DONPOWER TRADING LTD v. APEXCOM LTD

CACV 172/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 172 OF 2009

(ON APPEAL FROM HCMP NO. 2095 OF 2008)

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J U D G M E N T

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Hon Cheung JA :

Vendor and purchaser summons

1. The defendant purchaser entered into an agreement dated 7 June 2008 (‘the agreement’) with the plaintiff vendor to purchase from the plaintiff 40 shops in the basement of Pearl House in Prince Edward Road West, Kowloon for the sum of $15 million.  A deposit of $1.5 million was paid by the defendant.  Completion of the sale was originally scheduled for 30 September 2008.  There was suggestion that completion had been extended, but it is not necessary to decide on this, it is sufficient to say that eventually completion did not take place.  The plaintiff then issued a vendor and purchaser summons seeking a declaration that the defendant had repudiated the agreement and the plaintiff was entitled to forfeit the deposit of $1.5 million.

2. The defendant contended that the plaintiff had failed to answer the requisitions and objections to title and the defendant was entitled to rescind the agreement which it did by letter dated 3 October 2008.  The defendant asked for the return of the deposit.

3. The matter was heard by Saunders J and he found for the plaintiff.  The defendant now appeals.

Vendor giving title

4. In the Hong Kong system of conveyancing the vendor’s obligation in a sale is to make or give a good title to the purchaser.  This simply means that the vendor has to provide or confer a good title of the property to the purchaser.

5. In England where the Hong Kong system has its origin, this involves two steps.  The first is for the vendor to show that he has a good title to sell to the purchaser by supplying to the purchaser an abstract of title i.e. a summary of the history of the title of the property up to the time of the sale.  The second is for the vendor to prove the title shown in the extract by producing the actual title documents or other evidence that are necessary to give a good title.  Hong Kong slightly modifies the system in that the vendor’s solicitors will not prepare the abstract of title but will instead provide all the title deeds and other supporting documents to the purchaser.

The intermediate root of title

6. As a property may be acquired many years ago, section 13(1) of the Conveyancing and Property Ordinance (Cap. 219) does not require the vendor, as proof of title to the property, to provide to the purchaser all the title documents from the date of the first acquisition of the property by his predecessors from the government.  Instead, production of the Crown Lease by which the property was first disposed by the Government to the first owner and title documents of the property (such as assignment, mortgage by assignment or a legal charge) of not more than 15 years before the contract of sale of the property is sufficient.  The latter documents are known as the intermediate root of title documents.

7. In the present case the first owner of the property acquired the property from the government by Government Leases in 1978 and 1979.  Later on the plaintiff acquired the property from the mortgagee of the property who sold the property to it by exercising the power of sale under the mortgage on 14 February 1987.

8. The vendor’s solicitors, Leung, Tam & Wong (‘LTW’) supplied to the purchaser’s solicitors, Louis K.Y. Pau & Co. (‘Pau’) on 12 August 2008 eight title documents which included the Government Leases of the property, the Assignment to the plaintiff and a Legal Charge by the plaintiff in favour of United Chinese Bank Limited dated 20 March 1993. 

9. These documents were obviously supplied with the provision of section 13(1) in mind.  As the agreement was dated 7 June 2008, the 15 year period under section 13(1) will begin in 1993.  Mr. Albert Yau, counsel for the defendant, accepted that the Legal Charge dated 20 March 1993 is the ‘head title document’ which started the intermediate root of title.  Following from this, the plaintiff has to show and prove titles that came into existence after the Legal Charge dated 20 March 1993.

The correspondence

10. On 18 August 2008, Pau, by way of requisitions of title, requested LTW to supply the original or certified copy of other documents totalling 68 in number.  Seven of these came into existence after the intermediate root of title, while the rest were pre-intermediate root of title documents.

11. LTW on 26 August 2008 replied that it was not required to supply the pre-intermediate title documents.  Of the seven post intermediate root of title documents, document (v) which is Charge Memorial dated 11 April 1994 was said to be kept by the plaintiff’s mortgagee bank, Bank of China (‘BOC’).  This document is accepted by Mr. Lau, counsel for the plaintiff, as a document which the plaintiff was required to produce in order to prove title.  The issue that arises in this appeal is the non-production of document (v) by the plaintiff.  The obligation to produce the document is part of the plaintiff’s obligation to show a good title to the property.  As Li CJ observed in Chen & Another v. Lord Energy Ltd [1999] 1 HKLRD 205 at 211

‘ The legal position was that the obligation was squarely upon the vendor to show good title.  Where a document needs to be produced by the vendor as proof of title, it is no answer for him to say to the purchaser that he could easily obtain it himself.’

