Jovian Corporate Communications Ltd v. Link Wide International Investment (Hong Kong) Ltd
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HCA 1235/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1235 OF 2014 ________________________
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________________ J U D G M E N T ________________ Introduction 1.Before the court is an Order 14A application by the defendant essentially seeking determination of 3 questions of law, and an application by the plaintiff to strike out the defendant’s defence and counterclaim. The background 2.The parties’ dispute arose from a conveyancing transaction in which the defendant (“D”) was the purchaser and the plaintiff (“P”) was the vendor. 3.The sale and purchase agreement (“Agreement”) was entered into on 6 December 2013. The subject property was an office, together with lavatories, on the 24th floor of a commercial building (“Building”) on Des Voeux Road in Central (“Property”). 4.There were 4 developers of the Building (“Developers”). The Tung Wah Group of Hospitals (“Tung Wah”) was one of the Developers. 5.By the Agreement, P agreed to sell and D agreed to buy the Property at a purchase price of HK$23,800,000. 6.Pursuant to the Agreement, D had paid a deposit of HK$2,380,000 to P (“Deposit”). Completion date was scheduled on 30 June 2014. 7.As is usual in conveyancing transactions, letters were exchanged to raise and answer requisitions (“Requisitions”). 8.Most of the Requisitions were answered and/or accepted by D as satisfactory except one outstanding requisition (“Outstanding Requisition”). 9.The completion eventually did not take place on 30 June 2014. Each blamed the other for having repudiated the Agreement. 10.P issued its writ on 2 July 2014. It was P’s case in its statement of claim that the Outstanding Requisition was misconceived in law and that it used its best endeavours to allay or remove D’s concerns over its perceived defect in P’s title to the Property. D insisted on and maintained its objections to P’s title to the Property based on the Outstanding Requisition. It alleged that P failed to prove and give good title to the Property and thus P was in breach of express and/or implied terms of the Agreement, and D was entitled to, among other things, the return of the Deposit. 11.After pleadings closed, D issued a summons on 19 November 2014 under Order 14 rule 1 and Order 14A rule 1 of RHC seeking the court’s determination on 3 questions of law and if those questions were determined in its favour, then final judgment be entered in favour of the defendant for various amounts and declarations sought in the counterclaim and P’s claim be dismissed (“D’s Summons”). I will set out these 3 questions later. 12.P then issued its summons on 12 March 2015 under Order 14 rule 3, Order 14A, Order 18 rule 19 & Order 33 rule 7 of RHC or inherent jurisdiction to strike out D’s defence and counterclaim in that it did not disclose any reasonable cause of action/defence or that it was frivolous and vexatious or otherwise an abuse of the process of the court (“P’s Summons”). The Outstanding Requisition 13.The Outstanding Requisition was in connection with the written approval of the Governor which D alleged was necessary for the creation of the Deed of Mutual Covenant and Partition Memorial No UB 375988 (“DMC&P”), as set out in Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance, Cap 1051(“Ordinance”). 14.Tung Wah is a charitable organisation incorporated under the Ordinance and its objects are specifically set out in Clause 1 of the Schedule of the Ordinance. Clause 2(1)(b) of the Schedule of the present version of the Ordinance states as follows:
15.At the time of the DMC&P, it was the “Governor” whose approval was required under Clause 2(1)(b) to “Chief Executive”. Other than this, the wording of Clause 2(1)(b) of the then version of the Ordinance and the current version are the same (“Statutory Provision”). The background leading to the Outstanding Requisition 16.The Developers respectively owned portions of land in certain sections of Inland Lot Nos 1556, 1557, 1864, 1865 and 1866 (“Lots”). They first agreed to jointly develop and construct the Building pursuant to an agreement entered into on 13 March 1982, followed by a supplemental agreement dated 1 June 1988 (“Joint Development Agreements”)[1]. 