Lo Ka Chun v. Lo To and Another

HCMP001084/1980

Coram: Mr. Commissioner Litton, Q.C.

Date of Judgment: 15th December, 1980.

-----------------

JUDGMENT

-----------------

1. There are two motions, before me, one taken out on the 22nd November and the other on 5th December 1980. The relief claimed in each is the same, namely, that the lis pendens registered against the properties of the applicants be vacated under Section 19 of the Land Registration Ordinance Cap.128. The inherent jurisdiction of the Court is also invoked. The properties are identified in the two notices of motion and I need not set them out again.

2. The lis is H.C. Action No. 2015 of 1980 in which the plaintiff LO Ka-chun claims relief against the 2 defendants LO To and LAW Tsoi on two broad grounds:-

3. The applicants before me are not parties to that action, although some of them are close relatives of the parties: for instance, LO LING Leung-chai is the 2nd wife of LO To. LO CHAN Shuk-hau is his 3rd wife and LO Shu-yeung is his son. The two defendants are brothers.

4. In each case, the registration of the lis pendens was effected by the delivery to the appropriate Land Office of a memorial to which was annexed the re-amended statement of claim in H.C. Action 2015 of 1980.

5. Mr. Saville on behalf of the applicants attacks the registration of the lis pendens on 3 grounds:-

The scheme of the Land Registration Ordinance

6. The Ordinance contains no definition of the term "lis pendens". The section of the Ordinance which makes lites pendentes registrable is section 14 which states:-

"The provisions of the Ordinance relating to judgments ........ shall extend to lites pendentes within the intent and meaning of the Judgments Act 1839 and the Act of 13 and 14 Victoria Chapter 35."

7. Section 2(1) states that the Land Office shall be a public office for a registration of (inter alia) judgments; and (here I abbreviate) "all judgments by which any parcels of ground, tenement, or premises in the Colony may be affected may be entered and registered in the Land Office in the manner provided."

8. For land in the New Territories the expression "Land Office" is extended by Section 10(1) of the New Territories Ordinance Cap. 97 to include "such places as the Governor-in-Council may by order from time to time approve as a New Territories Land Office."

9. Section 15 specifies the particulars to be contained in memorials by which lites pendentes are to be registered. It is not in terms mandatory; what it says is that such memorial shall be sufficient if (and here I construe rather than set out the provisions verbatim):-

Section 15 then requires the memorial to be verified "in all other respects as is provided in the case of judgments."

10. Section 16, so far as relevant, reads

".... a lis pendens not registered in the Land Office shall not bind any purchaser or mortgagee of the estate intended to be thereby affected."

Formal Requirements

11. I examined the provisions of section 15 in some detail because of point (ii) in Mr. Saville's argument, namely that because of the formal defects in the memorials, the registration of the lis pendens against his client's properties should be set aside. The exhibit "GT 1" was taken as an example and the formal defects are these:-

12. I mention these points to dispose of them now because, in my judgment, if the sole points taken by the applicants were those contained in Mr. Saville's ground (ii) then these motions must fail because I cannot see how these points by themselves can constitute "good cause" within the meaning of that term in section 19; nor can I see why the inherent jurisdiction of the court should operate in favour of such an application. The fact is that the memorials delivered by the plaintiff's solicitor to the appropriate Land Offices have been accepted by the Land Officers concerned and the procedure for numbering etc. laid down in section 9 has, as far as I can judge, been complied with. It can hardly be suggested that, because section 15 has not been followed to the letter, the Land Officers lacked jurisdiction to process the memorials and to register them. There are formal defects, but the applicants have not been prejudiced. The prejudice that the applicants complain of in these proceedings is not the manner of registration but the fact of registration. They say that the registration of this lis against their properties is bad in law when one examines the nature of the plaintiff's claim and considers who are the parties to that claim.

The Plaintiff's claim in Action No. 2015 of 1980

13. The plaintiff's claim as asserted in the statement of claim is two-pronged. The plaintiff brings proceedings (a) as the sole beneficiary and executor of the will of his late father LO Sum and (b) as the beneficiary of a trust constituted by an instrument in writing signed by the 1st defendant LO To.

