Cai Deyan and Another v. Lam Ting Hon

HCA 1441/2024

[2025] HKCFI 6239

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1441 OF 2024

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D E C I S I O N

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INTRODUCTION

1.This is the appeal brought by the plaintiffs (“Ps”) against the decision of Master Dick Ho (“the Master”) on 20 January 2025 where the Master refused to enter summary judgment in favour of Ps. Instead, the Master granted the defendant (“D”) conditional leave to defend upon payment of the sum of HK$2,020,000 into court.

2.In the summary judgment application before the Master, Ps (as purchasers) sought the return of the deposit and damages in relation to the purchase of an apartment and a car parking space in Shiu Fai Terrace, Hong Kong (“the Property”) due to, among other things, the alleged failure by D (as seller) to answer requisitions satisfactorily. In the Defence, D claimed that he had satisfactorily answered the requisitions, that Ps wrongfully repudiated the preliminary sales and purchase agreement (“the PASP”) and the deposit was validly forfeited.

BACKGROUND

3.The facts of this case are not in dispute and they have been summarised in the agreed Chronology of Material Events. The material facts are as stated below.

4.On 12 April 2022, D entered into a sales and purchase agreement (“SPA”) to buy the Property from its previous owner by the name of Tse Tong Lam Antonio (“the Previous Owner”) and the SPA was registered with the Land Registry on 10 May 2022. On 22 April 2022, pursuant to the SPA, the Previous Owner executed an assignment (“the Assignment”) in favour of D, which was registered on 17 May 2022.

5.On 6 May 2022, the Previous Owner purportedly executed the deed creating a third mortgage over the Property (“the Third Mortgage”) in favour of Wanfu Finance Company Limited (“Wanfu”). The Third Mortgage was registered on 11 May 2022.

6.On 14 September 2022, Wanfu commenced the proceedings in DCCJ 3571/2022 (“the DC Action”) against the Previous Owner (as the 1^st defendant) and D (as the 2^nd defendant) to seek declarations that the Third Mortgage was valid and had priority over the SPA and that D took the Property subject to Wanfu’s interest in the Third Mortgage. Wanfu claimed, among other things, that D was not a bona fide purchaser for value without notice for the reasons given in §§18 & 19 of the Statement of Claim in the DC Action.

7.About two years later, on 19 April 2024, Ps and D entered into the PASP. A series of correspondences then took place between the parties’ solicitors concerning D’s title. On 3 June 2024, D took out a summons in the DC Action to, among other things, vacate the registration of the Third Mortgage from the Land Registry (“the DC Application”).

8.On 11 June 2024, Ps’ solicitors asked D’s solicitors whether the Third Mortgage would be discharged on or before completion. On 19 June 2024, D’s solicitors replied that the Third Mortgage was void against D because it was created after the SPA and lacked priority against it.

9.On 25 June 2024, D’s application to vacate the registration of the Third Mortgage was refused by Her Honour Judge G. Chow: see the Reasons for Decision dated 3 July 2024; [2024] HKDC 1080 (“DC Reasons for Decision”).

10.On 4 July 2024, the parties herein mutually agreed to postpone the completion date under the PASP from 5 July 2024 to 12 July 2024. In the letter dated 6 July 2024, Ps’ solicitors complained that D failed to voluntarily disclose the existence of the DC Action when responding to the requisitions raised in the letter dated 11 June 2024. Ps’ solicitors asserted that Ps should not be required to complete the transaction because they would in practice be buying a lawsuit.

11.On 15 July 2024, D’s solicitors informed Ps’ solicitors that Ps failed to complete and the deposits paid were therefore forfeited. On the same day, Ps’ solicitors replied that D failed to answer the requisitions satisfactorily, that Ps had accepted D’s repudiation of the PASP and Ps demanded the return of the deposits.

12.On 23 July 2024, Ps issued the writ in these proceedings. On 23 August 2024, Ps took out a summons (“the Summons”) under Order 14 to apply for summary judgment against D (“the Application”). On 20 January 2025, the Master refused the Application (“the Master’s Order”) and Ps appealed by way of a Notice of Appeal dated 27 January 2025 (which was amended on 24 April 2025).

THE LAW AND PARTIES’ SUBMISSIONS

13.Although Ps relied on the observations made by the Master in refusing the Application, I would not consider them in my determination of the Application. This is because there is no transcript from the hearing before the Master and in any event this appeal should be determined by a de novo hearing.

14.The principles on an application for summary judgment are summarised by Au-Yeung J in §22 of Wu Yuan Hong v China Zenith Chemical Group Ltd [2025] 1 HKLRD 1191:

“(1) An O.14 application proceeds on the case as pleaded, and it is those facts which have to be verified on affidavit.

(2) The defendant bears the burden of satisfying the Court that (1) he has a real or bona fide defence (i.e. that there are triable issues), or that (2) there ought for some other reason to be a trial of the Plaintiff’s claim.

(3) That does not mean that the Court will focus solely on what the Defendant says in its defence. When assessing the strength of the application, the Court will also consider the basic premise of the Plaintiff’s claim and its inherent strength or weakness.

