Ho King Yim v. Lau King Mo

HCMP000733/1978

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Coram: Zimmern, J.

Date of Judgment: 25 April 1979

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JUDGMENT

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1. This is a matter of importance and I have transferred it from Chambers to deliver judgment in open court.

2. By a sale and purchase agreement in writing dated 27th June 1978 one Chan Han agreed to sell to the Plaintiff, to use the colloquial "a flat", the particulars of which I need not describe, for the sum of $110,000 whereof $10,000 was then paid as deposit and part payment. Chan Han was then the registered owner and under the agreement completion was to take place on or before the 26th July 1978 when upon payment of the residue of the purchase money she would execute a proper assurance in favour of the purchaser or his nominee or sub-purchaser free from all incumbrances. The flat was then subject of a legal mortgage but there were provisions for reassignment prior to completion. The agreement was registered at the Land Office against the flat on 30th June 1978.

3. On the 7th June 1978 the Defendant obtained a judgment against Chan Han in the sum of $22,200 and costs to be taxed. The judgment being unsatisfied the Defendant on the 17th July 1978 obtained an order nisi imposing a charge on the flat with the payment of $22,200 and costs due on the judgment and costs of the application. The order was registered at the Land Office on 18th July 1978.

4. By an indenture dated 24th August 1978 executed by Chan Han as vendor and the Plaintiff as purchaser Chan Han assigned the flat to the Plaintiff free from incumbrances and Chan Han acknowledged receipt of the full purchase price, namely $110,000. This instrument was registered at the Land Office on 28th August 1978.

5. The charging order was the subject of an amendment on 13th September 1978 by the Registrar postponing the hearing of the return date for Chan Han to show cause from 13th September 1978 to 27th September 1978. This amended order was registered at the Land Office on 30th September 1978. It was made absolute 27th September 1978 and the order was registered on 4th October 1978.

6. The Plaintiff by originating summons applies to the Court for

7. I need only deal with the 2nd ground the Plaintiff having abandoned the first. Counsel for the Plaintiff relies on sec. 3(1) of the Land Registration Ordinance and the judgments of Briggs, J. (as he then was) in the Consolidated Sales Ltd. case⁽¹⁾ and the unreported case of Kwok Shiu Fong v. Wong Kam & anr. in M.P. 145/69. In the Consolidated Sales Ltd. case, A a judgment creditor obtained a charging order nisi against the judgment debtor B's property and registered the order at the Land Office on 24th February 1970. B had in fact assigned her property to C for valuable consideration before but the assignment was not registered until 3rd March, 1970. On the return date of the hearing for B to show cause why the order nisi should not be made absolute C intervened. His main ground was that at the time the order nisi was imposed B had no interest in the property whatsoever and without some interest a charging could not be imposed. The learned judge refused to go into the charging order but based his decision on section 3 of the Land Registration Ordinance and ruled that C's property stood charged.

8. In the second case a charging order was made against a property registered in the name of a judgment debtor who had in fact sold the property to A many years before and who was in possession. A only registered the sale and purchase agreement four months after the registration of the charging order. The learned judge decided with every sympathy for A that under the order the property stood charged.

9. Neither of these cases are of assistance as the facts are quite different. In the present case we are concerned with a sale and purchase agreement, a charging order and an assignment registered in that order with a mortgage to boot. In both the other cases the charging order was first registered.

10. Counsel for the Plaintiff said under section 3(1) of the Ordinance the Plaintiff had priority by reason of the prior registration of the sale and purchase agreement and the Plaintiff had paid the full purchase price in that bona fide belief.

11. Counsel for the Defendant, the owner of the charge argued that as the assignment was registered after the charging order the charging order had priority. The Plaintiff purchaser could not rely on the priority of the sale and purchase agreement because upon completion the sale and purchase agreement had merged with the assignment and he cited as his authority the judgment of Lord Russell of Killowen in Knight Sugar Company Ltd. v. The Alberta Railway and Irrigation Company⁽²⁾.

