DONPOWER TRADING LTD v. APEXCOM LTD

HCMP 2095/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

NO. 2095 OF 2008

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J U D G M E N T

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1.  This Originating Summons was brought by the plaintiff, (the vendor), against the defendant, (the purchaser), of a property known as “40 shops in the basement of Pearl House in Prince Edward Road West, Kowloon”, (the property).  It will be convenient throughout the judgment to refer to the parties as the vendor and the purchaser.

2.  On 7 June 2008, the vendor and purchaser signed a provisional agreement for sale and purchase, (the ASP), of the property in the sum of $15 million.  The purchaser, by two instalments, has paid a deposit of $1.5 million.  Completion was due on 30 September 2008.  No formal sale and purchase agreement was entered into, but nothing arises from that.

3.  The completion date came and passed, and the purchaser refused to complete the purchase on the grounds that the vendor had failed to show good title by satisfactorily answering requisitions concerning alleged missing title deeds.

4.  When the purchaser failed to complete, the vendor took the view that the purchaser was in repudiatory breach of the contract, and that the deposit paid of $1.5 million should be forfeited.  The purchaser seeks a refund of the deposit.  Whether or not the purchaser was entitled to refuse to complete turns upon three issues.  They are:

(i)    The commencement date, and the true interpretation of s 13A Conveyancing and Property Ordinance, Cap 210, (CPO).

(ii)  the meaning of the response on the part of the purchaser; “Noted”, to an assertion made by the vendor in respect of a particular requisition;

(iii)    whether the failure of the vendor to produce for perusal a Memorial of Charge, in relation to management fees, or a statutory declaration of loss thereof, constituted a defect in title.

Facts and chronology:

5.  The relevant time frame is short, and the facts are not in dispute.  All relevant matters were contained in a series of letters exchanged between the solicitors for the parties.  References in this chronology to the purchaser and vendor refer to the letters between the solicitors for the parties. All events took place in 2008.

6.  Although he was not prepared to concede the point, Mr Yau was unable to argue against the proposition that the intermediate root title document constituted item (v) on a list of documents subsequently supplied to the purchaser.  That item constituted an existing mortgage to the Bank of China (Hong Kong) Ltd.

The Chronology:

7 June ASP signed;

12 August    Purchaser sends to vendor title deeds and documents for perusal.  These comprise: government leases, occupation permit, Deed of Mutual Covenant.  The letter informs the purchaser that the intermediate root title document, item (v)  on the list, is a mortgage charge, No. UB 5975518, held by the solicitors for the mortgagee bank and is retained by them for the purpose of preparing the necessary discharge.  This document will later be referred to as document (v).

18 August    Purchaser raises five requisitions including a request for a total of 67 documents, mostly pre-intermediate root title documents.

26 August    Vendor responds, pointing out that with the exception of five documents, all documents requested were pre-intermediate root documents.  The letter includes the following statement:

“1.(i)  Save and except documents (v) to (z), all your requested documents under requisition no. 1 are pre-intermediate root documents, and the production thereof is not necessary pursuant to section 13A(1) of the Conveyancing and Property Ordinance Cap 219.

(ii)  Document (v) is now kept by Messrs Anthony Chiang & Partners, solicitors for the mortgagee, Bank of China (Hong Kong) Limited.

(iii)  We are checking with Messrs. Fairbairn Catley, Low & Kong, solicitors for the Incorporated Owners of Pearl House as to whether their client is in the possession of documents  (w) and (z) and shall furnish you any update in due course.  We send you herewith copies of the aforesaid documents for the time being.

(iv)  We shall send you certified copies of documents (x) and (y) in due course.” (sic)

In the same letter the purchaser was informed that items (w) and (z), two Memoranda of Charge in relation to management fees, item 1.(iii) of the letter, would be discharged upon completion.

(NOTE: the nomenclature used in this letter is relevant as the system of nomenclature was maintained throughout subsequent correspondence; item 1.(ii), relating to the existing mortgage, document (v), is the most important item)

28 August    Vendor supplies to the purchaser two of the six excepted documents, items (x) and (y).

29 August    Purchaser responds to vendor’s letter of 28 August in the following terms:

“1.(i)    With due respect, your assertion herein is totally misconceived and unfounded.  The new Section 13(A) of the CAPO Cap 219 is only applicable to an agreement for sale and purchase signed on or after 11th July, 2008.  We reiterate our requisitions and our stance herein remains unchanged.  Further, we refer you to the cited case of Yiu Ping Fong & Others (HCMP 3617/1998), in which the court held that a purchaser has a proprietary right to those documents related exclusively to the property.  Thus, your client shall account for those requested documents and please therefore let us know the whereabouts of them without delay.

(ii)    Please let us have a certified true copy thereof for our approval.

(iii)   Noted.

