JOIN WIN HOLDINGS LTD v. CITY TARGET LTD AND ANOTHER

CACV 190/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 190 OF 2015

(ON APPEAL FROM HCA NO. 1188 OF 2015)

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REASONS FOR DECISION
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Hon Cheung JA :

I. The applications

1.1  The plaintiff issued a writ on 29 May 2015 and registered it in the Land Register as a lis pendens against the 1^st defendant’s property known as 8^th Floor, 726 Nathan Road, Kowloon Hong Kong (‘the property’).

1.2  On the application by the 1^st defendant, Chow J struck out paragraphs 1, 2 and 3 of the indorsement of claim on the writ on the ground that they disclosed no reasonable cause of action.  The Judge also vacated the lis pendens.  

1.3  The plaintiff lodged a notice of appeal against the judgment and registered the notice of appeal in the Land Registry against the property.  According to the Land Register, the registration of the notice of appeal, although said to be withheld was also listed as ‘Pending registration’. 

1.4  The 1^st defendant applied first, for security for costs of the appeal and second, for the vacation of the registration of the notice of appeal from the Land Register.  We allowed the applications at the conclusion of the hearing.  I now give reasons for the decision.  I will address the application to vacate the lis pendens first.

II.  Vacating lis pendens

1)  The pleadings

2.1  The indorsement of claim asked for the following relief :

(1) A declaration that the plaintiff has at the public auction on 12 May 2015 concluded an oral contract with the 1^st defendant;

(2) An order for specific performance of the oral contract concluded between the 1^st defendant and the plaintiff at the public auction on 12 May 2015;

(3) An injunction order restraining the 1^st defendant from selling or otherwise disposing of or dealing with the property;

(4) An injunction order restraining the 2^nd defendant from assisting the 1^st defendant in selling or otherwise disposing of or dealing with the property;

(5) Damages for breach of contract;  

(6) Interest;

(7) Costs; and

(8) Further or other reliefs.

2.2  At the hearing below the Judge referred to the statement of claim prepared by the plaintiff.  Although the statement of claim was not filed it was provided to the 1^st defendant.  The Judge struck out the relevant parts of the indorsement of claim based on the matters pleaded in the statement of claim.  The Judge summarised the relevant parts of the statement of claim as follows :

(1) The 1^st defendant was and is the registered owner of the property (paragraph 4);

(2) At a public auction held by the 2^nd defendant on 12 May 2015, the 2^nd defendant on behalf of the 1^st defendant made a verbal offer to sell the property at the price of HK$66,000,000 (paragraph 5);

(3) The said offer made by the 2^nd defendant on behalf of the 1^st defendant was immediately accepted by the plaintiff (paragraph 6);

(4) Upon the plaintiff’s acceptance of the said offer, there was a binding oral contract concluded between the 1^st defendant and the plaintiff for the sale and purchase of the property (‘the 1^st  Oral Contract’).  The plaintiff has also pleaded a second oral contract (‘the 2^nd Oral Contract’) allegedly concluded between the 2^nd defendant and the plaintiff for handling the sale and purchase of the property (paragraph 7).  It is not alleged that the 1^st defendant was a party to the 2^nd Oral Contract or bound by it.

(5) In furtherance of the 1^st Oral Contract, the plaintiff signed a Memorandum of Agreement, paid to the 2^nd defendant a sum of HK$5,000 in cash in partial payment of the deposit, and further gave the 2^nd defendant two cheques (subject to certain conditions mentioned in sub-paragraph (7) below), one in the sum of HK$6,595,000 made payable to the 2^nd  defendant for payment of the balance of the deposit, and the other in the sum of HK$660,000 also made payable to the 2^nd  defendant for payment of agency commission (paragraph 8).

(6) Under the 1^st Oral Contract, it was an implied term that the 1^st defendant shall promptly execute the Memorandum of Agreement and return the duly executed Memorandum of Agreement to the plaintiff (paragraph 9).

(7) Under the 2^nd Oral Contract, it was an implied term, inter alia, that:

(a) pending the return of a copy of a duly executed Memorandum of Agreement to the plaintiff, the 2^nd defendant shall stakehold the said sum of HK$5,000 and the two cheques (paragraph 10(c));

(b) the 2^nd defendant shall not present the two cheques for payment until after a copy of the Memorandum of Agreement duly executed by the 1^st defendant has been returned to the plaintiff (paragraph 10(d)).

(8) Wrongfully and in breach of the said implied duties under the 1^st Oral Contract, the 1^st defendant failed and/or refused to immediately execute the Memorandum of Agreement (paragraph 11).

(9) Wrongfully and in breach of the said implied duties under the 2^nd Oral Contract, and despite the protests of the plaintiff, the 2^nd defendant without proper authority or prior consent of the plaintiff presented the cheques for payment without having returned to the plaintiff a copy of the Memorandum of Agreement duly executed by the 1^st defendant (paragraph 12(b)).

