LAU SIU YING AND ANOTHER V. WONG CHEUNG TAI

1993, MP No. 669

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is a vendor and purchaser summons whereby the court is asked to decide whether the vendors have satisfactorily answered a requisition of the purchaser, and whether the vendors have shown a good title to the property known as Flat B on the 10th Floor, Wing Tack Building, Shaukiwan, Hong Kong ("the Property"). The Property is a flat in a building the Occupation Permit in respect of which was issued in December 1991. The building stands on lots of land under seven Crown leases, being Section G of Shaukiwan Inland Lot No. 7, the Remaining Portion of Section B of Shaukiwan Inland Lot No. 8, the Remaining Portion of Section B of Shaukiwan Inland Lot No. 9, the Remaining Portion of Section C of Shaukiwan Inland Lot No. 9, Section F of Shaukiwan Inland Lot No. 7, Section E of Shaukiwan Inland Lot No. 7, and the Remaining Portion of Shaukiwan Inland Lot No. 9.

2. The plaintiffs are the vendors and the defendant the purchaser of the Property by virtue of an agreement for sale and purchase dated 17/11/92. Completion under the agreement was to be on 7/12/92. Completion did not take place as scheduled because the defendant had taken objection to the title deduced by the plaintiffs. By a supplemental agreement dated 26th February 1993, the parties agreed that if the court declared a good title, then completion would take place shortly thereafter but otherwise, the agreement for sale and purchase would be rescinded.

3. After the title documents to the Property were provided by the plaintiffs' solicitors to the defendant's solicitors, requisitions were raised by a letter dated 1/12/92. The only requisition which is now agreed by the parties to remain outstanding and which requires the determination of the court is in respect of an Assignment dated 27/9/62 registered by Memorial No. 379501, which was in respect of two out of the seven Crown Leases from which the title to the Property was derived, namely, the Remaining Portion of Section C of Shaukiwan Inland Lot No. 9 and Section F of Shaukiwan Inland Lot No. 7 ("the landed interest"). In the Assignment, the assignors were four persons and the assignee was the Sun Hing Residents' Association Limited ("the Corporation"). The four persons and another acquired their title to the landed interest by an assignment dated 9/1/52. By a Deed of Trust of the same date, the five of them declared that they were holding the landed interest in trust for Sun Hing Residents' Association, which was an unincorporated club consisting of residents from the Sun Hing District as members ("the Club"). The Corporation was incorporated on 30/3/61, with three of the four assigning trustees amongst its subscribers, just a day before the Club was dissolved on 31/3/61. One of the five trustees had died before the Assignment and the four assigning trustees were all those surviving.

4. Despite a lot of arguments on various matters like proprietary estoppel, constructive trust and constructive trustees, effect of registration, etc., it is common ground that the question to be decided by the court is whether in the circumstances there is a real or only a fanciful risk that the title to the Property would be attacked and attacked successfully.

5. Mr. Mak for the plaintiffs relies on the circumstances surrounding the Assignment to say that the beneficiaries under the Deed of Trust must have consented to the Assignment or alternatively as the Deed of Trust was not registered, it is null and void as against a bona fide purchaser for valuable consideration. This is so even if the subsequent purchasers had notice of the trust. He refers me to Bramwell on Conveyancing in Hong Kong, 1981 Ed., p. 208 and Kwok Siu Lau v. Kan Yan Che (1913) 8 HKLR 52, and ss. 3 and 4 of the Land Registration Ordinance.

6. Mr. Mak also relies on the doctrine of proprietary estoppel in that insofar as the beneficiaries stood by when the developer (the plaintiffs' immediate predecessor-in-title) incurred expenditure in demolishing the building on the subject of the landed interest and putting up a new building on the seven lots of land, they must have by their passive action acquiesced in, or alternatively estopped from challenging, the transfer of the title to the landed interest to the developer, and a fortiori, to the plaintiffs. However, this must be considered as resting upon a point of fact similar to whether the beneficiaries had consented to the Assignment, for whether proprietary estoppel avails depends on the knowledge of the beneficiaries which is similarly necessary for establishing their consent to the Assignment.