17.In the meantime, the Developers had entered into an Agreement to Assign on 24 September 1986 with the then mortgagee Bank of East Asia and the then Financial Secretary Incorporated pursuant to which the Developers agreed to construct at their expense certain MTR Structures (as defined therein) and upon completion of the Building and when called upon by Financial Secretary Incorporated to assign free of all costs and incumbrances, areas named MTR Areas and , among other things, subject to and with the benefit of the deed of mutual covenant (“MTR Agreement”)[2]. Further, the deed of mutual covenant was to be submitted to the Registrar General (Land Office) for his written approval, and was to include certain terms set out in clause (1)(c) of the MTR Agreement[3]. 18.There was a memorandum endorsed on the back of the MTR Agreement, which stated “I HEREBY CONSENT to the within written Agreement under Clause 2(1)(b) of the Schedule to the Tung Wah Group of Hospitals Ordinance” (“Memorandum”). The Memorandum was dated the same date as the MTR Agreement and signed by the Director of Buildings and Lands for and on behalf of the Governor. This represented the approval under the Statutory Provision. 19.The Lots were developed and the Building was constructed. 20.There were then a number of documents executed on 1 June 1988, including it seemed the supplemental agreement referred earlier, which was one of the Joint Development Agreements but no copy had been produced. Anyway, the following 3 documents were executed on 1 June 1988:
21.The MTR Assignment had a similar Memorandum endorsed on the back. The Deed of Exchange did not. According to D’s Counsel, Mr Kenneth Chan, no requisition was raised by D in respect of the Deed of Exchange because it was considered to be a pre-intermediate root title document[6]. 22.The DMC&P did not have any similar Memorandum endorsed. 23.After the MTR Assignment, the Units in the Building were then sold off to the public. The Property was first assigned to a purchaser 14 June 1988, and since then, there had been a number of assignments over the years, and P became the 11th purchaser of the Property on 16 December 2010[7]. Summary of letters between solicitors concerning the Outstanding Requisition 24.The following is a brief summary of the letters of concerning the Outstanding Requisition exchanged between D’s solicitors Messrs Tang Tso & Lau (“TTL”) and P’s solicitors Messrs TC Foo & Co (“TCF”) :
D’s Summons The 3 questions of law 25.The 3 questions of law set out in D’s Summons were:
Discussion on D’s Summons The 1st Question 26.P’s Counsel Mr Michael Yin had referred the court to the CFA decision in Kung Ming Tak Tong v Park Solid Enterprise (2008) 11 HKCFAR 403, where Li CJ had distinguished two sets of rights enjoyed by an owner of a unit in a multi-story building under the Hong Kong’s system of conveyancing, and the effect of a deed of mutual covenant (“DMC”). 27.It was held in Kung Ming Tak Tong that, among other things, as follows:
28.Li CJ had also pointed out in Kung Ming Tak Tong that :
29.Mr Chan had, however, submitted that the present case should be distinguished from Kung Ming Tak Tong on the following grounds:
30.A copy of the DMC in the Kung Ming Tak Tong had been obtained by D from the Land Registry and produced to the court for consideration. CJ Li had said:
31.Although the DMC in Kung Ming Tak Tong was a simpler version of a deed of mutual covenant involving only one developer/first owner, what Li CJ was explaining in detail in that case was the Hong Kong system of dealing with multi-storey buildings in multi-occupation and the effect of a DMC. I do not think that his comments were confined to only the type of DMC in that case. 32.Having said this, I accept the present DMC&P was of a more complicated form than the DMC in the Kung Ming Tak Tong, as there were 4 Developers/Registered Owners plus the MTRC, and the Building consisted of the Commercial Development and the MTR Areas. However, this would not necessarily result in what Li CJ said in Kung Ming Tak Tong not being applicable to the DMC&P. Further, like other DMCs where the developer and the first purchaser would execute the assignment and the DMC at the same time, here in the present case, the Developers/Registered Owners executed the MTR Assignment with the first “purchaser” MTRC at the same time of executing the DMC&P. 33.The issue is really whether the DMC&P also amounted to a “partition” within the Statutory Provision. 