Chin Chiu Cheng v. Kan Fat Cotton Co. Ltd.

CACV 62/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 62 OF 1999

(ON APPEAL FROM HCA 13402/97)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from an order of Barnett, J., made on 1 February 1999, resolving a dispute between vendor and purchaser in favour of the vendor. It came before the judge by a somewhat unusual route, in that the plaintiff purchaser issued proceedings in which the defendant vendor counterclaimed and took out a summons for summary judgment, under Order 86 of the Rules of High Court, for the relief claimed in its counterclaim. The point decided on this summons by the judge was a short point which disposed of the action and, like the judge, I have formed the view the vendor was clearly entitled to judgment on its counterclaim and that no purpose would be served in sending this case to a trial.

The background

2. The background is as follows.

3. In February 1986, the Crown made a grant of a lot in Shatin of which the premises the subject of the transaction between the vendor and the purchaser here (a second floor and roof) formed part. That grant contained a condition that the owner of the lot should not assign any floor in the building to be erected on it until each of the three floors thereof had been allocated an undivided share in the lot by way of a binding Deed of Mutual Covenant.

4. In fact, in March 1988, two of the floors were assigned by the grantee before, on 22 April 1988, the remaining floor was assigned, and all the new owners executed a binding Deed of Mutual Covenant.

5. In October 1997, the purchaser agreed to buy the premises from the vendor. The purchaser's solicitors took the point that there had been here a breach of condition, because the March 1988 assignment had been effected before the Deed of Mutual Covenant was executed in April 1988. That is correct. The fact, however, is that the purpose of the condition was achieved by the execution of that deed and the position has been regularised so that each owner is entitled to a one third undivided share in the property.

6. In these circumstances, the vendor rejected the purchaser's objection to the title based on the breach of condition. But there was in the agreement between the vendor and purchaser here an unusual provision. It is contained in clause 39, which, so far as is material, reads as follows :-

"39. Notwithstanding anything stated in this Agreement for Sale and Purchase, if it is in the opinion of the Purchaser's Solicitors that the title of the Property is not in order, the Purchaser shall have an option to rescind this Agreement for Sale and Purchase. ..."

7. The purchaser, dissatisfied with the vendor's rejection of his objection to the title, purported to exercise this option.

The law

8. The law is that the purchaser's solicitors, in forming their opinion for this purpose, had to act reasonably and in good faith; so much appears from Hudson v. Buck (1877) 7 Ch.D. 683. In that case, the contract for the purchase stated that it was made "subject to the approval of the title by the purchaser's solicitor". It was held that, in the absence of bad faith or unreasonableness on the part of the purchaser or his solicitor, the vendor could not enforce specific performance of the contract if the purchaser's solicitor disapproved of the title.

9. Fry, J. pointed out (at p.687) that the duty of the vendor to make a good title to the property is something different from a stipulation in the contract that it should be subject to the approval of the title by the purchaser's solicitor. In the latter case, the approval or disapproval of the person specified is, in the absence of bad faith or unreasonable conduct, conclusive as to the goodness of title shown, but in the former case, the goodness of the title is a matter for the decision of the court. As to that, the judge added :-

"It might come first before this Court, then before the Court of Appeal, and lastly before the House of Lords. In all these Courts the question of the title might be discussed, and possibly with varying results. Moreover, the title might be the subject of reference to the Chief Clerk in Chambers, and upon his findings interlocutory applications might be made to the Court, and in this way the final decision of the matter might be indefinitely protracted. It appears to me that it is not unreasonable to suppose that the purchaser should desire to preclude the possibility of such a protracted litigation, and that he should intend to stipulate that the opinion of a particular person, his own solicitor, should be conclusive as to the sufficiency of the title deduced, and that, in the absence of compliance with that condition, the contract should not be capable of being enforced. It is not necessary to decide that the absence of approval by the purchaser's solicitor would be conclusive, if the purchaser himself had acted unreasonably, as, for instance, if he had declined to appoint any solicitor, or if the solicitor whom he appointed had insisted upon utterly unreasonable objections to the title. Possibly in such cases the purchaser would not be able to enforce the condition. It is not suggested in the present case that the conduct of the purchaser himself has been in any respect unreasonable, and I have therefore to consider whether the objections taken to the title by his solicitor were unreasonable."

