LO CHIU FOON v. LAW SUI MING

HCA 1010/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1010 OF 2013

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JUDGMENT

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THE APPLICATION

1. The defendant has taken out an application under Order 86 rules 1 & 8 RHC for a summary judgment for the relief prayed in the Counterclaim as per the minutes annexed to the summons dated 3 July 2013.

2. The terms of the minutes for reliefs as claimed in the Counterclaim are:

a.  Declaration that the defendant had effectively rescinded the agreement for sale and purchase (“the Agreement”) made between the plaintiff and the defendant for the sale by the defendant to the plaintiff of the property[1] (“the Property”) for the sum of HK$7.8 million.

b.  The defendant is entitled to forfeit the sum of HK$780,000, being the deposit in accordance with clause 16 of the Agreement;

c.  Legal costs incurred by the defendant in answering the requisition raised in relation to the title of the Property under the Agreement;

d.  Damages to be assessed;

e.  Stamp duty and the estate agent’s commission paid or payable by the defendant; and

f.   Costs of the action including this application.

3. The essence of this application is, if the defendant succeeds, the plaintiff’s claims should be dismissed, with judgment to the defendant.

4. The plaintiff opposes this application and is represented by Mr. E. Koo, counsel. The defendant is represented by Mr. M. Lui, counsel.

ORDER 86

5. The relevant provisions under Order 86 RHC for this application are:

“1. Application by plaintiff for summary judgment (O. 86, r. 1)

(1) In any action begun by writ indorsed with a claim-

(a) or

(b) for rescission of such an agreement, or

(c) for the forfeiture or return of any deposit made under such an agreement,

the plaintiff may, on the ground that the defendant has no defence to the action, apply to the Court for judgment.

(2)

3. Judgment for plaintiff (O. 86, r. 3)

(1) Unless on the hearing of an application under rule 1 either the Court dismisses the application or the defendant satisfies the Court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the action, the Court may give judgment for the plaintiff in the action.

(2)

8. (HK) Application for summary judgment on counterclaim (O. 86, r. 8)

(1) Where a defendant to an action begun by writ has served a counterclaim claiming against the plaintiff such relief as appears in rule 1(1) the defendant may, on the ground that the plaintiff has no defence to a claim made in the counterclaim or to a particular part of such a claim, apply to the court for judgment against the plaintiff on that claim or that part.

(2) Rules 2, 3, 4, 5, 6 and 7 shall apply in relation to an application under this rule as they apply in relation to an application under rule 1 but with the following modifications-

(a) references to the plaintiff and defendant shall be construed as references to the defendant and plaintiff respectively;

(b) the words in rule 3(2) "any counterclaim made or raised by the defendant in" shall be omitted;

(c) the reference in rule 4(2) to the action shall be construed as a reference to the counterclaim to which the application under this rule relates.”

6. This Court has the unlimited jurisdiction to deal with the application.  See 86/2/1, HKCP 2013 Vol.1.

7. The legal principles for Order 86 application are summarized in the judgment of To J. in Super Town Investments ltd v Ines Developments Ltd & Others (unrep. HCA86/2006) at §5:

“5. While the scope of application of Order 86 and Order 14 of the RHC are different, the legal principles applicable to an application for summary judgment under both Orders are the same. These principles are well-established. The cardinal principle is that a defendant ought not be driven from the judgment seat if he has an arguable defence. Thus, summary judgment should only be given where it is a clear and obvious case and ought therefore not be tried: see Hong Kong Civil Procedure 2007 Note 86/4/1, Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 and Chow Yim Woon v Lam Yung Ming [2000] 3 HKLRD373.”

THE FACTUAL BACKGROUND

8. In so far as the facts are relevant to this applications, I shall adopt the summary of the facts as set out in Mr. Koo’s written submissions as follows:

“Background

1. This is an action concerning a sale and purchase agreement dispute of a small house (丁屋) at Yuen Long (the “Property”).

2. By an agreement dated 30 January 2013 (the “Agreement”) [B/002-018] the Defendant agreed to sell and the Plaintiff agreed to purchase the Property at the purchase price of HK$7,800,000.00 (the “Purchase Price”).

