Kingdom Miles Ltd v. Ever Crystal Ltd

HCMP 3069/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3069 OF 2015

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J U D G M E N T

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1.This case concerns a vendor and purchaser summons. By its Amended Originating Summons dated 17 November 2015 the plaintiff seeks the determination of the Court on the following questions:-

(a)   Whether, upon failure or refusal on the part of the defendant, as the vendor, to produce the original or certified true copies of:-

(i) a letter of 22 November 1923 from the Director of Public Works to Dr Robert Hormus Kotewall; and

(ii) a letter of 29 December 1924 from the Director of Public Works to Dr Robert Hormus Kotewall

which contained the terms and conditions of the sale by the Government of Rural Building Lots Nos 238, 239, 240, 241, 242, 243, 244 and 252, on which, inter alia the said house was subsequently built and completed, the defendant would have shown and given a good title thereto as required of it under the formal sale and purchase agreement of 16 April 2015 (“the Agreement”) and ss13 and 13A of the Conveyancing and Property Ordinance; and

(b)   Whether the defendant has sufficiently and satisfactorily answered the requisitions Nos 3(a)&(b) raised in the letter of Wong & Poon (the then solicitors for the plaintiff) dated 7 August 2015 (“the Outstanding Requisitions”).

2.The plaintiff then seeks declarations that the requisitions have not been sufficiently answered by the defendant, that good title to the property has not been shown, and that the defendant has acted in breach of the Agreement by purporting to determine the Agreement under Clause 17 thereof.  The plaintiff seeks orders that the defendant pay to the plaintiff HK$12,859,200 being the amount of the deposit, and HK$6,429,600 being part of the purchase price paid by the plaintiff; that the defendant pay to the plaintiff the cost of investigating the title to the property, and a declaration that the plaintiff is entitled to a lien on the property for the amounts claimed.

3.The defendant (Vendor) counterclaims against the plaintiff (Purchaser) for declaratory relief that the outstanding requisitions have been answered, the Notice of Determination dated 24 November 2015 was validly issued, and that it is entitled to forfeit the deposit with damages to be assessed.

The background

4.I am obliged to Counsel who set out the relevant undisputed background to this matter as follows:

5.Dr Robert Hormus Kotewall became the first owner of the property pursuant to an Assignment dated 5 May 1928.  The Vendor became the owner of the property pursuant to an Assignment dated 19 September 2007. 

6.On 9 April 2015 the Vendor and the Purchaser entered into a preliminary sale and purchase agreement in respect of the property known as House 5, 50 Stanley Village Road, Hong Kong, situated at the Remaining Portion of Rural Building Lot 243 (“the Property”).

7.On 16 April 2015 the parties entered into a formal sale and purchase agreement in respect of the property with completion scheduled to take place on or before 6 October 2015, later extended to 19 November 2015 (“the Agreement”).

8.On 3 August 2015 the Vendor’s solicitors delivered the title deeds to the Purchaser’s (then) Solicitors, Wong & Poon.

9.On 7 August 2015 Wong & Poon raised requisitions on the property’s title.

10.On 6 October 2015 the Purchaser failed to pay the balance of the purchase price pursuant to Clauses 3(i) & 5(i) of the Agreement.  On 29 October 2015 the Vendor’s solicitors served a notice in writing on the Purchaser pursuant to Clause 17(i) of the Agreement demanding payment of the balance of the purchase price within 21 days. The balance was not paid.

11.On 17 November 2015 the Purchaser issued the Originating Summons in these proceedings and on 27 November 2015 the Vendor’s solicitors served a Notice of Determination on the Purchaser, accepting the Purchaser’s repudiation and terminating the Agreement.

12.The Outstanding Requisitions relate to the absence of two letters, the first dated 22 November 1923 and the second dated 29 December 1924 (“the Lost Letters”).  The Purchaser’s solicitors took the view that the Lost Letters affected the terms of the Government Lease and formed part of the ultimate root of the title, and that the Purchaser was therefore entitled to tangible copies of the Lost Letters.

