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THE UNIVERSITY OF HONG KONG

DEPARTMENT OF PROFESSIONAL LEGAL EDUCATION

PROPERTY TRANSACTIONS I (2024-25)

LECTURES NO 3 and 4 (16 and 17 SEPTEMBER 2024)

THE NATURE OF THE TITLE AND VENDOR’S DUTY TO GIVE

GOOD TITLE

THE PURPOSE OF THIS LECTURE is:

(a) to identify the difference between giving and showing title;

(b) to consider the extent of the duty of the vendor to give good title;

(c) to identify the factors that will invalidate a good title; and

(d) to understand the nature of a good holding (or possessory) title

1. THE TWIN DUTIES OF GIVING AND SHOWING GOOD TITLE

Unless the sale and purchase agreement provides otherwise, the vendor has the
twin duties of showing and giving title. The duty to show good title involves (i)
the vendor in producing to the purchaser the required documents of title; and (ii)
answering any requisitions reasonably raised (see next lecture). The duty to give
(or make) good title involves the vendor in `proving' his title; that is removing
any title defect and providing any necessary conveyancing evidence to establish
that his title is not defective as being either encumbered (eg affected by
undisclosed encumbrances) or defeasible (ie may be taken away from him).

The parties may, in the sale and purchase agreement, exclude or modify these
duties (see below).

2. WHAT CONSTITUTES A GOOD TITLE?

A good title is such as will enable the purchaser to hold the property against any
challenger. It need not be a perfect title and the degree of imperfection tolerated
was explained by Lord Russell in MEPC Ltd v Christian Edwards [1981] AC
205, HL:

In my opinion, if the facts and circumstances of a case are so compelling to

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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
incumbrance, the court should declare in favour of a good title.

This test should be extended to embrace the concept that there is no real risk of
the title being held defeasible and not merely encumbered.

As regards this risk Godfrey J in Kan Wing Yau v Hong Kong Housing Society
(1987) MP 2436/1987 said:

If in a particular case the facts and circumstances are so compelling that,

beyond any reasonable doubt, the risk is, for all practical purposes, illusory,
the court can and should be prepared to ignore it and accordingly dismiss
any objections to title founded upon it.

In short, the question to ask is: `Is there a real risk that the vendor’s title is
defective by reason of being encumbered or defeasible or is the risk merely
illusory?’.

3. THE DUTY OF THE VENDOR TO GIVE GOOD TITLE

There is no rule of law that requires a vendor to give good title. The extent of this
obligation depends upon the terms of the sale and purchase agreement.

(A) The sale and purchase agreement may specifically require the vendor to
give good title

It is very common for the sale and purchase agreement to contain an express
clause requiring the vendor to give good title and such a term may (perhaps) be
incorporated by adopting condition 9 of Part A of the Second Schedule to the
Conveyancing and Property Ordinance (headed `GOOD TITLE’):

The vendor shall give title to the property in accordance with section
13A of the Conveyancing and Property Ordinance.

(B) Sale and purchase agreement silent as to title (as in an open contract)

In a case where the sale and purchase agreement is silent as to title, there will be
an implied term in the agreement that the vendor must give good title: Timmins v
Moreland Street Property Co Ltd [1958] 1 Ch 110.
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(C) Sale and Purchase Agreement may expressly exclude or limit the
vendor's duty

The vendor may exclude or limit his duty to give good title (indeed if he knows
that his title is defective he should do so).

For example:

(i) `The purchaser will accept the title of the vendor and agrees
to raise no requisitions thereon'.

(ii) `The vendor agrees to sell only such title as he holds'.

(iii) `The purchaser is deemed to purchase with full knowledge of all

defects in title and shall assume [that the power of attorney under
which assignment memorial number 12345 was executed was valid
and had not been revoked] and the purchaser agrees to raise no
requisition thereon'.

(i) Construction of excluding or limiting provisions

It will be a matter of construction whether a particular exclusion or limiting clause

has been drafted with sufficient width and clarity to limit the title that a vendor
must show and give. There are two distinct, but probably inter-related, issues
here.

First, the words used in the exclusion or limiting clause must be of sufficient
ambit and precision to limit the title that the vendor is contractually bound to give.
One must bear in mind that exclusion clauses are construed `contra proferentem’
(ie against the party seeking to rely upon them. For example, an exclusion clause
which embraces defects in respect of the condition of the property will not be
construed as extending to defects in the title to the property and vice versa.

Secondly, the courts may decide that the limiting clause does not, as a matter of
construction, extend to protect the vendor, notwithstanding the ambit of the words
used, on the grounds that the purchaser has been misled: Jumbo King Ltd v
Faithful Properties Ltd [1999] 3 HKLRD 757, [1999] 4 HKC 707, CFA (1)
Where, for example, the vendor has knowledge of a defect in title (including
constructive knowledge: see Becker v Partridge [1966] 2 QB 155) and imputed
knowledge (knowledge held by one’s agent or servant), but the purchaser does
not share such knowledge, the courts may conclude as a matter of construction
that the exclusion or limiting clause is not effective as against the purchaser on
the ground that the purchaser has been misled. Where, therefore, a vendor has
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actual knowledge of a defect in title, in order to render an exclusion clause

effective, he should ensure that the defect is brought to the attention of the
purchaser either in the sale and purchase agreement or before the agreement is
concluded.

The sophistication of the parties as to conveyancing matters may be a relevant

consideration in identifying whether the party has constructive knowledge of a
title defect. For example, a purchaser with special knowledge of, or experience
in, property dealings is likely to have constructive knowledge of the existence of
unauthorised building works, whereas a person with no such knowledge or
experience is unlikely to be held to have such constructive knowledge.

This is exemplified in Ip Kam Wah v Fair City Group Ltd [2005] 4 HKLRD 168
(purchaser acting for professional speculator entered into several sale and
purchase agreements to buy houses in Hong Lok Yuen; exclusion clause that
vendor gave no warranty as to unauthorised structures; purchaser on discovering
illegal structures raised requisition; held that, although it would be good practice
for the vendor to make a list of all possible illegal structures in order to rely upon
a limiting clause, as a matter of law there was nothing to prevent the parties from
agreeing to the sale of property with a defective title provided the purchaser was
not misled: Jumbo King; only rule of construction that courts would avoid
construing a contract in such a way as to enable a purchaser to be misled; here
limiting clause was clear and purchaser was experienced dealer in real estate;
limiting clause effective).

Kamos Ltd v Chan Chun Chung Howard (2004) HCA No 9184/2000 (vendor
agreed to sell flat; sale and purchase agreement contained term that `purchaser
accepts such title as vendor has’; limiting clause held to be effective since parties
were capable adults who should be able to look after their own interests, per
Reyes J).

See Rignall Developments Ltd v Halil [1987] 3 All ER 170 (vendor's solicitors
knew of defect which was unknown to purchaser; purchaser not bound by
limiting clause since vendor's solicitor's knowledge imputed to client); Wah
Ying Properties Ltd v Sound Cash [1994] 1 HKC 786 (limiting clause
ineffective since remedial order issued by Building Authority of which vendor
had knowledge and the purchaser did not); Billion Profit Enterprises Ltd v
Global Fly Development Ltd (1999) HCA 712/99 (occupation permit restricted
use of premises to office use; premises used as karaoke bar; held limiting clause
could be relied upon by vendor despite the fact that he had not informed the
purchaser of the change of use since use as karaoke bar was patent); Chi Kit Co
Ltd v Lucky Health Enterprise Ltd (2000) 3 HKCFAR 268 (`Clauses of this
kind have not been regarded as compelling a purchaser to accept a defective title
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where the vendor has failed to disclose defects of which he was aware: Becker v
Partridge [1966] 2 QB 155 at 171, per Dankwerts LJ’. This result has been
attributed to a rule of law which overrides the contractual provision. But the
preferable view expressed by Lord Hoffman NPJ (with whom Li CJ and
Nazareth NPJ concurred) in Jumbo King Ltd v Faithful Properties Ltd (1999) 2
HKCFAR 279 at 299 is that the question is one of construction of the relevant
contractual provision’), applied in Long Life Chinese Health Food Ltd v Luen
Fat Air Condition (HK) Trading & Engineering Co Ltd [2015] 3 HKLRD 511.

(ii) A vendor, who wishes to rely upon an exclusion clause, should disclose defects
in title of which he has actual knowledge.

The position has been clearly explained in Join Union Investment Ltd v China
Tree Investment Ltd [2016] 2 HKLRD 901 (2) (in this case the vendor had
agreed to give good title to his shop but failed to disclose unauthorised
partitioning of the shop into four separate shops and the construction of an
unauthorised cockloft; counsel for the purchaser contended that a vendor had an
implied contractual obligation to make full and frank disclosure to the purchaser
of any defect in title of which the vendor was aware; Anderson Chow J, having
considered the judgments in Goldenwick Ltd v Standard Chartered Bank (Hong
Kong) Ltd [2008] 3 HKLRD 266 and Faruqi v English Real Estates Ltd [1979] 1
WLR 963, observed that the issue of knowledge of a defect on the part of a vendor
only became relevant when the vendor sought to rely on a contractual provision
limiting the title to be proved or given; in such a case, the proper inquiry was
whether, upon the true construction of the limitation provision, it was intended to
apply to the relevant defect in title notwithstanding the vendor’s knowledge of it
at the time of the making of the contract: see Jumbo King Ltd v Faithful
Properties Ltd (1999) 2 HKCFAR 279 at 299; in conclusion (i) there was no
implied term in sale and purchase agreements that, where a vendor expressly or
impliedly agreed to give good title, he had to make full and frank disclosure of
all latent defects in title; (ii) where a vendor agreed to give good title, it was not
a defence for the vendor to say that he did not have knowledge of any defects in
title at the time of the making of the contract; and (iii) where, however, a vendor
wished to rely upon an exclusion of limiting provision in the sale and purchase
agreement, his knowledge (actual and perhaps constructive) of defects in that title
might affect whether he could rely upon such an exclusion or limiting clause).

Exclusion clauses in respect of misrepresentation or misstatement

This topic is dealt with later in LG8 on sale and purchase agreements.

(iii) Exclusion or limiting clause may not be added to the formal sale and
purchase agreement where parties have already entered into binding
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preliminary agreement whereby the vendor expressly or impliedly has agreed

to give good title

Such an exclusion or limiting clause may not, however, be added to the formal
sale and purchase agreement where there is already a binding preliminary
agreement in which the vendor has, expressly or impliedly, agreed to give good
title unless the purchaser agrees to such a modification of the earlier terms: see
Chu Wing Ning v Ngan Hing Cheung (1992) HCA No A9409 of 1991 (3); DH
Shuttlecocks Ltd v Keung Shiu Tang [1994] 1 HKC 286, CA (4)

(iv) ‘As is’ clause is not limiting clause

An `as is’ clause is not a limiting clause and the clause simply means that the
vendor is not required to improve the property prior to sale: Leung Wing Fai v
Onlink Investment Ltd [2000] 1 HKLRD 725. It does not, therefore, have effect
as an exclusion clause in respect of unauthorised building works: see All Ports
Holdings Ltd v Grandfix Ltd [2001] 2 HKLRD 630 (5). Nor can it be relied upon
to prevent a vendor from demolishing unauthorised building works prior to
completion: Summit Link Ltd v Sunlink Group (Hong Kong) Co Ltd [2000] 2
HKLRD 724, CA. (6)

(D) Where the vendor agrees to give good title, does this mean that he is
agreeing to pass the legal estate as distinct from merely the equitable
interest?

The answer must depend upon the intention of the parties as evidenced by the
terms of the sale and purchase and agreement (ie an objective test), taking into
account the context in which the transaction is to have effect. The sale and
purchase agreement will invariably be silent on this point so the intention of the
parties must be inferred from extrinsic circumstances. Normally, it is suggested,
the vendor will be construed as having agreed to pass the legal estate. For
example, the Court of Final Appeal have held in Chen Paul v Lord Energy [1999]
1 HKC 1, [1999] 1 HKLRD 205, CFA (7), albeit on a concession by counsel,
that a vendor who agrees to give good title has an obligation to assign the legal
estate. The same conclusion was reached by Recorder Edward Chan SC in Tin
Shui Wai Development Ltd v Polykin Ltd (2006) HCA 561/2004.

