Archive for the ‘requisitions on title’ Category

Good title: not affected by ‘fanciful’ risks of a successful legal challenge

April 20, 2016

In Jovian Corporate Communications Ltd v Link Wide International Investment Ltd ([2016] HKEC 808, CA) the dispute arose out of a contract for the sale of an office unit. The building had been jointly developed by four developers. One of the developers was a charity and it needed the consent of the Governor of Hong Kong for any dealing with its land, including any partition. The developers had entered into a series of agreements at the time of the development in the 1980s. One of these bore the title ‘Deed of Mutual Covenant and Partition’ (‘DMC & P’). The purchaser of the office unit raised a requisition asking for evidence that the Governor had consented to this partition. The seller argued that this requisition was misconceived. Completion did not take place and the seller sought a declaration that it was entitled to forfeit the deposit and to damages. It was successful at first instance and on appeal.

In the Court of Appeal, the principal question was whether the title was good or not even in the absence of some specific written approval directed at the charity’s involvement. The question had to be approached ‘from the standpoint of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain. (Mexon Holdings Ltd v Silver Bay International Ltd, per Litton PJ). The title is good unless there is the risk of the successful assertion of an encumbrance against the purchaser. When assessing the level of risk, regard must be had to the circumstances of the case (De Monsa Investments Ltd v Whole Win Management Ltd, Litton NPJ).

Here the Government was well aware of the transaction. The MTR Corporation was a party to some of the agreements and the Governor’s approval was endorsed on them. The DMC & P had the approval of the Registrar General (Lands Office) as required by the agreement with the MTR Corporation. In these circumstances, it was fanciful to suggest that the DMC & P had not been approved by the Government ([17] per Lam V-P). There was no prospect that the Government could successfully assert that it had not approved the DMC & P ([18]). The written approval of the Governor on an assignment to the MTR agreement which was one of the core agreements relating to the development provided any approval which might be necessary ([19] – [20]). Even if it could challenge this, neither the Government nor any other interested party had any reason to do so ([21]).

In any event, ‘partition’ in the DMC & P bore its technical legal meaning as an arrangement that brought an end to co-ownership. The DMC & P (despite its title) did not do this.

Michael Lower

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Missing title deeds: showing good title in accordance with section 13 of the Conveyancing and Property Ordinance

April 8, 2015

In Zhang Xueshai v Lai Chin Wing ([2015] HKEC 295, CA) LCW had been appointed as the Committee of the estate of his mentally incapacitated brother (LMW) and was authorised to sell LMW’s flat. The flat had been acquired under the Home Ownership Scheme. The mortgage had been paid off. There had been two later agreements to sell the property to financial institutions (which may well have been connected with each other). These agreements had been cancelled. A charging order nisi and a charging order absolute had also been registered against the property but these had been discharged by LCW.

LCW agreed to sell the property to the plaintiff (ZX). The agreement required LCW to prove title in accordance with section 13 of the Conveyancing and Property Ordinance. LCW was unable to provide the originals of any of the title deeds and offered to provide a statutory declaration to address this problem. ZX was not satisfied with the statutory declaration and sought declarations that LCW had failed to answer his requisition and to prove and show a good title. ZX also sought the return of the deposits.

Cheung CJHC referred to the Court of Final Appeal decision in De Monsa Investments. Missing title deeds are only a problem if this gives rise to a real possibility of the successful assertion of an encumbrance against the property after completion (such as the risk of the creation of an equitable mortgage by deposit of title deeds ([30])). Where there is a problem, it may be possible to address it either by a statutory declaration or by the production of any other type of evidence that is sufficient to dispel the doubt that has arisen ([31]).

There was a real risk, on the facts of this case, that LMW might have tried to raise finance on the security of an equitable charge. All of the title deeds were missing. The cancelled ‘sales’ to financial institutions may well have been disguised loan arrangements. The charging orders also suggested that LMW needed to raise funds ([35] – [37]). LCW did not have the personal knowledge needed to give a statutory declaration that would deal with this risk ([38]).

LCW argued that there was no risk of the successful assertion of an encumbrance against the property since it had been acquired under the Home Ownership Scheme and any unauthorized dealing would be void (section 17B of the Housing Ordinance). The argument failed in this case because it had been raised too late; if LCW intended to rely on this legal provision he should have mentioned it. The argument also failed  because no evidence had been produced to show that there had been no approval.

Michael Lower

Interpretation of a clause barring requisitions about unauthorised structures. Justification of a large deposit.

March 3, 2015

In Channel Green Ltd v Huge Grand Ltd ([2015] 1 HKLRD 655, CA) C agreed to buy commercial property from H. The agreement contained a clause (clause 30) to the effect that the purchaser ‘shall not raise any questions / inquiries or refuse to complete or delay completion of transaction on the ground that there are any unauthorised additions, alterations or illegal structures on the Property’. There were defects arising out of the physical condition of the property. Stalls occupied areas designated for car parking under the terms of the Government Lease. Parts of shop premises were built on areas that the Government Lease stipulated should not be built upon. Despite the terms of the agreement, C raised requisitions about these matters and later failed to complete. The question was whether clause 30 prevented  C from raising these requisitions and from asserting that H could not give good title.