(iv)   Noted.”

For the avoidance of any doubt, we would require satisfactorily to all our outstanding requisitions raised herein before completion.  All of our client’s right and interest herein are expressly reserved.” (sic)

4 Sept. Vendor responds to purchaser’s the letter of 29 August in the following terms:

“1. (i)   You have requested for 67 documents under requisition no. 1, with documents (q) and (s) to be counted as 1 document because they are one same document.

We repeat that, save and except the 5 documents itemized as (v) to (z), all the remaining 62 documents as you requested under requisition no. 1 were pre-intermediate root documents.  Our client is not obliged to produce your client with the pre-intermediate root documents for the purpose of proving title to the Property according to Section 13 of the Conveyancing and Property Ordinance (Cap 219) (“CPO”).

(ii)  As we mentioned in our letter dated 26^th August 2008, document (v) is now kept by Solicitors for the mortgagee bank.  Document (v) would be sent to you upon our usual undertaking at completion.  Please let us know if you do insist obtaining a certified copy of the document (v).” (sic)

(Note the vendor’s proposal in item 1.(ii), in relation to the existing mortgage document (v), the intermediate root title document.)

9 Sept. Purchaser responds to vendor’s letter of 4 September in the following terms:

“1.    With due respect, please let us have plain copies of documents (q) and (s) for perusal before we are in a position to consider your allegation that they are counted as one and the same document.  Further, for avoidance of any doubt please let us have all the plain copies documents (save and except documents (x) and (y)) enumerated in item 1 of our letter to you of 18^th August, 2008 for our perusal.

(Paragraph as to assertions on the law in relation to the obligation to supply pre-intermediate root documents omitted)

(ii)    Noted.

(iii)   Noted.

(iv)  Noted.

For the avoidance of doubt, we would require satisfactorily reply to our outstanding requisitions at least four (4) working days before completion.  We must stress that time in every respect be of the essence hereof.” (sic)

(Purchaser’s response to item 1(ii), “Noted.” in this letter is important.)

10 Sept.   Vendor replies to purchaser’s letter of 4 September.  No reference is made to items 1. (i) or (ii).  Under the nomenclature “1. (iii)”, copies of the documents (w) and (z) are supplied.

12 Sept.   Purchaser to vendor pointing out that item (i), Mortgage Memorial No. UB 2252808 and item (s) Release Memorial No. UB 5197820 are both missing.  These constitute a pre-intermediate root of title mortgage, under which a power of sale had been exercised in favour of the vendor.

16 Sept.   In a second letter on this day, the purchaser, under the nomenclature “1. (i)”, reasserts its position that it is entitled to pre-intermediate root title documents and makes assertions as to the law.  Under the nomenclature “2”, an assertion is made in the following terms:

    “We maintain our requisition herein.”

18 Sept.   Vendor informs the purchaser that document (z) cannot be located, and submits a draft statutory declaration in respect of the loss.  The missing item is a Memorandum of Charge Memorial in relation to outstanding management fees. 

23 Sept.   A revised statutory declaration, made jointly by the Treasurer and the Secretary of the Incorporated Owners of Pearl House in respect of the missing Memoranda of Charge Memorial is sent to the purchaser.

In a second letter on the same day the vendor reasserts its position that it is not obliged to produce pre-intermediate root documents for the purpose of proving title.  The letter concludes in the following terms:

“We trust that we have satisfactorily answered your requisition in our letters to you dated 4^th September 2008 and 12^th September 2008 and we do not repeat our answers here.”

23 Sept.   Purchaser to vendor, responding to the vendor’s earlier letter that day.  The following paragraph is relevant:

“We refer to your letter of 23^rd instant faxed to us at 10:44 today enclosing a copy of revised draft Statutory Declaration prepared by the Solicitors for the Incorporation Owner of Pearl House for our approval.  Please be informed that the same is being approved by us and we shall revert to you soon.  We write to put on record that, up to now, we do not receive a satisfactorily reply to all our outstanding requisitions, in particular, set out in items 1.(i) and 2 in our letter to you of 29^th August, 2008 and items 1 and 2 in our subsequent letter to you of 9^th September, 2008.  In order to avoid any unnecessary delay, we shall be much obliged if you will kindly expedite the matter i.e. (a) let us have all the outstanding title deeds and documents (at least plain copies first) as specified in item 1 of our first letter to you of 18^th August, 2008 for our approval; (b) send us your fresh draft Statutory Declaration which is to be made by an appropriate person in respect of loss of original title deeds and documents as mentioned in the item 1.(i) in our abovementioned letter of 29^th August, 2008 and item 1 in our abovementioned letter to you of 9^th September, 2008; and (c) let us have cogent and clear evidence as to the exact definition and allocation of each of the individual shops as mentioned in item 2 in our first letter to you of 18^th August, 2008 and item 2 in our abovementioned letter dated 29^th August, 2008.” (sic)

(Note, the question of the definition and allocation of individual shops ceased to be an issue between the parties.)