13.In answering the Outstanding Requisitions the Vendor’s solicitors took the view that the Lost Letters were not required to be produced for proving title, and relied upon sections 13(3) and (4) of the Conveyancing and Property Ordinance (“CPO”).  Alternatively, the Vendor’s solicitors took the view that since the Lost Letters were not found in the Conditions of Grant, the Government should be estopped from relying on the same; and in support of this the Vendor’s solicitors enquired with and obtained from the District Lands Office Hong Kong West and South (“the DLO”), confirmation that its office has no record of the Lost Letters. 

14.Both parties maintained their respective positions throughout their correspondence which has now occasioned the determination of the questions raised in the Amended Originating Summons.

The parties’ submissions

15.Mr Edward Chan SC who appeared on behalf of the Purchaser relied upon section 13(1) of the CPO which provides that unless contrary intention is expressed, the Purchaser is entitled to production of the Government Lease relating to the land sold.  Mr Chan referred to the definition of “Government Lease” in section 3 of the Interpretation and General Clauses Ordinance Cap 1 which includes:-

“(a) an instrument whereby (i) the term of the government lease may have been extended or (ii) the provisions thereof varied;

(b) an agreement for such a lease; and

(c) a Crown lease”

16.Mr Chan submitted that the Government Lease goes to the root of title and that unless the parties have otherwise agreed, the Vendor must produce the Government Lease if required by the Purchaser.  Mr Chan submitted that in this respect the Government Lease means the actual tangible physical document and not merely evidence that the Government Lease had been issued.  Mr Chan accepted that where the original Government Lease or related title documents are not available, the Vendor may prove by way of secondary evidence the contents of the missing documents in order to discharge its obligation to prove good title.

17.Mr Chan traced the history of this matter.  The land search records contained a statement that the property was held under Conditions of Grant for a lease term of 75 years renewable for 75 years with the commencement of the lease term on 12 January 1924.  The Conditions of Grant contained various terms and conditions for the development for residential purposes of the Rural Lot No 238-244 as proposed by the then Director of Public Works and dated 25 August 1923.  This was submitted for approval by Council who agreed to the sale by private treaty to R H Kotewall and his associates, the approval of Council being obtained on 23 October 1923 with the substitution of a minimum of 25 houses to be built on the Lot instead of 20.

18.Following this approval, there were further exchanges between the Director of Public Works and the First Lessee (R H Kotewall and his associates) on the terms and conditions of the development of the said Lots including in particular the Lost Letters.  The relevant recitals of the Deed of Mutual Covenant dated 7 May 1931 (“the 1^st DMC”) are as follows:-

“Whereas by 2 several letters dated respectively the 22^nd day of November 1923 and the 29^th December 1924 and addressed to the party hereto of the first part by the Honourable the Director of Public Works, the Government of Hong Kong agreed to sell to the party hereto of the first part and Lee Yau Tsuen, Fung Ping Shan and Li Wing Kwong (hereinafter called “the Lessees”)  All Those pieces or parcels of ground situated lying and being at Stanley in the colony of Hong Kong and known and registered in the Land Office as Rural Building Lots Nos. 238, 239, 240, 241, 242, 243, 244 and 252 under and subject to the terms and conditions herein contained.

And Whereas the said terms and conditions were duly accepted and were deposited in the Land Office as Conditions of Grant No. 1453 (which said letters contained the said terms and conditions and another letter hereinafter recited dated the 21^st day March 1930 addressed to the party hereto of the first part by the Honourable the Director of Public Works are hereinafter referred to as “the said Agreement”).

And Whereas by the said conditions it was provided amongst other things that the Lessee should build and finish fit for occupation before the expiration of 36 calendar months from the 12^th day of January 1924 not less than 25 houses or more than 30 upon some part of the said Lots and should expend thereon not less than the sums opposite to the lots amounting to the total sum of HK$230,000 in ratable improvements.” (emphasis added)

19.Mr Chan pointed out that a similar recital is also found in the Memorial for the Assignment of 8 February 1957 (“Memorial UB256981”), being the intermediate root of title.

