THE HONG KONG BUILDING AND LOAN AGENCY LTD. v. PANG KO FAI AND ANOTHER

HCMP 6927/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6927 OF 1998

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J U D G M E N T

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1. These proceedings concern the property known as Flat No. 14, 14th Floor, Block A, Hong Wah Court, No. 2, Lin Tak Road, Kowloon, Hong Kong ("the property").

2. The Plaintiff is the mortgagee of the property pursuant to a mortgage dated 30 September 1997 ("the mortgage"). The 1st Defendant was the mortgagor. The 1st Defendant was the registered owner of the property which he purchased from the Housing Authority under the Home Ownership Scheme on 5 February 1987. In these proceedings, the Plaintiff seeks an order for possession and sale of the property as well as the other relief set out in the amended Originating Summons. The Plaintiff also seeks to enforce the Charging Order Absolute that it has obtained over the property in the HCA No. A 13071/98 in respect of the default judgment that it obtained against the 1st Defendant on 8 September 1998 for the sum of HK$1,193,111.23 plus interest and costs in that action.

3. The 2nd Defendant was the mortgagee of the property pursuant to an earlier mortgage dated 3 October 1994 where the 1st Defendant was the mortgagor ("the Kot mortgage"). The 2nd Defendant was also the purchaser of the property pursuant to a sale and purchase agreement made on 16 April 1997 between the 1st Defendant, as the vendor, and the 2nd Defendant, as the purchaser ("the SP Agreement").

4. The 1st Defendant has not appeared in these proceedings and has taken no active part. The 2nd Defendant claims that he is entitled to an interest in the property, namely, a purchaser's lien over the property for the deposits and part payment of the purchase price of the property paid under the SP Agreement. It is the 2nd Defendant's case that his lien has priority over the Plaintiff's interests in the property.

5. The background facts are as set out in the chronology which is not in dispute. On 5 February 1987, the 1st Defendant purchased the property from the Housing Authority subject to the Home Ownership scheme. The Kot mortgage was executed by the 1st Defendant in favour of the 2nd Defendant to secure a loan of $740,000 on 3 October 1994. This was less than 10 years from the purchase by the 1st Defendant of the property. There was also no prior approval given by the Director of Housing to the 1st Defendant to create the Kot mortgage. That being so, there is no dispute between the parties that the Kot mortgage was void under the provisions of S.17A of the Housing Ordinance (Cap. 283). Mr Khaw, counsel for 2nd Defendant, made it plain that he was not relying on the Kot mortgage to assert any claim on behalf of the 2nd Defendant over the property in these proceedings. He relied solely on the purchaser's lien.

6. Thereafter, on 25 March 1997 the 1st Defendant applied to the Housing Authority for assessment of premium with a view to selling the property. This was done so as to comply with the terms, covenants and conditions of the sale and purchase and the deed of assignment of the property when the 1st Defendant purchased the same from the Housing Authority in 1987. The relevant terms are set out in the Schedule to the Housing Ordinance (Cap. 283) in particular, paras 1 and 4. Once 10 years had elapsed from the date of the first assignment of the property, the 1st Defendant could enter into an agreement for the sale and purchase of the property. The 1st Defendant could do this provided that it was condition of such agreement that the premium as assessed by the Director be paid to the Housing Authority prior to assignment and within 28 days of the date of the agreement or within such period as may be otherwise stipulated by the Director (para 4(b)(ii) of the Schedule to the Housing Ordinance). Cl. 31 of the SP agreement provided such a condition.

7. On 16 April 1997 the SP Agreement was entered into. Completion was to take place on or before 24 June 1997. Under the SP Agreement, $10,000 was paid by the 2nd Defendant as the initial deposit and in part payment of the purchase price. Also, the sum of $530,000, receipt whereof was acknowledged by the 1st Defendant, was paid as further deposit and in part payment of the purchase price. The sum of $530,000 was the outstanding indebtedness of the 1st Defendant to the 2nd Defendant under the Kot mortgage and was treated as further deposit under the SP Agreement.