24 Sept.   Vendor to purchaser: responding to the purchaser’s letter of 23 September:

“We refer to your letter of the 23^rd September 2008 and reply as follows adopting the numeric reference previously used for easy reference:-

1.(i)  We maintain our stance and repeat here our answers to item 1.(i) as provided in our 3 letters to you dated 4^th September 2008, 12^th September 2008, 23^rd September 2008 (2nd letter) respectively.

The purchaser responded in the following terms:

“We refer to your letter of today’s date and reply at seriatim:-

1.(i)  Your 2^nd draft S/D is not accepted by us one way or another in the light of the cited cases Yiu Ping Fong and Loyal Hope Ltd v Leung Pui Ming as mentioned in item 1 of our letter of 9^th instant.  Further, we reiterate that up to now we have not received from your goodselves all the outstanding title deeds and documents as specified in item 1 of our letter to you of 18^th August, 2008 for our approval and raising requisitions thereof.

1.(iii)  (this paragraph dealt with the terms of a proposed  statutory declaration)

2.  We reiterate the contents of our letter to you of 23rd instant.

There was no reference to item 1.(ii).

24 Sept.   Vendor to purchaser, 2^nd Letter, in reply to the purchaser’s letter of 24 September:

   “We refer to your letter of 24^th September 2008 and reply as follows:-

    1.(i)  (This paragraph contains an extensive discussion of the requirement to supply pre-intermediate root title documents on the interpretation of s 13A CPO)

    1.(iii)    (this paragraph relates to the missing charge, and the appropriate person to make a statutory declaration).

2.  We maintain our stance herein.”

Again, there was no reference to item 1.(ii).

25 Sept.   Purchaser to vendor:

“We refer to your 2^nd letter to us 24^th instant.  With due respect, we repeat our previous view and have nothing further to supplement thereto.”

26 Sept.   Vendor to purchaser, (2^nd Letter):

“We refer to your letter of 24^th September 2008.  We maintain our views as clearly stated in all our previously letters to you and further provide you with the following:-

1.(i)  (A statutory declaration in respect of a lost mortgage was submitted.)

1.(iii)    (The question of outstanding management fees was dealt with.)”

   There was no reference to item 1.(ii).

Vendor to purchaser, (3^rd Letter):

   “We refer to our 2^nd letter to you dated 26^th September 2008

    1.(iii)    We enclose herewith the following:-

(the letter then enclosed documents in relation to a charge in relation to management fees and continued:)

The above 2 Memoranda of Discharges together with the relevant Memorials are sent to you subject to your firm’s undertaking to present them at the Land Registry for registration within the prescribed period and we shall send you the cheque(s) drawn in favour of “The Government of The Hong Kong Special Administrative Region” for payment of the necessary registration fees shortly.

All the above documents are sent to you subject to your undertaking to hold them to our order and return them to us on demand.

We trust that all your requisitions have been satisfactorily answered.”

Again, there was no reference to item 1.(ii).

29 Sept.   Vendor to purchaser (1^st Letter):

   Two issues, first matters in relation to the right to postpone completion date, and second, matters in relation to the contents of, and the appropriate person to make, statutory declarations for loss were discussed.

   Vendor to purchaser (2^nd Letter):

A discussion of the purchaser’s requisition 1.(iii) took place.

Purchaser to vendor:

   “We refer to your 2^nd and 3^rd letters both to us of 26^th instant.  We are astonished to learn that you have without our approval to have the relevant 2 Statutory Declarations completed.  We repeat and reiterate that up to now we do not in fact receive a satisfactorily reply to all our outstanding requisitions raised hereof. (sic)

    (omitted)

    Please be advised that all documents sent under cover of your said 3^rd letter of 26^th instant is not accepted by us one way or another.  Needless to say, your alleged undertaking to be imposed on us will not be accepted and entertained by us in any way.”

   The documents that had been submitted were returned.

30 Sept.   Completion date.

   Letters were exchanged between the parties, the vendor asserting:

“You are fully aware that the requisitions we forwarded in our letter of 18^th August 2008, includes intermediate root as well as pre-intermediate root documents.  Both are required to safeguard the interest of our client as purchaser in terms of eliminating any possible defects in title as well as confirming that title has been properly proved prior to completion.  We are of the view that our requisitions have not been properly answered.

Since s 13A of the Conveyancing Property Ordinance is effective only from 11^th July, 2008, you must agree that it has no effect on the instant transaction.  The assessment of potential risk or otherwise of not having had sight of the relevant documents before completion, we are afraid, is beyond your realm.