14. Under head (a) the plaintiff's claim (in so far as it concerns these two motions) is in essence as follows:-

15. So far as head (b) of the plaintiff's claim is concerned the claim is in essence to the effect that the 1st defendant by an instrument dated 18th August, 1970 declared himself as holding one third of the shares in "Cheoy Lee Shipyard" and a number of companies in trust for LO Sum and after LO Sum's death for his son the plaintiff: (para. 15).

Property to be bound in litigation:

16. Mr. Heyman for the plaintiff (the respondent to the motions) accepts, as I understand him, that the only lites pendentes which are registrable are those which "affect land": see Briggs, J. in Thian's Plastics Co. v Tin's Chemical Co.⁽¹⁾ But, he says, the plaintiff is claiming in the Action a beneficial interest in the properties set out in the schedule; the plaintiff as executor of LO Sum's estate steps into LO Sum's shoes; the properties registered in the names of the applicants were purchased with the use of partnership funds and are now hold by the applicants as agents and nominees of the partnerships. The applicants, Mr. Heyman says, are trustees of the properties, which are held in trust for the two defendants and the estate of LO Sum deceased.

17. Now, as Briggs, J. said in Thian's Plastics Co., v Tin's Chemical Co.,^(1)* at 253 in one sense any judgment given against a person who owns land may affect that land. For the successful litigant may only be able to recover any damages awarded to him by the sale of such land. The defendant may own land or interests in land in a variety of ways; the land or interest in land may be held in the name of agents or nominees, and if a money judgment were awarded against the defendant the land or interest in land beneficially owned by him is available to meet that judgment. Thus we have in Hong Kong the provisions of Order 47 rule 7 (provisions adopted from the old Code of Civil Procedure and absent in the English Rules) which enable the sale of property belonging to the judgment debtor, (whether held in his own name or by another person in trust for him or on his behalf) to take place under the direction of the Registrar in execution of the judgment. There is in addition Order 50 which empowers the Court for the purpose of enforcing a judgment by order to impose on any land or interest in land of the debtor a charge which, when made absolute, has the same effect as if it were a valid charge made by the judgment debtor: see Order 50 rule 6(3).

18. In none of these instances can it be said that the plaintiff has, in the lis, a claim to specific property even though, after judgment, the plaintiff's claim is satisfied out of specific property.

19. Mr. Saville quite rightly invites me to examine the reliefs claimed in the writ for, as he emphasizes, it is the originating process (the writ) and not the pleading (the statement of claim) which ought to have been delivered with the memorial to the Land Office. Looking at those reliefs (they are in identical terms in the statement of claim) I find no proprietary claim made by the plaintiff to any of the properties set out in the schedule. The nearest one gets to a claim of that kind is subparagraph (12) which claims an injunction restraining the defendants and each of them "whether by themselves, their servants, their agents" from dealing with "the assets of the partnerships and of the trust including .......... the properties listed in the schedule". On the face of it the claim for an injunction is part of the substantive relief claimed in the action. What I find lacking are the material avermets in the statement of claim in support of a permanent injunction in terms of subparagraph (12), and I suspect that subparagraph (12) has been put in by the pleader ex abundante cautela not by way of permanent relief but as something ancilliary to the other claims. The issue can be tested in this way; assuming that the plaintiff were to apply for an order under Order 29 rule 2 of the Rules of Supreme Court, on the ground that "property which is the subject matter of the cause or matter" should be preserved until trial, based on the averments in the statement of claim, would a court grant such relief? I think not. I cannot see how the properties in the schedule can be said to be "the subject matter of the cause or matter" when all that the plaintiff can say about those properties is that they were purchased out of the funds of the partnership and/or of the companies referred to in paragraphs 6 to 10 in the statement of claim. Furthermore, none of the legal owners of those properties have been made parties to the action. In argument Mr. Heyman conceded, and quite rightly conceded, that if an injuction in terms of subparagraph (12) were made at the trial, it would in no way bind the legal owners since they are not parties to the proceedings. This reinforces my view that the properties cannot properly be described as "the subject matter" of this action.

