Li Sun Wah v. Lee Kwok Yiu

HCA010517/1983

Coram: Hon. Clough J. in Court

Dates of hearing: 31 October 1984 and 1, 2 & 5 November 1984

Date of delivery of Judgment: 4 December 1984

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JUDGMENT

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1. These are my reasons for giving judgment on the 5th November, 1984 for the Plaintiff against the Defendant in this action for the sum of $65,000 with interest and costs.

2. The Plaintiff sued the Defendant as vendor under an Agreement dated the 25th April, 1983 made between them for the sale and purchase of the Defendant's flat at the front portion of the 3rd floor of a block of 14 flats situate at No. 18 Ashley Road, Kowloon. The conveyancing machinery for the transaction took the form of an agreement to sell and purchases one equal undivided 14th part or share in the relevant land and building with the right to exclusive possession of the front portion of the 3rd floor of the building in question.

3. Mr. Yeung, a solicitor, acted for both parties in the transaction and drafted the Agreement. The purchase price was $385,000 of which the sum of $65,000 paid by the Plaintiff as deposit was also to be part payment of the purchase price pursuant to clause 2 of the Agreement, Clause 3 provided that completion was to take place on or before the 12th May, 1983 at Mr. Yeung's office and clause 12 provided that time was to be of the essence of the Agreement in every respect.

4. Clause 6 provided that the premises were sold for the residue of the term of 150 years from the 24th June 1892 held under Conditions of Regrant no. 9518. The sale was expressed by that clause to be subject to all rights and privileges to which the premises were subject, with the benefit of all rights easements privileges and appurtenances enjoyed therewith,; and subject and with the benefit of the Conditions of Regrant No. 9518.

5. Clause 9 stipulated that the Defendant should show and prove a good title. However under clause 7, if the Plaintiff as purchaser should make and insist on any objection or requisition "as to title conveyance or any matter appearing on the title deeds or particulars or conditions or otherwise" which the Defendant as vendor was "on the ground of difficulty delay or expenses or any other reasonable ground" unwilling to remove, or if the Defendant's title should be defective, the Defendant was to be at liberty to annul the sale, in which case the Plaintiff was to be entitled to the return of his deposit.

6. Under clause 10, if the Plaintiff as purchaser failed to comply with any term of the Agreement the deposit was to be forfeited to the Defendant as vendor.

7. The Defendant goes on the plead that at all material time he had had a good title, and that by a letter dated the 26th May 1983 from the Defendant's solicitors the Plaintiff was required to complete within one month on pain of forfeiture of his deposit under clause 10 of the Agreement. It is further pleaded that the Plaintiff failed to complete as thereby required, thereby wrongfully repudiating the Agreement, and that the Defendant accepted the repudiation and duly forfeited the deposit.

8. The action came on for trial before me in the running list on the 10th July 1984. The Defendant was out of the jurisdiction and the Plaintiff sought and obtained leave to amend the statement of Claim. By his Amended Statement of Claim the Plaintiff, for the first time, pleaded that, further and in the alternative to the original allegation of failure to complete on time, the Defendant had failed to show a good title to the sale premises because he was unable to show that he had the right to exclusive possession of those premises. Accordingly, the Plaintiff pleads, he was entitled to and did by his solicitor's letter dated the 26th May 1983, rescind the Agreement and demand the return of the deposit.

9. On the 10th July 1984 I had given the Defendant 7 days to amend his Defence. The case came up for trial on the 31st July 1984. The parties were at loggerheads. There was a dispute over the Defendant's request for further and better particulars of paragraph 8 of the Amended Statement of Claim which contained the Plaintiff's allegation of the deficiency of the Defendant's title. The Defendant had not complied with my earlier order giving him 7 days to amend his Defence.

10. Efforts by the parties to define issues having failed, I gave the Plaintiff leave to file his future and better particulars of the Amended Statement of Claim within 3 days, gave directions for future pleadings and adjourned the trial to the 31st October, 1984

11. On the 2nd August 1984 the Plaintiff filed further and better particulars of the Amended Statement of Claim specifying the documents which he claimed were the basis for this pleadings in paragraph 8 of the Amended Statement of Claim that the Defendant had failed to show a good title. The particular refer to three documents deceived as documents supplied by the Defendant. Those documents are described as follows:-

12. On the 17th September 1984 the Defendant filed his Amended Defence in which he denies the allegation of the Plaintiff in paragraph 9 of his Amended Statement of Claim that the Defendant's title was defective and does not admit the allegation of the Plaintiff in paragraph 9 of the Amended Statement of Claim that the Plaintiff had validly rescinded the Agreement.