34.There were several firms of solicitors acting for different parties at the time of the DMC&P. As can be seen from the signing page, one of the Developers/Registered Owners was represented by solicitor Mr SH Leung, Tung Wah was represented by solicitors Messrs Lo and Lo, the other Developers/Registered Owners were represented by Messrs PC Woo & Co, which also acted for the Manager. As MTRC signed in presence of its Chief Legal Clerk, it was not clear which firm of solicitors represented them but no doubt it also had received legal advice whether from its in house lawyer or external. 35.Paragraph (3) of the Recital of the DMC&P had set out the number of shares each of the Developers/Registered Owners respectively held out of the 133,739,600 Commercial Shares (as defined below) as co-owners immediately prior to the MTR Assignment. 36.Paragraph (5) of the Recital had set out that the Land and the Building had been notionally divided into 133,900,000 equal undivided shares of which 160,400equal undivided shares were allocated to the MTR Area (“MTR Shares”) and 133,739,600 equal undivided shares were allocated to the Commercial Development (“Commercial Shares”) to be held by the Registered Owners as tenants-in-common in the proportions set out in Part B of the Second Schedule of the DMC&P. 37.It was clearly set out in paragraph (8) of the Recital that pursuant to the MTR Agreement, the Registered Owners had obtained the approval of the Registrar General (Land Office) (“Registrar General”) to the DMC&P. 38.Paragraph (9) of the Recital stated:
39.Paragraph (10) of the Recital then stated that the parties had also agreed to enter into the DMC&P for the purposes of making provisions for the management of the Land and the Building thereon and of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect of the Land and the Building[27]. 40.The DMC&P was divided into the following sections:
41.There were two Schedules to the DMC&P-
42.D had relied heavily on paragraph (9) of the Recital and Clause 3(1) under Section I in submitting that the DMC&P amounted to a partition within the Statutory Provision. 43.Paragraph (9) of the Recital had been set out earlier. Clause 3(a) of Section I stated:
44.Clause 3 (b), (c) and (d) contained reciprocal provisions from the other 3 Registered Owners to the Second owner, the Third Owner and the Fourth Owner respectively, whereas 3(e) contained provision in relation to jointly owned Units. 45.The words heavily relied on by Mr Chan were those words at the end of Clause 3(a), namely “TO THE INTENT that the premises described in this Clause shall forthwith be held by the First Owner in severalty free from any interest of the Second Owner the Third Owner and the Fourth Owner and that the First Owner shall have in all respects the rights of an absolute owner thereof subject to the Deed of Dedication.” (“Intent Provision”). 46.Mr Chan had argued that without the DMC&P, the Developers would have to be joined in any assignment when any of the Units of the Building was sold. He had also posed the question: could any one of the Developers assign individually those Units without the others in the absence of the DMC&P. As the answer must be no, then the DMC&P must be caught by the Statutory Provision. Thus, the present situation was completely different form the situation in Kung Ming Tak Tong. 47.In my view, the question posed by Mr Chan will not necessarily distinguish the DMC&P from the DMC in Kung Ming Tak Tong, or any DMCs in other multi-storey buildings, as the same question can be posed to other DMCs. In the absence of a DMC, there would be no notional division of equal undivided shares assigned to each unit in the building, then how could the developer sell each unit. Otherwise, as Li CJ had said from the below passage, there could be the creation of a series of sub-leases, and the “purchaser” of each unit would not be allotted any shares, and would only end up, say a tenant. 48.What Li CJ had said in Kung Ming Tak Tongwas-