8. On the same day, 16 April 1997, the 2nd Defendant executed a Deed of Nomination ("the Deed of Nomination") to renounce all his rights in the property and the SP Agreement in favour of his daughter, Kot Pui Sherry ("the nominee").

9. By letter dated 5 May 1997, the Housing Authority notified the 1st Defendant of the premium to be paid.

10. On 24 June 1997, a notice of rescission of the SP Agreement was served by the 1st Defendant on the 2nd Defendant pursuant to Cl. 15(a) of the SP Agreement alleging that the 2nd Defendant had failed to pay the balance of the purchase price on the completion date. On 9 July 1997, a memorandum of rescission of the SP Agreement was registered in the Land Registry.

11. Also on 9 July 1997, the Plaintiff's facility letter in respect of a loan of $1,200,000 was issued to the 1st Defendant.

12. On 31 July 1997, the 2nd Defendant and the nominee commenced an action against the 1st Defendant alleging breach of the SP Agreement and seeking return of the deposits and other relief. This was HCA No. A8007/97. It is significant that in the writ there was no claim whatsoever for a declaration that the 2nd Defendant or the nominee was entitled to a lien on the property. Also, the writ was not registered in the Land Registry against the property until much later, on 11 October 1997, which was after the mortgage had been registered.

13. On 30 September 1997, the mortgage was executed by the 1st Defendant in favour of the Plaintiff. The mortgage did not take effect until later, on 9 October 1997. On 7 October 1997, the Plaintiff released the mortgage loan to the 1st Defendant's solicitors, part of which was used to pay the premium to the Housing Authority. The 1st Defendant's solicitors were also the solicitors for the Plaintiff at the time.

14. By letter dated 9 October 1997 addressed to the 1st Defendant, the Housing Authority certified the receipt of the premium payable under para. 1 of the Schedule to the Housing Ordinance and confirmed that the alienation restrictions in respect of the property were removed.

15. The mortgage was registered in the Land Registry on 21 October 1997. As it was registered within one month after the time of execution, which was on 30 September 1997, it was entitled to priority by relation to the date thereof (S.5 Land Registration Ordinance (Cap. 128)).

16. On 21 July 1998, Master Woolley ordered that the registration of the writ in HCA 8007/97 in the Land Registry against the property be vacated. That is hardly surprising as there had been no claim for a lien on the property at that stage. As such, the writ was not an instrument affecting land.

17. On 5 August 1998, the Plaintiff brought HCA 13071/98 to recover the outstanding loan against the 1st Defendant. On 8 September 1998, the Plaintiff obtained default judgment. On 2 November 1998, the Plaintiff obtained a Charging Order Absolute against the property to enforce the default judgment.

18. On 23 December 1998, the Plaintiff issued the Originating Summons herein against the 1st Defendant to enforce the Charging Order Absolute. On 8 January 1999, the 2nd Defendant applied to join as a party to these proceedings and on 14 January 1999, he was granted leave to join.

19. The 1st Defendant had been convicted in November 1998 of two separate offences contrary to S.27A of the Housing Ordinance (Cap. 283). The first related to his having entered into the SP Agreement which, it was alleged, was void by virtue of S.17B of the Ordinance. The second related to the 1st Defendant having created the mortgage over the property which, it was alleged, was void also by virtue of S.17B of the Ordinance. The 1st Defendant appealed against his convictions in Magistracy Appeal Nos. 1230 and 1178 of 1998. On 22 January 1999, Deputy Judge Gill set aside those convictions. He held up that the SP Agreement and the mortgage were not void under S.17B of the Ordinance.

20. On 1 April 1999, in HCA 8007/97, Master Poon granted leave to the 2nd Defendant and the nominee, who were the Plaintiffs in that action, to re-amend their Statement of Claim against the 1st Defendant to, inter alia, claim, for the first time, a declaration that they were entitled to a lien on the property for the deposits paid under the SP Agreement and interest and costs. The re-amended Statement of Claim was never registered at the Land Registry.