13. In addition, by paragraph 8C of the Amended Defence the Defendant pleads that if, which is denied, the Defendant did not have exclusive possession of the sale premises by virtue of the 1958 Deed of Mutual Covenant and, or, the Defendant's Assignment, then estoppel operates against all the Defendant's co-owners of the building in which the sale premises are situated because they have at all material time treated to exclusive possession of the sale premises and, or, have at all material times treated the mutual grants of exclusive possession contained in clause 1 of the 1958 Deed of Mutual Covenant as subsisting and effective.

14. By a Reply served on the 19th September 1984 the Plaintiff denies the estoppel alleged by the Defendant and alleges that if an estoppel affects the Defendant and his co-owners it does not affect any third party and the Defendant's title is at best doubtful.

15. I have dwelt on the pleadings at some length because it is clear from the course they took that by his amendment, which relates bank to the date of the writ, the Plaintiff has assumed the burden of proving that (1) the Defendant defaulted on his obligation under clauses 3 and 12 to complete on the 12th May 1983 by not turning up; and further and in the alternative to (1), (2) the Defendant's title was defective so that he was in breach of clause 9 of the Agreement. Furthermore the documents which the Plaintiff contends were insufficient to make a good title were those particularised by the Plaintiff in his further and better particulars of paragraph 8 of the Amended Statement of Claim.

16. The particularised documents included the two additional documents. Mr. Chain, counsel for the Plaintiff, argued that for the purposes of issue (1) he was entitled to contend that not only did the Defendant not turn up to complete on the 12th May 1983 but on that date he had not a good title because he had not by then produced the additional documents. For reasons which were obscure to me, Mr. Chain did not apply to amend the particulars of paragraph 8 of the Amended Statement of Claim by deleting reference to the additional documents. The latter paragraph is the only paragraph which contains any allegation of defective title against the Defendant and, in the absence of any application to amend, I considered that the Plaintiff was bound by his pleadings and that if he were to succeed on the issue as to title he had to satisfy the court that the Defendant could not make a marketable title on the strength of all documents, including the additional documents, mentioned in the further and better particulars of paragraph 8 of the Amended Statement of Claim.

17. Furthermore the allegation of defective title is clearly made in addition and in the alternative to the allegation of default in paragraph 7 of the Amended Statement of Claim which does not raise any question of title bit depends on the alleged default of the Defendant in failing to turn up to complete on the stipulated date. Accordingly I dealt with the two issues as two separate and distinct issues on the footing that question of title was raised only in the second issue and in relation to all the documents particularised by the Plaintiff.

18. The Plaintiff gave evidenced himself and he called Mr. Yeung as his witness. The Defendant was the only witness for the Defence. He had at on stage used his wife as a go-between when communicating with Mr. Yeung. The latter was cross-examined about a conversation with the Defendant's wife but she was not called as a witness for the Defence. Mr. Yeung was an intelligent and articulate witness who gave me the impression that he was showing full candor to the court at all times. Where his recollection differed from that of the Plaintiff was a more articulate witness than the Defendant who tended to carry caution to the point of obtuseness but both parties were clearly honest citizens caught up in a most unfortunate conveyancing trap not of their making and it was their recollections rather that their undoubted credit that was being tested at the trial.

19. On the first issue I found the following facts on the evidence before me. Before he had drafted the Agreement Mr. Yeung had been given by the Defendant the 1962 power of attorney, the 1969 Regrant, the Defendant's Assignment and some premium receipts. Theses had been sent by Mr. Yeung to the Plaintiff's proposed mortagees when they called for the relevant documents of title in early May 1983. On the 11th May Mr. Yeung received a letter form the solicitors acting for the proposed mortgagee asking if the Defendant had any deed showing that he was entitled to the exclusive possession of the sale premises.

20. Mr. Yeung, who had evidently not seen the point initially, took it seriously when it was raised. The root of the Defendant's title was the 1969 Regrant which amounted to an agreement to grant the Defendant's predecessor in title and her co-grantees a lease of the land and building predecessor in title and her co-grantees a lease of the land and building therein described at No. 18 Ashley Road in undivided share of one or more 1/14th shares to each grantee. This instrument would give rise to a tenancy in common between the grantees and their successors in title. While the tenancy in common subsisted without any partition of the property or any instrument regulating the respective rights of exclusive possession of the tenants in common in respect of any part of the property none of them could establish title to such exclusive possession because the 1969 Regrant could only give each co-owner a share in a single properly which had not yet been divided between the co-owners; Megarry and Wade, the law of Real Property, 4th ed. at p.396.

