TO SHIU LUNG and Another v. YEN YU PEI

HCMP3390/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3390 OF 1997

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J U D G M E N T

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1. I have had the benefit of some ably drafted skeleton arguments which I have read before coming into Court. It is a branch of the law which I confess I do not often deal with, matters of conveyancing often appear to me to be somewhat unreal in Hong Kong.

2. The position here can be simply stated however. This was a straightforward provisional agreement for the purchase of a property. On 28 June 1997, deposits were paid and the completion deadline was scheduled to be on 4 August.

3. On 15 and 21 July 1997, the plaintiffs/purchasers' solicitors raised requisitions about title. And on 15 July in a letter marked "urgent", the purchasers' solicitors said :

"We note from the land search record that there is a deed of gift made in favour of Leung Chun Wah."

[The vendor being a purchaser from that person.]

"As the said deed of gift was made within 3 years from date of provisional agreement ..., please let us know whether the donor was deceased, and if he was deceased the evidence of payment of all estate duty .... If he is still alive, please let us have your comments as soon as possible...."

And they quoted the well known case of Chan Fung Lan v. Lai Wai Chuen, ([1997] 1 HKC 1, a judgment of Cheung J).

4. The Deed of Gift, which is referred to, is a document made by deed, therefore under seal of the parties drafted by solicitors, which on its face gives the property from the donor to the donee - the relationship being that of employer/employee - the donee had worked for the donor for a number of years and there was also referred to another document which is called a "Conditional Agreement".

5. The letter of 15 July 1997 was not answered. There was a letter about some other documents and a cheque was given by a letter of 18 July but still no answer to the requisition which, in my judgment, was a perfectly justifiable requisition. So they tried again. On 21 July, they made a similar request and said that the property was liable to be charged for estate duty as the title of the property is defective. There is no doubt at all that in law there is a clear duty to show good title. I do not think it needs repeating, there is the very learned judgment of Litton, JA (as he then was) in Active Keen Industries Ltd. v. Fok Chi Keong [1994] 1 HKLR 396 setting out the principles in this somewhat strange to me branch of the law.

6. The issue I have to decide can be simply stated : was the requisition justified and was it satisfactorily answered. There is no doubt at all it is clearly justified because there is reference made to this Deed of Gift. How then was it answered? On 22 July 1997, not long before completion was due to take place, the vendor's solicitors said as follows :

" As for (1) of your said letter, Deed of Gift Memorial No.6371855 although called Deed of Gift is not actually a gift by the Donor to the Donee, the Donee actually earned the Property by serving the donor for 10 years therefore should not attract any Estate Duty. Please refer to the Conditional Agreement ......."

That is the actual answer, and it is on that answer that I have to come to a decision. The conditional agreement that is referred to is a document found at p.41 of the bundle, which recites at para. 4 that :

"The Owner is desirous of assigning the said premises to the Employee by way of gift ...."

So there is no doubt at all, in my mind, that the intention of these two parties was to gift the property, and the deed of gift formalises what was in the parties' minds. It is quite clear that if the employee had been dismissed or left, then that agreement would have been invalidated.

7. So one comes to the Deed of Gift itself, as I said, drafted by solicitors. Mr Yung Yu, is called the donor, Mr Leung Chun Wah, called the donee, the consideration is said to be in consideration of natural love and affection.

8. Now what is this document? In my judgment, it is what it is, it is a deed of gift. Mr Lam makes the point that the true position must be examined. The true position of this document is it was a deed of gift. Then I ask myself, this being a deed of gift with a potential liability for estate duty which could be called upon by virtue of s.18 of the Estate Duty Ordinance, if the donor died within three years of the gift, see for example Chan Fung Lan v. Lai Wai Chuen (supra), this was a blot on the title. Has it been satisfactorily answered? That is what I have to decide.

9. Mr Lam has put forward, if I may say so, very able submissions that when you look at the document, it could not really be a gift because there is consideration for it. He says the consideration being the fact that the employee had been working. That in one sense may be right - he had been working, but the method by which he became the owner of the property was by way of gift. That being the case, I then ask myself : has it been satisfactorily answered? In my judgment, it has not.

10. Mr Lam makes an additional point, however, he says that the solicitors should have known, if they had looked at the documents they would have recognized that as the vendor herself is a purchaser of value from the donee, then it may well be that estate duty was not payable, and he referred me to a decision of Pang J.

11. In my judgment, the correct approach, speaking as I do with very limited knowledge of this branch of the law, is to recognise that solicitors are under a duty to protect their clients, to ask requisitions which are reasonable and I am in no doubt, and it is not disputed that this was a reasonable request.

12. The only other matter then is that has it been satisfactorily answered? I appreciate that there is a duty on solicitors to know what the law is, but I do not see how they could start working out the potential problems with regard to estate duty. The document which gave the flat to the donee was a gift, therefore, as the donor was alive, there was a potential liability. It may be if the matter had been litigated at great length and Mr Lam had been able to put forward his skillful submissions, then he could have persuaded the Judge that perhaps estate duty was not payable. But that is not the correct test. I have to ask myself : has it been satisfactorily answered? In my judgment, it has not been. It is a pity, because it seems to me that the solicitors acting for the vendor could have offered something in the nature of a surety as security for a potential call by the Estate Duty Office. It may also be that the purchasers, if they had wanted the property so badly, could have taken a risk that they would purchase knowing that there might be a call for an amount of money. However, the parties were entitled to rely upon their strict legal rights. The purchasers have taken the view that it has not been answered, and the vendor has taken the view that it has been answered. As I say it seems to me a very unfortunate type of litigation, but there we are.

13. So on the vendor and purchaser summons on whether good title has been shown, in my judgment, it has not. I therefore would make the appropriate declaration.

(R.A.W. Sears)

Judge of the Court of First Instance,
High Court