More Alliance Ltd v. Shing Samuel

HCMP1980/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS 1980 OF 2012

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J U D G M E N T

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Introduction

1.This is an application taken out by the plaintiff (“Purchaser”) under s 12 of the Conveyancing and Property Ordinance Cap 219 in relation to an agreement for sale and purchase of a property, commonly called a vendor and purchaser summons.

2.The Purchaser seeks, among other things, declarations against the defendant (“Vendor”) that the Vendor had not satisfactorily answered requisitions on title and had failed to show and/or give good title to the property concerned (“Property”).  It is the Purchaser’s case that it was entitled to rescind the agreement to purchase, and it seeks a return of the initial deposit and further deposit paid, and damages to be assessed.

Background Facts

3.The Vendor entered into a provisional agreement for sale and purchase signed by his mother Madam Chan on 5 July 2012 (“Provisional Agreement”) in respect of the Property, which is a residential property in Causeway Bay. The consideration was HK$19.8m and the initial deposit of HK$1m was paid by the Purchaser.

4.The formal agreement for sale and purchase was entered into on 27 July 2012 (“SPA”).  This was signed by Madam Chan as lawful attorney for the Vendor, and a further deposit of HK$988,000 was paid by the Purchaser.

5.The balance of the purchase price in the sum of HK$17,892,000 was to be paid on completion.  The completion date was scheduled to be 12 September 2012 (“Scheduled Completion Date”).

6.There were requisitions raised by the Purchaser’s solicitors after they first received the title deeds, and there were subsequent requisitions on the replies.  The dispute arose out of whether the Vendor had satisfactorily answered in particular two requisitions.  The sale was eventually not completed.

The Issues

7.There was no dispute between the parties on the facts, and there were three agreed issues before the court:

(i)      Whether in failing to rectify the specified structure in accordance with the Building Authority Order (“BA Order”) registered against the Property under No 08050702370174 (“Order Memorial”), the Vendor had failed to give good title?  (“Illegal Structure Issue”)

(ii)     Whether as a result of a claim of beneficial ownership of the Property made by Madam Chan, and by the Vendor’s failure to cure this encumbrance to the title, the Vendor had failed to show good title?  (“Beneficial Claim Issue”)

(iii)    Whether the Vendor’s failure to deliver the title deeds, and other documents relating to the Property, at completion, constituted a breach of the Vendor’s duty under the SPA and/or at common law?  (“Title Deeds Issue”)

The Illegal Structure Issue

8.The BA Order was issued under s 24(1) of the Buildings Ordinance (Cap 123). Neither the Purchaser nor the Vendor had exhibited a copy of the registration record of the Property at the Land Registry in their respective affirmations.  During the hearing, this court asked for a copy of the land search record, which was then produced (“Land Search Record”).  On perusal of the Land Search Record, it appears that there were other s 24(1) orders registered against the Property, but neither Counsel had referred to those and the only relevant and disputed one before this court was the BA Order, which was issued on 2 April 2008.

9.The BA Order relates to “One structure on and over the flat roof adjacent to the premises”, which was carried out without prior approval or consent of the Building Authority.  Neither Counsel was able to describe clearly to the court what exactly this illegal structure was/is, and no plan was produced.

10.Whatever was the structure, the BA Order required the owner of the Property to (i) demolish this structure and (ii) reinstate the parts of the building so affected by the structure in accordance with the plans approved by the Building Authority.  Paragraph 4 of the BA Order required the works ordered to commence within 30 days and to be completed within 60 days all to the satisfaction of the Building Authority. There was no evidence that this was compiled with.

11.The relevant clauses in the SPA on the Illegal Structure Issue are clauses, 19, 19.1, 20, and 21 of the SPA, set out as follows:

“19. The Vendor hereby warrants and declares that the Vendor has not received and is not aware of there being any order or notice from the Building Authority or other competent authority or the Manger or the Management Committee of the building of which the said Premises forms part requiring the Vendor to demolish or reinstate the said Premises or any part thereof or any part appertaining thereto. If it should be discovered that such notice or order shall exist or be issued or served on or before the actual date of completion, the costs for such demolition or re-instatement or repair shall be borne by the Vendor solely.

