CASTLE CITY LTD. v. CHOI YUE DEVELOPMENT LTD.

HEADNOTE

[When the Court suspects that solicitors advising the purchaser of property or land may have been tempted to treat a vendor and purchaser summons under section 12 of the Conveyancing and Property Ordinance (Cap. 219) as a means of protecting themselves at their clients' expense, the Court should consider requiring the solicitors to show cause why an appropriate order for costs should not be made against them under Ord. 62 r. 8.]

1995 M.P. No. 1147

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 a vendor and purchaser summons. It concerns five lots of land which the Plaintiff ("the vendor") agreed to sell to the Defendant ("the purchaser") by a sale and purchase agreement dated 17th November 1994. The five lots of land were Lots 257, 258, 259, 260 and 264 in Demarcation District 113 in the Yuen Long District Registry.

2. By clause 18 of the agreement, the vendor undertook to prove its title to the land at its own expense. In order to do that, its solicitors provided the purchaser's solicitors with copies of a number of instruments. Among those instruments were two memorials relating to Lots 260 and 264 :

(i) Memorial 80293 related to a mortgage deed dated 9th September 1931 in respect, inter alia, of the two lots. It recorded that a sum of $600.00 had been paid to the mortgagor by the mortgagee, who was named as Fung Yiu Lau, and that repayment was due on various dates, the last of which was in 1945.

(ii) Memorial 128183 related to a deed dated 8th June 1951 in respect, inter alia, of the two lots. It recorded that a sum of $600.00 had been paid to redeem the mortgage to the mortgagee's trustee. The memorial was signed only by Fung Kwai Sum. The memorial did not state who he was.

The concern of the purchaser's solicitors is that, on the assumption that Fung Kwai Sum purported to be the mortgagee's trustee, no document has been produced to them to show that he had been validly appointed as the mortgagee's trustee, and had therefore been validly authorised by the mortgagee to sign the redemption deed and the memorial on his behalf. If he was not authorised to sign the redemption deed and the memorial, there was no valid acknowledgement that the mortgage of 9th September 1931 had in fact been redeemed.

3. The vendor's primary case is that any claim by the mortgagee on the mortgage of 9th September 1931 is statute-barred. Sections 7 and 19 of the Limitation Ordinance (Cap. 347) provide a limitation period of 12 years for actions for :

(a) the repayment of the principal sum of money secured by a mortgage (section 19(1)),

(b) the repayment of the interest on the principal sum of money secured by a mortgage (section 19(5)), and

(c) the recovery of land (section 7(2)).

Prior to 1991, the limitation period was 20 years. The right to receive repayments under the mortgage accrued by the end of 1945 at the latest. Accordingly, by the end of 1965, no action could have been brought on the mortgage in the absence of any acknowledgment or part-payment. Even if it could be said that the redemption deed was evidence of repayment as late as 1951 (and to assert that would have been inconsistent with the purchaser's case that the redemption deed could not be relied on), no action could have been brought on the mortgage deed after 1971. At the latest, therefore, provided that there had been no acknowledgment or part-payment since 1971, the mortgagee's title was extinguished by the end of 1971. I accept that argument. For that reason, the vendor is entitled to a declaration that the mortgage of 9th September 1931 is no longer subsisting or capable of taking the effect. The remote possibility of an acknowledgment or part-payment in the last 20 years makes the supposed blot on the vendor's title - especially when one remembers the size of the mortgage and its antiquity - theoretical only. In these circumstances, no question of proper conveyancing proof that the mortgage had been redeemed was necessary.

4. In reaching this conclusion, I have been travelling on well-trodden ground. Godfrey J. (as he then was) reached a similar conclusion in Fung Kam Cheung v. Kwok Yiu Wing (HCMP 1493/90), as did Deputy Judge Neoh Q.C. in Tang Kun Nin Tony v. Tang Chun Chak (HCMP 761/91).

5. In these circumstances, I do not have to reach any conclusion on the vendor's secondary case, namely that it was entitled to rely on the decision of Barnett J. in Wong Yau v. World Ocean Ltd. (HCMP 3834/93). In those proceedings, the purchaser's title to the land in question was also dependent on whether the mortgage of 9th September 1931 had been redeemed by the redemption deed to which the memorial of 8th June 1951 related. Barnett J. declared that a good title to the land in question had been shown. In this connection, Mr. Christopher Lam for the vendor relies on what Godfrey J. said in Fung Kam Cheung :

"It must be appreciated that ... a declaration [that the mortgage ... is ... no longer subsisting or capable of taking effect] operates only as between the vendors and purchasers, ... and does not bind the mortgagee. But I cannot see that that gives rise to any real difficulty. I would hope that no subsequent purchaser or lender will, in the future, seek to raise any objection to the title here based on the existence of the mortgage ...".

However, Godfrey J. added that "nothing in the order I make in this action can preclude him from doing so", and I do not think that the purchaser's solicitors can be criticised for not accepting the vendor's title solely on the basis of Barnett J.'s decision. The declaration made by Barnett J.was dependent on the purchaser's solicitor complying with an undertaking to supply to the vendor's solicitors various documents. For all I know, in the absence of such an undertaking, Barnett J. might not have been able to find (as I assume he did) that the mortgage should be treated as having been redeemed.