21. Mr. Yeung, acting in his capacity as the Plaintiff's solici9tor, advised the Plaintiff that the Defendant's title was defective and that he should not accept it as it was. The Plaintiff accepted Mr. Yeung's advice and asked him if the title could be rectified. He was told by Mr. Yeung that a deed of mutual convenient between the co-owners was requited but this would take time. When the Plaintiff said he could not wait, Mr. Yeung told him he would get in touch with the Defendant and see if he would be willing to sign a cancellation agreement and return the deposit.

22. Mr. Yeung told the Plaintiff to turn up at his office on the next day, which was the date for completion. He wanted the Defendant to sign a cancellation agreement if he agreed to do so. He told the Plaintiff that if the Defendant would not agree to do so and the title was not rectified the Plaintiff should have a direct discussion with the Defendant. The attitude of the Plaintiff at this stage was that if the Defendant were to turn up the next day with a good title he would complete but he had accepted the advice of Mr. Yeung that Defendant's title was bad as it stood.

23. After his conversation with the Plaintiff Mr. Yeung telephoned the Defendant, gave him views on the title and told him that the Plaintiff would not accept the title as it was. Mr. Yeung asked the Defendant it he had any other deeds and was given a negative answer. When the Defendant asked Mr. Yeung if the title could be rectified he was told that a deed of mutual convenant was required, that this would take time and that the Plaintiff was not prepared to wait.

24. The Defendant was clearly dismayed by this turn of events and repeatedly asked Mr. Yeung why the Defendant's previous solicitor had not raised any point on the title if it was not good. The Defendant's evidence was that he had acquired the sale premises in 1977. He had never lived in the premises but visited them regularly at intervals varying between one and three weeks. He considered he was entitled to exclusive possession and his title was never disputed. He was therefore surprised by the development and his understanding was that the Plaintiff did not have enough money for the purchases.

25. Mr. Yeung, sensing that the Defendant was doubting his advice, told him that if he accepted Mr. Yeung's advice he should come to his office the next day and sign a cancellation agreement and repay the deposit. Mr. Yeung added that if the Defendant did not accept Mr. Yeung's advice he should go bank to his former solicitors or consult other solicitors. The Defendant told Mr. Yeung he would consider the matter and refer bank to Mr. Yeung.

26. The Defendant had not referred back to Mr. Yeung by later on the same day and Mr. Yeung considered it prudent to send a letter to him to act as a record of their dealings. Accordingly he sent the Defendant a letter in English dated the 11th May 1983 which was delivered by hand that afternoon. The letter refers the telephone conversation that morning between Mr. Yeung and the Defendant when the Defendant was informed that the Plaintiff would not accept the Defendant's title as it was because there was no deed conferring on the Defendant the right to exclusive possession of the sale premises.

27. In the letter Mr. Yeung went on the say that his firm could not see how the objection to the title could be removed without all the owners of the lot signing a deed of mutual convenant but that, as completion was due on the 12th May, the Defendant was advised to cancel the sale and return the deposit to the Plaintiff. The Defendant was asked to come to Mr. Yeung's office on the next day at 4 p.m., which was the completion time, to sign a cancellation agreement and return the deposit to the Plaintiff.

28. The Defendant cannot read English but his son explained the contents of the letter dated the 11th May 1983 to him. He had first insisted in chief and under cross-examination that Mr. Yeung had not explained clearly to him why the Plaintiff would not go on with the transaction but eventually he admitted towards the end of his cross-examination that when the contents of the letter had been explained to examination that when the contents of the letter had been explained to him he knew that the difficulty about the title concerned exclusive possession.

29. Very early in the morning of the 12th May the Defendant's wife went to Mr. Yeung's office and asked for and was given copies of the Defendant's title documents, informing Mr. Yeung that they were needed for examination by another solicitor. Mr. Yeung's evidence was that, when asked if the Defendant would be coming that afternoon, his wife said that she or the Defendant would let Mr. Yeung know later.

30. The Defendant himself said that his wife went to see Mr. Yeung to obtain clarification of the difficulty arising on the title. As far as the transaction was concerned, there was no time to resolve the difficulty over the title. The Defendant admitted that he never asked for more time when told my Mr. Yeung that his title was defective and that when told of the defect by Mr. Yeung he had repeatedly told him that that could not be the case because his previous solicitors had approved the title. He insisted that “At the time we just intended to go on with the Sale Agreement.

