WONG KWOK YAN AND ANOTHER v. PON CHI LOK

HCMP1379/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1379 OF 2007

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J U D G M E N T

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1. On 22 December 1987, one Lee Wai Tim became the Grantee of the Hong Kong Government under a New Grant with Special Conditions therein, in respect of the property on which the suit property stands, i.e. Lots 1083 in D.D.180, Shatin.

2. Clause 5(a) of the Special Conditions provided that the grantee, having obtained this grant by way of private treaty at a concessionary premium, shall not assign, partition, mortgage, charge, demise, underlet, part with possession of or otherwise dispose of the lot or any part thereof or any interest therein…. unless under Clause 5(d), the Grantee has obtained a written consent of the District Lands Officer and on such conditions as may be imposed by him. 

3. Contrary to the aforesaid condition, the Grantee executed a mortgage in favour of Hang Seng Finance Limited on 14 November 1996 for general credit facilities.  The same was actually registered in the Land Registry. 

4. On 8 August 2005, the Grantee entered a written agreement for sale and purchase of the suit property with the defendant herein.  The same was registered again in the Land Registry.  On 28 December 2005, this agreement for sale and purchase was cancelled by a cancellation agreement.

5. On 18 April 2006, the District Lands Office, by a letter to the Grantee, attached a Demand Note in the sum of $2,505,300 being the premium payable under Special Condition No.5(d)(ii), and it was stated that upon settlement of the Demand Note :

“	(1)	his consent for the Grantee to assign the lot pursuant to Special Condition No.5(d)(ii) shall be deemed to have been given; and
	(2)	Special Conditions Nos.5(a), (b), (c) and (d) of the New Grant should no longer apply.”

6. On 4 May 2006, the Grantee paid the aforesaid sum of premium.

7. The Grantee further redeemed the aforesaid mortgage and received a receipt on discharge, dated 23 May 2006.

8. In the meantime, on 29 April 2006, the plaintiffs entered into a provisional sale and purchase agreement with the defendant in respect of the suit property and the completion date was scheduled to be on or before 22 June 2007.

Requisition

9. A requisition was made by the plaintiffs’ solicitors on 14 May 2007 to the defendant’s solicitor about the breach of Special Condition No.5 as aforesaid.  On the same day, the plaintiffs’ solicitors also wrote to the District Lands Office, making enquiries about the same breach of Special Condition No.5. 

10. On even date the defendant’s solicitors wrote to the plaintiffs’ solicitors and said that according to their view, “there was no real risk [of such a breach] and/or encumbrance.”

11. On the same day, the plaintiffs paid the stamp duty in respect of their purchase in the sum of $28,100. 

12. The plaintiffs had paid the initial deposit at a sum of $100,000 and a further deposit in a sum of $128,000, being 10% of the purchase price.

13. As aforesaid, on 23 May 2007, the said mortgage was discharged and the receipt on discharge was registered in the Land Registry. 

14. The requisition of the plaintiffs’ solicitors was raised on the ground that the aforesaid agreement for sale and purchase to the defendant on 8 August 2005 and the prior mortgage on 14 November 1996 were all executed prior to the date of the consent letter on 18 April 2006.  They were clearly in breach of the said Special Condition No.5.  This would invoke the Government to exercise her right of re-entry into the property.

15. However, the defendant’s solicitor, in answer to this requisition, contended that there was no risk of the Government exercising her right of re-entry into the property.  They just agreed to extend the completion date to 6 July 2007. 

The stand of the Grantor or the District Lands Office

16. Both parties wrote to the District Lands Office for their view and confirmation that the Government would not consider the aforesaid sale and the said mortgage with the breach of Special Condition No.5 or otherwise the District Lands Office had, retrospectively or by necessary implication, waived such a breach.  However, the letter from the District Lands Office dated 6 May 2007 only said that the matter was receiving their attention and would communicate with them once a substantial reply could be made.  On 6 July 2007, the District Lands Office wrote to the plaintiffs’ solicitors and the defendant’s solicitors and said that :

“	… this office is now seeking the advice from the Senior Solicitor of Legal Advisory And Conveyancing Office and I shall inform you the outcome once available.”

17. On the extended date of completion, the defendant’s solicitors demanded from the plaintiffs’ solicitors that the completion should be made or else they would treat the plaintiffs as having repudiated the provisional sale and purchase agreement.  The plaintiffs’ solicitors however took the stance that their requisition has not been satisfactorily answered and the plaintiffs reserved their right to postpone the completion date to be agreed provided that the defendant could show good title to the said property.

18. On 9 July 2007, the defendant’s solicitors, by a letter informed the plaintiffs’ solicitors that the defendant regarded the plaintiffs as having breached the agreement by failing to complete and they have forfeited the plaintiffs’ aforesaid deposit.

The issue — Has good title been shown by the defendant vendor to the plaintiffs purchaser?

19. In Kan Wing Yau v. Hong Kong Housing Society [1988] 2 HKLR 187, it was held by the Court of Appeal that :

“

2.

