MINCHEST LTD v. LAU TSUI KWAI

cacv 334/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 334 of 2006

(on appeal from HCMP NOS. 236 of 2006, 237 OF 2006 AND 238 OF 2006)

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HCMP 236/2006

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 236 of 2006

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BETWEEN

HCMP 237/2006

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 237 of 2006

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BETWEEN

HCMP 238/2006

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 238 of 2006

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(Consolidated pursuant to the Order of Mr Recorder A. Ho dated 3 April 2006)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This is an appeal from the order dated 4 September 2006 of Deputy High Court Judge L Chan made in a consolidated action whereby he dismissed the three vendor and purchaser summonses taken out by the purchaser and granted relief to the vendors on their respective counterclaims.  At the conclusion of the appeal hearing the appeal was dismissed with written reasons to be handed down later which we now do.

Background

3.  The purchaser entered into three separate sale and purchase agreements to purchase three different properties situated in the same building in Kwai Chung from different vendors.  In each of the three actions (consolidated on 3 April 2006) the plaintiff was the purchaser and the defendants the vendors.  On 27 September 2005, the purchaser’s solicitors raised four requisitions on title.  The second and third requisitions were not resolved.  The third requisition related to the rights in respect of the roof which was said in the correspondence to be of substantial commercial value.  However, the purchaser has not pursued any matter arising therefrom in these proceedings.  In contrast the dispute in relation to the second requisition culminated in the proceedings below commenced by the purchaser against the vendors for declarations in its favour that the vendors had repudiated the contracts, a return of the deposits and damages.

4.  The second requisition asked for a certified copy of the certificate of compliance of the new grant of the lot on which the building was erected.  The vendors’ solicitors responded on 6 October 2005 as follows:

“2.     We note that New Grant No.4699 was dated 13^th November 1969.  Pursuant to Section 14(2) of the Conveyancing and Property Ordinance, any conditions precedent of New Grant No.4699 should be deemed to have been complied with on 1^st November 1984.  Therefore, production of Certificate of Compliance of the said New Grant is unnecessary in proving title to the above property.”

5.  The purchaser’s solicitors insisted on the production of the certificate of compliance.  They said in their letter of 10 October 2005:

“2. Production of the Certificate of Compliance is necessary.  Section 14(2) of the Conveyancing and Property Ordinance does not dispense with the physical production of certificate of compliance or other matters of title.”

Thereafter, further exchanges of correspondence on the subject took place with each side maintaining its stance but the purchaser did not raise any further requisition or any requisition relating to compliance with any of the conditions precedent.

6.  The judge held that the requisition had been properly answered and that the vendors were under no obligation to produce the certificate of compliance by virtue of section 14(2) of the Conveyancing and Property Ordinance (“the Ordinance”).

This appeal

7.  This appeal concerns the vendors’ duty, if any, to provide the purchaser with a copy of the certificate of compliance where the root of title is a pre-1970 grant of Government land.  The answer lies in the true construction of section 14 of the Ordinance.

8.  In pertinent part, section 14 reads:

“14. Conversion of equitable interest to legal estate where right to Government lease

(1)   Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions-

(a)  the equitable interest under that right shall become a legal estate in that land as if held under a Government lease issued in accordance with that right; and

(b) for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.

(2)   Where, under an agreement for a Government lease entered into before 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent he shall be deemed, for the purposes of this section, to have complied with those conditions on the commencement of this section.

(3)   Where under an agreement for a Government lease entered into on or after 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent, he shall be deemed, for the purposes of this section, to have complied with those conditions-

(a)  upon the issue by the Government of a certificate that those conditions have been complied with and the registration of that certificate in the Land Registry under the Land Registration Ordinance (Cap. 128); or

(b)  upon the endorsement by the Government on the Government lease of a note to the effect that those conditions have been complied with and the registration of a copy of that endorsement in the Land Registry under the Land Registration Ordinance (Cap. 128); or

(c)  upon the entry on the register kept in the Land Registry under the Land Registration Ordinance (Cap. 128) relating to the land of a note to the effect that those conditions have been complied with.”