49.The words “ ASSIGN GRANT and RELEASE” in Clause 3 (a) clearly referred to the assigning of the full and exclusive right and privilege to hold use occupy and enjoy those self-contained Units in the Building, as set out in Part B of the Second Schedule. 50.I accept that Clause 3(a) with the Intent Provision was differently worded than, say clause 1 of the DMC in Kung Ming Tak Tong which stated “Each of the parties hereto … hereby grants … and assigns the full right and privilege to the exclusive use occupation and enjoyment and the rents and profits … of the part of the said Building … TO THE INTENT that each of the parties hereto shall be entitled to exclusive use occupation and enjoyment and the rents and profits … of the said part of the said Building…” 51.However, according to my construction, the Intent Provision no more than reiterated what Li CJ had said, that for all practical purposes, the Owner of undivided shares to which a Unit had been allotted was able, by virtue of the DMC&P, to exercise rights in relation to that Unit as if it was its absolute owner. 52.Mr Yin had submitted that “partition” was a legal term of art used to describe the process of putting an end to co-ownership by physical division of the co-owned land and allotment to each of the former co-owners a separate parcel of the land to be held in severalty. 53.Mr Chan had, however, argued that “partition” did not necessarily mean “partition of ownership”, and that the Statutory Provision included specifically “or otherwise dispose of”. 54.The partition or disposal referred to in the Statutory Provision is of “any immovable property”. 55.Looking at the effect of the entire DMC&P, the Developers/Registered Owners were co-owners prior to the DMC&P, and after executing the DMC&P, they were still co-owners save that their agreed percentages in Part A of the Second Schedule were represented by shares in each of the Units as set out in Part B of the Second Schedule. 56.Further under Clause 9(I) of the DMC&P, the 4 Developers/Registered Owners had reserved exclusively unto themselves certain rights and privileges, of certain areas of the Commercial Development not intended for common use and the use of which had not specifically reserved to any particular Owner under the DMC&P, and further if there had been any Income from those reserved rights (as defined therein), such was to be divided in the agreed proportions set out in Part A of the Second Schedule until all the Registered Owners ceasing to hold any undivided share in the Land and Building. 57.The above clause in my view clearly made it clear that the Developers/Registered Owners had remained to be co-owners in the Building after the DMC&P. 58.Thus, notwithstanding that the word “partition” was used in paragraph (9) of the Recital, or in the title, on my construction of Clause 3 (b), and the sub-clauses therein, and the rest of the DMC&P, there was in effect no assignment, nor partition, nor disposal of any immovable property or any of their respective interests in the Lots and the Building by the Registered Owners. 59.In fact, the effect of the DMC&P was no more than a ‘standard’ DMC, such as the DMC in Kung Ming Tak Tong, in that it was no more than a separate contractual undertaking by each of the co-owners not to exercise the rights of occupation and enjoyment which he would otherwise be able to do as co-owner over units other than his own[29]. 60.There was no alienation of any interest in the immovable property held by Tung Wah under the DMC&P and it was not a partition of any immovable property which fell within the Statutory Provision. 61.In light of the above, my answer to the 1st Question must be NO. In my view, the DMC&P did not require the Governor’s approval in writing under the Statutory Provision. The 2nd Question and 3rd Question 62.As my answer to the 1st Question is No, the 2nd Question and the 3rd Question will not arise. Neither Counsel had really made submissions on the alternative position, and had concentrated their submissions on the 1st Question. 63.In any event, I will just add, even had the DMC&P amounted to a partition under the Statutory Provision, and the answer to the 1st Question were in the affirmative, in my view, the absence of the written consent under the Statutory Provision would not have rendered the title to the Property not a good title. 64.It is trite law that the duty of a vendor is to give and show good title, and the duty to give good title includes the duty to answer the requisitions satisfactorily. 65.So far as good title is concerned, Mr Chan referred the court to Kan Wing Yau v Hong Kong Housing Society [1988] 2 HKLR 187, where the Court of Appeal held[30] :