20. It seems to me that paragraph 12 of the statement of claim is far too vague on which to base an argument that the plaintiff is in this lis claiming specific property, that is land or some interest in land. The hypotheses adumbrated in paragraph 12 are spread over a very wide canvas: at one end is the allegation that the three brothers used the funds of the partnership to purchase the properties: at the other end is the allegation that the three brothers used the funds of the companies to purchase the properties. These are quite different propositions. If the latter were the case, then the plaintiff would not be Mr. LO Ka-chun but the companies. Assuming the former to be the case and that the properties in the schedule were partnership property, what is the legal position?

21. It seems to me, applying the provisions of Cap. 38 as set out above, that the legal consequence of LO Sum's death in October, 1970 is that the two defendants held the partnership properties (whether registered in their own names or in the names of agents and nominees) subject to a trust for sale. It is true that the Partnership Ordinance does not in terms refer to a trust for sale. Contrast the position in England (as explained in Lindley on Partnership 14th edition p. 468) where, under the provisions of sections 34 and 36 of the Law of Property Act 1925, Partnership land is held upon a statutory trust for sale. These provisions in the Law of Property Act are all-pervading and do not give way to a contrary intent: unlike section 24 Cap. 38. But that, in my judgment, is the only practical difference. It is important to remember that section 47 of Cap. 38 preserves the rules of equity and of common law applicable to partnership prior to the enactment of the statute. The position in equity is explained by Bowen L.J. in Attorney General v Hubbuck⁽²⁾ at 289 in these terms:-

"          We start in this present case with this, that the land in question was at one time partnership property ...................... If it was partnership property it was personal property, for it is an established principle in equity that when money is directed or agreed to be turned into land, or land agreed or directed to be turned into money, equity will treat that which is agreed to be, or which ought to be, done as done already, and impresses upon the property that species of character for the purpose of devolution and title into which it is bound ultimately to be converted. This doctrine of conversion necessarily affects partnerships; partnership property is that which is held by the partners as such for the purposes of the partnership; it is held for the purpose of carrying on the adventure of the partnership, and may be wanted for that purpose, and moreover, at the time of the winding up of the partnership the debts of the partnership will have to be paid, the question of their amount settled between the partners, and then the unexhausted assets divided between them. The partnership property must thus be treated in the end as subject to a trust for sale, and therefore it is personal property."

22. Section 45 of Cap. 38 gives effect to this equitable principle of conversion by enacting that, subject to any agreement between the partners, the amount due from continuing partners to the personal representative of a deceased partner in respect of the deceased partner's share is a debt accruing at the date of the dissolution or death.

23. It seems to me quite clear therefore that putting the plaintiff's claim as executor of the estate of LO Sum at its highest, he will recover judgment against the two defendants expressed in terms of money (perhaps after accounts and inquiries pursuant to Order 43 of the Rules of the Supreme Court), with or without the declarations that he seeks. He will then have to enforce the judgment by attachment proceedings against the properties listed in the schedule under Order 47 rule 7 and Order 50 when, for the first time, these applicants will be brought in as parties.

24. It would be quite inappropriate for me in the present proceedings to entertain an issue as to whether the applicants are or are not "agents and nominees" for the three former partners or for the two defendants. I apprehend that the circumstances might well widely differ. At one end of the spectrum there is Madam LO LING Leung-chai the registered owner of No. 10, Cumberland Road, the house where the plaintiff now lives and before him his late father LO Sum; it may be difficult to resist the inference that in respect of that house Madam LO LING Leung chai is not the absolute legal and beneficial owner; but that is not impossible. At the other end of the spectrum is Lot No. 135 Junk Bay, registered in the name of Leung Fung Enterprises Ltd., a company in which there are substantial shareholders not related to the Lo family. In respect of this company's case, Mr. Heyman said in opening his case that his client would be willing to voluntarily vacate the lis pendens to enable the company to sell the property provided that a share of the proceeds proportionate to LO Sum's shareholding in the company were paid into court, or some form of security given. Mr. Saville, not surprisingly, did not rise to this offer. He says that the company his client, is a stranger to the dispute between the Lo brothers and their nephew (the plaintiff) and he sees no reason why the company should have its funds tied up because of that dispute. I express no comment with regard to the position of either Mr. Heyman or Mr. Saville except to say this: it illustrates the utter impossibility of the court in these proceedings trying to determine whether any of the applicants are "agents and nominees" as alleged.

