Archive for the ‘Conveyancing’ Category

Illegal structure: blot on title?

June 24, 2013

In More Alliance Ltd v Shing Samuel ([2013] HKEC 629, CFI) V agreed to sell property to P. P refused to complete contending that a number of requisitions had not been satisfactorily answered and that V had not shown good title. P successfully sought an order confirming his right to rescind and to recover the deposits paid under the preliminary and formal agreements.

In 2008, an order had been made against the property under section 24(1) of the Buildings Ordinance requiring the demolition of a structure on the roof of the property. V made no attempt to respond to P’s requisition calling for evidence that the order had been discharged / released. This was a blot on title since V had done nothing to show beyond reasonable doubt that the order did not create a risk of a successful claim against P. Thus, V had failed to give good title ([35]). The argument that the order had been registered before the contracts and that the property was sold ‘as is’ did not help V ([31]).

The agreements had been signed by V’s mother pursuant to an undated power of attorney. P promptly raised a requisition seeking evidence as to the date of execution and this was never properly dealt with. Later, outside the contractual timetable for raising requisitions, V’s mother claimed that she was in possession and was the beneficial owner. P raised a requisition in this regard and, again, this was not fully answered. It was held that as the requisition concerning ownership went to the root of title and P had shown due diligence in raising requisitions, the contractual timetable could not be held against him. A simple denial that V’s mother had any claim was not sufficient in the circumstances ([55]). This too amounted to a failure to show good title ([56]).

Finally, the title deeds were not in V’s possession and there were genuine doubts as to whether he would be able to deliver them on completion and so give good title.

Michael Lower

Removing internal staircase: infringement of right of way: encumbrance?

June 17, 2013

In Ho Ching Group Ltd v Tsang Pui Lin ([2013] HKEC 780, CFI) S agreed to sell the property (a ground floor shop) to P. There had been an internal staircase leading from the shop to the cockloft above (in separate ownership) and the owner of the cockloft had a right of way to use the staircase to get to the cockloft. The staircase had been removed and S acknowledged that this amounted to an infringement of the easement. The internal staircase had been replaced by an external staircase before S bought the property in 1998 and there had been no complaint by the owner of the cockloft. On the other hand, when approached by P, the owner of the cockloft refused to renounce its right to use the internal staircase. The question was whether the infringement of the easement amounted to an encumbrance on title.

The court held that it was not an encumbrance. J Poon J. stated the test thus:

‘In considering if a risk of litigation may constitute an encumbrance, the court will ask : are the facts and circumstances of the case so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the encumbrance.’ ([12]).

Here, there had been no complaint by the owner of the cockloft. There had been no threat of action concerning the removal of the staircase by other owners in the building or the Government. It seemed clear that the owner of the cockloft had abandoned the right of way. The risk of litigation was fanciful ([13]).

The sale and purchase agreement contained a clause requiring P to accept the situation as regards the staircase but the presence of this clause was not a factor in the judgment.

Michael Lower

Conveyancing: Imprecise requisitions: substantial performance

May 7, 2013

In Continental Zone Ltd v More Glory International Ltd ([2013] HKEC 568, CFI) M had entered into an agreement to sell property to C. In August 2011, C raised the following requisition:

‘Please take instructions from your client and advise us whether there is/are any unauthorized or illegal structure(s) or alteration(s) of and in the Property.’

In December 2011, C followed up by forwarding a report from architects and engineers to the effect that 10% of the net area to be sold encroached into public land. The letter forwarding the report began by making it clear that C was rescinding.

Deputy Judge Keith Yeung S.C. held that the August requisition was too vague to amount to a requisition and so there was no duty to reply ([28]). The December requisition did not suffer from this defect but C purported to rescind before raising the matter ([34]).

Nevertheless, a seller remains under a duty to give good title if the defect cannot be removed by completion or where it has kept the agreement alive ([43] and [51]). There was still a duty to give good title here.

While M could invoke the doctrine of substantial performance ([62]) the burden of proof was on M ([77]) and this burden had not been discharged:

‘The Property would have been a substantially different one both objectively and from Mr. Tsang’s subjective perspective. The Defendant could not have substantially performed the Agreement.’ ([79])

Michael Lower

Execution of deed on behalf of mainland company: presumption of due execution

May 3, 2013

In Liu Xiaodong v Chase Eagle Development Limited ([2013] 1 HKLRD 933, CFI) a mainland company (C) gave W a power of attorney to sign a deed on its behalf. The attestation clause read:

‘SEALED with the Transferor and SIGNED and DELIVERED by [W] the person(s) duly authorised by the governing body of the Transferor.’

