TSUEN WAN TRADE ASSOCIATION EDUCATION FOUNDATION LTD v. CHUI KAM YING

HCMP 1735/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1735 OF 2011

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REASONS FOR JUDGMENT

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Introduction

1. This is a vendor and purchaser summons concerning G/F, No 120, Nga Tsin Wai Road, Kowloon (“the Property” and “the Building” respectively).

2. The plaintiff as vendor and the defendant as purchaser entered into a provisional sale and purchase agreement dated 3 March 2011 (“PSPA”) for the sale and purchase of the Property at the price of HK$38.5 million.  No formal sale and purchase agreement was made.  Completion date fell on 31 May 2011 but no completion took place as the defendant took the view that his requisitions had not been satisfactorily answered and that the plaintiff has failed to prove good title.  The parties agreed to refer the matter to court for determination.

3. On 28 March 2012, after hearing the parties, I made an order declaring that the plaintiff has shown good title.

4. These are the reasons for my judgment.

The conveyancing history

5. To put the requisitions in context, a brief outline of the conveyancing history of the Property is in order.

6. The Building is situated at the Remaining Portion of New Kowloon Inland Lot No 2696 (“NKIL2696RP”). It is a pre‑war 4‑storey building.  As confirmed by the Buildings Department, there is no record of any occupation permit (“OP”) for the Building.  Nor is there a record of any approved building plan for the Building.

7. The root of title began with a Conditions of Exchange No 3927, (“the Conditions of Exchange”), under which the Government in exchange of certain lands granted the NKIL2696 to Wong Li Shi and Mark Chun Sam (“the Lessees”) as tenants in common.  The Memorandum of Agreement by the Lessees was dated 24 February 1937.  The term of lease granted to the Lessees was 75 years commencing on 1 July 1898 with the option of renewal by the Government for one further term of 24 years, less the last three days thereof. No Crown Lease had been issued.

8. On 8 July 1939, Wong Li Shi became the sole owner of NKIL2696RP.  On 28 March 1940, Wong assigned to Kong Chuen On and three other co‑owners as tenants in common each with ¼ undivided share of NKIL2696RP.

9. No deed of mutual covenant existed for the Building.  So Kong and the other three co‑owners entered into four Agreements for Lease all dated 16 January 1953 amongst themselves containing identical terms, which effectively enabled each of the four co-owners to enjoy exclusive possession of each of the G/F to 3/F of the Building.  In respect of the Property, the Agreement for Lease (“AFL”) provided that Kong and the other three co‑owners were each holding one equal undivided fourth part or share in NKIL2696RP.  The other three co‑owners as landlords granted a lease of the Property to Kong as tenant subject to the conditions as set out in the 2^nd and 3^rd Schedules.  The other three co‑owners covenanted with Kong and his successors that they “may peaceably hold and enjoy the said floor without any interruption” with the right to access common parts of the Building.

10. Reciprocal arrangement for exclusive possession for other three floors was achieved under the other three Agreements for Lease.

11. On 17 February 1955, Kong assigned the Property to a purchaser.  After a series of assignments, the plaintiff’s immediate predecessor in title assigned the Property to the plaintiff on 18 July 2003.  Nothing turns on the chain of title, which is not in dispute.

Requisition 1 – no exclusive possession

12. In his first requisition, the defendant queried if the plaintiff had exclusive possession to the Property.  This query is clearly unsustainable because the effect of the Agreements for Lease is to give exclusive possession of the respective floors to the co‑owner concerned.  In this regard, their effect is similar to that of a DMC.  Mr Wong, for the defendant, rightly abandoned this query at the hearing before me.

13. The next query raised by the defendant under this requisition, which is maintained by Mr Wong, is this.  Under the AFL, the duration of the lease in respect of the Property was 75 years less 10 days from 1 July 1898 and thereafter 24 years (less 3 days), less the last 10 days.  In effect, the lease expired about 10 days before 1 July 1997.  Upon the expiry of the lease, the right to exclusive possession also ceased to exist.  So the plaintiff does not have exclusive possession of the Property.

14. This query is entirely misconceived.

15. NKIL2696RP is located within “New Kowloon” as defined in Schedule 5 of the Interpretation and General Clauses Ordinance, Cap 1, which lies within “the New Territories” as defined in Schedule 5A of the same Ordinance.  In short, NKIL2696RP is within “the New Territories” for present purposes.

16. Although no Crown Lease had been issued in respect of NKIL2696RP, a Crown Lease is deemed to have been issued upon the compliance of the Conditions of Exchange : see section 3 of New Territories (Renewable Government Leases) Ordinance, Cap 152.  By virtue of section 6 of the New Territories Leases (Extension) Ordinance, Cap 150, the term of the lease for NKIL2696RP is extended until the expiry of 30 June 2047.

17. The right to exclusive possession enjoyed by the owner in respect of the Building from time to time derived from the AFL.  Such a right would continue unless a contrary intention appears from the instrument : section 7 of the New Territories Leases (Extension) Ordinance, Cap 150.  At the time of the AFL, the contracting parties could not have possibly applied their mind to the position after July 1997.  That however does not show any contrary intention within the meaning of section 7 : see Lam Pau Ho v Cheung Kam Ming [1997] 4 HKC 139.  On a proper construction of the AFL, the parties must have intended that the right to exclusive possession was to subsist as long as the term of the lease lasted.  Any construction to the contrary, as advanced by the defendant, defies common sense and must be rejected.

