision, I am of the firm view that the ambit of the decision did not go as far as the one suggested by the defendant in the present case, namely, the plaintiff was required to supply both pre-intermediate root of title documents and those preceding them.

……

33.  In my view the new s. 13A seeks to overcome the difficulty posed by the decision on the requirement of production of original documents.  This will apply whether one is concerned with the giving of title, be it based on intermediate root of title or otherwise. 

34.  It is said that s. 13A has the effect of relieving the vendor from producing pre-intermediate root of title documents or proving such titles.  Without deciding on the matter, I am prepared to accept that s. 13A may have such an effect.  But this effect, in my view, is already provided for by s. 13(1)."

45.  Mr Lam submitted that Cheung JA was of the view that section 13 not only reduced the burden upon the vendor in showing title but also pro tanto the burden of delivering documents upon completion.  Mr Lam submitted that in keeping with the intendment of section 13, any requirement to deliver the old deeds is abrogated.  He submitted this is sensible since in relation to old title deeds it would be difficult to explain their loss with additional difficulties as to who should make the statutory declaration Hong Kong Conveyancing Law and Practice Vol 1(A): Sihombing and Wilkinson, §79.6.

46.  The latest authority on the subject is Smart Max Enterprise Ltd v Speedy Way Ltd, CACV 4/2011 (unreported, 24 May 2011; Cheung, Yeung and Yuen JJA), where at para. 37 Yuen JA said (with the concurrence of Cheung and Yeung JJA):

"… favour of a third party can be created by the deposit of title deeds).  Whilst there can only be 1 set of original title deeds, many sets of certified true copies may be made at various times.  The production of certified true copies at the showing title stage would be adequate to enable title to be investigated, but in my view it cannot be adequate at the giving title stage (with the exceptional case of lost title deeds) because a set of certified true copies would not give the purchaser the security provided by his possession of the original title deeds."

47.  With respect, I agree with Yuen JA. It goes with saying so that I also agree with Yiu Ping Fong and Guang Zhou Real Estate Development (HK) Co Ltd.  I am also of the view that the obligation to produce original title deeds and documents extend beyond the intermediate root.  In other words, notwithstanding section 13, a vendor is required to supply all the original title deeds which relate exclusively to the property sold which should be in his possession or power.  Otherwise, the vendor must provide clear and cogent proof of: the contents of the missing document; its due execution; and the fact of its loss or destruction.  Wu Wing Kuen and Ors v Leung Kwai Lin and Another [1999] 3 HKLRD 738.

48.  In the present case, the contents of the missing documents and their due execution were proved by the production of the certified true copies. 

49.  In their letter of 16 June 2008, WKLL relied on Yiu Ping Fong and Guang Zhou Real Estate Development (HK) Co Ltd as:

"12.  … clear authorities on the vendor's duty to produce the originals of all title deeds and documents relating exclusively to the property.  These cases have been followed in the most recent decision of Loyal Hope Limited and Leung Pui Ming v. Lam Pui Ming, Leung Yan Ming [2008] HKCFI 247 confirming that the purchaser has the right to insist on production of original title documents relating exclusively to the property beyond the 15-year period."  [Emphasis in original]

50.  WKLL went on to say:

"25.  As [these documents] also relate exclusively to the Property, please let us have the original to complete the chain of title or Statutory Declaration by the person responsible for their loss for our perusal by reason as set out in item 12 above."

51.  In response, apart from asserting that the Plaintiff was not entitled to the originals, LWT offered to provide a statutory declaration relating to their loss.  Mr Lam has rightly accepted that the draft statutory declaration eventually offered was inadequate for the purpose and there is insufficient evidence of loss or destruction.

52.  Section 13A was enacted in 2008 (effective from 11 July 2008, hence, it has no application to the Preliminary Agreement) under which a purchaser is entitled:

"(1) … 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) if there is a Government lease that relates exclusively to the land, the lease; 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)."

53.  Section 13A was enacted to ameliorate the difficulty which the requirement to produce on completion original pre-intermediate root title documents might pose, presumably, because if a purchaser is not entitled to delivery of the original of any pre-intermediate root title document, he could not be put on notice by their absence.

54.  However, I note that the Official Record of Legislative Council Proceedings on 2 July 2008, recorded the following statement by the Secretary for Justice at page 9951:

"While noting that the risk of affecting a third party's right or interest is very remote, members consider that the right or interest of any person other than the vendor and the purchaser should not be affected as a result of the operation of the proposed new section 13A.  It is proposed to amend the new section 13A(4) to address members' concern by making it clear that the new section 13A shall not affect the right or interest in the land concerned of any other person who is not a party to the contract for the sale and purchase of that land."