7. It is undisputed that the beneficiaries were the members of the Club at the time when the trustees acquired the landed interest on 9/1/1952, the date of the acquisition, as the Deed of Trust shows clearly that the purchase money was provided by the Club. However, it does not mean that all future members of the Club were beneficiaries because an unincorporated club is not a legal entity and therefore there cannot be a trust in its favour as such (see Halsbury Laws of England, Vol. 48, para. 507), or the trust would be void for perpetuities or inalienability.

8. Mr. Leung for the defendant submits that the Declaration of Trust did no more than merely evidence or confirm an existing resulting trust in favour of the beneficiaries who provided the purchase money. This I accept. However, he goes further to say that the Declaration of Trust is invalid and ineffective because only the beneficiaries, as opposed to the trustees, were able to create or declare a trust. Mr. Leung directs my attention to Kronheim v. Johnson (1877) 7 Ch. D. 60. That case decided that when the legal estate in land was vested in a trustee for an absolute beneficial owner, the party who was by law enabled to declare a trust of the land, within the meaning of section 7 of the Statute of Frauds, was the beneficial owner only. That was for creating a trust by the beneficiary in favour of another person. In the present case, had the trustees failed to execute the Declaration of Trust and remained silent about the fact that the purchase money was provided by the beneficiaries, then no outsiders would know the existence of the resulting trust. The trustees were not creating a new trust or declaring a trust in favour of persons other than the beneficiaries, and I do not think Kronheim v. Johnson is applicable. The Declaration of Trust is certainly valid, though not as a document creating a trust, but as evidence and confirmation of a resulting trust.

9. I think this matter can be resolved on the facts without the necessity of deciding many other points raised by counsel in their submissions. The defendant's main contention is that only the members of the Club as of 9/1/52 who provided the purchase money were beneficiaries under the trust ("the beneficiaries"), and that there is no evidence to show that when the trustees or the surviving trustees assigned the landed interest to the Corporation, that was done with the consent or approval of the beneficiaries. Therefore the surviving trustees did not have the necessary power to assign the landed interest. It follows that the title to the Property is subject to challenge by the beneficiaries. The Corporation and all of its successors-in-title including the plaintiffs are constructive trustees of the landed interest because the Declaration of Trust was referred to in the recital to the Assignment and was within their knowledge or notice. The consequence is that they are all constructive trustees and subject to any claim that the beneficiaries may bring against them and also against the landed interest which forms part of the title to the Property.

10. For challenging the Assignment, a beneficiary or his estate will have to show:

(a) the trustees committed a breach of trust in making the Assignment; and

(b) the beneficiary did not consent to it; and in order to negative consent, the beneficiary did not become a member of the Corporation to enjoy the benefit of the Assignment.

11. There is no evidence of any fraud or any fraudulent breach of trust having been perpetrated by the trustees who executed the Assignment; on the contrary, their assigning the landed interest to the Corporation was done openly and for the purpose of transferring the landed interest to the Corporation, in apparent compliance with the object and intent of the Club and its members at the time of the transfer. There is no evidence at all that any member of the Club, be they members on 9/5/51 or on 27/9/62, objected to the transfer. The Assignment is over 30 years old. There is no evidence at all that any of the beneficiaries or their estates has raised or will raise any claim to the landed interest or against the plaintiffs and their predecessors-in-title. In fact, any claim brought by a beneficiary or his estate would be very likely met with laches and the defence that the beneficiary must have consented to or acquiesced in the position.