66.Mr Chan further referred to Sun Sek Haw & Au So Kum [1999] 3 HKLRD 12, where it was held (per Rogers JA) that in the field of conveyancing the law had historically set a very high standard; the standard of knowledge was that a man had constructive notice of matters which he would have discovered if he had made those enquiries which he ought reasonably to have made; taking that test as a guideline, in that case, the relevant matters were matters which a hypothetical conveyancing solicitor would have discovered when acting property[31]. As summarised by Mr Chan, where there could be a subsequent successful challenge to the title of the vendor in an action, the court would not force the title upon the purchaser[32]. 67.Mr Yin, on the other hand, had referred the court to Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396 and submitted that the duty to show/prove good title by answering requisitions is predicated upon the purchaser having raised “a substantial objection as to the vendor’s title and there are facts within the vendor’s knowledge which, if revealed, might meet the objection[33]”. 68.In the present case, it had already been set out in the Clause 1(c) of the MTR Agreement that the deed of mutual covenant was to be submitted to the Registrar General for his written approval[34]. Clause 1(c) further stated that the deed of mutual covenant in respect of the Lots and the Building to be erected thereon had to be submitted to the Registrar General for his written approval and “shall contain such provisions as the Registrar General…shall approve or reasonably require and in particular shall contain….” The MTR Agreement had borne the Memorandum, which meant it had the written approval of the Governor, and in my view, this would clearly indicate that the approval of the Registrar General to the deed would be sufficient. 69.The DMC&P was submitted to the Registrar General, who did give his written approval. In light of the above, I accept what P’s solicitors TCF had pointed out, that even if written approval were indeed required under the Statutory Provision, it should be presumed that it had been obtained. In any event, the Registrar General did not see it necessary that the DMC&P would separately require the Governor’s written approval. 70.D’s solicitors had written respectively to Messrs PC Woo & Co, solicitors for the Developers, Messrs SH Leung & Co, solicitors for the First Owner, Messrs Lo & Lo, solicitors for Tung Wah at the time to enquire about the Deed of Exchange and the DMC&P lacking written approval under the Statutory Provision. 71.Both Messrs PC Woo & Co and Messrs SH Leung & Co had pointed out that title had been accepted by the subsequent purchasers, and they declined to answer TTL’s query. Messrs Lo & Lo had pointed out on a courtesy basis, that the MTR Assignment was executed on the same day as the DMC&P, and as written consent from the Governor had been given to the MTR Assignment, one could safely presume that the Governor had given the consent for the DMC&P. 72.As pointed out by Messrs Lo & Lo, the DMC&P was executed on the same day as the MTR Assignment, for which there was the Memorandum of written approval, and thus all the conveyancing solicitors involved would have been aware of the Statutory Provision, and it seemed that all of them had accepted the approval by the Registrar General to the DMC&P was sufficient. MTRC executed the MTR Assignment subject to the DMC&P, and there was no evidence of any query from them. 73.The DMC&P was entered into 27 years ago in 1988. There were 31 Units as seen from the Third Schedule. Over all these years, there was no evidence of any challenge to title to the Property or other Units on the basis that the DMC&P did not have the necessary written approval of the Governor by any purchaser or mortgagee bank. In particular, there had been a number of mortgagee banks involved with the Property, eg, Hang Seng Bank, The China and South Sea Bank, DBS Bank, HSBC, ICBC over the years. As pointed by TCF in their letter of 25 June 2014, any risk of title being challenged on this ground appeared to be ‘fanciful’ which I accept. I further accept, that due to lapse of time, all things were presumed to have been done rightly and regularly. 74.Having considered all the above, even if the answer to Question 1 were in the affirmative, my answer to Question 2 would have been NO, namely the absence of the written consent under the Statutory provision did not render the title to the Property not a good title. 