Cheang Kuok Sam v. Attorney General
|
CACV000166/1994 IN THE COURT OF APPEAL 1994, No. 166 _____________
_____________ Coram: Hon. Nazareth, V.-P., Bokhary and Liu, JJ.A. Dates of hearing: 18 and 19 January 1995 Date of handing down Judgment: 16 February 1995 ___________________ J U D G M E N T ___________________ Nazareth, V.-P.: 1. This appeal is concerned with the competing claims of the Attorney General under the Drug Trafficking (Recovery of Proceeds) Ordinance ("Cap. 405"), and of the plaintiff ("Cheang"), to the sale proceeds of some property of the 1st defendant ("Chui"), a drug trafficker ultimately convicted and sentenced to imprisonment in the United States. 2. The facts are as follows. On 11th September 1992 the Attorney General, on behalf of the Government of the United States, obtained an ex parte order under Cap. 405 restraining Chui from disposing of specified assets, including two flats and a car park ("the property"), and on 17th September 1992 registered that restraint order. 3. Five months later, on 17th February 1993, Cheang by his writ in High Court Action No. A1366 of 1993 (in the context of which this appeal arises) sued Chui for the repayment of a loan of $3m and a declaration that Chui had created a valid charge over the property. His pleaded case was that the charge arose from an agreement between him and Chui made partly orally and partly in writing, the latter taking the form of a sale and purchase agreement to sell the property to Cheang. Chui failed to serve and file a defence, and Cheang took out a summons on 24th March 1994 for judgment in default, simply upon that ground. 4. Chui was at that time in custody in Hong Kong not yet having been extradited to the USA, and attended the hearing of the summons on 23rd April. He did not object to the application and a master made an order giving Cheang leave to enter judgment, both for repayment of the loan and for the declaration sought. On 10th May, Cheang entered judgment but only for repayment of the loan of HK$3m. 5. Before that, on 6th May, Cheang's solicitor applied for a charging order nisi on the property on the basis of the judgment to Cheang for payment of the HK$3m. A master made the order sought on that same date, the 6th May. The application was made ex parte on the affidavit of Cheang's solicitor, which exhibited a copy of the appropriate Land Register entries showing the defendant to be the owner, as the solicitor deposed in her affidavit. That copy also showed that on 2nd October 1992 there had been registered a memorial of the restraint order obtained by the Attorney General; however, the restraint order was not referred to in the affidavit itself. 6. Notice to show cause in relation to the charging order was heard on 25th May and in the absence of any opposition, the charging order made absolute. On 15th June 1993 Cheang commenced Miscellaneous Proceedings HCMP No. MP1602 of 1993 seeking to enforce the charging order by way of sale. Thereafter, on 30th June, Cheang's solicitors wrote informing the Attorney General for the first time of the two sets of proceedings and contending that Cheang had obtained an equitable charge on the property which ranked prior to that of the Attorney General, notwithstanding the latter's prior restraint order. They added that Cheang intended to apply to the court for an order for sale of the property and that they would welcome the Attorney's comments if any. 7. Following an exchange of correspondence in which he made a number of complaints, the Attorney General issued two summonses, one in each set of proceedings. Each summons was supported by an affidavit in which it was asserted that Cheang and his advisers had been aware of the restraint order before the action was commenced, but that -
8. By the summonses the Attorney General sought to be joined as second defendant, and also the discharge of the charging order and a stay of execution of that order. Before they came to be heard, by agreement the Attorney was joined, and the property was sold and the proceeds held in court pending the outcome of the two summonses. Further affidavits were filed on both sides, and the summonses finally came before Barnett J on 18th July. 9. Mr Barlow who appeared below for the Attorney General, as he does before us, made two broad submissions:
10. Mr Edward Chan who, with Mr Alan Leong, appeared for Cheang below, conceded in that context that if the judge was persuaded that the loan was a sham to disguise gambling or drug activity, Cheang must fail. He very properly suggested the matter be settled once and for all. Mr Barlow acknowledged the desirability of concluding the proceedings and upon that basis Barnett J gave leave to Cheang to issue and have heard at the same time a summons seeking release of the funds. That summons, the judge observed, put the question of Cheang's equitable interest before him, with the net effect being to leave three issues for him to determine, namely:
11. The judge then noted that Chui had played no effective part in the proceedings having been extradited to the USA. He proceeded to outline Cheang's case, which rested largely upon his own evidence, in the following way. Cheang, according to his affidavit, lives and works in Macau where he has been an agent for the Casino there since about 1989, and arranges gambling tours. These were for serious gamblers who procured their gambling chips from Cheang in respect of which he received a monthly commission from the Casino. Cheang came to know Chui in 1987. In about November 1988 Cheang needed funds for gambling chips. He approached Chui who agreed to lend him money with the friend who had introduced them acting as guarantor. He repaid the loan about a month later. In May 1992 Cheang accidentally met Chui in Macau. Chui asked Cheang to lend him HK$3m which he needed urgently in relation to his property investment business. He said he was willing to pledge property as security and, if he could not repay within three months, would convey the property to Cheang. The latter made enquiries of a friend in Hong Kong who conducted a land search and brought the results to Macau on 4th May. The search showed that the defendant was the registered owner of the property which was subject to a legal charge in favour of a bank to secure facilities to the extend of HK$1.36m. 12. Cheang telephoned Chui and told him that he would lend HK$3m on condition that the latter signed an agreement for sale and purchase of the property to the former. They agreed to meet at Cheang's solicitors offices at 3 pm on 6th May 1992. Cheang came with a cash cheque. He and Chui confirmed the loan and an agreement to enter into a sale and purchase of the property, but if the plaintiff could repay the loan, the sale and purchase would be cancelled. If Chui could not repay in time, Cheang would take the property as owner. 13. On 4th August 1992, Chui asked Cheang to postpone the completion date to 5th September to give him more time to repay. Cheang agreed. Two days later, Chui with his solicitor went to Cheang's solicitors' office to sign a supplemental agreement to record the extension of time. Cheang told Chui he was reluctant to postpone repayment and if the defendant failed to repay by 5th September, he would proceed to completion. Chui failed to repay the money by 5th September and asked for a further extension until 15th September. Cheang agreed to extend repayment unto 10th September. Cheang called Chui on 9th September to remind him of the date for completion. On 14th September Cheang noted from the newspaper that Chui had been arrested in connection with alleged drug trafficking. 14. When Cheang and Chui went to the solicitor's office on 6th May, they were attended by a legal executive, Miss Ho. She made an affirmation which Cheang confirmed to be true and which the judge regarded as being of crucial importance. She said that on 6th May Cheang told her that he and Chui wished to enter a sale and purchase agreement immediately. She told them it was not possible to do that because there had been no land search, no title deeds and documents were available, their whereabouts were not known nor was it known whether the property was encumbered. Further, the parties needed separate representation and if they wished to sign something they could do it themselves, her firm would not be responsible for any such document; she would however draw up the formal agreement for sale and purchase for their signature at a later date. 15. But, Miss Ho said, both parties said they wished to proceed in any case. Chui said he did not know of any firm of solicitors and she suggested Messrs Richard Tai & Co. The parties agreed a purchase price of HK$3m to be paid immediately with completion within three months. They said they would enter into a provisional agreement that day to evidence sale, purchase and payment. Chui said there was an outstanding mortgage to the bank for just over HK$1m. 16. Miss Ho said she advised Cheang of the danger of paying the whole price immediately and pointed to various difficulties and to the usual safeguards. Cheang said he understood but he and Chui were friends and trusted each other; as Chui needed the money immediately Cheang would take the risk and pay the whole price immediately. If Chui defaulted in redeeming the outstanding mortgage he, Cheang, would do so. He explained that the HK$3m was in fact a loan to Chui. Chui preferred him to purchase his property and they had agreed they should enter into an agreement for sale and purchase. If Chui repaid within three months "they would further negotiate the matter". Cheang said he would not charge interest, he was not in the money-lending business but just helping a friend. 17. Miss Ho then explained that it was necessary to obtain consent from the first mortgagee in order to create a second mortgage which could present difficulties. Both Cheang and Chui then asked her not to bother with what had been said about the loan. They both said they did not want a second mortgage but a normal agreement for sale and purchase; Miss Ho should forget what they said about the loan and take care of the case as if she had never been told about it. 18. Miss Ho enquired whether the agreement should contain a clause providing for cancellation if Chui repaid the money. Cheang was very firm that there was no need for such a clause. Chui was equally firm that it should be left untouched in the agreement and that the parties would take care of it for themselves. Miss Ho made it clear that without such a clause Chui would be bound to sell to Cheang whether or not the former paid. Both parties said they understood the consequences of entering into such an agreement. 