Hong Kong Resort Co Ltd v. Anstalt Nybro Adn Others

HCA001006/1978

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ACTION NO. 785 AND ACTION NO. 1006 OF 1978

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Coram: Li, J. (in Court as Chambers)

Date of Judgment: 12th May 1978 at 10.30 a.m.

Mr. Nourse, Q.C., Mr. Ching, Q.C., Mr. Bokhary (Woo, Kwan, Lee and Lo) for plaintiff

Mr. Thomas, Q.C., Mr. Mills-Owens (K.K. Chu) for 3rd defendant and 1st defendant

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JUDGMENT

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1. Before me are two Summonses to vacate the registrations of an agreement affecting certain land and of a lis pendens affecting the same pursuant to the Land Registration Ordinance. These Summonses are taken out by the Hong Kong Resort Company Limited which I shall refer throughout this application as the plaintiff.

2. The plaintiff obtained a grant from the Government sometime in 1975/76 and became the registered owner of a large area of land about 66 million square feet in the Lantau Island near Discovery Bay with a view to develop the said area into a resort, residential, tourist attraction with recreational facilities. The project involved capital cost of over 1,400 million. It became the registered owner on 10th September 1976. The project would spread out for some ten years.

3. The 1st defendant, the Anstalt Nybro, is a legal entity incorporated or registered in Liechtenstein. The 2nd defendant, Edward Wong, was at one time the chairman of the plaintiff, but he had since resigned. The 3rd defendant, Anthony Jack Burgess, is the chairman of the 1st defendant. At the commencement of these applications, I have been informed that the plaintiff and the 2nd defendant, Mr. Edward Wong, has come to terms. However, in the course of this judgment, I still have to refer to Mr. Wong as the 2nd defendant.

4. The plaintiff cites the 3rd defendant as one of the necessary parties because he is the chairman of the 1st defendant, because the 1st defendant as a legal entity has to act through a natural person, the 3rd defendant. However, I have been told that the 3rd defendant is in fact not personally concerned with these applications. Thus, the issues are in practice a matter between the plaintiff and the 1st defendant.

5. Having acquired such a large area of land with a view to development the plaintiff quite naturally had to look for financial support. At one time a foreign bank was interested. Financial support was assured, Even so, the plaintiff required participation by others. That was why the 2nd defendant approached the 3rd^dfifendant with the view to co-operation for the development. After some negotiations an agreement was signed purporting to grant to the 3rd defendant an option to develop some 4.2 million square feet of land in the project. It is a short agreement and I shall read it. It reads that:

"THIS AGREEMENT made on the 11th day of October, 1976 between ANSTALT SORO of Vaduz, Liechtenstein"

which is the predecessor of the 1st defendant

Then follows a detailed description of the contribution to be made by each party to the capital of the companies. The plaintiff was to dish out land which had been listed in the schedule as their part of the capital of the three companies and the 1st defendant would pay out some $2,250,000.00 in cash to make up the capital of these three companies. Then in clause (3):

Then the First Schedule described the land that was owned by the plaintiff. The Second Schedule set out the various lots to be assigned to the three companies and their approximate square footage. The agreement was signed between the director of the plaintiff, one John Ault and by the 3rd defendant on behalf of the 1st defendant.

6. In early 1977 financial support of the foreign bank was withdrawn. The plaintiff was in financial difficulty. There was a petition on the 31st of March 1977 to wind up the plaintiff. The Official Receiver was appointed provisional liquidator of the plaintiff on the 1st April 1977. Later a large consortium came into the picture, negotiated with the provisional liquidator and purchased the shares in the plaintiff to continue the project after injecting huge sums of money to pay off some of the debts. On 13th December 1977 the petition to wind up the plaintiff was dismissed. A new board of directors took over from the former directors such as the 2nd and 3rd defendants.

7. I must add that even by late 1976 there had already been a Master Plan approved in principle for the development of the land in question though no carving out Plan had been finally approved. After the new board of directors took office they rearranged and replanned the whole scheme. As a result there was a new Master Plan was approved in January 1978. Nothing happened to the agreement I have recited until the 6th January 1978 when a letter was received from the 1st defendant. The letter reads:

The letter they enclosed purporting to exercise the option reads as follows. It is dated 24th January 1977.

