WONG YIU TING v. KWOK WING CHIU AND ANOTHER

HCA 729/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 729 OF 2008

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REASONS   FOR   JUDGMENT

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1.  This matter came before me as an Order 14 and Order 14A application by the Plaintiff.  The dispute stems from a conveyancing transaction.  The Plaintiff is the purchaser and the Defendants are the vendors.  The property in question, Flat 7, 15^th Floor, Block 1, Siu Hong Court, Tuen Mun [“the Property”] is a Home Ownership Scheme property subject to the provisions of the Housing Ordinance.  The provisional agreement was made on 21 February 2008.  The purchase price was $880,000.  A deposit of $88,000 had been paid.  Formal agreement was executed on 12 March 2008.

2.  Requisitions were raised on behalf of the Plaintiff.  Solicitor acting for the Plaintiff took the view that the requisitions have not been adequately answered.  This is disputed by the Defendants’ solicitor.  The sale was not completed in accordance with the terms of the agreement.

3.  As I said in the course of the hearing, it is unfortunate that the parties have not sought the court’s decision before completion date by way of vendor and purchaser summons after the dispute on the adequacy of the answers to the requisitions arose.

4.  Instead, an action was commenced by writ on 29 April 2008 and pleadings were filed.  Considerable costs have been incurred.  Neither party is on legal aid.  If the matter has to be finally resolved by a full scale litigation in a writ action, the losing party will have to bear a considerable financial burden in terms of legal costs which in all likelihood will be disproportionate to the subject matter of the dispute.  In addition, the proceedings may take some time to come to a final resolution and in the meantime parties will have to face an uncertain prospect regarding the outcome of the litigation. 

5.  At the beginning of the hearing, this court enquired with the parties their respective stance after explaining to them the practical implications of litigation.  Time was given to counsel to advise their respective clients.  After that, both parties intimated to the court that they were willing to go ahead with the sale and purchase if the court shall hold that a requisition relating to an assignment in 1998 has been adequately answered.  There are some variations to the terms of the sale and purchase, e.g. the price is reduced to $850,000.  I do not find it necessary to set out all the agreed variations in this judgment.  In that event, the claim and counterclaim will not be proceeded further and each party will bear his/their own costs. 

6.  It was also agreed if this court were to hold that the requisition was not adequately answered, interlocutory judgment is to be entered against the Defendants for costs and damages to be assessed whilst the Plaintiff would not claim any aggravated damages.

7.  This is an eminently sensible course to take and I must commend counsel for their efforts in assisting their respective clients in coming to agreement on such a course.  It is an agreement which meets the needs of both parties and minimizes their exposure to legal costs.

The requisition and the answer

8.  The only issue that this court has to resolve is whether the requisition relating to the 1998 assignment has been adequately answered.

9.  In essence, the requisition was about due compliance with Section 17B of the Housing Ordinance in 1998 when the Property was acquired by the Defendants.  The predecessor of the Defendants [“Sun”] acquired the Property subject to the terms and conditions set out in the Schedule to the Housing Ordinance.  One of the terms and conditions is a restriction against alienation unless a premium is paid to the Housing Authority.  Section 17B renders any assignment of the Property in breach of the condition void.  In a nutshell, in order to be valid, the premium had to be paid before the assignment took effect.

10.  The Defendants as well as Sun were aware of the need to comply with the requirement as regards payment of premium.  That was provided for in the agreement between the Defendants and Sun.  Clause 33 of that agreement provided as follows,

“(a)   The parties hereby acknowledge that the sale of the Property is subject to the terms and conditions contained in the Schedule to the Housing Ordinance (“the Scheduled Conditions”).

(b) It is condition of the Agreement that the premium as assessed by the Director of Housing under the Scheduled Conditions shall be paid by the Vendor solely and that the Premium shall be paid to the Housing Authority prior to the execution of the Assignment of the Property and … but shall in no case be paid later than the Completion Date.

