GUANG ZHOU REAL ESTATE DEVELOPMENT (HONG KONG) CO. LTD. AND ANOTHER v. SUMMIT ELEGANCE LTD.

HCA 1531/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1531 OF 1998

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J U D G M E N T

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1. This action arose out of an agreement for the sale and purchase of 5 lots of vacant land dated 4 September 1997 made between the plaintiffs as vendors and the defendant as purchaser ("the Agreement"). The 5 lots were known as Inland Lots Nos. 7439, 7440, 7441, 7442 and 7443, also known as Nos. 10, 12, 14, 16 and 18 Wharf Road, situated in North Point (collectively referred to as "the Properties"). The 1st plaintiff was the registered owner of Inland Lots Nos. 7439 and 7440 whereas the 2nd plaintiff was the registered owner of the other 3 lots of land. The purchase price was HK$290 million. Deposits totalling HK$43.5 million had been paid. The completion date stipulated in the Agreement was 30 January 1998, but because that was a holiday, it was postponed to the following day, 31 January 1998.

2. Prior to the execution of the Agreement, the parties had on 28 April 1997 executed a Chinese letter of intent. This was followed by a Chinese provisional agreement made on 21 August 1997. As early as 9 May 1997, solicitors for the plaintiffs had already sent to the defendant's solicitors the title deeds relating to the Properties. By letter dated 16 May 1998, the solicitors for the defendant raised a total of 15 requisitions, 10 of which remained outstanding by the time of completion. The defendant did not complete on the basis that the plaintiffs had failed to show and give a good title in the manner provided for in the Agreement. The plaintiffs forfeited the deposits.

3. On 2 February 1998, the plaintiffs commenced these proceedings seeking declarations to the effect that the defendant had repudiated the Agreement and that the deposits had been rightfully forfeited, and also seeking damages for breach of the Agreement. The defendant counterclaimed for declarations that the plaintiffs had failed to answer satisfactorily the requisitions raised and the defendant was entitled to rescind the Agreement, and also for the return of the deposits and reimbursement of the abortive conveyancing costs as well as for a lien over the Properties.

The Evidence

4. The facts surrounding this case are not disputed. The witness statement of the only factual witness, Miss Pauline Tsang, a former employee of the plaintiff, was received into evidence by agreement. Similarly, the expert evidence adduced by the plaintiff to the effect that the market value of the Properties was HK$91 million as at the time of the completion, was also admitted by consent. The same goes for the defendant's evidence on the amount of the abortive conveyancing costs and expenses.

The Issues

5. The primary issues between the parties are whether the plaintiffs had satisfactorily answered the requisitions raised, and whether the plaintiffs had failed to show and give a good title to the Properties. The 10 requisitions outstanding at the time of completion are nos. 1, 2, 3, 6, 8, 10, 11, 12, 13 and 14. Requisitions nos. 6 and 8 were not pursued by the defendant at the trial. Broadly speaking, the remaining 8 requisitions fall into the following categories:

(1) Easements and rights of way reserved unto the Crown and the Crown lessee of Inland Lot No. 7444 (Requisitions nos. 1 and 2);

(2) Restrictive covenant in the Crown Leases in respect of user (Requisition no. 3);

(3) Missing documents (Requisitions nos. 10 and 14);

(4) Outstanding contribution for remedial works carried out by the Building Authority (Requisition no. 11); and

(5) Errors in the documents as to the descriptions of the Properties (Requisitions nos. 12 and 13).

6. In addition, the plaintiffs also take the point that the defendant had, by offering the Properties for sale by tender, accepted the title and must be taken to have waived any objection on title raised.

Requisition No. 1

7. This requisition, together with Requisition no. 2 below, relate to certain easements or rights of way created under the Crown Leases relating to the Properties and its neighbouring lot, Inland Lot No. 7444.

8. Inland Lots Nos. 7439 to 7444 are adjacent lots. It appears that, previously, there was a communal staircase running through these lots. The staircase stood on the front portions of the buildings previously erected on these lots. The Crown Leases of these lots all excepted and reserved unto Her Majesty and her licensees a free and uninterrupted right to pass and repass the staircase and landings then erected on these lots. The right in respect of Inland Lot No. 7443 had been released by a Deed of Release dated 7 October 1996. The rights of way over the other lots had not been released and remained subsisting.

9. In the letter dated 16 May 1998, the defendant's solicitors requested the plaintiff to arrange for the release by Her Majesty of the rights of way relating to Inland Lot Nos. 7439 to 7442 and to let them have the relevant Deeds of Release.

10. On 26 August 1997, the plaintiffs' solicitors answered that the plaintiffs had made an application to the Lands Department for the extinguishments of the rights, and it had been approved subject to the payment of administrative fee, which the plaintiffs had effected. The plaintiffs' solicitors further said that they would revert to the defendant's solicitors once the formal agreement was signed.

11. By letter dated 16 January 1998, the plaintiffs' solicitors further informed the defendant's solicitors that the plaintiffs had executed the relevant no objection letters and paid the administrative fee, and undertook to supply certified copies of documents upon receipt of the same from the government.

12. The solicitors for the defendant did not accept these answers. In their letter dated 23 January 1998, they stated that it was not known whether the government had executed the Deeds of Release and they were not given any copy of the Deeds. They asserted that the Deeds are title documents relating exclusively to the Properties. They therefore insisted on the plaintiffs producing the original Deeds of Release duly executed by the government and registered upon completion. The solicitors for the defendant also asked for certified copies of the Deeds be provided in the meantime.

13. The solicitors for the plaintiff responded by letter dated 26 January 1998, enclosing certified copies of the correspondence between the plaintiffs and the government and also copies of the engrossed Deeds of Release, the terms of which had been agreed with the government. They said that the Deeds were in the course of execution by the government. They observed that the execution of the Deeds is a matter of formality since the government's offer to release the rights had been accepted and the plaintiff had paid the relevant fees.