31. On the 12th May 1983 the Plaintiff turned up at Mr. Yeung's office in good time. The time fixed for completion was 4p.m. on that day. The Defendant did not come at all. Mr. Yeung telephoned him but could not get in touch with him. The Defendant for his part did not turn up because Mr. Yeung had told him that the Plaintiff was not going to accept his title and tat the Defendant was to turn up for the purpose of cancelling the Agreement and returning the deposit to the Plaintiff. As far as the Defendant was concerned he was waiting for information from Mr. Yeung to see if the Plaintiff would change his mind and compete the transaction. He had not yet consulted other solicitors.

32. I have no difficulty in concluding on the balance of probabilities that, in the light of the above findings of fact; the failure of the Defendant to turn up at Mr. Yeung's office on the 12th May 1983 at 4p.m. was not by itself a breach of the agreement because, by the afternoon of the 12th May 1983, it had been made abundantly cleat to the Defendant by Mr. Yeung on behalf of the Plaintiff that the latter would not on the next day accept the Defendant's title as it stood.

33. Mr. Yeung frankly admitted under cross-examination that, as far as he was concerned, if the Defendant had accepted his advice the sole purpose of the Defendant's attendance on the 12th May 1983 4 p.m. would be for him to sign a cancellation agreement and return the deposit. It seems to me that the reality of the situation was that Mr. Yeung and the parties fully understood by the 12th May when completion was due that even if the Defendant had turned up the Plaintiff, acting on Mr. Yeung's advice, would not accept the Defendant's title on that date unless the Defendant could produce a rectified title covering the question of exclusive possession of the sale properly. If the Defendant had turned up without a rectified title there would have been no completion by the Plaintiff and Mr. Yeung's advice to the Defendant would have been that he should cancel the Agreement under clause 7 and return the deposit to the Plaintiff.

34. Under the circumstance, have regard to the fact that the Defendant could not bring himself to accept Mr. Yeung's advice on the question of title because his previous solicitor had not raised any query, I concluded that the true position was the Defendant never accepted that his title was defective on or before the 12th May 1983. He stood by it and was prepared to complete if the Plaintiff agreed but only on the strength of his title as then shown. Knowing that the Plaintiff was refusing to accept his title and that Mr. Yeung was advising him to adopt that stance, the Defendant who did not want to cancel the Agreement, simply sat tight and did nothing.

35. If the Defendant's title was good at the material time then the Plaintiff had wrongly refused to accept it on the day before completion and it could have been forced on him by the Defendant's solicitor's letter dated the 26th May 1983 whereby the Plaintiff was required to complete within one month on the title as shown on the 11th May. If the Defendant's title was not a good marketable title at the material time, then the Plaintiff was justified in refusing to accept it and the Defendant's failure to complete with a good title on the 12th May was a breach of clauses 7 and 3 (and clause 12) of the Agreement.

36. The real issue in this case is the second issue concerning title and in my judgment there can be no doubt that in all the circumstances and in the absence of a finding that the Defendant had a defective title on the 12th May his conduct in failing to turn up on that date for a completion that was never going to take place was not a breach of the Agreement.

37. As to the second issue on title, I find the following additional facts on the evidence. On his own admission, the Defendant never asked for time to rectify his title. He stood by it.

38. The Plaintiff was prepared to complete on the 12th May if the Defendant had turned up with a rectified title. When the Defendant was afraid to come because his title was had and Mr. Yeung induced the Plaintiff to sign written instructions that non-completion was due to the Defendant's defective title. The Plaintiff then left and instructed other solicitors.

39. On the 13th May 1983 Mr. Yeung asked the Defendant what he intended to so. The Defendant replied that he was still considering his position and Mr. Yeung, who had regarded his retainer as determined since the morning of the 12th May when the Defendant's wife took copies of the Defendant's documents of title for perusal by other solicitors, told the Defendant's wife brought a copy of an old Land Office record to Mr. Yeung. He told her that the Plaintiff had retained other solicitors and the matter was now out of his hands.

40. Both parties retained new solicitors soon after these events. On the 26th May1983 the Defendant's new solicitors sent a letter to Mr. Yeung on behalf of the Plaintiff (which he forwarded to the Plaintiff's new solicitors) informing him that the reasons given in Mr. Yeung's letter dated the 11th May 1983 for refusing to accept the Defendant's title were unjustifiable and giving the Plaintiff one month's notice to complete and pay interest on the deposit calculated from 12th May in default whereof the Defendant would forfeit the Plaintiff's deposit under clause 10 of the Agreement.

41. The Plaintiff said under cross-examination that he had never seen this letter. He had been prepared to ho on with the transaction after the 12th May 1983 if the Defendant had been able show a clean title but the Defendant did not offer to rectify his titel by any specified time and by the 26th May 1983 the Plaintiff had decided to rent another flat.