19.1 The Vendor hereby further declares that the Vendor has not received and is not aware of there being any order or notice from the Building Authority or other competent authority or the incorporated owners or the building manager of the said Building requiring the Vendor as one of the co-owners of the said Building to effect repair to any common part or facilities of the said Building. If it should be discovered that such notice or order shall exist or be issued or served on or before the actual date of completion, the costs for such repair shall be borne by the Vendor solely.

20. The Vendor hereby undertakes to notify the Purchaser forthwith upon receipt of any of the orders or notices referred to in Clause 18 and Clause 19 hereof.

21.   The said Premises are and will be sold on as ‘as is’ basis and in the present physical state and condition as they stand.”

12.There was no evidence that the Vendor declared or disclosed the existence of the BA Order at the time of the parties entering into the Provisional Agreement or the SPA.  The Vendor’s case was that the Purchaser ought to have known.  

13.The solicitors acting for the Vendor at the time of the signing of the SPA were Li Chow & Co (“LCC”).  After the SPA was signed, LCC sent to the Purchaser’s solicitors certain title deeds and documents on 14 August 2012. There was no specific reference to the Order Memorial/BA Order in their letter, although the Order Memorial and the BA Order were among the title deeds delivered.

14.Upon discovering the Order Memorial, the Purchaser’s solicitors raised their first set of requisitions (“1^st Requisitions”), among which they asked to be provided with documentary evidence for proof that the Order Memorial had been discharged/released by the Building Authority.  In response to those 1^st Requisitions, LCC requested for the return of all the title deeds and in their subsequent reply of 28 August 2012, all they said in relation to the requisition relating to the Order Memorial was that they would let the Purchaser’s solicitors have a reply soon[1].

15.Subsequently, on 29 August 2012, LCC sent all the title deeds to the Purchaser’s solicitors again.  Then the next day 30 August 2012, LCC wrote to seek a copy of the Order Memorial.  This was complied with by the Purchaser’s solicitors.  Yet, there was no reply from LCC in relation to the requisition on the Order Memorial/BA Order. Instead, on 3 September 2012, LCC suddenly asked for the return of all the title deeds again.

16.As there was still no reply, on 5 September 2012, the Purchaser’s solicitors wrote again reminding LCC to reply to their requisition relating to the Order Memorial pointing out that the Order Memorial was “detrimental to title of the Property”, and  it constituted a “bad title”[2]. They also pointed out that the Vendor was in breach of Clause 19 of the SPA by warranting and declaring in the SPA that the Vendor had not received and was not aware of any orders/notices from the Building Authority.

17.On 6 September 2012, all of a sudden, LCC wrote to say they had no further instructions to act for the Vendor, and that his new solicitors were Fan & Fan (“F & F”).  On the same day, F & F wrote to say that as the Order Memorial had been registered in the Land Office well before the Purchaser entered into the Provisional Agreement, the Purchaser should well have knowledge of the same, and further that the Property was sold on as “as is” basis and was subject to existing tenancy.  F & F then declined to deal with this requisition, saying no further action would be taken by them[3].

18.On 10 September 2012, the Purchaser’s solicitors responded to F & F’s above reply by pointing out that the Purchaser had never been informed by the Vendor or any party of the registration of the Order Memorial prior to the signing of the Provisional Agreement, and the Order Memorial was not mentioned or stated in the Provisional Agreement.  They further referred F & F to the cases of Chi Kit Company Limited & Another v Lucky Health International Enterprises Limited[4] and All Ports Holdings Limited v Grandfix Limited [5], and reiterated that the Order Memorial affected the title of the Property and the existence of an illegal structure constituted a defect on the title.  Further, the Purchaser’s solicitors suggested a vendor and purchaser summons be taken out if the Vendor insisted that this title requisition had been answered[6].