14. By letter of 27 January 1998, the defendant's solicitors disagreed that the execution of the Deeds is mere formality. They referred to the letter from the Lands Department making the offer, which stated that the offer was not intended to create any legal obligation, whether by acts or part performance, and that the government will not accept any legal obligations unless the necessary legal documents have been duly executed and registered. They therefore maintained that the original Deeds duly executed and registered had to be delivered at completion.

15. The Deeds of Release were subsequently executed by the government on 5 February 1998 and registered on 29 May 1998.

16. It can be seen from the correspondence summarized above that the objection of the defendant falls into 2 parts. The first relates to the plaintiffs' failure to secure the execution by the government of the Deeds of Release prior to completion. The second part concerns the plaintiffs' inability to deliver the duly executed and registered Deeds of Release upon completion.

17. In answer to the first part of the objection, the plaintiffs pleaded in the Statement of Claim and leading counsel argued that there is no blot on the title and there is no risk of the government enforcing the rights. I agree. The communal staircase that formerly stood on and ran through these lots was no longer in existence. This fact is readily ascertainable from an inspection of the Properties, which will reveal that the lot adjacent to the Properties, Inland Lot No. 7444, had been redeveloped jointly with other neighbouring lots, and there is no staircase either on Lot No. 7444 or running through these lots. What is now at the front of all these lots is a pedestrian walkway that forms part of Wharf Road. There is in reality no way by which the government can exercise or enjoy the rights reserved unto her.

18. Further, the acts of the government in making a formal offer for the release of the rights, in requesting and accepting payment of administrative and registration fees for the release and in agreeing with the plaintiffs the terms of the Deeds of Release are clear indications of the government's willingness and agreement to forego the rights reserved under the Crown Leases. It is true that the matter cannot be considered as final and secured unless and until the Deeds of Execution are executed by the government. It is also not entirely correct to describe the execution of the Deeds as mere formality, given the terms of the letters of offer from the Lands Department. In my judgment, however, the possibility of the government retracting from her position and refusing to execute the Deeds is entirely remote. There is no reason why the government would wish to do so, given the demolition of the staircase and the construction of Wharf Road.

19. In the case of Jumbo Gold Investment Ltd. v. Yuen Cheong Leung & Another [2000] 1HKLRD 935, Bokhary PJ, in dealing with an unwaived breach of condition giving rise to a right of re-entry by the government, observed that (at p.771C-D):

"The question is therefore whether, assuming that the Government has that right, there is any real risk that it would actually take the drastic step of enforcing it to the detriment of innocent owners. I entirely agree with Mr Justice Litton PJ that the correct answer is in the negative. It is simply not in the nature of good government to harm innocent people unnecessarily like that. Accordingly, it is safe to proceed on the basis that the Government would never do so."

20. In my view, these observations are entirely applicable to the present case. The purchaser's concern that the government would refuse to execute the Deeds of Release and/or would enforce the rights of way is not borne out by the facts and circumstances of the case, notably the development of the lots in question since the granting of the Crown Leases and the attitude of the government as manifested by the steps she had taken leading to the preparation of the Deeds of Release.

21. The defendant had pleaded and counsel had argued that the plaintiffs' solicitors had never asserted in their answers to this requisition that there is no risk of enforcement by the government. Instead, the plaintiffs had chosen to procure from the government Deeds of Release. That being the case, it is not open to the plaintiffs now to rely on this ground as saying that they had satisfactorily answered this requisition. Reliance is placed on the well known case of Active Keen Industries Limited v. Fok Chi-keong [1994] 1HKLR 396 which demonstrates that a vendor who has a good title must nevertheless show a good title by answering requisitions satisfactorily.

22. It is not in dispute that the plaintiffs' solicitors had not mentioned in their answer to this requisition that there is no risk of enforcement by the government. But that in my view is not fatal. In this connection, it is important to appreciate what is required of an answer to a requisition and of the vendor or his solicitors' duties in relation thereto. Litton J.A. (as he then was) in Active Keen Industries Limited (at pp. 407 & 413) had observed that the vendor's duty to answer requisitions is not an onerous one. What is required is that the requisitions should be answered in a straightforward manner and with candour, so that the purchaser can be reasonably confident that all the relevant facts are revealed and be able to decide whether the vendor has a good title. The parties' solicitors are not expected to act as advocates and to "bandy propositions of law". Ultimately, it is for the parties to decide for themselves what the legal position is, based on the facts and circumstances made known to them.

23. In the present case, the plaintiffs' solicitors had in their answers set out the communications they had with the government and the events leading to the preparation of the engrossed Deeds of Release. Copies of the relevant correspondence and documents had also been supplied. The manifested attitude of the government must be obvious to the defendant's solicitors. It is then for the defendant's solicitors to form an opinion as to whether there is any defect in the plaintiffs' title. In arriving at a conclusion on the title, it must necessarily involve a consideration as to the risk of the government enforcing the rights of way or the lack of it. This is because a reasonably competent conveyancer will appreciate that a good title does not mean a perfect title.

24. Mr Lam, counsel for the defendant, submitted that the plaintiffs' solicitors had not disclosed all the relevant matters to the defendant. What were said to be omitted were the photographs depicting the previous conditions of the Properties and the neighbouring lots and information as to the redevelopment of Inland Lot No. 7444 in about 1983. As to the latter information, although it did not form part of the answers to this requisition, it was supplied in connection with requisition no. 2, which is also a requisition on the relevant rights of way. At any rate, the Properties were to be sold on an "as it" basis and the defendant declared under clause 21 of the Agreement that it had duly inspected the Properties. A physical inspection of the Properties will reveal the fact of a redevelopment incorporating Inland Lot no. 7444 and that of the demolition of the staircase previously running through the Properties and Inland Lot no. 7444. The omission to supply photographs depicting the condition of the Properties and the neighbouring lots before the buildings on the Properties were demolished is therefore also immaterial.