20.Mr Chan then submitted that the Lost Letters were the authoritative documents containing the terms and conditions of the sale of the said Lots, and that it was on these terms and conditions that the Government agreed to grant the lease of the said Lots to the 1^st Lessee on 12 January 1924.  Mr Chan says that it is clear that the Lost Letters formed part and parcel of the agreement for the Government lease, and that the same is the ultimate root of the title and falls under the definition of “Government Lease” in section 3 of Cap 1.  It is undisputed that the Lost Letters are not attached to the Conditions of Grant, although a letter which later amended the terms and conditions and dated 21 March 1930 was so attached.

21.Mr Chan submitted that the other memoranda, letters, and documents issued by the Government at material times are of no assistance to the Vendor.  The Conditions of Grant document contains proposed terms and conditions which predate the Lost Letters.  As to the rest of the memoranda, letters and documents attached to the Conditions of Grant, the same relate to the subsequent modifications of the lease only, and do not disclose the contents of the Lost Letters.

22.Mr Chan further submitted that the defendant could have but failed to offer a statutory declaration explaining why neither the original nor certified copies of the Lost Letters were available, and/or other secondary evidence explaining the contents of the Lost Letters.

23.Mr Chan relied upon clause 13(1) of the Agreement which provided for the Vendor to show good title and produce such certified or other copies of any deeds or documents of title as may be necessary to complete such title, and also upon section 13(1) of the CPO.  He submitted in conclusion that the Vendor having failed to provide either original or certified copies of the Lost Letters, or to provide secondary evidence to explain the missing Lost Letters has failed in its obligation to prove good title.

24.Mr Ambrose Ho SC on behalf of the Vendor relied, inter alia, upon s.13(3) of the CPO which provides:-

“(3) Subject to section (1), where any document produced as proof of title to any land contains a recital of any document dated or made before the date from which a vendor is required to prove title, the purchaser of that land shall assume, unless the contrary is proved, that:-

(a) the recital is correct;

(b) the recital gives all the material contents of the document recited; and

(c) the document recited was duly executed and perfected.”

25.Mr Ho then referred to the 1957 Assignment which contains a recital referring to the Lost Letters, in similar terms to the 1^st DMC dated 7 May 1931.  Mr Ho submits that the 1957 Assignment, being an assignment dealing with the whole estate and interest in the property extending no less than 15 years before the present sale, is the intermediate root of title of the property under s13(1)(a)(ii) of the CPO.

26.Mr Ho further submits that the 1957 Assignment contains a recital which makes reference to the Lost Letters, and that the same are documents dated or made before the date from which a vendor is required to prove title.

27.Mr Ho relies upon the presumption in s.13(3) and submits that there is nothing in this case to displace that presumption.  He submits that by application of s.13(3)(b) of the CPO unless the contrary is proven all the material contents of the document cited have been set out, and pursuant to s.13(4) are true.

28.Mr Ho further submitted that the resolution of this application really boils down to the question whether there is any “real risk” of enforcement by the Government arising from the missing Lost Letters.  In this context he points to the 1957 Assignment which relates that “the building covenant contained in the said Agreement had been complied with so far as related to the said premises”.

29.Mr Ho says in this context that there cannot be any doubt that whatever obligations there were, such obligations had been complied with, and there cannot be any real risk of some outstanding obligations that would affect the title of the property.

30.Furthermore, Mr Ho relied upon a letter from the DLO dated 16 October 2015 which responded to an enquiry from the Vendor’s Solicitors as to whether that Office was in possession of the missing Letters.  The reply from the District Lands Office is as follows:-

“I refer to your letter dated 9^th October 2015 and regret to inform you that this Office has no record of the two letters as mentioned in your aforesaid letter.”

