Lam Yin v. Hui Leung Kai and Another
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HCMP 576/2026 [2026] HKCFI 5926 HCMP 576/2026 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 576 OF 2026 __________________
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__________________ AND HCA 611/2026 ACTION NO. 611 OF 2026 __________________
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________________ J U D G M E N T ________________ A. INTRODUCTION 1.The two sets of proceedings before me arise from the sale and purchase of three properties at Monterey, 23 Tong Chun Street, Tseung Kwan O, New Territories, Hong Kong (“the Properties”): Villa 12 (“the Villa”); Residential Car Parking Space No.R022 (“CP22”), and Residential Car Parking Space No.R023 (“CP23”). 2.By originating summons of 13th April 2026 in HCMP 576/2026 (“the OS”), Lam Yin (“the Vendor”) seeks, inter alia, (1) declarations that she has sufficiently answered the requisitions raised by Hui Leung Kai and Tong Sze Ling (“the Purchasers”) and that she has proved good title to the Properties; (2) specific performance of the agreements for the sale and purchase of the Properties, and (3) damages. 3.The Purchasers have counterclaimed for, inter alia, (1) a declaration that the Vendor has failed to show and give good title to the Properties; (2) a declaration that the agreements for sale and purchase of the Properties have been terminated by reason of the Vendor’s repudiatory breaches thereof; (3) return of the deposits paid for the purchase of the Properties; and (4) damages. 4.On 17th April 2026, the Purchasers further commenced HCA 611/2026 against the Vendor, her attorney Chiu Kwan Chi (“the Attorney”), and Messrs Ho & Partners, the solicitors acting for the Vendor in the sale of the Properties (“the Firm”). By summons of 22nd June 2026 in those proceedings, the Purchasers seek summary judgment, alternatively interim payment, against the Firm for return of the deposits for the Villa, with interest and damages to be assessed (“the O.14/O.14A Summons”). 5.This judgment deals with the OS (including the counterclaim) and the O.14/O.14A Summons. B. THE BACKGROUND B1. The PSPAs and the Initial Deposits 6.On 4th December 2025, the Vendor and the Purchasers entered into three preliminary sale and purchase agreements (“the PSPAs”) for the sale and purchase of each of the Properties. Under the PSPAs:
7.On the same day, the Purchasers paid the Initial Deposits by three cheques drawn in favour of the Firm as stakeholder. 8.At the time of execution of the PSPAs on 4th December 2025, there were already in existence two bank mortgages registered against the Villa (“the Villa Prior Mortgages”) and two bank mortgages registered against each of CP22 and CP23 respectively (collectively, “the Prior Mortgages”). 9.On 16th December 2025, the PSPAs were registered against the Properties. As they were duly registered within one month after execution, they are entitled to priority by reference to their dates of execution (4th December 2025). B2. The FSPAs and Further Deposits 10.On 30th December 2025, the Vendor and the Purchasers executed formal sale and purchase agreements (“the FSPAs”) in respect of each of the Properties. Under the FSPAs:
11.On the same day, the Purchasers paid the Further Deposits by three cheques drawn in favour of the Firm as stakeholder. 12.Also on the same day, the Firm as stakeholder signed the receipt clause in each of the FSPAs to confirm that it had received the Initial Deposits and the Further Deposits. The total amount of the Initial Deposits and the Further Deposits so received by the Firm was $4.53m (“the Deposits”). B3. The JIT Charges 13.The Purchasers were unaware until March 2026 that in addition to the Prior Mortgages, the Vendor had in fact executed a further Second Legal Charge in respect of the Villa (“the Villa JIT Charge”) in favour of JIT Finance Co Limited (“JIT”) and a further Second Legal Charge in respect of CP22 and CP23, both on 5th November 2024 (“the CP JIT Charge”; collectively “the JIT Charges”). 14.The JIT Charges were registered against the relevant Properties on 23rd December 2025. In other words:
B4. The release of the Deposits 15.In January 2026, the Firm released the Deposits to the Plaintiff through the Attorney: $400,000 on 5th January 2026 (being the Deposits for CP22 and CP23), and $4.13m on 19th January 2026 (being the Deposits for the Villa (“the Villa Deposits”)). 16.At the time when the Villa Deposits were released, the balance of the purchase price payable for the Villa ($37.17m) was not sufficient to discharge all of the legal charges or mortgages in relation to the Villa (as at the date of completion: $35,628,721.87 under the Villa Prior Mortgages, and $10,315,889 under the Villa JIT Charge). 17.The Firm’s letter of 8th April 2026 claimed that at the time of release of the Deposits, it was unaware of the existence of the JIT Charges. In a reply of 10th April 2026, Messrs Yung, Yu, Yuen & Co (“YYY”), the solicitors acting for the Purchasers in the purchase of the Properties, pointed out that the release took place after the date when the JIT Charges had been registered against the Properties already, so that the Firm could have learned of them by carrying out a land search. B5. The requisitions 18.Prior to the execution of the FSPAs, neither the Vendor, the Attorney (party to the JIT Charges) nor the Firm informed the Purchasers about the JIT Charges. It was only in March 2026 that the Purchasers discovered the existence of the JIT Charges through Centaline. As a consequence, the completion date was postponed twice, ultimately to 13th April 2026. 19.YYY raised requisitions in relation to the Villa JIT Charge. In essence, YYY sought confirmation that the Vendor would be able to discharge the Villa JIT Charge before completion, so that the Properties[1] would be sold to the Purchasers free from encumbrances. 20.The Firm’s answer was that the Vendor would be able to give good title without discharging the JIT Charges, since the JIT Charges were registered against the Properties only after the PSPAs, so that they were null and void to all intents and purposes against the Purchasers under the LRO, and did not constitute encumbrances over the Properties. 21.The details of the requisitions and answers are as follows:
22.The Purchasers did not proceed with completion on 13th April 2026. B6. JIT’s position 23.By a letter of 26th March 2026 to the Firm, JIT’s solicitors stated that JIT would not execute any discharge or release of the JIT Charges until the amounts due to it were paid, and it reserved its rights to exercise its power of sale or any other remedies available to it. 24.By a letter of 2nd April 2026 to YYY, JIT’s solicitors stated that JIT would not execute any discharge or release of the JIT Charges until the amounts due to it were paid, and that JIT did not accept that the JIT Charges were invalid, unenforceable or otherwise ineffective whether against the Purchasers or at all. C. STATUS OF THE JIT CHARGES 25.I first deal with the effect of s.3(2) LRO. 26.Counsel for the Vendor, Mr Ernest Ng (appearing with Mr Raphael Leung), says that the operation of s.3(2) LRO means that the JIT Charges are null and void vis-à-vis the Purchasers, who would take free from them on completion of the sale and purchase of the Properties, and who can therefore pass on an unencumbered title to the Properties to future purchasers. 27.Counsel for the Purchasers, Ms Bonnie Cheng (leading Mr Cedric Yeung) accepts that the JIT Charges are null and void vis-à-vis the Purchasers, but says that the JIT Charges are enforceable against subsequent purchasers. 28.Counsel for the Firm, Ms Sabrina Ho (appearing with Ms Clara Wong) says that the JIT Charges are null and void vis-à-vis the Purchasers, but clarified at the hearing that she accepts that the JIT Charges would be enforceable against subsequent purchasers of the Properties.[2] 29.I agree with Ms Cheng (and Ms Ho) that the JIT Charges are null and void vis-à-vis the Purchasers only, but remain enforceable against the Properties, and will therefore bind subsequent purchasers of the Properties.