The circumstances of the transaction might, however, lead to a different

conclusion. For example, the court has held Tin Shui Wai Development Ltd v
Polykin Ltd (2006) HCA 561/2004 that, where an uncompleted unit in a
development is sold under the Consent Scheme following consent to assign but
before the certificate of compliance has been issued, it would be in the
contemplation of the parties that, when Government gave its consent to assign,
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the legal estate might not yet be vested in the developer. The developer would
therefore give good title even where the developer was only in a position to assign
the equitable interest. The same conclusion was reached by the Court of Appeal
in respect of a pre-sale under the Consent Scheme in Pang Moon Kwan v Concord
Property Development Ltd (2006) CACV 55/2006.

4. WAIVER BY PURCHASER OF HIS RIGHT TO OBJECT TO

DEFECTIVE TITLE

(A) What constitutes a waiver?

The purchaser may expressly or impliedly waive his right to object to a defective
title as by agreeing to accept the title notwithstanding the defect. The act must
show that the purchaser has unequivocally accepted the vendor's title
notwithstanding the defect and this is a question of fact in each case: Chan Kin
Leung v Lok Kar Cheong (1998) HCMP No 3993/1997(waiver by clear words in
correspondence between the parties).

Such may occur, for example, where the purchaser in full knowledge of a defect
sends the draft assignment to the vendor for execution: Chan Kam Hung v Light
Ltd (1993) DCA No 16919/1992.

The leading case is Regent Summit (Hong Kong) Ltd v Smart Business (Asia)
Ltd [1998] 2 HKC 718 (8) (no waiver by purchaser until purchaser not only knew
(presumably including constructive and imputed knowledge) of alleged facts
which might give rise to a requisition but understood (actual or constructive
knowledge?) the legal consequences of those facts; this holding was not disturbed
on appeal: (1998) CACV No 138/1998); Billion Best (Hong Kong) Ltd v Amity
Investment Co Ltd (2001) HCMP 2263/1998. In Large Land Investments Ltd v
Cheung Siu Kwai Pansy [2003] 1 HKLRD 313 (9), Yuen JA approved the tests
for waiver laid down by the House of Lords in Motor Oil Hellas (Corinth)
Refineries SA v Shipping Corpn of India (‘The Kanchenjunga’) [1990] 1 Lloyd’s
Rep 391, HL, at 397, per Lord Goff (i) a waiver by election occurred when a state
of affairs came into existence in which one party became entitled, either under
the terms of the contract or under general law, to exercise a right and he had to
decide whether to do so; (ii) it was a prerequisite of election that the party making
the election had first to be aware of the facts which had given rise to the existence
of the right; (iii) it might be that a party had also to be aware of his legal right of
affirming or rescinding the contract when there had been repudiation by the other
party; and (iv) since a party who elected not to exercise a right which had become
available to him was abandoning that right, he would only be held to have done
so if he had communicated his election to the other party in clear and unequivocal
terms.
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See also Poon Mee Kuen v Luk Yuk Chun (2005) HCMP 1431/2004 (10)
(unauthorised partitioning of flats in Chung King Mansions; purchaser had
inspected flat prior to entering into sale and purchase agreement; when he raised
requisition vendor argued that he had waived his right to object to vendor’s title;
held that, before purchaser’s knowledge of facts could prejudice his legal
position, he must also be aware of the legal consequences of those facts, per Arjan
Sakhrani J).

Conclusion: to constitute waiver (i) the purchaser must have knowledge of the
defect in title; (ii) the purchaser must have knowledge of the legal significance of
the defect in title; and (iii) the purchaser must unequivocally (by words or
conduct) waive his right to rescind based upon that defect.

(B) Purchaser’s failure to raise a requisition will not constitute a waiver

There is no duty upon a purchaser to raise a requisition and failure to do so will

not constitute a waiver of the purchaser’s right to object to the vendor’s title at
completion and rescind.

See Profit World Trading Ltd v Ho So Yung [2011] 2 HKC 473, CA (11) (there
was no obligation on a purchaser to raise any requisition; as regards counsel for
the vendor’s contention that the failure by the purchaser to raise a requisition as
to the unauthorized building works within time would constitute an acceptance
of the vendor’s title, if such a contention were correct it would have the effect of
imposing upon a purchaser a positive obligation to raise requisitions timeously
where the defect was patent and hence discoverable by the exercise of due
diligence even if the defect were one that went to the root of the vendor’s title.
The consequence of the purchaser’s failure to do so would result in the vendor
(who had an obligation to give good title in the first place) reaping what would
effectively be a windfall inasmuch as the vendor would be relieved from
performing what had been his obligation; that could not be correct as a matter of
law because it would have the effect of reversing the legal burden of giving good
title: see Strong & Associates Ltd v Flywin Co Ltd [2002] 1 HKC 54; logically, a
vendor’s obligation to give good title on completion could not depend on whether
a requisition as to defects was raised within a reasonable time or was raised late
or not at all; either he was in a position to give good title at completion or he was
not; requisitions could not alter the nature of that obligation; failure by the
purchaser to raise the requisition on time would not, therefore, constitute
acceptance by the purchaser of the vendor’s title, per Le Pichon JA).
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5. FACTORS THAT MAY AFFECT A GOOD TITLE; DEFECTS IN

TITLE

(A) Defective titles; encumbered and defeasible titles distinguished

There are very many factors that might cause a title to be defective and we can
here only consider some of them. At the outset the distinction between an
encumbered and a defeasible title must be understood.

Encumbered titles

A title is encumbered where, for example, a third party has an equitable interest
in the property such as by way of an express, resulting or constructive trust or
there is an uncompleted sale and purchase agreement or right of way registered
against the title or there is a restrictive covenant or lease affecting the title. An
equitable mortgage by deposit of original title deeds will also render the title
encumbered.

To be merely encumbered the encumbrance must be such as will not lead to the
consequences that there is a real risk that title will be taken away (in such a case
the title is not encumbered but defeasible; see below). An encumbered title may
render the title defective and constitute a repudiatory breach if the encumbrance
is significant.

Defeasible titles

By contrast, a title is rendered defeasible where it can be taken away from the
owner by some other person; eg by re-entry by Government for breach of
covenant in Government lease or condition in Conditions of Grant; sale by
Building Authority to recover expenses incurred by the Authority in remedying
unauthorised building works; right of enforcement action by manager or IO in
respect of significant breach of the deed of mutual covenant; right of sale by
mortgagee; title set aside because there has been a conveyance to defraud
creditors etc.

We speak of all titles which are either encumbered or defeasible as being

defective (ie not good titles). Whether the defect renders the breach a repudiatory
breach (or merely a breach of a warranty entitling the innocent party only to an
award of damages) will depend upon the significance of the breach.

(B) Title must be in the vendor

Title must be in the vendor or some other person whom the vendor can compel to
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assign in accordance with his instructions.

Enway Development Ltd v Light Ocean Investments Ltd [1994] 3 HKC 31, CA
(other land which the vendor had agreed to assign was still in ownership of t'so
and no consent of the Land Officer for sale had been obtained as required by s
15, New Territories Ordinance).

(C) No necessary consent of third person must be required before the

assignment can be executed

The vendor must be entitled to assign the property without the necessary consent
of any third person.

The most obvious case would be sale where the property is subject to the Consent
Scheme. See also Tang Yau Yi Tong v Tang Mou Shau Tso [1996] 2 HKLR 212,
CA (consent of t'so required before manager could sell); see also Enway
Development Ltd v Light Ocean Investments Ltd (above).

(D) Vendor must be able to assign the whole interest unencumbered by third
party interests

The general principle where vendor agrees to give good title is that the vendor
must be able to assign the property free from all encumbrances. There are three
exceptions:

(i) Registrable encumbrances which are unregistered

Registrable encumbrances which are not registered are void as against a bona fide
purchaser or mortgagee for valuable consideration: s 3(2), Land Registration
Ordinance and, therefore, do not constitute encumbrances.

See, eg, Kwok Siu Lau v Kang Yang Chee [1913] HKLR 52 (16)(5 year
unregistered lease void as against bona fide purchaser); Chu Yam On v Li Tam
Toi Hing (1956) 40 HKLR 250 (17)(declaration of trust in writing not registered);
Fast Forward Ltd v Magicsound Co Ltd [1991] 2 HKLR 529 (right to exclusive
use and occupation of roof omitted from memorial on registration; when property
sold to another with exclusive right to roof first purchaser lost right); Markfaith
Investment Ltd v Chiap Hua Flashlights Ltd [1990] AC 76, PC (12) (option to
renew void when unregistered); Wellmake Investments Ltd v Chan Yiu Tong
[1996] 1 HKC 528, CA (13) (option to renew in tenancy agreement not
registered; purchaser of reversion from landlord took free from option even
though assignment of reversion stated to be subject to option to renew).
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(ii) Knowledge irrelevant

Knowledge of the existence of the unregistered interest on the part of the

purchaser is irrelevant unless fraud (eg connivance between vendor and purchaser
to evict tenant) is involved: see Keep Point Development Ltd v Chan Chi Yim
[2000] 2 HKC 53 (14) (unless fraud involved in the transaction, a purchaser was
conferred a complete and unfettered title by an assignment even if the purchaser
had notice of a prior unregistered interest); Creator (HK) Ltd v Kwong Wing
Food Industries Stainless Steel Engineering Ltd [2008] 2 HKC 245, [2008] 2
HKLRD 475, CA (15) (landlord sold his reversion subject to identified tenancies
for more than 3 years which he had failed to register; held that tenancies void
against purchaser even though purchaser aware of their existence and property
had been expressly assigned to him subject to the tenancies).

Of course, this principle does not apply to short term tenancies because short
term tenancies for 3 years or less are exempted from registration (and excluded
from the effect of s 3(2), Land Registration Ordinance). It is essential, however,
for the application of the exemption for the short term written tenancy to be
granted at a `rack rent’ (s 3(2) of the Ordinance) or `the best rent reasonably
obtainable” (s 6(2) of the Ordinance). See Tse Siu Hoi v Lee Dick Gold and
Jewellery Ltd (2015) LDPE No 1132/2014 (a tenancy for 2 years was granted at
a rent of $57,000 per month; expert evidence showed that this was 15% below
market rent and the Lands Tribunal concluded that, because it fell below a rack
rent, the lease was required to be created in writing or by deed and fell outside
the exceptions for short term tenancies in sections 6(2) and 3(2) of the
Ordinance). A short term tenancy created orally must additionally take effect in
possession (this topic is dealt with in detail in the notes on registration).

(iii) Encumbrances to which sale made expressly subject

Clearly the vendor can sell expressly subject to identified encumbrances such as
the deed of mutual covenant, rights of way and restrictive covenants. These are
properly identified in the Schedule to the formal sale and purchase agreement and
the assignment. Clearly every sale of a unit in a multi-storey building will be
made expressly subject to the covenants in the deed of mutual covenant (which
are encumbrances).

(iv) Patent grounds of defeasibility and encumbrances

Patent means `patent to the eye’: see Yandle & Sons v Sutton [1922] 2 Ch 199,
210. Perhaps certain rights of way and unauthorised building works might be
included: see Kensel Ltd v Charmfast Investment Ltd (2001) HCMP 6890/99
(16) (unauthorised building works comprising the conversion of the light well
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into the actual structure was patent defect so no obligation on vendor to bring it
to attention of purchaser if vendor wished to rely on exclusion clause);
Goldenwick Ltd v Standard Chartered Bank (Hong Kong) Ltd (2007) HCA
2634/2004 (right of passage over staircase and hallway within a multi-storey
building not patent).