19.A flurry of letters then passed between the parties’ respective solicitors arguing as to whether the Order Memorial constituted an encumbrance on the title of the Property and whether there was any real risk of the Property being subject to re-entry by the Building Authority.  Finally, on the Scheduled Completion Date, F & F wrote to the Purchaser’s solicitors insisting that the requisition had been answered, and among other things, referred to Clause 19 of the SPA saying that the Vendor was at material times willing to bear the costs of such demolition or re-instatement costs referred therein[7].

20.Mr Li, Counsel for the Vendor, submitted at the hearing that Clause 19 did not entitle the Purchaser, or give the right to the Purchaser to rescind.  Mr Li referred this court to the case of Jonesky Limited and Total Gain Limited [8]. In that case, the formal agreement for sale and purchase contained a clause similar to Clause 19 of SPA, but the Jonesky clause went further and expressly stated that the purchaser had the option to rescind the agreement by giving written notice to the vendor on or before the day of completion[9].

21.Mr Li further relied on what Saunders DHCJ (as he then was) had said in Jonesky that although there might be a blot on the title, he was satisfied that notwithstanding that blot, the purchaser in that case would get substantially what he contracted to get and that the test was whether the vendor would be conveying substantially what the purchaser had contracted to get[10].  In Jonesky, the vendor, as in the another case referred to by Saunders J, was prepared to give a discount, in addition to the cost of re-instatement, but Saunders J had said, even without re-instatement or a discount, it was plain that the purchaser was getting, physically, precisely what the purchaser had contracted to buy.

22.Mr Hui, Counsel for the Purchaser, on the other hand, argued that clauses 19 and 19.1 did not help the Vendor as those clauses only referred to orders/notices from the Building Authority after the SPA and before completion, as the Vendor had warranted and declared in the SPA as at the date thereof that he had not received and was not aware of any such orders/notices.  Further Mr Hui relied on the case of All Ports, which was a decision from the Court of Appeal.  In the case of All Ports, the relevant requisition on the appeal concerned a s 26 order under the Buildings Ordinance.  Le Pichon JA had referred to an earlier case of Active Keen Industries Ltd v Fok Chi Keung[11] and said the observations made in the earlier case in relation to a s 24(2) order served on all the owners were equally applicable to the s 26 order.

23.Litton JA (as he then was) has held in Active Keen that:[12]

“…. An order served on all the owners under s 24(2) would in law be effective, and could bring in its train the consequence that, eventually, the apportioned cost of removal is charged against the title of the individual owners under s 33 (9). This would then constitute an encumbrance.”

24.In the present case, the BA Order is a s 24(1) order which I understand was served only on the then owner of the Property in 2008.  If the BA Order is not complied with, the Building Authority has the power to demolish or alter the illegal structure in accordance with s 24(3) of the Buildings Ordinance, and to recover such costs from the owner of the Property as at the date of completion of the demolition or alteration under s 24(4A).  Further under s 33(1), the Building Authority may impose a surcharge and his certificate of the cost involved in the works carried out by him and surcharge may be registered in the Land Registry against the Property and such registration shall constitute a first charge on the Property under s 33(9).  This will then be an encumbrance.  It  seems thus clear from what Le Pichon JA has said in All Ports, whether a s 26 order or a s 24 order , such an order would create a potential blot on the title[13].

25.As pointed out by Mr Li, clauses 19 and 19 A of the SPA do not contain an option to rescind as in the case of Jonesky.  They also do not contain any express provision disentitling the purchaser to raise an objection to title or to rescind in relation to an illegal structure, such as those relevant clauses in the case of Jumbo King Ltd v Faithful Properties Ltd & Others[14]. The wording of the relevant clauses in the agreement in Jumbo King was held to preclude the purchaser in that case from raising any objection to title on the ground of the illegal structure.