42. The letter dated the 26th May 1983 from the Defendant's new solicitors crossed a letter of the same date from the Plaintiff's new solicitors to the Defendant, referring to obligation of the Defendant to make a good title under clause 9 of the Agreement and his failure to complete on the 12th May 1983, and purporting to rescind the Agreement on behalf of the Plaintiff and demanding the return of the deposit within 7 days. The demand was not met and legal proceedings were threatened buy a letter from the Plaintiff's new solicitors dated the 9th June 1983.

43. The Plaintiff's having failed to comply with the Defendant's solicitors demand for completion within a month made by their letter dated the 26th May 1983, they purported by their letter dated the 28th June 1983 to rescind the Agreement and forfeit the Plaintiff's deposit. The sequel to this was the issue of the Plaintiff's writ in this action on the 15th August 1983.

44. At no time between the 11th May 1983 and the purported rescission of the Agreement by him on the 28th June 1983 did the Defendant offer to procure the execution of a deed of mutual covenant or take any other action to rectify his title. At all material times he has stood by the title shown by him prior to the 12th May 1983. Accordingly, in my judgment, if that title, supported by the two additional documents let in by the pleading of the Plaintiff, is defective it follows that the Plaintiff was justified in refusing to complete on the 12th May and justified in rescinding the Agreement by his solicitor's letter dated the 26th May 1983 by which time no offer had been made to take any action of rectify the title or prove that it was marketable.

45. The attempt by the Defendant to rely on a Defence that the co-owners of the Defendant were estopped from denying that he was entitled to exclusive possession of the sale premises was in my view wholly insupportable. It was the duty of the Defendant under clause 9 of the Agreement to show and prove a good title and to do so by the date fixed for completion: see Halsbury's Laws of England, 4th ed., Vol. 42, para 143 citing Boehm v Wood (1820) 1 Jac & 419 at p.421.

46. It was far too late at the trial to seek to establish a marketable title based on estoppel and all the factual evidence necessary to support the estoppel. If a vendor fails to show and prove a marketable title in accordance with his contract by the date of completion he cannot be heard over a year later to adduce new matter to support his title which was never disclosed to purchaser at or before completion. Nay contrary conclusion would turn conveyancing practice not a game of poker in which the vendors solicitor is no obliged to show his had until his client is sued.

47. Mr. Chan, counsel for the Defendant, argued that the purported rescission of the Agreement by the Plaintiff was premature following upon a requisition as to title made at the eleventh hour immediately before the completion date. On the evidence before me, there was no rescission of the Agreement by the Plaintiff until the 26th May 1983 some 14 days after the 12th May 1983 which was the date fixed for completion under a contract where time was expressly made of the essence. At no time was any offer made by the Defendant to rectify his title. He did not accept Mr. Yeung's advice that his title was defective and his new solicitors's letter dated the 26th May 1983 shows that they considered the title shown was good.

48. The Plaintiff had indicated by Mr. Yeung's letter dated the 11th May 1983 that he was not prepared to wait for the time necessary to procure a deed of mutual covenant to remove the doubts concerning the Defendant's title. In my judgment the Plaintiff was fully entitled to adopt this stance. For reasons given below, the title was clearly defective as it stood and the defect went to the root of the Defendant's title because he had contracted to sell his interest in the property with the right to the exclusive possession of the sale premises whereas the documents particularised in the further and better particulars of paragraph 8 of the Amended Statement of Claim did not show that the Defendant had the right to such exclusive possession.

49. Accordingly, even if the Agreement is to be construed as being subject to an implied condition that requisitions on title should be made within a reasonable time of the completion date, such a condition cannot be applied to force a had title on a purchaser who has made his requisitions as to title too later: Halsbury's Laws of England, 4th ed., Vol. 42, para 109, citing Re Tanqueray-Willaume and Landau (1882) 20 Ch D 465 where this principle was applied by Kay J. whose decision was reversed on appeal but for reasons not affecting the decision of Kay J. on this point; Emmet on Title, 18th ed. at p. 153 citing the same case and other authorities.

50. The crucial question therefore is whether the Defendant had made a good marketable title based on the documents of title particularised by the Plaintiff in the further and better particulars of paragraph 8 of the Amended Statement of Claim. Both sides accepted that this issue should be approached on the footing that the court should compel a purchaser to accept a title if it concludes beyond reasonable doubt that the purchaser will bot be at risk of having his title successfully impeached after completion of the sale :M.E.P.C. Ltd. v Christian-Edwards [1981] AC 205 (H.L.).

