EXCEL WOOD LTD. v. CHARMED INVESTMENTS LTD.

1997, M.P. No. 4130

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4130 OF 1997

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J U D G M E N T

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1. The Plaintiff was the purchaser under a written agreement for sale and purchase dated 20 September, 1997 of a house at the Redhill development. The Plaintiff did not complete the sale on the ground that some requisitions on title had not been satisfactorily answered. This action is concerned with whether or not the Defendant had satisfactorily answered those requisitions, and for consequential relief in the event the Plaintiff succeeds. The Defendant counterclaims the Plaintiff for damages in failing to complete the transaction on the ground that these requisitions were improperly raised; alternatively, they were satisfactorily answered.

Summary of the Issues

2. In the course of correspondence between the respective parties' solicitors, various requisitions were raised on behalf of the Plaintiff and answers given on behalf of the Defendant. By the time when Mr. Chan made his submissions for the Plaintiff, he informed me that 3 of these requisitions were still in issue and therefore need to be considered by me. These 3 requisitions were:-

(a) the Plaintiff's failure to provide copies of 2 Court Orders and 4 statutory declarations;

(b) the Plaintiff's failure to prove due execution of a declaration of trust dated 14 March, 1984 (pp. 139-41, Bundle of Documents ("BD"));

(c) the Plaintiff's failure to provide a copy of a letter dated 10 March, 1984 from the Registrar General to Messrs. Johnson, Stokes & Master ("JSM") (pp. 225-30, BD at p. 226).

3. All the relevant documents have been contained in the Bundle of Pleadings. There is also a smaller bundle containing the relevant correspondence. Counsel for both parties have very helpfully provided me with written skeleton submissions.

Relevant Legal Principles

4. It seems that there is no dispute between the parties as to the applicable principles in law. In any event, I find the following to be the correct legal propositions relevant to the determination of this action:-

(a) there was a duty on the part of the Defendant, as vendor, not only to show good title but also to answer reasonable and relevant requisitions satisfactorily within a reasonable time, and in any event before completion: see, for example, Koh Chong-ho v. Double Value Development Ltd. [1993] 2 H.K.L.R. 423, 432, Active Keen Industries Ltd. v. Fok Chi-keong [1994] 1 H.K.L.R. 396, 405;

(b) there was a duty on the part of the Defendant as vendor to produce copies of documents necessary for proving the chain of title: clause 13 of the agreement and s. 13, Conveyancing and Property Ordinance, Cap. 219;

(c) there was a duty on the part of the Plaintiff, as purchaser, to raise requisitions which have substance. They must also be formulated with reasonable precision if they were to be effective: see Chan Chik Sum v. Great Pearl Ltd. [1997] 1 H.K.C. 27, 32B to F and 33B to D;

(d) as to (c) above, some elaboration is necessary. How a requisition ought to be raised and how specific it ought to be depends on the circumstances of each case. At one extreme is a requisition for which the answer is so self-evident, or clearly related to non-existing difficulties, that it need not be answered. At the other extreme is a requisition for which an answer is self-evidently wanting, that no further explanation or elaboration needs to be given by the purchaser. In-between these 2 extremes are requisitions which require to be elaborated upon by the purchaser in a manner appropriate to the particular circumstance. The same principles apply to answers to be given by the vendor in answer to the requisitions raised;

(e) the same principles relating to the particularities required of requisitions set out above apply equally to requests for copies of documents said to be necessary for proving the chain of title. Some documents are self-evidently necessary and no elaboration is needed from the purchaser; others are self-evidently unnecessary that they need not be produced and no explanation needs to be given by the vendor; others fall somewhere in between the extremities.

Requisition. 1: Failure to Supply Court Orders and Statutory Declarations

6. The Plaintiff's requisition for copies of the Court Orders and Statutory Declarations arose out of the following:-

(a) in 1984, an assignment was executed by one Vermillion Land Co. Ltd. ("Vermillion") as vendor in favour of the purchaser Mightyton Limited ("the 1984 Assignment"). The 1984 Assignment was executed by 4 individuals, respectively Messrs. Wu, Deacon, Mark and Etches, described as receivers appointed by Wardley Limited (pp. 225-30, BD at pp. 226 and 229);

(b) by a Court Order dated 9 April, 1987 ("the Winding Up Order"), Vermillion was wound up;

(c) by a Court Order dated 11 May, 1987, the Official Receiver as liquidator of Vermillion was released ("the Release Order");

(d) in 1989, a confirmatory assignment was executed by the Official Receiver on behalf of Vermillion ("the O.R. Assignment") (pp. 231-7, BD);

(e) Messrs. Wu, Deacon, Mark and Etches made statutory declarations dated sometime from 30 December, 1991 to 11 August, 1993 respectively;

(f) in 1994, another confirmatory assignment was executed by the Registrar of Companies on behalf of Vermillion ("the 1994 Confirmatory Assignment") (pp. 99-106, BD).