"As regards the major question, there can, their Lordships think, be no doubt that the true construction of the sale agreement would not warrant an exception in the transfer of any minerals except coal. But it is well settled that, where parties enter into an executory agreement which is to be carried out by a deed afterwards to be executed, the real completed contract is to be found in the deed. The contract is merged in the deed: Leggott v. Barrett. The most common instance, perhaps, of this merger is a contract for sale of land followed by conveyance on completion. All the provisions of the contract which the parties intend should be performed by the conveyance are merged in the conveyance, and all the rights of the purchaser in relation thereto are thereby satisfied. There may, no doubt, be provisions of the contract which, from their nature, or from the terms of the contract, survive after completion. An instance may be found in Palmer v. Johnson, in which it was held that a purchaser could, after conveyance, rely upon a provision of the contract and obtain compensation. The foundation of this decision was that, upon the construction of the contract, the provision for compensation applied after completion. In other words, the parties did not intend it to be performed by the subsequent deed, and it was therefore not satisfied by, or merged in, that deed.

12. To decide on this matter I have to go into the Ordinance and its effect on the law and principles of equity. Sections 3 and 4 of the Ordinance read as follows:

13. Sections 3(2) and 4 were examined by the Full Court in Kwok Siu Lau v. Kan Yang Che⁽³⁾. In that case the contest was between a lessee for a term of years of part of a property but whose lease was not registered and a subsequent purchaser of the property who had notice of the lease and whose purchase was registered. The latter won. That case was decided on section 3(2) which rendered even legal rights, if not registered, void against a subsequent bona fide purchaser or mortgagee for valueable consideration of the same property. Since then the courts in England have arrived at the same conclusion under the Land Charges Act (see Wright v. Dean⁽⁴⁾ and Hollington Brothers Ltd. v. Rhodes⁽⁵⁾).

14. The present case is a section 2(1) matter as all the instruments were registered. On an examination of that sub-section I find that it stands alone from sections 3(2) and 4 the provisions of which do not affect it at all. The effect of that subsection is to modify the rules of law and equity in respect of priorities between competing interests both legal and equitable in land. The modifications amount to:

15. I turn now to the first instrument registered in this contract, i.e. the Plaintiff's purchase agreement. It is an registrable instrument under section 2. At law a sale and purchase agreement is no more than an executory agreement but in equity "an agreement for the sale of land of which specific performance can be ordered operates as an alienation by the vendor of his beneficial proprietory interest in the property"⁽⁶⁾. "Until the contract is completed by conveyance of the legal estate to the purchaser the vendor continues to be the proper person to enforce any rights in respect of the property which depend on the possession of the legal estate; but subject to ultimate completion the purchaser's interest ranks as against third parties like any other equitable interest and it is subject to equities prior in date and has priority over subsequent equitable and legal interests (except a legal interest taken for value and without notice of the contract). The purchaser, however, is not in general, entitled to enforce his interest against third parties until he has completed his title by conveyance (2nd Ed. Halsbury @ p.292)."

16. In Tasker v. Small⁽⁷⁾ Lord Cottenham L.C. said:

"This rule - namely that by a contract of purchase the purchaser becomes in equity the owner of the property - applies only as between the parties to the contract and cannot be extended so as to effect the interests of others. If it could, a contract for the purchase of an equitable estate would be equivalent to a conveyance of it. Before the contract can be carried into effect the purchaser cannot against a stranger to the contract enforce equities attaching to the property."

17. If the contract is specifically enforceable any intended disposition by the vendor is a breach of trust and entitles the purchaser to obtain an injunction to prevent the disposition from being carried into effect⁽⁸⁾. Should the vendor convey the legal estate to a third party, the prior purchaser having registered his contract of purchase, he the third party takes subject to the purchaser's prior equity and may be made a defendant in the purchaser's suit for specific performance and be ordered to convey to the Plaintiff⁽⁹⁾.

18. The above covers all the principles applicable to this matter and I turn now to the charging order. The order nisi was obtained by the Defendant against the vendor exparte under order 50 rule 1.

19. On the face of the order there is an irregularity and I refer to the charge over and above the judgment sum of $22,200 i.e. the costs due on the judgment with the costs due on the costs of the application. The Court has no power to impose a charge on the land of a judgment debtor for an unascertained sum e.g. the amount of a bill of costs which has not been finally taxed⁽¹⁰⁾. The additional items for costs in respect of which taxing certificates had not been issued on the date of the order could not be charged to the debtor's interests in the land. Upon order the debtor interests in the property stood charged for the sum of $22,200 only.