(E) Illustrations of grounds which might render a title encumbered or

defeasible

(i) Mortgages and charges

A mortgage or charge registered against the title is an encumbrance which, if it

contains a power of sale in favour of the mortgagee/chargee, might constitute a
blot on the vendor’s title and render the title potentially defeasible.

This is the case even where the mortgage is registered only in the deeds pending
registration section of the land register: Goldenwick Ltd v Standard Chartered
bank (Hong Kong) Ltd (2007) HCA 2634/2004.

(ii) Discharge or release of mortgages/charges

There are three ways in which a legal mortgage or charge may be discharged or
released. A legal mortgage or charge may be discharged by deed (s 4,
Conveyancing and Property Ordinance) or by a receipt written on or annexed to
the charge (s 56, Conveyancing and Property Ordinance).

As to the form and contents of the receipt see Cheung Fuk Yu Danny v Vu Poi
Van (2015) DCCJ 2817/2013; judgment 19 March 2015 (issue was whether a
written receipt by way of the disch arge of a charge had been properly executed
by an agent of the mortgagee bank where no company chop had been affixed to
the receipt nor had the receipt stated that the agent had been duly authorised to
sign the receipt; Dty Judge A Kot held that section 23, CPO, which provided
that `an instrument appearing to be duly executed shall be presumed, until the
contrary is proved, to have been duly executed’ was applicable to the present
situation; there was nothing to show that the signatory had not been authorised
to execute the receipt or that the receipt had not been validly executed
notwithstanding the absence of any company chop; further, no action had been
taken by the bank for many years to challenge its validity; the vendor had,
accordingly, adequately answered the purchaser’s requisition).

By contrast, an equitable mortgage or charge may be discharged or released in

writing (s 5, Conveyancing and Property Ordinance).
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The mere vacation of a charge from the land register will not, however, operate
as a discharge of the charge: see Siu Wing Yee Angeline v Earning Yield Ltd
[2013] 6 HKC 281 (see below).

Of course, mortgages and charges, whether in favour of individuals or

companies, should be registered under the Land Registration Ordinance (Cap
128) or they will be void as against a bona fide purchaser or mortgagee in
accordance with section 3(2) of the Ordinance.

To J has ruled, however, in Siu Wing Yee Angeline v Earning Yield Ltd [2013] 6
HKC 281 that the vacation of the registration of a charge only had the effect of
removing its registration from the Land Register. It did not have the effect of
extinguishing the interest in land created by the charge. The legal charge still
existed and it remained an encumbrance on the land. Without a valid release,
the charge still encumbered the property.

(iii) Discharge of wrong mortgage

Clearly a properly executed discharge of the charge or mortgage will clear the
charge or mortgage from the title. Where, however, the wrong mortgage is
discharged, the title will remain encumbered, unless the error was simply a typing
error: see Chan Shun v Ng Yiu Leung Danny (2009) CACV 365/2008 (wrong
memorial number given on discharge of mortgage; bank confirmed that mortgage
had been effectively discharged by repayment; held that release ineffective and
new release required from bank).

Doctrine of `feeding the estoppel': Cumberland Court (Brighton) v Taylor [1964]

Ch 29; Cali Enterprises Ltd v Chongmark [1986] HKLR 816 (17) (mortgage to
be discharged by vendor post completion; once mortgage actually discharged,
doctrine of feeding the estoppel operated retrospectively to give purchaser good
title).

(iv) How to get rid of `old’ mortgages

S12A, Conveyancing and Property Ordinance provides that, where land is

subject to an encumbrance, and the encumbrancer is out of the jurisdiction, cannot
be found or is unknown, or if it is uncertain who the encumbrancer is, the court
may, on the application of the party for the time being entitled to redeem the
encumbrance, direct or allow payment into court of a sum of money sufficient to
redeem the encumbrance and any interest thereon.

An application under s12A comes in stages. The first stage is for the party ‘for
the time being entitled to redeem the encumbrance’ to show that ‘the
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encumbrancer is out of the jurisdiction, cannot be found or is unknown, or if it is

uncertain who the encumbrancer is’, and upon proof of that to seek direction or
approval from the court to make a payment in. The court has the discretion to
decide and direct whether notice should be given to the encumbrancer. If
payment-in is approved and made, and the notice if directed given, the court may
declare the land to be free from the encumbrance. The third stage may or may not
come, which is the application by the encumbrancer (or any person entitled to the
money in court) for payment out. See Re Cheung Chi Wang [2002] 1 HKC 326,
which was followed in Ip Johnny Chong Ching v Ip Park Sing [2022] HKEC
5177 (21), Re Hau Hung [2022] HKEC 4235 (22) and Feign Larry v Wan Yung
Hing [2023] HKCE 2660 (18).

Alternatively, one can make an application for an declaration that the ‘old’
mortgage was no longer subsisting and unenforceable by operation of the
Limitation Ordinance. Lee Hung Cheong v William Tsokson [2023] HKEC
1247 (19), the Court held that a 1961 mortgage was no longer subsisting and
unenforceable by the operation of the Limitation Ordinance (Cap 347), following
the cases of Fung Kam Cheung v Kwok Yiu Wing [1991] I HKC 321 and Yau Pak
Hin & Anor v Ho Lung Thomas Ignatius (HCMP 628/2012).

(F) Rights of occupiers and others

Occupiers' rights (usually in a domestic context) and non-occupiers’ rights

(usually but not invariably in a commercial context) can give rise to serious
problems for purchasers. Occupiers and non-occupiers may have acquired a
beneficial interest in the property under a common intention resulting trust, or
they have contributed to the purchase price, or made mortgage repayments.

This interest will be unregistrable since it will not usually be supported by a

written document. Since it is unregistrable, it might be defeated by `equity’s
darling’: see below.

(i) Common intention constructive trusts

Most of the recent litigation centres round this topic. A spouse, other occupier or
even a non-occupier may acquire an equitable interest in the property where there
is found to be a common intention supported by detriment to give that person an
equitable interest in property.

See Liu Wai Keung v Liu Wai Man [2013] 5 HKLRD 9 (the plaintiff and
defendant, who were brother and sister, decided to purchase a family home in
1979 and the down payment was funded by the plaintiff; the property, which
was subject to a mortgage, was put in the defendant’s name since she could
 15

obtain a mortgage on preferential terms as she worked for a bank; the plaintiff
and his family went into occupation and paid all outgoings until 2012 when the
property was sold for redevelopment; the plaintiff had made all the mortgage
repayments. Just before the sale, the plaintiff commenced proceedings against
the defendant claiming that the defendant held the property by way of a
common intention constructive trust in favour of the plaintiff; Godfrey Lam J
agreed concluding that, on the evidence, there had been a common
understanding and intention formed by the family in 1979 that the property had
been intended for the plaintiff’s use and had only been put into the defendant’s
name to secure a mortgage on preferential terms; the plaintiff, by paying all the
outgoings including the mortgage repayments, had altered his position in
reliance on this common intention and it would be unconscionable to allow the
defendant to assert her title to the property against him).

A holistic approach was applied in the domestic context in Hong Kong: see Prime
Credit Ltd v Yeung Chun Pang Barry 4 [2017] 4 HKLRD 327, CA (20). (Lam
VP: In a domestic context, particularly in relation to a matrimonial home, the
court is not constrained in that exercise by pure direct monetary contributions to
the purchase price… In a Chinese setting, especially for the older generations,
where explicit discussions on property rights within the family are not that
common, the court has to pay more regard to circumstantial matters)

See Hsu Kim Ming v Chui Yui Fei [2018] HKEC 1953 (Judge Lo: to establish a
common intention constructive trust for a property held by the mother and one of
her sons as joint tenants, the defendant (the son) had to prove three elements : (i)
a common intention between him and his mother that he would be the sole
beneficial owner despite their legal joint tenancy therein (ii) he altered his
position upon such common intention and (iii) it is unconscionable for the
plaintiff to rely on the strict rights as mother as a legal joint tenant. The court
found that the express common intention as alleged by the defendant did not exist,
and the defendant had failed to prove detrimental reliance. The court also found
that the alternative case based on resulting trust also failed as there was no basis
to find that the defendant had contributed to over 50% of the purchase price or
even if so, how much between 50% and 100% of the purchase price.

See Judge Godfrey Lam’s summary of the legal principles for determining the
beneficial ownership of a family home in a case where the property had been
purchased in the joint names of a cohabiting couple (Re Mok Wut Man [2020]
HKEC 1672 (21).

See Recorder Madam Tam SC’s summary of the relevant legal principles (Chin
Nai Man v Chin Yat Keung Alex [2020] HKEC 351 (22), and application of the
concept in Mak Mui v Pang Kit Man [2021] HKCFI 125, Au Yeung Pui Chun v
 16

Cheng Wing Sang [2021] HKCFI 463 and Tsang Hin Yi Hubert v Cheung Lai
Ping [2022] HKEC 554.

(ii) Contribution to purchase price (including payment of deposit)

A person in occupation or non-occupier may acquire an interest in the property if

he or she has contributed to the purchase price: see Pettitt v Pettitt [1970] AC
777; Tinsley v Milligan [1993] 3 All ER 65 (two women purchased house but
house transferred into name of one so that the other could claim housing benefits
from the Government; held resulting trust created).

As for the occupier’s priority as against a mortgagee see Abbey National Building
Society v Cann [1990] 2 WLR 832, HL (In this case a person (`the claimant’) took
up occupation of property, which had been purchased by way of a mortgage loan
on completion. The claimant claimed to have acquired an equitable interest by
way of resulting trust in the property by virtue of having provided part of the
deposit and also claimed that his equitable interest took priority over the interest
of the chargee bank. The House of Lords held that, where a purchaser relied on a
loan from a bank or building society for completing his or her purchase, the
transactions of acquiring the legal estate and granting the charge were one
indivisible transaction. This was because the acquisition of the legal estate was
entirely dependent upon the provision of the loan. Where, therefore, the loan was
made prior to the occupant entering into occupation, the equitable interest of the
occupier would not take priority over the interest of the lender/chargee. In the
instant case the mortgage took priority over the resulting trust).

(iii) Making mortgage repayments

A person may acquire an equitable interest in a flat by making mortgage

repayments: Tong Kwai Ying v Poon Kwok Sin (2001) HCA 2790/1996 (a
resulting trust will only be inferred from the repayment of mortgage instalments
where there are strong grounds to infer a common intention that the person paying
the instalments will acquire a beneficial interest in the property).
(iv) The counter-presumption of advancement

We also need to consider the counter-presumption of advancement. This was

explained by Lord Phillips MR in Lavelle v Lavelle [2004] EWCA Civ 223:

Where one person, A, transfers the legal title of a property that he owns
or purchases to another, B, without receipt of any consideration, the effect
will depend on his intention. If he intends to transfer the beneficial
interest in the property to B, the transaction will take effect as a gift and
 17

A will lose all interest in the property. If he intends to retain the

beneficial interest for himself, B will take the legal interest but will hold
the property on trust for A. Normally there will be evidence of the
intention with which a transfer is made. Where there is not, the law
applies presumptions. Where there is no close relationship between A and
B, there will be a presumption that A does not intend to part with the
beneficial interest in the property and B will take the legal title under a
resulting trust for A. Where, however, there is a close relationship
between A and B, such as father and child, a presumption of advancement
will apply. The implication will be that A intended to give the beneficial
interest in the property to B and the transaction will take effect
accordingly.

