CHAN SHUN v. NG YIU LEUNG DANNY

CACV 365/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 365 OF 2008

(ON APPEAL FROM HCMP NO. 202 OF 2008)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Mr Justice Yam given on 28 October 2008.  The matter before the judge was the hearing of an originating summons.  By that summons the plaintiff sought a declaration that a deed of release, memorial number 1152725 did not validly release a transfer of mortgage of memorial number 965777 relating to the relevant property, namely Flat G, 7^th floor, Block C2, Shatin New Town, Nos. 1-15, Wang Pok Street, Shatin, New Territories.  There was other relief also sought in the originating summons.

2.  The judge dismissed the plaintiff’s application with costs.  At the conclusion of the hearing of this appeal, the appeal was allowed and the plaintiff was granted relief, including the return of the deposit and an order that damages be assessed, as well as an order for payment of the costs of wasted expenditure in relation to the stamp duty, land registration fee, estate agent’s charges and legal costs.  Reasons were to be given in writing.

3.  Unfortunately this case would appear to be an example of unnecessary obstinacy on the part of solicitors with correspondence degenerating into something close to vitriolic.  Instead of the solicitors taking a simple step, an attempt was made to rely upon an alteration of a document in a manner which can only be regarded as close to farcical.

4.  The defendant mortgaged the property to the First Pacific Bank Limited by a mortgage dated 31 October 1995.  That was registered in the Sha Tin New Territories Land Registry under memorial number 837824.

5.  On 17 June 1997 the First Pacific Bank Limited transferred the mortgage to Deutsche Morgan Grenfell Capital Markets Limited.  That was duly registered in the Sha Tin Land Registry under memorial number 965777.  Shortly thereafter there were further assignments of mortgages from the First Pacific Bank Limited to Deutsche Morgan Grenfell Capital Markets Ltd and they related to different properties, all of which, it would seem, were in Tuen Mun.  That transfer was registered in the Tuen Mun Land Registry under memorial number 800466.

6.  There was a deed of release dated 28 April 2000 executed between First Pacific Bank Limited, Deutsche Securities Limited (formerly known as Deutsche Morgan Grenfell Capital Markets Limited) and the defendant.  Importantly for the purposes of this case the second recital clause read as follows:

“AND WHEREAS by a Transfer of Mortgages registered in the Tuen Mun New Territories Land Registry by Memorial No. 800466 (“the Transfer”), the Mortgagee transferred or assigned the benefit of all its rights and interests in, inter alia, the Mortgage in respect of the property to the Transferee.”

7.  That was registered in the Sha Tin New Territories Land Registry under memorial number 1152725.  The error in the second recital clause was not noticed until after the defendant had entered the sale and purchase agreement with the plaintiff dated 3 August 2007.  That was in standard form and the defendant was required not only to give good title to the property but also to prove good title.

8.  On 7 August 2007 the plaintiff’s solicitors wrote to the defendant’s solicitors drawing attention to this.  The first requisition read as follows:

“First Pacific Bank Limited (“the Mortgagee”) under Mortgage M/N ST837824 transferred its title benefit of the property to Deutsche Morgan Grenfell Capital Markets Limited (“the Transferee”) by a Transfer of Mortgages registered by M/N ST965777.  However, by subsequent Deed of Release M/N ST1152725 (copy enclosed), it was erroneously recited that the Mortgagee and the Transferee released the above property under a Transfer of Mortgages registered in Tuen Mun Land Registry by M/N 800466 which document is irrelevant to the above property.  You are requested to provide us with a confirmatory release (nevertheless subject to our approval) given by the Mortgagee and the Transferee at least 7 workings days prior to completion in order to remove such material defect.”

9.  The reply came on 22 August 2007 as follows:

“We are of the view that the mistake appeared in the Deed of Release Memorial No.ST965777 is apparently clerical error and does not affect title to the Property according to the rules of construction referred to in paragraph 28 of Volume 32 of the Halsbury of Laws of England (4th Edition).  We would also refer to you the legal maxim “falsa demonstratio non nocet”, i.e. a false description does not vitiate a document.  Hence, your request for a confirmatory release to rectify the said error is not necessary.”

10.  The matter then proceeded the relevant part of the plaintiff’s solicitors letter of 28 August 2007 read as follows:

“With respect, the erroneous memorial number of transfer of mortgage in Release Memorial No.ST1152725 (“the Release”) was a material title defect.  There is nothing in the Release shows the Transfer of Mortgages given by First Pacific Bank Limited to Deutsche Morgan Grenfell Capital Markets Limited and registered by Memorial No.ST965777 (“the Transfer of Mortgages”) had duly released by the Release.  You have right to point out that a transfer of mortgages registered in the Tuen Mun New Territories Land Registry by Memorial No.800466 has nothing to deal with the above property as it only relates to and affects the properties situate at Tuen Mun and hence, such erroneous memorial number does not constitute an typical error and shall have leaving the Transfer of Mortgages still existing and encumbered title of property.