12. Thereafter the solicitors entered into a debate on whether the pre-intermediate root of title documents needed to be produced.  The defendant insisted that these documents needed to be produced while the plaintiff maintained that they were not.  However as far as document (v) was concerned, Pau on 29 August 2008 wrote,

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

13. By letter dated 4 September 2008, LTW maintained that it was not obliged to produce the pre-intermediate root of title documents.  In respect of document (v), it stated that,

‘ (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 document (v).’

14. The reply of Pau came on 9 September 2008.  Paragraph 1 of the letter stated that

‘ 1.     With due respect, please let us have plain copies of documents (g) and (s) for perusal before we are in a position to consider your allegation that they are counted as one and the same documents.  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.’  (emphasis added)

The documents of which plain copies were required included document (v) as identified in the first request of 18 August 2008.  Then specifically in respect of LTW’s question on document (v), Pau stated,

‘ (ii)    Noted.’

15. On 12 September 2008, LTW replied to Pau’s 9 September 2008 letter repeating that it was not obliged to produce the pre-intermediate root of title documents.  This is repeated in its letter of 23 September 2008.

16. On 23 September 2008 Pau repeated the request for documents which included document (v),

‘ 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.’  (emphasis added)

17. The reference to Item 1(i) of Pau’s letter dated 29 August 2008 was related to the pre-intermediate root of title documents.  Item 2 dealt with the location of the various shops.  The reference to Item 1 of Pau’s letter of 9 September 2008 was the request for plain copies of the documents first asked for in Pau’s letter of 18 August 2008.  This included document (v).

18.  On 24 September 2008 Pau repeated the earlier request for documents which included document (v),

‘ 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.’

The issue

19. The issue below and in this Court is whether the plaintiff had satisfactorily answered the requisition for the production of document (v).

The decision

20. The Judge dealt with Pau’s response of ‘Noted’ to LTW’s question whether Pau wanted the certified copy of document (v) in this way :

‘ 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.’  

Purchaser had not waived or abandoned request

21. I disagree with the Judge’s approach.  I do not accept that by using the word ‘Noted’ the purchaser no longer wished to pursue the requisition for the production of document (v).  It is clear from a review of the relevant parts of the correspondence that the purchaser had always maintained that it wanted a copy of document (v) in his request for documents.  This began in Pau’s first request of 18 August 2008 when it initially asked for the original or certified copy of document (v).  It then requested a certified copy of document (v) in its letter of 29 August 2008.  In its letter of 9 September 2008 it asked for plain copies of the documents which included document (v). 

22. Pau’s ‘Noted’ response to LTW’s question whether it still wanted the certified copy of document (v) must be read subject to Pau’s request for plain copies which, in my view, is clear and unambiguous.  The ‘Noted’ part was part and parcel of the same letter.  To regard the ‘Noted’ part as the only response of Pau to LTW’s question would be to ignore a very important part of Pau’s demand that had been made from the beginning and continued up to that letter and repeated in that letter.

23. While Pau’s letter of 23 September 2008 enumerated Item 1(i) and 2 of its letter of 29 August 2008 and not Item 1(ii) which dealt specifically with document (v), Pau’s letter of 23 September 2008 at the same time specifically referred to the earlier request contained in its letters of 9 September 2008 and 18 August 2008 both of which clearly covered a request for documents which included document (v).  This is again repeated in Pau’s letter of 24 September 2008.

24. I do not see why the general request for documents which clearly included document (v) should be ignored simply because Pau used the word ‘Noted’.  In the overall scheme of things, the word ‘Noted’ must be read as meaning ‘your question is noted but see our request for plain copies of these specific documents.’  Put in another way, in considering the meaning of the letter of 9 September 2008, one does not simply focus on the singular word ‘Noted’ but rather the meaning as disclosed in the context of that letter as a whole as well and also in the series of correspondence.

25. As Lord Hoffmann observed in Investors Compensation Scheme Ltd v. West Bromwich Building Society (No. 1) [1998] 1 WLR 896 at 913C and applied frequently by the Hong Kong Courts,

‘ The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words.  The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean.  The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax.’

