CHOY SON FAI AND OTHERS v. YEUNG MIU KWAN BRENDY

DCMP 1972/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1972 OF 2013

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JUDGMENT

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1. There is a vendor and purchaser summons dated 1 August 2013 before me. This summons was taken out by the plaintiffs who were the purchasers of the Property whereas the defendant was the registered owner and vendor of the same.  The issues of the case are about 2 requisitions raised by the plaintiff’s solicitors on the title of the Property. 

2. The background of this case was quite straight forward.  On 31 January 2013 the plaintiffs and the defendant entered into a provisional agreement for sale and purchase, namely the Agreement as defined in the title of this application, of the Property at a consideration of HK$2.98 million. An initial the deposit of HK$100,000 was paid at the time when the Agreement was signed. Subsequently, a further deposit of HK$198,000 was paid on the 22 February 2013 but no formal sale and purchase agreement was executed. According to the Agreement, completion of the transaction was scheduled to take place on or before 9 April 2013 and it was not in dispute that the defendant had duties to show or prove and give a good title of the Property.

3. It is trite law and there is no dispute that that these two duties of the vender are independent and a breach of any one of them would amount to a repudiation of the Agreement.  Following the usual conveyance practice, on 18 February 2013 the defendant’s solicitors sent the title deeds and other relevant documents of the Property to the plaintiff’s solicitors for title investigation. Although no formal sales and purchase agreement had been signed, pursuant to the Agreement, the plaintiffs paid a sum of HK$440,700 to the Collector of Stamp Revenue as stamp duty.  After the title documents were duly inspected, by a letter dated 28 February 2013, the plaintiff’s solicitors raised a total of 17 requisitions. Out of these requisitions, only Requisition Nos. 3 and 4 are relevant to the present proceedings.

4.  For Requisition No. 3, the plaintiffs requested “… certified copies [of] the Certificate of Exemption in respect of Drainage Works in respect of the Property”. And for Requisition No. 4, the plaintiffs requested “… certified copy of the relevant Deed Poll to crave out the whole lot of Lot No 2217 into sections”(sic)

5. Initially, the defendant’s solicitors answered Requisition No. 3 by informing the plaintiffs’ solicitors that there was no such Certificate of Exemption in respect of the drainage works.  But the plaintiffs’ solicitors were not satisfied with the answer. Later when the plaintiffs’ solicitors wrote again on 11 March 2013 to the defendant’s solicitors to repeat the same requisition, the defendant’s solicitors then gave a slightly different answer with an intent to show that the drainage works of Property were duly approved by the Buildings Department. They provided the plaintiff’s solicitors with the following documents (collectively referred as “the Communal Drainage Approval Documents”) :-

  i. a certified copy of an Approval Letter of the Buildings Department in respect of Communal Drainage dated 18 October 1994 together with a copy of an Approved Drainage Detail and Layout Plans; and

  ii. a certified copy of the Acknowledgement Letter of the Buildings Department dated 9 October 1998 together with a copy of a Certificate on completion of building works not resulting in a new building or of street works (Form BA 14) in respect of the completion of the drainage works.

6. As revealed in the exchange of correspondences between the parties, the defendant solicitors argued that the documents disclosed above showed that the drainage works of the Property were duly approved by the Buildings Department and therefore it was not necessary for the defendant to show any Certificate of Exemption.

7. For Requisition No. 4, the defendant’s solicitors initially answered the requisition by explaining that the Deed Poll dated 15 July 1992 (“the Deed Poll”) was a pre-intermediate root document and the defendant had no obligation to produce. The defendant relied on section 13(1) and 13A of Conveyancing and Property Ordinance, Cap. 219 and the authorities: - Dawson Properties v Hong Kong Niiroku Ltd [1997] 2 HKC 800 and Donpower Trading Ltd v. Apexcom Ltd [2010] 1 HKLRD 915. Later, in a subsequent reply, the defendant’s solicitors said that the Deed Poll would not form part of the Government Lease and therefore it was not required to be produced.  The plaintiffs’ solicitors, in reply to the defendant’s solicitors’ answers, insisted that the requisition was not answered satisfactorily. The plaintiffs’ solicitors explained that Section K of Lot 2217, namely Lot 2217K, where the Property was situated was carved out from the Remaining Portion of Lot 2217, namely 2217RP, and it was therefore necessary and reasonable for the plaintiffs to obtain the Deed Poll for ascertaining how Lot 2217K was carved. The plaintiffs’ solicitors also argued that the production of the Deed Poll was necessary because it would vary the provisions of the Government Lease and was evidence of the boundary of the Lot 2217K.