30.In support of his submission that s.3(2) LRO not only operates to confer a better title to the Properties on the Purchasers than that held by the Vendor, but that this protection enures for the benefit of the Purchasers’ successors in title, Mr Ng cited Yim Tin Fook v Yu Chor Lai and others [2025] 4 HKLRD 193 at [85] (G Lam JA, as he then was), and on appeal therefrom in To Sze On v Yim Tin Fook (deceased) and another (2026) 29 HKCFAR 217 at [12] (Lam VP), and at [38] (Lord Hoffmann NPJ, adopting G Lam JA’s judgment). I will refer to these authorities as To Sze On (CA) and To Sze On (CFA). 31.Mr Ng submitted at the hearing that as the plaintiffs in To Sze On obtained good title to the disputed properties through the 8th defendant by counterclaim (“DC8”) who was not a purchaser for valuable consideration, this showed that s.3(2) LRO protected the successors in title of the purchaser who originally acquired the property free from any encumbrance created by an earlier unregistered instrument. 32.However, the reason why the plaintiffs obtained good title to the disputed properties did not turn on whether or not title had passed through DC8. The relevant inquiry, under s.3(2) LRO, was to consider title and priority as a relative matter from the viewpoint of the competing claims of the 1983 lessee and the plaintiffs (and not other parties). The operation of s.3(2) LRO was as such to render the unregistered 1983 lease null and void vis-à-vis the plaintiffs (but not against other persons). See To Sze On (CA) at [98] to [101]. 33.I agree with Ms Cheng that when Lam PJ observed, obiter, that it is a fallacy that s.3 LRO does not affect title, he was not saying that s.3 LRO can extinguish a legal estate for all time. As Lam PJ explained at [11] and [12] of To Sze On (CFA), the concept of priority in the LRO is premised on relativity of title; s.3 modifies the common law rule that legal interests created first in time prevail; s.3(2) can operate to confer title on a subsequent purchaser better than the one held by his vendor. In other words, Lam PJ had in mind the relative positions of two competing claimants. 34.In To Sze On, what the court was considering consisted of an earlier unregistered instrument (the 1983 lease) and two later registered instruments (the 1997 assignment to each of the two plaintiffs) so that on a straightforward application of s.3(2) LRO, the later instruments prevailed over the earlier, unregistered instrument (see To Sze On (CA) at [74]). In the present case, however, the JIT Charges have now been registered, and a future purchaser of the Properties will not be able to rely on s.3(2) as against JIT. 35.It is therefore not the case that s.3(2) LRO has the effect of rendering the JIT Charges null and void for all purposes against all persons, such that they cannot constitute an encumbrance on the title of the Properties. D. WHETHER VENDOR IN BREACH OF DUTY TO SHOW AND GIVE GOOD TITLE 36.There is no dispute that the Vendor was under a duty to show and give good title. 37.As Ms Cheng submitted:
38.In the present case, both duties were incorporated into the FSPAs by cl.8(a) thereof. 39.On the subject of giving good title, in Jumbo King Ltd v Faithful Properties Ltd & ors (1999) 2 HKCFAR 279, Litton NPJ said at 293I-J:
40.There is no dispute that the JIT Charges come within the meaning of “encumbrance”; Mr Ng’s argument is just that a “void” charge cannot encumber the Properties.[4] 41.As addressed earlier, s.3(2) LRO does not have the effect of rendering the JIT Charges null and void for all purposes against all persons. Whilst JIT is unable to enforce the charges against the Purchasers, it will be able to do so against subsequent owners of the Properties. The Properties are therefore encumbered with the JIT Charges. 42.Even if there is no risk of enforcement action against the Purchasers, this is not a sufficient answer. By cl.3 of the FSPAs, the Vendor was to assign the Properties free from encumbrances. The Vendor was not in a position to do so (and indeed refused to do so, saying that she did not need to repay JIT). See Ko Lan v Hoo Man Kuen Martin, unreported, HCMP 4416/1998, 19th January 1999 at pp.19 to 20 (Mr Recorder Edward Chan SC). In that case, even though there was no risk that the bank would take action to enforce the legal charge against the property as the bank had already been fully repaid, this was held not to be a complete answer to the requisitions raised in relation to the defective instrument of release, as without a valid release, there would still be a charge over the land, and the purchaser would not be in a position to assign to his own eventual purchaser the legal estate in the property free from encumbrances. 