SILVER HOPE LTD v. CHAN KWAI WAH ALICE

HCMP 82/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 82 OF 2012

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REASONS FOR DECISION

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THE APPLICATION

1.  At the hearing, I had made the decision except on costs. What follows are the reasons for my decision and on costs.

2.  The plaintiff commenced the present proceedings and obtained an order for sale dated 21 June 2012 (the said order) against the defendant by virtue of a judgment in another action HCA 862/2011for the sum of $2,000,000.00 with interest and a charging order over the property known as Lot No. 448 in Demarcation District No. 248, Sai Kung (the property) registered in the defendant’s name.

3.  By a summons dated 31 August 2012, Wong Chi Kwong (the intended defendant) applied to join as a defendant in this proceeding and to set aside the said order and the writ of possession dated 13 August 2012 and at the same time to stay the execution of the said order in respect of the front portion of Flat A and the rear portion of  Flat B of Ground Floor of the property (ground floor) on the ground that the intended defendant holds a beneficial and/or equitable interest over the ground floor.[1]

4.  The plaintiff in the proceedings opposes this application.

5.  Counsel R. Yuen acts for the intended defendant and Counsel B. Tam acts for the plaintiff. The defendant has raised no objection to this application and is not present in this hearing.

6.  The intended defendant’s application to join as a defendant is based upon Order 15 rule 6(2)(b), which reads:

6. Misjoinder and nonjoinder of parties (O. 15, r. 6)

(2) Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application-

 (a)

 (b) order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

THE INTENDED DEFENDANT’S ARGUMENT

7.  Mr. Yuen agrees that the burden is on the intended defendant “to show that he is sufficiently interested in the proceedings to which he or she wishes to be joined as an additional party.”  See Man Whi Chung v. Man Ping Nam [2003] 1 HKC at 555C.  Mr. Yuen also agrees that according to the decision of the Court of Appeal in Wong Chun Loong Tony v. Ada Ltd [1991] HKC at 94D-95D, the intended defendant is required to show some interest which is in some way directly related to the subject matter of the action, a mere commercial interest in its outcome is not enough, and there must exist between the parties a question or issue arising out of, or relating to, or connected with any relief or remedy claimed in the cause or matter, which the court considers it just and convenient to determine.

8.  Mr. Yuen accepts that the intended defendant has to demonstrate an arguable case that he holds a beneficial interest over parts of the property in order to establish his locus under Order 15 rule to be joined as a party.[2]

THE PLAINTIFF’S ARGUMENT

9.  Miss Tam does not dispute the above legal principles. Her main grounds of objection are:

a.  The intended defendant has no beneficial interest in the property for the reason that the contract allegedly made between the defendant and the intended defendant is void because of illegality;

b.  Even if the alleged contract is not void, the plaintiff’s charge has priority over the alleged contract by registration under sections 3, 4 and 5A of the Land Registration Ordinance, Cap.128; and

c.   The court should not exercise its discretion to allow the intended defendant to join because his application is not a genuine application.[3]

DISCUSSION

a.   On the issue of illegality

10.  Mr. Yuen submits that the intended defendant had entered into a contract reduced into writing on or about 15 February 1996 and a supplemental contract (the contracts) whereby the intended defendant had paid the full price of $800,000.00 to the defendant for the purchase of the ground floor.

11.  Pursuant to the purchase, the intended defendant had, since 1996, leased the ground floor to tenants, paid rates and government rents for the ground floor, divided the ground floor into front portion and rear portion and finally paid the penalty for late stamping of the contract.