31.Furthermore, Mr Ho submits that the Government would be estopped from enforcing covenants in the Lost Letters on the basis that the Government had made a representation of fact that it had no record of the Lost Letters.  The Vendor in reliance upon such representation (says Mr Ho) alters his position by selling the property to the Purchaser.  Mr Ho says that the Government would be estopped in any subsequent litigation from placing any reliance on the Lost Letters.

32.At the end of the hearing of this matter, Mr Ho abandoned submissions that he had previously made in relation to s.3(2) of the Land Registration Ordinance Cap 128.

33.Mr Ho concluded by submitting that there is no real risk of enforcement by the Government arising from the Lost Letters, or more particularly, that the title to the property would not be subject to any real possibility of adverse enforcement by the Government.  That the Vendor had satisfactorily answered the requisitions and had shown good title, and would have been in a position to give good title to the Purchaser as required under ss13 and 13(a) of the CPO.

34.In reply Mr Chan SC in relation to Mr Ho’s s.13(3) argument submitted that, as a matter of construction, the words in s.13(3)(b) that “the recital gives all the material contents of the document recited” means that the recital gives all the material contents of the documents recited for the purpose of the document containing the recital in question, and not for all purposes.  Thus the recital in question could only be taken as evidence of the truth that there were two letters dated 22 November 1923 and 29 December 1924 sent by the Director of Public Works to Dr Robert Hormus Kotewall which contained the terms of the lease that the Government proposed to grant, and that the terms were accepted.  Mr Chan submitted that s.13(3)(b) does not exonerate the defendant from its duty to prove title by producing title documents such as the Government lease under s.13(1) of the CPO.

35.In relation to the question of secondary evidence Mr Chan submitted that it would be little comfort to the Purchaser to have to rely upon the two line confirmation in a letter from the DLO that that office had no record of the two Missing Letters.  What the Vendor’s Solicitors should have done but failed to do, says Mr Chan, was at very least approach the law firm of Lo & Lo who were instructed in relation to the first DMC and the Memorial dated 28 December 1932, and the law firm of Lau Chan & Ko who were instructed in relation to the 1957 Assignment, to ascertain whether either of these firms had possession of the Missing Letters or copies thereof (it was accepted by the parties during the hearing of this matter that both these solicitors firms are in still in existence).

36.Furthermore, Mr Chan submitted that the Vendor’s Solicitors should and could have conducted further searches for the Missing Letters at the Government’s Archives.

37.Mr Chan then submitted that having investigated the avenues that he had suggested, and following well established conveyancing practice, the Vendor should have made a statutory declaration, inter alia, setting out all the enquiries that had been made, to both explain why the documents were lost and that in all probability they were lost for good.

38.There is no such statutory declaration in this case.

39.In short, Mr Chan submitted that no or no proper secondary evidence had been produced by the Vendor in this case.

40.In relation to Mr Ho’s estoppel argument, Mr Chan submitted that no such estoppel would arise; the mere fact that a government department has stated that it had no record of the letters did not mean that the letters could not, at some later stage, surface, and that the mere representation that no record existed as of today would not give rise to an estoppel against the Government at any future date.

Analysis

41.I have no doubt that Mr Chan SC is correct in his submission that the Lost Letters form part of the agreement of the Government Lease and fall under the definition of “Government Lease” in section 3 of the Interpretation and General Clauses Ordinance.  In the 1^st DMC the Government agreed to sell to the 1^st Lessee the Lots:-

“under and subject to the terms and conditions therein contained [in the Lost Letters]”

42.Furthermore that:-

“the said terms and conditions were duly accepted and were deposited in the Land Office as Conditions of Grant No. 1453 (which said letters contained the said terms and conditions and another letter herein recited dated 21^st day of March 1930, .... hereinafter referred to as “the said Agreement”.

43.As noted a similar recital is to be found in the Memorial for the Assignment of 8 February 1957.

44.As Mr Chan asked rhetorically, “if this is not the Crown lease, then what is the Crown lease in this case?”

45.I find that the Lost Letters contain terms and conditions of the sale of the said lots and form part of the Government Lease, which is the ultimate root of the title.  I note that Mr Ho SC whilst not accepting of this position did not really develop any argument in contradiction of the same.

