CHU YIN FAN v. INTER RIVERS LTD

DCCJ 4314/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4314 OF 2012

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DECISION

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The background

1.  By an assignment (‘the Assignment”) dated 28 December 1984, Sze Man Kung (“Sze”), the defendant’s predecessor in title, acquired the subject property (‘the Property”) and became the registered owner of it.  Since about 1987, Sze has been in arrears of the management fees of the Property and a number of Memoranda of Charges were registered by the management company of the Property (“the Management Company”) against the Property in the Land Registry in respect of the outstanding management fees.

2.  On 21 August 2007, the Management Company successfully applied to the Court of First Instance to enforce the aforesaid charges against Sze and obtained an order for sale (“the Order for Sale”) of the Property. 

3.  By a provisional agreement dated 22 May 2008, the Management Company sold the Property to the defendant pursuant to the Order for Sale.

4.  The present dispute arose in connection with the preliminary agreement (“the Preliminary Agreement”) dated 18 September 2012 and made between the defendant as the vendor and the plaintiff as the purchaser for the sale and purchase of the Property.  In short, the defendant was unable to provide in the conveyancing transaction the original Assignment which was the intermediate root of title document relating exclusively to the Property.

5.  In answering to the requisitions raised by the plaintiff’s solicitors concerning the missing Assignment, the defendant’s solicitors confirmed that according to the Management Company Sze had never shown up and the title deeds could no longer be located, and that the fact of their missing had been stated clearly in the Memorandum of Sale. Further, the defendant’s solicitors pointed out that by the registration of the assignment in the Land Registry, the defendant’s interest in the Property should take priority over any unregistered interest and therefore there was no risk in the title to the Property.  Accordingly, the defendant’s solicitors claimed to rely on section 13(2)(b) of the Conveyancing and Property Ordinance (“the CPO”), Cap 219 which provided that the production of a certified copy of a title document should be permissible for the purpose of proving title. 

6.  The plaintiff was discontent with the answers given by the defendant’s solicitors.  Consequently, the conveyancing transaction fell through and the plaintiff commenced the present proceedings against the defendant asking for, inter alia, rescission of the Preliminary Agreement and return of the deposit paid by the plaintiff to the defendant pursuant to the Preliminary Agreement.

7.  Subsequently, by summons dated 8 October 2014, the plaintiff applied for summary judgment against the defendant under Order 86, r 1 on the grounds, inter alia, that the defendant has failed to show, prove and/or give good title to the Property pursuant to Sections 13 and 13A of the CPO and/or has failed to answer the requisitions satisfactorily.

8.  After hearing the plaintiff’s application for summary judgment, on 19 August 2016 I handed down my decision (“the Decision”) whereby I granted unconditional leave to the defendant to defend the action and awarded costs to the defendant.

The plaintiff’s present application

9.  By summons dated 5 September 2016, the plaintiff sought leave to appeal against the Decision.

10.  Given that the plaintiff’s application was made 1 working day later than the date as was required by virtue of Order 58, r 2(4)(c) of the Rules of the District Court (“RDC”), the first question that I needed to consider was by what standard of test leave to appeal out of time should be given. 

Legal principles on leave to appeal out of time

11.  Generally, leave to appeal shall not be granted unless the applicant can show that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the appeal should be heard (see Section 63A(2) of the District Court Ordinance, Cap 336).

12.  A reasonable prospect of success connotes an appeal with prospects that are more than “fanciful” but which do not need to be shown to be “probable” (see KNM v HTF, HCMP 288/2011, unreported, 7 September 2011).

13.  Where the application for leave to appeal is made out of time, the court has a discretion to extend time for making the application (see Order 58, r 2(10) of RDC).  However, in the case where the delay is not insubstantial and is not excusable, the party seeking an extension of time to appeal must show a real prospect of success on the merits of the intended appeal (see Secretary for Justice v HK & Yaumati Ferry Co Ltd [2001] 1 HKC 125 at p 129I).

14.  Having taken into account all the circumstances of the present case, including the shortness of the delay, the reasons of the delay as put forward in the affirmation of Yuen Kwong Keung dated 5 September 2016 and the absence of any prejudice caused by such a delay to the defendant, I considered that the delay involved was not substantial and was excusable.  Accordingly, in dealing with the plaintiff’s present application, I should adopt the conventional test whereby the plaintiff was required only to show a reasonable prospect of success in the intended appeal or there is some other reason in the interests of justice that the appeal should be heard.