26.In the present case, the onus was upon the Vendor to answer the requisition raised by the Purchaser and the Vendor would have to show that the works required by the BA Order would not cause a blot on title.  Le Pichon JA had referred to the joint judgment of Bokhary PJ and Sir Anthony Mason NPJ in Chi Kit Co Ltd & Another v Lucky Health International Enterprise Ltd[15]. It has been held in that judgment that the burden is on the vendor to prove a good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance.  The case of Chi Kit Co Ltd followed that what was held earlier in the House of Lords case of M.E.P.C. Ltd and Christian-Edwards and Others[16].

27.In my view, as seen from the letters between the parties’ respective solicitors, F & F did not properly address the requisition in their initial reply of 6 September 2012.  By 11 September 2012, the Purchaser’s solicitors had to remind them again that the Vendor had still failed to prove good title, and notwithstanding being referred to the case of All Ports by the Purchaser’s solicitors, F & F maintained that the BA Order would not constitute an encumbrance on the title of the Property.  The reasons they gave were that (i) the Property was sold on “as is” basis; (ii) the BA Order was issued and served in 2008 and no further action had been taken against the Property, and (iii) even if the same had not been complied with, and the cost of removal was imposed upon the owner, the only possible disadvantage against the Purchaser would be a personal claim and a claim for cost under s 33 (1) of the Building Ordinance; and (iv) there was no real risk of the Property being subject to re-entry by the Building Authority.

28.In their final letter of 12 September 2012 on this requisition, F & F referred to a judgment of Nazareth VP in Mexon Holdings Limited v Silver Bay International Limited,[17] where the then Vice President had apparently said that enforcement of the requirements of the Building Regulations could be resolved in two ways, one of which involved expenditure only and which he did not consider went to the root of title.  That judgment was not referred to the court by either Counsel.  The citation in F & F’s letter was the decision of the Court of Appeal, and the case later went on to the Court of Final Appeal which upheld the decision of the Court of Appeal[18].  So far as I can see, that case did not concern any orders/notices from the Building Authority, and it was held that the relevant requisition therein did not go to the root of the title and was further time-barred. 

29.At the hearing, Mr Li no longer relied on the case of Mexon Holdings and instead relied mainly on the case of Jonesky in that he submitted that the test was whether the vendor would be conveying substantially what the purchaser had contracted to get[19], and that in the present case the Vendor would be.  The case of All Ports was not referred to in Jonesky.

30.Mr Hui submitted that there was no evidence from the Vendor that whatever needed to be done under the BA Order was achievable, or whatever needed to be reinstated under the BA Order was capable of being reinstated.  Mr Li complained that this point was never raised/relied upon by the Purchaser before, and maintained that the parties’ mutual intention was very clear, as the parties intended to keep the physical appearance of the Property, since under Clause 21 of the SPA the Property was sold on an “as is” basis, and subject to existing tenancy.

31.Mr Li had said at the hearing that he assumed that the Purchaser had inspected the Property but there was in fact nothing in the affirmations or any evidence to indicate that the Purchaser did so or that the Purchaser was fully aware of an illegal structure on the Property at the time when it entered into the SPA.  Even if the Purchaser did inspect prior to entering into the SPA, in my view, Clause 21 does not assist the Vendor since it is clear from the case of All Ports that a provision for sale of a property on an “as is” basis and a reference to its physical state and condition does not mean that it extends to illegal structures[20]. As has been said by Lord Hoffman NPJ in Jumbo King[21]: “Prima facie, it is the duty of the vendor to deduce and then convey a good title and if he relies upon the terms of the contract to shift the risk of any defect in title to the purchaser, the language must clearly do so.”  The wording of Clause 21 clearly does not do so.  In my view, Clause 21 is not a proper answer to the Purchaser’s requisition on the Order Memorial/BA Order.