(10) In total disregard of the rights and interests of the plaintiff as a successful bidder for the property at the public auction on 12 May 2015, the 1^st defendant put up the property for sale again at a further public auction held by the 2^nd defendant on 29 May 2015 (paragraph 14).

2) The Judge’s reasons for striking out

2.3  The Judge held that the 1^st Oral Contract which is a contract  of  the  sale  and  purchase of  land  did not  comply  with  the  requirement  of  writing  under section  3 of the Conveyancing and Property Ordinance (‘CPO’) (Cap. 219) which provides that no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorized by him for that purpose.

2.4  The Judge further held that:

‘ 15. At the hearing this morning, Mr Yu [counsel for the plaintiff] informed the court that it is not in dispute that the 1^st defendant has never signed the Memorandum of Agreement.

16. There is no plea in the Statement of Claim of the existence of any written agreement or memorandum or note of such agreement satisfying the requirements of s3 of the Conveyancing and Property Ordinance in the present case.

17. It has also not been suggested that s3 of the Conveyancing and Property Ordinance has no application, eg because of “part performance” mentioned in paragraph 3(2) thereof or some other reason(s).’

2.5  The Judge referred to the dishonour of the cheque of $6,595,000 paid for the balance of the deposit upon its presentation (the other cheque paid to the 2^nd defendant was also dishonoured).  In other words, the plaintiff’s claim of having an interest in the property valued at $66 million is simply built on the payment of the cash deposit of $5,000.

3) Land Registration Ordinance

2.6  Section 2 of the Land Registration Ordinance (‘LRO’) (Cap. 128) provides for the registration of instruments, including judgments, affecting land in the Land Registry.  Section 14 provides that the provisions of the LRO relating to judgments shall extend to lis pendens. Lis pendens is defined in section 1A as :

‘ (a) any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land; and’

4) Jurisdiction to vacate lis pendens

2.7  The Court may order vacation of a lis pendens under section 19 of LRO if it is satisfied that ‘the litigation is not prosecuted bona fide, or for other good cause shown’.  In deciding whether an instrument is wrongly registered, the Court has to consider whether the instrument is in respect of an interest which affected the property in question.  The Privy Council observed in Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76 at 81 :

‘  ... it is only where the agreement may create some interest legal or equitable in the parcel of ground that the instrument can be the subject of registration under the Ordinance.

  The question that has to be considered in the present case is this. If the case proceeds to trial is there any likelihood that specific performance of the option agreement would be ordered? If so, then the land may be “affected” by Nybro’s equitable interest and the agreement is registrable. If not, there is no sufficient interest affecting the land and it was right to order the entries to be vacated.’

2.8  In addition to section 19, this Court held in Thian’s Plastics Industrial Co. Ltd. and others (No. 2) v. Tin’s Chemical Industrial Co. Ltd and another [1971] HKLR 249 that the Court also has the inherent jurisdiction to vacate an authorised registration.  Huggins J at 256 held :

‘ Once it is conceded that the lis pendens was not registrable under the Ordinance it seems to me necessarily to follow that everyone with an interest in the land must be entitled to have the registration vacated. Not surprisingly the Ordinance assumes that only those matters will be registered which it allows to be registered and therefore it provides no machinery for vacating an unauthorised registration. If the Court has no inherent jurisdiction to order vacation of such a registration, the entry must continue in spite of the damage which may result therefrom. No court of equity could countenance such a state of affairs and I have no doubt that we have power to do what is asked or that we ought to exercise that power in order to prevent a manifest injustice.’ (emphasis added)

2.9  See also Wong Kum Chi v. Lee Tit Ying [2003] 1 HKLRD 594 where the Court in exercising its inherent jurisdiction granted a declaration that an instrument was not registrable under the LRO.  In that case, the instrument had not been formally registered but it was held that the mere fact that it appeared in the land search record as a document pending registration was sufficient to introduce a doubt on the good title of the plaintiff.  That instrument did not affect the land at all and did not give the defendant an interest in the property.

2.10  In the present case, Mr Gary Lam for the 1^st defendant, accepted that the notice of appeal which sought specific performance of the 1^st Oral Contract was within the meaning of a lis  pendens.  The lis  pendens may be vacated either under section 19 or under this Court’s inherent jurisdiction.

5) No interest in land

2.11  In considering the 1^st defendant’s application to vacate the lis pendens, this Court inevitably has to assess the merits of the appeal.  The plaintiff’s case based on an oral contract is doomedto fail for being not in compliance with section 3 of CPO.  The Judge was plainly right when he held that there is no likelihood that specific performance of the oral contract would be ordered.  As such, the plaintiff’s action does not have any sufficient interest affecting the land and the Judge was also plainly right to order the vacation of the lis pendens.  