W alone signed on behalf of C. There was an opinion from a mainland lawyer. This was to the effect that the person giving the opinion was a mainland lawyer applying mainland law and that the execution was valid. The court held that this would ordinarily be sufficient proof that the document had been properly executed ([36] – [45]).

This was not the end of the matter, however. The transaction was of such a size as to fall outside the scope of the authority conferred by C on W. This defect was fatal and could not be cured by the production of the opinion of the mainland lawyer.

Nor could it be cured by section 23 of the Conveyancing and Property Ordinance. The mere fact that the attestation clause included the ‘magic phrase’ duly authorised by the governing body’ was not enough to bring the execution within section 23.

Conveyancing: requisition: no record of release of equitable charge

March 4, 2013

In Chun Tat Paper Co Ltd v Wong Ip Cheng ([2013] 1 HKLRD 571, CA) W’s predecessor had created an equitable charge ranking behind a legal charge. The predecessor later paid off the legal charge and replaced it with a new legal charge. The predecessor sold the property to W and the replacement legal charge was released. W then granted a legal charge in favour of his bank.  W had entered into an agreement to sell the property to C. C’s solicitors raised a requisition seeking evidence that the equitable charge had been released. There was no record of any release of the equitable charge.

The Court of Appeal held that in light of the objective facts known to the parties there was no substance to the requisition and title had been shown to the requisite standard. Kwan JA commented that discharge may be inferred if there is strong evidence pointing to it ([17]). The later legal chargees would not have taken their charges had there been any doubt that the equitable charge had been discharged. Otherwise, there may have been no value left in the property to satisfy the advances made by them. Further, the equitable charge required the chargee’s consent to the creation of any later charges. Common sense and commercial reality pointed to the conclusion that the equitable charge had been released ([23]).

When is there sufficient evidence that a resulting trust has been brought to an end?

February 15, 2013

In Rose Palace Ltd v Jung Christopher Lam ([2013] HKEC 146, CFI) in October 1988 W and C were the purchasers of the property in question under a sale and purchase agreement. They each contributed to the 10% deposit and they were to acquire the property as tenants in common in equal shares. Then they entered into a Memorandum of Direction providing that the property would be assigned solely to C. In fact, C entered into a sub-sale with SF Ltd and the property was assigned directly to SF Ltd. C joined in as confirmor but W did not. P acquired the property from a successor of SF Ltd and had entered into an agreement to sell it to D.

D raised a requisition asking how W’s beneficial interest under the resulting trust that arose when he contributed to the deposit had been brought to an end. P relied on statutory declarations from a partner in the firm that acted for W and C to the effect that his firm’s practice at that time was to explain to W that the Memorandum brought an end to his interest. It was held that this was sufficient evidence that the interest had come to an end (and this was corroborated by the fact that W had never made any claim in the intervening years ([20]).

The court also considered whether any potential action by W would be barred by virtue of section 7(2) of the Limitation Ordinance. The question here was whether P was a trustee for the purposes of section 20(1)(b) of the Limitation Ordinance since, if so, there would be no limitation defence to W’s action. The court held that the section did not apply to constructive trustees who were strangers to the trust but became trustees by virtue of some dishonest acts of interference. P (if it was a constructive trustee at all) could only belong to this category of constructive trustee and so section 20 did not apply. W’s action would be time-barred.

Directions issued by Fire Services Department: effect on title

February 8, 2013

In E-Global Ltd v Trenda Ltd ([2013] HKEC 145, CFI) E and T entered into a provisional sale and purchase agreement under which E was to buy a commercial unit from T. The sale was of 75 / 32,426 shares in the relevant building (it was one of hundreds of other units in the building). The Fire Services Department had issued to the Incorporated Owners directions under the Fire Safety (Commercial Premises) Ordinance requiring a significant number of alterations in the building. These works had not been completed even by the date of the hearing but progress was being made and the Fire Services Department granted extensions of time when requested to do so. E argued that the directions meant that T did not have good title. It refused to sign the formal agreement. T made an offer to the effect that HK$50,000 should be retained to meet T’s share of the eventual cost of the works. It also offered an unlimited commitment to meet its share of the eventual cost. E rejected these offers outright.

E was in breach of contract and T was entitled to forfeit the deposit paid on the signing of the provisional sale and purchase agreement.

The directions did not constitute a blemish on the title:

‘[G]iven that the risk of enforcement measures being taken against the I.O. (because of the history of the matter and the nature of the works themselves) was minimal it seems to me that the duty on the vendor was limited to offering reasonable and adequate provision to meet the financial consequences of the eventual compliance with the Directions by the I.O.’ ([27] Deputy Judge Burrell)

E was entitled to reasonable assurance that T would bear its share of any cost. On the face of it, the offers made by T amounted to a reasonable attempt to meet E’s concerns. Although the offer to retain HK$50,000 was not adequately justified on its own (how was it calculated?) it had been buttressed by an unlimited commitment. If E thought that it needed further comfort (such as security for T’s open-ended commitment) then it should have asked for it rather than rejecting the offers out of hand.