This letter was subscribed by the 2nd defendant in his capacity as the then Chairman of the plaintiff that "The acceptance is hereby acknowledged. Hong Kong Resort Co. Ltd."

8. On 2nd March 1978 the agreement, that is the main agreement granting the option and dated 11th October 1976, and the enclosed letter dated 24th January 1977 purporting to exercise of the option were registered against the land under the Land Registration Ordinance by the 1st defendant. On 14th March 1978 the plaintiff issued a Writ in Action No. 785 of 1978 to vacate that registration. On 8th April 1978 the plaintiff issued a Summons to apply to this Court to vacate this registration pending trial of Action No. 785. On 8th April, the defendant issued a Writ against the plaintiff for specific performance relying on the agreement and the exercise of the option. The defendant, further, registered on 8th April 1978 the Action as a lis pendens and effected service on the plaintiff on 10th April 1978. On 18th April 1978 the plaintiff issued the Summons to vacate the lis pendens. These two Summons issued by the plaintiff are being heard together and are now before me. The above events are not disputed.

9. As the registrations are made under the provisions of Land Registration Ordinance, I like to refer to them in the outset. Section 2 of the Land Registration Ordinance provides that:

"(1) The Land Office shall be a public office for the registration of deeds, conveyances, and other instruments in writing, and wills and judgments; and all deeds and conveyances, and other instruments in writing, and wills and all judgments, by which deeds, conveyances, and other instruments in writing, and wills and judgments, any parcels of ground, tenements, or premises in the Colony may be affected, may be entered and registered in the said office in the manner hereinafter directed."

Subsection (2) provides that:

"For the purpose of this Ordinance, "judgments" includes judgments and orders both of the Supreme Court and of the District Court."

Section 14 of the same ordinance provides that:

and then Section 19 provides that:

"The court or judge before whom any property sought to be bound is in litigation, may on the determination of the lis pendens, or during the pendency thereof, where the said court or judge is satisfied that the litigation is not prosecuted bona fide, or for other good cause shown, make an order for the vacating of the registration in the Land Office of such lis pendens, without the consent of the party who registered it, and may direct the party on whose behalf the registration was made to pay all (the) costs expenses occasioned by the registration or the vacating thereof, including the costs of the application to vacate, or may make such (other) order as to such costs or any of them as to the said court or judge may seem just."

10. It is agreed between learned counsel for both parties that, apart from any statutory provisions, this Court has inherent jurisdiction to vacate a registration upon good cause shown and also to order undertakings as to damages to be given by either party as the Court sees fit. It is also agreed that the Court may vacate registration of a contract which is not specifically enforceable. Registration of an agreement or contract or any document is to protect a party who has a chance of obtaining specific performance of its terms at trial. If damages are sufficient remedy then such registration serve no useful purpose other than that to embarrass the opponent. A specifically enforceable contract is therefore practically the prerequisite for allowing registration to remain. To this extent the registration of the lis pendens in the present applications stands or falls with the registration of the agreement and the letter upon which the lis is founded.

11. Thus in the case of Ontario Industrial Loan and Investment Company v. Lindsey (1883) The Ontario Reports 66 the registration of a bare assertion of a right to property was vacated. Hagarty, C.J. said at page 75:

"I think it clear that the registry laws do not permit such a document as the defendants Shaw and Caston prepared to be recorded. In the sense of "affecting" the lands I think we must hold that the instrument must have some bearing on the title, professing to convey, charge, or affect it by its own operation."

In Heywood v, B.D.C. Properties Ltd. (1963) 1 W.L.R. 975 where the registration of a claim was founded on negotiations through correspondence the Court examined the correspondence, found that it was clear that there was no possible binding contract existing between the parties, vacated the registration. At page 980 Wilmer L.J. said:

In The Rawlplug Co. Ltd. v. Kamvale Properties Ltd. (1969) Planning Reports 32 the defendant failed to complete in time a contract for the sale of land. The Court again examined the correspondence to satisfy itself that the contract was no longer in force and vacated the registration filed by the defendant. Megarry J. said at page 40 as follows:

"Accordingly, it seems to me that the speedy form of remedy by way of a motion ought to be available to a landowner in all cases where there are no substantial grounds for supporting the registration. I would thus favour a certain robustness of approach in these motions, of the type to be found in the administration of R.S.C., Ord. 14. If there is a fair, arguable case in support of the registration, then the matter must stand over until the trial. But if, though not cloudless, the sky has in it no more than a cloud the size of a man's hand, I would clear the register and leave the purchaser to seek such remedy by way of specific performance or damages as he may be advised. Judged by this standard, I have had no doubt about this case."