51. The Defendant's root of title was the 1969 regrant under which it was agreed that the grantees therein named, one of them was Madam Chan Kam Shu, should be entitled as tenants in common to a lease of the lot therein described for the residue of a term of 150 years commencing from the 24th June 1892 at a stipulated rent and subject to certain general and special conditions.

52. The 1969 Regrant was clearly related to the 1935 Lease which granted what appears to have been the site of the present building at No. 18 Ashely Road to on Cheng Ying as trustee for a term of 75 years from the 24th June 1982. The 1935 Lease contained no proviso for renewal and it expired on the 24th June 1967.   from the 24th June 1982. The 1935 Lease contained no proviso for renewal and it expired on the 24th June 1967.

53. There was a gap of a little less than one year and eleven months between the expiration of the 1935 Lease on the 24th June 1967 and the making of the 1969 Regrant on the 12th May 1969. During that period any former lessee under the 1935 Lease could not be holding over from the Crown as a tenant at sufferance: Halsbury's Law of England, 4th ed., Vol. 27, para. 175.

54. There was no evidence to indicate whether the former lessees remained in possession as tenants at will or licensees of the Crown. However, be that as it may, it seems to me to be clear that on the 24th June 1967 the title as lessees of the successors in title to Cheng Ying under the 1935 Lease determined and on the 12th May 1969 the grantees under the 1969 Regrant acquired a new title to the property described in the 1969 Regrant. That title was one which began on the date of the 1969 Regrant and not before.

55. Mr. Chan sought to persuade me that for practical purposes the 1969 Regrant was a renewal of the term created by the 1935 Lease and that the term to be granted under the 1969 Regrant was really intended to be an extension of the term granted under the 1935 Lease. This is to some extent true. Thus the term to be granted under the 1969 Regrant is calculated by reference to the commencement date of the 1935 Lease and is expressed as an enlargement of that term from 75 to 150 years so as to bridge the gap between the expiration of the earlier term and the actual commencement of the later term. Furthermore General Condition 1 of the General Conditions of the 1969 Regrant provides that all arrears of Crown Rent accrued between the 24th June 1967 and the date of the 1969 Regrant should be paid on demand.

56. However there is a limit to the extent of retroactivity that can be achieved in a lease or agreement for a lease. As Negaify V.G. observed in Bradshaw v Pawley [1980] 1 W.L.R. 10 at p.14 E-F :-

"First, it is well settled that a lease cannot retrespectively vest an estate in the lessee. If today a lease is granted for seven years from this day a year ago, no term of seven years is brought into being, but only a term of six years from today. A lease, of course, is more than a mere contract, for it operates by way of grant to create an estate or interest in the land; and you cannot grant today that X shall have had a term of years vested year age. Whatever contractual obligations there may be between the parties, no actual term of years can be created until the lease has been executed and so the grant has been made. Thus where the question is what term has actually been created, as where a statute refers to terms of a particular length, the commencement of the term cannot be earlier than the date of the grant of the lease. There is, of course, no objection to a lease defining the term by reference to some past date, as in the grant of a term of seven years from this day a year ago; but this merely creates a term of six years from today."

57. It follows that whilst the 1969 Regrant can effectively define the term to be granted thereunder by reference to a past date and create contractual obligations between the Crown and the grantees requiring the latter to pay what are described in the 1969 Regrant as arrears of rent arising before the date of that instrument, it cannot actually create an entitlement to a term commencing early than the date of the 1969 Regrant. The interval that existed between the expiration of the 1935 Lease and the date of the 1969 Regrant will not go away. The conclusion is, in my judgment, unavoidable that there was a clear break in the title to the property at No. 18 Ashley Road when the 1935 Lease expired even if it is assumed that the differences in lot numbers and areas referred to respectively in the 1935 Lease and the 1969 Regrant are immaterial.

58. It must follow that the grantees under the 1969 Regrant were not the successors in title to the original lessee under the 1935 Lease or his assigns after the determination of the term granted under that Lease. When the 1969 Regrant was executed the grantees thereunder obtained a new entitlement to a new term and they acquired this entitlement for the first time, since the 1935 Lease contained no proviso for renewal.

59. The 1969 Regrant contains no provisions conferring a right to exclusive possession of any part of the premises comprised in that instrument. It merely confers upon the grantees the entitlement as tenants in common in stipulated 1/14th undivided shares to a lease of the land and building at No. 18 Ashley Road. Without more any occupier of a flat in the building must, in my judgment, have a doubtful title because there is no basis shown for establishing a right to exclusive possession of the flat where, as here, the contract obliges the vendor to sell his interest in the property with that right. A properly drawn deed of mutual covenant executed by all the co-owners would put the matter beyond doubt and it may well be that evidence produced before the date for completion founding an estoppel operating on all the owners would be conclusive to establish a marketable title.