3. Completion was to take place on 16 April 2013 at 5:00 pm, time being of the essence of the contract.

4. Pursuant to the terms of the Agreement, the Plaintiff had paid a total sum of HK$780,000.00 (the “Deposits”) being deposits or part payment of the Purchaser Price.

5. The terms of the Agreement contains the following :-

Clause 7(1):	“Such of the documents of title as are required for the purpose of giving title shall be delivered to the Purchaser…”
Clause 7(2):	“The Vendor shall give title to the Property in accordance with Section 13A of the Conveyancing and Property Ordinance (“CPO”)(Cap.219). The Vendor shall at his own expense show and prove his title to the Property in accordance with Section 13 of the CPO and shall at like expenses make and furnish to the Purchaser such certified or attested copies of any deeds or documents of title, wills and matters of public record as may be necessary to prove such title…”
The Second Schedule- Clause 2(II)	“The separate new Government Lease is deemed to have been granted upon the right of renewal contained in the Block Government Lease being deemed to have been exercised by virtue of the New Territories (Renewable Government Leases) Ordinance, Cap.152 of the Laws of Hong Kong subject to and with the benefit of the following Building License as varied rectified and modified by a Rectification letter and a Modification Letter respectively registered in the Lands Registry by Memorial Nos. YL255227 and YL263232.”

6.  The Plaintiff was at all material times prepared, willing and ready to proceed with the completion of the Agreement, and had prepared the cheque in the sum of HK$7.03 million for that purpose. [A/040; B/067-074]

7.  The transaction fell through as a result of the dispute between the parties on requisition of the title of the Property, and it concerns a “Modification Letter”.

8.  By a letter dated 12 March 2013 [B/026-027] the Plaintiff’s solicitors, Messrs. Pansy Leung Tang & Chua (“PLTC”) requisitioned as follows:-

“1. [the Defendant] has only provided us a certified copy Modification Letter Memorial No. YL263232. As such Modification Letter relates exclusively to the above property, pursuant to Section 13(A) of the [CPO], please send us an original document of such Modification Letter in order to give a good title to the above property. ” (emphasis added) ”

9. By letter dated 25 March 2013 [B/030-031], PLTC reiterated their point and stated the following:-

“If the original Modification Letter cannot be produced, you have to provide a sufficient conveyancing evidence, by way of statutory declaration, which has to explain the circumstances in which the said Modification Letter had been lost and show how the person who ought to have custody of it could not find it despite proper endeavours.”

10. By letters dated 22 March 2013 [B/028] and 3 April 2013 [B/032-033], the Defendant refused to provide original copy of the Modification Letter and/or any conveyancing evidence on the grounds that the said Letter is a pre-root document and that it had not modified the terms and conditions of the Block Government Lease of DD 17.

11. As Messrs. Tony Kan & Co. (“TKC”) refused to provide the original copy of the Modification Letter, or any conveyancing evidence to prove that the original copy had been lost so as to clarify the doubts on the Plaintiff’s title to the Property, the Plaintiff had no alternative but demanded the Defendant for return of Deposits.

12. Nevertheless, the Plaintiff forfeited the Deposits.”[2]

9. To the above, I should add that in the Agreement, it was provided that if the plaintiff is in default and fails to complete the purchase, the defendant is entitled to forfeit the deposit, resell the Property and claim for damage.[3]  Likewise, if the defendant is in default and fails to complete the sale, the plaintiff is entitled to the return of the deposit and claim for damages.[4]

THE LEGAL PRINCIPLES

On the conveyancing practice

10. I have advised the legal representatives of the respective parties to address me on the Judgment of the Court of Final Appeal in De Monsa Investments Limited v Whole Win Management Fund Limited FACV No.6 of 2012, delivered on 26 July 2013.  I shall also refer to the decisions of the Court of Appeal insofar as they were not overturned by the Court of Final Appeal in order to distill from these decisions the useful guidance for conveyancing practice for the legal practitioners in Hong Kong.