32.So far as clauses 19 and 19.1 are concerned, as Mr Hui pointed out, they do not help the Vendor, as they refer to orders or notices which the Vendor should discover or those issued after the SPA and before completion.  F & F had claimed that the Purchaser should well know about the Order Memorial as it had been registered in the Land Office well before the Purchaser entered into the Provisional Agreement[22]. There was no evidence as to why the Purchaser should well know about the Order Memorial or the BA Order before it entered into the Provisional Agreement.  In fact, it was the Vendor who should well know about the Order Memorial, since he acquired the Property after the registration of the Order Memorial and he should have declared it at the time of the SPA.  I am of the view that the Vendor was in breach of Clause 19 when he warranted and declared that he had not received any order or notice from the Building Authority at the time of entering into the SPA.

33.The Vendor had argued that the BA Order was issued in 2008 and no further action had been taken by the Building Authority, and that there was no real risk of the Property being subject to re-entry by the Building Authority and the only possible disadvantage against the Purchaser was a claim for cost under s 33(1) of the Building Ordinance.  There was no evidence as to whether the Building Authority would/will exercise any right of re-entry or not.  No letters from the Building Authority had been produced, but as pointed out in Active Keen and in All Ports, a memorial of the certificate of the cost of removal/reinstatement may be charged against the title of the Property under s 33(9), and this will then constitute a first charge against the Property.

34.It is stated in clause 3 of the SPA that the Property was to be sold free from encumbrances.[23] The Order Memorial was a potential blot on title.  Le Pichon JA said in All Ports that:

“It was therefore incumbent upon the vendor to demonstrate at the time the requisition was raised that the s 26 order would not be a blot on the title. This it could do either by showing that the order had been dealt with to the satisfaction of the Building Authority or that the cost of the works had been adequately provided for, such that no encumbrance under s 33 (9) could ever arise.”

35.There was no evidence on the amount of costs of the demolishing of the structure or re-instatement referred to in the BA Order.  There was no evidence of any plan having been drawn up for the approval of the Building Authority as required in the BA Order.  There was no evidence as to what works were involved and no evidence that costs of the works had been adequately provided for.  The Vendor lives in Canada and seldom comes to Hong Kong.  Having considered those replies from F & F, I am of the view that the Vendor had failed to answer satisfactorily the requisition on the Order Memorial and had failed to discharge his duty in demonstrating that the BA Order/Order Memorial would not be a potential blot on the title.  In failing to rectify the structure in accordance with the BA Order, the Vendor had failed to give good title to the Property.

The Beneficial Claim Issue

36.The Provisional Agreement was signed by Madam Chan, as Vendor, and the SPA were signed by Madam Chan, as lawful attorney of the Vendor.  Among the title deeds delivered by LLC, there was a certified copy of a power of attorney given by the Vendor to Madam Chan (“P/A”).  This certified copy of P/A was not exhibited or produced to the court.  Although there seemed to be a month and year thereon, there was no actual date of execution.

37.In the 1^st Requisitions, the Purchaser’s solicitors had pointed out that the certified copy of the P/A sent to them did not bear a completed date of execution, and they then sought a “properly and completed certified copy”, and a confirmation that the original P/A be sent to them on completion. LCC’s reply on 28 August 2012 was that the omission of the date in the certified copy P/A would not affect the validity of the title since the P/A was duly and properly executed by the Vendor and attested, and the month and year of execution was clearly marked.  LCC then declined to comply with the Purchase’s solicitors’ request for another completed P/A.  This response was not, however, accepted by the Purchaser’s solicitors who maintained their objection to the undated certified copy of P/A sent to them and indicated that the Purchaser would be advised to take out a vendor and purchaser summons.  Subsequently, after F & F took over the matter from LCC on 6 September 2012, they wrote to the Purchaser’s solicitors to simply say that the Vendor would personally execute the relevant assignment upon completion[24].