(4) A complete defence need not be shown. The defence set up need only show that there is a triable issue or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is “clearly no defence in law” and “no possibility of a real defence” on the question of fact.

(5) The Court will not embark upon a mini-trial of the action on paper. Leave to defend will be granted unless the defence raised “is so incredible” or “so contradicted by contemporaneous documents or circumstances” that it becomes clear that the defence “is a sham”.

(6) The test is not whether the Defendant’s assertions are to be believed, rather it is whether those assertions are believable, i.e. capable of being believed. If so, the Defendant “must have leave to defend”.

(7) Whether the Defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

15.Ps’ case for seeking summary judgment is summarised in §11 of their skeleton argument:

(1)  D failed to answer Ps’ requisitions satisfactorily, specifically in failing to assure Ps that there would be no real risk of a third party coming forward to assert a claim in the Property;

(2)  There is a real risk of a successful assertion of an encumbrance on D’s title by Wanfu, such that D is unable to give good title; and

(3)  Because Wanfu alleged fraud in the DC Action, there was a real risk that Wanfu could rely on s60 of the Conveyancing and Property Ordinance, Cap. 219 (“CPO”) to defeat D’s title entirely.

16.In §8 of D’s skeleton submissions, D argued that he had an arguable defence for the following reasons:

(1)  As a matter of priority, the Third Mortgage was void against D and Ps (“the Priority Defence”);

(2)  The DC Action was not registered against the Property as lis pendens and therefore could not affect title, by operation of the Land Registration Ordinance, Cap. 128 (“LRO”) (“the No Registration Defence”)

17.At §36 of D’s skeleton submissions, D contended that the Previous Owner had assigned his interest in the Property by the Assignment dated 22 April 2022 and therefore lacked the legal and equitable interest to create the Third Mortgage when he purported to execute the deed on 6 May 2022. I shall refer to this defence as the Validity Defence.

DISCUSSION

18.In §109 of De Monsa Investments Ltd v Whole Win Management Fund Ltd (2013) 16 HKCFAR 419, Litton NPJ observed that in many cases where an objection to title was raised, the question usually boiled down to this: Is there a real risk that a third party might assert some right over the property, thereby encumbering it or defeating the title altogether?

19.A vendor has the burden to prove good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an incumbrance: see MEPC Ltd v Christian-Edwards [1981] AC 205 at 220. The vendor discharges his obligation if he shows to that standard that he is in a position to convey the estate or interest contracted to be sold without any blot, or possibility of litigation to the purchaser: see Chi Kit Co Ltd & Anor v Lucky Health International Enterprise Ltd (2000) 3 HKCFAR 268 at 282J – 283A.

20.In Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109, it was said that a good title does not mean a perfect title, free from every possible blemish and the question of whether good title has been shown must be approached from the standpoint of a willing purchaser and a willing vendor, both possessed of reasonably robust common sense, both intending to see the transaction through to completion in terms of their own bargain.

21.Applying the principles derived from the above cases, it is clear that the ultimate issue in the Application is whether D has a valid defence to Ps’ complaint that D’s refusal to discharge the Third Mortgage and failure to remove the same prior to completion posed a real risk that a third party may successfully encumber or defeat Ps’ title.

22.Ms Ebony Ling, counsel for D, submitted that there was no real risk that Ps’ title acquired under the PASP could be encumbered or defeated by the Third Mortgage because of the Priority Defence and the Validity Defence and the DC Action would have no effect on the PASP because of the No Registration Defence. It should be noted that the Priority Defence was also raised by D’s solicitors, Messrs. K. B. Chau on 19 June 2024 as an answer to Ps’ requisitions.

23.In relation to the Priority Defence, I accept that in some cases the operation of the LRO can serve as a complete answer to a purchaser’s requisition. Indeed, this was the ratio of De Monsa. However, the present case was not one of those cases.

24.Section 3 of the LRO provides:

“Priority of registered instruments; effect of non-registration

(1) Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2) All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes:

Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years, or to a regulated tenancy (as defined by section 120AA(1) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7).”[emphasis supplied]

25.A unique feature of the present case is that the instrument said to have priority over a third party’s interest is not the agreement between the purchaser and vendor, but the agreement between the vendor (ie D) and his predecessor-in-title (ie the Previous Owner).

26.In the former situation, a purchaser suing the vendor is usually not allowed to say that he was not a bona fide purchaser just so he can escape the effect of the LRO and the bona fide purchaser requirement is usually not in issue. But in the current case, the vendor (ie D) is the person who needs to satisfy the bona fide purchaser requirement, so D must show beyond reasonable doubt that this requirement has been met before he could invoke section 3.

27.This is a very high hurdle to pass when Wanfu has already commenced the DC Action and asserted that D was not a bona fide purchaser because he acted in concert with the Previous Owner.

28.In §51 of the skeleton submissions of D, D identified four reasons why Wanfu’s allegation of collusion between the Previous Owner and D was speculative, misconceived and illusory. Subparagraphs a. and b. of §51 were essentially subjective assessments by D of Wanfu’s case and I do not think any useful assistance can be derived from calling Wanfu’s allegation “plainly fundamentally misconceived and wrong” or “defies logic and common sense”.

