XCHRX SHUN KAI FINANCE CO. LTD. v. JAPAN LEASING (HONG KONG) LTD.

HCA4215/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4215 OF 2000

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J U D G M E N T

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1. This is the defendant's application to strike out the plaintiff's claims, and in addition to vacate the lis pendens (being the Writ of Summons in this action) which the plaintiff registered in the Land Registry against the title deeds of the Property in question.

2. The plaintiff's claims, as set out in its Statement of Claim, are as follows :

(1) A declaration that :-

(a) the plaintiff is entitled to possession of the Property as hereinabove pleaded to the exclusion of all others including the defendant and any purported purchaser;

(b) the plaintiff's entitlement to damages against the defendant in the 1998 Action as hereinabove pleaded has been set off against any entitlement to rent enjoyed by the defendant in respect of the plaintiff's aforementioned possession of the Property;

(c) the defendant is unable in law to assign to any other party any better right to possession and/or to rent in respect of the Property;

(2) Further or other relief; and

(3) Costs of this action.

3. The broad background to these proceedings is set out in the affidavit of Nicholas Peter Etches, paragraphs 3 onwards. The Property in question belonged to Fully Well Investment Limited ("Fully Well"), an associated company of the plaintiff : Mr Wong Shun owns and controls both companies. In HCMP No.4359 of 1998, the defendant as mortgagee claimed against Fully Well for, inter alia, the payment of certain monies allegedly owing to it and for possession of the Property. The action was commenced on 28 August 1998, and shortly before the hearing before Master B. Kwan on 24 September 1999, the plaintiff sought by summons to intervene and be joined in the action on the basis that it was a tenant of the Property under a Tenancy Agreement dated 15 January 1998.

4. On 24 September and 9 October 1999, the Master dismissed the plaintiff's application for joinder and ordered Fully Well to pay certain monies to the defendant and to grant the defendant vacant possession of the Property.

5. The plaintiff appealed against that Order, and succeeded in being joined as Intervener in the appeal. The result of the appeal was that, on the concession of the defendant's counsel during argument that the defendant would accept such an amendment, the Master's Order that Fully Well deliver "vacant possession" of the Property to the defendant (together with the right to the exclusive use, occupation and enjoyment of the apartment and carparking spaces in question), was substituted by an Order that Fully Well deliver "possession" of the Property (together with the right to the exclusive use, occupation and enjoyment of the apartment and carparking spaces) "without prejudice to the rights of any alleged tenants". The costs of the appeal and at first instance were awarded to the Intervener.

6. The significance of the amended Order made on appeal was obviously to protect the alleged rights of the plaintiff as alleged Tenant of the Property.

7. Subsequent to the aforesaid amended Order made on appeal, the defendant as owner tried, unsuccessfully, to sell the Property. The defendant insists that at all times it was attempting the sell the Property subject to the alleged tenancy of the plaintiff. This is disputed by Mr Swaine for the plaintiff, who submits that an examination of the facts, as revealed in the correspondence which has been exhibited, shows that the defendant was purporting to deliver vacant possession of the Property to the would-be purchaser, in defiance of the plaintiff's alleged right to occupy the premises.

8. Mr Ng for the defendant submits that, quite apart from the merits, the court has no jurisdiction to make any of the Declarations sought because in each instance there is no dispute or live issue between the parties in relation to any of the matters claimed.

9. Specifically in relation to the first declaration claimed, he submits that following Suffiad J's Order on 4 January this year there is no issue between the parties as to the plaintiff's right to occupation of the premises.

10. It is common ground that the plaintiff, in the person of Mr Wong Shun, has at all material times been and still is in occupation of the premises, and that the defendant has not sought to challenge the plaintiff's right to do so.

11. The facts referred to by Mr Swaine to support his submission that the defendant did attempt to sell the Property with vacant possession to the would-be purchaser are not sufficient, in my view, to raise as a legitimate triable issue in these proceedings the question whether the defendant did, in attempting to sell the Property, seek to undercut or vanquish the plaintiff's rights as the occupier of the premises under the alleged tenancy, such as to justify the plaintiff seeking the aforesaid Declaration. Not only would this have been contrary to - and in contempt of - the Order of Suffiad J on 4 January 2000, but it would also have been a completely pointless exercise from the defendant's point of view since it would have been blindingly obvious to the defendant right from the start that it would be unable to deliver vacant possession of the premises to the would-be purchaser in view of the plaintiff's on-going occupation thereof, a fact known to the defendant at all material times.

12. In my view it is clear that there is not, and there was not at the time the Writ was issued, any live issue between the parties as to the plaintiff's right to occupy the premises. There is, therefore, no basis for the plaintiff to seek the Declaration in question, nor jurisdiction in the court to grant it.

13. See The Supreme Court Practice 1999, paragraph 15/16/2, page 268; In re Clay [1919] 1 Ch 66, the judgment of the Master of the Rolls at 78, and the judgments of Duke LJ and Eve J at 78 and 79.