43.This also addresses Ms Ho’s submission that the authorities focus on whether there is a risk of a challenge being successfully made to the title of the (immediate) purchaser, rather than future purchasers. It is not surprising that the focus of many of the authorities is on the positions of the immediate parties to the proceedings. But the issue in any case is whether the vendor has shown that he has an unencumbered title to pass on to the purchaser; whether there is a risk of enforcement against the immediate purchaser will not necessarily address the entirety of this issue. 44.See also Siu Wing Yee Angeline v Earning Yield Ltd [2013] 6 HKC 281 at [36] (To J). Whilst this decision was the subject of criticism in Malcom Merry, Nullity or Merely Lost Priority? The Effect of Failure to Register a Document Concerning Land (2015) 45 HKLJ 87, the learned author agreed with To J’s view that vacating the registration of the legal charge in that case, so that it was no longer registered against the property, did not mean that the charge no longer existed – even if the mortgage loan was paid off. The charge therefore remained as an encumbrance against the property. 45.In the present case, therefore, the Vendor failed to show good title to the Properties as (1) she failed to produce documents to show that the JIT Charges had been discharged, (2) in answer to the Purchasers’ requisitions, she took the stance that she did not need to discharge the JIT Charges in order to give good title to the Properties, (3) there was a third party (JIT) who had an interest in the Properties, contrary to cl.27 of the FSPAs. 46.The Vendor also failed to give good title to the Properties as (1) the Vendor was unable to deliver documents showing the discharge of the JIT Charges and (2) the encumbrance constituted by the JIT Charges remained against the Properties. 47.Mr Ng suggested that the Vendor could at least show and give good title in respect of CP22 and CP23 as the proceeds of sale would have been sufficient to discharge the CP JIT Charge.[5] I do not agree. Quite apart from the fact the Purchaser had asked for the Properties to be conveyed together (to which the Vendor had not objected), it was the Vendor’s stance when answering the Purchaser’s requisitions that neither the Villa JIT Charge nor the CP JIT Charge needed to be discharged upon completion. As I have found, this was not an adequate answer. E. WHETHER VENDOR AND THE FIRM IN BREACH OF FSPA E1. Failure to show and give good title 48.It follows from the above that the Vendor was in breach of her obligations to assign the Properties free from encumbrances under cl.3 of the FPSAs, to show and give good title under cl.8(a) of the FSPAs, and was also in breach of cl.27 of the FSPAs in that there was a third party with an interest in the Properties. 49.This was a repudiatory breach of the FSPAs: Hong Kong Conveyancing Law and Practice, Vol.1A, Chapter VIII at [102]. Accordingly, the Purchasers were entitled to accept the breach and terminate the FSPAs, which they did by demanding the return of the Deposits through YYY’s second letter of 13th April 2026, making it clear that they considered themselves no longer bound to perform the FSPAs. E2. Failure to discharge existing legal charges 50.There is a further dispute as to:
51.Mr Ng argued that the phrase “the existing Mortgage or Legal Charge” did not include the JIT Charges as they are void as against the Purchaser. If the JIT Charges were not valid against the Purchaser, then they could not be “existing”. 52.Ms Ho similarly argued that only charges which are capable of being asserted against the Purchasers (as opposed to future owners of the Properties) could come within the meaning of “existing legal charge/mortgage” under the Stakeholder Clauses. Her reasons were that:
53.I agree with Ms Cheng that the issue of construction[6] is suitable for determination under the O.14A procedure. The relevant facts are not in dispute. Resolution of the issue of construction would be final as to the key issue of whether the Firm was in breach of its obligations under the FSPAs. 54.I do not agree with Ms Ho’s arguments on the construction point, which are all premised on focusing on the position between the Vendor and Purchasers in isolation. I agree with Ms Cheng that on a proper construction of the FSPAs, the phrases “the existing Mortgage or Legal Charge” and “existing legal charge / mortgage” include the JIT Charges.