The obligation on the vendor to prove good title meant that the title proved must be one which can at all times, and in all circumstances, be forced upon an unwilling purchaser in an action for specific performance.  The court would not force a doubtful title on a purchaser.  A doubtful title was one which would expose the purchaser to risk or hazard.  The court must be satisfied beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance.  It was only if the blot on the title were purely theoretical and not a practical blot that it could be ignored.  (See pp. 194E and 199B.)”

20. Similar decision (which is the other side of the coin) had been held by the House of Lords in a case relied on by counsel for the defendant : M.E.P.C. Ltd v. Christian-Edwards and Others [1981] 1 AC 205, at p.220C-D, that Lord Russell of Killowen said :

“

… In my opinion if the facts and circumstances of a care 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.”

21. Thus the question is whether or not I am satisfied beyond reasonable doubt the purchaser would or would not be at risk of a successful assertion against those breaches which happened before the payment of the premium.

22. Here, it should be noted that the aforesaid consent letter dated 18 April 2006 contained the following contention :

“	Please note that this letter is without prejudice to all or any rights of the Government whether under the captioned New Grant or otherwise in respect of any breach or failure to observe any term or condition which may exist on the date hereof or which may hereafter occur.”

23. Until the date of the trial of this originating summons, the Government has not taking a stand as to whether the Government would take any action against any breach which occurred before the premium was paid.  This in my view is highly unsatisfactory since after months of consideration by the legal advisors in the Department of Justice, there was no definite decision made.  Apart from the inefficient way of replying to the vendor and the purchasers, this is not conducive to assisting a commercial transaction which hinged on the stand of the Government.  Both sides expressed their dissatisfaction in the way handled by the Government which has caused the litigants enormous amount of money and energy in litigating the present case.  This is not conducive to a harmonious society.

24. Be that as it may, the aforesaid consent letter made it very clear that the rights of the Government has since then been reserved.  The situation is quite similar to the case of Mark Alexander Turner and another v. Hung Hok Man, HCA2387/2004, unreported, per Mr Recorder Fok SC, 13 March 2007.  In that case the premium for removing alienation had been paid on 5 July 1990 and there had been a prior unregistered Memorandum (of Sale) dated 9 February 1988 and another prior unregistered Conditional Agreement (for Sale) dated 28 March 1990.  Mr Recorder Fok held that :

“	50.	The title deeds of the Property showed an obvious prima facie breach of the New Grant.  By a Memorandum dated 9 February 1988 and a Conditional Agreement dated 28 March 1990, the grantee, through its attorney, entered into agreements for the sale and purchase of premises built on the lot covered by the New Grant.  This was before the deletion of Special Conditions 4, 5 and 6 of the New Grant following the payment of an additional premium on 5 July 1990.
		…
	55.	Mr Sean Fang, counsel for the Plaintiffs, submitted that, bearing in mind the Defendant’s duty to prove her title so that the Court could be satisfied beyond reasonable doubt that the Plaintiffs would not be at risk of re-entry by the Government (per Kan Wing Yau & Anor. v. Hong Kong Housing Authoriyt [1988] 2 HKLR 187), what the Defendant could and should have done was to seek confirmation from the District Lands Office that enforcement action would not be taken in respect of the unregistered Memorandum and Conditional Agreement.
	56.	I agree.  This would have been a simple and appropriate way to respond to the First Requisition and would have put any doubts over the Defendant’s title to rest.  Instead of doing so, however, the Defendant purported to annul the sale by serving the Clause 16.02 Notice.  On her evidence, both in her witness statement and in her oral testimony, she explained that, since property prices were rising at the time and she was very busy, she was not prepared to waste further time and costs in dealing with the Plaintiffs in respect of the Property but preferred to sell it to someone else instead.  Be that as it may, as a matter of law, she was obliged satisfactorily to answer the requisitions raised.  That, so far as the First Requisition was concerned, she did not do.
	57.	I therefore conclude on this issue that the First Requisition was not satisfactorily answered by the Defendant.”

25. In the present case, both sides have tried very hard to seek confirmation from the District Lands Office that the enforcement action would not be taken.  This was what Mr Recorder Fok had suggested.  However, as aforesaid, no reply was made till the date of the trial which is nearly five months thereafter. 

26. For the aforesaid reason, I do not consider that the purchasers would not be at risk of a successful assertion against them of the prior incumbrance.  I am not satisfied beyond reasonable doubt that such will be the case.  It is not a case that the vendor was just technically “jumping the gun” as in the case of Li Pui Wan v. Wong Mei Yin [1998] 1 HKLRD 84.

27. For the aforesaid reason, I conclude that the vendor has not proven beyond reasonable doubt of a good title in this respect.  Accordingly, I gave judgment for the plaintiffs in terms of paragraphs 1 to 8 inclusive of the originating summons.  I am ordering liquidated damages in the sum of $100,000 to the plaintiffs instead of damages to be assessed.  In respect of paragraph 5, interest shall be on the respective sums of $228,000 and $100,000 at 10% per annum from the date of the originating summons (24 July 2007) to the date of judgment.

28. There shall be an order nisi of costs to the plaintiffs, to be taxed if not agreed.