11. This case is one of the numerous cases of raising requisitions on title by the purchaser’s solicitors resulting in termination of the sale and purchase agreements and ultimately, litigations.  The practice and rules of law as set out by the Court of Appeal in CACV251/2010 and the Court of Final Appeal in the De Monsa case above should, in my view, demonstrate the proper approach for approving title and raising requisitions, which should be observed by the legal profession in order to protect their clients’ and their own interest as well, avoiding unnecessary litigation.  I shall therefore set out the important guidelines from the authorities below:

a.  A contract for the sale of land depends upon the ordinary law of contract.  As Lord Hoffmann said in Jumbo King Ltd v Faithful Properties [1999] 2 HKCFAR 279 at 299C: “Contracts for the sale of land are not exceptions to the principle that parties have freedom of contract and may agree to whatever terms they like.” Where the parties have, through their solicitors, entered into a formal contract of sale, it would generally be assumed that they have provided for all the essential terms.  This leaves little room for implication of terms.[5]  It is then the court’s function to give effect to the parties’ bargain, according to law.[6]

b.  A vendor whose title is, or may be, open to objection because there is, or may have been, erected on the property of which he is granting exclusive use to his purchaser some unauthorised structure is well advised to protect himself by precluding his purchaser, by contract, from raising any requisition or objection to the title based on an ‘unauthorized structure’ point.[7]  It will be advisable to make full and frank disclosure of the defects of the property to be sold or its title at the stage of formation of the contract.

c.  There is no dispute that a vendor in a sale and purchase of real property transaction is under a duty to show and prove his title in the property before the date of completion and a duty (a separate and distinct duty) to give a good title to the purchaser on completion.[8]

d.  A good title does not mean a perfect title, free from every possible blemish.  Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain;[9]

e.  What then is meant by the vendor’s obligation to make good title?  The principle as stated in the leading textbook in Hong Kong, Hong Kong Conveyancing Law and Practice Chapter VI para 2 is as follows:

“In a case where the vendor has agreed to give or make good title, his duty is to ensure that, by the completion date….the nature of his title is neither defective nor defeasible. He must deal, in a way acceptable ultimately to the court, with all defects in that title so that, paraphrasing the words of Lord Russell of Killomen in MEPC Ltd v. Christian Edwards [1981] AC 205, the facts and circumstance are so compelling that, beyond reasonable doubt, the purchaser will not be at risk of a successful assertion against him of any encumbrance…”

This is the principle under which a buyer would have acquired the property; it is entirely reasonable that, when he came to be the seller, he should be under the same obligation.[10]

f.   There is the importance of candour in the course of requisitions as to title: Facts known to the vendor material to the requisition must be disclosed: A principle emphasized in Active Keen Industries Ltd v Fok Chi-keong [1994] HKLR 396 at 407.[11]

12. I shall adopt the above guidelines for the discussion as the starting point.

Specific areas for this case

13. Moreover, this matter concerns some specific areas, which were also discussed in the Court of Final Appeal judgment. They are as follows:

a.  The solicitor can rely upon the certified copy of the Letter of Modification for approving title. Ribeiro PJ and Gleeson NPJ said:

“As the Judge said, and the Court of Appeal agreed, what s 13(2) required was the production of a copy attested or certified to be a true copy. It did not in terms require an attested or certified copy of the original[12]… …The section places reliance on the integrity and judgment of public officers and solicitors. When they have certified that a copy is true, the parties can rest content that it is so, unless extraneous evidence shows otherwise.”[13]

The burden therefore lies upon the plaintiff to show by extraneous evidence that the certified copy of the Modification Letter is not reliable.

b.  The purchaser has proprietary interest in the documents of title upon completion.  Such right of propriety interest is qualified as Ribeiro PJ and Gleeson NPJ said:

“The purchaser’s proprietary interest in documents of title is qualified in an important respect. The relevant principle was stated by Romer J in Re Duthy and Jesson’s Contract [1898] 1 Ch 419 at 422 as follows:

“The purchaser is not asking to have these deeds produced for the verification of or for information as to the title, but is calling upon the vendors to fulfil the ordinary obligation they are under of handing over on completion all title-deeds in their possession or power.” 