25. Before I leave the question "What property is in litigation" as revealed in the plaintiff's statement of claim, I should briefly deal with Mr. Heyman's main argument. He says this : the properties in the schedule belonged to the partnership; the partners had interests in land; LO Sum's death did not terminate such interest and until sale his estate retains an interest in land; the plaintiff claims as his executor and therefore the plaintiff's claim in Action 2015 is registrable as a lis pendens.

26. He cited to me Ashworth v. Munn⁽³⁾ which I found of little assistance. That was a case which concerned the construction of a statute of George II, the Mortmain Act. 12 counsel appeared on the hearing before the Vice-Chancellor and the Court of Appeal. The question was whether, by the provisions of that statute, the proceeds of sale of a trustee's share previously held as partnership property should be treated as "an interest in land". The Court of Appeal, upholding the judgment of the Vice-Chancellor, said yes. For my part I cannot see how because the Mortmain Act of George II has been construed in this way, the interest of all deceased partners in partnership property generally should be treated in the same way. The judgment of Cotton L.J. in particular makes clear (at p. 373), that the Court was concerned solely with construing the provisions of that statute. And then Cotton L.J. continued:

"One may put aside all the argument on those cases which have decided that the interest of a partner in a partnership though there is land, and his interest in the partnership property consisting of land, are personal estate, and go to his next of kin, and not to his heir-at-law."

That passage would seem to lend support to Mr. Saville's argument that, generally in respect of partnership property, on death and dissolution, a trust for sale arises.

The Land Registration Ordinance

27. Having in mind, by way of background, the provisions of the Partnership Ordinance, let me return to the Land Registration Ordinance Cap. 128.

28. It seems to me quite clear that what the Ordinance envisages is that, before a lis pendens can be registered, there should be a claim of right in respect of some specific property or a claim to charge some specific property. The Full Court in Thian's Plastic Industrial Co.⁽¹⁾ said so. A claim to the proceeds of sale of property, however expressed, is not enough.

29. Consider the provisions of section 18 which (so far as relevant) states

".... every lis pendens registered ... shall have the same force and effect as a judgment registered and not further or otherwise."

A judgment ranks in priority with deeds, conveyances etc. according to the priority of their respective dates of registration: section 3(1). Assume that an action is commenced for an order for specific performance of a contract relating to a sale of a specific property; the writ is registered as a lis pendens; the defendant then sells the same property to another purchaser who is taking a risk that the action for specific performance will fail. If judgment is then given to the plaintiff, the lis pendens, (under section 18) has the same force and effect as the judgment. The purchaser's rights must therefore be subordinated to those of the plaintiff. No one would contest the justice of that result. But assume that all that the plaintiff has is a money claim, but he alleges in his pleadings that the defendant has property (set out in a schedule) sufficient to satisfy that claim and he registers the action as a lis pendens against those properties. The practical result is that the properties are "frozen" until the action is disposed of; the registration is a "smear" on the title (see the use of that expression by Harman L.J. in Heywood v. B.D.C. Properties⁽⁴⁾ at 975 last line). Let us say that the plaintiff gets judgment; he is not bound to execute his judgment by attaching the properties affected by the lis pendens. He may, after judgment, find other assets more easily realizable and obtains satisfaction without touching the properties in question. Is the defendant entitled then to complain? Is the validity of his complaint to depend upon whether the plaintiff chooses to go against those properties in execution of his judgment or not?