19. Miss Ho explained that once the agreement was signed, stamp duty would have to be paid and might not be recoverable even if the agreement was later cancelled. Cheang said he understood and was willing to pay the duty. The parties agreed that the formal agreement would be signed on 19th May and completion would be three months later, on 6th August (sic). 20. The parties then said they wished to enter into a provisional agreement immediately. Miss Ho advised against it but she gave them a standard form of provisional agreement, explained its effect and helped them to complete it. Because the purchase price was to be fully paid immediately she suggested to Cheang, he being her client, that there should be provision for payment of stamp duty by the defaulting party if the agreement was not completed; and that Chui should execute an irrevocable power of attorney in favour of Cheang upon signing the formal agreement. Thereafter, the parties read the terms of the provisional agreement again and signed in the presence of a friend who had come with them. Cheang handed the cash cheque to Chui who acknowledged receipt by signing a photocopy of the cheque. Cheang then gave the provisional agreement to Miss Ho so she could proceed with the formal agreement. 21. On 19th May, the parties signed the formal agreement and Chui signed the power of attorney. Cheang provided a cheque for HK$83,500 for stamp duty and registration fee. 22. Miss Ho sent the original provisional agreement for registration on 22nd May and a copy of the formal agreement on 8th June for registration. On 5th August, the plaintiff telephoned her that he had agreed to postpone completion until 5th September. In response to her advice Cheang and Chui signed a supplemental agreement in her office on 6th August to record the extension. About 4th September, Chui's solicitors asked for a postponement of completion until at least 15th September. But Chui said he would agree to 10th September. On 9th September Miss Ho received a letter from Chui's solicitors saying that Chui was reluctant to complete as there was an arrangement for a loan of HK$3m to be secured by the property. Chui's solicitors said they were ceasing to act for him. Cheang told Miss Ho he would resolve the matter with Chui, and after completion failed to take place on 10th September, added on the 11th, that Chui was willing to complete and deliver vacant possession. He said it would be no problem to pay off the existing mortgage himself and asked whether he could execute the assignment under the power of attorney. On being advised that it would be better if Chui did so, Cheang said he would ask him to do that. On 14th September, Cheang told Miss Ho that Chui had been arrested. 23. In his judgment, the judge went on to record the importance to note that on 11th September, after receiving the letter from Chui's solicitors, Miss Ho wrote to them and to Chui. She said her firm was acting for Cheang as purchaser under the agreement for sale and purchase and that Chui had failed to fulfil his obligations and broken the agreement, while Cheang was still able and willing to complete. She added that her firm was instructed to institute legal proceedings for specific performance of the agreement. 24. The judge then turned to Mr Barlow's submission to him that both the parties been involved in gambling business in a big way; that the correct inference to be drawn from the evidence available was that Chui obtained the money at the gambling tables and it was being repaid to him; alternatively, that the plaintiff's syndicate was lending him money for more gambling. If not for gambling purposes, then, Mr Barlow said, the money was related to the defendant's drug trafficking activities, the Casino being used as a bank. The judge then said:
That finding that the payment was a loan has not been challenged. 25. The judge went on to address Mr Barlow's submission that the sale and purchase agreement, the agreement to extend time for completion and the power of attorney constituted a complete agreement and that extrinsic evidence was accordingly inadmissible as an aid to construction. Mr Edward Chan conceded the underlying proposition as a correct statement of the law but submitted that the various documents do not constitute the contract pleaded as being partly oral and partly in writing. The judge assumed, without deciding, that extrinsic was admissible in the circumstances. He added (at p.18):
And at p.19:
26. It is these findings, i.e. that the parties had abandoned any idea of some form of security transaction and that Chui had not charged his property in favour of Cheang as security for the loan, that were challenged in the first ground of appeal pursued by Mr Thomas. It can be seen from the judgment that these findings rest not upon the credibility of Cheang, but rather the judge's acceptance of Miss Ho's evidence. It is pertinent in that regard to recall that the Attorney General's primary case was that the loan of $3m was a sham to conceal drug trafficking or gambling transactions. It has to be said that on the face of the evidence and the circumstances that the loan was a sham does seem highly probable. But the judge, with the advantage of hearing and seeing the witnesses, rejected that possibility and I see no way in which this Court could properly interfere with that finding of fact, which is not challenged anyway. The finding that the payment of $3m was a loan, and its implication that Cheang's evidence and version in that regard was accepted by the judge, point very strongly to the sale and purchase agreement being security for the loan. 27. Coming then to Miss Ho's evidence, which I repeat was accepted by the judge, this in my view points not to the abandonment of the idea of security, but to the parties determined commitment to their desire to make and receive a loan and in the process sweeping aside Miss Ho's objections and advice and, indeed, humouring her to accomplish as much of their original wishes as possible, including the sale and purchase agreement as security, albeit informally . That points overwhelmingly to the sale and purchase agreement being security for the loan. If there were any doubts about that, they are firmly put to rest by the undisputed fact that there was only one amount of $3m throughout, and that has to be the $3m the judge found was paid as a loan. That finding, I repeat, has not been challenged. Nor has it been even suggested that there was a second payment of $3m. The finding that the sale and purchase agreement (with its express acknowledgement of the receipt of $3m) was nothing more than agreement for sale and purchase of the property, is clearly inconsistent with the finding that the payment of $3m was a loan and by implication unconnected with the sale and purchase agreement. 28. On the evidence, the conclusion is inescapable that the two transactions were linked, i.e. that the sale and purchase agreement was intended to provide security for the loan. One need only refer to the following items of evidence identified by Mr Thomas:
29. Furthermore, the judge plainly attached considerable weight to the parties rejecting the cancellation clause advised by Miss Ho. It seems to me that he attached undue significance to this. Cheang in his evidence stated that they did not ask for a cancellation clause because "both parties thought it was not necessary to have this clause in the agreement". I also think the judge in all the circumstances attached undue importance to the threat to specifically enforce the agreement for sale and purchase made in a letter of Cheang's solicitors that I have referred to. 30. Besides, in reaching his conclusion that the parties entered into no more than agreement for sale and purchase, the judge must have been influenced by his view that the equity of redemption could not be separately agreed and had to be contained in the same (written) instrument as the transfer of a property to a mortgagee. That view was erroneous; see Fisher and Lightwood: Law of Mortgage, 10th Ed. p.10. 31. Appellate courts do not lightly interfere with the findings of fact made by trial courts, particularly findings of primary facts. But here we are concerned with an inferential finding of fact; moreover one which I am convinced by the plainest considerations is both wrong and necessary to reverse (see Hongkong & Shanghai Banking Corp v Chan Yiu-wah [1988] 1 HKLR 457). I am satisfied that the sale and purchase agreement was intended to provide security for the loan of $3m as contended by Cheang. 32. This finding, which I would substitute for that made by the judge, does not directly dispose of all the grounds and submissions pursued before us by counsel. It does, however, provide the factual foundation for the main submission focused upon by Mr Thomas in his reply. 33. To any extent, if at all, that the following are not express terms of the agreement which, in my judgment, the evidence establishes they must be implicit; that is to say, first, that there was a loan of $3m actually made; second, that there was an agreement of sale and purchase in relation to the property; and third, that the agreement would only be completed if the loan was not repaid within 3 months. That such agreement gives rise to an equitable charge that takes the form of an equitable mortgage is clear from the judgment of Buckley L.J. in Swiss Bank v Lloyds Bank at pp.594-596, in particular from the following passage at p.595 D-E:
And later at F-G:
34. Upon the foregoing dicta, clearly the property was charged with the liability to repay the loan. 35. To proceed with Mr Thomas' submission, it was not in dispute before us, that an external confiscation order can only operate to divest a drug trafficker of property which is vested in him at the time the order takes effect. From the facts I have already recounted, it is clear that that the overall agreement and indeed the sale and purchase agreement were both concluded well before the Order for registration of the Decree of Forfeiture as an External Confiscation Order of the property was made on 23rd December 1993; indeed, before the Attorney General obtained the ex parte restraint order on 11th September 1992 and registered it a week later on September 17th. Therefore such rights as the Attorney General might have secured over the property would have been subject to the prior equitable charge in Cheang's favour. It follows that Cheang is entitled to the $3m charged upon the property. That conclusion, subject to the submissions made by Mr Barlow to meet it, disposes of the substantial dispute between the parties. Accordingly, I do not find it necessary to address Mr Thomas' ancillary submissions. 36. I turn then to Mr Barlow's submissions. Those concerned with Cheang's charging order, in particular non-disclosure, the priority of the restraint orders and Cheang's failure to notify or join the Attorney General in the proceedings leading to the charging order, which he particularly pressed, fall away with Cheang no longer having to rely upon the charging order. Mr Barlow's main submission is that Cheang elected to sue for damages on the loan agreement and therefore has abandoned his remedies under the sale and purchase agreement. He relies upon Johnson v Agnew [1980] AC 367, which makes it clear that a vendor has to elect at the trial whether to pursue the remedy of specific performance or of damages. The former is posited upon the subsistence of the agreement while the latter upon determination of the agreement. That sort of situation simply does not arise here. The sale and purchase agreement was security for the loan. Enforcement of that security is not incompatible with a claim for damages; both here found upon breach of the obligation to repay, although of course both reliefs could not be obtained. Moreover, even where judgment for specific performance is given, if it is disobeyed by the defendant, the plaintiff may on motion obtain an order for recission and forfeiture of deposit (see Supreme Court Practice 1995 Vol.1 L.325 para. 28/15/7). The abandonment submission does not, in my view, assist the Attorney General. 37. Mr Barlow also relies upon the entire agreement clause in the sale and purchase agreement as shutting out evidence of the loan agreement. However, the loan agreement is collateral in nature and it has been pleaded as part of the overall agreement, partly oral and partly written, the sale and purchase agreement comprising the latter. Upon that basis, evidence of the loan is admissible. 38. I would for all those reasons allow the appeal and order nisi that the costs of the hearing below and of the appeal be to Cheang. As to the substantive order on the appeal, I would direct that an agreed minute be submitted to the court within 21 days, and that there be liberty to apply in default of agreement as to the form of the order. Bokhary, J.A. : 39. I concur in the reasoning and result of my Lord the Vice-President's judgment. Liu, J.A.: 40. I have had the opportunity of reading in draft the judgment of my Lord Nazareth VP. I regret to have been unable to reach the same conclusion in this appeal. I do not propose to rehearse the facts which are fully set out in the judgment of the Vice-President. 41. Suffice it for me to say that the signing and registration of the Agreement for Sale and Purchase preceded the Restraint Order, the Charging Orders and the External Confiscation Order. Later in time, the Restraint Order, the Charging Orders and the External Confiscation Order were respectively made and registered in that sequence. 42. The appellant/plaintiff was the purchaser in his Agreement for Sale and Purchase signed with Chui Kin-wing. If the plaintiff had not abandoned his claims under the Agreement for Sale and Purchase, he would have enjoyed priority by virtue of its earlier registration over the Restraint Order and the External Confiscation Order and the Crown's claim made for the benefit of the American Government on the Restraint Order and the External Confiscation Order would have been defeated. Had the registration of the Agreement for Sale and Purchase continued to be effective and been a material issue in the proceedings involving the Charging Orders before Barnett J, the attempted determination of priority between these Charging Orders and the External Confiscation Order would have been a futile exercise. The intention to abandon claims in the property sale transaction was clearly evinced by (1) the plaintiff's election to proceed only with his claim for the $3m loan in High Court Action No.A1366 of 1993, (2) the acknowledgment by leading counsel for the plaintiff at the hearing that "if the transaction was no more than a sale and purchase agreement, the plaintiff (could not) succeed on this issue in view of the way in which the plaintiff (had) conducted his case", and (3) the plaintiff's election to obtain in the said High Court Action No.A1366 of 1993 a Charging Order for the judgment debt arising from the $3m loan; no judgment was sought to be signed in respect of the Agreement for Sale and Purchase. In fact, no charging order could have been obtained on or with reference to the Agreement for Sale and Purchase before first having a monetary claim successfully prosecuted thereunder. In this case, remedies for