The grounds of appeal

15.  The grounds of appeal as put forward on behalf of the plaintiff in the draft Notice of Appeal and her counsel’s written submission could be boiled down as follows:-

(a) The court has erred in holding it arguable that there was no real risk of the plaintiff’s title being blemished by a prior encumbrance arising from the missing of the original Assignment and accordingly there was no place for a statutory declaration or any other conveyancing evidence as requested in the requisitions raised by the plaintiff’s solicitors.  In this connection, the court has failed to give any or any sufficient considerations of the following facts,

(i) the Assignment was the only title document that was required to be produced by the defendant under the CPO for the purposes of showing, proving and/or giving title to the Property; and

(ii) since about 1987, Sze has been in arrears of management fees and unable to discharge other liabilities which resulted in a number of charges being registered against the Property.

(b) The court has erred in failing to consider adequately or at all that the plaintiff should be entitled to rescind the Preliminary Agreement on the basis that the defendant has failed to answer sufficiently the requisitions or at all.  This should be so irrespective of whether the defendant could prove that he actually had a good title to the Property;

(c) The court has failed to take into account that the Order for Sale did not state the circumstances in which the original Assignment was lost or could not be located; 

(d) The court has failed to consider adequately or at all that since the conveyancing transaction in the present case took place before the Court of Final Appeal’s decision in De Monsa Investments Limited v Whole Win Management Fund Ltd [2013] 16 HKCFAR 419, the common law rule then applicable to the defendant’s duty to prove and show title to the Property should be that laid down in Yiu Ping Fong v Lam Lai Hing [1999] 1 HKLRD 793.  Accordingly, the defendant’s solicitors in answering that there was no risk in the title to the Property was not a sufficient answer to the requisitions.  In the premises, the court erred in deciding on the issue whether the defendant was duty bound to deliver the original Assignment to the plaintiff upon completion in order to give title to the Property, or to provide a statutory declaration or some conveyancing evidence to account for its missing;

(e) The court has erred in finding that there was an implied term (“the Implied Term”) in the Preliminary Agreement to the effect that the plaintiff should use her best endeavours to obtain a mortgage loan.  Such an implied term was not pleaded or mentioned in any supporting affirmation filed for the defendant.  In arriving at the said finding, the court has erred in relying on the case of Lung Yuk Lun v Gratefulfit Industrial Ltd [1992] 1 HKLR 1 as cited in Hong Kong Conveyancing-Law and Practice, 2015 Edition, Vol  1(A), Chapter VIII, paragraph 1002;

(f) Further or alternatively, the court has erred in finding that the question as to whether the plaintiff has used the best endeavours in obtaining a mortgage loan was not a matter which could be decided on the basis of affidavit evidence alone, and deserved to be tested at trial when all relevant evidence should become available after discovery.  In this connection, the court has failed to consider adequately or at all that there was no factual dispute of the following facts,

(i) Clause 1 (“Clause 1”) of the annexure of the Preliminary Agreement provided that “the Vendor and the Purchaser agree that if the bank does not accept a mortgage application as a result of a problem with the title deeds, the Purchaser has the right to cancel the transaction, and the Vendor and the Purchaser shall not claim against each other.”; 

(ii) The plaintiff approached the Bank of China (Hong Kong) Limited (“BOC) and no other bank in making her mortgage application;

(iii) BOC has rejected the plaintiff’s mortgage application.

In the circumstances, all the relevant facts were undisputed and placed before the court to decide whether the plaintiff has used the best endeavours in obtaining a mortgage loan.

Ground (a)

16.  According to the Court of Final Appeal’s decision in De Monsa, supra, the real point arising from the missing title documents was whether there was a real risk of a successful assertion against the purchaser of an encumbrance on title.  Whether the risk involved was a real or fanciful one was a matter of degree depending on the circumstances of the particular case. 

17.  Contrary to the plaintiff’s suggestion, in accordance with the approach laid down by the Court of Final Appeal in De Monsa, supra, I have duly considered the matters mentioned in paragraphs 15(a)(i) and (ii) herein, and accepted that Sze might have been in financial trouble and hence eager to make use of the missing title document to borrow a loan (see paragraphs 28 to 31 of the Decision).

18.  However, for the purpose of assessing whether the risk involved was a real or fanciful one, it would be futile to emphasize only on Sze’s tendency to borrow money without also considering whether there would be a willing lender at the other end.

19.  On this question, I have adopted and followed the analysis made by Litton NPJ at paragraphs 111, 112, 115, 118 and 120 of De Monsa, supra, and accordingly found it unlikely for any person to lend Sze a substantial amount of money without a memorandum evidencing the loan and its terms.  In case that a loan was created by the deposit of the original Assignment with an unregistered memorandum, I have found that by the registration of the Assignment in the Land Registry, the defendant’s interest in the Property should take priority over any unregistered interests.  As a matter of fact, some 23 years have lapsed between the date of the Assignment and the assignment to the defendant.  Over this period of time, there have been no signs of any third party coming forward to claim any interest in the Property by reason of the deposit of the original Assignment as security for any loan.