30. Consider the position in the present case. Assume that the plaintiff recovers substantial sums against the defendant under subparagraphs (4), (5), (10), (11) and (14) in the prayer for relief; i.e. those subparagraphs seeking orders for accounts and damages on the basis that the defendants are trustees and liable as such. Assume further that he establishes that, say, Lo Brothers Ltd. is holding the property item 8 in the schedule as agent for the partnership, and it turns out that that one property alone is sufficient to satisfy each and every of the plaintiff's claims. What then becomes of the lis pendens registered against all the other properties? Is the Court then to say the registrations were wrong?

31. I find it unnecessary in this judgment to go into the history of lites pendentes, although interesting and helpful arguments have been advanced before me by counsel on the point. In the more recent English Statutes the expression "lis pendens" has given way to the term "pending land action" but it is clear from the judgment of Megarry J. in Calgary Land Company v. Dobinson⁽⁵⁾ that in scope and concept there has been no change. Megarry J. in his judgment (p. 107) refers to the old cases such as Bellamy v. Sabine⁽⁶⁾, in re Barned's Banking Co.⁽⁷⁾ and Wigram v. Buckley⁽⁸⁾ from which it is clear that the doctrine of lis pendens applies not to every suit, but to a suit the object of which is to recover or assert title to specific property. "The rights registrable under the Land Charges Act 1972" says Megarry J. at 107E are

"in general substantive rights in the land. Those with specified rights or claims to the land or any interest in it must register those rights or claims (and so give warning to purchasers) or else suffer the consequences of failure to register. What is protected is some substantive right adverse to the owner, rather than a mere fetter on the owner's rights of disposition ..... What is registrable as a pending land action is an action or proceeding which claims some proprietary right in the land, and not an action merely claiming that the owner should be restrained from exercising his powers of disposition."

32. I would emphasize the last two lines in MegarryJ. 's judgment quoted above, because that is precisely what the plaintiff seeks by sub-paragraph (12) of his prayer for relief. He is claiming that the registered owners of the properties listed in the schedule should be restrained from exercising their powers of disposition. But that, in my judgment, is not enough to found a case for registration under the Ordinance. This I think disposes of the last point advanced by Mr. Heyman on behalf of the planitiff namely that there is in law a charge on partnership property in favour of the deceased partner's estate until the deceased partner's share has been satisfied.

33. Mr. Saville argues that the fact that the owners of the properties affected by the registration are not parties to the Action is alone enough to show that the registration is bad. He relies on Schofield v. Solomon⁽⁹⁾, and points to a passage in Blair-Kerr, J.'s judgment in Thian's Plastic⁽¹⁰⁾ where the Judge seems to have considered it axiomatic that the person whose estate is intended to be affected must be a defendant or a third party who has been made a party to the Action. Mr. Saville may be right in his argument but, for my part, I would prefer to base my judgment on the cumulative effect of his points (i) and (iii). It would I think be unsafe to rule as a matter of law that, in every case, the fact that the person whose estate is intended to be affected is not a party to the Action is fatal to the registration. But, in my judgment, the combined effect of Mr. Saville's points (i) and (iii) is irresistible.

34. In my judgment High Court Action No. 2015 of 1980 is not registrable as a lis pendens against the properties set out in the two Notices of Motion and I accordingly order that the registration be forthwith vacated in each case.

Representation:

Mr. Mark Saville, Q.C. & Mr. Ronny Wong (T.S. Tong & Co.) for Applicants.

Mr. Allan Heyman, Q.C. & Mr. Winston Poon (Lo, Wong & Tsui) for Respondent.

(1) (1971) H.K.L.R. 249 and 252

(1)* (1971) H.K.L.R. 249

(2) (1884) 13 Q.B.D. 275

(3) (1879) 15 Ch. D. 363.

(4) (1964) W.L.R. 971.

(5) (1974) 1 Ch. 102.

(6) (1857) 1 De G. & J. 566.

(7) (1867) 2 Ch. App. 171.

(8) (1894) 3 Ch. 483.

(9) (1885) 52 L.T.R. (N.S.) 679.

(10) (1970) H.K.L.R. 498.