25. I turn to the second part of the objection under this requisition. The defendant's case is that the Deeds of Release fall within the meaning of "Crown lease" under the Interpretation and General Clauses Ordinance, cap.1 and for the purpose of the Conveyancing and Property Ordinance, cap.219. As such, it is incumbent upon the plaintiffs to furnish them upon completion.

26. I accept that under section 3 of the Interpretation and General Clauses Ordinance, "Crown lease" extends to cover "any instrument whereby the term of a Crown lease may have been extended or the provisions thereof varied". Accordingly, any deed for the release of the rights of way reserved under the Crown leases relating to the Properties will come within the definition of "Crown lease". However, I do not accept that the plaintiffs' inability to deliver the properly executed Deeds of Registration upon completion amounts to a failure to show good title for the purpose of section 13 of the Conveyancing and Property Ordinance. This is because the Deeds of Release had not been executed by the government before the completion date. They only came into legal existence upon being executed by the government. That being the case, they did not form part of the Crown lease or part of the title documents to which the defendant was entitled upon completion. In this regard, the cases of Liu Tak Kin v. Chan Yiu Kai [1998] 4 HKC 362 and Earning Code Ltd. v. Lau King Lin HCA No. A3874 of 1991 (unreported) are distinguishable. In both cases, the documents that the vendor failed to produce, being consent letter and Letter of Modification, were already in existence at the time of completion. The documents were therefore part of the title documents so that failure to produce them amounts to failure to show good title. In short, the obligation to deliver title documents can only relate to documents already in existence, but not to documents yet to be created.

27. In the circumstances, I consider that the plaintiffs had sufficiently answered this requisition.

Requisition No. 2

28. This requisition concerns the right of way created over Inland Lot No. 7443 in favour of Inland Lot No. 7444. The Crown lease of Inland Lot No. 7443 excepted and reserved unto Her Majesty and the lessee of Inland Lot No. 7444 a free and uninterrupted right to pass and repass the staircase and landings erected on the front portion of the building then erected on Inland Lot No. 7443. The right reserved in favour of the Crown had been extinguished by a Deed of Release executed in 1996, leaving only the right in favour of the lessee. A reciprocal right was reserved in favour of the lessee of Inland Lot No. 7443 under the Crown lease of Inland Lot No. 7444.

29. Under this requisition, the defendant asked the plaintiffs to furnish evidence to prove that the right of way had been released by the lessee of Inland Lot No. 7444. The plaintiffs' solicitors replied that the right in question is a common staircase right of way shared by Inland Lots Nos. 7443 and 7444, and that the right of way had been extinguished by abandonment due to change of land use.

30. The defendant's solicitors in the letter of 28 August 1997 (mistakenly dated as 29 August 1997) sought clarification as to whether there was consent or waiver from the lessee of Inland Lot No. 7444 before the staircase was demolished. The plaintiffs' solicitors then forwarded a copy of the Deed of Release executed by the government in 1996.

31. By letter dated 23 January 1998, the defendant's solicitors replied that they did not accept the answer given by the plaintiffs' solicitors as being sufficient. In particular, they pointed out that abandonment is a matter of fact and inference. They did not consider the mere fact of the staircase being demolished as sufficient to support an inference of abandonment and there was no evidence to support the assertion that the right had been abandoned by change of land use. The defendant's solicitors further referred to the judgment of Mason J. in the Australian case of Treweeke v. 36 Worseley Road Pty Ltd. (1973) 128 CLR 274, which is to the effect that the owner of an easement, by resorting to an alternative access available, is not to be taken as having abandoned the easement.

32. By letter dated 26 January 1998, the plaintiffs' solicitors contended that all the evidence indicated that the right of way had been extinguished. They pointed out that the neighbouring lots had been redeveloped and the new building that was erected straddled 8 different lots, but there was no staircase adjacent to Inland Lot No.7443. They further pointed out that as a result of the redevelopment, the right over Inland Lot No. 7444 in favour of Inland Lot 7443 had similarly been extinguished.

33. The defendant's solicitors by letter dated 27 January 1998 maintained that the requisition had not been satisfactorily answered. They were of the view that there was no evidence to support the assertion of the right being extinguished and they also could not see the relevance of the redevelopment and the erection of the new building on the neighbouring lots.

34. The issue here is whether the right in favour of the lessee of Inland Lot No. 7444 had been abandoned and extinguished. It is common ground that abandonment of easement is a question of fact, and that non-user per se is not conclusive evidence of abandonment. But where there is surrounding circumstances indicating clearly an intention not to resume the user, then a presumption of a release of the easement will arise and the easement will be lost: see the judgment of Sir Ernest Pollock M.R. in Swan v. Sinclair [1924] 1 Ch 254, 256 cited in Gale on Easements (16th edition) para. 12-63 at p.455.

35. The communal staircase that used to stand on the Properties and Inland Lot No. 7444 had clearly been demolished. Inland Lot No. 7444 had further been redeveloped jointly with other neighbouring lots to form a multi-storey building. There is no staircase running along and through Inland Lots Nos. 7443 and 7444. There is also, as observed under requisition no. 1, the construction of Wharf Road together with a pedestrian walkway in front of the Properties and Inland Lot No. 7444. These facts, taken together, constitute clear and overwhelming surrounding circumstances indicating that the right of way cannot and will not be revived.