Rescission: misrepresentation and presence of unauthorised structures

December 5, 2012

In Yili Concepts (HKG) Limited v Lee Wai Chuen ([2000] HKEC 1043, CFI) the agents acting for sellers of a flat made negligent misrepresentations as to the size of the flat and that the area that they had given could be used as the basis for determining the price or valuation. The buyer entered into a provisional agreement but later refused to proceed when he learned the truth about these matters and that there were unauthorised structures. He sought to rescind and recover his deposit relying on the misrepresentations and further arguing that the presence of the unauthorised structures amounted to a defect in title.

The court decided that the agents had been acting with the seller’s authority with regard to one of these misrepresentations but not the other. The buyer had relied on them. The misrepresentations had been the cause of the collapse of the transaction. The misrepresentations entitled to the buyer to rescind.

There was a real risk of enforcement action in respect of at least some of the unauthorised structures. Even if casual mention had been made of the works that had been done, this was not enough to amount to a waiver of the contractual right to a good title. Hence they amounted to a defect in title giving the buyer a right to rescind and recover his deposit.

The agreement had not been stamped and was not admissible in evidence. The agreement was still enforceable as the defendants had acknowledged the existence of a signed, written agreement in the pleadings.

Despite the fact that they had been sole authors of one of the misrepresentations, the agents were entitled to claim their full commission from the sellers. This did not amount to such a breach of their duties as would allow the principal to refuse to pay the remuneration due under the provisional agreement.

‘Subject to contract’ does not apply where it is ‘meaningless in the context’

December 4, 2012

In Michael Richards Properties Ltd v Corporation of Wardens of St Saviour’s Parish, Southwark ([1975] 3 All ER 416) S offered property for sale by tender. The conditions of sale required interested parties to submit a tender form. Once S had chosen a bidder, the contract would be formed and the winner would be informed. P was the successful bidder. By mistake, the letter notifying it of this fact was marked ‘subject to contract’. P sent a cheque for the 10% deposit to S but later sought to resile and demanded the return of the deposit. S served notice to complete which was not complied with. S treated this as a repudiatory breach and re-sold for a lower price. P claimed the return of the deposit on the basis that there was no contract and S counterclaimed for damages.

S could have pleaded that the contract had already been formed by the time ‘subject to contract’ was introduced but failed to do so. Instead, it successfully pleaded that the words ‘subject to contract’ had no effect because they were ‘meaningless in the context’ (Nicolene Ltd v Simmonds). Goff J agreed that this was so:

‘This was a sale by tender. Nothing remained to be negotiated, there was no need or scope for any further formal contract, and it is difficult to see how it would be drawn. Nobody ever thought there was. The vendors did not submit a draft contract, nor were they asked to do so, and the matter proceeded with the steps necessary not to negotiate or finalise a contract, or even put it into further form or shape, but with the steps required for completion. In the context of a tender document which sets out all the terms of the contract, and which is required to be annexed to the tender offer, it seems to me that the words ‘subject to contract’ in the acceptance are meaningless, and that I ought to apply the principle of Nicolene Ltd v Simmonds.’ (at 424)

Goff J stressed that this was not intended to impede the normal operation of ‘subject to contract’ and that the decision rested on the unusual facts of the case.

Same name, different person?

November 8, 2012

In Cho Tak Po v Chan Kwok Wai ([2012] HKEC 1516, CFI) a husband and wife bought property as joint tenants. They subsequently broke up. As part of the arrangements following the divorce, the wife assigned the property to the husband. The couple had moved to the US and the wife remained there. Perhaps under this western influence the elements of her name were transposed when she signed the assignment (her family name appearing last). The title deeds included a notarial document declaring that the wife (with her name given in western style) was the person who had executed the assignment (annexed to the declaration). Next to the wife’s signature on the assignment was her Hong Kong ID number and this was the same number as that shown in the assignment of the property to her and her husband. Title to the property subsequently changed hands and there was now a contract for the further sale of the property. The buyers raised, and persisted in, a requisition concerning an alleged doubt as to whether the person who assigned the property to the ex-husband was the same person who had bought the property as joint tenant with the ex-husband (the doubt said to arise from the transposition of the names). Ultimately this led the purchasers to allege that the seller had repudiated by failing to show good title and to seek the return of the deposits paid. This claim got short shrift from the court. There was no substance in the alleged doubt.