12. Similarly in Tiverton Ltd. v. Wearwell Ltd. (1975) 1 Ch. 147 the registration was vacated when on construction of the documents the Court was satisfied that there is no memorandum in writing to satisfy the provisions of Section 40 of the Law of Property Act 1925. Lord Denning M.R. said at page 156:

"..... if you have got simply a short matter of construction, with a few documents, the judge on this summary application should simply decide what is in his judgment the true construction.'"

Then in Re Engall's Agreement (1953) 2 A.E.R. 503 where the existence of a contract was in doubt it was held that the application to vacate the registration was inappropriate and the matter should be resolved at trial. At page 505 Vaisey J. said:

"The existence or non-existence of a contract at any relevant time is of the utmost importance, and is a matter which ought to be considered carefully and in an appropriate manner, The summons is an attempt to use the machinery of the Land Charges Act, 1925, to obtain adjudication on the existence or non-existence of the contract at the time when the notice was served, or when it expired, or at the present time. In may judgment, it is not an appropriate way in which to approach the solution of what, in my view, is a somewhat difficult question. Under the contract for sale either party could bring an action for specific performance or for rescission. The existence of the charges is the shadow of the matter, not the substance of it - which is the existence of the contract - and I am being asked to deal with the shadow, not with the substance. That is not the proper procedure to ascertain the existence or non-existence of the contract. To ask that the charges be removed from the register before the point has been decided by any action is wrong. The charges register is only a record. Before the notice to complete was served, the vendors' solicitors stated, accurately, that an action for specific performance was the appropriate remedy. It does not follow that because the deposit has been forfeited the entry on the register ought to be vacated. I am not going to decide the question one way or the other. There is a good deal to be said for the view that the notice to complete is deficient in point of time, but the purchaser might receive little sympathy in an action for specific performance."

13. In the light of these authorities it appears to me that the Court will exercise its jurisdiction to vacate only where, on construction of documents or by conduct of the parties, the contract alleged to be affecting land does not exist. The so-called robust approach applies only when the party entering the registration has only a slim chance to succeed. Whether the slim chance is described as the cloud the size of a man's hand in a clear day or as having no arguable case as in an Order 14 Summons amount to the same thing.

14. In Turley V. Mackay (1944) 1 Ch, 37 the plaintiff was bound to create a legal estate in favour of such third person as the defendant should direct. The Court refused to vacate the registration of the contract and Uthwatt J. said at page 40:

"On the construction of the agreement it appears to be clear that, while the agents cannot require the plaintiff to sell, or grant the lease of, any property to themselves, it is for them to determine whether and how any site is to be disposed of and the plaintiff is bound to comply with the directions which the agents give him in good faith. The question, therefore, arises whether a contract under which one person is bound to a second person to create a legal estate in such a third person as the second person may direct is an estate contract. In my opinion, the object of s.10 is to secure that obligations affecting land may be registered by persons who have a commercial interest in seeing that those obligations shall be carried out. In this case, undoubtedly, the agents have such a commercial interest, and, on the construction of the section, I cannot see that it is limited to cases where the obligation is to convey or create a legal estate in favour of the person with whom the obligation is entered into. The section is perfectly general in its terms. Having regard to its language and the limited ground on which it is sought to displace the entry from the register, the application must be refused."

15. In support of the applications to vacate the registrations and the lis pendens, learned counsel for the plaintiff listed no less than 4 reasons with an alternative contention that should the registration be not vacated the defendant should be ordered to give an undertaking as to the damages. It is not a long document, I shall read the summary of its reasons, The first reason is that:

16. I shall consider them not in their numerical order but begin with the one which appears to me to be the most fundamental, namely, that 'the evidence discloses that the option was never effectively exercised and that there is no triable issue on this point'. In connection with this contention and, indeed, with the others, both parties have filed a fair number of affidavits and affirmations. I shall not repeat them verbatim so as to give this judgment unnecessary length. Suffice it to say that I have read and considered them and shall refer to the gist of their contents in so far as they are relevant.