failure to complete the Agreement for Sale and Purchase were Specific Performance and/or damages for breach. The vendor might also be injuncted from not complying with its provisions. The remedies of an equitable mortgagee or chargee with respect to the alleged security in the event of a failure to redeem by repayment would be an ordered sale, an appointment of a receiver, the taking of possession or foreclosure. The plaintiff began by threatening specific performance but decided to sign judgment only for the loan. No proceedings were prosecuted with respect to the Agreement for Sale and Purchase or the alleged security. Before Barnett J, the plaintiff's application for payment out was made on the force of the Charging Orders although much was sought to be made of an alleged equitable mortgage which was said to be linked to the Agreement for Sale and Purchase. 43. In this appeal, leading counsel for the plaintiff seeks nevertheless to argue that the registration in the Land Office Register of the Agreement for Sale and Purchase provided the plaintiff with priority under the provisions of the Land Registration Ordinance, Cap.128. This issue was abandoned before Barnett J, and the proceedings were unconcerned with the Agreement for Sale and Purchase. 44. I need express no concluded view as to whether the Restraint Order was "to facilitate any future (confiscation) order" as submitted in In re Peters [1988]1 Q.B.871 at p 872H and p 873B or whether provisions in the Drug Trafficking (Recovery of Proceeds) Ordinance, Cap.405 would "give priority to the satisfaction of the Confiscation Order .... over general creditors" as propounded in Re W (unreported), the judgment of which was given by Buckley J. in Q.B.D. on 12 September 1990, at p 4. Nor is this court strictly called upon to determine whether s.10(1) of the Drug Trafficking (Recovery of Proceeds) Ordinance had the effect of prohibiting "any person" including the plaintiff and Chui and their respective solicitors "from dealing with any realisable property" including the property in question. These matters could and should have been canvassed on behalf of the Attorney if he had been properly joined as a party interested under O50, r.2(2), R.S.C. on the plaintiff's application for the Charging Order Nisi and for the same to be made absolute. Further, the Attorney would have then been entitled also to voice his concern through counsel as to why the plaintiff was not proceeding instead under O115, r.5, R.S.C. for a variation of the Restraint Order. 45. The evidence accepted by Barnett, J. demonstrates that the plaintiff and Chui had initially intended the granting of a loan of $3m on the security of the property in the sense that upon repayment, the parties would "further negotiate the matter". After the events, the plaintiff had committed himself on affirmation that "if Mr Chui could repay HK$3 million to (him), the Agreement for Sale and Purchase would in due course be cancelled." But when the parties came to consult Miss Helena Ho, they chose to enter into the Agreement for Sale and Purchase as a "binding" agreement for the sale of the property. The plaintiff's and Chui's joint final instructions to Miss Helen Ho left it in no doubt that the parties were content to abide by such an agreement in terms of the Agreement for Sale and Purchase for a property sale in the full awareness of its legal consequences. The parties deliberately ruled out the possibility of rescinding the instrument by a Cancellation Clause which was at one time suggested by Miss Ho. The Agreement for Sale and Purchase was accordingly prepared and caused to be signed as an instrument for selling the property by the respective conveyancing solicitors. By its "entire agreement clause", Clause 22, it was to be free-standing on its own and admit of no linking up with another agreement. The plaintiff had even procured an irrevocable Power of Attorney from Chui for assigning the property to himself. It was registered as an instrument for a property sale. This was the understanding of all. In a letter dated 9 September 1992, solicitors for Chui placed on record that ".... on Friday 4th September 1992 ..... (Chui) informed (them) for the first time that there (was) an arrangement between the vendor and (Chui) behind the agreement for sale and purchase and that the essence of (his) dealing with the vendor (was) a loan of HK$3,000,000 to be secured by the captioned property". (Emphasis added). Chui's then solicitors were embarrassed by the late disclosure and had "no alternative but to cease to act for (Chui) in (the) matter in the circumstances". 