29.Subparagraph c. is related to D’s criticism on Ps’ reliance on s60 of the CPO, which I shall return to later. Subparagraph d. relates to the observation by Her Honour Judge G. Chow in the DC Reasons for Decision and for the reasons given below I do not propose to give any weight to that decision.

30.In my judgment, in the rather unusual circumstances of this case, a person with “reasonably robust common sense” would appreciate that there was a real risk that the Priority Defence could fail.

31.As for the Validity Defence, D’s case was even weaker. First, it would be difficult for D to prove beyond reasonable doubt, against Wanfu’s allegation that the Previous Owner and D colluded in the SPA, that the Previous Owner had successfully assigned the legal and equitable interest in the Property to D.

32.Second, it seems to me that if Wanfu’s succeeds in proving the collusion allegation against D, D (and by extension Ps) would be in no position to challenge the validity of the Third Mortgage.

33.For these reasons, in my judgment, a person with “reasonably robust common sense” would appreciate that there was a real risk that the Validity Defence could fail.

34.In De Monsa, it was held that a purchaser is not required to inquire into the merit of the vendor’s defence against a third party. He is entitled to get out of the transaction as long as there is a risk, which is real as opposed to fanciful, that the vendor’s title may be encumbered. Thus, in Lam Sau Wah v Tam Chi Hung & Anor [2001] 2 HKLRD 104 at 113A-C, the court found that when a third party “arguably [has] a tracing claim…the purchasers ought not be put in the position of being vulnerable to a claim….which on no footing can be considered fanciful”.

35.It seems to me that D had grossly overstated the merit of the Priority Defence and the Validity Defence. Wanfu’s claim in the DC Action appears to be real and not fanciful. I find that D failed to show good title and was in breach of the PASP.

36.I would add that I have reached the above conclusion without giving any weight to (1) Ps’ argument that D recognised that the Third Mortgage constituted a risk to title as evidenced by the DC Application taken out by D or (2) the DC Reasons for Decision.

37.For (1), there is some force in Ps’ argument but it is inappropriate for me to inquire into the state of mind of D at this stage. For (2), I note that the outcome of the DC Application was influenced in part by the law on interlocutory mandatory injunction and the evaluation of unproven allegations by Wanfu. The DC Reasons for Decision appears to have little relevance to the Application and I place no weight on it.

38.I would add a few words about the relevance of the DC Action because this was one of the points of contention between the parties. Insofar as the cause of action based on the Third Mortgage is concerned, I agree with Ps’ submission that it did not matter whether the DC Action was registered as lis pendens against the Property or not. This is because Ps were relying on the Third Mortgage, not the DC Action itself, for establishing a real risk to title.

39.It is pertinent to note that in most “title dispute” cases, there is some room to contest the remoteness of the risk to title[1] but in the present case, the DC Action represents an immediate and materialised risk to D’s title flowing from the Third Mortgage. Therefore, D is arguably in a worse position than the vendors in most “title dispute” cases because of the ongoing DC Action.

40.As for the other causes of action in the DC Action which were not based on the Third Mortgage, such as the claim under s60 of the CPO alluded to by Ps, I accept D’s submission that they could not rank in priority ahead of the PASP because the DC Action was not registered (ie the No Registration Defence referred to above). I therefore place no weight on those causes of action that are not based on the Third Mortgage.

CONCLUSION

41.In the aforestated premises, I find that D has no arguable defence to Ps’ claim that he was in breach of the PASP and that there is no other reason for having a trial. I would therefore allow the appeal, set aside the Master’s Order and order that judgment be entered against D.

42.Ps are entitled to the return of the deposits paid which amounted to HK$2,020,000. As Ps’ claim for an equitable lien is limited to the amount of the deposits paid only and those deposits have been received by D, I make an order in terms of §(2) of the prayers under the Re-Amended Statement of Claim, following §30 in Wong Kam Fung v Smart Profit Enterprise Ltd [2014] 5 HKLRD 853.

43.Ps also rely on clause 9 of the PASP to sue for liquidated damages in the amount of HK$2,020,000. Clause 9 provides:

“Should the Vendor after receiving the deposit paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

44.There was no serious dispute by D that Ps should be entitled to liquidated damages in the amount of HK$2,020,000 under clause 9 of the PASP if Ps are successful. I therefore order D to pay Ps HK$2,020,000 as liquidated damages.

45.I also award interest on the judgment sum, being the total amount of the deposit and the liquidated damages (ie HK$4,040,000) at 8.25% per annum, which is the current judgment rate, from 23 July 2024 (the date of the writ) to the date hereof and thereafter at judgment rate.

46.I make an order nisi that the costs of the action, including the costs of this appeal and the hearing for the Application before the Master, be to Ps, with certificate for counsel. It shall be made absolute 14 days after the date of the handing down of this decision.

Mr Justin Ismail instructed by Deacons for the plaintiffs

Ms Ebony Ling instructed by K.B. Chau & Co. for the defendant