17. Mr. Nourse for the plaintiff contends that the letter dated 24th January 1977 in purported exercise of the option can only be a sham created by the 3rd defendant, and the 2nd defendant, ex post facto. Alternatively the said letter was only a provisional exercise of the option to be held in suspense by the 2nd defendant until the 3rd defendant gave the final instructions to go ahead. Alternatively, that the letter had been cancelled by subsequent events as it occurred.

18. The option is said to have been exercised in a letter dated 24th January and handed by the 3rd defendant to the 2nd defendant in London on the same day. The 2nd defendant wrote an acknowledgement of receipt on that letter. The 2nd defendant, left London for New York the next day via Hong Kong. He had a brief stop-over in Hong Kong and he handed the letter exercising the option to his secretary.

19. In support of the plaintiff's contentions. Mr, John Wu, a present director of the plaintiff, says that the original of the said letter purporting to exercise the option had never been found amongst the plaintiff's papers. This is confirmed by J.P. Duckworth, a solicitor in the office of the Official Receiver who was appointed provisional liquidator of the plaintiff between 1st April 1977 and 13th December 1977. In his affidavit dated 26th April 1978, Mr. Duckworth further deposed that throughout the period when he acted on behalf of the Official Receiver as provisional liquidator no one informed him as to the exercise of the said option in any way. Further, in paragraph 21 of John Wu's affirmation, it is alleged that on 1st December 1976 one J.E. Ault, another director of the plaintiff at the time, wrote to the 3rd defendant in his capacity as chairman of the 1st defendant to the effect that the expiration date for the exercise of the option was extended to the 1st March 1977. No reply was received. Nothing was put on record until January 1978 when a copy of the disputed letter dated 24th January 1977 was received under a covering letter dated 6th January 1978. Again on the 25th February 1977 the plaintiff held a board meeting to consider a request made by the 3rd defendant through the 2nd defendant on a long distance telephone call between the 2nd defendant and one Beesley, another director of the plaintiff at the time. No mention was made as to the exercise of the option by the 2nd defendant or by anyone. At the said meeting the Board approved of an extension up to 30th June 1977. J.E. Ault, the then director, again wrote to the 3rd defendant a letter dated 25th February 1977 which reads:

"We send you herewith a copy of the Minutes of the Meeting of Board of Directors of our Company held on the 25th February, 1977, wherefrom it will be noted that your Company's option under the Agreement dated 11th October, 1976 has been extended to the 30th June, 1977."

No reply or acknowledgement was given by the 3rd defendant. Nor was there any intimation by the 3rd defendant to the effect that he had exercised the option on the 24th January 1977. All the aforesaid were contained in John Wu's affirmation which had been made known to the 3rd defendant. Yet in his affidavit the 3rd defendant never dealt with them apart from his bare assertion that he had exercised his option by handing the disputed letter to the 2nd defendant. Nor does Michael Wong, the 2nd defendant's son, who was one of the directors of the plaintiff at the material time and also present at the Board meeting on 25th February 1977 to approve the minutes deal with this discrepancy in his affidavit at all. It is thus contended that had these applications been treated as an Order l4. Summons the Plaintiff would have obtained summary judgment because the defendants never descended upon the forum to explain the peculiar situation. As such, there is no arguable case. The only explanation is that the letter dated 24th January 1977 is a sham or a provisional exercise on that by virtue of the conduct of the parties the exercise had been cancelled as from the 25th February 1977.

20. On the other hand the 3rd defendant asserts that he had exercised the option. In his affidavit dated 26th April 1978 Mr, Chu Ka Kim exhibits a telex from one Jonathan North who showed the text of one letter from a Mr. Chapron of C.E.C. International of Paris and a Robert Anderson of New York showing that the 2nd defendant had told them separately that the option had been exercised by the 1st defendant.