46. On the findings of Barnett J, the plaintiff and Chui could not possibly have continued to harbour an intention to create a security for the loan. The property was expected to be disposed of in an outright sale, and no equitable mortgage could then have been envisaged. On the other hand, by parity of reasoning, the plaintiff was not to be securing his $3m loan on the property as Mr Chui was not in reality expected to retain any property to be offered as a security. All necessary steps had been taken for passing the property. Granted that there was the legal subtlety of co-existing interests, but the property had effectually been sold to the plaintiff. No man could hold his own property as security for the liability of his debtor. The oral agreement to lend could not be, in the events that had happened, linked to the Agreement for Sale and Purchase. Despite the judge's findings, even if somehow an equitable mortgage had earlier been created without a deposit of title deeds, the sale in the Agreement for Sale and Purchase would have merged the equity of redemption, that is to say, the intention was not to preserve whatever charge there was. See Whiteley v. Delaney, [1914] A.C.132 at p 146 per Viscount Haldane L.C. In Whiteley v. Delaney, a payment made to redeem an outstanding legal mortgage with a view to granting the payer a new mortgage, coupled with custody of the title deeds, was held to give rise to an immediate equitable mortgage in favour of the payer. Thus, acting on such an intention, equity could vest an interest in the person who had put up the money for a mortgage repayment to enable the property to be reconveyed in redemption by a third party mortgagee to the owner. The overall intention was for the payer to derive an interest for his money. It was held that the prima facie destruction of the equity of redemption by a transfer or, in that case, the reconveyance of the redeemed mortgage property could be displaced in equity, putting the payer in the shoes of the original mortgagee as an equitable mortgagee. Clearly, a sale would merge the equity of redemption. In this case, the payment was not made for discharging any pre-existing obligation of another person but for making a sale to the payer. The right to redemption of any alleged equitable mortgage, if indeed there had been one, would have merged in the sale by Chui to the plaintiff under the Agreement for Sale and Purchase. The prima facie intention of every sale is to remove all equity of redemption, and this is what happened here when the Agreement for Sale and Purchase was signed. Was such an intention of the parties to the Agreement for Sale and Purchase displaced? The $3m payment had been exhausted in providing consideration for the sale and would no longer be available for the feeding of any equity to resurrect the destroyed right to redemption. Come what may, the plaintiff could not, therefore, maintain his submissions on the basis of an equitable mortgage. 47. In passing, I would observe that an equitable mortgage such as that alleged in this case is not registrable under the Land Registration Ordinance, Cap.128 and that there being no linking up with another document, discussion of priority would be redundant. Ho See-shing & Others v. Wan Ying-him & Others, [1959] HKLR 483 at p 511. Moreover, the Attorney General was not a bona fide purchaser or mortgagee for valuable consideration for s.3(2) of the same Ordinance. Further, insofar as part performance could be said to be material, there was no part performance. The Agreement for Sale and Purchase was intended to be an instrument for sale, and it could hardly be taken as part performance of any alleged mortgage interest in equity. Also, payment of the purchase money could not be, in the circumstances of this case, an unequivocal act indicative of part performance for an alleged equitable mortgage. In Steadman v. Steadman [1976] A.C.536 at pp 541 and 542, Lord Reid warned that one must not first look at the oral contract to see whether the alleged acts of part performance were consistent with it but that one must first look at the alleged acts of part performance to see whether they proved that there must be a contract. It is only if they do so prove, so Lord Reid advised, that one can bring in the oral contract. The payment of $3m here was clearly made as a payment of the purchase price for the land sale. As such it could not be looked upon as evidence of a concurrent contract to create a security by way of equitable mortgage. 48. Reference to Whiteley v. Delaney, supra, Ho See-shing v. Wan Ying-him, supra. and Steadman v. Steadman, supra. is made merely for conveniently noting the trite principles. 49. The respondent's submissions on sham and public policy were, on the findings by the judge, rightly rejected. There was no delay on the part of the Attorney General. The Attorney General should have been joined as an interested party so that the matters I have earlier referred to could be ventilated. The respondent's presence was all the more crucial for the exercise of the masters' discretionary power. In his application for the Charging Order Nisi and the Charging Order Absolute, the plaintiff had also failed to make a full material disclosure to the masters of the Restraint Order and the implications it carried. I am in agreement with Barnett J. that these Orders should be set aside. The plaintiff's application for payment out should be accordingly refused. I would dismiss the appeal. Nazareth, V-P: 50. By a majority the appeal is allowed with the costs order nisi and the direction indicated.
Representation: Mr Michael Thomas Q.C. and Mr Alan Leong (M/s Charles Yeung, Clement Lam & Co) for Appellant Mr Barrie Barlow and Miss Louisa Lai (Attorney General's Chambers) for Respondent |