(c) The Vendor shall on completion procure the Vendor’s Solicitors to give an undertaking to the Purchaser’s Solicitors to provide with the Purchaser’s Solicitors within 21 days from the Completion Date a Certificate issued by the Housing Authority certifying that the Premium has been paid on or before completion …

(d) The Vendor hereby declares that he has already applied to the Housing Authority for assessment of premium … In the event that the Vendor shall fail to receive the premium assessment from the Housing Authority before the Completion Date, completion of the sale and purchase shall then take place within 10 working days from the Purchaser being notified in writing that premium assessment has been made by the Housing Authority….”

11.  On 19 January 1998, solicitor for the Defendants sent to solicitor for Sun 3 split cheques for payment of the balance of the purchase price.  One of the cheques was in the same amount as the premium and the payee was Housing Authority.  The cheque was sent against undertaking by the solicitor for Sun that it shall send to solicitor for the Defendant a certificate by the Housing Authority certifying that premium had been paid on or before completion.  By necessary implication, solicitor for Sun undertook to pay the premium to the Housing Authority before completion.

12.  The assignment from Sun to the Defendants was dated 19 January 1998.

13.  In a letter dated 20 January 1998, the Housing Authority certified receipt of the premium.  It stated as follows,

“This is to certify the receipt of the premium payable under paragraph 1 of the Schedule to the Housing Ordinance for the above property, and to confirm that the alienation restrictions … in respect of the above property are removed …”

14.  The requisition in question was directed towards the point that date of the receipt was 20 January 1998 whilst the date of the Assignment was 19 January 1998.  Solicitor for the Plaintiff asserted in a letter of 20 March 2008 that there is a breach of Section 17B of the Housing Ordinance and the assignment is void.  It asked the Defendants to produce a Deed of Rectification to be executed by Sun to remedy the defect.

15.  On 27 March 2008, solicitor for the Defendant replied.  The following points were made by way of answer to the requisition,

(a) The common intention of the parties to the 1998 transaction was to pay the premium on or before the completion;

(b)    The transaction was proceeded on the same basis as set out in Clause 33 of the agreement and the letter of 19 January 1998;

(c) The cheque for payment of the premium was issued in favour of the Housing Authority on 19 January 1998;

(d)    Reference was made to the judgment of Deputy Judge Gill in HKSAR v Pang Ko Fai [1999] 2 HKC 395;

(e) They were of the view that there was no breach of the restriction against alienation and the 1998 Assignment was not void;

(f) There was no need to have a confirmatory assignment.

16.  In that letter, solicitor for the Defendant also referred to the inquiry that had been made with the successor of the solicitor for Sun shortly after the completion in 1998.  The relevant correspondence were produced and in a letter dated 19 March 1998, that successor (being appointed by the Law Society to intervene in the practice of the original solicitor acting for Sun) said the following after referring to the letter of 19 January 1998,

“I am thus of the view that [the original solicitor for the predecessor in title] paid off the assessed premium on or before the date of completion.  The letter of removal is just mere documentary evidence of such payment and no more.”

17.  Solicitor for the Plaintiff did not accept that answer.  In a letter of 10 April 2008, it said in the present case there was no allegation that the 1998 Assignment had been mis-dated due to clerical error and there is no allegation that it took effect on a date later than 19 January 1998.  Thus the Assignment must be void.

The title has no problem

18.  A deed takes effect upon delivery.  The date appearing on it, though it is prima facie evidence of its effective date, is not conclusive.  See Barnsley’s Conveyancing Law and Practice 4^th Edn, p.454; Emmet & Farrand on Title Vol.2 Para.13.005.

19.  As far as the devolution of title is concerned, the 1998 Assignment had to be delivered by the vendor, viz. Sun, in order to be effective.  Thus, the relevant question in the present context is when was the 1998 Assignment delivered by Sun.

20.  Delivery takes place when the party executing a document intends it to take effect and it is usually inferred from conduct in terms of signing and sealing, see Barnsley’s Conveyancing Law and Practice 4^th Edn, p.449. But it ultimately depends on the intention of the executing party, see Bolton Metropolitan Borough Council v Torkington [2004] Ch 66; Longman v Viscount Chelsea (1989) 58 P & CR 189; Windsor Refrigerator v Branch Nominees [1961] Ch 88.