55.  Section 13A(4) provides:

"(4) The fact that-

(a) the vendor is not required to deliver to the purchaser a document in giving title to that land; and

(b) the purchaser has no proprietary right or ownership in the document,

does not affect the right or interest of any other person in that land."

56.  Earlier in the Report of the Bills Committee on Statute Law (Miscellaneous Provisions) Bill 2000 LC Paper No. CB(2)2348/07-08 ("the Report"), it was stated that section 13A(4) was enacted to protect third party's right or interest though such risk was regarded as remote.  Para 29 of the Report should be noted.  It reads:

"29.  The Administration and the Law Society have pointed out to the Bills Committee that the risk of the purchaser acquiring a defective title by reason of the existence of third party rights in or against the land as a result of the operation of the new section 13A is likely to be very remote.  In practice, the third parties whose rights would be relevant would be equitable mortgagees by way of deposit of title deeds.  However, in Hong Kong, most mortgages are effected by written legal or equitable charges.  Even if equitable mortgages by way of deposit of title deeds exist, the interests and rights of the mortgagees will be expressly protected under the new section 13A(4)."

57.  We have not heard full submissions on the effect of section 13A(4), and, as noted, section 13A has no application in this case. I have to say, however, it is difficult to understand how an equitable mortgagee by way of deposit of title deeds may be protected otherwise than by the operation of constructive notice, which section 13A(1) was presumably enacted to avoid.

58.  Mr Lam also referred us to the Conveyancing and Property (Amendment) Bill 1987 whereby, the section 13(1) of the Conveyancing and Property Ordinance was amended by reducing the then required period of proof of title from 25 years to 15 years.

59.  The Explanatory Memorandum to the Bill stated:

"5.  (a)  A vendor is usually required to produce, in order to prove his title to the land being sold, the Crown lease and all other relevant documents for a period of at least 25 years before the contract for sale.  This minimum period for proof of title has been reduced to 15 years as the period of 25 years was causing problems with providing certified copy documents, and it was considered that purchasers were not likely to be materially affected by such a reduction.  Clause 5(a) provides for this and also amends section 13(1)(a) to make it clear that title cannot be required to commence before the grant of the Crown lease forming the root of title."

60.  I regret to say I do not find the explanation helpful.  I am in respectful agreement with the views expressed in Emmet & Farrand on Title quoted in para. 38 above and the views expressed by Yuen J in Yiu Ping Fong. In other words neither section 13(1) nor (2) relieves a vendor of its obligation to deliver original title deeds unless there is adequate evidence showing their loss or destruction.  Indeed, the enactment of section 13A supports these views.  The relief provided by section 13A(1) (disregarding for the moment a potential difficulty with section 13A(4)) is only applicable to the pre-intermediate root original documents.

61.  In my view, the consequence of a failure to produce the originals or explain their destruction or loss, is that the Plaintiff was entitled to refuse to complete.

62.  The relevant missing original post-intermediate documents included two legal charges both dated 30 May 1990, Memorial Nos. UB4460364 and UB4460370; and one deed of release dated 12 October 1998, Memorial No. UB7600635. Both legal charges were made pursuant to a loan agreement dated 25 May 1990, made by Delvincourt Limited and Standard Chartered Bank as lender and Standard Chartered Asia Ltd as agent Memorial No. UB4460364 concerned Room 4 [B1/416] and Memorial No. UB4460370 Room 5 [B1/326].

63.  The Deed of Release Memorial No. UB7600635 [B1/338] released Rooms 4 and 5 from Legal Charges Memorial Nos. 4460364, 4460370 [B1/338]. I note that the Deed of Release contained a covenant by the Standard Chartered Bank that it:

"… has not done omitted or knowingly suffered or been party or privy to any act, deed, matter or thing whereby or by means whereof the Property or any part thereof are or is or may be impeached, charged, affected or incumbered in title, estate or otherwise …"

64.  It appears from the draft statutory declaration that Delvincourt Ltd assigned the Property to Nescon Ltd (said to be the current owner in LWT's third letter of 16 June 2008 [B1/100]), by assignment dated 12 October 1998, Memorial No. UB7599026.  It is a matter of surmise but it appears from the title documents listed in LWT's letter of 21 February 2008, that Delvincourt had in turn acquired the Property by the two assignments dated 19 September 1983 Memorial No. 2486759, 2486760 respectively.