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Since the Transfer of Mortgages remains interest to the property and will render subsequent assignments void and title of property defective, your are urgently required to provide with a confirmatory release given by the said Banks and/or written confirmation (nevertheless subject to our approval) form the said Banks confirming the Transfer of Mortgages had properly released by the time of execution of the Release to the Banks.”

11.  On 27 August the defendant’s solicitors wrote again refuting the suggestion that anything needed to be done to rectify the matter.  On 7 September the defendant’s solicitors wrote saying amongst other things:

“We have requested Messrs. Leung Chan and Pang to rectify that typing error and shall send you the Deed of Release duly amended as soon as it is available to us.  We are of the view that re-registration of the amended Deed of Release at the Land Registry is not required bearing in mind the registration system in Hong Kong is registration of priority but not title registration.”

12.  That was duly done and that the solicitors produced a copy of the deed of release with the words Tuen Mun crossed out and the words Sha Tin typed in above it, initialed by the solicitor, and likewise the number 800466 had been crossed out and 965777 inserted.  Completion was due to take place on 13 September 2007 but because of the disagreement between the parties, completion did not take place.  The defendant thereupon rescinded the agreement on the following day.

13.  The judge came to the conclusion that he was satisfied beyond a reasonable doubt that the memorial number had been wrongly typed.  He then went on to say that he was satisfied beyond a reasonable doubt that the purchaser would not be at risk of a successful assertion against him of an encumbrance in the future.

14.  In my view the matter is quite simple.  The issue between the parties relates to a question of title.  The company which became Deutsche Securities Ltd did not execute the deed of release in the capacity of the transferee of mortgage No. ST 965777.  The purchaser was entitled to require the matter to be rectified.  The proper manner of rectification was simply by the execution of a new deed of release.  The attempt by the solicitor to change the references by hand was clearly ineffective.  Not only was it not shown that he had the authority to do that but the matter should have been done by deed.

15.  On this appeal Miss Lau, who appeared on behalf of the defendant, sought to uphold the judgment in the court below on the basis that the deed of release can only have related to the property.  But that ignores the fact that the question of title of the transferee is involved.

16.  Miss Lau went on to rely on other matters which had not been the subject of the judgment below.  Those arguments turned on the question of the matter in issue being said to be a matter of mere conveyancing.  In my view that cannot be so because it goes to title.  Furthermore, I would adopt what was said by Mdm Justice Yuen JA in the case of Au Wai Ming and another v Kam Tze Ming Alfred and another, CACV 278 of 2008, judgment dated 25 June 2009:

“32.  A vendor generally is obliged to show good title before completion and to give (or make) good title on completion.  The first obligation is to show good title.  In England this is done by the vendor sending to the purchaser and verifying an abstract of title in which the vendor’s solicitors have summarized the documents and facts which make up the title.  In Hong Kong, an abstract is not sent but the relevant documents themselves are sent to the purchaser’s solicitors for perusal.  The agreement for sale and purchase generally stipulates a time limit for the purchaser’s solicitors to raise requisitions.  This is one instance when it is important to distinguish between a matter of title and a matter of conveyance.

•   If the vendor cannot answer a requisition on title, he generally has a right under the agreement for sale and purchase to rescind (or as it is sometimes put, “annul”) the transaction before completion.  Alternatively the purchaser has the right to rescind on the ground that the vendor has failed to show a good title (as in Active Keen Ltd v Fok Chi Keong [1994] 1 HKLR 396).

•   If the purchaser’s requisition raises a matter of conveyance, neither party can rescind before completion as the vendor has still shown a good title.  But it does not mean that the vendor can ignore the problem raised in the requisition.  He must still remove the defect in order to give (or make) a good title but he has until completion to do so (Smith v Butler [1900] 1 QB 694).

33.   With the above in mind, we can see the difference between matters of conveyance and matters of title explained in Farrand on Contract and Conveyance, 4th ed. at p.92:

“Anything which detracts from the vendor’s ownership according to the contract is strictly a defect in his title.  If, however, the defect is removable as of right by the vendor, then it is said to be a matter of conveyance rather than of title.  The point is that:

a vendor is considered to have shown an acceptable title if it appears from the abstract that on doing certain acts which he can perform immediately and independently of others’ consent, he will have the right to direct a conveyance of the whole estate contracted for.  But by his own showing he has no good title except he do such acts.  It is therefore a matter of course that he shall perform them; and it is unnecessary for the purchaser to address any requisition to this point.

(Williams on Vendor and Purchaser, 3^rd ed, p170 ...)”

(Emphasis added).”

17.  In my view, the defendant did not answer the requisition satisfactorily and did not show or have good title at the date of completion and when he purported to rescind the agreement.

Hon Le Pichon JA:

18.  I agree.

Hon Lunn J:

19.  I agree with the judgment of Rogers VP.