Requisition 2 : absence of OP and permitted user of the Property

18. The defendant argued that there exists no OP show that the Property can be used for non-residential purposes.

19. Properly understood, this requisition cannot possibly be based on any missing OP.  For the Building Authority has confirmed that there was no record of any OP ever being issued.

20. What the defendant really complained about is that the Property is a residential property for the purpose of section 29A of the Stamp Duty Ordinance, Cap 117.  All the previous sale and purchase agreements should be chargeable with stamp duty and the plaintiff is under a duty to prove that the title documents had been duly stamped.

21. In the Conditions of Exchange, reference was made to two domestic permits numbered 55/40 and 56/40 both dated 18 April 1940.  The defendant placed heavy reliance on the permits and argued that they show that the Property can be used for residential purpose only.

22. However, under the old Building Ordinance No 18 of 1935, which was applicable at the time, domestic building was defined as “any building constructed, used, or adapted to be used, wholly or partly, for human habitation” : section 4(15).  So even if two domestic permits had in fact been issued, it does not necessarily follow that the Property can be used for residential purpose only.  As confirmed by the Buildings Department, the Building was a pre-war building.  There is no evidence whatsoever that throughout its history of some 70 years, the Government had threatened to take any action because the Property had been used for non-residential purposes.  This inferentially but strongly shows that the Property can in fact be used for non-residential purposes legally.

23. The defendant sought to rely on the opinion professed by the Inland Revenue Department in its letter dated 25 March 2011 that stamp duty is chargeable.  No weight can be placed on IRD’s view for a number of reasons.  First, its view is said to be a preliminary one based on the information available.  Second, its view is premised on the basis that “we find that there is no documentary evidence showing that [the Property] may not be used wholly or partly for residential purposes”.  Such a basis is, as I have demonstrated above, clearly not supportable.  Finally, IRD’s view on the chargeability of stamp duty does not assist the court on the question of title at all.

24. In any event, an objection based on stamp duty is a matter of conveyance, not title : see Town Bright Industries Ltd v Bermuda Trust (Hong Kong) Ltd and Anor [1998] 2 HKC 445, paras 47‑54; CACV137/1998, 21 January 1999, unreported, para 22.

Requisition 3 – Missing originals of title documents

25. The defendant complained that the plaintiff has failed to provide the original of two title documents, namely, a 1997 Release Memo.UB7266217 and a 1994 Cancellation Agreement Memo.UB6025217.  This complaint lacks substance.

26. The plaintiff has already provided certified true copy of the two documents.  Further, it has provided two statutory declarations to explain how the documents had gone missing.  The first statutory declaration was dated 18 July 2003, made by a director of the owner of the Property, Wise More International Limited, at the time.  By the time when Wise More acquired the Property, the two documents had already been missing.  The second statutory declaration was made by a director of Stable Achieve Limited, which sold the Property to Wise More.  Stable Achieve acquired the Property in 1990.  That director explained that Stable Achieve was dissolved in 2000 and he could not find or trace and did not know the whereabouts of the two documents.  He believed that the two documents should have been destroyed because all the papers and documents kept by Stable Achieve had been destroyed already.

27. Mr Wong submitted that the statutory declarations did not fully address the circumstances of how the two documents were lost. Further particulars are required.  But as rightly submitted by Mr Li, for the plaintiff, the test is not whether further particulars are reasonable, but whether the particulars already given are an adequate explanation : see Chan Hoi Fai v Chan Kwai Keung [2008] 1 HKLRD 504, at para 30.  I find the explanation by the second statutory declaration adequate.

28. In my view, the plaintiff has already provided satisfactory secondary proof of the two missing documents.

Requisition 4 – Two existing tenancies

29. The Property had been let out to two tenants for commercial use.  The defendant’s complaint concerns the commercial use of the Property and the plaintiff’s exclusive possession.  This must fall together with Requisitions 1 and 2 above.

Requisition 6 – Building orders

30. The Property is subject to various building orders issued by the Building Authority.  The defendant contended that they affect title.  However, the defendant was fully aware of those orders at the time of the PSPA.  Indeed, it is provided in the riders attached to PSPA that :

“3) 此買賣合約為必買必賣之合約，但必須業權妥當.(除第6及第7段所述的業權問題外)

... ...

7) 買方清楚明白及接受此物業地下有政府有關部門發出之修葺令登記於田土廳Order No.CRT/RT/001737/08/K By the Building Authority under S.24(1) of the Building Ordinance And CMS/TE/016036/091K And Order No.CRT/RT/001581/10/K Supplementary order under S.24(1) of the Building Ordinance 而上述修葺令一切之費用及責任均由買方負責.

8)   成交前該物業若有任何由政府部門發出未解除之維修令.一切由買方負責.”

31. The defendant alleged that she did not fully understand the effect of the riders cited above at the time of the PSPA.  I reject her allegation with no hesitation.  Those riders clearly show that she knew full well that the building orders might affect title.  And the parties had agreed that the plaintiff was not required to remove any title problem arising from those orders.  It does not now lie in the defendant’s mouth to say that she did not know the full implications of or her obligations under those riders.

Conclusion

32. For the above reasons, I find that all the requisitions had been fully and satisfactorily answered by the plaintiff.  I therefore entered judgment in its favour.