In any case, it is totally unreasonable for you to confirm that you have possession of the documents requested and yet refuse to supply them, even in terms of plain copies.  Without those documents, there is no way that we, for example, as the purchaser’s legal representative, can ascertain the various legal charges and their releases/discharges which we found from a land search.  In the light of Mortgage Memorial  No. UB2252808 which you claimed to be missing, we have legitimate suspicions that there may be other defects.

We reiterate that our requisitions are reasonable and must be satisfactorily answered before our client is purchaser proceeds to completion.” (sic)

2 Oct.  Vendor requests purchaser to extend completion date to 8 October 2008.

3 Oct.  Purchaser refuses to complete and demands a return of the deposit, claiming that the vendor failed to answer the requisitions.

7.  On 23 October 2008, the vendor issued an Originating Summons seeking, inter alia:

(i)    a declaration that the purchaser was in repudiatory breach of contract, and that the ASP was terminated by the vendor’s acceptance of the purchaser’s repudiatory breach;

(ii)  a declaration that the vendor was entitled to forfeit the purchaser’s deposit in the sum of $1,500,000;

(iii)    a declaration that the purchaser and not the vendor was liable to pay and compensate the estate agent in the sum of $300,000 in liquidated damages.

The usual ancillary orders were also sought.

The provisions of s 13A CPO:

8.  In order that the discussion in relation to this provision may be properly understood it is appropriate to set out the circumstances in which the issue arises.  The obligation of a property owner who is selling his property, to make or give a good title, requires the vendor to produce title deeds or documents, often going back over many years.  This obligation has long been recognised as an onerous obligation, particularly in circumstances where a vendor has owned the property for many years, during which time there have been no third-party claims against the property, but in circumstances in which the title documents may go back several tens of years, perhaps even as much as 100 years.  In such circumstances it may well be thought that a third-party claim would be highly unlikely.

9.  However this onerous obligation is one which must be balanced against the plain right of a purchaser of land to receive a good title.  The purchaser is entitled to demand that he be assured that there are no third-party claims against the property which are unsatisfied.

10.  Over a number of years steps were taken in the CPO in an effort to reduce this onerous burden on a vendor.  Prior to 11 July 2008, the obligation of a vendor to prove his title was governed by the provisions of s 13 CPO.  As far as is relevant to these proceedings that provision is as follows:

“s 13    Proof of title and recitals

(1)    Unless the contrary intention is expressed, a purchaser of land shall be entitled to a require from the vendor, as proof of title to that land, only production of the Government lease relating to the land sold and-

(a)    proof of title to the land-

(i)  where the grant of the Government lease was less than 15 years before the contract of sale of the land, extending for the period since that grant; or

(ii)    in any other case, extending not less than 15 years before the contract of sale of that land commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest in that land;

11.  The expression: “an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate in interest in that land” refers to a document which has become known as the intermediate root of title.  It is so-called because it assumes that in each case, where after at least 15 years without any question being raised by any third-party, the holder of such a document, be he a purchaser by way of assignment, a mortgagee, or a charge holder, may be satisfied that he has good title and that there are no third-party claims.  In those circumstances it is considered unnecessary to go any further back in the chain of title because the likelihood of third-party interests arising after such a period of time is considered remote.

12.  On its face, s 13(1)(ii) CPO appears to limit the obligation of a vendor to produce for inspection by the purchaser, the title documents extending only back to a pre-intermediate root of title document that is at least 15 years old.

13.  This provision came before Yuen J for consideration in Yiu Ping Fong v Lam Lai Hing [1999] 1 HKLRD 793.  Although the point directly for consideration was the effect of s 13(2) CPO, the judge also dealt with s 13(1)(ii).  In the judgment she had this to say:

“In my view, the real position as 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 two 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 telescope into one by the vendor’s solicitors 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).” (original emphasis)

14.  The requirement to show a good title includes an obligation to answer requisitions satisfactorily: see Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 366.  The effect of the decision in Yiu Ping Fong  is that although the requirement to show good title under s 13(1) may be only to produce documents going back to the pre-intermediate root of title, at least at least 15 years old, the obligation to make or give good title by producing or delivering the title documents is not so limited. 

15.  Thus, as a purchaser was entitled to demand that upon completion the vendor make or give good title, so the practice was that notwithstanding the limitation under s 13(1)(ii), purchasers demanded the documents back to the original root of title.  Justifying the demand on the decision in Yiu Ping Fong, it was asserted that only this way could be purchaser be sure that the vendor would be able to meet his obligation to make or give good title by answering any requisitions there might properly be to pre-intermediate root of title documents.

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 Elegance Ltd, (Unreported, HCA 1531/98, 7 August 2000).

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 andGuang 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:

“s 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 vendors 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 a vendor or as proof of title to that land under section 13(1)(a) and (c).