14. In any event, quite apart from the jurisdictional point, the plaintiff could not, in my view, even arguably be entitled to the Declaration sought. If by "possession of the Property" is meant the right to immediate occupation of the premises, this right is specifically preserved by the Order of Suffiad J on 4 January 2000 by the addition of the words "without prejudice to the rights of any alleged tenants", and it is completely otiose and indeed an abuse of the process of the court for the plaintiff to now seek a Declaration to the same effect.

15. If, on the other hand, what is meant is possession in the full legal sense of the term, the plaintiff is clearly not entitled to such a declaration as against the defendant since such possession was specifically granted to the defendant by the Order of Suffiad J which granted to the defendant (as mortgagee) possession of the Property together with the exclusive right to the use and enjoyment of it, subject only to the rights of any alleged tenants in the Property.

16. Specifically in relation to the 2nd Declaration sought by the plaintiff, it is common ground that the defendant has not at any time demanded that the plaintiff pay it any rental in respect of the plaintiff's occupation of the premises. Mr Swaine submits that since the defendant can demand the payment of such rentals at any time from the plaintiff, that the plaintiff is entitled to seek the Declaration in question.

17. In this respect also, there is no live issue between the parties, and applying the legal principles referred to above, the plaintiff is not even arguably entitled to the Declaration sought, nor does the court have jurisdiction to make it. If and when the defendant does demand rental from the plaintiff, the plaintiff will then have the opportunity to raise its alleged defence of set-off by virtue of its claim to damages against the defendant in the 1998 Action, and the matter would then be duly adjudicated.

18. Specifically in relation to the 3rd Declaration sought by the plaintiff, it is common ground that the defendant has not claimed or asserted any right against the plaintiff to be entitled "to assign to any other party any better right to possession and/or to rent in respect of the Property". Following the Order of Suffiad J, the defendant is quite entitled to sell the Property, subject to the plaintiff's alleged rights of occupation as tenant. If in doing so the defendant were to attempt to frustrate or diminish the plaintiff's alleged rights as tenant, the plaintiff would then have the opportunity to assert its rights, and the validity of the lease could then be fully investigated. Failing any such development, there is again no live issue between the parties and therefore no entitlement on the part of the plaintiff to the Declaration sought.

19. In my view the plaintiff's claims for the three Declarations sought are unarguable, and I accordingly order that they be struck out.

The Registration of the Lis Pendens

20. The plaintiff registered as a lis pendens the Writ of Summons in this action in the Land Registry against the title deeds of the Property. Mr Ng has submitted that regardless of the outcome of the strike out application, the defendant is entitled to have the registration of the lis pendens vacated.

21. He has referred me to the decision of P. Chan J (as he then was) in Chow Chiu Tai v. Chan Tak Ming [1994] 1 HKLR 274, where the applicable principles were explored. A lis pendens is defined in section 1A of the ordinance as "any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land". At page 279, P. Chan J, having explored various English decisions, adopted the following formulation as being "equally appropriate" in the Hong Kong context. A lis pendens, to be registrable, "must be one which affects an interest in land so that if it is not registered or registered in time, the interest affected by it may lose priority to some other interest in the same land if the document relating to that other interest is registered. In other words, the question to be answered is : will the interest which is to be affected by the action or proceeding be adversely affected by or deferred to some other interest in the land if the action or proceeding is not registered or registered in time?"

22. The plaintiff's claims in this action are squarely founded upon its alleged rights under the Tenancy Agreement dated 15 January 1998. The Agreement provided that the tenancy would subsist for a duration of one year from 15 January 1998, and the plaintiff claims that the tenancy, having not been terminated, now continues under Part IV of the Landlord and Tenant Ordinance.

23. Section 3 of the Land Registration Ordinance, Cap.128 provides as follows :

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

(2) All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes:

Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years."

24. I note that in Butterworths Conveyancing and Property Law Handbook, the commentary upon this section of the Land Registration Ordinance states :

"Where a lease is granted by an instrument for a term not exceeding 3 years, under the proviso to sub-section (2) above, it is not registrable. If the lease contains an option to renew, although the lease, being for a term not exceeding 3 years, is not registrable, the option is registrable. ...."

The lease relied upon by the plaintiff does not contain any option to renew.

25. In my view, in view of the Proviso to section 3 of the Ordinance, the Writ in the present action is in any event not registrable as a lis pendens.

Costs

26. Mr Ng submitted that the defendant is entitled to its costs on an indemnity basis, in the first place because it can be clearly inferred from the facts of the present case that the plaintiff's registration of the Writ in this action as a lis pendens was done mala fides, in order to sabotage the defendant's attempt to sell the Property; and in any event on the ground of the complete lack of merits in the plaintiff's claims in this matter.

27. I am not able to draw any such inference as contended for that the plaintiff's registration of the Writ was done mala fides; however, for the reasons I have given above, I do consider that the plaintiff's claims are so entirely devoid of merit that they constitute an abuse of the court's process. In these circumstances it is right that the plaintiff should pay the defendant's costs of these proceedings on an indemnity basis, and I make an order nisi to that effect.

28. See Hong Kong Civil Court Practice, edited by W.S. Clarke, Vol.1(A), pages 86-88.