46.Thus prima facie the Vendor was obliged to produce the original or certified copies of the Lost Letters both under section 13(1) of the CPO, and as a matter of contract under clause 13(1) of the Agreement

47.However Mr Ho has, as noted, relied upon sections 13(3)(b) and (4) as a basis for submitting that the Lost Letters are not required to be produced for the purpose of producing title.  Quite simply, he submits that there is a presumption that the recital gives all the material contents of the Lost Letters, that the recital is correct and true, and that this presumption has not been rebutted.

48.Counsel informed the court that there was no direct authority on the construction of section 13(3)(b) of the CPO.

49.As noted Mr Chan has submitted that section 13(3)(b) cannot have the effect of deeming that the recital in question would contain all the material terms of the document for all purposes.  He submitted for example that such a construction would obviate the need to provide the Government Lease at all, and stressed that in any event the section cannot extinguish the Vendor’s duty to prove title by producing title documents required by section 13(1) of the CPO.

50.I accept Mr Chan’s analysis that section 13(3)(b) means that the recital gives all the material content of the document recited for the purpose of the document containing the recital in question, and not for all purposes.  Any other interpretation would in my view potentially lead to absurd results, particularly when it is clear that there must be other terms that would be relevant to the property which were not recited in the recital. As such I must with respect reject Mr Ho’s submissions on this point.

51.To conclude on this point, I find that the Vendor is unable to rely upon s.13(3) and 13(4) to say that all the material contents of the missing Letters have been recited in the recital, and thus that there was no need to produce the Lost Letters for the purposes of proving title.

52.Mr Chan also advanced an argument that clause 9(1) of the Agreement provided that the Vendor shall not restrict the purchaser’s right under law to raise requisitions or objections in respect of title, and that this provision was not “subject” to section 13 and 13A of the CPO.  However, in view of my finding in paragraph 51, I have not found it necessary to further consider this contractual argument.

53.Mr Ho SC placed a heavy reliance upon whether there was any “real risk” of enforcement by the Government arising from the missing Lost Letters.  He relied upon the dicta in De Monsa Investments Ltd v Whole Win Management Fund[2013] 16 HKCFAR 419, stressing that the court proceeds on practical realities and not theoretical possibilities.

54.These practical realities says Mr Ho, are the fact that the Lost Letters are ancient, dating back over 90 years ago, that the DLO has confirmed they do not have a record of the Lost Letters, and in all these years no enforcement action has been taken on the basis of these letters.

55.As noted Mr Ho further relied upon a recital in the 1957 Assignment that:-

“the building covenant contained in the said Agreement had been complied in so far as related to the said premises”.

for the proposition that there thus could not be any real risk of some outstanding obligation that would affect the title to the property.

56.Where title documents are lost or missing, secondary evidence is admissible to explain the content and existence (or not) of such documents.  But as Mr Chan submitted, the paper trial is important.  Appropriate investigation is required to provide a satisfactory explanation for the absence of these documents, so that a purchaser should not be compelled to complete the transaction running the risk that his title may in future be validly questioned, see De Monsa Investments Ltd v Whole Win Management Fund Ltd(supra)

57.As noted the Solicitors Lo & Lo who were involved in the 1^st DMC and the 1932 Memorial and Lau Chan and Ko who were involved in the 1957 Assignment are both still in existence.  In my view these firms were an obvious source from which to try to determine the existence or whereabouts of the Missing Letters or copies thereof.  Yet the Vendor’s solicitors made no attempt to contact these firms.

58.Furthermore, the evidence before me established that there is a Government Records Service which includes a Records Management and Administration Office, a Preservation Service Office and a Public Records Office. The records held by these offices are available to the public.  No attempt was made by the Vendor’s Solicitors to explore these avenues.  I take Mr Ho’s point that the District Lands Office West and South is the most obvious Government department for the preservation of the Missing Letters, but in my view it’s not the only one.