21.  In respect of the completion of the 1998 transaction, as shown by the letter of 19 January 1998, the parties adopted the usual conveyancing practice in Hong Kong.  Solicitor for the Defendants as purchasers sent the cheques on 19 January 1998 together with an Assignment to the solicitor for the vendor for execution against several personal undertakings of the solicitor for the vendor.  Thus, when the cheques were sent with the Assignment, it had not been executed nor delivered by the vendor.  The undertaking of the solicitor was to send an executed Assignment back to the solicitor for the purchasers within 7 days.

22.  Because of the restriction against alienation, the solicitor for the vendor also gave an undertaking to produce a receipt from the Housing Authority confirming payment of premium prior to completion.

23.  The preponderance of evidence in the present case shows that all parties to the 1998 transaction including the solicitors handling the matter intended to comply with Section 17B of the Housing Ordinance.  Clause 33 of the agreement provided for the same.  The cheque for payment of the premium was sent to the solicitor for the predecessor in title before the execution of the 1998 Assignment against the personal undertaking of the solicitor to produce a receipt confirming payment of premium before completion.

24.  Thus, when the 1998 Assignment was executed by the vendor, he and his solicitor had every reason to see to it that the 1998 Assignment did not become effective until premium had been paid.  That would be the intention of Sun when he signed and sealed the 1998 Assignment.

25.  The premium was paid as evidenced by the receipt from the Housing Authority.  It was dated 20 January 1998 but it did not spell out the actual date of payment. 

26.  We do not have direct evidence as to the actual timing of the signing and sealing of the 1998 Assignment by Sun.  Nor do we have direct evidence as to the actual timing of the payment of the premium.  If the 1998 Assignment and the receipt of the Housing Authority were both dated 19 January 1998, the matter would be covered by the presumption that if two documents bear the same date, the court presumes they were executed in such order as to give effect to the parties’ manifest intention: see Gartside v Silkstone and Dodworth Coal & Iron Co (1882) 21 Ch D 762 at p.767-8.

27.  Here the Assignment was dated 19 January whilst the receipt was dated 20 January.  But neither document provides strong evidence as regards the sequence of events.  As we have seen, the date on the Assignment is only prima facie evidence.  The conveyancing practice adopted was that Sun’s solicitor undertook to send to solicitors for the purchasers an executed Assignment within 7 days of 19 January 1998.  As regards the receipt, it only evidenced payment of premium. It did not purport to record the actual timing of payment.

28.  For all we know, the payment could have been made on either 19 or 20 January 1998.  It could be before or after the signing of the Assignment by Sun.  But it does not matter.  There is overwhelming evidence showing the intention of Sun to comply with Section 17B.  Thus, even if he had actually signed the Assignment before the actual payment of the deposit, he must have intended that the Assignment would not become effective until the premium had been paid.  In other words, there was no delivery of the Assignment until the restriction against alienation had been lifted by such payment.

29.  There is nothing to suggest that the 1998 Assignment had been physically delivered to the solicitor for the Defendant prior to 20 January 1998.  At all time up to the payment of premium Sun remained able to withhold the delivery of the Assignment even if it had been signed.  Thus, it is not a case of delivery by escrow.  Rather it is a case of the 1998 Assignment not having been delivered (and therefore not coming into effect) before the payment.  Mr Lin’s submission on relation back has no relevance.

30.  Mr Lin referred to the contractual completion date being 19 January 1998 under the agreement between Sun and the Defendants and the assertion by solicitor for the Defendants in a letter dated 10 February 1998 that completion took place on 19 January 1998.  I do not think the fact that solicitor for the Defendants had made such an assertion and the contractual provision have any bearing on the correct analysis of the situation.  Given the overwhelming evidence on the common intention of the parties to comply with Section 17B, it must also have been their common intention that the 1998 Assignment did not come into effect until the premium was paid.  In a loose sense, completion did take place on 19 January 1998 with keys being handed over upon payment being made.  But when one is talking about the precise sequence of events and timing of the 1998 Assignment coming into effect for the purpose of Section 17B one needs to examine the situation more closely.

31.  My above analysis is in line with the approach of Deputy Judge Gill in HKSAR v Pan Ko Fai [1999] 2 HKC 395.  Such approach was endorsed by Sakhrani J in [2000] 4 HKC 602 at p.608-9.