20.  It was thus clear that I have considered the matters which the plaintiff said I have not and accordingly accepted Sze to have a tendency to borrow money by the deposit of the missing title deed.  Nonetheless, Sze’s tendency was only but one of the factors to be considered by the court.  After taking an overall evaluation of the circumstances of the case, including the possibility of any person lending Sze a substantial amount of money with or without a memorandum, and the implications thereof, I came to the finding in question.

21.  I therefore find that there was no substance in this ground of appeal.

Grounds (b) & (c)

22.  Given that both grounds concerned the adequacy of the defendant’s answers to requisitions or the existence of any conveyancing evidence accounting for the missing Assignment, they could be conveniently dealt with all together.

23.  Firstly, I see nothing improper or inadequate in the defendant’s answers to the requisitions which I set out in paragraph 5 herein. The defendant’s solicitors obviously have provided to the plaintiff’s all the information that they could provide.

24.  More importantly, since I found it arguable that there was no real risk of the plaintiff’s title being blemished by a prior encumbrance arising from the missing of the original Assignment, arguably it followed from the Court of Final Appeal’s decision in De Monsa, supra that there could be no place for any statutory declaration or any other conveyancing evidence as requested in the requisitions to explain about the missing title document (see Zhang Xueshuai v Lai Chan Wing[2015] HKEC 295 at paragraphs 30 to 33). 

25.  Accordingly, it is irrelevant that the Order for Sale did not state the circumstances in which the original Assignment was lost or could not be located.

26.  Again, I find that there was no substance in these grounds of appeal.

Ground (d)

27.  The same argument as formulated under this ground of appeal was also advanced for the plaintiff at the hearing of the Order 86 application and I have in the Decision rejected the same in reliance on the following passage of Lord Browne-Wilkinson in Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 at p. 358G:-

“The theoretical position has been that judges do not make or change law: they discover and declare the law which is throughout the same. According to this theory, when an earlier decision is overruled the law is not changed: its true nature is disclosed, having existed in that form all along. This theoretical position is, as Lord Reid said, a fairy tale in which no one any longer believes …… But whilst the underlying myth has been rejected, its progeny, the retrospective effect of a change made by judicial decision, remains. As Lord Goff in his speech demonstrates, in the absence of some form of prospective overruling, a judgment overruling an earlier decision is bound to operate to some extent retrospectively: once the higher court in the particular case has stated the changed law, the law as so stated applies not only to that case but also to all cases subsequently coming before the courts for decision, even though the events in question in such cases occurred before the Court of Appeal decision was overruled.” (emphasis added)

28.  Mr Wong who appeared for the plaintiff at the present hearing (and also at the Order 86 application) submitted that he had no dispute with the legal principles as stated in Kleinwort Benson Ltd v Lincoln City Council, supra.  As such, he agreed that while the conveyancing transaction in the present case took place before the Court of Final Appeal’s decision in De Monsa, supra, the decision should operate retrospectively and governed the defendant’s common law duty to prove and show title to the Property.  However, Mr Wong further submitted that when it came to the question about the defendant’s answer to the requisitions regarding any risks in the title to the Property, the correctness of such an answer should be decided in accordance with the decision in Yiu Ping Fong v Lam Lai Hing, supra.  With respect to Mr Wong, the reasoning in his submission was logically unsound and fundamentally flawed.  I failed to see any justifications for the legal rights and duties of the parties in the same conveyancing transaction to be treated in such a piecemeal fashion as Mr Wong submitted.  I accordingly reject this ground of appeal as being groundless.

29.  In this connection, one further point was developed by Mr Wong in the course of his oral submission whereby he submitted that the Court of Final Appeal’s decision in De Monsa, supra, did not affect the statutory position under Section 13A of the CPO since this section was enacted after the conveyancing dispute arose in De Monsa, supra, in early 2008.  This was precisely the argument taken by the plaintiff’s counsel in Zhang Xueshuai v Lai Chan Wing, supra, where on that occasion the Court of Appeal found it unnecessary to deal with the same since the case was disposed of on other grounds.