The purchaser’s right to the title deeds as chattels, which may be vindicated, for example, by an action in detinue, is subject to the qualification in the concluding words of that passage. Secondary evidence does not come into it. The purchaser as the new owner will be entitled to all the title deeds that relate exclusively to the property, and, insofar as they are in the possession or power of the vendor, the vendor must hand them over. On the other hand, the purchaser’s interest in obtaining a good and marketable title, referred to by Chitty LJ, is protected by the requirement of clear and cogent secondary evidence, sometimes referred to as a “satisfactory explanation” of the absence of a document.[14]”

c. The purchaser’s qualified right over the title documents is further elaborated as to under what circumstances the purchaser will be entitled to refusing completion. Ribeiro PJ and Gleeson NPJ said:

“The case of Moulton v Edmonds, referred to by Lord Lindley MR and Chitty LJ, left open a question which is of present importance. Lord Campbell LC ((1859) 1 De GF & J 246 at 249), after referring to missing title deeds that could not be produced, said:

“Perhaps the test may be, whether the recited deeds not produced cast any reasonable suspicion upon the title shown by the deeds produced”[15]

In our view, the vendor’s inability to produce an original document of title rather than a certified copy, and to account for the absence of the original to the standard required for secondary evidence, would only have justified refusal to complete where the absence of the original would indicate the realistic possibility of some transaction affecting the land which could affect the purchaser if it took title.[16]”

d.  In the same judgment[17], Litton NPJ said at §128:

“Where section 13A(1) imposes an obligation on the vendor, for the purpose of giving title, to deliver to the purchaser an original title deed (as required to be produced as proof of title under s.13(1)(a) and (c)), that requirement is subject to the common law rule: see subsection (2). If an original in the chain of title is missing, and such loss gives rise to no risk that the title to be passed to the purchaser might be blemished, then the vendor would have fulfilled his obligation of giving good title under s.13A(1).”

THE PLAINTIFF’S ARGUMENT

14. The plaintiff now relies upon the defendant’s refusal of delivering the original Modification Letter for showing title and giving title upon completion as the reasons for refusal to complete.  Mr. Koo does not object to the defendant’s further affirmation, which exhibits the Modification Letter showing the terms of the modification.  However, he objects to the defendant’s change of stance by Mr. Lui’s submission: “16. It is submitted that D is not obliged to produce the original Letter in order to give good title because of the original Letter does not give rise to any real or realistic risk of successful assertion against P of any incumbrance..”  This new stance was not even pleaded in the Defence.

15. Mr. Lui argues that this is a matter of law, which is not required to be pleaded in the pleadings.  I agree although Order 18 rule 11 provides that the defendant may by the pleading raise any point of law.  This is not mandatory.  The facts as pleaded are not in dispute, viz. the plaintiff’s solicitors had asked for the original Modification Letter for proof of the title; the defendant’s solicitors had only given the certified copy of the Modification Letter to the plaintiff’s solicitors for this purpose, but refused to give the original Modification Letter to the plaintiff on the grounds that it was pre-root title deed and that it did not change the Block Government Lease, as a result of which the plaintiff refused to complete and demanded return of the deposit and claim for damages.  On the other hand, the defendant claimed that the plaintiff was in breach of the Agreement for failing to complete upon completion and therefore forfeit the deposit and counterclaimed for damages against the plaintiff.  The question is: Is the defendant debarred from raising the legal argument as stipulated in paragraph 16 of the written submissions in the hearing or in the trial of this matter?  The issue in dispute will be determined by the law applicable to the factual circumstances.  I do not see any prejudice to the plaintiff if the defendant is to raise this legal argument at this hearing or at the trial.

16. Mr. Koo argues that the Modification Letter forms part of the Block Government Lease, relying upon Earning Code Limited v. Lau King Lin and Ors., unreported, HCA 3874/1991, 28 July 1995, Deputy High Court Judge Longley (as he then was).  I agree.  The defendant has raised no argument on this point.

17. Mr. Koo at paragraph 29 of his written submissions says that without the original Modification Letter or the certified copy of it, (together with conveyancing evidence explaining the loss of the original), there is indeed real risk in the Plaintiff’s title to the Property.  However, there is no extraneous evidence on which Mr. Koo can rely to establish any risk.  On the contrary, Mr. Koo says, in answer to my questions in Court, that there had been several previous assignments of the Property before this one.  It will be apparent to the government if those assignments were in breach of Condition 6 of the Block Government Lease.  The suggestion that the Modification Letter may not be genuine is nothing more than speculation by the plaintiff, without any factual or legal basis. Mr. Lui objects to this submission in Mr. Koo’s written submissions because there is no factual basis in support of this argument.  Throughout the requisitions raised by the plaintiff’s solicitors, there was no allegation that the Modification Letter was not a genuine document.[18]  All the requisitions were on the original Modification Letter only.  I agree with Mr. Lui on this factual issue.

