Kai Sun Investments Ltd v. Dah Sing Bank Ltd

HCMP001999/1982

Rules of the Supreme Court order

50 Land Registration Ordinance Cap. 128

A judgment debtor was shown in the land register as the beneficial owner of premises under a sale and purchase agreement. The judgment creditor obtained and registered a charging order against the premises. Previously the sale and purchase agreement had been cancelled and the vendor had entered into a second sale and purchase agreement with a third party. Neither the cancellation agreement nor the second sale and purchase agreement had been registered. On the ground that there was nothing for the charging order to fasten onto the vendor sought a declaration that the charging order was a nullity and an order vacating it from the register.

Held:

M. P. No: 1999/82

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDING

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BETWEEN

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Coram: Hon. Mantell J. in Chambers

Date: 1st February, 1983.

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JUDGMENT

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1. On 19th December 1979, the plaintiff company entered into an agreement to sell its interest in certain premises in North Point to a Mr. Wong. The sale and purchase agreement was registered in the Land Office on 18th June 1980. The sale was never completed.

2. On 19th November 1981, the plaintiff entered into two further agreements. The first was with Mr. Wong purporting to cancel the sale. The second was a sale and purchase agreement with a Madam Mok in relation to the same premises. Neither the cancellation agreement nor the second sale and purchase agreement were ever registered.

3. On 11th March 1962, the defendant bank obtained judgment against Mr. Wong in the sum of HK$225,240. On 19th March 1982, an order nisi was granted to the defendant charging the premises with the amount of the judgment debt. The order nisi was registered on 24th March 1982. It was made absolute on 6th April. The cancellation agreement and the second sale and purchase agreement were lodged for registration on 14th April but were not registered presumably because they could not be reconciled with the record. The Charging Order Absolute was registered on 16th April. It is common ground that the defendant did not have notice of either the cancellation agreement or the second sale and purchase agreement until 22nd April.

4. The plaintiff seeks a declaration that the charging order is null and void and an order vacating it from the register. The defendant resists the plaintiff's application and by way of counterclaim the defendant asks for a declaration that the plaintiff has no locus standi to make an application in relation to these premises or alternatively a declaration that the plaintiff or its successor in title is liable to account to the defendant to the extent of the charge.

5. The proceedings were commenced by way of originating summons and I directed that the affidavits should stand as pleadings. The first relief claimed by the defendant going to the competence of the plaintiff to make the application and therefore to the jurisdiction of the court to entertain it is really a matter of defence not counterclaim and was dealt with by consent as a preliminary issue. With an eye to the main contest, Mr. Tong for the defendant submitted that if it were to be said that the cancellation agreement of 19th November 1981 effectively relieved Mr. Wong of any chargeable interest in the premises then it would follow that by the sale and purchase agreement of the same date the plaintiff divested itself of any sufficient interest to support an application in its own name. In argument, I was referred to a decision of the Court of Appeal, namely the case of Ho King Yim v. Lau King Mo, ⁽¹⁾ to which I shall return later in the judgment. For present purposes, however, it is sufficient to say that it provides authority for the proposition that between the agreement for the sale of land and the assignment of it, or at any rate between the agreement for sale and the handing over of all the purchase monies, the vendor of property retains not only a bare legal estate but a sufficient beneficial interest upon which a charging order might fasten. I would have been inclined to hold that the bare legal estate residing in the vendor company in this case would have been sufficient to give it standing to make the present application. A fortiori, since the purchase price has not been paid and the plaintiff retains a limited beneficial interest which on the strength of Ho King Yim's case would be capable of supporting a charge against the property, there can be no question but that the plaintiff has a right to be heard.

6. In the course of argument on the preliminary point,. a further matter arose which might be said to relate to jurisdiction. The proceedings before the master in which the charging order was obtained were, of course, under Order 50 of the Rules of the Supreme Court. Here, it was submitted is an attempt to controvert a decision made in a concurrent jurisdiction and the proper course was to pursue the available remedy under Order 50. It was possible for the submission to be put in that way because both counsel and I were under the misapprehension that the Hong Kong rules and the English rules corresponded. They do not. Order 50 rule 7 in the White Book provides for application by any person interested in the subject matter of the charge to discharge or vary the order before or after the order is made absolute whatever the nature of the subject matter of the charge. Had that rule obtained here it would have been possible, of course, for the plaintiff to seek a remedy before the same tribunal which had earlier been seized of the matter and it was argued that in those circumstances I should decline, in my discretion, to entertain these applications. I might well have acceded to such a proposition had it not been discovered that the scheme of the Hong Kong rules makes no provision for intervention by a third party after the making of the order absolute in the case of a charge on land. It is otherwise in the case of a charge on securities or money in court. Accordingly, it appeared to me that the plaintiff's options were strictly limited and it might well be that the course taken was the only one available to redress the supposed grievance and I ruled that I would hear the application on its merits.