C argued that the effect of the clause was only to prevent it from objecting to unauthorised or illegal structures to the extent that they amounted to a breach of the Buildings Ordinance but not to the same problems considered as breaches of the terms of the Government Lease or the Deed of Mutual Covenant. The argument failed:

‘In our view, illegal structure simply means any structure erected against the law. The relevant illegality can stem from a breach of the Buildings Ordinance, it can equally stem from a breach of the terms of  the Government lease or the terms of the DMC.’ ([27], Lam V-P)

Applying Jumbo King the plain words of the clause prevented C from raising requisitions or objecting to the title on the grounds of the defects relied on ([39]). The fact that C knew of the problems at the time of the contract was part of the factual matrix and this made it even clearer that the clause prevented C from objecting to the defects ([40]). While Lord Hoffmann had spoken of an ovepowering principle that a vendor could not knowingly impose on a purchaser a seriously defective title, this was to be balanced against freedom of contract ([42] – [43]).

C had paid a 15% deposit and this was forfeited. C argued that the fact that the deposit was larger than the customary 10% meant that the onus was on H to justify it being treated as a deposit. This proposition was accepted ([50]) but H had provided the necessary justification. H had agreed to a four and a half month gap between contract and completion:

‘whether a higher deposit is reasonable in the circumstances of a particular case is a matter of fact and degree. In the present case, the Judge was clearly entitled to take account of the fact that the longer the completion period, the longer the vendor is at risk from the vicissitudes of the market and there is objective justification for a 15% deposit.’ ([56]).

Michael Lower

Interpretation of clause modifying duty to respond to requisitions concerning unauthorised structures

August 20, 2013

In Channel Green Ltd v Huge Grand Ltd ([2013] HKEC 1124, CFI) CG had entered into a contract to buy property from HG. It had paid a 15% deposit. The contract contained a clause to the effect that the property was sold on an ‘as is’ basis. The clause provided that CG could neither raise requisitions concerning unauthorised additions, alterations or illegal structures nor refuse to complete or delay completion on account of any such matters. There were several unauthorised structures at the property. CG raised requisitions concerning these structures and refused to complete. HG elected to terminate the contract and forfeit the deposit as a result.

The question was whether, as a matter of contractual interpretation, the relevant clause meant that CG had no right to raise requisitions nor to refuse to complete on account of the unauthorised structures. The Court of First Instance decided that this was the case ([91] – [98] per Recorder Coleman SC).

The court noted that although the content of pre-contractual negotiations is irrelevant to the process of interpretation, statements of fact made in the course of negotiations are good evidence as to the context or factual matrix and so  are relevant to the construction of the contract ([23]). Thus, the fact that HG had informed CG of the existence of a number of the unauthorised structures before contracts had been exchanged was relevant to the construction of the clause.

The court also considered whether the 15% deposit was a true deposit or whether it could potentially be a penalty and decided that it was a true deposit. While the amount exceeded the conventional 10%, this was justifiable in the context of a lengthy period between contract and completion ([109]).

Michael Lower

Duty to show and give good title: the MEPC principle as a last resort

July 18, 2013

In Xu Xiaoqi v Tsui Yuet Lai Teresa ([2013] HKEC 636, CFI) D agreed to sell a property to P. The agreement required D to show and give good title in accordance with sections 13 and 13A of the Conveyancing and Property Ordinance. One of the assignments forming part of the title had been executed by one tenant in common on behalf of the other under the terms of a Power of Attorney. The sellers were only able to produce a certified copy of the power. D’s solicitors argued that there was no real risk that an adverse interest could have been created as a result of the loss of the original. Nevertheless, on the day before completion they sent P’s solicitors a draft of a statutory declaration that the solicitors who had acted in relation to the power of attorney were prepared to give. P’s solicitors said that they would need time to consider it. D’s solicitors would not undertake to deliver the sworn declaration on completion since the solicitor who was to make the declaration would not give such an undertaking. Completion did not take place and D purported to rescind.

The court held that D had failed in his duty. The power of attorney was a document of title and section 13(1) obliged him to deliver the original to P.

D sought to invoke ‘the MEPC principle’ :

‘In other words, notwithstanding the law that it is a purchaser’s proprietary right to have all the originals of all the title documents (see Yiu Ping Fong, p 798H), in circumstances where there is no reasonable doubt that the missing original document would not affect the title to the property the vendor may be relieved of the obligation to produce it upon completion’. ([28] Anthony Chan J)

The principle can only be invoked, however, where the seller has made all reasonable efforts to produce the original or adequately explain its loss or destruction ([30]). D had not lived up to this responsibility. His solicitors had only produced a draft statutory declaration on the eve of completion having refused to acknowledge the validity of the requisition up to that point nor to explain the loss. There was no undertaking to produce the sworn statutory declaration on completion and P’s solicitors had not been given adequate time to consider it ([31]).

Michael Lower

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

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

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.