32.  Notwithstanding the differences in the dates of the 1998 Assignment and the receipt, in my judgment the evidence clearly established that the 1998 Assignment did not come into effect until premium had been paid.  There is no problem with the title.

Requisition sufficiently answered

33.  The duty to answer requisition is clearly set out in the well known case of Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396.  Solicitor for vendor should respond in a straightforward manner with candour and common sense.  All relevant facts should be revealed and relevant documents should be produced.  Having done so, it is for the purchaser’s solicitor to decide for himself what the legal position is.

34.  In the answer set out in the letter of 27 March 2008, solicitor for the Defendants had set out the salient facts emphasizing the manifest intention of the parties to comply with Section 17B in 1998 and the transaction had been proceeded accordingly.  The case of HKSAR v Pan Ko Fai [1999] 2 HKC 395 was cited.  All relevant correspondence was produced.  As Litton JA (as he then was) said in Active Keen, requisition is not an occasion for the parties’ solicitors to bandy propositions of law and each party must exercise his own judgment on the basis of information supplied.

35.  In my judgment, although solicitor for the Defendants had not recited a full legal analysis of the position as this court did in the earlier part of this judgment, the answer was adequate.

Resolution of conveyancing disputes

36.  As I said to the parties in the course of the hearing, it is a sad thing to see people embroiled in litigation because their conveyancing transaction did not proceed smoothly.  The present case concerns dispute regarding the title of a property sold at $880,000.  The parties had already incurred substantial legal costs.  If the matter proceeds to trial, a lot more in terms of time and money will have to be spent on the litigation.  I am sure neither party contemplated that when they entered into the agreement for sale and purchase of the Property.

37.  However, because of our system of proving title, there can be room for disagreement between reasonable conveyancers as regards whether a good title has been shown.  When such disagreement arises, the potential consequences for the clients can be very serious.

38.  Vendor and purchaser summons provides an avenue for speedy resolution of such disputes.  It can minimize the exposure of the parties to costs and in some cases provide an answer before completion.  If the court were of the view that the title has no problem, the transaction can still be proceeded with.  If the court were of the view that the title is defective, the deposit can be returned swiftly.

39.  However, in Hong Kong there are many cases where parties do not have enough time to get an answer from the court before the contractual completion date.  Thus, a purchaser whose solicitor has doubts over a title would have to choose between losing his deposit or litigating with the vendor (and incurring all risk incidental to such litigation).  On the other hand, a vendor may feel aggrieved by being dragged into a piece of long drawn litigation notwithstanding that it is the purchaser who refuses to complete the transaction.

40.  It would have been much better if parties can agree to an extension of time for completion to facilitate the hearing of a vendor and purchaser summons before completion.  To cater for that, it may indeed be wise for a clause to be included in the sale and purchase agreement providing for such contingency.

41.  Even if there is no such provision in the agreement, there is no reason why the parties and those advising them cannot consider that option when disagreement arises in the course of requisition.  As demonstrated by what happened in the present case, even when parties have been proceeding by a writ action, there is still scope for agreeing to a mode to resolve the dispute in a manner more in line with the interests of the parties than proceeding by way of a full blown trial.

42.  For that, I once again express my appreciation of the efforts of the counsel involved in this case.  They have set a very good example to others as to how conveyancing dispute can be resolved in a sensible manner.

43.  In Mexon Holdings Ltd v Silver Bay International Ltd [2000] 1 HKLRD 935 at p.942F, Litton PJ reiterated the following as first principles in handling title problems in a conveyancing context,

“A good title does not mean a perfect tile, free from every possible blemish.  Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

44.  It is important that conveyancing solicitors should adopt the same approach.  When a title problem arises, in a usual case, conveyancing solicitors should advise their respective clients to adopt a procedure that can facilitate the transaction to go through if the disagreement can be resolved within a reasonable time instead of engaging in belligerent correspondence that only serves to polarize the parties in the dispute and drives them to costly and protracted legal proceedings.  After all, the subject matter of the agreement between the vendor and purchaser is a property, not a lawsuit.