7. By 3 or 4 November, 1997, the Plaintiff's solicitors were provided with copies of the 1984 Assignment, the O.R. Assignment and the 1994 Confirmatory Assignment. By a letter dated 6 November, 1997, the Plaintiff's solicitors asked for certified copies of the Winding Up Order and the 4 Statutory Declarations (p. 16, Bundle of Correspondence ("BC")). By another letter dated 8 November, 1997, they asked for a copy of the Release Order (p. 21, BC). By their letter dated "November, 1997" (not dated but the Plaintiff's acknowledgement chop was dated 15 November, 1997), the Defendant's solicitors stated inter alia that the 4 Statutory Declarations and the Release Order were not part of title documents and would not be produced (p. 24, BC).

8. The relevance of these copy documents to the chain of title was not explained in those 2 letters. In the recitals of the 1994 Confirmatory Assignment, it was recited (and therefore implicitly acknowledged) that there were doubts as to title in relation to both the 1984 Assignment and the O.R. Assignment (see especially recitals (3), (6) and (7) of the 1994 Confirmatory Assignment (pp. 101-2, BD)). It was intended that title of the Property would be vested in the then purchaser by the 1994 Confirmatory Assignment (see recital (9) of the 1994 Confirmatory Assignment (p. 102, BD)). If the 1994 Confirmatory Assignment was valid, there would be no need to look at the 2 Court Orders or the 4 Statutory Declarations. On the other hand, if there was doubt as to the validity of the 1994 Confirmatory Assignment, it would seem that the proper requisition would be to state (1) what the doubt was and (2) the reason(s) for such a doubt.

9. Mr. Chan, in his usual conciseness, explained that there was a doubt as to the validity of the 1994 Confirmatory Assignment because:-

(a) on the face of recital (9) of this document, the Registrar of Companies ("the Registrar") executed it for Vermillion pursuant to s. 291B of the Companies Ordinance, Cap. 32 (p. 102, BD);

(b) s. 291B, Cap. 32 only applies if a company "has been dissolved". This was a prerequisite for the Registrar to act under that section;

(c) there were 2 ways in which a company may be dissolved; by an order of the court (under s. 227, Cap. 32) or otherwise than by order of the court (under s. 226A, Cap. 32);

(d) recital (4) of this document stated that Vermillion "was duly wound up and was dissolved on 9 April, 1984 under Companies Winding Up No. 91 of 1984" (p. 101, BD);

(e) since there was no presumption that this recital was true, the Defendant was under a duty to prove this fact by satisfactory conveyancing evidence. The presumption under s. 13(4), Cap. 219 does not apply because this document was less than 15 years old;

(f) the conveyancing evidence needed to prove that Vermillion was dissolved by the time of the 1994 Confirmatory Assignment was the 5 copy documents requested by the Plaintiff;

(g) further to (d) above, there was a discrepancy between recital (4) of the 1994 Confirmatory Assignment (p. 101, BD) and recital (6) of the O.R. Assignment (p. 233, BD) as regards the date of dissolution of Vermillion.

10. Mr. Wong for the Defendant submitted that it might have been a proper requisition if the Plaintiff's solicitors had in fact raised the requisition in the way advanced by Mr. Chan, that is, whether Vermillion had in fact been dissolved by the time of the 1994 Confirmatory Assignment and, if so, whether there were documents evidencing such a fact. That, however, was not the requisition. Mr. Wong argued that not only was the correct requisition not raised, the Plaintiff's solicitors had made their requisition in the form of asking for irrelevant documents. This was confusing and not readily comprehensible to any reasonable solicitor acting for a vendor by asking for irrelevant copy documents. The Plaintiff's solicitors also failed to explain the purpose for asking these documents after the Defendant's solicitors refused their request and contended that those were not title documents.

11. Mr. Wong referred to recital (6) of the O.R. Assignment (p. 233, BD) and drew my attention to the part which stated "An order was made for the winding up of the vendor in Companies Winding Up No. 91 of 1984 on 9th April, 1984 and the Official Receiver was appointed liquidator of the vendor and the certificate of the Official Receiver under Section 226A of the Companies Ordinance was delivered on the 23rd day of May, 1987" (italics supplied).

12. The "s. 226A certificate" is crucial to the validity of the 1994 Confirmatory Assignment because of s. 226A, Cap. 32:-

"226A. Dissolution of company otherwise than by order of court

(1) In the case of a company in respect of which the following conditions are satisfied-

(a) the affairs of the company have been completely wound up; and

(b) the liquidator has been granted his release by order of the court .... ,

the Official Receiver may deliver to the Registrar a certificate .... stating that the company is a company in respect of which those conditions are satisfied.