30.  On this further point raised by Mr Wong, I tend to the view that the obligations under Section 13A are the same as those at common law.  I find support for this approach from the obiter dicta of Litton NPJ in De Monsa, supra, at paragraph 128 whereby he stated that:-

“Where section 13A(1) imposes an obligation on the vendor, for the purpose of giving title, to deliver to the purchaser an original title deed, that requirement is subject to the common law rule: see subsection (2). If an original in the chain of title is missing, and such loss gives rise to no risk that the title to be passed to the purchaser might be blemished, then the vendor would have fulfilled his obligation of giving good title under s.13A(1).” (emphasis added)

31.  In any event, I consider this further point from Mr Wong did not assist the plaintiff’s present application for this in my judgment amounted to a difficult point of law which too justified granting to the defendant the leave to defend.  

Ground (e)

32.  While the words “implied term” were not used by the defendant in its pleadings, it was denied in the defence that the plaintiff was entitled to rely on Clause 1 to rescind the Preliminary Agreement and averred that “the Plaintiff failed to try her best endeavour in approaching some other bank other than the Bank (BOC) for a mortgage loan”.  The same thing was also said in the affirmation filed for the defendant. 

33.  It was therefore obvious from the defendant’s pleadings and its supporting affirmation that the defendant sought to rely on the Implied Term in the Preliminary Agreement as a defence to the plaintiff’s claim for rescission under Clause 1.  Indeed, at the hearing of the present application, Mr Wong conceded that he also understood from those papers that such an implied term was relied upon by the defendant.

34.  In this connection, it is well-established that in an Order 86 application leave to defend may be granted where some arguable defence or triable issue is disclosed in the pleadings or in the affirmations. 

35.  Although the defendant’s pleadings might be criticised for lacking in precision, the material facts in support of the Implied Term were pleaded in the defence and reiterated in the supporting affirmation.  In the circumstances, the court should be entitled to consider whether any arguable defence or triable issue arose from the alleged implied term.

36.  I shall then deal with the basis of my finding that there was the alleged implied term in the Preliminary Agreement.

37.  Where a contract contains a subject to finance clause similar in terms to Clause 1 which entitles the purchaser of a property to cancel the contract upon his failure to obtain a mortgage loan, it is not unusual to have in the contract a provision requiring the purchaser to use the best endeavours to obtain a mortgage loan. The agreement in Lung Yuk Lun v Gratefulfit Industrial Ltd [1992] 1 HKLR 1 was but one example of such a contract.

38.  In the absence of an express term requiring the use of the best endeavours from the purchaser to obtain a mortgage loan, such a term may be implied into the contract on the basis that the same is necessary to give business efficacy to the contract.  As indicated in paragraph 54 of the Decision, this was the basis of my finding for the purpose of the Order 86 application that there was the Implied Term in the Preliminary Agreement.

39.  In this regard, there was however nothing from the plaintiff to suggest why it was not arguable to have the Implied Term implied into the Preliminary Agreement on grounds of “business efficacy”.

40.  For the above reasons, I am not satisfied that a reasonable prospect of success was made out on this ground of appeal.

Ground (f)

41.  Whether the plaintiff has used the best endeavours in obtaining a mortgage loan was essentially a question of facts depending on the circumstances of the case.

42.  Far from what was suggested in the draft Notice of Appeal, not all the relevant facts were undisputed and placed before this court.  While it was not disputed that the plaintiff has approached only BOC to apply for a mortgage loan and that her application was turned down by BOC, the plaintiff did not offer any explanation in her supporting affirmations or elsewhere as to why she did not go to other banks to make another application. 

43.  There might well be justifications for the plaintiff not to have approached other banks but it was not for the court to speculate the same. 

44.  However, without knowing the reasons behind, the court would not be able to safely arrive at a conclusion as to the reasonableness of the plaintiff’s action (or inaction).  On the other hand, it is at least arguable in the context of an Order 86 application that by not making another mortgage application with other banks the plaintiff has not used the best endeavours in obtaining a mortgage loan and was thus in breach of the Implied Term.

45.  Further, while there was no dispute about the content of Clause 1, its effect was less than clear. According to the strict wording of the phrase “the Vendor and the Purchaser shall not claim against each other” (買賣雙方互不追究) in Clause 1, it might be arguable that no restitutionary claim can be made for the return of the deposits in the event of a rescission under Clause 1.  Such should be another reason to allow the case to go to trial.

46.  I am therefore of the view that this ground of appeal lacked the reasonable prospect of success and must fail accordingly.

Conclusion

47.  For the reasons given above, I order that the plaintiff’s application for leave to appeal out of time be dismissed.

Costs

48.  I make an order nisi that costs of the plaintiff’s summons dated 5 September 2016 be paid by the plaintiff to the defendant with certificate for counsel, such costs to be taxed if not agreed.  This order nisi will become absolute after 14 days in the absence of any application to vary the same.