7. The plaintiff's case is engagingly simple. Mr. Wong never had the legal estate in the land. By what is called the cancellation agreement of 19th November 1981 he relinquished the whole of his beneficial interest acquired under the earlier sale and purchase agreement. Therefore, at the date of the charging order nisi he had no interest in the land capable of being charged. He could not have volunteered a charge and neither could the court impose one. Since there was nothing onto which a charge could fasten the charging order was a nullity. Likewise the registration of the charge was invalid and ought to be vacated just as if it had been a non-registrable instrument. Ample authority was cited for the basic proposition that it is only the judgment debtor's beneficial interest which may be charged. I need only refer to one passage in the judgment of Mr. Justice Vaisey in Hawks v. McArthur, ⁽²⁾

"There is, undoubtedly, a basic principle that a charging order only operates to charge the beneficial interest of the person against whom the order is made, and that it is not possible, for instance, to obtain an effective charging order over shares where the person against whom the order is made holds them as a bare trustee. The charging order affects only such interest, and so much of the property affected, as the person whose property is purported to be affected could himself validly charge."

Mr. Chan goes on to submit that the position is not changed by the fact of registration of the charge because section 3(2) of the Land Registration Ordinance Cap. 128 would only render the cancellation agreement null and void against a subsequent bona fide purchaser or mortgagee for valuable consideration, which he says, the defendant was not; and section 3(1) deals only with the question of priority between two competing instruments which have been validly registered.

8. The defence case proceeds on six fronts. Mr. Tong will forgive me, I hope, if I put them in a slightly different order from the one in which they were presented:

9. The last three submissions really seek to avoid the consequences o?the plaintiff's claim in the exercise of the court's discretion on equitable principles. Of the first three, as I have said, I have ruled on (1). Now I turn to (2) and (3).

10. Mr. Tong's argument to bring himself within section 3(2) of the Land Registration Ordinance in ingenious to say the least. It goes like this. Section 20(1) of the Supreme Court Ordinance Cap. 4 confers the power to make a charging order on land. Sub-section (3) of section 20 provides that subject to the specific provision of the section, a charge on land "shall have like effect and shall be enforceable in the same manner as an equitable charge created by the debtor by writing under his hand." In other words submits Mr. Tong a charging order on land is the same as a mortgage. Further says Mr. Tong, the defendant bank is a mortgagee for valuable consideration because it refrained from pursuing alternative means of enforcing its judgment. It is at this last stage in my judgment that the argument breaks down. Whether or not it is right to say that the defendant is a mortgagee within the meaning of the section, the forebearance in relation to enforcing judgment is subsequent to the obtaining of the charge. It was not done in consideration of obtaining the charge and therefore the defendant is not a mortgagee for valuable consideration.

11. I now come to Mr. Tong's third submission which divides into two parts. If, contrary to the plaintiff's argument, at the date of the charging order, Mr. Wong retained the beneficial interest in the property which he had acquired under the original sale and purchase agreement because the so called cancellation agreement did not have the effect of relieving him of it, then obviously there remained something for the charging order to fasten onto and any interest in the property acquired subsequently would be subject to the charge. Mr. Tong's point is that on the original sale and purchase agreement the beneficial interest in the property was transferred to Mr. Wong. The cancellation agreement provides for the re-payment of the deposit and the release of the parties from their respective obligations but it does not specifically re-transfer the beneficial interest. The point is not as wholly devoid of merit as I originally thought, but in my judgment the clear intendment of the agreement was to transfer back the beneficial interest; that is the way it ought to be construed and that is its effect inter partes.

12. The second part of the submission under this head presents the real issue in the case. It may be says Mr. Tong that the cancellation agreement will affect the legal position as between the plaintiff and Mr. Wong but the extent to which it affects the rights of third parties claiming an interest in the same property will depend upon a consideration of section 3(1) of the Land Registration Ordinance Cap. 128. Section 3(1) reads as follows:

"Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and wills 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."

Therefore it is submitted that the charge on Mr. Wong's interest would take priority over any sale by him or cancellation agreement not registered at the date of the registration of the charge. Although section 3(1) speaks of priority as between registered interests, the plaintiff cannot be in a worse position because the cancellation agreement was never in fact registered then if it had been registered subsequent to the charge.