21. On 12 May 1999, Yeung J in HCA 8007/97 gave judgment to the 2nd Defendant and the nominee against the 1st Defendant. At the hearing before Yeung J, the 1st Defendant did not appear and was not represented. Yeung J struck out the Defence and Counterclaim and gave judgment to the 2nd Defendant and the nominee against the 1st Defendant for, inter alia, the return of the sum of $540,000 being the deposit and further deposits paid under the SP Agreement. Yeung J did not grant a declaration of a lien to the 2nd Defendant and the nominee. There was then an appeal by them in Civil Appeal No. 373 of 1999. On 18 January 2000, the Court of Appeal, also in the absence of the 1st Defendant, varied Yeung J's order in HCA 8007/97 and granted the declaration of a lien as it had been claimed in the re-amended Statement of Claim. The Court of Appeal's order was registered in the Land Registry on 16 February 2000.

22. Meanwhile, in these proceedings on 18 May 1999, the Plaintiff applied to amend the Originating Summons to rely, not only on the Charging Order Absolute, but also on the mortgage. By that time, Deputy Judge Gill had already held that the mortgage was not void. Master Lok on 20 July 1999 gave leave to the Plaintiff to amend the Originating Summons. On 15 June 2000, the 2nd Defendant applied to join the nominee as the 3rd Defendant in these proceedings. However, on 26 June 2000 the 2nd Defendant withdrew his application to join the nominee as a party.

23. As I have said, the only right claimed by the 2nd Defendant in these proceedings is the purchaser's lien on the property. There is no claim asserted under the Kot mortgage.

24. As a first and fundamental step, it is necessary to consider whether the 2nd Defendant can assert his claim to a lien in these proceedings so as to resist the Plaintiff's claims herein.

25. The Deed of Nomination is an important document. This was executed on the same day as the SP Agreement and was signed by the 2nd Defendant. In the recital the 2nd Defendant stated, inter alia, that he had actually entered into the SP Agreement for the nominee.

26. The Deed of Nomination provided that :

"NOW THIS DEED WITNESSETH that, I hereby nominate the Nominee to take up and execute the Assignment of the said premises and I direct the Vendor to assign the said premises directly to the nominee who shall be the legal as well as the beneficial owner of the said premises free from any resulting trust that may be arisen. AND I do hereby renounce all my right benefit and interest (if any) in and to the said premises and in and to the Agreement which said right benefit and interest shall vest in the Nominee absolutely and confirmed that the said KOT PUl SHERRY is my lawful daughter."

27. The words are plain enough. Clearly, in my judgment, the 2nd Defendant had by the Deed of Nomination renounced all his rights benefits and interests (if any) in and to the property and in and to the SP Agreement which should all vest in the nominee absolutely. The 2nd Defendant clearly and unequivocally divested himself of all his rights benefits and interests including any purchaser's lien that he might have had on the property. This is plain from the language of the Deed. That being so, I accept the submissions made on behalf of the Plaintiff and I fail to see how the 2nd Defendant can assert any claim to a purchaser's lien in these proceedings against the Plaintiff.

28. The Court of Appeal in Civil Appeal No. 363 of 1999 did not apparently have the Deed of Nomination placed before it as it was simply dealing with an appeal from Yeung J's order where he had struck out the Defence and Counterclaim and gave judgment to the 2nd Defendant and the nominee in default of the 1st Defendant appearing. On the face of the re-amended Statement of Claim, a claim for a declaration of lien had been made and the Court of Appeal varied Yeung J's order to include this relief. As Mr Chow, counsel for the Plaintiff, correctly pointed out, the Plaintiff was not a party to HCA 8007/97 nor to the proceedings in Civil Appeal No. 363 of 1999 before the Court of Appeal and the order of the Court of Appeal does not bind the Plaintiff.

29. I accept Mr Chow's submission that the 2nd Defendant cannot assert a purchaser's lien on the property against the Plaintiff in these proceedings. I also accept Mr Chow's submission that the Court can and should only determine the rights of the parties in these proceedings inter se. The only parties before the Court are the Plaintiff and the 1st and 2nd Defendants. I accept that the Court should only determine their rights inter se.