6. However, the declaration that the mortgage of 9th September 1931 is no longer subsisting or capable of taking effect means that the vendor, in my judgment, is entitled to the declarations sought in paras. 1 and 2 of the originating summons, save that it is not appropriate for me to declare that the mortgage of 9th September 1931 has been validly discharged. I make those declarations in the knowledge that they satisfy both the vendor and the purchaser. They satisfy the vendor, of course, because the vendor can now proceed to completion without worrying about the doubts which have been expressed on its title. But they satisfy the purchaser as well, because Mr. T. M. Lee on behalf of the purchaser has told me that the purchaser wishes to proceed with the purchase : the purchaser simply wished to have the protection of a finding of the Court against any attack in the future on the purchaser's title. By this judgment, I hope that I have put the purchaser's concern about the title it is acquiring to rest.

(After further argument)

7. After I had given judgment, and had awarded the vendor the costs of and occasioned by its originating summons, I asked Mr. Lee to address me on the question of costs as between the purchaser and its solicitors. After he had done so, I directed that the question as to whether the purchaser's solicitors should be required to show cause why an order should not be made under Ord. 62 r. 8 be adjourned to a date to be fixed. Since it was after 4:30 p.m. by then, I said that I would add my reasons for doing so to the tape of this judgment. That I have now done.

8. My concern was this. Solicitors advising purchasers are required to give proper advice as to the title of the property which their clients are buying. If they identify a possible defect in the vendor's title, they must advise whether the supposed defect is a real concern, or whether it is so theoretical that the chances of it ever being treated as a defect in the vendor's title are so remote that they can be discounted for all practical purposes. This is not the first vendor and purchaser summons in which I have concluded that the supposed blot on the vendor's title was so theoretical as not to amount to a defect in the title at all. My experience tells me that some solicitors advising purchasers may be tempted to treat the procedure laid down in section 12 of the Conveyancing and Property Ordinance (Cap. 219) as a means of protecting themselves at their clients' expense. I suspect that instead of giving their clients their professional opinion on how likely it is that the defect will not be regarded as a blot on the vendor's title, some solicitors advising purchasers may have taken the easy route of advising their clients to obtain a definitive ruling from the Court. That would not be a legitimate approach. As Godfrey J.A. once wrote : "... it is not and should not be the duty of a conveyancing practitioner to take every conceivable point ... in order to protect his own rear" ("Trivial pursuits not allowed!", The New Gazette, March 1994, p. 31).

9. The present case was one in which I would have expected solicitors advising the purchaser to have advised the purchaser in strong terms that :

(i) the chance of a subsequent purchaser of the land successfully alleging a defect in the title to the land which the current purchaser was acquiring from the vendor was negligible, and

(ii) on a vendor and purchaser summons, it was practically inevitable that the Court would decide that good title had been shown, in which case the purchaser would inevitably be ordered to pay the vendor's taxed costs (as well as its own).

If that is what the purchaser's solicitors had advised their clients, but the purchaser nevertheless wanted the protection of a declaration that good title had been shown, no question of the purchaser's solicitors having to pay the costs of the summons could possibly arise. But if the purchaser's solicitors' advice was such that the purchaser thought that there was a real issue as to whether the vendor was able to pass a good title, and that it was necessary for the issue to be clarified by the Court, it is arguable that the purchaser's solicitors were seeking to obtain the comfort of a declaration for themselves rather than for the purchaser. It is arguable that, in that event, they should bear the costs of the summons rather than the purchaser.

10. It was for that reason that I asked Mr. Lee what advice the purchaser's solicitors gave the purchaser. After taking instructions from the purchaser's solicitors, Mr. Lee told me from the Bar Table that after explaining the nature of the possible defect in the vendor's title, the purchaser's solicitors told the purchaser that :

(i) they had very little reason to doubt the vendor's ability to prove good title, and

(ii) the vendor's solicitors did not believe that there was a problem with the vendor's title either.

However, in view of the size of its investment in the land, the purchaser did not want there to be the slightest problem. In the light of that concern, the purchaser was advised that the only way to achieve the peace of mind it sought was either not to proceed with the purchase at all or to obtain a ruling from the Court. The purchaser was informed that if the Court declared that a good title had been shown, the purchaser would have to pay all the legal costs.

11. If that is what the purchaser was advised, no possible criticism can be levelled at the purchaser's solicitors, and no question of them having to pay the costs of the summons arises. However, because Mr. Lee's instructions were based only on what the purchaser's solicitors told him, I said that I wanted confirmation from the purchaser that what I had been told was correct. That was why I adjourned to a date to be fixed the question as to whether the purchaser's solicitors should be required to show cause why an order should not be made under Ord. 62 r.8. The purchaser should be shown a copy of this judgment, and I should then be informed, by a letter to my clerk, whether they accept the accuracy of Mr. Lee's instructions. On receipt of that letter, I shall make such order as I think appropriate. For obvious reasons, I have directed that the purchaser's solicitors be not identified for the time being.