13. Mr. Chan argues that to look to the effect of section 3(1) first is to put the cart before the horse. The section only deals with the question of priority as between two or more validly registered interests. So you look, says Mr. Chan, to the question of validity first and priority second. Here there was nothing for the charge to attach itself to. Therefore it was a nullity. Therefore it could never be validly registered and questions of priority just do not arise.

14. In Consolidated Sales Limited v. Turner C. Lynn and Mak Yee-ying,⁽⁴⁾ Mr. Justice Briggs, as he then was, had to consider the effect of section 3(1) in circumstances not far removed from those in the present case. On 24th February 1970, the plaintiff obtained a charging order nisi against the flat of its judgment debtor. The order was registered the same day. Some six or seven weeks earlier the judgment debtor had sold the flat for valuable consideration with, at the time, a clear title. The sale was not registered until some seven days after the registration of the charging order. The purchaser had intervened under Order 50 to oppose its being made absolute. The argument advanced by leading councel for the claimant was similar to Mr. Chan's here. It is set out at page 229 of the judgment:

Mr. Justice Briggs rejected the argument. He pointed out the differences between the law in England and in Hong Kong. He stated that the purpose of the Land Registration Ordinance was to mace priority of registration according to the Ordinance the test of ownership. Lie referred to two authorities which he said clearly recognized the principle. He concluded at page 231 with these words:

"There are two instruments registered in respect of the land (1) the charging order nisi and (2) the assignment to the claimant. The provisions of section 5 of the Ordinance do not apply to the assignment. The section to apply is section 3(1) of the Ordinance. The instrument first registered takes in priority to that which was registered later: the claimant takes the property subject to the registered charging order nisi."

Now Mr. Tong relies heavily on that decision. Without adopting the assertion that registration is a determining factor of ownership as being unnecessary both to the decision and for the purposes of his submission, he submits that here is clear persuasive authority that failure to register may postpone an interest to one acquired later but registered earlier. There is he says no authority to the opposite conclusion. Ho King Yim's case was concerned with the effect of the registration of a charging order on a prior registered agreement and he adopted an aphorism of the Presiding Judge in Kwok Siu Lau v. Kan Yang Che, ⁽⁵⁾ dealing with the consequences of section 3(2). "The penalty is severe but the escape is easy."

15. Mr. Chan recognises that the judgment is not to be circumvented and, if I may say so, bravely grasps the nettle. He says that the decision is wrong. The two authorities relied upon in supporting the proposition that registration is the test of ownership do not support the contention at all. The case already referred to, Kwok Siu Lau's case, only makes registration the test of priority and the other Kwok Shui Fong v. Wang Kam & another, ⁽⁶⁾ was an earlier decision of the same judge which proceeded on the assumption that the charging order in competition with another instrument was valid. He was not, however, able to refer me to any authority which detracts from the force of the decision in Consolidated Sales v. Turner C. Lynn. ⁽⁴⁾

16. In my judgment, it is not necessary to consider the effect of registration upon ownership of land or the rights of ownership to land, save in so far as the particular circumstances contemplated by section 3(1) have arisen or are concerned. It may be that Mr. Justice Briggs went further than was necessary or justified in stating that registration was a determining factor of ownership. For my part, I am content to state that where there are two or more conflicting interests in land, the first to be registered takes priority regardless of the date of acquisition. Otherwise, the purpose of the Ordinance as set out in the preamble would be defeated. To my mind it makes no difference that in this case the divesting instrument is a cancellation agreement rather  than a sale agreement. It ranks after the charging order.

17. In my judgment, therefore, the plaintiff fails at this stage. It is hot necessary for me to go on to consider Mr. Tongs remaining three heads of submission which all hinge upon the equitable exercise of my discretion in the circumstances in this case in which the defendant is blameless and the plaintiff can be said at the very least to have been tardy. Therefore the relief claimed by the plaintiff in this case, in my judgment should be refused. Consequently, the action is dismissed. There will be judgment for the defendant with costs.

Representation:

Patrick Chan (Woo, Kwan, Lee & Lo) for Plaintiff

Ronny Tong (Gallant Y. T. Ho & Co.) for Defendant

(1)    [1980] H. K .L. R. at p.42

(2)    [1951] 1 All E.R. p.22

(3)    1 GIFF 241

(4)   [1970] H.K.L.R. at p.222

(5)   [1912] 8 H.K.L.R. 52

(6)    M.P. 145 of 1969