36. In addition, as Mr Tang, S.C., for the plaintiffs pointed out, the right of way in question is not a free standing right. There are similar and reciprocal rights involving the other lots comprising the Properties. With the demolition of all the buildings on the Properties and the plan to redevelop the entire site into a hotel, all the other rights would have been extinguished, leaving only the right involving Inland Lots No. 7443 and 7444. In practical terms, there cannot be any enjoyment of the right by the lessees of any of these lots, given that the subject matter is a communal or common staircase that ran along the front portions of all these lots. And when Inland Lot No. 7444 had been redeveloped jointly with other lots to form a large building and there is no staircase linking to Inland Lot no. 7443, it must be clear beyond doubt that all the rights concerning the common staircase no longer exists.

37. Mr Lam submitted that detailed evidence supporting abandonment, such as photographs and the Deed of Mutual Covenant of the redevelopment incorporating Inland Lot No. 7444, had not been supplied by the plaintiffs' solicitors in the course of answering the requisitions. It was also said that the information regarding the redevelopment and the construction of a new building was only disclosed shortly before the completion date. Mr Lam suggested that it would not be fair to expect the defendant's solicitors to accept this as a sufficient answer to the requisition.

38. I accept that, it appears from the letters dated 29 August 1997 and 23 January 1998, the defendant's solicitors was labouring under the misconception that the plaintiffs' solicitors were referring to the demolition of the staircase on Inland Lot No. 7443 when they said that the common right of way had been extinguished by change of land use. Mr Lam did not suggest, and I do not consider it is open to the defendant to say, that the answer given by the plaintiffs' solicitors had in any way contributed to that misconception. Although the plaintiffs' solicitors could have elaborated on the change of land use in their first answer, that answer is not misleading. It is also to be noted that the defendant agreed that it had made physical inspection of the Properties before signing the Agreement. I do not regard the non-provision of the photographs depicting the Properties and the neighbouring lots or the Deed of Mutual Covenants of the redevelopment as being material.

39. In my view, any misconception of the defendant's solicitors must have been dispelled by the reply from the plaintiffs' solicitors of 26 January 1998, which indicates that, as a result of the redevelopment on the neighbouring lots, there is no longer any staircase, and that the reciprocal right in favour of Inland Lot No. 7443 had also been extinguished. Although this reply came shortly before the scheduled completion date, it did not come too late. The solicitors had been corresponding on this requisition for a considerable period of time, and the point of extinguishment by abandonment had been canvassed. There is sufficient time and material to enable the defendant's solicitors to properly consider the plaintiffs' answers and to form a view on the sufficiency of them.

40. I would also add that, even without the benefit of the answer in the letter of 26 January 1998, it should have been obvious to the defendant's solicitors that, given the circumstances and, in particular, that the right in question is not a free standing right, there is no real risk of the owner of Inland Lot No. 7444 enforcing the right.

41. In summary, I consider that the plaintiffs had satisfactorily answered this requisition.

Requisition No. 3

42. This requisition relates to a restriction in the Crown leases of the Properties as to user. Under the relevant Crown leases, it was provided that the lots or any part thereof should not be used for the trade and business of, inter alia, victualler or tavern-keeper without the previous licence of Her Majesty. It is common ground that the Properties were intended to be developed into a hotel. Both the Buildings Authority and the Town Planning Board had given approval for the intended development. The plaintiffs had also given undertakings to the Lands Tribunal to develop the Properties into a hotel in accordance with the plans approved by the Buildings Authority.

43. In view of the restrictive covenant and the intended development, the defendant asked whether the plaintiffs had obtained the requisite licence from the government for the intended user. The plaintiffs' solicitors answered that the plaintiff's application for removal of the covenant had been approved subject to the payment of administrative fee, which had been paid. By letter dated 30 September 1997, the plaintiffs' solicitors sent a copy of a letter from the Lands Department dated 24 September 1997, indicating no objection to modification of the Crown lease. The plaintiffs' solicitors, in a later letter, undertook to provide certified copy of any document to be received from the government.

44. The defendant's solicitors did not accept the answers. By letter dated 23 January 1998, they pointed out that the No-Objection letters to be executed by the government form part of the Crown lease, and are title documents to be furnished by the plaintiffs at completion. They also said that the Lands Department's letter stated that there was no binding contract between the plaintiffs and the government until the No-Objection letters had been executed and registered. They therefore required the plaintiffs to deliver on completion the duly executed and registered No-Objection letters.

45. By letter dated 26 January 1997, the plaintiffs' solicitors replied that there was already a contract between the plaintiffs and the government in that the formal offer to remove the restriction made by the government had been accepted by the plaintiffs on 5 August 1997. The execution of the No-Objection letter is therefore merely to formalize the contract. It was also pointed out that the plaintiffs and their mortgagee bank had already signed and returned the No-Objection letters for execution by the government.

46. The defendant, relying on the reasons they gave in relation to requisition no. 1, disagreed that the execution of the No-Objection letters is a mere formability. They insisted that the original of the duly executed and registered No-Objection letter had to be produced at completion for the purpose of showing and passing good title.

47. The No-Objection letters were eventually executed by the government on 5 February 1998 and registered on 4 March 1998.

48. The arguments and principles of law involved in this requisition are similar to those under requisition no. 1. Principally, the plaintiffs argued that there is no real risk of enforcement of the restrictive covenant by the government. That in my view must be correct. The series of acts of the government, starting from offering to remove the prohibition to the issue of unsigned No-Objection letters, can only be consistent with an intention to remove the prohibition under the Crown lease and not to enforce the restriction. There is also no good reason for the government to wish to withdraw from that position and refuse to execute the No-Objection letters, considering that the intended development had been approved by various authorities and the Lands Tribunal. For the reasons set out under requisition no. 1, I do not agree that this point about no risk of enforcement is not open to the plaintiffs because it had not been specifically raised in their answers. This point must be part and parcel of the wider question of whether the plaintiff had shown a good title.