The counter-presumption of advancement has been held to apply in the following

situations:

Assignments from:
(i) husband to wife;
(ii) father to children;
(iii) a male fiancé to his female fiancée;
(iv) a man to his de facto wife (Cheung Pui Yuen v Worldcup Investments Inc
(2008) FACV No 34/2007;
(v) person to those to whom he stands in loco parentis (Wong San Mui, the
Personal Representative of Hall Kimson Decd v Ha Pa Yang Patrick (1996) HCA
No A6027/1993, per Woo KH (grandfather to grandson) and in Sze Ka Shuen v
Silkease Investments Ltd (2007) HCMP No 2201/2005, per Kwan J (stepfather to
stepson); and
(vi) mother to child: see Watson v Smith [1998] 3 HKC 461, CA (no counter-
presumption of advancement); Lee Tso Fong v Kwok Wai Sun [2008] 4 HKLRD
270 (Dty Judge To held that the presumption of advancement applied, not only
as between father and child, but also as between mother and child; judge declined,
however, to extend, the presumption to a gift from mother to daughter-in-law).
The Court of Final Appeal has ruled in Suen Shu Tai v Tam Fung Tai (2015)
FACV 9/2015 that the counter presumption of advancement should apply
between mother and infant child (whether it should apply between mother and
adult child was left unresolved).

Note no presumption of advancement yet established where assignment from

wife to husband: Mercier v Mercier [1903] 2 Ch 98, female fiancée to male fiancé
or between siblings: Yue Shiu Ngam v Zen She Lin [1999] 1 HKC 823.

The evidential value of the presumption of advancement may now, however, be

very weak: Lily Cheung v Commissioner of Estate Duty [1988] 1 HKLR 517.
 18

Whether or not the counter-presumption of advancement will apply is a matter

for the court to determine on the evidence.

(v) Contractual licences

An occupier may also have a right of occupation by way of a contractual licence

which could give rise to a constructive trust: see Chen Tek Yee v Chan Moon
Shing (2016) CACV 136/2015.

(vi) Illegal, immoral or improper purposes

There has also been judicial consideration as to whether a purchaser of property

can claim an equitable interest in that property where that property was
transferred by the purchaser into the name of another in furtherance of an
illegal, immoral or improper purpose on the part of the transferor eg to keep
property away from potential creditors or to enable purchase of flat under the
Home Ownership Scheme. It would appear that the transferor will not be
prevented from claiming an equitable interest unless, to do so, he must rely
upon that illegal, immoral or improper purpose: Yim Bo-Ying v Chung Iu-
Warm [1985] HKLR 354, CA (23), Wong Sing v Wong Chun Wai (2009)
HCA 1872/2005 (24); and Wu Wai Sum Stella v Man Ting Chu [2010] 5
HKLRD 125, CA (25).

(vii) The doctrine of locus poenitentiae

There is, however, an exception to this principle and that is the doctrine of locus
poenitentiae (literally `place of repentance’). Where the plaintiff purchases
property for an illegal purpose and has it assigned into the name of another
person in favour of whom the counter-presumption of advancement applies (eg
husband-wife, father-child), the purchaser/assignor will be unable successfully
to claim an interest in the property by way of resulting trust because, to do so,
the plaintiff would have to raise the issue of illegality: Wong Sing v Wong Chun
Wai (2009) HCA 1872/2005. Where, however, the plaintiff husband, having
assigned the property into the name of his wife or child, has repented the illegal
purpose before it has been implemented, he may still be permitted to adduce
evidence of his illegality to rebut the counter-principle of advancement and
recover the property

See Cheerbond Development Ltd v Tung Kwok Yu (2010) CACV 238/2009

(property assigned by husband to wife to keep assets out of reach of potential
creditors; held that presumption of resulting trust and counter-presumption of
advancement applied; husband could, however, adduce evidence to rebut
 19

counter-presumption of advancement since he had not carried out his illegal

intention).

(viii) Occupier’s interest

We must also determine whether the interest of the occupier is overridden by

`equity’s darling’, the bona fide purchaser without notice actual or constructive.

A purchaser will have constructive notice of all interests which he should have
discovered had he carried out such inquiries as a reasonable purchaser would
make: Kong Lin Yeung v Lai In Peng [2012] 4 HKC 128. The `value’ paid by the
purchaser (or mortgagee) need not necessarily connote the full value of the
property: see Ng Luk Mui v Shiu Tsun Wai Vincent [2011] 5 HKLRD 707, CA.

See William & Glyn's Bank v Boland [1981] AC 487 (H & W purchased property
jointly but property transferred into sole name of H who mortgaged it to bank;
when bank tried to take possession upon H’s default, held that bank had
constructive notice of interest of wife so could not take possession); Wong Chim
Ying v Cheng Kam Wing [1991] 2 HKLR 253, CA (26) (property purchased by
H but transferred into name of W; W left H and sold flat; held that purchaser had
constructive notice of H’s interest by way of resulting trust); China & South Seas
Bank Ltd v Ma Koon Ah (2001) HCMP 3000/94 (person who had paid 90% of
purchase price was occupant although flat registered in another’s name; held bank
mortgagee had constructive notice of interest of occupant); Flying Mortgage Ltd
v Chan Kuen Kwong (2009) DCCJ 5004/2006 (mother purchased flat but
registered in names of her sons; sons mortgaged to bank; bank sought order for
sale; held bank bound by mother’s interest by way of resulting trust since bank
had constructive notice of her interest).

(ix) Waiver by party claiming beneficial interest; effect of delay in asserting

beneficial interest

Express waiver

A person having a beneficial interest in property by way of a resulting or

constructive trust may expressly waive the right: see Sum Fan Hung v Chum Mei
Diu (2015) HCA 946/2013.

Delay in asserting beneficial interest

Further, a person who unduly delays in claiming his beneficial interest in property
registered in the name of another may be held to have impliedly waived his
interest: see Mo Ying v Brillex Development Ltd [2015] 3 HKC 104, [2015] 2
 20

HKLRD 985, CA (27) (flat registered in husband’s name; 15 years later flat sold
by husband but family remained in possession under tenancy granted by new
owner; when new owner sought possession wife claimed equitable interest in
property by way of common intention constructive trust; claim dismissed;
Cheung JA said, obiter, that the Court of Appeal had held in Wong Chim-ying v
Cheng Kam-wing [1991] 2 HKLR 253 that occupation might give actual or
constructive notice of such interest; in the instant case the wife had indeed been
in occupation when the property was sold to the purchaser and the purchaser had
failed to inspect the property before sale; the purchaser was, therefore, fixed with
constructive notice of any interest she might have; however, the wife had waived
(or she had been estopped from asserting) any such interest because she had failed
to assert her interest at the time when the property had been sold; the wife had a
duty to speak up once she realised that her husband had agreed to sell the property
and, relying upon her silence, the purchaser had completed the sale; the purchaser
had, accordingly, been prejudiced by the wife’s conduct when she could have
sought to rescind the sale). Leave to appeal to CFA refused and decision on delay
confirmed by CFA: see (2016) FAMV 48/2015.

What action should a solicitor acting for a purchaser or mortgagee take?

As a result of these decisions a purchaser or mortgagee should always check for

occupants and get any occupant to sign a confirmation that he/she has no interest
in the property. If it appears that the occupant does have an interest, he should
either join in the assignment as confirmor or provide written renunciation of his
equitable interest.

(G) Nominations

An encumbrance might also arise by way of a resulting trust in the context of

nominations.

(i) Presumption of resulting trust

A nomination arises where a purchaser (the nominator) provides the purchase

money for property but nominates another person (the nominee) into whose name
the property should be assigned. The consequence may be that the nominee,
having given no consideration, holds the property by way of resulting trust for
the nominator.

If the nominee subsequently enters into an agreement to sell the property, this
presumed resulting trust will constitute an encumbrance on the title: see
Formking Development Ltd v Lee Kwok Hung Robert [1993] 1 HKC 412 (28)
 21

(ii) Rebutting the presumption

Yet the presumption of a resulting trust may be rebutted: eg by proof that a gift
was intended or by the counter presumption of advancement.

See Fulltrend Co Ltd v Longer Year Development Ltd [1990] 1 HKC 452 (29)
(no resulting trust since purchaser had himself affixed seal of company assignee);
Lion Will Investment Ltd v Triple Will Ltd [1992] 2 HKC 430 (30) (husband
nominated wife to be assignee; held presumption of resulting trust rebutted by
counter presumption of advancement).

The presumption may also be rebutted by proof that the nominator intended an
outright gift to the nominee: see Kan Wing Yee Wendy v Roh Julie Kim (2017)
HCMP 352/2017 (nomination; the existence of a resulting trust was held to have
been rebutted by way of a statutory declaration made, not by the solicitor involved
in the transaction, who had died, but by a fellow solicitor who worked in the same
firm).

(iii) Equity’s darling

Of course, the unregistrable interest of the nominator might be overridden by

equity’s darling but this rule will not apply where the nomination is registered so
that the new purchaser will have constructive notice of the interest of the
nominator.

(iv) Express renunciation by nominator

The problem arising from any resulting trust is best avoided by the inclusion of a
term in the nomination whereby the nominator renounces any interest he may
retain in the property.

(H) Liability or potential liability of property under a notice or order from

Government or other competent authority (eg the Building Authority) or as
a result of action against an owner or owner's corporation

(i) Resumption orders and remedial, demolition and repairing orders

If the property is subject to a notice such as a resumption notice under the Lands
Resumption Ordinance or a remedial, closure or demolition order under the
Buildings Ordinance the property will be encumbered provided that the
encumbrance is of such a magnitude that it would exceed anything that a
reasonable purchaser would have in contemplation when agreeing to purchase the
property. The co-owners’ titles would be rendered defeasible because, if they do
not comply with the order, the Building Authority may carry out the necessary
 22

work and send the bill to the co-owners. If they fail to pay, a charge (with a power
of sale) may be imposed on the entire property: see s 32A and 33, Buildings
Ordinance.

See, for example, Lam Mee Hing v Chiang Shu Yin [1995] 3 HKC 247 (remedial
order in respect of dangerous slopes); Wah Ying Properties v Sound Cash Ltd
[1994] 1 HKC 786 (31) (remedial notice in respect of retaining wall); All Ports
Holdings Ltd v Grandfix Ltd [2001] 2 HKLRD 630, CA ((repairing order under
s 26, Buildings Ordinance; such an order would only encumber the vendor’s title
if it were of such a wholly exceptional nature and called for wholly exceptional
measures well outside the ordinary ‘wear and tear’ remedies that common owners
of Hong Kong buildings had to meet from time to time).

(ii) Warning Notices

Note section 24C of the Buildings Ordinance whereby the Building Authority
may issue a notice in writing warning the owners of property that unauthorised
building works have been carried out and requiring them to be demolished by a
certain date; if such demolition is not carried out, the notice will be registered in
the Land Registry which will render the owner’s title defeasible provided the
liability is of such a magnitude that it would exceed anything that a reasonable
purchaser would have in contemplation when agreeing to purchase the property:
see Chi Kit Co Ltd v Lucky Health International Enterprise Ltd [2000] 2HKLRD
503.

(iii) Non-mandatory notices

A notice merely suggesting (rather than mandating) that measures be taken to

rectify unauthorised building works might not render the title defective in the
absence of any requirement by the government or Building Authority to
undertake remedial measures: Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR
234, CFA.

(iv) Potential liability of owner of unit in multi-storey building as a consequence

of an action commenced against the owner unrelated to land

A title will not be defective merely because of some personal action against the
vendor which might in the future lead, by way of execution against the property,
to the imposition of a charging order upon the property agreed to be sold.
 23

(v) Potential liability of owner of unit in multi-storey building as a consequence

of an action commenced against the Owners’ Corporation even where action
unrelated to land

The position is different, however, where an action unrelated to land lies against
an Owner's Corporation since, according to s 17(1)(b) of the Building
Management Ordinance (`the BMO’) the judgment creditor is entitled to apply
to the Lands Tribunal for leave to enforce the judgment against any co-owner of
the building: Lucky Health International Enterprise Ltd v Chi Kit Co Ltd
[2000] 2 HKLRD 503, [2000] 3 HKC 143, CFA (32) (the `scaffolding case’)
(purchaser agreed to buy vendor's flat; then discovered that personal injuries
action had been commenced against the incorporated owners of the building for
more than $20 million. Purchaser claimed vendor's title defective because under
s 17(1)(b) of the BMO judgment creditor could apply for leave of court to
enforce judgment against any individual owner of flat in building; held vendor's
title defective since liability to contribute to an expense of such magnitude was
not within reasonable contemplation of purchaser).