8. The plaintiffs’ solicitors further argued that the reason for the production of the Deed Poll was not just because of the above. It also helped to understand the answer provided by the defendant’s solicitors in relation to Requisition No. 3 regarding how the Approval Letter of the Buildings Department in respect of Communal Drainage dated 18 October 1994 was relevant.  The plaintiffs’ stance was that according to the approval, drainage works in Lots 2175, 2217B, 2217RP and 2195 were approved by the Buildings Department but the Property was not situated at any of the lots described above but actually at Lot 2217K. The plaintiffs’ solicitors suggested that although Lot 2217K was a part of Lot 2217RP before the Deed Poll was executed in 1992, it was no longer the case in 1994 when the approval was granted because it had been carved out by the Deed Poll. In other words, when the approval was granted in 1994, the approval was not related to the drainage works of the Property as it was not situated in Lot 2217RP. The plaintiffs’ solicitors therefore would like the production of the Deed Poll to clarify.

9. The parties were unable to reach an agreement by the scheduled completion date on 15 April 2013 and transaction fell through.  In order to resolve the dispute, the plaintiffs took out the present proceedings and asked the court to adjudicate their differences.

10. Miss Shannon Leung, counsel for the plaintiffs, submitted that the defendant failed to answer the 2 requisitions and therefore failed to show or prove a good title. The plaintiffs therefore argued that the defendant had wrongfully repudiated the Agreement and asked for various remedies including:- return of deposit, reimbursement of the plaintiff’s conveyancing costs, reimbursement of stamp duty and other payment, e.g. estate agent’s commission.

11. To answer the questions put before me by the parties as to whether or not the defendant has answered the requisition satisfactorily and had shown or proved a good title, I must answer the questions in a proper context and background.

12. First of all, the Property was within a building commonly called New Territories Exempted House.  The reason why this was so called was because certain important provisions of the Buildings Ordinance, Cap. 123 were exempted from applying to the building.  The effect of which was that no approval of building works, no consent to commence the building works and no Occupation Permit were required for these New Territories Exempted Houses.  The legal basis of such exemption was prescribed by the Buildings Ordinance (Application to the New Territories) Ordinance Cap. 121. Under this ordinance, building owners were granted certificates of exemptions for the building works, site formation works and drainage works so that certain provisions of the Buildings Ordinance, Cap. 123 were not required to be complied with as long as the buildings complied with certain prescribed design and configurations under the Buildings Ordinance (Application to the New Territories) Ordinance Cap. 121. The definition of “building works” in this ordinance does not include “site formation works” and “drainage works”.  According to Section 4 and 6 of the Ordinance separate certificates of exemption may be granted.  On proper construction of this ordinance, in my judgment, if certificate of exemption is granted for the building works only but not for site formation works and drainage works, the law requires that site formation works and drainage works be approved by the Buildings Department under the Buildings Ordinance in the usual way.

13. Secondly, the Property was situated on a piece of land which was original a small portion (namely Lot 2217K) of a larger lot (namely the original Lot 2217RP) before the Deed Poll was executed in 1992. The Deed Poll is apparently an important legal document to show how Lot 2217K, where the Property was situated, was carved out from the original Lot 2217RP.  The Deed Poll certainly was helpful for identification and description of the Property but as to whether or not it was required to show or prove a good title, it depended on circumstances of each case. 

14. Regarding Requisition No. 3, the plaintiffs submitted that in failing to produce the certificate of the exemption of the drainage works, the defendant failed to show or prove a good title.  According to the plaintiffs’ submissions, constructions of any building works, site formation works and drainage works are subject to the usual procedures and approvals prescribed by the Buildings Ordinance, Cap 123.  In other words approvals must be obtained, unless certificates of exemptions were granted in relation to these works in accordance with the Buildings Ordinance (Application to the New Territories) Ordinance, Cap 121.

15. Miss Leung explained that if no certificates of exemption were granted to any building works, site formation works or drainage works and no approvals were obtained from the Buildings Department, such works will be treated as unauthorized works and would therefore be subject to a real risk of enforcement.  The plaintiffs therefore submitted that a certificate of exemption or an approval from the Buildings Department was required to show or prove a good title.  In support of her contention, she relied on the following authorities, namely Lui Kwo Wai & Another Chan Yiu Hing & Another HCMP 3246 of 1994, unreported, dated of judgment: 2 December 1994, Lo Chun Tak v Chan Foon Tai DCCJ 245 of 1991, unreported, dated of judgment and Maxcrown International Ltd v Wong Kit Chun HCMP 228 of 2003, unreported, dated of judgment 6 April 2004.  In my judgment, this must be right.