12.  The intended defendant admits that the contracts were in contravention with the covenants that impose restrictions or alienation under the New Grant, which provides, inter alia, that “the Grantee (the defendant) shall not assign, partition, mortgage, charge, demise, underlet, part with the possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon or enter into any agreement so to do, whether directly or indirectly, or whether by way of direct or indirect reservation, grant of any right of first refusal, option, power of attorney, building agreement or through a solicitor, agent, contractor, trustee or otherwise however …”[4]

13.  Mr. Yuen, however, submits that by virtue of the intended defendant’s payment of money pursuant to the contracts, he had acquired a propriety interest in the land; that the restriction under the New Grant does not affect the intended defendant’s propriety interest because it arose independently from the contracts which might otherwise be unenforceable, relying on Best Sheen Development Limited v. The Official Receiver and Trustee of the Property of Lai Thomas, a bankrupt [2001] 1 HKLRD 866 at 874B-875A and Wa Lee Finance Company Limited v. Yau Tak Wah, HCMP 1316/2001 by DHCJ Poon delivered on 6 August 2002 at §§18&19.

14.  Miss Tam argues that the intended defendant’s interest in the ground floor amounts to no interest at all because the contracts are unenforceable and void for being illegal contracts in contravention with the New Grant, relying upon Ling Wing Fai & Others v. Ling Shui Fai & Others [2010] 5 HKLRD 247 by the Court of Appeal applied in Cheuk Shu Yin v. Yip So Wan & Another [2011] HKLRD 514 relating to Home Ownership Scheme and Chung Mui Teck & Others v. Hang Tak Buddhist Hall Association Ltd. and Another [2001] 2 HKLRD 47relating to Small House Policy.  At the time of writing this Decision, it has come to my attention that the decision in Ling Wing Fai & Others was overturned by the Court of Final Appeal in the Judgment dated 13 November 2012. However, I consider that this does not alter the legal position that illegal contracts are unenforceable and void.  The Court of Final Appeal re-defined the meaning of “alienation” in section 17B of the Home Ownership Ordinance.  See para. 36.

15.  In reply to Miss Tam’s submission, Mr. Yuen, in his supplemental skeleton submissions, relies on Li Pui Wan v. Wong Mei Yin CACV 49/1997 by P. Chan (the then CJHC) [1998] 1 HKLRD 84 where the appellant and the respondent had entered into an agreement for sale and purchase of the property under New Grant with similar restriction on alienation and the Court of Appeal had discussed this issue and ultimately found that the prohibition of alienation was not a public policy and that even if such was the public policy, the term of the agreement, which provided that the parties should complete at a later date after payment of the premium and the government’s consent did not amount to breach of public policy.[5]

16.  Mr. Yuen therefore submits that this matter is similar to that case and the intended defendant’s contracts, even if they were without the government’s consent, were not void for being against the public policy.

17.  Mr. Yuen has also referred to Lau Kwai Kiu v. Bian Xintian [2012] 2 HKRD 954 delivered by Yuen J.A. and held that breach of the New Grant by the parties would not necessarily cause the contract or arrangement illegal unless the government had suffered damage, which can be distinguished from Ling Wai Fai where contravention of the statute is per se illegal without further evidence; and even if the contract was illegal, it might not affect the proprietary interest of the intended defendant if he could establish his proprietary interest without relying on the illegality, applying the principle held by the House of Lords in Tinsley v Milligan [1994] 1 AC 340.[6]

18.  Mr. Yuen submits that the intended defendant’s proprietary right in the property is derived from the signing of the contracts, taking possession of the property and full payment of the purchase price of $800,000.00.  He argued that the non-alienation clause was not against public policy.  Even if the contracts were illegal, the intended defendant can still rely upon other acts to establish his proprietary interest without relying upon illegality.

19.  Miss Tam does not dispute the above arguments.  I hold that the intended defendant has established his interest for joining as the 2^nd defendant in these proceedings.  However, Miss Tam has also relied upon priority under the Land Registration Ordinance to argue that the intended defendant’s right is subject to the plaintiff’s right. Therefore, he should not be allowed to join as a defendant.

b.  On the issue of priority under the Land Registration Ordinance

20.  Miss Tam resists the intended defendant’s right, relying upon section 3 of the Land Registration Ordinance (the Ordinance) to say that the charging order, which has been registered in the District Land Office takes priority over the contracts, which have only been stamped, but not yet registered.  She relies upon Consolidated Sales Limited v. Turner C Lynn t/a Wintergreen’s Rattancraft (a firm) & Anor [1970] HKLR 222 and Kai Sun Investment Limited v. Dah Sing Bank Limited, unreported, HCMP 1999/1982 by Mantell J. on 1 February 1983, which held that the instrument first registered took priority to that which was registered later regardless of the date of acquisition.