See Kan Yui Man Allen v Ng Hiu Nam (2011) DCMP No 174/2011 (purchaser,
after entering into a sale and purchase agreement with the vendor, discovered
that an action had been commenced against the Incorporated Owners of the
building in which he had agreed to purchase the flat; no mention of this pending
action had been made by the vendor, nor had the purchaser been informed as to
the extent of the damages claimed or the progress of the action; he raised a
requisition to which the vendor replied that the purchaser had agreed to
purchase the flat subject to the pending action; Dty Judge To, after considering
the decision of the Court of Final Appeal in Chi Kit Co Ltd v Lucky Health
International Enterprise Ltd [2000] 2 HKLRD 503, CFA, concluded that the
vendor had not answered the purchaser’s requisition with candour; he had failed
to provide information as to the particulars of the action, the stage of the
proceedings or the amount of the claim to enable the purchaser to assess the
magnitude of the risk of any judgment against the Incorporated Owners being
enforced against the purchaser; the vendor had, therefore, failed to show good
title).

See also Gigabillion Asia Pacific Ltd v Sino Dynamic International Ltd [2015]
2 HKC 384, [2015] 2 HKLRD 100, CA (33) (several actions commenced
against incorporated owners; only costs outstanding; Cheung CJHC first
observed that a substantial liability to contribute to the eventual orders for costs
could affect the owner’s title in three ways; first, it could lead to the Owners
Corporation registering a charge against the owner’s property under the deed of
mutual covenant; secondly, the execution creditor could, if the Incorporated
Owners failed to discharge the liability, commence execution proceedings
 24

against the owner; and thirdly, if the Incorporated Owners became insolvent, the
owner would become liable to contribute to funds to discharge the Incorporated
Owners’ debts and liabilities; unless the risk of such eventualities was merely
fanciful or unreal, the presence of such a risk would constitute a blot on the
vendor’s title, thereby entitling an unwilling purchaser to refuse to complete; in
the instant case the three sets of litigation involved, when viewed as a whole,
could not be regarded as an ordinary incident of building management such that
a reasonable purchaser might be expected to have in contemplation; there were
three different sets of litigation which certainly could not be termed a common
occurrence in building management; secondly, the requisition had not been
satisfactorily answered since the vendor had failed to give any indication, even
a rough one, as to the magnitude of the actual and potential exposure to the
costs; without such a figure, it would be impossible for an intending purchaser
to evaluate whether the potential liability was real or fanciful; finally, without
any realistic idea as to the extent of the potential liability, the offer of $25,000
together with an offer of an indemnity did not solve the problem since the
purchaser had no way of confirming whether that sum was sufficient to meet the
potential liability; the vendor had failed to answer the requisition satisfactorily
and had failed to prove its title).

A similar issue arose in Lo Yee Man v Si Chuan Property Development

Consultants Ltd (2014) DCMP 478/2014 (in this case the purchaser raised a
requisition as to whether there was a tortious claim against the Incorporated
Owners of a building containing a shop in Yuen Long which it had agreed to
purchase; in fact there was a personal injuries claim filed against the
Incorporated Owners; the defendant first maintained that such was irrelevant but
on the day of completion offered to pay the sum of $50,000 to their solicitors as
stakeholders to defray any such claim; the purchaser refused to complete and
the vendor forfeited the purchaser’s deposit; Dty Judge CK Siu first noted that
in Chi Kit Co Ltd v Lucky Health International Enterprise Ltd (2003) HKCFAR
268 the Court of Final Appeal had ruled that such a claim could be enforced
against the owner for the time being of a unit in the building with the leave of
the Lands Tribunal; the vendor had failed to provide information about the
magnitude of the claim and the vendor’s offer to stakehold $50,000 did not
eliminate any risk of a demand being made by the Incorporated Owners beyond
the sum to be stakeheld; without knowing the amount of the claim, there was a
risk that the plaintiff could enforce any judgment against all the individual
owners of units in the building including the purchaser; such a potential liability
constituted a blot on the vendor’s title; the vendor had, accordingly failed to
show good title a reasonable time before completion and the vendor had
wrongly repudiated the sale and purchase agreement).

A solicitor acting for a purchaser should, therefore, by way of investigating his

 25

client’s title, check to ensure that there is no pending litigation affecting the
Owners’ Corporation (if there is one) of the building in which his client is
intending to purchase a unit. If there is, he must raise a requisition to identify the
extent of the claim and decide whether any such claim is of such magnitude as to
render the vendor’s title defective. From the point of view of a vendor who is
aware of such litigation before his client has bound himself to sell the unit, he
should insert an appropriate exclusion clause into the sale and purchase
agreement. He must also, of course, answer any requisition raised by the
purchaser with full candour to avoid the purchaser being entitled to rescind the
agreement on the basis of the vendor’s failure to show good title.

(I) Liability of owner to pay or contribute towards costs of building repairs

or management fees in multi-storey buildings

(i) Building repairs

Liability under a deed of mutual covenant upon a purchaser to pay or contribute

to unpaid bills for building repairs or unpaid management fees imposed by the IO
or manager of the multi-storey building (ie not by Government), which are of an
extent beyond a reasonable purchaser’s expectation, is likely to constitute an
encumbrance on the vendor’s title: Luk Ho Chang v Fook Man Finance Co Ltd
[2006] 2 HKLRD 489, [2006] 2 HKC 207 (34) (the plaintiff agreed to purchase
a flat in Kowloon; vendor warranted that, if it was discovered that any resolution
of the incorporated owners for repairs existed prior to the date of the agreement,
the vendor would pay the costs of those repairs; owners’ corporation had already
resolved at an owners’ meeting to replace the lifts and carry out other major
repairs to the building; decision to carry out these repairs was subsequently
followed up by the management committee and contractors appointed to carry
out the work; purchaser contended that the vendor was liable as agreed for these
costs and maintained that he would complete only if the estimated repair costs
were paid to the vendor’s solicitor as stakeholder prior to completion; vendor
refused and purported to terminate the agreement; purchaser then sought a
declaration from the court that the vendor was liable for the costs of the repairs;
Deputy Judge Muttrie held first that the effect of s 14(1) of the Building
Management Ordinance was that, once the corporation had resolved to carry out
the repairs to the common parts of the building, that resolution was binding upon
all the owners; vendor was, therefore, liable for the cost of the repairs since the
resolution committing the co-owners to carry out the repairs had been passed
before the date of the sale and purchase agreement; further, if there was any
outstanding liability to pay for repairs at completion, the owners’ corporation
would be able to recover the costs from the owner of the flat from time to time;
this liability would, therefore, constitute an encumbrance on the vendor’s title
which the purchaser was entitled to have removed before completion)
 26

(ii) Unpaid management fees

As regards liability for unpaid management fees, authority can be found in AIE
Co Ltd v Kay Kam Yu [1996] 1 HKC 239, CA (35), where the Court of Appeal
held that a memorandum of outstanding management fees constituted an
encumbrance upon the property. But remember that the sum unpaid must be
outside the contemplation of a reasonable purchaser.

(J) Title must not be defeasible

As we have seen above, `defeasible' means that the title is liable to be forfeited.
There are many examples of defeasible titles:

(K) Breach of Government lease/Conditions of Grant giving rise to right of

re-entry by Government

The most obvious example of a defeasible title is one in respect of which the
Government has the right of re-entry as a result of breach of the Government
lease/Conditions of Grant: eg failure to pay Government rent or comply with any
of the covenants in the Government lease or conditions in the Conditions of
Grant. Yet see New Jade Enterprises Ltd v Jing Ying She Ltd (2000) HCA
13764/97 (failure to pay a small sum due by way of Government rent would not
give rise to a real risk of re-entry by Government).

See, for example, Lee To Ming v Tam Kim Sum William [1999] 2 HKC 865 (no
building exceeding 4 storeys to be erected on site; op issued for 5 storey building;
held since op issued by Building Authority, Government could still re-enter for
breach of Government lease).

(i) Linkeage clauses (double defeasibility)

There is commonly a term in Government leases/Conditions of Grant that the

developer/owner must comply with all building regulations laid down in the
Buildings Ordinance and regulations made thereunder. In such a case the
construction of unauthorised structural building works would render the title
defeasible also through breach of the Government lease/Conditions of Grant. See
Giant River Ltd v Asie Marketing Ltd [1990] 1 HKLR 297 (36) (extra
subterranean floors built in detached house constituted breach and title
defeasible).
 27

(L) Real risk of substantial enforcement action by the Building Authority

A title might also be rendered defeasible where there is a real risk that the
Building Authority might take enforcement action for breach of the Buildings
Ordinance or regulations made thereunder.
(i) Building initially constructed

An owner’s title may be rendered defeasible where a building has been

constructed in a manner which has failed to comply with the Buildings Ordinance
or the Building Regulations: see Luk Kwan Hung v Victory Mark Investment Ltd
(2003) HCA 8530/1999 (roof constructed too low in breach of Building
Regulations; title potentially defeasible and vendor could not pass good title).

(ii) Subsequent unauthorised building works

An owner’s title may also be rendered defeasible where unauthorised building

works have been carried out subsequently. According to s 14, Buildings
Ordinance, no person shall commence building works without first having
obtained approval from the Building Authority (save for minor building works: s
14AA, Buildings Ordinance). The owner’s title may, therefore, be rendered
defeasible where unauthorised building works have been carried out without prior
approval from the BA even though no remedial or demolition notice has been
issued (the `ticking bomb’ situation).

(iii) Meaning of `building works’

`Building works’ are defined in section 2(1) of the Buildings Ordinance as

including any kind of building construction, site formation works, ground
investigation in the scheduled areas, foundation works, repairs, demolition,
alteration, addition and every kind of building operation, including drainage
works.

It has been held in HKSAR v Gemsland Hotels Ltd (2017) HCMA No 554/2016
(37) that the affixing of a signboard to an external wall of a building constituted
`building works’ within the definition of `building works’ in s 2 of the Buildings
Ordinance since it constituted an `addition’ to a building.

Whether the building works render the owner’s title defeasible

To determine whether the unauthorised building works render the owner’s title
defeasible several issues must be considered in the appropriate order:

(i) Are the building works in or on the building?

 28

(ii) If the building works are `in’ in the building, are the building works
exempted under s 41(3), Buildings Ordinance; are they structural and
form an integral part of the building?
(iii) If the building works are not exempted, because they are not in the
building eg on the roof or because they are of a structural nature, is there
a real risk of enforcement action being taken?

(iv) Are the unauthorised building works ‘in the building’?

The Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd
(2007) 10 HKCFAR 1 (38) concluded that building works on the roof of a
building are not `in the building’. They could not, therefore, fall within the
exemption in s 41(3), Buildings Ordinance. We should accordingly go straight to
the `real risk of enforcement action’ test.

See Ronald Wilson v Appeal Tribunal (Buildings) [2013] 5 HKLRD 158 (bay
windows are not in the building and could not be exempted building works).

(v) Are the unauthorised building works ‘exempted building works’?

Building works in a building which do not affect the structure of the building are
exempted under s 41(3) of the Buildings Ordinance from the permission
requirements. As to what constitutes `works affecting the structure of the
building’ is somewhat unclear.

In some cases the courts have asked whether the works basically involve
construction which significantly undermines the load bearing propensities of the
building (see eg MTR Corpn Ltd v Hwang Xiao Yun Sherry (2002) LDBM
109/2002 (39): heavy concrete room constructed on roof was illegal structure).