26. The position is that the purchaser’s insistence of being provided with document (v) had been so consistently maintained as part of its request for documents up to and including the time when it terminated the agreement that it cannot be justifiably ignored despite the use of the word ‘Noted’ in response to the vendor’s query whether it wanted a certified copy of that specific document.  The position had not been changed when the present application was brought.  There was no abandonment or waiver of requirement of that document.  As the plaintiff had failed to provide the defendant with the document before completion, it had failed to prove or give a good title to the property.  In the circumstances it was the plaintiff which was in breach and it could not forfeit the defendant’s deposit.

Yiu Ping Pong v. Lam Lai Hing Lana

27. This will be sufficient to dispose of the appeal.  As submissions had been made, I would discuss briefly the case of Yiu Ping Pong v. Lam Lai Hing Lana [1999] 1 HKLRD 793.  The defendant relied on this case to justify its request for the pre-intermediate root of title documents.  In my view this is a misreading of the judgment.  In that case the property was first assigned by the developer to X (the 1986 assignment).  X assigned the property to Y (the 1990 assignment).  Y in turn assigned the property to the vendor in 1996.  The vendor entered into an agreement for sale with the purchaser.  The date of the agreement was not apparent from the judgment but the completion date was 30 September 1998.  The vendor sent the purchaser a certified copy of the 1986 assignment, together with a document given by Y (the Chinese statutory declaration), which stated, inter alia, that Y did not have the original of the 1986 assignment.  The Chinese statutory declaration was made in Taiwan.

28. Yuen J (as she then was) first held that the Taiwan statutory declaration was not a valid statutory declaration under the Oaths and Declarations Ordinance (Cap. 11).  She then referred to section 13(2) of the Ordinance which provides that

‘ Where this section requires the production of any document, it shall be sufficient to produce a copy;

(a)      attested, before 1 November 1984, by two solicitors’ clerks; or

(b)      certified by a public officer or a solicitor, to be a true copy.’

She held that this section does not 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.  Her reason was that 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.  In the circumstances she held that the requisition by the purchaser on the validity of the Taiwan statutory declaration was not sufficiently answered and the purchaser was entitled to insist on the production of the original of the 1986 assignment.

29. It is clear that the focus of the judgment was on the way the vendor could give a good title.  The issue was whether a good title could be given by the production of the certified copies of the title deed.  The discussion clearly was solely on the ambit of section 13(2). Yuen J was not concerned with any issue of pre-intermediate root of title documents.  Her statement that

‘  The handing over of original title deeds and documents (or at least those which 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.) at p.547, which is the best evidence of ownership.’

must be read in the context of that case. 

30. It is not necessary for me to discuss whether the decision on section 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.

Section 13A

31. Following the decision a new section 13A was introduced and came into effect on 11 July 2008 which was after the agreement in the present case was entered into.

‘ 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 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).’    

32. The paper placed before the Legislative Council on the introduction of the section 13A stated that,

‘ 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.’

33. In my view the new section 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 section 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 section 13A may have such an effect.  But this effect, in my view, is already provided for by section 13(1).

Retrospective effect of section 13A

35. The Judge held that the new section 13A is available to the plaintiff to preclude the production of pre-intermediate roof of title documents. 

36. Unlike section 13(5) which provides that

‘ (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.’

there is no similar provision in section 13A confining its application to agreement entered into after the commencement of the section.  In my view the silence is not an indication that the new section has retrospective effect because the fundamental principle on statutory interpretation is that unless a contrary intention appears, an enactment is presumed not to be intended to have a retrospective operation : Bennion On Statutory Interpretation 5^th Ed, page 315.  The rationale is that Courts recognize the sanctity of accrued rights and obligations.  If retrospective effect is given to new legislation it will impair those rights and obligations.  Hence in Yew Bon Tew and Another v. Kenderaan Bas Mara [1983] A.C. 553, Lord Brightman in the Privy Council held at 558 that

‘ Apart from the provisions of the interpretation statutes, there is at common law a prima facie rule of construction that a statute should not be interpreted retrospectively so as to impair an existing right or obligation unless that result is unavoidable on the language used.  A statute is retro­spective if it takes away or impairs a vested right acquired under existing laws, or creates a new obligation, or imposes a new duty, or attaches a new disability, in regard to events already past.  There is, however, said to be an exception in the case of a statute which is purely procedural, because no person has a vested right in any particular course of procedure, but only a right to prosecute or defend a suit according to the rules for the conduct of an action for the time being prescribed.’