49. As in the case of the Deeds of Release, while I accept that the No-Objection Letters, being variations of the provisions of the Crown leases, come within the definition of "Crown leases", I do not agree that the plaintiffs had to deliver the duly executed and registered No-Objection letters in order to show and give a good title. These letters were executed and created subsequent to the completion date. They did not form part of the title documents in existence. The plaintiffs' obligation under section 13 of the Conveyancing and Property Ordinance therefore does not extend to them.

50. The plaintiffs had pleaded and argued that this requisition does not properly relate to title in that there was no warranty or representation as to the suitability of the Properties being used for hotel purposes. Under clause 22(a) of the Agreement, the defendant agreed that it shall satisfy itself as to the permitted user of the Properties by making the relevant enquiries. Under clauses 29 and 30 of the Agreement, however, the sale was with the benefit of the approval for the development of a hotel and subject to the plaintiffs' undertaking to the Lands Tribunal to redevelop the Properties in accordance with the approved plans for the construction of a hotel. Further under clause 32, the defendant undertook to observe the said undertaking given to the Lands Tribunal and to indemnify the plaintiffs against liabilities arising from non-compliance. In the circumstances, it is reasonable for the defendant to have raised the requisition.

51. Nevertheless, for the reasons set out above, I am of the view that the requisition has been satisfactorily answered.

Requisitions No. 10 and 14

52. Both these 2 requisitions relate to missing documents and since the arguments involved are similar, they will be dealt with together.

53. Requisition no. 10 concerns a Crown lease of Inland Lot No. 7441. The plaintiffs could only produce a certified copy as the original was never in the plaintiffs' possession. The defendant was not satisfied with the certified copy, and insisted on the production of the original or, alternatively, a statutory declaration that the Crown lease had been lost or mislaid, if that was the case.

54. Requisition no. 14 concerns the Deed of Release in respect of the right of way over Inland Lot No. 7443. Again, the plaintiffs could only produce a certified copy of it on the basis that they could not obtain the original. The defendant did not accept the explanation and insisted on the delivery of the original Deed at completion.

55. The issue here is whether the plaintiffs can use certified copies instead of the originals in giving good title. Mr Tang S.C. argued that the plaintiffs are entitled to do so based on a joint reading of clause 7 of the Agreement and section 13 of the Conveyancing and Property Ordinance. Clause 7 reads:

"The Vendors shall show and give good title to the Properties in accordance with Section 13 of the Conveyancing and Property Ordinance, Cap. 219, and prove at his own expense and at the like expense shall make and furnish to the Purchaser such certified copies of any deeds or documents of title wills and matters of public record as may be necessary to prove such title. The costs of verifying the title by inspection and examination including search fees shall be borne by the Purchaser who shall also, if he requires copies of any documents in the vendors' possession relating to other premises retained by the Vendors as well as to the Properties, pay the costs of such certified copies."

The relevant part of section 13 of the Conveyancing and Property Ordinance provides that:

"(1) Unless the contrary intention is expressed, a purchaser of land shall be entitled to require from the Vendor, as proof of title to that land, only production of the Crown lease relating to the land sold -

...

(2) Where this section requires the production of any document, it shall be sufficient to produce a copy -

(a) attested, before 1 November 1984, by 2 solicitors' clerks; or

(b) certified by a public officer or a solicitor,

to be a true copy."

The argument of Mr Tang S.C. is that clause 7 entitles the plaintiffs to show as well as to give title in the manner prescribed by section 13. This is so notwithstanding that section 13, on its own wordings, deals only with proving title.

56. In Yiu Ping Fong v. Lam Lai Hing Lana [1998] 4HKC 476, Yuen J, in considering the meaning and effect of section 13 of the Conveyancing and Property Ordinance, held that the effect of section 13(2) is merely to facilitate the proving of title, but not to exonerate the vendor from producing at completion the original title deeds and documents. Mr Tang S.C. accepted this. In construing a clause relating to title in the sale and purchase agreement, Yuen J. further held that the particular clause does not have the effect of absolving the vendor from his obligation of producing the original title deeds and documents, and that much clearer language would have to be used to achieve that effect. The relevant clause, which Yuen J. was construing, reads as follows:

"The Vendor shall show and give a good title to the Property pursuant to Section 13 of the Conveyancing and Property Ordinance, Cap. 219 at his own expenses and he shall at the like expense make and furnish to the Purchaser such attested or certified copies of any deeds or documents of title, wills and matters of public record including occupation permit as may be necessary to prove such title. The costs of verifying the title by inspection and examination including search fees shall be borne by the Purchaser."

57. It can be readily seen that this clause is rather similar to clause 7 in the present case. The essential difference lies in the additional words of ", and prove" in clause 7 after the reference to section 13 of the Conveyancing and Property Ordinance. Mr Tang S.C. argued that the additional coma and the words "and prove" indicate that clause 7 should be read as comprising 2 parts. The first is dealing with the manner of showing and giving of title where it provides that good title shall be proved and made in accordance with section 13. The second is to deal with the vendor's liability as to the costs of proving title by certified copies. It was said that clause 7 should therefore receive a construction different from that of the clause in Yiu Ping Fong, so that certified copies are sufficient to give a good title. I am unable to agree with this submission for the following reasons.

58. Although the use of the coma does break the first sentence of clause 7 into 2 parts, the first part of the sentence cannot be read and construed as having the effect of enabling the vendor to give title by the mere production of certified copies of title deeds and documents. This is because the proving of title is but one step in the giving of title. The words of "show and give a good title to the Properties in accordance with Section 13 of the Conveyancing and Property Ordinance, Cap. 219" in the first part of the first sentence is doing no more than saying this. Its effect is only to enable the plaintiffs to prove title, as part of the process of giving title, by sending certified copies of the documents, as stipulated under section 13. In as much as section 13 does not affect a vendor's right under the common law to have possession of the original title deeds, the first part of the first sentence in clause 7 of the Agreement does not in any way reduce that right.