65.  Mr Lam submitted that the legal charges are not documents which could be deposited for the purpose of an equitable mortgage. 

66.  Under section 44 of the Conveyancing and Property Ordinance (Cap 219) a legal charge has:

"… the same protection, powers and remedies … as if the mortgage had been effected by way of assignment of the legal estate …"  Section 44(2)

67.  I agree with Mr Edward Chan that it is possible to create an equitable mortgage of the legal charges by deposit of title deeds.  Konew Finance Ltd v Wong Kai Ming & Ors [2001] 3 HKC 90 at 96A-97H, (Registrar Au Yeung); Yip Lau Yan, Vinton v Tsang Wing Lam, HCA 10967/1995 (9 December 2010) in para 72 at page 33 per Chu J (as she then was).

68.  In relation to the pre-root documents, I believe only four documents need to be noted.  They are Nos. A to D in Mr Lam's Table of Documents.

69.  A and B related to Rooms 4, C and D to Room 5. Under A [B1/181] Hong Kong Carpets Manufacturers Ltd acquired Room 4 from the National Bank of Canada.  By B, Hong Kong Carpets Manufacturers Ltd assigned Room 4 to Tai Ping carpets Ltd [B1/190].

70.  By D, the Bank of Nova Scotia assigned Room 5 to Hong Kong Carpet (Holdings) Ltd [B1/207] which in turned, by C, assigned Room 5 to Tai Ping Carpets [B1/199].

71.  An equitable mortgage could be created by depositing these title deeds and a purchaser of the legal interest would take subject to such equitable mortgage if it has constructive notice.  Oliver v Hinton cited in para. 39 above shows a purchaser might be put on notice if he failed to require delivery or inspection of an original title deed. The quotation from para. 29 of the Report (see para. 56 above) shows the legislature enacted section 13A(4) to protect the very remote possibility of an equitable mortgage by a deposit of title deeds.

72.  Mr Lam submitted (in his skeleton submission) however that even in the absence of these originals,

"28.  … the vendor would be conveying substantially what the purchaser had contracted to buy: see Gladson China Ltd v Lam Alexander Chun June [2001] 2 HKLRD 235 at 243B-C & 245I-J [D#9]; Goldful Way Development Ltd v Wellstable Development Ltd [1999] 1 HKLRD 563 [D#10]; Spry, Equitable Remedies (7th ed), pp.292-301 [D#11]; see also Homyip Investment Ltd v Chu Kang Ming Trade Development Co Ltd [1995] 2 HKC 458, 466E-467C [D#12].

29.  The absence of delivery of these documents does not mean title would not be given to P.  The giving of title is achieved by the vendor conveying to the purchaser a good title that is not defective or defeasible.  The delivery of documents is 'a question of completion, not one of title': Re Duthy and Jesson's Contract [1898] 1 Ch 419 [P#18], at p.422 (counsel's submission) and p.423 line 10 (per Romer J).

30.  There is no mechanical rule that the inability to deliver the original of a document to which a purchaser is entitled as a matter of proprietary right, irrespective of its significance, automatically entitles the purchaser to rescind the agreement."

73.  None of the authorities relied on by Mr Lam in para. 28 of his skeleton submission concerned the absence of original title deeds.  Nor any defect of title because of a possible encumbrance.

74.  We are concerned with absent title documents which fall within as well as outside the intermediate root. 

75.  Mr Lam submitted that, in any event, the risk of an equitable mortgage is so remote that it should be disregarded, relying on MEPC.  Can it be said that having regard to the identity of the chargee and the covenant referred to in para. 63 above as well as the parties involved in the pre-intermediate assignments, one is entitled to say any risk of an equitable mortgage is so extremely remote that it should be disregarded? 

76.  I have not found this easy but in the end, and with great respect, I am unable to agree with Mr Lam.

77.  I believe it is invidious to have to decide such and such a chargee or assignee is more or less likely than others to be fraudulent.  It is not a task on which a purchaser should be required to embark. 

78.  It lies ill in the mouth of a vendor to say that the risk is remote, when it is within its power, to remove the risk completely, for example, by properly accounting for the absence of the originals.  I do not rule out the possibility that in a suitable case, a vendor, who, in spite of all reasonable efforts, is unable to explain a missing title deed, may be permitted to show that there was no reasonable doubt about the title. 

79.  Moreover, if a vendor wishes so to assert, he should do so during the requisition.  In that case, no doubt, the parties would examine all the circumstances and decide whether in the circumstances, good title has been shown.