12. The trustees made a voluntary disposition to the Corporation bearing the same name as the Club of which the beneficiaries were members, and the Club was dissolved one day after the Corporation was incorporated. Three out of the four surviving trustees were the subscribing members of the Corporation. Their act of assigning the landed interest to the Corporation was expressly for the purpose of enabling the Corporation to take over the management, assets and liabilities of the Club, which was one of the main objects of the Corporation. The beneficiaries as members of the Club were entitled to be members of the Corporation. By presumption of regularity, and without any evidence to the contrary, the beneficiaries must have agreed to the dissolution or they must have agreed to be bound by the majority of members in their resolution to dissolve the Club. The beneficiaries must be concerned then as to what would happen to the properties held by the trustees in trust for them. They therefore should have known that the landed interest was to be and in fact transferred to the Corporation. If they did not object, regardless whether they exercised their right to become members of the Corporation, their right to challenge the transfer must be barred. The risk of a breach of trust or the risk that the beneficiaries had in fact not consented to the Assignment is therefore negligible.

13. It may however be argued that some of the beneficiaries might have resigned as members of the Club or they might have died before the Corporation was incorporated and before the Assignment took place, and this class of beneficiaries or their estates might not be members of the Corporation and might not be cognizant of the fact that they had a beneficial interest in the landed interest. I agree that there is a possibility of this being the case. But the Assignment is over 30 years old, and there is no evidence that any claim has been or will be made by any of them. The chances of a claim made by any of these persons or estates after so many years appear to me to be very slight.

14. Whatever right the beneficiaries have, if at all, would be most likely to be against the Corporation for the proceeds of the subsequent sale by the Corporation to the developer. Although there is no evidence that the Club had rules amongst its members to lock in all assets, there is clause 7 of the Memorandum of Association of the Corporation which has that effect. It is expected that the Corporation would retain the proceeds of sale of the landed interest, save for normal expenses incurred for the running of its affairs.

15. Even if any of the beneficiaries were to make a claim on the Property, the chances of success would be bound to be extremely slim, in view of the fact that the entity of the landed interest had undergone a drastic change. Instead of an old building standing on the two lots of land, a new building consisting of a number of flats has since December 1991 been standing on the two lots and five other lots of land. The subject of the landed interest has been intermingled with that of the other five Crown leases and the identity of the building which stood on the subject of the Landed interest had disappeared. Third party interests would be affected, and these interests are not limited to those of the developer and the present plaintiffs, but also those of the owners of all other flats in the new building.

16. Equity will not permit the right of tracing to be exercised where the effect would be to work an injustice or create practical problems. Snell's Principles of Equity, 29th Ed., p. 303 states:

"Even where there is no other equitable bar against tracing, equity will not permit the right to be exercised where the effect would be to work an injustice. There would also be practical problems where, for example, part of a building in the middle of a hospital has been improved; for it might not be easy to determine just what entity is subject to the charge, nor how the charge could properly be enforced by a sale. ..."

17. If the title to the Property is allowed to be interfered with by a claim of the beneficiaries, there cannot be a just practical solution. Is the court going to enforce the beneficiaries' charge by ordering a sale of all the flats in the new building, contrary to the wish of all the flat owners who acquired their flats oblivious of any possible attack on the title caused by the unwariness of their solicitors who put through the purchases for them? Would the problem of estimating the value of the beneficiaries' charge on the land as a share in the proceeds of the sale of the building as the court might order be surmountable, having to take into account the drastic change of entity? To both questions, I would answer no. In the circumstances, I come to the conclusion that any claim against the Property by the beneficiaries will be mostly unlikely to succeed. Whatever unlikely claim that the beneficiaries and their estates may bring is one against the trustees or the Corporation for the proceeds of the sale of the landed interest, and they will most unlikely be allowed to interfere with the title to the Property. The risk of an attack on the title to the Property and the likelihood of success of such an attack are too fanciful to be acknowledged. In the circumstances, I hold that the plaintiffs have shown a good title to the Property and declare that the title to the Property is good.

18. As the parties have agreed that whatever my decision, there should be no order as to costs, I do so order.

19. It is left for me to thank both counsel for their diligence in the preparation of their very helpful written skeletons of submissions.