38.A day later, on 7 September 2012, there was a surprise turn of events. The Purchaser’s solicitors received a letter from a firm of solicitors Chung & Kwan (“C&K”) to say that they were acting for Madam Chan and they wrote to put the Purchaser on notice that Madam Chan was the beneficial owner of the Property, that she was in possession of the Property and the title deeds, that she had been handling all the tenancies and receiving the rental income, and further the initial and further deposits were paid to Madam Chan personally.

39.This was then followed by an urgent letter from F & F to C & K denying Madam Chan’s allegation that she was the beneficial owner, and the letter was copied to the Purchaser’s solicitors.

40.On 11 September 2012, the day before the Scheduled Completion Date, the Purchaser’s solicitors wrote to F & F to remind them that there were outstanding requisitions not yet answered, and in particular the Vendor had by then failed to prove good title and that the title deeds were not delivered and there was also a dispute as to who was the owner of the title deeds.  At about 1642 on that day, the Purchase’s solicitors also received a letter copied to them by the Vendor’s former solicitors LCC, and it was clear from that letter that the title deeds were at that time still being held by LCC, and the title deeds were subject to adverse claims from F & F for the Vendor and C & K for Madam Chan[25]. LCC was asking for a joint direction from the Vendor and Madam Chan for the release of the title deeds plus a satisfactory arrangement to pay their costs and to indemnify them against any loss and claims arising out of the adverse claims and the sale.

41.Mr Li’s submissions in respect of the Beneficial Claim Issue were two folds:

(i) The requisition in respect of this issue was not within the 7 working day deadline provided under Clause 5 of the SPA, and therefore time-barred;

(ii) The beneficial interest claim raised by Madam Chan was not sustainable.

42.Mr Li argued that firstly the Purchaser could have exercised due diligence to discover this potential problem and that the requisition could have been raised earlier.  Secondly, there was no real risk that Madam Chan could bring a successful challenge to the title of the Property, and there was no pending litigation. No lis pendens was registered in the Land Registry.

43.Mr Li referred this court to the Court of Appeal case of Tread East Limited and Hillier Development Limited[26] in relation to the effect of the time limit on requisitions.  The effect of a time limit on requisitions when they go to the vendor’s root of title was considered in a number of cases referred to by Penlington JA in Tread East.  Mr Li relied on the passage of Penlington JA where he said that he was satisfied that those authorities were only on the proposition that where a vendor (sic), having used due diligence, was unaware of some defect in the vendor’s title, the time limit imposed in the agreement would not run against him[27].

44.As I understand it, Mr Li’s submission was that the Purchaser’s solicitors could have exercised due diligence and raised the requisition on Madam Chan’s beneficial interest claim within the time stipulated in Clause 5 of the SPA.  Mr Li argued that the fact that the Provisional Agreement and the SPA were signed by Madam Chan and the tenancy agreement was signed by Madam Chan should have alerted the Purchaser/Purchaser’s solicitors, who should then exercise due diligence and should have raised requisition on the beneficial interest of Madam Chan during the 1^st Requisitions.

45.The Purchaser’s solicitors denied that the Purchaser was time-barred, and that the requisition was raised within 3 days after the letter from C & K was received.

46.Clause 5 of the SPA states that:

“5. Any requisition or objection in respect of the title and of any reply to a former requisition or objection from the Vendor’s solicitors shall be delivered in writing to the Vendor’s solicitors within 7 working days after the date of receipt of the title deeds and documents and of such reply from the Vendor’s solicitors by the Purchaser's solicitors otherwise the same shall be considered as waived if the same is not delivered to the Vendor’s solicitors within the period specified above and if the Purchaser shall make and insist on any objection or requisition either as to title or any matter appearing on title deeds or otherwise which the Vendor shall be unable or (on the ground of difficulty delay or expense or on any other reasonable ground) unwilling to remove or comply with the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his solicitors not less than 5 working days’ notice in writing to annul the sale in which case unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled and the Purchaser being in that event entitled to a return of all the deposits mentioned in Clause 2 hereof and other payment (if any) made by the Purchaser to the Vendor as part of the purchase price (‘the said deposit’) but without any compensation or cost and, if that return is made within 7 days, without interest and upon such return the parties hereto shall at their own cost enter into and cause to be registered at the Land Registry a Memorandum cancelling this Agreement.”