The meaning of the words `structural works’ and the words `in a building’ was
considered by the Court of Final Appeal in Mariner International Hotels Ltd v
Atlas Ltd (2007) 10 HKCFAR 1 (the case involved concrete plinths and gondola
posts constructed on the roof of building; as to whether the building works
`involved the structure of the building. In the Court of Final Appeal, Bokhary PJ
said that, to be exempted, the building works had both to be in the building and
of a non-structural nature. As regards the issue whether building works on the
roof of a building were `in the building’, the lower courts had concluded that the
building works on the roof were `inside the building’; the legislation had to be
construed purposively and to widen the exemption would reduce the scope of
scrutiny of the Building Authority; there was a purposive difference relevant to
safety between building works protected from the elements by being `in’ a
building and building works exposed to the elements on the roof of a building.
 29

The learned judge held that the proper construction of the provision was that
building works on the roof of a building were not `in’ the building and, therefore,
fell outside the exemption; if this conclusion was wrong and the building works
in the instant case were in the building, were they non-structural? The learned
judge briefly concluded that, since the concrete plinths and gondola posts
`involved the structure of the building and were integral to the building’, they
were not exempted building works. (Bokhary PJ: “building works” added to a
building “involves its structure” if they “serve a structural function or are
capable for some reason of affecting the integrity of the structure”). S 41(3) of
the Buildings Ordinance did not therefore apply for two reasons; first because the
structures were not `in’ the building; secondly because they fell outside the
meaning of ‘non-structural’).

Internal partitioning to create sub-divided flats may or may not constitute

structural building works. It will if it involves changes to the drainage system
and/or the creation of a new entrance: see Lucky Success (HK) Ltd v Ko Ni Kwong
[2010] 1 HKC 351 (to make the two units self-sufficient, both units had to have
separate entrances, a kitchen, a bathroom and a toilet; it must have been necessary
to put in a new kitchen and toilet and changes or additions to the drainage system
would have been required); Asia Way International Investments Ltd v Hung Kin
Ping (2013) DCCJ No 3911/2011 (new drainage system and new entrance would
have been required).

As we have seen in LG2, a prohibition on making structural alterations may

perhaps be construed more liberally (ie more widely) if included in a deed of
mutual covenant than when imposed by the Buildings Ordinance: Incorporated
Owners of Elite Garden v Profit More Co Ltd [2002] 2 HKLRD 518, but the
prohibition will not extend to non-load bearing internal partition walls; Tam Sze
Man v IO Shan Tsui Court [2011] 5 HKLRD 434, CA.

(vi) Is there a real risk of enforcement action?

Where the Building Authority discovers an unauthorised structure, the following

sequence of events might follow: (i) issue of removal (demolition) or remedial
order; (ii) if no compliance, BA might carry out the necessary building works
itself and send bill to owner; (iii) if bill not paid, charging order registered over
flat; and (iv) if bill still not paid, flat sold to defray cost: see s 33, Buildings
Ordinance.

The question for the parties and perhaps ultimately the court is whether there is a
real risk that the Building Authority will take the above enforcement action by
issuing a removal or remedial order under the Buildings Ordinance and, if the
work required to be carried out in the notice is ignored, carrying out the necessary
 30

works itself and imposing a charge on the title to the property: Kok Chong Ho v
Double Value Developments Ltd (1990) HCMP 2857/1990 (40) (no real risk)
(reversed on appeal [1993] 2 HKLR 423, CA on other grounds). This charge gives
the Building Authority the power to sell the property to recoup its charges and
costs (hence the title is potentially defeasible since the owner can be deprived of
it).

For an illustration of the application of the `real risk’ test see Jumbo Gold
Investment Ltd v Warren Yuen Cheong Leung (2000) 3 HKCFAR 52, CFA
(41) (height restricted to 35ft in Crown lease but height breached; Government
had taken no action for many years; when vendor came to sell to purchaser,
purchaser raised requisition as to whether vendor had shown good title; held by
Court of Final Appeal that vendor had shown good title since no real risk of
enforcement by Government); Homyip Development Ltd v Chu Kang Ming
Trade Development Co Ltd [1995] 2 HKC 458 (42) (false ceiling converting
house from two to three storeys; title defeasible).

Godfrey JA has clarified (and perhaps made more strict) the `real risk test' in
relation to unauthorised structures in Spark Rich (China) Ltd v Valrose Ltd
[2006] 2 HKC 589, CA (43), where he said:

So the test may be usefully framed as follows: If the purchaser asks his
solicitor `Can I be sure that I can safely disregard the risk?', then, unless his
solicitor (being a prudent and experienced solicitor) can properly advise him
that he can, the purchaser cannot be obliged to accept the vendor's title even
if supplied with opinion evidence to the effect that action by the Building
Authority was unlikely'.

The learned judge concluded ominously by saying that cases in which a purchaser
of property might safely be advised that he could be sure he could safely disregard
unauthorised building works were likely to be rare.

See also Link Harvest Ltd v Wayhang Development Ltd [2001] 2 HKC 652
(mountain lodge built before 1972 but no occupation permit issued; held risk of
enforcement action so title defective); Chinawell Management Ltd v Strong Huge
Corporation Ltd [2012] 1 HKLRD 79 (add-on squatter extension to house gave
rise to real risk of enforcement action by Building Authority).

(vii) Guidance Notices from the Building Authority

The Building Authority periodically issues guidance notices on their priority of

taking enforcement action; these guidance notices will not give rise to a legitimate
expectation that no enforcement action will be taken in respect of building works
 31

classified as low risk: Tsui Koon Tin v Building Authority (2006) CACV
354/2002.

(viii) Do unauthorised building works in relation to one flat in a multi-storey

building affect the titles of the co-owners of the other flats in the building?

Where the notice or unauthorised building works relate to one flat alone, only the
title of that particular flat will be affected and the title of other flats in a multi-
storey building will remain unaffected: Active Keen Industries Ltd v Fok Chi
Keong [1994] 1 HKLR 396, CA (44); Hong Kong Central Hospital Ltd v
Progressive Group Ltd [2008] 1 HKC 134 (purchaser agreed to purchase flat in
a multi-storey building; the occupation permit for the building indicated that there
were 3 flats on the relevant floor, but the Approved Building Plan and deed of
mutual covenant showed 4 flats on the floor; there were, in fact, only 3 flats on
the floor because two flats on the floor (not involving the purchaser’s flat) had
been combined; held first that the vendor’s title was not defective since the
Building Authority must have taken the view that non-compliance did not affect
the structure of the building; further no enforcement action had been taken for
more than 30 years; even if there was a breach of the Buildings Ordinance and
occupation permit, the building works did not affect the purchaser’s flat, applying
Active Keen Industries Ltd v Fok Chi Keong [1994] 1 HKLR 396, CA).

Where, however, the notice relates to the common parts of a multi-storey

building, the title of all the flats in the block may be affected, provided the extent
of the repairing obligation is beyond the reasonable expectation of a purchaser:
see Lam Mee Hing v Chiang Shu Yin [1995] 3 HKC 247 (slopes) and Wah Ying
Properties Ltd v Sound Cash Ltd [1994] 1 HKC 78 (above) (retaining wall).

(ix) Criminal offences

Under s 40(1AA) of the Buildings Ordinance it is a criminal offence for any

person knowingly to commence or carry out building works without the approval
of the Building Authority. It is also a criminal offence under section 40(1BA) of
the Ordinance to fail to comply with an order (such as a demolition or removal
order) given by the Building Authority.

(x) Removal of unauthorised structure prior to completion

Will it be a sufficient answer to a requisition as to the existence of an unauthorised

structure that the vendor agrees to remove the offending structure prior to
completion? Will such demolition prevent the purchaser from having the right to
rescind the agreement? The answer would seem to depend upon a construction of
the terms of the sale and purchase agreement. In the absence of express agreement
 32

otherwise the vendor has a duty to give good title at completion. As a general
principle, therefore, it would be sufficient, by way of fulfilling his duty to give
good title, for the vendor to demolish any unauthorised structures prior to
completion. This principle should, however, be applied with caution as the vendor
might have agreed, either expressly or by implication, to pass good title in the
unauthorised structure to the purchaser.

(xi) The test to be applied

The test to be applied is whether, if the unauthorised building works are removed
prior to completion, the purchaser will be receiving substantially what he
contracted to purchase (ie the doctrine of substantial performance). If, once the
unauthorised building works are removed, the purchaser will not be receiving at
completion substantially what he contracted to purchase, the building works
cannot be removed prior to completion and, if the unauthorised building works
are removed, the vendor will not be able to compel the purchaser to accept the
title by way of an application for specific performance.

(xii) No substantial performance (major ubws)

There are several case illustrations where the courts have ruled that the vendor
would not be giving the purchaser substantially what he contracted to receive at
completion. See Max Smart Ltd v First Super Investment Ltd [1999] 1 HKLRD
519 (45) (vendor agreed to sell a shop to the purchaser on an `as is' basis. An
unauthorised cockloft of substantial dimensions had been erected in the premises
and, when the purchaser raised a requisition thereon, the vendor agreed to
demolish the cockloft. Yam J held that, since the vendor had agreed to sell the
premises on an `as is' basis, the vendor could not compel the purchaser to accept
the premises after demolition of the unauthorised cockloft). A similar conclusion
on the facts was reached by Waung J in Sun Great International Ltd v Hui Lai
Ying Polly (1996) HCA 10742/1994 (46) (vendor agreed to sell property to the
purchaser the property containing, as the court found, three unauthorised
structures comprising an addition to an upper balcony, a skylight and the
courtyard. The vendor offered to demolish the illegal structures prior to
completion, but the purchaser rescinded and demanded the return of his deposit;
held there was no basis on which the court could hold that the defects in the title
were capable of being successfully removed prior to completion. Even if they
could be so removed, the plaintiff would no longer be receiving what it had
bargained to accept. See also Grandco (Holdings) Ltd v Harbour Wealth Co Ltd
(2000) HCA 3388/1998 (sloping garden had been rebuilt without building
permission to render it flat; vendor reinstated sloping garden prior to completion;
held substantial difference between sloping and flat garden and no substantial
performance); Cashew Holdings Ltd v Pacific Success Enterprise Ltd [2004] 2
 33

HKC 594 (47) (enclosure of pump room to make extra bedroom; in determining
whether substantial performance, court should look at size of affected area
together with difference in value to purchaser and effect of removal of illegal
structure on sale prospects).

(xiii) Substantial performance (minor ubws)

By contrast there are several case illustrations where the courts have ruled that
the vendor would be giving the purchaser substantially what he contracted to
receive at completion. See Homyip Investment Ltd v Chu Kang Ming Trade
Development Co Ltd [1995] 2 HKC 458 (court said that the removal of an
unauthorised staircase did not have the effect of substantially depriving the
purchaser of the benefit under the sale and purchase agreement). A similar
conclusion was reached by Yuen J in Goldful Way Development Ltd v Wellstable
Development Ltd [1998] 4 HKC 679 (defendant had agreed to sell property which
included an enclosed yard which the court concluded was an unauthorised
structure. The vendor argued that good title would be given if he demolished the
unauthorised enclosure prior to completion as he would still be able to
substantially perform the agreement. The learned judge agreed holding that it was
a matter of degree in each case whether the deficiency in what was agreed to be
conveyed was material. In this case, although the unauthorised enclosure would
reduce the internal floor area slightly, it was otherwise of immaterial significance
for the enjoyment of the rest of the property).

(xiv) Offer by vendor to demolish the unauthorised building works

As to the position where the vendor, in response to a requisition, offers to

demolish the unauthorised structure and, the purchaser having failed to respond,
proceeds to demolish the structure see Victory Star Ltd v Ng Fung Ying [2003]
4 HKC 677, [2004] 2 HKLRD 518, CA (48) (there was an arguable case that
purchaser under duty to respond which might estop the purchaser from relying
upon vendor’s failure to give substantial performance).

(xv) Unauthorised building works reported by intending purchaser

See Chan Choi Fung v Huge Base Investment Ltd [2010] 3 HKC 491, [2010] 2
HKLRD 316, CA (where an intending purchaser reports an allegedly
unauthorized structure on property he has contracted to purchase to the Building
Authority, he cannot subsequently complain if the vendor demolishes the
unauthorized structure prior to completion).