20.  The clear distinction between s 13(1), and s 13A(1) is the use of the expression “production” in the former, and the expressions “deliver” and “giving” in the latter.  Section 13(1)(c) is not relevant in these proceedings.

21.  I have been shown Legislative Council Paper No CB(2)2348/07-08, being the Report of the Bills Committee on the Statute Law (Miscellaneous Provisions) Bill 2008.  Amongst the provisions dealt with by the Bill were the problem of s 13 CPO.  By the Bill s 13A CPO was introduced, the Paper saying this in respect of that proposed amendment:

“25   The Administration has advised that the effect of new section 13A is consistent with the legislative intent of section 13, i.e. to limit the period for producing title back to a good root of title at least 15 years prior to the date of the sale and purchase agreement, and will help alleviate potential problems for many property owners.”

The paper said this also:

“22(c)    the risk of the purchaser requiring a defective title by reason of the existence of third-party rights in against the land as a result of the operation of the new section 13A is likely to be very remote.”

22.  The question that arises in this case, to be discussed below, is whether or not the effect of s 13A, effectively limiting the obligation of the vendor to deliver original deeds or documents of title, that is to make or give good title, is limited to the intermediate root of title, and post-intermediate root of title documents, or whether a purchaser may still insist upon the delivery of pre-intermediate root of title documents.

The commencement date of s 13A:

23.  The significance of this issue is whether or not this provision impacts upon the ASP.  The ASP was signed on 7 June 2008.  By s 10 of the Statute Law (Miscellaneous Provisions) (No. 2) Ordinance 2008, (SLMPO), s 13A, entitled, “Delivery of original deeds or documents of title”, was added to the CPO.  The SLMPO was assented to by the Chief Executive on 10 July 2008, and was published in the Gazette on 11 July 2008.  The ASP was due for completion on 30 September 2008.

24.  If s 13A CPO does not apply to the ASP, then it will be necessary to consider whether I should follow the decisions in Yiu Ping Fong and Guang Zhou Real Estate, or prefer the obiter remarks of Reyes J. in C & W Watch Co. 

25.  The answer is not only straightforward, but clear.  Unfortunately the answer was not apparent to either those advising the Government on the passage of the legislation through the Legislative Council, or the Property Committee of the Law Society.

26.  The law in Hong Kong in respect of the commencement of an Ordinance is contained in s 20 Interpretation and General Clauses Ordinance, Cap 1, (IGCO), which provides:

“Commencement, etc., of Ordinance

(1) An Ordinance shall be published in the Gazette.

(2) An Ordinance commences-

(a)    at the beginning of the day on which it is published; or

(b)   if provision is made for it to commence on another day, at the beginning of that other day.”

27.  The SLMPO contained no statement at all in respect of the commencement, either of that Ordinance, or any of the 14 Ordinances or Rules that were thereby amended.  Consequently, pursuant to s 20(2)(a) IGCO,  s 13A commenced on 11 July 2008.  From that day onwards, that provision governed the entitlement of a purchaser of land to require the vendor to deliver to him the deeds or documents of title.  That must be so, even if the contract was entered into prior to the commencement of s 13A, because the obligation to deliver deeds or documents of title was an obligation which must be carried out on a date subsequent to the commencement of s 13A.

28.  On 14 July 2008, Circular 08-399 was issued by the Property Committee of the Law Society of Hong Kong on 14 July 2008, drawing members attention to the provisions of s 13A. that Circular contained the following statement:

“3.    The Property Committee wishes to highlight the following of the members’ attention:

(a)    The new provisions apply to transactions for which either a preliminary agreement (“PA”) or in the absence of a PA, a formal sale and purchase agreement (“formal agreement”) has been signed on or after 11 July 2008.  They have no effect on past transactions that are either completed before 11 July 2008 or for which a PA or in the absence of a PA a formal agreement has been signed before 11 July 2008.”

No authority is cited for the proposition asserted.  It may well have been that the Law Society relied upon the following statement in the Legislative Council Paper:

“31   On the need for transitional provisions, the Administration has advised that the proposed new section 13A of CPO will only apply to transactions in which the sale and purchase agreement was signed on or after the commencement of the proposed amendments.  The proposed new section 13A will therefore have no effect on past transactions completed before commencement nor on transactions in which the sale and purchase agreement has been signed before commencement but is completed after commencement.  The Administration considers that there was no need for transitional provisions.  The Law Society agrees that the new section 13A CPO should apply to transactions being entered into after the enactment of the Bill.”

29.  Again, no authority is cited for the proposition that the new provision would not apply to a sale and purchase agreement signed before commencement, but for completion after commencement of the new provision.  The assertion, on the face of the plain provisions of s 20(2)(a) IGCO, in so far as it relates to transactions in which the sale and purchase agreement has been signed before commencement of s 13A, but completed after commencement, is clearly wrong.