(2) The Registrar shall forthwith register any certificate delivered .... , and on the expiration of 2 years from the registration .... the company shall be dissolved.".

By reason of the aforesaid provisions of Cap. 32, Mr. Wong submitted that in relation to the doubt referred to by Mr. Chan above, the Plaintiff's solicitors as a reasonable conveyancer should have expressly stated the doubt and asked for the "s. 226A certificate" referred to in recital (6) of the O.R. Assignment instead of the 2 Court Orders and the 4 Statutory Declarations.

13. In his submissions in reply, Mr. Chan argued that it was reasonable for the Plaintiff's solicitors to consider that the chain of title was doubtful because:-

(a) 2 confirmatory assignments were executed within a short period from 1984 to 1994;

(b) a perusal of the 3 assignment documents showed that there was a discrepancy between recital (4) of the 1994 Confirmatory Assignment and recital (6) of the O.R. Assignment as regards the date of dissolution of Vermillion.

In these circumstances, it was justified for a reasonable solicitor to ask for the production of copies of the documents which might reveal the date of dissolution of Vermillion.

14. With respect to Mr. Chan, it is one thing to say that it was appropriate for a reasonably competent conveyancer acting for the purchaser to be concerned with doubts created by the documents relating to title, it is another matter when one is considering whether the requisition raised by this conveyancer is "effective" (as observed in the Chan Chik Sum case). The reasonable conveyancer should not only be able to detect the doubt, he should be able to (1) identify it and (2) raise a requisition about this doubt with the particularity appropriate for the circumstance. This is because a reasonable vendor's solicitor can only comprehend a requisition which is sufficiently specific. The requisition actually raised by the Plaintiff's solicitors fell short of this requirement.

15. For the above reasons, I agree with Mr. Wong's submissions and find that no proper requisition had been raised by the Plaintiff's solicitors and hence there was no need for the Defendant's solicitors to answer it (save in the way they did in their said letter dated "November, 1997").

Requisition 2: Doubts as to Due Execution of Declaration of Trust

16. In the course of the correspondence between the solicitors, the Plaintiff's requisition relating to due execution of the declaration of trust was raised in the following manner:-

(a) the Declaration of Trust dated 14 March, 1984 of Mightyton as trustee was executed by Messrs. Wong and Hwang (pp. 139-41, BD at p. 140);

(b) the Plaintiff's solicitors stated that the Articles of Association of Mightyton required the document to be executed by one of its directors. They further stated that according to the relevant annual returns (which turned out to be the returns for 1989 and 1991: see p. 219, BD), none of the said signatories were the directors of Mightyton and they asked for clarification (p. 5, BC);

(c) in their letter dated 3 November, 1997, the Defendant's solicitors responded by referring to the Opinion dated 27 June, 1990 of Mr. Leoline Price, Q.C. and also to the presumption of due execution under s. 23 of Cap. 219 (p. 14, BC).

17. When one looks at the execution page of this document (p. 140, BD), the part setting out the identity of the signatories for the trustee stated that:-

" SEALED with the Common Seal of Mightyton Limited and SIGNED by Wong Kin Wah and Victor Hwang

".

This part of the document clearly does not state that the 2 signatories were signing as directors of Mightyton. However, the rubber chop of Mightyton and the 2 signatures of Wong and Hwang (apparently forming the composite signature of the company) was appended on that page looking like this:-

" For and on behalf of MIGHTYTON LIMITED [ signatures of Wong and Hwang ] ................................ Directors ”.

Although the composite signature appearing on the copy document was not very clear, Mr. Chan very fairly accepted that the last word of the rubber chop was "Directors" and that this word was sufficient to trigger the presumption under s. 23, Cap. 219.

18. Therefore, by the time of the hearing before me, the only issue raised by Mr. Chan on this requisition is as follows:-

"it was the duty of the Defendant to answer requisitions satisfactorily. The Defendant's solicitors should have said the 2 individuals signed the document in their capacity as directors and were described as such in the document. If they had said so, the Plaintiff's solicitors would have asked where that description could be found.".

19. Mr. Wong's response to Mr. Chan's argument was that this requisition fell squarely within the observations of the Court of Appeal in the Active Keen case in that the matter requisited was so self-evident that no answer was necessary. He argued that although the rubber chop was not very clear, it was clear enough for any reasonable conveyancer to be able to see the word "Directors" there. Further, Mr. Wong said that the proper answer had been given because the Defendant's solicitors already referred the Plaintiff to s. 23, Cap. 219.

20. I agree with Mr. Wong's arguments and find that this was an unreasonable requisition; in any event it had been satisfactorily answered.