(xvi) Approval may be required for the demolition of unauthorised building works
 34

Note that approval of demolition/repairing plans may be required from the

Building Authority: see Re Profit Success Development Ltd (2014) CACV
87/2014 (Cheung CJHC held that a section 24 demolition order was not immune
from the requirements of s 14 of the Buildings Ordinance (`the Ordinance’)
requiring approval of the building (demolition) plans by the Building Authority;
however, whilst it had to depend on the facts in each case, the building order itself
would normally constitute the necessary consent by the Building Authority to the
commencement of the work ordered to be done under the building (demolition)
order insofar as such work fell within the scope of section 14 of the Ordinance; if
such work did fall within the scope of section 14 of the Ordinance and was not
covered by any plans already approved under that section, plans had to be
submitted under section 14 of the Ordinance for approval).

(xvii) Sale ‘as is’

As we have seen above, where there is a term in the sale and purchase agreement
that sale shall be on an ‘as is’ basis, this only refers to the physical condition of
the property and does not serve as an exclusion clause covering unauthorised
building works: All Ports Holdings Ltd v Grandfix Ltd [2001] 2 HKLRD 630,
CA; Cashew Holdings Ltd v Pacific Success Enterprise Ltd [2004] 2 HKC 594
(`as is’ clause only to protect vendor and did not give any right that could be
asserted to restrain a vendor from demolishing unauthorised building works).

(M) Breach of the occupation permit and material change in user

(i) Breach of the occupation permit

A breach of the occupation permit may render the owner’s title defeasible. Such
was the case in Wong Wai Yip v Ho Wai Fung (2017) DCMP No 2221/2015
(49). In this case the occupation permit for the commercial floor of a building in
Kowloon provided for five shops (shops A-E), whereas there were in fact six
shops on the floor (shops A-E and shop E1). The plan of the floor annexed to
the first assignment also showed only five shops (shops A-E) on the floor. Shop
E1 had apparently been constructed after the issue of the occupation permit in a
v-shaped space (a lobby) shown on the plan. When the present owner of the
sixth shop (shop E1) agreed to sell it to a purchaser, the purchaser raised a
requisition asking the vendor to explain the discrepancy, pointing out that
neither the occupation permit nor the plan showed shop E1. Dty Judge Kam
Cheung concluded that shop E1 constituted unauthorised building works and
rendered the vendor’s title defeasible.

(ii) Intended material change of user

 35

Section 25(1) of the Buildings Ordinance requires an owner to give notice to the
Building Authority if he intends to make a material change of user (assuming
such does not breach the Government lease/Conditions of Grant, deed of mutual
covenant or occupation permit) and, on receipt of such notice, the BA may object
to the change. The use of a building will be considered to be materially changed
(a) where the carrying out of building works for the erection of a building
intended for such use would have contravened the provisions of the Buildings
Ordinance; or (b) where the Building Authority could have refused to give
approval to the plans under s 16(1)(g) of the Ordinance (the `rate and range’
clause).

In the absence of such notice (and the absence of any consequent objection), the
vendor's title might be defeasible if he makes a material change of user in breach
of the user designated in the occupation permit; see Worldfull Investments Ltd v
Young King Asia Ltd [1996] 4 HKC 238 (occupation permit prescribed user as
`garage for 10 motor vehicles'; after building works used as shop premises; held
title defeasible); Even Growth Investment Ltd v Shing Yip Investment Co Ltd
(1996) HCMP 2369/1996 (op designated three shops with cocklofts; cocklofts
converted into restaurant; held material change in user); but no material change
in user where no structural alterations involved: Summit Investment Ltd v Shia
Ning Enterprise Ltd [1999] 2 HKLRD 798.

(N) Title defeasible because the extent of the property is unclear or because
the boundaries do not correspond with plan or because of encroachment

(i) Unclear or wrong boundaries

A title might also be defeasible because the extent of the property is unclear or
the boundaries do not correspond with the relevant plan. See Tam Mo Yin v
Attorney-General [1996] 1 HKC 379; Fan Tony v Incorporated Owners of Kung
Lok Building (2006) HCMP 1861/2004 (car parking space did not correspond
with plan as it had been moved and guard post built on its proper location;
mandatory injunction to reinstate car-parking space granted).

(ii) Encroachment

Encroachment over Government land might render the title defeasible: see Chan
Hong Chung v Mak Kiu (1995) HCMP 1961/1995 (balcony protruding over
public street); yet cf Gold Glory International (Hong Kong) Ltd v KW Wong
Investment Co Ltd (2013) HCMP 1618/2012 (title not affected by overhanging
balcony since Government had granted permission).

For further illustrations of encroachment over private property giving rise to a

 36

defeasible title see Profit World Trading Ltd v Ho So Yung [2011] 2 HKC 473,
[2011] 2 HKLRD 773, CA (conversion of part of car port into sitting room);
Widely Success (HK) Ltd v Hollywood Land Ltd (2010) DCCJ 5851/2008 (96)
(main doors to the properties had been altered and extended into the common
areas (specifically the corridor) of the building).

(O) Title defeasible on other grounds

There are several other grounds on which a title may be defeasible:

1. Fraudulent conveyance under ss 60 and 61, Conveyancing and Property

Ordinance. As for the meaning of the words `with intent to defraud
creditors’ see Tradepower (Holdings) Ltd (in liquidation) v Tradepower
(Hong Kong) Ltd (2009) 12 HKCFAR 417, [2010] 1 HKLRD 674 (50)
(where it was objectively shown that a disposition of property unsupported
by consideration was made by a disponor when insolvent (or who thereby
rendered himself insolvent) with the result that his creditors (including his
future creditors) were clearly subjected at least to a significant risk of being
unable to recover their debts in full, such facts ought in virtually every case
to be sufficient to justify the inference of an intent to defraud creditors on
the disponor’s part). See Chan Sze Wing v Congruence Chinese Medicine
& Jing Luo Health Ltd [2020] HKCFI 2596

2. Transaction at undervalue (such as by way of gift) by person subsequently

adjudged to be bankrupt within 5 years of the assignment: s 49(1) and 51,
Bankruptcy Ordinance.

3. Unfair preference by person subsequently adjudged to be bankrupt: s 50,

Bankruptcy Ordinance and unfair preference by insolvent company: s 266
Companies Ordinance.

4. Assignment by way of security for loan that is illegal under the Money
Lenders Ordinance.

5. Breach of fiduciary duty owed by purchaser to vendor: see Chiu Che Kuen
v Or Yue Ling (1995) HCA 5543/1990 (purchase by solicitor's clerk).

6. Breach of deed of mutual covenant.

The title of the vendor might be rendered defective and at times defeasible
if there has been a relevant breach of a term in the deed of mutual covenant
in respect of the vendor’s property. Not all breaches of the deed of mutual
covenant will have this effect, however; rather, only those breaches in
 37

respect of which there is a real risk of significant enforcement action being

taken by the Incorporated Owners or manager, for example by imposing a
charge on the owner’s property to enforce compliance. Possible breaches
are, of course, many and variable. For example, the owner may fail to pay
management fees, may carry out unauthorised building works, may fail to
maintain his unit properly or may agree to sell his car park separately from
his unit where such is prohibited by the deed of mutual covenant. As for the
case law:

• Modern Sino Ltd v Art Fair Co Ltd [1999] HKLRD 847 (carrying out
unauthorised building works held to constitute a breach of the deed of
mutual covenant rendering the vendor’s title defective).
• Lo Chi Wai Arthur v Liu Wing Cheung Wilfred (1983) HCA 11459/1982
(car park sold separately from flat in breach of DMC; when flat came to
be sold title held defeasible since real risk of action by other parties to
DMC); Dragon Top Investments Ltd v Able HK Holdings Ltd (2013)
DCCJ 824/2013 (vendor had agreed to sell its car parking space
separately from any residential unit in breach of a prohibition in the deed
of mutual covenant; Dty Judge SP Yip concluded that the vendor had
failed to answer the requisition adequately and had, accordingly, failed
to show good title);
• Wise Wave Investments Ltd v TKF Services Ltd [2007] 4 HKLRD 762
(51) (failure to pay management fees rendered owner’s title defeasible).
• Incorporated Owners of Morlite Building v Asia Century Ltd [2016] 6
HKC 467, CA (co-owner of a unit in a multi-storey building failed to
contribute to fighting fund to take enforcement action against another co-
owner for blocking up an entrance and corridor by erecting a brick wall
in the common parts in breach of the dmc; held that charge properly
imposed by IO upon his share).

7. Sale of property by mortgagee to himself: Tang Ying Ki v Maxtime

Transportation Ltd [1996] 3 HKC 257.

8. Gift or sale by attorney to himself or others: Lo Hung Biu v Lo Shea Chung

[1997] 2 HKC 723, CA (52) (gift); Yook Lu Fong v Lau Po Ching [2002] 2
HKC 657 (sale by attorney to himself to hold as trustee for another who
himself was aware of the duty of the attorney).

9. Personal representative selling estate property to himself: Feerni

Development Ltd v Daniel Wong & Partners (a firm) [2001] 1 HKC 373,
[2001] 2 HKLRD 13 (53) (sale voidable at instance of any other person
interested in property sold).
 38

10. Title defeasible by reason of duress or undue influence: see, Royal Bank of
Scotland v Etridge (No 2) [2001] 4 All ER 449, HL; Bank of China (Hong
Kong) Ltd v Wong King Sing [2002] 1 HKC 83 (54); Hong Kong Chinese
Bank Ltd v Santa Fur Co Ltd (2002) HCMP 266/99.

11. Title defeasible through breach of building licence: see Euro King
Development Ltd v Ho Yu Kuen (2011) DCCJ 1286/2008 (owner
constructed Small House following concessionary grant of land by building
licence under Small House Policy; licence prohibited alienation of house
within 5 years; irrevocable power of attorney granted by owner within 5 year
period; house subsequently agreed to be sold to purchaser; held that owner’s
title defeasible and he could not give good title).

(P) Duty of vendor, by way of giving good title, to provide originals of all title
deeds which relate exclusively to the property agreed to be assigned

(i) Introduction

Handing over the original title deeds which relate exclusively to the property
forms an important part of the vendor’s duty to GIVE good title. In identifying
the extent of this duty we must distinguish the common law duty from the
statutory duty. The statutory duty, which is found in s 13A of the
Conveyancing and Property Ordinance, will apply unless excluded or
modified. The common law duty will, therefore, (perhaps) ONLY apply in only
two circumstances: (i) where the duty to give good title arose before the
statutory amendment took effect on 11 July 2008 – ie the sale and purchase
agreement pre-dated 11 July 2008; and (ii) where the vendor agrees by a sale
and purchase agreement dated post-11 July 2008 to give good title in
accordance with the common law, thereby excluding the effect of the statutory
provision.

We will first consider the common law duty and then the statutory duty.

(ii) The common law position

The extent of the common law duty to provide the original title deeds which relate
exclusively to the property has recently been clarified by the Court of Final
Appeal in De Monsa Investments Ltd v Whole Win Management Fund Ltd [2013]
5 HKC 350, CFA.

Prior to this important decision there used to be a widely held understanding that,
in accordance with the common law and unless otherwise agreed, a vendor, who
had agreed to give good title, had an obligation, by way of giving that title, to
 39

deliver to the purchaser the originals of all title deeds that related exclusively to
the property to be assigned right back to the ultimate root of title. If such original
title documents were missing, the vendor had to provide a statutory declaration
as to how they had come to be missing in accordance with the rule in Re Halifax
Commercial Banking Co Ltd and Wood (1898) 79 LT 536, CA. This was a
massively onerous duty especially where original title deeds had been lost or
destroyed. It was widely believed that this extensive duty emanated from the
decision of Yuen J in Yiu Ping Fong v Lam Lai Hing Lana [1998] 4 HKC 476
(55). This decision had been applied in Loyal Hope Ltd v Leung Pui Ming (2008)
HCA 136/2007.