80.  This is not such a case.

81.  Nor does Re Duthy and Jesson's Contract [1898] 1 Ch 419 help the Defendant.  That case was concerned with the right of a purchaser to have the title deeds handed over to him on completion, and it was held that the mere fact that obtaining the deeds for this purpose may cause the vendor trouble and expense is no answer to the purchaser's demand.  The document in question was a mortgage deed made in 1848 together with certain earlier title deeds.  The following paragraphs in the report should be noted:

"Prior to the execution of the contract, the purchaser had an interview with the vendors' solicitors, when the nature and state of the earlier title to the property was fully explained to him, and he was told that these earlier title-deeds were not in the vendors' possession. A conveyance of November, 1894, and certain subsequent deeds, which were in the vendors' possession, were shewn to and gone through with the purchaser, who then expressed himself willing to take such title as the vendors had, and thereupon the contract was signed. It appeared to have been understood at the time that application was to be made by the vendors to Messrs. Talbot & Tasker for these earlier deeds, and no difficulty was then anticipated in obtaining them.

An abstract commencing with the conveyance of November, 1894, was delivered to the purchaser, upon which no requisitions were made, but the purchaser required the mortgage of 1848 and the other title-deeds to be obtained and handed over to him on completion.

Application was made by the vendors to Messrs. Talbot & Tasker to deliver up these earlier deeds, but they declined to part with them, though claiming no lien on them, without the authority of the representatives of the mortgagees by whom they had been deposited, or until a reconveyance had been executed. A good deal of correspondence on the subject passed between the parties, and the vendors contended that; short of taking legal proceedings, they had done all in their power to obtain the deeds. They also offered the purchaser the use of their name, if he cared to bring an action, on his giving them an indemnity.

As the purchaser still declined to complete until these deeds were handed over to him, the vendors took out a summons under the Vendor and Purchaser Act, 1874, asking for a declaration that the requisitions and objections of the purchaser had been sufficiently answered by the vendors, and that a good title had been shewn in accordance with the contract."

82.  It is clear from those facts that there could be no doubt about the vendor's title.  Even so, Romer J dismissed the vendor's application saying at pages 422-423:

"The question raised by this summons concerns certain title-deeds of the property contracted to be sold. The purchaser is not asking to have these deeds produced for the verification of or for information as to the title, but is calling upon the vendors to fulfil the ordinary obligation they are under of handing over on completion all title-deeds in their possession or power. … Now, prima facie the deeds now in question are such as the vendors would in the ordinary course be obliged to hand over on completion to the purchaser.  The deeds were deposited with certain mortgagees whose debt has since been paid off.  If the debt had not been paid off the vendors would have been bound on completion to obtain the concurrence of the mortgagees in the conveyance to the purchaser, and the deeds would then have been handed over.  And the mere fact that the debt has been previously paid off can make no difference in the right of the purchaser to have the deeds handed over.  Nor is there anything in the contract of sale which would take away this right of the purchaser.  The provision that the purchaser is to accept the best title that the vendors can give certainly does not take away the purchaser's right.  So far as I can see, no question of title is involved. If the vendors had been unable to obtain the deeds because of some defect of title which under the contract they were not bound to cure, different considerations would apply; but this is not the case.  The mere fact that obtaining the deeds for the purpose of handing them over on completion may cause them trouble and expense is no answer to the purchaser. …"

83.  Moreover, it is clear from Re Duthy that the vendor would have been refused specific performance.  So here I do not believe the Defendant was in a position to compel performance.

84.  I understand that in the circumstances of this case, the Defendant might think that because of a falling market, the Plaintiff was looking for an excuse not to complete.  In such circumstances, it is understandable that a vendor might be dismissive of the purchaser's complaints.  However, it is salutary to remember what Lord Atkin said in Acros Ltd v E A Ronaasen & Son [1933] AC 470, at 480:

"… No doubt, in business, men often find it unnecessary or inexpedient to insist on their strict legal rights.  In a normal market if they get something substantially like the specified goods they may take them with or without grumbling and a claim for an allowance.  But in a falling market I find that buyers are often as eager to insist on their legal rights as courts of law are ready to maintain them. …"

85.  For the above reasons, I would allow the appeal, set aside Yam J's judgment, and order that the Defendant do pay the Plaintiff a sum of HK$13,886,910, with interests at the rate of 1% over the best lending rate.

Hon Fok JA:

86.  I agree.

Hon Lam J:

87.  I agree.