30. As I have found that the 2nd Defendant cannot assert a purchaser's lien on the property against the Plaintiff in these proceedings, it seems to me that that is sufficient to dispose of the matter and of the 2nd Defendant's opposition to these proceedings. Since the Court should only determine the rights of the parties to these proceedings inter se, I consider that it is neither necessary nor is it desirable for me to deal with the other issues raised, namely, whether the purchaser's lien on the property was registrable or unregistrable as an unwritten equity and whether the purchaser's lien was excluded or alternatively, waived.

31. As regards the Plaintiff's claims under the mortgage, Deputy Judge Gill has already held on 22 January 1999 in Magistracy Appeal Nos. 1230 and 1178 of 1998 that, inter alia, the mortgage was not void under S.17B of the Housing Ordinance. In coming to his view in his well reasoned judgment, Deputy Judge Gill said at p.8 of his judgment :

"Though the formal transfer might recite, "I hereby transfer" and though the formal mortgage may recite, "I hereby mortgage" that does not take effect unless and until it is delivered to the other side, or his solicitor if there is one. So, unless the signing of the document in question happens to be on the same date as the day for completion, the actual day of execution is incidental to the process.

Where the same solicitor acts for both parties the point of delivery may be harder to ascertain. But invariably it will occur when some overt act is undertaken by him which points to a notional delivery, such as a book entry in the trust accounts of two clients or the payment out of one client's account to the benefit of the other.

In the case of the appellant on the agreed or unchallenged facts I am satisfied that the notional point of delivery was the date upon which the funds received from the mortgagee bank, after clearance, were used as to part to meet for the appellant the payment of the premium. Thus the date upon which the mortgage was, to use the word of the summons 'created', was the same date upon which the premium was paid and received.

It follows that no prior approval was required from the Director of the HKHA because the premium was simultaneously paid. The mortgage thus was not void under S.17B."

32. The rule is that a deed takes effect from the date of delivery of the deed. Although it is to be presumed that the date appearing on the deed is the date of its delivery, the presumption is rebuttable (Xiamen International Finance Co. Ltd (formerly known as Panin International Finance Corporation Limited) v Tsui Tai-yan and another [1987] 1 HKLR 977 @ 979G-H).

33. I am satisfied that the facts on which Deputy Judge Gill relied in coming to his conclusion were largely matters on which there was also evidence before me or which could be inferred. Deputy Judge Gill inferred that the notional delivery of the mortgage deed was the date on which the funds received from the Plaintiff, after clearance, were used partly to meet the payment of the premium. On the evidence, this took place on 9 October 1997 and as Deputy Judge Gill said, the date upon which the mortgage was "created" was the same date as when the premium was paid and received, namely 9 October 1997. In the circumstances, the mortgage was not void under S.17B. I respectfully agree with the reasoning and findings of Deputy Judge Gill.

34. I see no reason why the Plaintiff should not be entitled to enforce its rights under the mortgage. I should also mention that quite apart from the mortgage, the Plaintiff is also entitled to enforce the Charging Order Absolute in HCA 13071/98. Mr Chow has satisfied me that in enforcing the Charging Order Absolute by an order for sale of the property, the Court can also order possession of the same.

35. I give judgment to the Plaintiff. I make an order in terms of para 1 of the prayer for relief in the amended Originating Summons. I also make an order that the money arising from such sale he applied :

Firstly:	In discharge of all rent, taxes, rates and other outgoings due and affecting the property; then
Secondly:	In payment of the expenses, including legal costs incidental to or associated with or properly incurred in the sale of the property; then
Thirdly:	Be applied to repay the sums due and owing by the 1st Defendant to the Plaintiff or any part thereof under the mortgage and the Charging Order Absolute in High Court Action No. 13071/98; then, if there is any balance remaining,
Fourthly:	Be paid into Court subject to any application for payment out by claimants.

36. I am satisfied that the Plaintiff is entitled to the declaration claimed in para 2A of the prayer for relief and I make an order in the terms thereof. I do not think it is necessary to grant the declaration sought in para 2B of the prayer for relief.

37. Costs to the Plaintiff against the 1st and 2nd Defendants. The 2nd Defendant's own costs in these proceedings to be taxed in accordance with Legal Aid Regulations.