2.12  At the hearing before us, Ms Cheung, the representative of the plaintiff, relied on a new statement of claim in draft and sought reliance on the case of Wise Think Global Limited v. Finance Worldwide Limited (2013) 16 HKCFAR 799.  The new draft repeats in substance the plaintiff’s case but deletes any reference to the oral contract.  It pleads that :

‘ 5. …The conclusion of the deal as signified by the fall of the hammer by the 2nd defendant as auctioneer who was the agent of the 1st Defendant as Vendor and the Plaintiff as purchaser was further evidenced and in accordance to the terms of the auction documents, namely General Conditions of Sale and Special Conditions of Sale attached to a Memorandum of Agreement drafted and prepared by the 2nd Defendant as auctioneer who was the agent of the 1st Defendant as Vendor.’ (para 8)

2.13  It pleaded the breach by the plaintiff of the ‘concluded deal’ for not signing the written memorandum.  It asked for an injunction to restrain the 1^st defendant from disposing the property, specific performance and damages for breach of contract.

2.14  In my view, the new draft does not advance the plaintiff’s case any further.  The stark fact is that the ‘concluded deal’ is still not in writing as required by section 3(1) of CPO.  The Memorandum of Agreement was not signed by the 1^st defendant as vendor of the property.  The Special and General Conditions of Sale do not assist the plaintiff in the absence of the signed Memorandum of Agreement.  The new draft obliquely referred to part performance (although not expressly pleaded) by the payment of cash deposit of $5,000 and the cheque of $6,595,000.  However, the cheque was in fact dishonoured upon presentation. Despite being invited recently by the 1^st defendant to pay up the $6,595,000 in order to complete the transaction, the plaintiff has not responded to this request at all.  The new draft has not pleaded that the plaintiff is ready and willing to complete the transaction by the payment of $6,595,000 and the balance of the purchase price which is the precondition for specific performance.  The position that has not changed since the commencement of the action is that the plaintiff’s claim on the $66 million property is still solely based on a payment of $5,000.

2.15  The reliance by the plaintiff on Wise Think Global Limited is misplaced.  The Court of Final Appeal there was not concerned with any issue of oral contract or part performance.  The issue there was on the construction of the terms of a valid written contract.  The purchaser had fulfilled its obligation by paying up the further deposit but the vendor chose not to sign the formal agreement.  The case does not assist the plaintiff.

2.16  In my view the plaintiff has not advanced any credible arguments that it has a reasonable prospect of success in its appeal. The notice of appeal should never have been registered because putting the plaintiff’s case at its highest it is not one that can be said to affect the property.  In the circumstances, this Court ordered that the registration of the notice of appeal by the plaintiff be vacated from the Land Register.

III. Security for costs of the appeal

3.1  The Court may, in special circumstances, order an appellant to provide security for the costs of his appeal.  One of the instances of special circumstances is where the appellant is impecunious and is unlikely to pay the costs of the respondent’s appeal in the event that the appeal is unsuccessful.  

3.2  In the present case, the 1^st defendant has demonstrated that the plaintiff is impecunious.  The two cheques were dishonoured and it was unable to pay for the deposit needed for the purchase of the property.  It has also not paid the costs below of $148,000.  It has not complied with the statutory demand for the payment of the $148,000.  The Court, no doubt, has to consider the merits of the appeal as well.  As indicated above, the plaintiff cannot even demonstrate its appeal has any reasonable prospect of success let alone a high chance of success which may cause the Court not to impose the security.  Accordingly, this Court made the following orders on security:

(1) the plaintiff is to pay into court $120,000 within 21 days as security for costs of the appeal;

(2) pending payment in, the appeal is stayed;

(3) in default of payment in, the appeal is dismissed with costs to the 1^st defendant; and

(4) for the avoidance of doubt, order (2) above does not affect the vacation of the registration of the notice of appeal.

IV.  Costs of the applications

4  Applying the normal rule of costs follow event, we had ordered the plaintiff to pay the costs of the two applications.   Having considered the two statements of costs provided by the 1^st defendant, I would summarily assess the 1^st defendant’s costs of the two applications at $80,000.

V.  Citation of authorities

5  There is a matter which called for comment.  Mr Lam for the 1^st defendant who has conducted the hearing with ability, referred to a number of authorities in support of his case.  They were all first instance decisions.  Whilst this Court will no doubt consider first instance decisions on issues which have not been previously dealt by this Court or some higher courts or landmark first instance decisions which have been adopted by all levels of courts, petitioners are reminded that other than such examples, the citation of first instance decisions in the Court of Appeal should be the exception rather than the norm.

Hon Chu JA :

6.  I agree with the reasons given by Cheung JA.