21. It is appreciated that all the allegations are founded on affidavit evidence. There has been no opportunity for cross-examination. It is also realised that 2nd defendant's interests in these proceedings do not coincide with those of the 1st defendant and the 3rd defendant. He has come to terms with the plaintiff. It is understandable that he keeps his discreet silence. Mr. Michael Wong is his son. When it comes to a conflict of interests between the defendants, one is in no difficulty to ascertain where his loyalty lies. The 3rd defendant's lack of response to the plaintiff's letter dated 25th February 1977 does present a dubious position. However, there is documentary evidence to show at least that two other persons knew of the exercise of the option by the 1st defendant. Looking at the case as a whole I am not prepared to rule that there is no arguable case. The conflict of evidence is best resolved at the trial when there will be a full opportunity for cross-examination. Following the decision in Re Engall's Agreement I am not prepared to vacate the registration on this ground.

22. I now come to the contention that the agreement dated 11th October 1976 is void for uncertainty. The nature of the agreement as I've read them is that:

23. It is contended that even the formation of the companies is questionable because there is no provision for their articles of association. This is certainly not fatal - Section 11(2) of the Companies Ordinance provides that:

"In the case of a company limited by shares and registered after the commencement of this Ordinance, if articles are not registered, or, if articles are registered, in so far as the articles do not exclude or modify the regulations contained in Table A, those regulations shall, so far as applicable, be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles."

Nor do I attribute much difficulty in the identification of the lots of land to be assigned by the plaintiff to the three companies. These are mapped out in the 1st Master Plan to be approved by the Government and attached to the agreement. There is no evidence of any government objection to the Master Plan in principle.

24. However, the terms of development and management are left in a vacuum. Even if I were to assume that the 1st defendant would undertake to develop and manage as a right or duty or as a monopoly free of charge, there is still the question of the 1st defendant's mandate. As manager, the 1st defendant is entitled to carry out the companies' policy. But who makes the policy decision? The plaintiff has a 51% shares in each company. Even if equal number of directors are to be appointed to each company, the terms regarding their rights and obligations are not as clearly defined as in Turley's case. No one can suggest that the cash capital as provided in the agreement is sufficient for the development of the 4.2 million sq. ft, of land. Is it to be assumed that the 1st defendant would be responsible for the arrangement of financial backings? If so, on what terms and by what method? Would the plaintiff be in a position to veto the defendant's terms and methods? All these had been carefully provided for in the agreement under the consideration in the Turley's case, but not in the present agreement. It is appreciated that the Turley's case was decided on the question whether the agreement was specifically enforceable and not on the question of certainty. Nevertheless a contract is not specifically enforceable unless its terms are not void for uncertainty. It is said that the courts are reluctant to hold void for uncertainty any provision that was intended to have legal effect. Paragraph 107 of Chitty on Contract 24 Edition (paragraph 107 Chitty on Contract 24th edition) is cited in support of the proposition. It reads:

"For example, in Smith v. Morgan a contract for the sale of land gave the purchaser the 'first option to purchase' adjoining land 'at a figure to be agreed upon.' It was held that the vendor was bound to offer that land to the purchaser at the price for which he was in fact prepared to sell. The result was not to create a contract for the sale of the adjoining land at an indeterminate figure: it was up to the purchaser to decide whether to accept the offer at the vendor's price."

But the present agreement is not one of a simple conveyance of land at a price. It is for a joint venture the terms of which are far more complicated and for which there is no provision in the agreement. For this reason I am of the opinion that the agreement on 11th October 1976 is void for uncertainty. This should be sufficient to dispose of the applications.

25. In case I am wrong in that opinion, I now proceed to consider the plaintiff's second point that is: the agreement is not specifically enforceable. To begin with I find that the terms of the contract are not severable. Indeed it is not suggested that they are. The terms envisage not only an assignment of land but also a contract of service to be rendered by the 1st defendant. I have dealt with the terms of service when I considered the question of uncertainty of the agreement. I find that even if the terms can be ascertained their performance require continuous supervision by this Court. If we assume that the 1st defendant may exercise its discretion, the voting power is vested in the plaintiff.

26. The terms of the agreement require the 1st defendant and the plaintiff to form three companies. The 1st defendant is to manage them. The 1st defendant is to develop the land to be assigned to the companies and to manage the companies and its properties (houses and flats). Yet the terms for development and management are not provided for. To force two unwilling parties into such an ill-wed companionship on such precarious terms is a folly. The Court will be required to supervise continuously on the rights and obligations of the 1st defendant in the performance of its duty to develop and to manage.