9.  Mr Thomas SC who appeared for the purchaser submitted that the principal purpose of section 14 was to provide for the conversion of a conditional right to a lease, which was an equitable interest, into a legal estate as if held by a lease issued in accordance with that right and where the relevant grant was pre-1970, compliance with any conditions precedent was ‘deemed’ only for the purpose of vesting the pre-1970 grantee with the legal estate.  It was said that a secondary purpose was to fix the date on which the legal estate is acquired by virtue of section 14(1).  The thrust of his submissions so far as pre-1970 grants are concerned is that those with the conditional right did not have to obtain evidence of compliance with any conditions precedent to acquire the legal estate but were deemed to have complied with those conditions on the date of the commencement of the section but that the phrase ‘for the purposes of this section’ meant and only meant the conversion of an equitable interest into a legal estate.

10.  Turning to section 14(1), it is clear from the opening words that it is only “upon compliance” with any conditions precedent that the events stated in paragraphs (a) and (b) happen.  Since a Government lease cannot be issued unless there has been compliance with any conditions precedent, it must necessarily follow from the deemed issuance that there had also been a deemed compliance with those conditions precedent.  Paragraph (a) of section 14(1) featured prominently in the purchaser’s submissions but paragraph (b) was, for practical purposes, subsumed into paragraph (a).  That is evident from the purchaser’s submission that the ‘deemed’ compliance with conditions was “only for the purpose of vesting the pre-1970 grantee with the legal estate”.  Mr Thomas SC also referred to the heading of section 14.  Whilst acknowledging the correctness of Mr Li’s submission based on section 18(3) of the Interpretation and General Clause Ordinance, Cap. 1, namely, that section headings do not have legislative effect and do not limit the interpretation of the section, he went on to submit that section headings form part of the Ordinance and may be considered.

11.  I do not consider that the heading would assist the purchaser in any event.  Implicit in the words “where right to Government lease” in the heading is “compliance” with any conditions precedent since the right only arises ‘upon compliance’ with the conditions.  In my view, a necessary concomitant of the deemed issuance of a Government lease under section 14(1)(b) is the deemed compliance with any conditions precedent.  Accordingly, in the case of a pre-1970 grant, the grantee is deemed to have complied with any conditions precedent on the commencement of section 14 which came into effect on 1 January 1984.  That is how I would construe section 14(2).

12.  Mr Thomas SC placed reliance on the decision of the Court of Final Appeal in Lord Energy v Chen Paul and anor. [1999] 1 HKLRD 205 and the decision of Yuen J (as she then was) in Sunlink Group (Hong Kong) Co. Ltd v Sorrayo Investments Ltd [1999] 2 HKLRD 468 for the proposition that a certificate of compliance is regarded as having two purposes, namely, the vesting of a legal estate and as prima facie evidence that at the date of its issue, the Government was not alleging that there had been a breach of conditions giving rise to a right of re-entry.  I do not doubt the correctness of the proposition stated.  However, that proposition is quite different from a proposition that for a pre-1970 grant, a certificate of compliance must be produced as part of the vendor’s title.  The cases cited do not assist because the grants concerned were post-1970 and therefore fall under section 14(3) which required, inter alia, the issuance of a certificate of compliance.  They are not authority for the proposition that for a pre-1970 grant, the vendor must produce a certificate of compliance.

13.  It was also said that a certificate of compliance is a document of title and is registrable.  Again, I do not doubt the correctness of that proposition.  But it is markedly different from a proposition that for good title to be shown in a pre-1970 grant, the vendor must produce a certificate of compliance.  That latter proposition has simply not been established. I would add that had a certificate of compliance been registered, it would have constituted a document of title which the vendors would have been obliged to produce.  But that was not the present case.

14.  Mr Thomas SC then took another point relying on Active Keen Industries Ltd v Fok Chi Keung [1994] 1 HKLR 396, namely, that there had been no sufficient answer to the requisition raised in that the answer given was a proposition of law and that the requisition could only have been properly answered by the vendors stating whether a certificate of compliance had or had not been issued.  I do not agree.  In my view, where as a matter of law (as is the present case), the vendors were under no duty to produce a certificate of compliance as part of their title, the answer given by the vendors’ solicitors on 6 October 2005 sufficiently answered the requisition.

Hon Barma J:

15.  I agree.