20. The charge has the like effect and is enforceable in the same manner as an equitable charge created by the debtor by writing under his own hand. (See order 50/1/3 The Supreme Court Practice 1979). If the judgment debtor, i.e. Chan Han had attempted to charge the land by writing under her own hand the Plaintiff would have been able to restrain her but as she did not the Plaintiff in equity would have to wait until the time was ripe to call for completion and if the judgment debtor could not give him a title free from that incumbrance then he could exert his prior equity by joining the owner of the charge in a suit for specific performance. Order 50(5) however (set out above) gave the Plaintiff the right to intervene on the day appointed for "the debtor judgment or otherwise" to make his representations (see Consolidated Sales Ltd. v. Turner C. Lynn)⁽¹⁾. The purchaser failed to intervene to protect his interests which he was entitled to do and a charging order absolute was made by the Registrar. I do not know what representations were made to the Registrar on the date appointed but whatever they were they were not made by the Plaintiff qua claimant in those proceedings and there was no appeal from that order.

21. I have said the charging order absolute was registered on 4th October 1978 but its effective date relates back to the date of the order nisi which was 18th July 1978. Subsequent thereto the judgment debtor Chan Han assigned the property to the Plaintiff and the assignment was registered on 24th August, 1978. A copy of the assignment was exhibited to the affirmation of the Plaintiff and I set out a part therefrom.

"And that the Vendor now hath good right to assign the said premises as aforesaid free from incumbrances And that the Purchaser shall and may at all times hereafter peaceably and quietly possess and enjoy the said premises and take the rents and profits thereof without any lawful eviction interruption claim or demand whatsoever from or by the Vendor or any person or persons lawfully or equitably claiming from under or in trust for the Vendor."

The same firm of solicitors acted for both Chan Han as Vendor and the Plaintiff as Purchaser and I cannot see how the latter could accept the assurance of the former that she "now hath good right to assign the premises free from incumbrances". At the date of the Assignment all she had was an equity of redemption as the legal mortgage to Kwong On Bank Limited to secure general banking facilities and registered on 12th January 1978 was still outstanding as was the Defendant's charge. The legal estate and not the equity of redemption was assigned.

22. When section 3(1) of the Ordinance speaks of priority of one instrument over another it means the priority one over the other of the interests created under the instruments affecting the same parcel of land. It is a competition of those who have acquired interests springing from a common subject matter. The party who put those interests from the subject matter into the market is not a competitor. He has no priority.

23. In this case leaving aside the legal mortgage on the property the judgment debtor was not in a position to assign free from incumbrances without first satisfying the Defendant's charge. The Plaintiff however by the prior registration of his purchase agreement had a priority over the Defendant's charge. This priority gave him a right when the time came to call for completion upon tender of the purchase price. That right was this, if Chan Han could not assign free from incumbrances because of the charge he could pay off the charge and pay the balance to her. Alternatively he could sue them both for specific performance. The difference between the case where the charge has priority over the agreement and the case where it is vice versa is this. In the former for the purchaser to acquire the property he or the vendor will have to satisfy the owner of the charge for the full sum charged. In the latter he need only pay the owner of the charge no more than up to the purchase price or balance thereof unpaid to acquire free from that incumbrance.

24. With his eyes wide open the Plaintiff took the property as a subsequent purchaser for valuable consideration bona fide or otherwise with a prior charge registered against it and in my view the property still stands charged.

25. The Plaintiff's claim is dismissed and the Defendant shall have his costs with certificate for counsel.

Representation:

Brian L. de Souza (Woo & Woo) for the Plaintiff

Patrick Chan (Ng & Yung) for the Defendant

(1) [1970] H.K.L.R. 222

(2) [1938] 1 A.E.R. 266 @ 269

(3) [1913] H.K.L.R. 52

(4) [1948] 1 Ch. 686

(5) [1951] 2 A.E.R. 578

(6) Wall v. Bright [1820] 1 Jac. & W. 494 per Plumer M.R. @ 500

(7) [1837] 3 My1. & Cr. 63 @ 70, 71

(8) Hadley v. London Bank of Scotland Ltd. 3 De G. & Sm 63

(9) Taylor v. Stibbert [1794] 2 Ves 437 @ 439

(10) A. & M. Records Inc. v. Darakdjian [1975] 1 W.L.R. 1610