60. In the present case, apart from estoppel which I have dealt with above, the Defendant relies on the 1958 Deed of Mutual Covenant and also on the Law of Property (Enforcement of Covenants) Ordinance (Cap.297).

61. Mr. Chan contended that the 1958 Deed of Mutual Covenant made on the 10^th April 1958 between the then owners of the residue of the term granted by the 1935 Lease operated to give the Defendant the right to exclusive possession of the sale premises.

62. Madam Chan Kam Shu (who was a grantee under the 1969 Regrant) was also a party to the 1958 Deed of Mutual Govenant. By the 1977 Assignment she purported to assign her 1/14th share in the property comprised in the 1969 Regrant to the Defendant together with the exclusive right to the sale premises and excepting the exclusive right of the other owners for the time being of the other floors of the building on Lot No. 9613 at No. 18 Ashley Road. No reference is made in the 1977 Assignment to the 1958 Deed of Mutual Covenant.

63. The first recital in the 1958 Deed of Mutual Covenant recites that the premises are held from the Crown "for the residue of the term of years with such right of renewal or upon such terms and conditions as set out in the Second Schedule hereto". The second recital refers to the seven storey building on the premises and the third recital recites that the parties have agreed to enter into the Deed "to define their respective rights and interest in the said premises and the said buildings.".

64. By clause 1 of the Deed the parties are expressed to make mutual grants for themselves their executors, administrators and assigns to the other parties their executors, administrators and assigns of the exclusive right to the use occupation and enjoyment of the floors of the building set out opposite the names of the parties in the First Schedule. Clause 2 provides for the mutual use of common parts and of the roof. Clause 3 provides that (subject to clause 11 which provides for the extinguishment of the grants if the building is destroyed) ".... the respective grants hereinbefore contained shall in each case be for the residue of the term of years and renewed term (if any) set out in the said Second Schedule hereto."

65. The remainder of the provisions deal with the regulation and management of the building and are not in my judgment of any decisive materiality to the construction of the Deed. The Second Schedule which is referred to in the first recital and in clause 3, defines the property by reference to the interests therein of the parties as tenants in common in specified numbers of 1/14th undivided shares under the 1935 Lease "subject to the rent and covenants therein reserved and contained." Examination of the 1935 Lease discloses that it contained no provision for renewal of the term thereby granted.

66. Mr. Chan argued that because there was no right of renewal under the 1935 Lease the reference to "renewed term (if any)" in clause 3 of the Deed should be given a wide meaning extending to the 1969 Regrant. Clause 3 must, he contended, extend to any future term to be granted in respect of the premises because the parties contemplated the maintenance of the status quo so long as they remained co-tenants. Such a construction would give effect to words that would not otherwise have any effect.

67. He contended that a renewal and a regrant were in practice the same in Hong Kong and he relied on the calculation of the term to be granted under the 1969 Regrant by reference back to the commencement of the term granted by the 1935 Lease and to the provisions in the 1969 Regrant regarding arrears of rent accrued since the expiration of the 1935 Lease. If the 1935 Lease was eventually in effect extended by the 1969 Regrant then, he argued, it did not matter that there was a break between the expiration of the earlier term and the commencement of the term to be granted under the 1969 Regrant.

68. I preferred Mr. Chain's interpretation of the 1958 Deed of Mutual Covenant. That instrument appears to me to bear the hallmark of a standard form originally drafted comprehensively to meet varying situations. Thus the parties are described as "the several persons and Companies or Corporations whose names addresses and descriptions are set forth" in the First Schedule. In fact none of the parties named in that Schedule are Companies or Corporations, they are all individuals.

69. The first rectial clearly contemplates "such right of renewal" as is set out in the Second Schedule. The addition in that recital of the words "or upon such terms and conditions as set out" in the Second Schedule is, in my judgment, indicative that there may or may not be a reference, direct or indirect, in the Second Schedule to a right of renewal. Bearing in mind the reference in the first recital to "right" in relation to renewal and the third recital that the parties intend the Deed to define their respective "rights and interest" in the premises and building, it seems to me that the Deed contemplates only a renewal as of right by virtue of a provision for renewal, if any, contained in the 1935 Lease. The words "(if any)" in conjunction with "renewed term" in clause 3 are, in my judgment, intended to cover both the contingency of there being no right of renewal contained in the 1935 Lease and also the contingency of there being such a right which is not exercised.