27. The lack of mutuality is yet another problem. Should the 1st defendant refuse to carry out its duties I cannot see how the plaintiff can seek specific performance against the 1st defendant. In para. 367 of Vol.36 Halsbury's Laws 3rd edition it is stated that:

"a plaintiff cannot enforce a contract which could not be enforced against himself as involving performance of personal service or continuous acts, even though the consideration to be performed by the defendant is not in itself of a nature to exclude specific performance; and a vendor of property in or over which he had no estate or power at the time of the sale may be met by this fact as a defence to a suit by him for specific performance."

For the aforesaid reasons I am further of the opinion that no court is likely to decree specific performance on the agreement now in dispute.

28. Having come to this conclusion no useful purpose is served by indulging in a detailed consideration of the third issue. On the face of it the agreement does contain terms affecting land. However, such terms are so intermixed with and unserverable from other terms which are uncertain or the performance of which require continuous supervision of the Court that I find the agreement not specifically enforceable. The plaintiff is naturally anxious to have the registration vacated. The reason is understandable. In this respect I accept the evidence of John Wu in paragraphs 22 and 23 of his affirmation. Having regard to the aforesaid reason I find that a good cause has been shown to have the registrations vacated.

29. In this connection I am not unmindful of the fact that one of the terms does touch upon the defendant's interests in land and also of the defendant's anxiety to enforce their rights. These are interlocutory proceedings. The formal solution of the dispute can only be found at trial. Whatever decision I make at this stage has been made without hearing the full evidence. Naturally the defendants expect and require some protection in case they vindicate themselves at trial, The Crown Lease for the land is due to expire by the 27th June 1997. The whole project which costs over $1,415 million will not be finished until 1984 (See paragraph 4 of John Wu's affirmation). Let us imagine that the agreement in dispute were allowed to run its own course and the option were valid. All the time the defendant has in this matter would be some sort of a 13 years lease in respect of the land. Within this period the defendant has to dispose of all the houses and flats so developed according to that agreement. Whatever loss the 1st defendant may suffer has a limit in view of the short terms that the companies can ever confer on the houses and flats to intended purchasers. Taking into consideration that the initial capital by the 1st defendant is only $2.2 million, it is reasonable to expect that the profit that can be accrued to the 1st defendant would be within the term of $100 million. I am given to understand that the plaintiff is willing and able to give an undertaking as to damages for this figure if the registrations are vacated.

30. On the other hand, the defendants are not in a position to offer any specific sum for the undertaking if the registrations are allowed to remain even though they have given an indication that they are prepared to give such an undertaking.

31. Anyway, I have come to the conclusion that I have accepted John Wu's evidence that the plaintiff's project will be jeopardised if registration is not vacated. In these circumstances, I find that it is fair and equitable that the registration be vacated subject to the plaintiff giving an undertaking.

32. In the case of Clearbrook Property Holdings Ltd, v. Verrier (1974) 1 W.L.R. 243 where the purchaser was held to have an arguable case in the estate contract, Templeman J. decided that the registration of a caution should be vacated and that the purchaser should apply for an interlocutory injunction subject to the purchaser giving an undertaking as to damages. Here is the reverse. The plaintiff is prepared to do so, In the present case, having regard to the reasons I have given and the willingness of the plaintiff to give an undertaking I am inclined to do the reverse of the order in the Clearbrook's case. Accordingly, I order that both registrations be vacated subject to the condition that the plaintiff will give an undertaking as to damages to the defendants in the sum of HK$100 million and in the form of a bankers guarantee pending trial.

33. I will grant the injunction in terms of the applications which are merely to reinforce the application for vacation of the registrations. I feel that it is just in this matter that costs should be costs in the cause. There will be certificate for two counsel I also order that the order be stayed for 14 days. This will be sufficient to enable the defendants to lodge an appeal within time. If they feel that they are so aggrieved they might be able to obtain leave from the Appeal Court to order a stay pending appeal. I make this order because I find that it is a matter of urgency for all parties concerned. That is why I do not take upon myself to order a stay for longer than 14 days.

Representation:

Mr. Nourse, Q.C., Mr. Ching, Q.C., Mr. Bokhary (Woo, Kwan, Lee and Lo) for plaintiff

Mr. Thomas, Q.C., Mr. Mills-Owens (K.K. Chu) for 3rd defendant and 1st defendant