10. The judge held that in that case there was nothing unreasonable in the conduct of the purchaser's solicitor and that accordingly the vendor's case failed.

11. To the same effect is Curtis Moffat, Limited v. Wheeler [1929] 2 Ch. 224. In that case, Maugham, J. was called on to consider a clause in a contract expressed to be made "subject to our solicitors' approval of the title". The judge cited Hudson v. Buck (above) and said at p.234 :-

"Nor can I think that there is anything strange in a purchaser, without legal advice and in complete ignorance and with a natural terror of the niceties of real property law, agreeing to purchase property with a condition that his solicitor, acting reasonably and in good faith, should approve the title." (emphasis added)

12. Although no such words as "acting reasonably and in good faith" appeared in the contract in the case before Maugham, J., the judge clearly thought that they had necessarily to be implied. I am of the opinion that the reasoning in Hudson v. Buck and Curtis Moffat Ltd v. Wheeler (above) applies to the present case. Clause 39 must be read as requiring the purchaser's solicitors, in forming their opinion, to act reasonably and in good faith.

The purchaser's case

13. In the present case, the solicitors' good faith is not in question and Mr. Joseph Fok for the purchaser has submitted that it was not unreasonable for them to form the opinion, as they did here, that the title to the property was "not in order".

The issue

14. The issue then is really this : was it open to a solicitor here, acting reasonably, to form the opinion that the title to this property was "not in order"?

Conclusion

15. I have come to the conclusion that it was not. In my view, no reasonable solicitor could have come to the conclusion that there was here any real risk of enforcement action as a result of the breach of the condition in the grant requiring the Deed of Mutual Covenant to be executed at or before the time of the first assignment. Any such enforcement proceedings would be laughed out of court.

16. So the opinion of the purchaser's solicitors that the title here was "not in order" fell, as it seems to me, outside the band of possible decisions in which reasonable disagreement was possible. I am of the opinion that the judge was quite right to uphold the submission made to him on behalf of the vendor, to the effect that the opinion of the purchaser's solicitors referred to in clause 39 must be one which was "reasonably held", and quite right to hold that here it was not.

17. However, I do not altogether agree with the judge's comment in his judgment :-

"I do not think it appropriate to start introducing elements of subjectivity."

18. The formation of an opinion by the purchaser's solicitor is plainly a subjective matter. But any opinion so formed must lie within the band of possible reasonable decisions. If, as here, the opinion falls outside that ambit altogether, then the opinion is of no use for the purposes of clause 39.

19. For the reasons I have endeavoured to state, I would dismiss this appeal.

Mortimer, V-P :

20. For the reasons that have been given, I also would dismiss this appeal and there is nothing I can usefully add.

Nazareth, V-P :

21. I also agree.

22. At the end of the day this appeal boils down to the question that the judge correctly identified although not assisted by the two authorities (Hudson v Buck; and Curtis Moffat Ltd v Wheeler) that the industry of Godfrey JA has turned up. The question is whether the plaintiff's solicitors' opinion that the title was not in order is reasonable. There is no evidence in this case that the breach of condition in the circumstances here might be likely to attract enforcement action nor of any example of that having ever occurred. On the contrary, the circumstances point overwhelmingly and entirely to the contrary. The condition here was simply that no assignment of the floors was to take place before the Deed of Mutual Covenant had been executed. The evidence is clear that such a deed was executed shortly after the assignments in question. The object of the condition was thereby met. Indeed, the condition itself was complied with although belatedly. That the breach should now, some 11 years later, apparently be thought to attract a risk of enforcement action seems to be so far fetched as to be beyond any reasonable possibility and wholly outside the generous ambit of reasonable disagreement as to that. I, too, have no hesitation in rejecting the existence of such a risk and would also dismiss the appeal.

23. The appeal is accordingly dismissed.