37. The new section 13A is not procedural in nature and hence the exception to the general principle does not apply.  If, for the purpose of argument, a purchaser is entitled under an agreement entered into before section 13A is enacted to demand pre-intermediate root of title documents, the introduction of the new section before completion will mean that it is no longer so entitled.  Hence to apply section 13A is a clear case of interference with the purchaser’s accrued right and is contrary to the presumption against retrospectivity.

38. The conclusion is that the plaintiff was not in breach by not producing the pre-intermediate root of title documents before completion.  The plaintiff had indicated that it was prepared to supply them on completion.

Other issue

39. There is a further matter as to whether the plaintiff had satisfactorily answered the requisition relating to a Charge registered against the property by the Incorporated Owners of the building where the property is situated for arrears of management fees.  The Charge is an intermediate root of title document.  The plaintiff was unable to find the original of the Charge but had obtained a statutory declaration made by the officers of Incorporated Owners giving an explanation of the missing document.  The defendant contended that the statutory declaration was invalid because it was not made by the proper person.  It is not necessary for me to discuss who was the proper party to make the statutory declaration.  In my view the plaintiff had clearly answered the requisition on the Charge.  The Incorporated Owners had subsequent to the Charge registered a Memorandum of Discharge of the Charge.  Any blot on title on the property created by the registration of the Charge must have been removed by the subsequent Discharge.

Conclusion

40. I will accordingly allow the appeal and set aside the judgment against the defendant.  I will make the following orders :

1)  judgment be entered for the defendant against the plaintiff,

2)  a declaration that the plaintiff had failed to answer the requisitions and objections to title satisfactorily,

3)  the defendant was entitled to recover the deposit of $1,500,000 and the costs of investigating title (which are to be assessed by the Master as part of the taxation of the defendant’s costs) together with interest (the rate and period of which are to be agreed by the parties), and

4)  the defendant is to have the costs of this Appeal and below.

Hon Lunn J :

41. For the reasons given in paragraphs 1 to 26 of the judgment of Cheung JA, I agree that the appeal must be allowed.  The response of the plaintiff’s solicitors “Noted” to the enquiry of the defendant’s solicitors in respect of document (v), “Please let us know if you do insist obtaining a certified copy of document (v)”, is to be viewed against the unambiguous and repeated requests (9, 16, and 23 September 2008) that they be provided with “plain copies” of all documents, save for two documents not relevant to this issue, “enumerated in item 1 of our letter to you of 18 August 2008”.  With respect to the trial judge, there was no waiver of the requisition.

Section 13A

42. Similarly, I agree with Cheung JA’s conclusion that section 13A of the Conveyancing and Property Ordinance, Cap. 219, which came into force on 11 July 2008, does not have retrospective effect.  Clearly, the parties to the sale and purchase agreement, dated 7 June 2008, had accrued rights and obligations at that date.  There is nothing to suggest that the prime facie rule of construction, that “a statute does not retrospectively impair an existing right or obligation unless that is the unavoidable construction of the language used” (Yew Bon Tew, cited at paragraph 36), is overcome.  As Cheung JA noted at paragraph 38 of his judgment, the plaintiff was not in breach by not producing the pre-­intermediate root of title documents before completion and had indicated that it was prepared to supply them on completion.

Miscellaneous

43. Finally, I agree with Cheung JA’s determination, at paragraph 39 of his judgment, that by an appropriate statutory declaration the plaintiff had satisfactorily answered the requisition relating to a charge registered against the property by the incorporated owners of the building in respect of arrears of management fees.

44.  It is appropriate to make the orders set out by Cheung JA.

Hon Wright J :

45. I respectfully agree with the conclusion at which Cheung JA has arrived regarding the plaintiff's failure to answer the requisition in respect of document (v): it is clear, in my view, that the use of the word “Noted” in item (ii) of Pau’s letter dated 9 September 2008 is qualified by the preceding categorical request for “...plain copies documents... enumerated in item 1 of our letter to you of 18^th August 2008...” and is no more than an acknowledgment of the stipulation by LTW to advise LTW if the provision of a certified copy is still required.  There was no waiver by the defendant.

46. I agree, too, with the other conclusions reached, for the reasons given.