30.  A remarkably appropriate example of a provision for commencement on another day, pursuant to s 20(1)(b) IGCO is s 13 CPO, which provides:

“(5)  This section affects only the rights and obligations of the parties to a contract for the sale of land entered into after the commencement of the section.”

31.  Clearly, s 13 CPO, when enacted, did not affect a contract for the sale of land entered into before the commencement of the section, but not yet completed.  The legislation, by s 13(5) specifically said so. 

32.  By plain contrast, there is no similar provision in s 13A as to later commencement in order to avoid the provision impacting upon a contract for the sale of land entered into before the commencement of the section, but not yet completed.  There is nothing in the legislation to say that s 13A would not apply to a contract for the sale of land, whether provisional or formal, entered into prior to 11 July 2008, but not completed by that date. 

33.  I am satisfied that the Legislative Council Paper was wrong in law in the assertion made in paragraph 31 of the Paper, and the Property Committee of the Law Society was wrong in law in the assertion made in paragraph 3(a) of the Circular.

34.  The obligation to deliver the documents of title arises only on the completion date, when a purchaser is entitled to demand, upon payment of the purchase price, the original deeds or documents of title to the property he has purchased.  In this case the completion date, was 30 September 2008, on which day the provisions of s 13A had come into force.  Consequently it is clear that s 13A government the entitlement of the purchaser to require the delivery of title documents.

35.   It is clear therefore that the assertion made by the purchaser on 29 August 2008, that s 13A was applicable only to an agreement for sale and purchase signed on or after 11 July 2008 was wrong at law.  From 11 July 2008, a purchaser of land was only entitled to require the vendor to deliver the documents of title in accordance with the provisions of s 13A.

The interpretation of s 13A(1):

36.  It was plainly the intention of the legislature in devising s 13, to relieve a vendor of the onerous task of proving and delivering title documents back beyond the pre-intermediate root of title.  A clear view had been taken by the legislature of the risk that a purchaser of land might be dispossessed of his title by a third-party interest that had arisen prior to the intermediate root of title, but had not yet come to light.  It was a risk that the legislature considered to be very remote.  The legislature has apparently decided to place that risk upon a purchaser, without putting into place any appropriate compensatory provisions to deal with such a situation.  In my view the absence of compensatory provisions does not in any way detract from the plain meaning of s 13A CPO. 

37.  In Yiu Ping Fong, Yuen J said that there are two steps in the making or giving of good title.  The first she said, is to show a good title, the second to prove the good title by producing the title deeds: see p 797I-J.  In Hong Kong these two steps are taken together by the vendor’s solicitor sending the title deeds and documents to the purchaser’s solicitor for his perusal of title.

38.  But in reality there is a third step to make or give good title, and that is the handing over, or delivery of the original title deeds and document upon completion.

39.  In s 13 CPO the expression used in respect of the obligation of the vendor, to prove title, is the “production” of the relevant documents.  That is precisely the word used by Yuen J. in relation to the obligation on the vendor to demonstrate to the purchaser that he will be able to give good title upon completion.  The production of the relevant documents enables the purchaser to make any proper requisitions he might make in relation to the documents that he is entitled to have produced to him.

40.  In Yiu Ping Fong, Yuen J. did not suggest that s 13 placed any greater obligation on the vendor to produce documents, other than those required by the plain meaning of the section, that is back to the intermediate root of title.  It was the subsequent obligation to deliver good title documents upon completion that the judge did not see as limited in that way, and consequently still gave rise to a right in the purchaser to inspect and make requisitions upon pre-intermediate root of title documents.

41.  The position since the commencement of s 13A has changed.  Now the obligation upon the vendor to deliver title documents upon completion is only to deliver those documents which he is required to produce pursuant to s 13, that is the documents back only to the intermediate root of title.  By so doing he will deliver good title.

42.  Mr Yau argued the purchaser may be at risk of an equitable mortgage existing, that was in existence prior to the intermediate root of title, and which remains unsatisfied.  He is right, then maybe such a risk.  But any risk there might be is irrelevant in these proceedings, and not a basis upon which a purchaser may insist upon pre-intermediate root of title documentation.  It is clear that the legislature has made a policy decision to place that risk upon a purchaser and to deprive the purchaser of any right to demand from a vendor that he give good title any further back than the intermediate root of title.  Any other interpretation of s 13A CPO would be, as Reyes J. said, to emasculate the provision.