47.The Land Search Record shows that it was in fact Madam Chan who first purchased the Property on 20 July 2009 at a consideration of HK$11.38m, and then 5 months later, on 22 December 2009 she assigned the Property to her son, the Vendor, at a consideration of HK$10m, which seemed to be at a loss of HK$1.38m.  The tenancy agreement dated 14 June 2011[28] was, however, signed by Madam Chan as landlord who received the security deposit (“Tenancy Agreement”).  The Provisional Agreement was signed by Madam Chan as vendor, and she received the initial deposit of HK$1m. It was only the SPA which stated that Madam Chan signed as lawful attorney of the Vendor.

48.During the 1^st Requisitions[29], as mentioned earlier, the Purchaser’s solicitors had already raised questions on the P/A being undated and requested for the certified completed copy be sent to them and that the original be delivered to them on completion.  They had also noticed that the Tenancy Agreement was signed by Madam Chan, and asked for the relevant document for proof of due execution of the Tenancy Agreement by the Vendor.  For the P/A, LCC had replied to say, among other things, that the omission of the date in the P/A would not affect its validity or the title of the Property, and for the Tenancy Agreement, LCC’s reply was that proof of due execution was absolutely not necessary and they said they had instructions that Madam Chan was duly authorized by the Vendor to sign the Tenancy Agreement.

49.Not only were the Purchaser’s solicitors not satisfied with LCC’s response on the P/A pointing out any document without the date of execution was voidable[30], they were also not satisfied with LCC’s response in relation to the signing of the Tenancy Agreement and sought the “Authorisation” from the Vendor to Madam Chan. Although these requisitions were not directly on whether Madam Chan held beneficial ownership in the Property, the Purchaser’s solicitors were clearly querying the authority of Madam Chan to sign the SPA and also the Tenancy Agreement, and they were already indicating at that time that a vendor and purchaser’s summons should be taken out on the validity of the P/A and the certainty of title.

50.As mentioned earlier, it was only on 6 September 2012 after F & F appeared on the scene that they wrote further in relation to the outstanding requisitions.  So far as the requisition on the P/A was concerned, F & F simply stated that the Vendor would sign the assignment personally.  In relation to the requisition on the Tenancy Agreement, F & F replied that they would arrange for the Tenancy Agreement to be countersigned by the Vendor.  These replies were, however, not accepted by the Purchaser’s solicitors who wrote again on 10 September 2012 insisting on the production of the relevant P/A, and asked for an undertaking that the original countersigned Tenancy Agreement by the Vendor to be sent to them (“1^st Letter”). Further on that day, having by then received the letter from C & K acting for Madam Chan, the Purchaser’s solicitors wrote again requesting for the title deeds for giving title to the Property before completion, and pointing out that the Vendor had breached the warranty in Clause 26 of the SPA, and further asked  for evidence from the Vendor to prove that there was no risk of litigation and a written confirmation from Madam Chan that she had no claim(s) and/or any beneficial interest in the Property (“2^nd Letter”).

51.The final reply from F & F on the requisitions on the P/A and the Tenancy Agreement was on 11 September 2012, and on the Scheduled Completion Date, although the Purchaser’s solicitors seemed to have accepted the Vendor’s undertaking to send them a Tenancy Agreement countersigned by the Vendor, they were still not satisfied with the  response on the P/A, and also there had been no reply from F & F to the requisition raised by the Purchaser’s solicitors in their 2^nd Letter on the beneficial ownership of Madam Chan and the title deeds.