18. There is no argument that the burden is placed on the defendant to show title of the Property and also to deliver title of the Property to the plaintiff upon completion in accordance with the Agreement.  The question is whether the defendant had discharged the burden under the given circumstances.

19. Mr. Koo has raised the following issues, which he submits are the triable issues and thus judgment should not be awarded to the defendant for the Counterclaim:

a.  whether the certified copy provided was merely a certified copy of a copy of the Modification Letter;

b.  whether the Government did have issued the Modification Letter;

c.  whether the Defendant has, through TKC, discharged her burden to show a good title to the Property and to answer the necessary requisitions for that purpose;

d.  whether the Government has the right to re-enter the Property; and

e.  whether the Government would not exercise its right, if any, to re-enter the Property.

DISCUSSION

20. As to paragraph 19 a, the plaintiff’s solicitors had never raised this issue in their letters of requisitions.  The argument that the certified copy of the Memorial at page 60 of Bundle B only referred to the Memorial, not the attached document, ie the Modification Letter as per page 59 of the Bundle was never mentioned in the requisitions raised by the plaintiff’s solicitors.  The Agreement provides that requisitions must be raised within the specified period of time.  If the plaintiff had not raised this issue at the stage of requisition on the title, the defendant is not obliged to answer this issue and the plaintiff is not allowed to raise this issue at trial.  The same situation equally applies to paragraph 19b.  As such, they are not triable issues.  It is quite clear that the plaintiff’s solicitors should rely upon the certified copy of the Modification Letter for approving title of the Property unless there is evidence to show that the certified copy of the Modification Letter is not genuine.  The burden is clearly on the plaintiff to show this.  As submitted by Mr. Lui, the Modification Letter, which only confirmed that premium had been paid to the government for the lessee of the Block Government Lease to assign the Property and the restrictions under Condition 6 of the Block Government Lease had been discharged.  The certification on the Memorial sheet is clear evidence that the certification refers to the Modification Letter, which was annexed to the Memorial sheet itself.  What is the purpose of certifying the memorial sheet only?  The fact that the Modification Letter annexed to the Memorial did not have the signature of the officer is neither here nor there as the plaintiff’s solicitors had not raised this issue before completion.  It follows that the defendant had discharged her burden to show title to the Property by way of the certified copy of the Modification Letter.

21. As to paragraph 19 d and paragraph 19 e above, given the facts of this case, in particular, that the Modification Letter being innocuous to the title of the Property itself, one can safely draw the conclusion that the government has no right of re-entry.  Alternatively, even if the government had such right, the government would not enforce it.  This case can be contrasted with the case of Jumbo Gold Investment Limited v Warren Yuen Cheong Leung & Another (2000) 3 HKCFAR 52, in which there was a breach of the building covenant in relation to the height of one block of building (Block C) in the development.  Despite the issuance of the Occupation Permit by the Building Authority in 1955, there was still risk that the government might exercise its right under s.4 of the Government Rights (Re-entry and Vesting Remedies) Ordinance, Cap. 126, extinguishing the interest of every owner therein.  Having considered that the government must have known the breach of the building covenant, had nevertheless issued the occupation permit; that there were other owners of the development who would be affected by the government’s exercise of the right of re-entry and also the interests of the tenants living in the development, the Court of Final Appeal unanimously held that there was no real risk that the government would exercise the right of re-entry and the title of the property was good.  See paragraph 60G.  The answers to these two questions must be negative.

CONCLUSION

22. Having answered all the questions put forth by the plaintiff, it is apparent that there is no triable issue in this matter.  The plaintiff has no claim against the defendant and accordingly, the plaintiff’s claim and action should be dismissed and judgment should be entered for the defendant’s Counterclaim as per the minutes.

23. As to the costs of this action, including the hearing today, the defendant’s solicitors have prepared the schedule of costs for summary assessment under Order 62 rule 9A.  Having considered the submissions of respective counsel, and on a broad-brush basis, I assess the costs of the action, including all costs reserved and the costs of today’s hearing (with  counsel certificate) to be HK$100,000 to be paid by the plaintiff to the defendant within 14 days from the date hereof.