21.  Mr. Yuen refers to Financial and Investment Services for Asia Ltd. v. Baik Wha International Trading Co. Ltd. HCMP 2487/1984 where Hunter J. held that section 3(1) of the Ordinance does no more than provide for priority between valid documents of the defined classes which are registrable and registered (emphasis added).  It does not exclude inquiry into the underlying transaction which is the subject matter of the registration. Hunter J. refused to follow Consolidated Sales Limited and Financial and Investment Services for Asia Ltd. Mr. Yuen has also referred to Mayo J.’s decisions in Yau Siu Yeung & Ors. v. Wing Sum Lo t/a Wing Sum Lo & Co. [1988] HKC 693 in which the learned judge held that the defendant was unable to register a charging order against the property after the vendor thereof had disposed of his interest in the land and that the defendant could not establish priority over the assignment to the first plaintiff because the defendant could not claim as bona fide purchaser for value as required section 3 of the Ordinance. Mayo J. followed Hunter J.’s decision that a charging order notified parties of a judgment which had been obtained against the owner of the land and stated that the owner’s interest in the land was subject to the charged created. To explain why the chargee under the charging order cannot claim to be a bona fide purchaser or mortgagee for valuable consideration, Mr. Yuen refers to the Hong Kong Civil Procedure 2012 at 50/9A/17 where it reads “Subject to the High Court Ordinance, a charge imposed by a charging order will have the effect and will be enforceable in the same courts and to the same manner as an equitable charge created by the debtor by writing under his hand. A charging order on an interest in land, unlike a mortgage, does not confer any propriety right or title in the land….”.

22.  I consider that it is at least arguable that the intended defendant’s proprietary right may not be taken over in priority by the plaintiff under the Ordinance.  The issue should be considered by the Court hearing the matter.

c.  On the issue of not a genuine application

23.  Miss Tam complains that the intended defendant should have notice of the plaintiff’s mortgage action against the defendant.  But he had elected not to appear before the court until now.  The intended defendant explained that he did not receive notice of the mortgage action.  The plaintiff said that the notice was served by putting at the conspicuous place outside the property.  The intended defendant submitted that the property had two entrances. Suffice it to say, all these are factual disputes that should be resolved at the trial or the hearing.

CONCLUSION AND ORDER

24.  The intended defendant is entitled to claim proprietary interest in the ground floor of the property.  For obvious reasons, the charging order and the writ of possession should not be set aside, but the execution should be stayed, pending the determination of the court on the issues between the plaintiff and the intended defendant.

25.  As to the costs of this application, Miss Tam argues that the costs should be in the cause because if the intended defendant fails in his claim in the substantive hearing, he should not have the costs of this application. I agree with Mr. Yuen that the costs of this application should be separate from the substantive hearing, the costs of which will also follow the event.  Although the intended defendant fails to set aside the charging order and the writ of possession, I consider that very little time was spent on the discussion of these items.  I therefore order that the costs of this application, including the costs reserved and the costs of today’s hearing, with a counsel’s certificate, be to the intended defendant, to be summarily assessed by means of the intended defendant filing and serving the schedule of costs on the plaintiff within 7 days from the date of this order and the plaintiff be at liberty to file and serve the objection within 7 days thereafter.  The costs will be summarily assessed on paper unless otherwise directed.  This costs order nisi shall be absolute unless an application to vary it is lodged by 3 December 2012.

26.  Accordingly, I shall make an order in terms as follows:

a.  Paragraphs 1, 4, 5 of the summons dated 31 August 2012; and

b.  Costs as per paragraph 25.