16. To answer the plaintiffs’ proposition, Miss Grace Tam, counsel for the defendant, argued that although there was no certificate of exemption in respect of the drainage works of the Property, it was sufficient for the defendant to provide the Communal Drainage Approval Documents. The defendant intended to show that although there was no certificate of exemption for the drainage works of the Property, there were a number of documents, namely the Communal Drainage Approval Documents, which could show that the approval for the drainage works of the Property was granted by the Buildings Department. 

17. After careful of consideration of evidence before me, particularly the Communal Drainage Approval Documents mentioned above, I do not accept the defendant’s submissions. If one takes a closer look at the documents particularly the Approval Letter dated 18 August 1994, one will notice that the description of the work was “Communal Drainage” for New Territories Exempted Houses but not the drainage works of any particular house. The Approved Drainage Detail and Layout Plans also confirm this observation. One can also see that the “Communal Drainage” actually refers to the drainage constructed at the ground level between different blocks of exempted houses but not of any one of the particular exempted houses.  The documents produced by the defendant clearly show that the drainage work approved by the Buildings Department was not the drainage work of or for the Property.  In my judgment, factually that the defendant failed to produce any documents showing that the drainage works of the Property was either exempted from the application of Buildings Ordinance, Cap 123 or was approved by the Building Department.

18. Miss Tam further argued that the Property was a New Territories building and exemptions for building works and site formation works of the Property had already been obtained from the relevant District Land Officer. She therefore argued that the Property was exempted from the requirement of occupation permit and accordingly the absence of any exemption for drainage works would not render the title defective. In support of her argument, she relied on section 7(1)(a) of the Buildings Ordinance (Application to the New Territories) Ordinance, Cap. 121 and these authorities:- Lo Chun Tak v Chan Foon Tai DCCJ 245 of 1991, unreported,  date of judgment: 15 November 1991 and Lui Kwok Wai & another v. Chan Yiu Hing and another HCMP 3246 of 1994, unreported, date of judgment : 2 December 1994.

19. Given my reasons above, this cannot be right. The authorities cited before me simply do not support such proposition. In  Lo Chun Tak v Chan Foon Tai, Litton J only held that when the certificate of exemption in relation to building works was issued then no occupation permit will be issued by the Buildings Department. But the facts of this case did not touch on the issue of the certificate of exemption for building works at all.  Similarly, reliance was placed on Lui Kwok Wai & another v. Chan Yiu Hing and another. But again, this judgment only dealt with the relationship between the occupation permit and the certificate of exemption in relation to building works. The present case is about the certificate of exemption for the drainage works but not building works. The Buildings Ordinance (Application to the New Territories) Ordinance, Cap 121 specifically distinguishes “building works” from “site formation works” and “drainage works” (see section 2).  Although it was right to say that when certificate of exemption of building works is obtained, occupation permit may not be required, certificates of exemption for drainage works must also be obtained unless approvals are granted by the Buildings Department. In my judgment, without such certificate of exemption for the drainage works of the Property, there would be a real risk of enforcement by the Buildings Department.

20. As an alternative argument, the defendant further submitted, relying on Mexon Holdings Ltd v Silver Bay International, that the plaintiffs could have written to the Buildings Department expressing their concerns and made reasonable enquiry as to whether or not the certificate of exemption for the drainage works was required. On this point, I fail to see the sense of the defendant’s submissions. In my judgment, the burden must be on the defendant to show or prove a good title and I do not think that Mexon Holdings Ltd reverses such a burden and furthermore the facts of that case are materially different from the present one. Given the risk of enforcement in the present case was real, the plaintiffs were justified on the the facts of the present case to raise such requisition without making such enquiry with the authority. The issue is whether the defendant answered the requisition satisfactorily and not whether the plaintiffs had exercised their due diligence in investigating the title.

21. There was a further issue which was no longer material, given my reasons above but I will just deal it briefly. Whether the Approval Letter dated 18 August 1994 was related to the Property as it did not refer to Lot 2217K where the Property was situated. The defendant was asked to produce the Deed Poll to clarify.  Given my factual findings above that the approval was about the communal drainage work between different blocks of exempted houses within the development and not the drainage works of the Property, it is therefore unnecessary for me to deal with this issue now because it was quite obvious that the approval did not cover the drainage work of the Property on Lot 2217K.

22. Given my decision on Requisition No. 3 above, in fact it would be sufficient for me to deal with the entire application of the plaintiffs. However for completeness, I will continue to deal with the issue regarding the requisitions in relation to the Deed Poll, namely Requisition No. 4. 