59. Secondly, it is plain that the proprietary right to possession of the original title documents is an important right on the part of an owner: Yiu Ping Fong, op cit, at pp.483F-G, 484H -485B. Accordingly, as Yuen J. observed, clear language is required before the Court will hold that a vendor's right to have the original title documents has been curtailed. Such clear language is not present in clause 7 or other parts of the Agreement. It is, for instance, open to the vendor to stipulate or for the parties to agree that the purchaser is not entitled to insist on the production of the originals of all or some of the title deeds and documents. On the contrary, clause 8 of the Agreement provides that the vendor shall deliver to the purchaser such of the documents of title as relate exclusively to the Properties, without in any way limiting the scope to certified copies of these documents of title. Mr Tang S.C. submitted that clause 8 has to be read subject to clause 7, but that is not borne out by the express words. Nor is there any good reasons or circumstances for so implying. A plain reading of the 2 clauses does not show them to be mutually exclusive and I do not consider that the general words used in the first part of the first sentence of clause 7 should be construed as qualifying clause 8.

60. The plaintiffs are therefore not entitled to deliver certified copies of the Crown Lease and of the Deed of Release for the purpose of giving a good title. The inability of the plaintiffs to deliver the originals at completion amounts to a breach of their obligation to give good title. The defendant is entitled not to complete and to rescind the Agreement.

Requisition No. 11

61. This requisition arises from a letter dated 15 June 1990 from the Buildings and Lands Department. In the Assignment dated 15 August 1991, it was stated that the assignment of Inland Lot No. 7442 was subject to this letter. In this letter, the Buildings and Lands Department advised that they intended to invoke section 28(3)(b) of the Buildings Ordinance and to carry out remedial works to certain drains and sewers and to recover the costs from the owners subsequently.

62. The defendant's solicitors enquired whether the remedial work had been carried out and whether the costs had been paid in full. The plaintiffs' solicitors forwarded a letter from Messrs. W.I. Cheung & Co., solicitors for the 2nd plaintiff's predecessor-in-title, to the plaintiffs' solicitors dated 28 August 1996 advising that their client had not been called upon to pay the costs of the remedial work, and undertaking to pay the contribution payable upon demand from the authority.

63. The defendant's solicitors did not accept the letter from Messrs. W.I. Cheung & Co. as being sufficient. They took the view that non-compliance with a building order constituted an undischarged incumbrance and that the undertaking given by the 2nd plaintiff's predecessor-in-title is of no value to the defendant. They therefore required evidence to prove that remedial works had been carried out to the satisfaction of the Buildings Department and that all costs of the government, if any, had been paid in full. The plaintiffs' solicitors responded that the letter is only advisory in nature and the risk of any enforcement action is remote.

64. It is obvious that the defendant's solicitors were mistaken as to the effect and purport of this letter from the Buildings and Lands Department and the effect of section 28(3)(b) of the Buildings Ordinance. Section 28(3)(b) was amended in 1992. Under the unamended version, the Building Authority may, where it considers the drains or sewers of any building are inadequate or in a defective or insanitary condition, carry out the drainage works and recover the costs thereof from the owner of such building. The letter of 15 June 1990 therefore does not involve any building order, but is a notice of the Building Authority's intention to carry out the remedial work and to subsequently recover the costs from the owners. There is therefore no question of non-compliance with a building order. The defendant's requisition in this regard is misconceived.

65. Mr Lam for the defendant however rested his argument on another basis. Subsequent enquiries made with the Buildings Department reveal that the remedial works had been completed on 5 October 1993. However, the amount of contribution payable is still in the course of being finalized and the demand notes have yet to be issued. Mr Lam therefore argued that the plaintiffs should have disclosed such a liability to the defendant because it is only a matter of time that the demand would be made and it is incorrect to say that there is no risk of enforcement action.

66. In determining whether there is any risk of enforcement, one must look at section 33 of the Buildings Ordinance, which deals with the recovery of costs of works by Building Authority. Sub-section (9) empowers the Building Authority to register against the title of any property a certificate setting out the payment liability. The certificate so registered shall constitute a first charge on the property. However, the Proviso to subsection (9) also provides that the liability under the subsection shall not accrue against a bona fide purchaser for valuable consideration who, subsequent to the completion of the works and before the registration of the certificate, has acquired and registered an interest in the property.

67. It is plain from the Proviso to subsection (9) that there can be no risk of enforcement action insofar as the defendant is concerned. The defendant had acquired an interest in Inland Lot No. 7442 by the Agreement, which was registered in the Lands Registry on 25 September 1997. The amount of contribution, let alone the issue of certificate on payment liability, had not been finalized by then. The defendant can clearly avail itself of the Proviso. Viewed in this light, the alleged non-disclosure of liability or, as Mr Lam put it, the failure to advise that the works had been completed is no cause for complaint. There is in short no substance in this requisition.

Requisitions No. 12 and 13

68. These 2 requisitions concern errors in the description of the Property in 2 documents. Requisition no. 12 relates to the description of Inland Lot No. 7443 in an assignment executed in 1981. In the recital to the assignment, the lot no. is mistakenly referred to as "7334". As for requisition no. 13, it concerns the descriptions of Inland Nos. 7443 and 7442 in an assignment executed in 1996 between the 2nd plaintiff and its predecessors-in-title. In the Schedule that contains the descriptions of the property, the 2 lots were said to be shown and coloured "pink hatched green" on the plans attached to their respective Crown leases, when in fact the lots are coloured "pink and pink hatched green" on the said plans.