70. The Deed has been professionally drawn. As Farwell J. observed in Muller v Trafford [1901] 1 Ch 54 at p. 60 :-

"A covenant to renew is a technical term well understood".

71. One of the characteristics of a covenant for renewal is that it confers on the tenant a right to a further term which runs with the land and the reversion and devolves with the estate of the covenantee. It is not affected by the rule against perpetuities: see Halsbury's Laws of England, 4th ed. Vol. 27 at para. 358 and the dictum of Farwell J. in Muller v Trafford (supra) at p. 60. In my judgment it is a right of this nature, exercisable before the expiration of the original term, which is contemplated in the 1958 Deed of Mutual Covenant.

72. Accordingly when the draftsman framed clause 1 of the Deed using language of mutual grant by and to parties and their successors and assigns as distinct from words appropriate merely to contract he must have contemplated that the parties were to grant away rights to which they were already entitled at the time of the grant and rights capable of grant. At the date of the Deed the parties together, as tenants in common under the 1935 Lease, had the power to make mutual grants of the right to exclusive possession of different parts of the premises. If the 1935 Lease had contained a covenant for renewal the parties to the Deed would have had power to make mutual grants of exclusive possession extending beyond the term to the right of renewal.

73. The proposition that the parties have manifested through the draftsman an intention that the Deed should extend into the future to a situation where the Crown made a regrant of the property unrelated to a right of renewal and after an interval had supervened subsequent to the expiration of the original term seems to me to be insupportable. Apart from questions of perpetuity, the grantees under the 1969 Regrant took a new title. The title conferred by the 1935 Lease expired on the 24th June 1967. Although many of the parties to the 1958 Deed of Mutual Covenant were grantees under the 1969 Ordinance, they acquired a different interest from that formerly held by them under the 1935 Lease and their successors and assigns to their respective interest under the 1969 Regrant cannot, in my judgment, be their successors and assigns for the purposes of clauses 1 and 3 of the 1958 Deed of Mutual Covenant.

74. In all the circumstances I do not consider that the 1958 Deed of Mutual Covenant had any effect after the expiration of the term granted by the 1935 Lease. In my judgment it was only intended to operate during the term of the 1935 Lease. In so far as it referred to a renewal of that term it contemplated only a renewal pursuant to the exercise of a right of renewal referred to in the Second Schedule or in the 1935 Lease; and there was no such right. Furthermore the term to be granted under the 1969 Regrant is not in my judgment a "renewed term" within the meaning of that term in clause 3 of the 1958 Deed of Mutual Covenant.

75. Finally Mr. Chan fell back on the Law of Property (Enforcement of Covenants) Ordinance (Cap. 297) which was in force at all material times for the purposes of this case. He contended that, even if the 1958 Deed of Mutual Covenant was not to be interpreted as operating to give the Defendant the right to exclusive possession of the sale premises, the Ordinance achieved this result and overrode the contractual intent of the Deed.

76. In my judgment this proposition is unarguable. On the construction I have adopted of the Deed it is not enforceable at all, even between the parties thereto, in respect of any matter arising aftter the expiration of the 1935 Lease on the 24th June 1967. Section 3(1) of the Ordinance is clearly intended to make covenants or agreements enforceable in specified circumstances "in addition to being enforceable between the parties thereto" and it follows that if the Deed is spent in relation to the parties and their assigns, it cannot be the intention of section 3 to override the effect of the Deed.

77. Moreover as the Deed is to be considered as conferring no benefit upon any owner of any part of the relevant building after the 24th June 1967, proviso (a) to section 3(1) of the Ordinance operates to make section 3 inapplicable. The Deed is also to be construed as limiting the liability of the parties to the Deed and their successors and assigns to the period of the term conferred by the 1935 Lease, so that section 3(2) applies to make section 3 inapplicable.

78. Lastly, section 4 is not intended to give life to a covenant or agreement which was spent before the issue of a Crown Lease and that provision cannot assist Mr. Chan's argument.

79. Accordingly I concluded that the Defendant had at no time, up to the 26th May 1983 when the Plaintiff by his solicitors rescinded the Agreement, adduced anything but a doubtful title which the court should not compel the Plaintiff to accept. I therefore gave judgment for the Plaintiff in the terms indicated above.

Representation:

Mr. Benjamin Chain (Cheung, Tong & Rosa) for the Plaintiff.

Mr. Jerome C.H. Chan (Liang, Ng, Lie & Lai) for the Defendant.