55.The fallacy underlying the blinkered focus on the effect of s.3(2) LRO as between the Purchasers and the Vendor alone is that, as Ms Ho accepts, the JIT Charges will be enforceable against persons who subsequently acquire an interest in the Properties. 56.Far from giving effect to s.3(2) LRO as Ms Ho submitted, the construction of cl.24 contended for by the Firm and the Vendor is at odds with the purpose of s.3(2) LRO, which (as stated in the preamble to the LRO) is to prevent secret and fraudulent conveyances. Their construction would mean that the unregistered JIT Charges would interfere with the Purchasers’ dealings with the Properties. 57.The Vendor was therefore also in breach of cl.24 of the FSPAs in failing to pay off and discharge the JIT Charges, and to have the Properties released from the same, on or before completion. Time being of the essence of the FSPAs, this was a further repudiatory breach on the part of the Vendor, entitling the Purchasers to terminate the FSPAs: Howarth Cheung Natalie Jane YS v Tsang Hong Kwang Ok and another, unreported, CACV 272/2013, 15th October 2014 at [4.5] (Cheung JA). E3. Failure to retain Villa Deposits 58.There is no dispute as regards the legal rights and obligations of a stakeholder as relied upon by the Purchasers, set out in Kenneth Sit (a firm) v Pacific Bulk Logistics Limited and anor [2021] HKCFI 1373 at [24] (A Chan J, as he then was), citing Manzanilla Ltd v Corton Property and Investments Ltd, unreported, 13th November 1996 (English Court of Appeal):
59.There is also no dispute that by signing the receipt clause in the PSPA and FSPA in relation to the Villa, the Firm entered into a tripartite agreement with the Purchasers and the Vendor, pursuant to which the Firm agreed (1) to stakehold the Villa Deposits in relation to the Villa in accordance with the Stakeholder Clauses, and (2) to return the Deposits to the Purchasers if completion did not take place as a result of the Vendor’s default (cl.10 of the FSPA) or in the event of a third party claim to the Properties (cl.27 of the FSPA). 60.The Firm breached these obligations as it released the Villa Deposits when the balance of the purchase price for the Villa was not sufficient to discharge the Villa JIT Charge, and failed to return the Villa Deposits to the Purchasers when the Vendor failed to complete the sale in accordance with the FSPAs and in the light of JIT’s claim to the Properties. 61.I agree that the Firm fails to show any arguable defence.
F. DISPOSITION 62.Ms Cheng helpfully provided a draft order to be made in HCMP 576/2026 and a draft judgment to be given in HCA 611/2026. Mr Ng and Ms Ho did not have any comments about the drafts in the event that I were to find in favour of the Purchasers, save that the costs orders should be made as orders nisi. I make an order in terms of the drafts, save that the costs orders are made as orders nisi.
Mr Ernest Ng and Mr Raphael Leung, instructed by H. Y. Leung & Co. LLP, for the Plaintiff in HCMP 576/2026 Ms Bonnie Cheng SC and Mr Cedric Yeung, instructed by Long An & Lam LLP, for the Defendants in HCMP 576/2026 and for the Plaintiffs in HCA 611/2026 Ms Sabrina Ho and Ms Clara Wong, instructed by P.C. Woo & Co., for the 3rd Defendant in HCA 611/2026 [1] The Purchasers’ stance was that the sale and purchase of the Properties should take place simultaneously. This was not objected to by the Vendor. [2] In her skeleton, Ms Ho cited Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1991] 2 AC 43 and Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44 to make the point that registration of the JIT Charges prior to the execution of the FSPAs would not have “resurrected” the validity of the JIT Charges vis-à-vis the Purchasers as they would already have been rendered null and void against the Purchasers by operation of s.3(2) LRO at the time of the PSPAs. Mr Ng sought to adopt the submissions. However, they are beside the point, because (as Ms Ho clarified at the hearing) the JIT Charges remain enforceable against subsequent purchasers of the Properties. [3] Thus even if s.3(2) LRO operates such that the JIT Charges are null and void vis‑à‑vis the Purchasers, this does not mean that the JIT Charges have been extinguished for all time against all the world: cf. the Firm’s skeleton paragraph 35(1). [4] Skeleton paragraph 14.3. [5] Skeleton paragraph 17.4. [6] As formulated in the O.14/O.14A Summons: whether, on the proper construction of the FSPA in respect of Villa 12, the terms “existing Mortgage or Legal Charge” under Clause 24 thereof and “existing legal charge / mortgage” under Part II of the Third Schedule thereto include the Villa JIT Charge. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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