43.  For these reasons I am satisfied that on the true interpretation of s 13 and s 13A CPO, a vendor is obliged only to produce to a purchaser, to enable the purchaser to make requisitions, the deeds or documents of title extending not less than 15 years before the contract of sale of that land commencing with an assignment, a mortgage by assignment or a legal charge, each dealing with the whole estate and interest on that land; and upon completion to deliver only those same documents to the purchaser.  It goes without saying that lost documents will be dealt with in accordance with the appropriate provisions.  Upon the purchaser receiving those documents, and a vendor adequately answering any proper requisitions, the vendor will have demonstrated or shown, good title.  Upon delivery of the appropriate documents, namely those which were required to be produced, good title will have been given.

The consequence of these conclusions:

44.  It follows from these conclusions that:

(i)    the purchaser was not entitled to demand, for perusal and requisition, any deeds or documents of title prior to the intermediate root of title, that is the mortgage charge No. UB 597-5518 held by the Bank of China (Hong Kong) Ltd; and

(ii)  in particular the purchaser was not entitled to demand, either the original for perusal, or statutory declarations as to loss of, items (i) and (s), as those documents constituted pre-intermediate root of title documents;

(ii)  the purchaser was not entitled to rely upon the failure of the vendors to supply for perusal and requisition pre-intermediate root of title documents to say that the vendor was in repudiatory breach of the ASP.

The effect of the response; “Noted”:

45.  As is set out in the chronology above, an essential document that would be required to be delivered by the vendor to the purchaser upon completion was a mortgage charge, held by the Bank of China (Hong Kong) Ltd, No. UB 597-5518, together with its appropriate discharge.  In the list of documents that mortgage was document (v).  That document was the intermediate root title document.  Its discharge was in the course of preparation by the solicitors for the mortgagee and would be available upon completion.

46.  When the purchaser received the title deeds for perusal they were told by the vendor that the mortgage was held by the bank’s solicitors for the purpose of preparing the discharge.  The requisitions from the purchaser included a demand for this document.  They were told, again, by the vendor that the document was held by the solicitors for the bank.

47.  The purchaser’s solicitor requested a certified true copy for approval.  It is worth repeating the reply to that request.  It was in these terms:

(ii)  As we mentioned in our letter dated 26^th August 2008, document (v) is now kept by Solicitors for the mortgagee bank.  Document (v) would be sent to you upon our usual undertaking at completion.  Please let us know if you do insist obtaining a certified copy of the document (v).” (sic)

48.  That statement elicited the response: “(ii) Noted”.  Thereafter, throughout the whole of the correspondence, maintaining the original nomenclature that had been adopted by the vendor’s solicitor, no reference was made by the purchaser’s solicitor to that mortgage, or to item 1.(ii).  In particular, no request was made for a certified copy of the document.

49.  The case for the vendor is that by responding; “Noted”, and saying nothing more, the purchaser accepted the proposal made, and elected not to require a certified copy of the document.  The case for the purchaser is that no agreement to the proposal was given, and that the vendor was in default in failing to supply either the original document, or a certified copy for perusal.

50.  The dictionary definition, (Shorter Oxford English Dictionary), of the word “noted” is “specially noticed, observed, or marked”.  I am satisfied that the expression, when used in response to a statement, may, in appropriate circumstances also imply agreement with that statement.  I am satisfied that in the present case, for the following reasons, the expression, “Noted”, was intended to convey agreement to the proposed mode of dealing with that document, namely that it would be handed over on completion together with the discharge, upon the purchaser’s undertaking to register the discharge.

51.  First, the expression was used in response to a particular statement setting out a manner in which a particular document might be dealt with.  No disagreement to the proposal was expressed.

52.  Second, a specific offer was made in relation to the document, namely to supply a certified copy, to which there was no response.  There was no subsequent assertion that the certified copy had not been supplied.  The purchaser remained quite silent about the matter.  In the absence of a particular response at the time, and having regard to the subsequent silence, any reasonable person would infer that the offer to supply a certified copy was declined as unnecessary, the offeree being satisfied with the arrangement proposed.

53.  Third, the expression was used in the course of a specific sequence of nomenclature, originally used by the vendor’s solicitors, but taken up and thereafter maintained by the purchaser’s solicitors.  On no occasion thereafter was any reference made to item “1(ii)” in the correspondence.  The correspondence continued from 9 September 2008, to 30 September 2008, and there was no further reference at all to the particular document.  The fact is that there was no further reference to item 1(ii), particularly that there was no response to the offer for the supply of a certified copy, nor any subsequent follow-up to a request for a certified copy, may only be interpreted as an acceptance of the proposition made by the vendor’s solicitors.

54.  Fourth, in the purchaser’s letter of 23 September the following sentence appeared:

“We write to put on record that, up to now, we do not receive a satisfactorily reply to all our requisitions, in particular, set out in items 1.(i) and 2 in our letter to you of 29^th August 2008 and items 1 and 2 in a subsequent letter to you of 9^th September, 2008.”