The former widely accepted interpretation (ie following their understanding of

Yiu Ping Fong) has now been overruled by the Court of Final Appeal in De
Monsa Investments Ltd v Whole Win Management Fund Ltd [2013] 5 HKC
350, CFA (56). The Court first ruled that the vendor had a duty to deliver to the
purchaser at completion the original title documents which related exclusively
to the property. This was because the purchaser had a proprietary right to such
documents: see Re Williams and Newcastle’s Contract [1897] 2 Ch 144. The
vendor, therefore, had a duty to hand over at completion the originals of title
deeds actually in his possession or power. As regards missing original title
deeds in the pre- and post-intermediate root period, provided that there were no
grounds for suspecting that any such missing original title deeds could give rise
to any rights which could be enforced against the purchaser (for example, an
equitable mortgage by deposit of title deeds), there was no common law
obligation on a vendor to produce them. In the words of Ribeiro PJ and Gleeson
NPJ:

The vendor’s inability to produce an original document of title rather than

a certified copy and to account for the absence of the original to a
standard of proof required for secondary evidence [ie in compliance with
the rule in Re Halifax Commercial Banking Co Ltd and Wood (1898) 79
LT 536, CA], would only have justified refusal to complete where the
absence of the original would indicate the realistic possibility of some
transaction affecting the land which could affect the purchaser if he took
title.

As regards the risk that the original title deeds were missing because there had
been an equitable mortgage by deposit of title deeds, Litton NPJ observed that
an equitable mortgage or charge could be created in two different ways; first, by
way of deposit of original title deeds accompanied by a memorandum of deposit
and, secondly, by deposit of original title deeds unaccompanied by such a
memorandum. If accompanied by a memorandum, that memorandum would be
a registrable instrument and, if not registered, would be void against a
 40

subsequent bona fide purchaser in accordance with s 3(2) of the Land

Registration Ordinance. There would, therefore, in such a situation be no
realistic risk to the purchaser’s title. If, however, the equitable mortgage or
charge was not accompanied by a memorandum of deposit, of course, nothing
could be registered. A lender may not wish his transaction made public, for one
reason or another, by registering a memorandum of deposit revealing its terms
and, in such a case there would be no evidence evidencing its terms. There was,
however, no instance in the law reports of equitable mortgagees by deposit of
deeds having defeated the title of purchasers. The learned judge the went on to
say that it was difficult to imagine a situation where a person would lend a
substantial sum of money with nothing more than an oral commitment and a
deposit of title deeds, when he could have safeguarded his security by requiring
a memorandum of deposit and having it registered. In the instant case the Court
of Final Appeal concluded there were no grounds for suspecting that any of the
original title documents which were not in the vendor’s possession or power had
been used in any unwritten and unregistered transaction giving rise to rights
which could still be enforced against the purchaser. The vendor had, therefore,
answered the requisition adequately and the appeal would be allowed.

The conclusions to be drawn from this judgment would appear to be:

At common law:
(i) A purchaser is entitled to receive the originals of title documents relating
exclusively to the property at completion by virtue of his proprietary right to
such original title documents.
(ii) The vendor need normally only supply the originals in his possession or
power.
(iii) As regards missing original title documents in both the pre-and post-
intermediate root period, the vendor has a duty to explain the reason why they
are missing only where their absence would indicate the realistic possibility of
some transaction affecting the land which could affect the purchaser if he took
title.
(iv) It would seem to follow that resort to the rule in Re Halifax Commercial
Banking Co Ltd and Wood (1898) 79 LT 536, CA will at best be rare and may
never be necessary.

(iii) Statutory intervention

The former understanding of the extent of the common law duty caused
considerable problems for vendors and their solicitors. To produce original title
documents extending back to the ultimate root of title would occasion
considerable difficulties as many original title documents had been lost or
destroyed as, for example, in the Japanese invasion or merely as a result of
weather and storage conditions in Hong Kong. Making the required statutory
 41

declarations was onerous and at times unsatisfactory. To overcome these

difficulties in 2008 the legislature enacted section 13A of the Conveyancing and
Property Ordinance which was intended to alleviate the problem. It is now
ironical that the vendor’s duty under the common law as a result of the Court of
Final Appeal’s judgment in De Monsa Investments Ltd v Whole Win
Management Fund Ltd [2013] 5 HKC 350, CFA, may now be less onerous than
under the statutory provision. Indeed, solicitors may now be well advised to
adopt the common law duty rather than the statutory duty and this can simply be
achieved by inserting a provision in the sale and purchase agreement to the
effect that the vendor shall give title by handing over the original title deeds in
accordance with the common law rather than in accordance with s 13A of the
Conveyancing and Property Ordinance. But, of course, this can only be done
provided such a provision does not contradict the preliminary sale and purchase
agreement or where the purchaser agrees.

S 13A of the Conveyancing and Property Ordinance, which was enacted in June
2008, provides:

13A. Delivery of original deeds or documents of title

(1) Unless the contrary intention is expressed, a purchaser of land

shall be entitled to require the vendor to deliver to him, for the
purpose of giving title to that land, the original of both of the
following only:
(a) if there is a Government lease that relates exclusively to the
land, the lease; and
(b) any document that relates exclusively to the land and is required
to be produced by the vendor as proof of title to that land under
s 13(1)(a) and (c).
(2) Subsection (1) does not affect any rule of common law under
which the vendor may discharge his obligation to give title to that
land otherwise than by delivering the Government lease or document
to the purchaser.
(3) If the vendor is not required to deliver to the purchaser a
document in giving title to that land, the purchaser has no proprietary
right or ownership in the document.
(4) The fact that
(a) the vendor is not required to deliver to the purchaser a
document in giving title to that land; and
(b) the purchaser has no proprietary right or ownership in the
document, does not affect the right or interest of any other
person in that land.
 42

It can be seen that the new provision has several important effects:

According to s 13A(1)(a) and (c), a vendor under the statutory provision need
only produce the original of the Government lease (or Conditions of Grant)
together with those title deeds and documents which relate exclusively to the
property in respect of the period from the intermediate root of title to the present
sale and purchase agreement (ie within the chain of title period which is usually
little more than 15 years). The originals of title deeds falling within the pre-
intermediate root period do not, therefore, need to be supplied to the purchaser.
This provision was thought to significantly alleviate the duty resting upon the
vendor. The Government lease or Conditions of Grant will not usually relate
exclusively to the property being sold and all that remains is for the vendor to
produce the originals of those title documents relating to the property which fall
within the chain of title period.

The following documents will normally not relate exclusively to the property:
Government lease and Conditions of Grant, deed of mutual covenant, occupation
permit and certificate of compliance. The following documents will normally
relate exclusively to the property: assignments, mortgages and discharges. See
Goldmex Ltd v Edward Wong Finance Co Ltd [2006] 2 HKLRD 795 (no duty to
provide originals of title deeds which did not relate exclusively to the property
sold).

Powers of attorney may fall into either category.

(iv) Case application

See Zhang Xueshuai v Lai Chan Wing, the person appointed by the Court to
represent the estate of LMW [2015] 2 HKC 125, [2015] 2 HKLRD 246, CA
(57) (vendor agreed to give title in accordance with s 13A, CPO; vendor unable
to locate any of the original title deeds but could only supply certified copies;
vendor provided a statutory declaration made by his solicitor which stated that,
after extensive searches, he was unable to explain how the documents came to be
missing; the purchaser contended that a possibility existed of the original title
documents having been deposited by way of securing an equitable mortgage; two
registered sale and purchase agreements on the register had not been completed
and the purchasers were both financial lending institutions; this raised a suspicion
that the two agreements were disguised lending transactions; Cheung CJHC
observed that possibility that the then owner had made use of the original title
documents for borrowing purposes could not be excluded; this was particularly
so where the flat was a home ownership scheme flat in relation to which there
were stringent restrictions regarding alienation; the statutory declaration could
not properly speak as to the reason for loss of the original title documents; in De
 43

Monsa Litton NPJ, when dealing with the possibility of an equitable mortgage
over the property, had concluded that such a mortgage would invariably be
accompanied by a written note or memorandum of deposit which would be void
as against a bona fide purchaser for valuable consideration; quaere whether this
was only true where the written memorandum actually created the equitable
mortgage but did not apply where the written memorandum only evidenced the
creation of the equitable mortgage because s 3(2) of the Land Registration
Ordinance only rendered null and void a registrable but unregistered instrument
but not the underlying transaction insofar as it could survive without the
instrument; in conclusion, the requisition had been properly raised but not
satisfactorily answered).

(ii) S 13A(2) states that it does not affect any rule of common law under which a
vendor may discharge his obligation to give title. It clearly preserves the common
law rule in Re Halifax (1898) 79 LT 536, CA. Can it be argued that, since s 13A(2)
expressly states that it does not affect any rule of common law under which the
vendor may discharge his obligation to give title to that land, the less onerous
duty under the common law as explained by the Court of Final Appeal in De
Monsa Investments Ltd v Whole Win Management Fund Ltd [2013] 5 HKC 350,
CFA, has been preserved and may be applied even where the parties have
contracted, expressly or by implication, to give title in accordance with the
statutory provision? Ribeiro PJ and Gleeson NPJ somewhat mysteriously
commented in De Monsa Investments Ltd v Whole Win Management Fund Ltd
[2013] 5 HKC 350, CFA: `We note for future reference that section 13A(2) allows
recourse to the common law if the specified originals cannot be delivered’. See
Chu Yin Fan v Inter Rivers Ltd (2016) DCCJ 4314/2012 where Dty Judge Samson
Hung ruled that s 13A(2) of the Ordinance had preserved the common law rule
as enunciated in De Monsa and should be applied where the parties had agreed to
give title in accordance with s 13A of the Ordinance. This conclusion has the
effect of admitting the (easier to comply with) common law rule through the back
door!

(iii) An owner of land has a common law right to the ownership of the title deeds
and documents relating to that land as an incidence of his ownership of the land:
Re Duthy and Jesson’s Contract [1898] 1 Ch 419. S 13A(3) removes this right in
respect of all title deeds save those that must be produced in compliance with the
vendor’s duty to give title in accordance with s 13A of the Ordinance.

(iv) S 13A(4) preserves rights of third persons, such as any right of an equitable
mortgagee who holds the original title deeds.

The Court of Appeal has ruled in Donpower Trading Ltd v Apexcom (2010)
CACV No 172/2009 that section 13A, CPO , does not have retrospective effect
 44

and only applies to sale and purchase agreements signed after 11 July 2008 (the
date the Ordinance came into effect).

Failure to provide the originals of title deeds in compliance with s 13A of the
CPO will constitute a repudiatory breach of the sale and purchase agreement: Big
Most Ltd v Chau Wa Hung (2012) HCMP 2597/2011.

6. MATTERS OF MERE CONVEYANCE

Matters of mere conveyance will not render a title defective. Matters of mere
conveyance are defects which the vendor can remove independently of the
concurrence of any other person; eg the discharge of a mortgage prior to
completion: Re Jackson & Oakshot (1880) 14 Ch D 851. See also Sharneyford
Supplies Ltd v Edge [1985] 1 All ER 976 (duty on vendor to give vacant
possession; presence on land to be sold of trespassers or licensees; held, since
within vendor’s power to remove them, this was a matter of mere conveyance;
different conclusion if occupants were tenants, applied in Ip Fai Man v Lui Kit
Man (2000) HCA 13661/1998; City Chain Properties Ltd v Speedy Port Ltd
(2001) HCA 2221/1998 (presence of trespassers occupying wall stalls outside
shop in Chung King Mansions constituted a matter of mere conveyance and did
not adversely affect the vendor’s title).

7. BAD TITLES

Bad titles will be dealt with in LG6 to LG8 on Proof of Title.

Professor Michael Wilkinson

Revised and updated by Professor Richard Wu
21 August 2024