Requisition 3: Failure to Supply Letter from Registrar General to J.S.M.

21. The Plaintiff's solicitors asked for a copy of the letter dated 10 March, 1984 from the Registrar General to JSM. Mr. Chan explained that this requisition arose out of the following:-

(a) recital (6) of the 1984 Assignment stated: "By letter dated 10th March, 1984 addressed by the Registrar General to Messrs. Johnston, Stokes & Master the Registrar General has confirmed that he has no objection to the proposed sale of the said premises [that is, the suit premises] through the receivers [that is, Messrs. Wu, Deacon, Mark and Etches] appointed by the registered mortgagee, namely, Wardley Limited." (p. 226, BD).

(b) it was unusual for the confirmation of the Registrar General to be sought in a sale;

(c) it was also unusual for the Registrar General's confirmation to be given;

(d) it was reasonable therefore for the Plaintiff's solicitors to ask for a copy of this letter (p. 6, BC);

(e) conveyancers only recite matters which were relevant to title;

(f) it was insufficient for the Defendant's solicitors merely to say that the letter was not part of the title documents and the Defendant was not obliged to produce it to prove title (p. 9, BC);

(g) there was no presumption of truth of recital (6) under s. 13(4), Cap. 219 because the document was less than 15 years old;

(h) the matter was even more unusual because the letter was dated 4 days prior to the date of the 1984 Assignment (10 March, 1984 and 14 March, 1984 respectively).

22. Mr. Wong submitted that that was not the requisition raised by the Plaintiff's solicitors. All that they asked for from the Defendant's solicitors was a copy of the letter to JSM without any explanation (p. 6, BC). Mr. Wong argued that that was not the proper requisition. The proper requisition would have been the one stated by Mr. Chan, that is, why was it necessary to ask the Registrar General for his confirmation that he did not object to the sale of the property.

23. I agree with Mr. Wong's arguments and consider that this requisition was not properly raised.

The Defendant's Counterclaim

24. The Defendant counterclaims the Plaintiff for loss and damages for having breached the sale and purchase agreement. The Plaintiff did not complete the transaction on the ground that their requisitions had not been satisfactorily answered by the Defendant. I concluded earlier that the requisitions were either not properly raised or were satisfactorily answered by the Defendant. For these reasons, I dismiss the Plaintiff's claim and find that the Defendant has established the Plaintiff's liability on the Counterclaim.

25. No evidence has however been adduced by the Defendant as regards the quantum of its loss. Mr. Wong invited me to enter interlocutory judgment on the Counterclaim and direct that damages be assessed before a Master. On the other hand, Mr. Chan argued that since the hearing on 5 June, 1998 was for determining the Plaintiff's claim and the Counterclaim, the whole action should be disposed of by me. If the Defendant failed to adduce evidence relating to damages, Mr. Chan submitted that the appropriate course would be to award only nominal damages in favour of the Defendant.

26. There was a record that at an earlier hearing on 12 March, 1998, the parties appeared before Madam Justice Yuen. At the end of that hearing, the Court gave a number of directions relating to the filing of further evidence, including a direction that "Both parties were to exchange valuers reports on market value on completion dated within 14 days after Plaintiff's Affirmation in reply.". In view of such a direction, it seems that the Defendant was at fault in not adducing evidence on the market value of the suit property and therefore should not be entitled to have "a second bite" by asking for damages to be dealt with later.

27. However, in the same record, there was a "Note" which stated:-"Note: Upon filing of valuers reports, parties to consider whether evidence on Counterclaim should be heard immediately after hearing of the Originating Summons and liberty to apply to Court for further directions.". It is unclear, judging from this "Note", whether on 12 March, 1998 it was intended that the Counterclaim was to be dealt with at the hearing on 5 June, 1998 in the absence of further directions, or whether the matter was still at large pending further directions to be given.

28. Unfortunately, the parties were not able to assist me on this point. As a result, I consulted Madam Justice Yuen on this point. I understand that the "Note" was not intended to leave the matter generally at large. It was only intended to cover directions which might become necessary after affidavits relating to the valuation of the suit premises have been filed by the parties, for example, where different market values have been assessed by the respective valuers for the Plaintiff and the Defendant.

29. I therefore agree with Mr. Chan that the Defendant is only entitled to nominal damages on its Counterclaim, having failed to adduce any evidence in support thereof. There will be judgment in favour of the Defendant in the sum of $100.

Costs Order Nisi

30. It appears to me that this is an appropriate case for a costs order nisi to be made pursuant to R.H.C. Ord. 42 r. 5B(6). There is also no apparent reason why costs should not follow the event. The costs of this action are therefore to be paid by the Plaintiff to the Defendant to be taxed if not agreed.

(Andrew Chung)

Deputy Judge of the Court of First Instance