59.It is in my view of little comfort to a Purchaser to be expected to rely upon a two line letter from a District Lands Office that it has no record of the Missing Letters.  The Missing Letters which as I have found form part of the Government Lease, and which thus go to the root of title, are crucial documents.  Given the lack of investigation of sources which may have turned up these letters, I am not able to conclude that there is no real risk that these documents could emerge.  I note further that, contrary to established conveyancing practice, no statutory declaration has been made by the Vendor as to the efforts made to locate these documents.  I agree with Mr Chan that there is really no secondary evidence which seeks in any way to establish the existence (or otherwise) or the content of the Lost Letters which form part of the Crown lease.

60.As to Mr Ho’s point that there is no risk of any outstanding obligation that would affect the title to the property, Mr Chan’s short answer, with which I agree, is that a lease also includes negative obligations, so the fact that building covenants may have been complied with provides no comfort as to what the terms of the lease in fact were.  Mr Chan also points to the expression “amongst other things” in the 1^st DMC, and the words “inter alia” in the 1957 Assignment for the proposition that quite aside from building covenants, the Agreement contained other obligations.

61.As noted Mr Ho submitted that the Government has made a representation of fact that it has no record of the Lost Letters, and as such the Government would be estopped in any subsequent litigation from placing any reliance upon the Lost Letters.

62.With respect I do not agree.  The fact that a District Office has asserted that it does not, as of today, have a record of the Lost Letters, is not an assertion by the Government that there are no Lost Letters, nor that if the Letters or copies of them turned up in the future, that the Government would not then act upon the terms of those Letters.

Conclusion

63.The answer to the first question raised in the Amended Originating Summons is “no”, the Vendor has not shown and given good title to the property as required of it under the formal sale and purchase agreement of 16 April 2015 and ss13 and 13A of the CPO.

64.The answer to the second question raised in the Amended Originating Summons is “no”, the Vendor has not sufficiently and satisfactorily answered the Requisitions No 3(a) and (b) raised in the letter of Wong and Poon dated 7 August 2015.

Disposition

65.I make the following declarations and orders:-

(1)   A declaration that the requisitions numbered 3(a) & (b) in the letter dated 7 August 2015 from Wong & Poon, the then Solicitors for the plaintiff, to Mayer Brown JSM, Solicitors for the defendant, in respect of the title to the Property have not been sufficiently answered by the defendant.

(2)   A declaration that good title to the Property has not been shown and given at or before 5 pm on 19 November 2015 in accordance with the said Agreement.

(3)   A declaration that the defendant has acted in breach of the Agreement by purporting to determine the Agreement under clause 17 of the Agreement and/or common law by the letter from Mayer Brown JSM, Solicitors for the defendant, to the plaintiff dated 27 November 2015.

(4)   An order that the defendant do pay to the plaintiff the sum of HK$12,859,200 being the amount of the deposit and HK$6,429,600 being part of the purchase price paid by the plaintiff to Mayer Brown JSM, the defendant’s solicitors, pursuant to the said Agreement, together with interest at the base rate plus one percent from 17 November 2015 until the date of Judgment and thereafter at the Judgment rate.

(5)   An order that the defendant do pay to the plaintiff its costs of investigating the title to the Property, such costs to be taxed if not agreed.

(6)   A declaration that the plaintiff is entitled to a lien on the Property for the amounts claimed under paragraphs 4 and/or 5 above.

(7)   An order nisi that the defendant do pay to the plaintiff the costs of and occasioned by this application, including the defendant’s Counterclaim, on a party and party basis, to be taxed if not agreed, such order to become absolute 14 days from the date of this Judgment unless within such time either party gives notice to dispute this order.

(8)   The defendant’s Counterclaim is dismissed.

(9)   There be liberty to apply.

Mr Edward Chan, SC leading Mr K M Chong, Ms Joyce Leung and Mr Charles Kwok, instructed by K M Lai & Li, for the plaintiff

Mr Ambrose Ho, SC leading Mr David Chen, instructed by Mayer Brown JSM, for the defendant