69. The defendant's solicitors requested for both errors to be rectified. In relation to the 1981 assignment, the plaintiff's solicitors took the view that rectification was not necessary as the error was only in the recital. Upon the insistence of the defendant's solicitors, the plaintiffs procured the solicitors who prepared the assignment to effect the rectification and forwarded a certified copy of the rectified assignment to the defendant's solicitors. The defendant did not accept that and insisted that the rectified assignment duly re-registered be available by completion.

70. Mr Lam, in the course of his submissions, in my view, fairly and rightly accepted that the error in the 1981 assignment is less important. This error, which is clearly a typographical one, appears only in the recital of the 1981 assignment. The description of the lot has been correctly set out in the main body of the assignment. Even without the rectification made, the assignment cannot be said to be defective as such. Certainly, it does not amount to any blot or defect in the title. This requisition cannot stand.

71. As to the 1996 assignment, again upon the insistence of the defendant, the plaintiffs' solicitors caused the assignment to be rectified and the rectification initialled by a solicitor of the firm, and sent it to the Lands Office for re-registration, after the defendant's solicitors refused to attend to the re-registration. The defendant's solicitors considered it insufficient for the rectification to be initialled only by the solicitor. They further insisted on the delivery of the duly rectified and re-registered assignment at completion.

72. It transpires from the subsequent correspondence exchanged between the plaintiff's solicitors and the Lands Office that the latter took the view that the amendment is a material one such that the rectification should be initialled by both parties or by either party together with the attesting solicitor. The 2nd plaintiff eventually also initialled the assignment and the rectified assignment was re-registered.

73. In the 1996 assignment, the 2 lots in question are described as: "ALL That piece or parcel of ground situate lying and being at North Point Hong Kong and registered in the Land Registry as INLAND LOT NO. 7442", in the case of Inland Lot no. 7442, and "INLAND LOT NO. 7443", in the case of Inland Lot no. 7443, "TOGETHER with the messuages erections and buildings thereon (if any) which said piece or parcel of ground is shown and coloured pink hatched green on the plan attached to the Crown Lease (as described in paragraph 2 of this part)". The part of the plans attached to the respective Crown leases that is coloured "pink hatched green" covers the areas subject to the respective rights of way. The bulk of the lots are in fact coloured pink on the respective plans.

74. Mr Tang S.C. argued that it is obvious from the opening part of the verbal description in the Schedule that the 1996 assignment relates to the whole of Inland Lot Nos. 7442 and 7443, as opposed only to parts thereof or the parts covering the rights of way. The clerical errors in the references to the plans are therefore immaterial.

75. Mr Lam, on the other hand, referred to a passage in Sihombing and Wilkinson, Hong Kong Conveyancing, Law and Practice, volume 1(A) para. 213 that was quoted in the judgment of Cheung J. in Green Park Properties Limited v. Dorku Limited (unreported) HCA8564/1998. The passage reads:

"Where property is assigned both by way of a verbal property description and reference to a plan, it is important that the draftsman makes it clear whether, in the case of inconsistency, the plan or the verbal description should prevail. If the plan is to prevail over any property description, the appropriate words used should be that the property is 'more particularly delineated ... on the plan annexed to assignment memorial number ...': Eastwood v. Ashton [1915] AC 900 (HL). If, however, the property description is to prevail, the appropriate wording should be that the plan is to be used 'for the purposes of identification only': Wigginton & Milner Ltd v. Winster Engineering Ltd [1978] 1 WLR 1462."

Mr Lam argued that the absence of such words as "for identification only" renders the error in the reference to the plan a defect in the assignment and also a defect in the title.

76. There can be no doubt that the errors in the 1996 assignment are clerical errors. Strictly speaking, there is no inconsistency between the verbal description contained in the assignment and the delineations of the lots as appear on the plans attached to the Crown leases. The 2 lots are correctly identified in the plans. The error is within the assignment itself, namely, in the cross-reference to the plans. This being the case, the absence of the words "for identification purpose" to indicate that the plans are subordinate to the verbal description is not significant. Firstly, the absence of those words does not give the plans any predominance over the verbal description. Secondly, in deciding what property is intended to be passed under the conveyance, one would have to look at the whole of the conveyance. Accordingly, what is more important is whether the explicit verbal description in the 1996 assignment has sufficiently and clearly set out the property to be conveyed. If it is sufficient, the plan must be treated as subordinate and is to be disregarded in the event of any inconsistency: see Emmit on Title, 19th Ed., para. 17.012

77. In this case, the verbal description explicitly states that the property to be conveyed is the whole of Inland Lots Nos. 7442 and 7443. The cross-reference to the plans has to be read subject to this explicit description. Any suggestion that the assignment is only to convey the portion of the 2 lots that cover the rights of way is unrealistic upon a construction of the whole conveyance and considering that the consideration stipulated is $48.6 million. The references to the plans attached to the Crown leases must be regarded as subordinate. Even if one were to turn to the plans, one would have no difficulties in ascertaining the boundaries and location of the 2 lots in question. I do not consider that the clerical errors in the 1996 assignment are fatal or of such significance as to amount to a doubt or defect in the plaintiff's title to the 2 lots.

78. Mr Lam argued that it is not open to the plaintiffs to say in these proceedings that rectification was not necessary, since the plaintiffs had, in response to this requisition, proceeded to rectification and re-registration. In support of the argument, Mr Lam referred to the case of Liu Tak Kin v. Chan Yiu Kai, op cit. In that case, one of the requisitions raised was that there was a discrepancy in the description of the property between the schedule and the reservation clause in an assignment. The vendor procured the assignment to be amended and initialled by the attesting solicitors. The purchaser insisted that the signatures of the assignors were required. The vendor's solicitors disagreed on the basis that the errors were typographical. At the hearing of the vendor and purchaser summons, counsel for the vendor argued there could be no doubt in the title even without the amendments. Deputy Judge Chung (as he then was) agreed with counsel for the purchaser that as this argument had not been raised in the correspondence by the solicitors and that the solicitors had, instead, proceeded to procure the amendments and arrange for re-registration, it was too late to raise it at the hearing. Accordingly, he held that the requisition was not satisfactorily answered.