23. Regarding the requisition for production of the Deed Poll, the initial answer by the defendant was that the Deed Poll was a pre-intermediate root document and the defendant had no obligation to produce it (see Lo Hung Biu v Lo Shea Chung and another [1997] HKLRD 721).  Subsequently, the defendant also said in the correspondence that the Deed Poll would not form part of the Government Lease and therefore argued that the plaintiffs were not justified to raise such requisition.  During the hearing, the defendant further argued that such requisition was not properly raised and therefore it was not necessary for the defendant to answer it.

24. The plaintiffs in reply submitted that the requisition was precise and concise and was therefore properly raised.  And the plaintiffs further argued that, generally, a deed poll was similar to a deed of surrender which was held to be an instrument varying the provisions of the Government Lease and thus required to be produced by a vendor to show or prove good title (see Grand Money Ltd v Tang Tak Shun HCA 7791 of 1995, unreported, date of judgment: 7 June 1996). The plaintiffs therefore argued that a deed poll should therefore be produced likewise.

25. I agree the requisition was precise and concise. And generally speaking, I also agree that both deed polls and deeds of surrender are indeed important title documents which may be required to be shown.  Generally speaking, the deeds of surrender are to show how, and on what conditions, land is carved out and surrendered to the landlord, namely the Government if it were a Government Lease, whereas deed polls in relation to land generally are documents which show how lands are physically subdivided into different subsections. Deed polls do not affect the Government Leases at all and this is the case here. I agree with the plaintiffs that deed polls are generally important documents showing the identification and description of the land, without which, sometimes it would be difficult to identify the location of it. But on the evidence before me, it is not always the case. Depending on the circumstances of each case, it might not be necessary in each and every property conveyancing transaction to produce a deed poll. For the present case, there was no evidence before me to show that the identification and description of the land where the Property situated was being or had a real risk of being challenged and hence I do not see the need of such production.

26. Even if I were wrong in the above, I agree with the defendant’s submissions that the Deed Poll in the present case was a pre-intermediate root document and the general rule is that it is not required to be produced unless the purchasers discovered the document through a source other than the vendor. On the evidence before me, the plaintiffs’ solicitors confirmed in the letter dated 28 February 2013, which was the first letter raising all the requisitions, that Requisition No.4 was raised “[u]pon perusing the relevant title deeds and documents of the Property” and therefore, in my judgment, the question on title, even if there was any, was not discovered through a source other than the vendor. I agree with the defendant’s submissions that the defendant was not required to answer this requisition.

27. Although the plaintiffs failed to persuade me to accept all their arguments, it was more than sufficient for them to succeed the application when I accept that the defendant failed to answer Requisition No.3 satisfactorily. I therefore find that the requisition in relation to the certificate of exemption of the drainage works of Property has not been sufficiently and satisfactorily answered by the defendant.  In the premises, I accept the plaintiffs’ application in the vendor of purchaser summons and grant the relevant remedies.

28. I declare that the defendant has failed to show or prove a good title to the Property to the plaintiffs.  Further I also declare that the defendant had wrongfully repudiated the Agreement by reason of the failure to show or prove a good title.  I also make an order that the defendant do return the initial the deposit of HK$100,000 and further deposit of HK$198,000 paid by the plaintiffs to the defendant.

29. Further, I also order that the defendant do pay the plaintiffs the conveyancing costs relating to the purchase of the Property including the costs of investigating the title in the sum of HK$15,000.  As to the liquated damages claimed by the plaintiffs for a sum of HK$100,000, I understand that the plaintiffs had, on the date of final submissions, abandoned it and therefore do not make any order for it. 

30. In relation to the stamp duty paid by the plaintiffs, subject to the plaintiffs’ undertaking to use reasonable efforts to obtain a refund from the Collector of Stamp Revenue, I also order that the defendant do indemnify the plaintiffs the stamp duty in the sum of HK$44,700, in the event that the plaintiffs’ failing to obtain a refund. 

31. I also order that the defendant do indemnify the plaintiff the estate agent’s commission in the sum of HK$29,800, in so far as the same becomes payable by the plaintiffs. 

32. I also make a declaration that the plaintiffs are entitled to a lien over the Property for the sums which I have found in favour of them above.

33. Further, the defendant do pay the plaintiffs interest at 8% per annum from the date of the Originating Summons until today and from today until full payment at judgment rate.

34. For costs, as I find the entire application in favour of the plaintiffs, I will make a costs order nisi that the defendant do pay costs of this application (including all costs reserved) to the plaintiffs with certificate for counsel.  This order nisi will become absolute after 14 days from today unless it is varied by an application by summons.