The deliberate reference to: “items 1.(i) and 2 in our letter to you of 29^th August 2008”, and the omission from that sentence of any reference to item 1.(ii) can only be interpreted as acceptance of the proposal contained in item 1.(ii) of that letter.  Had the proposal not been accepted, item 1.(ii) would have undoubtedly been referred to and included.

55.  I accordingly conclude that by acknowledging the proposal made in paragraph 1(ii) of the vendor’s solicitors’ letter of 9 September 2008, with the expression; “Noted”, the purchaser accepted that proposal and elected not to seek a certified copy of the mortgage document.  In accepting that proposal they waived any requisition that might be made in relation to that document.

56.  In those circumstances the failure of the vendor to submit a certified copy of the intermediate root of title document to the purchaser  for approval and requisition does not provide the purchaser with a basis to contend that there has been an act of repudiatory breach of the ASP by the vendor.

The lost Memorial of Charge:

57.  It is fair to say that this argument was not mounted by Mr Yau with his usual enthusiasm, in fact it did not even form a part of his skeleton argument.  However, in proper discharge of his duty, he put to me everything that could properly be said in support of the argument.

58.  The documents in question constituted a Memorandum of Charge and a Memorial of Charge in relation to management fees due to the Incorporated Owners of Pearl House.

59.  I have not set out in the whole the terms of the vendor’s solicitors letter of 26 September 2008 as to item 1.(iii), which dealt with the question of outstanding management fees.  It is sufficient to say that the letter advised that the management fees had been settled, that memoranda of discharge were to be available, that one of the two charge documents, the Memorial of Charge was lost, and a statutory declaration of loss in respect that document was to be supplied.  The issue arose as to the suitability of the statutory declaration.

60.  In due course a statutory declaration made jointly by the Treasurer and the Secretary of the Incorporated Owners of Pearl House was supplied.  This was rejected by the purchaser on the basis that it was arguable that the Incorporated Owners had not actually received and taken possession of the document and then subsequently lost it.  A new statutory declaration was sought from an appropriate person, suggested to be an officer of the building manager, Goldwell Property Management Limited, (Goldwell).

61.  Mr Lau argued that the supply of the document was a matter of a mere conveyance.  He referred me to the following passage in Shiombing & Wilkinson’s Hong Kong Conveyancing Vol 1A, V 161-165, and the following statement:

“The duty to give good title does not, however, extend to matters of mere conveyance.  What this means is that good title is not adversely affected by a defect which the vendor can remove independently of the concurrence of a third person.  The most common example of a matter of mere conveyance would be the discharge of a mortgage over the property by the vendor: Re Jackson and Oakshott (1880) 14 Ch D 851.”

62.  With respect to Mr Lau, he has misinterpreted that statement. The concurrence of a third person was required in relation to this matter, that third person being the Incorporated Owners of Pearl House, who had to give the discharge.  The absence of the Memorial of Charge cannot be dismissed as a matter of mere conveyance.  The real issue is the question of whether or not the statutory declaration was adequate.

63.  The Incorporated Owners were the charge holder, and were perfectly happy to give a discharge of the lost charge.  The statutory declaration demonstrated that the lost charge had never been in the possession of Goldwell, but had been prepared by solicitors for the Incorporated Owners.  A statutory declaration demonstrated that those solicitors were unable to locate the document. 

64.  Mr Lau was right to refer me to the decision of Jeremy Poon J. in the Goldenwick Ltd v Standard Chartered Bank (Hong Kong) Ltd [2008] 3 HKLRD 266 at 275 where he applied the principle in MEPC Ltd v Christian-Edwards & Ors [1981] AC 205.  It is quite beyond reasonable doubt that:

(a)  the property would become free of any interest that the Incorporated Owners might have under the missing Memorial of Charge, upon the discharge being given; and

(b) the purchaser would not be at risk of a successful assertion against the property that any encumbrance might possibly arise from the missing Memorial of Charge.

65.  In the whole of those circumstances, I am satisfied that the statutory declaration was perfectly adequate.  The issue raised by the purchaser in relation to the lost Memorial of Charge does not provide a basis upon which the purchaser may say that the vendor cannot give good title.

Conclusion

66.  For the foregoing reasons I have concluded that in failing complete the purchase on the due completion date, or even on the later date upon which the vendor was willing still to complete, the purchaser was in breach of the ASP.  The vendor was entitled to treat that breach as a repudiation of the ASP, and thereby to forfeit the deposit paid.

67.  There will be declarations in terms of paragraphs 1, 2 and 3 of the Originating Summons.  There will be an order that the registration of the ASP at the Land Registry be vacated.

68.  Leave is reserved to apply in respect of any other damages to be assessed or interest claimed. 

69.  There will be an order nisi that the vendor is entitled to the costs of the proceedings, to be taxed on a party and party basis.