In De Monsa Investments Ltd v Whole Win Management Fund Ltd ([2011] 4 HKLRD 478, CA) V had entered into an agreement to sell office space in Central to P. V was unable to produce the originals of certain title deeds affecting the property. The relevant facts occurred before 11th July 2008 and so section 13A of the Conveyancing and Property Ordinance did not apply.
The principal question for the Court of Final Appeal was whether there is a common law rule to the effect that:
‘Unless excluded by express contractual provisions, a vendor at completion was duty bound to deliver to the purchaser all original title documents going back to the root of title, however remote, if those documents relate exclusively to the property sold. If, prior to completion, the vendor was unable to provide a satisfactory explanation as to why he would not be able to do this at completion, the purchaser was entitled to rescind.’ ([78] per Litton NPJ)
The Court of Final Appeal decided that this rule is too broadly stated in that there would only be a breach of the duty and a right to rescind if the circumstances were such that the inability to produce the original or to give a satisfactory explanation as to its loss exposed the purchaser to a real risk that some encumbrance might have been created to which he would be subject ([31] per Chan PJ, [45] per Ribeiro PJ and Gleeson NPJ, [107] – [108] per Litton NPJ). The risk must be real and not merely theoretical ([133] per Litton NPJ).
Litton NPJ suggested that the risk here would be that an equitable charge might have been created by deposit of the missing title deeds. If, however, this was accompanied by a written agreement or commitment then this would need to be registered in accordance with the Land Registration Ordinance. Failing this, the purchaser would not be subject to it. The purchaser was still entitled to a satisfactory explanation so that he could be sure that no encumbrance had been created in the very recent past that could still be registered and take priority over the purchaser’s interest. It was inconceivable that an equitable mortgage relying on a purely oral commitment would have priority over the purchaser’s interest ([111] – [120]).
Michael Lower