79. In the present case, the plaintiffs' solicitors had in their letter dated 26 August 1997, stated that they did not consider rectification and re-registration were necessary. They also observed that the plans were for reference only. It is true that, upon the insistence of the defendant's solicitors, they eventually proceeded to effect the rectification and to arrange for re-registration. But the fact remains that the argument raised by Mr Tang S.C. at this trial is not an entirely new one such that it ought not be considered in deciding whether the plaintiffs' answer was sufficient.

80. Mr Lam further pointed out that the letter dated 26 January 1998 from the plaintiffs' solicitors was misleading in stating that the amended assignment had been accepted for registration and the assignment had been registered. The amended assignment was in fact pending registration. Mr Lam submitted that the plaintiffs' solicitors had therefore failed to fulfil the requisite duty in answering requisition as set out in Active Keen Industries Limited, op cit.

81. It is certainly incorrect for the plaintiffs' solicitors to say in their letter that the amended assignment had been accepted for registration or that it had been registered. The solicitors were probably too presumptuous or over-confident in so stating. I would not however be prepared to say that they were acting without candour or were consciously misleading the defendant. The fact of the matter is that the requisition of the Lands Registry was only raised on 27 February 1998. Notwithstanding all these, the incorrect statement about the registration of the amended assignment is immaterial as there is neither doubt nor defect in the plaintiffs' title even without the rectification, let alone the registration of the amended assignment. The failure to complete the rectification process and/or to deliver the re-registered assignment upon completion does not amount to a failure to give or make good title. This requisition no. 13 therefore fails.

Waiver and Acceptance of Title

82. It is not in dispute that the defendant had in or about October 1997 offered the Properties for sale by tender. On this basis, Mr Tang S.C. argued that the defendant had accepted the title or must be taken to have waived any objection on title raised by them. The cases of Hillier Development Limited v. Tread East Limited [1993] 1HKC 285 and Lai Chi On v. Strong Sing Development Limited [1994] 3 HKC 568 were relied upon.

83. In Hillier Development Limited v. Tread East Limited, the purchaser raised a requisition on a previous assignment, to which an answer was delivered by the vendor. There was no further follow up or reply on it and the purchaser then forwarded a draft assignment to the vendor. Thereafter the purchaser's mortgagee raised a requisition on that same previous assignment and the purchaser forwarded it to the vendor. The vendor repeated the earlier answer and did not answer further. The Court of Appeal held that the purchaser, not having taken objection to the vendor's initial answer, must be taken to have waived the objection.

84. In Lai Chi On v. Strong Sing Development Limited, the purchaser raised requisition for the first time after the draft deed of assignment was sent to the vendor. It was held that it must be conclusively implied that the purchaser had accepted the title by forwarding the draft assignment and had waived any possible objection or requisition he might have.

85. Waiver and implied acceptance of title are questions of fact to be determined by reference to the circumstances of each case. I agree with Mr Lam that the circumstances of the present case are very different from those in the 2 authorities cited. All that the defendant had done was to advertise the Properties for sale. This act is not necessarily indicative of an intention to waive objections to the title. It is not the sort of conduct that a normal prudent purchaser would not have performed until he is satisfied with the title: see Farrand on Contract and Conveyance (4th Ed) p.130. As Mr Lam said, it is not uncommon in Hong Kong for purchasers to offer to sell as confirmors properties yet to be assigned. Indeed, it is a known fact that purchasers in Hong Kong would offer to re-sell the properties even before any formal sale and purchase agreements were signed, and before any title documents were delivered. It is a different matter, and different considerations will apply, where a purchaser forwards a draft assignment. Further, unlike in the 2 authorities cited, the defendant's advertisement for sale was put up after requisitions had been delivered and was followed by further follow-up requisitions. I do not accept that the defendant had by conduct accepted the plaintiffs' title or that the defendant can be taken to have waived the objections on the title raised.

Conclusion

86. For the reasons set out above, the plaintiffs had failed to answer requisitions nos. 10 and 14 and had also failed to give a good title to the Properties. It follows that the plaintiffs' claim has to be dismissed.

87. On the other hand, the defendant is entitled not to complete and to rescind the Agreement, which it did by its letter dated 31 January 1998. There will accordingly be declarations to these effects. The defendant is further entitled to the return of the deposits paid, being the total sum of HK$43.5 million, and also the abortive conveyancing costs and disbursement in the sum of HK$104,738. There will also be a declaration that the defendant holds a lien over the Properties in respect of these sums.

88. In short, the plaintiffs' claim is dismissed. There will be judgment for the defendant against the plaintiffs on the counterclaim for:

(1) A declaration that the plaintiffs had failed to answer requisitions nos. 10 and 14 raised by the defendant's solicitors.

(2) A declaration that the defendant was entitled to rescind the sale and purchase agreement dated 4 September 1997 and has done so by the service of its letter dated 31 January 1998.

(3) The return of the deposit in the total sum of HK$43,500,000.

(4) The payment of the sum of HK$104,738.

(5) Interest on the said sums of HK$43,500,000 and HK$104,738 at judgment rate from the date of judgment to the date of full payment.

(6) A declaration that the defendant has a lien over the Properties in respect of the said sums of HK$43,500,000 and HK$104,738 until full payment of the same.

89. There will also be an order nisi that the plaintiffs pay the defendant the costs of this action, to be taxed if not agreed. The order nisi to be made absolute after the expiration of 14 days from the date of handing down of the judgment.