75.As for Question 3, no submissions had really been made thereon. In any event, in my view, there had not been sufficient evidence of any repudiation of the Agreement on the part of P. 76.In light of the above, D’s Summons is to be dismissed. P’s Summons 77.Mr Yin submitted that if the court came to the conclusion that the DMC&P was not a “partition” within the meaning of the Statutory Provision requiring the written consent of the Governor (under the then version of the Statutory Provision at the time of the DMC&P), then the court should also bring the proceedings herein to any early conclusion, by entering final judgment against D. 78.Mr Chan had argued that even if P had good title to the Property, it had failed to show/prove good title by failing to answer proper requisitions before the deadline. 79.As pointed out by Mr Yin, D’s focus was only on the DMC&P, and not the Deed of Exchange. As I have mentioned earlier, Mr Chan had said that no requisition was raised by D in respect of the Deed of Exchange because it was a “pre-intermediate root title document”. In any event, in the letter dated 30 June 2014 from TCF, although not under any obligation, TCF had dealt with TTK’s further queries, and provided answers. 80.In the present case, the Outstanding Requisition was clearly the only requisition that D had not accepted P’s answer, as can be seen in TTL’s letter of 28 June 2014. It would appear that due to the intervening weekend, TCF was only to reply on 30 June 2014, the day of completion. TCF maintained its position that the DMC&P did not require the Governor’s approval under the Statutory Provision, and offered to postpone the completion for one week to on or before 5 pm on 7 July 2014 for D to re-consider its position, and requesting for a response before 3 pm as to whether the postponement was acceptable to D. 81.TTL claimed it only received TCF’s letter at 2:02 pm and was thus given only about one hour to reply. 82.Mr Chan submitted that this was insufficient time, and that the offer to postpone the completion was only a conditional offer, that the condition being D would have to make a decision as to whether to accept the offer within a very short period of time. He referred the court to Jasmin Enterprises Ltd v Chan Yuk Hon [1998] 4 HKC 224. 83.As set out earlier, the correspondence on the Outstanding Requisition since TCF’s 1st reply in April 2014 had by then gone on for 2 months. I am of the view, that had D indeed wanted to reconsider, there was ample time within that hour for TTL to send out a short reply accepting P’s offer to postpone completion for 7 days for time for D to re-consider. 84.The general principle on striking out application is :
85.I am of the view that TCF had dealt with all the requisitions , including the Outstanding Requisition satisfactorily, and that P had proved good title and was able to give good title to the Property 86.D’s Defence and Counterclaim was based only on P’s failure to prove and give good title to the Property. In light of my above view, D’s Defence and Counterclaim must obviously be unsustainable. It should thus be struck out on grounds that it did not disclose any reasonable cause of action/defence or that it was frivolous and vexatious or otherwise an abuse of the process of the court. Conclusion 87.The effect of my order is as follows:
88.Finally, I express my gratitude to all Counsel for their submissions and assistance to the court.
Mr Michael Yin, instructed by T C Foo & Co, for the plaintiff Mr Kenneth C L Chan and Mr Freddy F K Tsang, instructed by Tang Tso & Lau, for the defendant [1] Para 9b of affirmation of D’s director Chan Ying Chun, B:55 [2] Memorial No 3162151, D:294 [3] D:300-301 [4] C:271-285 [5] D:321-345 [6] See para 25, D’s Skeleton Submissions [7] C:111, land search [8] C:160-163, para 4 [9] C:207 [10] C:226 [11] C:228 [12] C:231 [13] C:233 [14] C:235 [15] C:241 [16] C:244 [17] C:258 [18] C:263 [19] C:263 [20] D:358-361 [21] C:267 [22] C:268-270 [23] C:286-287 [24] See Headnote, at p 404 [25] At para 36, F-I, p 422 [26] At para 20, p 216 [27] D:357 [28] At paras 18, 19, p 415 [29] At para 34, p 422 [30] At 193H [31] See Holding (2) and (4) [32] 22H-23A [33] At line 30, p 406 [34] D:300 [35] Para 18/19/4, Hong Kong Civil Procedure 2015 Vol 1 |
Cases cited in this judgment