52.Prior to the Scheduled Completion Date, there was never any objection by F & F to the requisition raised by the Purchaser’s solicitors in the 2^nd Letter being time-barred, and the last letter from F & F on 12 September 2012 only maintained that they had answered all the requisitions. In my view, the requisition in the 2^nd Letter goes to the root of the title of the Vendor.  I am further satisfied that the Purchaser’s solicitors had exercised due diligence in the circumstances and the time limit in Clause 5 should not run against the Purchaser in respect of the requisitions in the 2^nd Letter.  In my view, the Purchaser’s solicitors were not time-barred in raising those requisitions in their 2^nd Letter.

53.Mr Hui relied on s 26 of the SPA, which states as follows:

“26. The Vendor hereby declares and warrants that no other third party (whether related or otherwise) (except the existing Mortgagee, if any) has any right or interest whatsoever, whether legal or equitable, in the said Premises. The Vendor further declares and confirms that the Vendor has the absolute right and interest in the said Premises and the said Premises were purchased with the Vendor’s own monies and the mortgage loan was repaid by the Vendor with the Vendor’s own monies. In the event of any third party claiming interest (whether legal or equitable) in the said Premises which could not be discharged by the Vendor before completion, the Vendor shall forthwith return to the Purchaser the said deposit without prejudice to the Purchaser’s right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor’s failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution.”

54.Whether time-barred or not, Mr Hui submitted that the Vendor was in breach of the warranty in Clause 26 of the SPA and that he had failed to show good title.

55.Mr Li submitted that Madam Chan’s alleged beneficial ownership claim was only a bare assertion, and that it was unsubstantiated. F & F’s reply to C & K’s letter was simply a denial, pointing out the provisions of section 5 of the Conveyancing and Property Ordinance.  They did not deal with or explain any of the matters alleged by Madam Chan in C & K’s letter, namely how the Property and the title deeds came to be in the possession of Madam Chan, and further why the rental income and the deposits under the Provisional Agreement and the SPA had been received by Madam Chan personally.  It was also quite clear from LCC’s letter of 11 September 2012 that there were conflicting claims between the Vendor and his mother and even by late afternoon on that day, LCC was not prepared to release the title deeds.  There was no evidence that the conflicting claims had been resolved or that there was a joint direction from the Vendor and his mother to release the title deeds the next day, namely on the Scheduled Completion Date.  The Purchaser and the Purchaser’s solicitors had been put on notice of Madam Chan’s claims of beneficial interest, and the Purchaser would not have been a “bona fide purchaser without notice”.  In my view, a simple denial by the Vendor to Madam Chan’s beneficial claim was not sufficient.  The Vendor should provide a satisfactory reply to the requisitions in the 2^nd Letter, and to provide the evidence and the written confirmation as sought by the Purchaser.  The Vendor had thus failed to answer satisfactorily the requisitions in the 2^nd Letter.

56.Having considered the above, I am of the view that the Vendor was in breach of Clause 26, and further he had failed to discharge the burden on him to show a good title.

The Title Deeds Issue

57.Mr Li’s submissions on this issue were simply that the Vendor would only be under a duty to deliver the title deeds on completion, and as neither party was proceeding towards completion, the title deeds were not delivered.

58.As mentioned earlier, up until the late afternoon on day before the Scheduled Completion Date, the title deeds were still held by LCC, subject to adverse claims by the Vendor and Madam Chan.  There was no evidence to show that the terms stipulated by LCC for release of the title deeds had been satisfied on the Scheduled Completion Date.  There was no evidence that the Vendor was able to deliver title deeds to the Purchaser on the Scheduled Completion Date.

Conclusion

59.In the above circumstances, I am of the view that the Purchaser was entitled to rescind the SPA.  I grant an order/declaration in terms of paragraphs 1 to 4 of the Purchaser’s Originating Summons of 14 September 2012.

Mr Daniel Hui, instructed by Henry Wan & Yeung, for the plaintiff

Mr Kevin Li, instructed by Fan & Fan, for the defendant