MINIMAX CO. LTD. v. TSO YAN and Another

1997 M.P. No. 3730

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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By originating summons dated 5th November 1997, the Plaintiff sought the following relief against the 1st and 2nd Defendants:

1. As against the 1st Defendant

(a) An order for specific performance of a Sale and Purchase agreement dated 27th August 1997 and made between the Plaintiff as the purchaser and the 1st Defendant as the vendor relating to property in Blue Pool Mansion in Holly Road and Sing Woo Road ("the Plaintiff's agreement")

(b) Damages

(c) Such further or other relief as is just

(d) Costs.

2. As against the 2nd Defendant

(a) An order that the Registration of a Provisional Sale and Purchase Agreement and made between the 1st Defendant as the vendor and the 2nd Defendant as the purchaser and made on 18th August 1997 ("the 2nd Defendant's agreement") be vacated

(b) Damages

(c) Such further or other relief as is just

(d) Costs.

By Consent Order dated 10th June 1998, inter alia, it was ordered that the Plaintiff's agreement be specifically performed and carried into execution on/or before 24th June 1998.

The issue.

According to Mr. Chong Counsel for the Plaintiff and to Mr. Lam counsel for the 2nd Defendant, the issue was whether at the time of the commencement of these proceedings on 5th November 1997, the Plaintiff was entitled to take such proceedings for an order to vacate the registration of the 2nd Defendant's agreement with the Land Registry.

I am indebted to Mr. Chong for helpfully providing me with a chronology of material events.

Chronology

The argument

On 11th June, Mr. Chong, counsel for the Plaintiff, argued as follows:

1. Since the registration of the 2nd Defendant's agreement had been unconditionally withdrawn in February 1998, no order was being sought by the Plaintiff against the 2nd Defendant except an order for costs in respect of that vacation.

2. The 2nd Defendant had at no time any interest in the property entitling her to register her agreement. That by the date of the 2nd Defendant's agreement the 1st Defendant no longer had any beneficial interest in land to sell, he having disposed of that interest to the Plaintiff by virtue of the Plaintiff's agreement, albeit that that agreement had not proceeded to completion. See Ng Kam-ha v. Vincent Sina Traders (H.K.) Ltd. [1985] HKLR 1193.

3. The registration of the 2nd Defendant's agreement cannot affect the Plaintiff's agreement since it was not registered within one month and was registered after the Plaintiff's agreement had been registered.

4. Since the interest created under the 2nd Defendant's agreement was, insofar as it affected the Plaintiff, "absolutely null and void to all intents and purposes" the Plaintiff was entitled to apply for the vacation of the registration of the 2nd Defendant's agreement.

5. By way of alternative, Mr. Chong sought to argue that by obtaining a Mareva Injunction to restrain the 1st Defendant after the completion of the sale and purchase under the Plaintiff's agreement as security on account of damages, the 2nd Defendant had made a conclusive election to pursue one of her two alternative claims and that by so doing, she had abandoned her claim for specific performance in favour of a claim for damages (see Morel v. Westmorland [1903] 1 KB at 77 and Bonus Garment Co. (a firm) v. Karl Rieker GmbH & Co. KG & Anr. [1995] 3 HKC 721 CA).

Having done that, so Mr. Chong argued, the registration of the 2nd Defendant's agreement could no longer be sustained. (see Anstalt Nybro v. Hong Kong Resort [1980] HKLR 76 PC at p.82 and Wong Kwok Chiang & Ors. V. Longo Construction Ltd. [1987] 3 HKC 34 at para.39A-E and Wong Kwok Chiang & Ors. V. Wai Hing Construction Co. [1987] 3 HKC 41 CA at pp.44G-45A)

In response to those arguments, Mr. Lam, counsel for the 2nd Defendant submitted as follows:-

1. The argument that by agreeing to sell the property to the Plaintiff, the 1st Defendant no longer had any beneficial interest in the property and was thus unable to pass any interest in land to the 2nd Defendant is unsupportable. He submitted that the judgment in Chu Kit Yuk & Anor v. Country Wide Industrial Ltd. & Ors [1995] 1 HKC 363 makes it perfectly clear that when a vendor agrees to sell property to two different people two competing equitable interests are created.

2. The case of Ng Kam-ha is not an authority for the proposition advanced by Mr. Chong. On the contrary, the 1st Defendant in the present case has not even up to the date of this trial, disposed of the property by assignment to the Plaintiff. In other words, the conveyancing transaction has not been completed. Indeed, by implication argues Mr. Lam, the case of Ng Kam-ha supports his argument that before completion (by assignment) of the Plaintiff's transaction other equitable interests in the property can be created and in this case were created by the 2nd Defendant's agreement.

3. The fact that the 2nd Defendant's agreement was not registered within one month of its execution simply means, in accordance with S.3(1) of the Land Registration Ordinance (Cap. 128) that there can be no "relating back" effect. But that does not mean that the registration has no effect at all. Mr. Lam accepted that because there was no "relating back" effect, the Plaintiff's interest in the property plainly took priority over that of the 2nd Defendant but that did not mean that the 2nd Defendant had no interest in the property at all. Up until completion of the Purchaser's transaction the 2nd Defendant had a competing interest which ranked after that of the Plaintiff.

5. Mr. Lam went on to submit that if the 2nd Defendant had not registered her agreement then in accordance with S.3(2) of Cap. 128 it would have been "absolutely null and void to all intents and purposes" as against a subsequent purchaser or mortgagee, and that is why she was obliged to register and why she refused to vacate prior either to the completion of the Plaintiff's transaction or to the 1st Defendant settling the matter to her satisfaction.

6. Mr. Lam then took issue with Mr. Chong's argument that by applying for the Mareva Injunction, the 2nd Defendant had made a conclusive election as to one of her two alternative claims, in other words that she had elected not to proceed for specific performance but to proceed for damages.

He argued that the reason for the application for the Mareva Injunction was to ensure that if the 1st Defendant completed his transaction with the Plaintiff (and this was looking increasingly doubtful) then the 2nd Defendant's claim in damages would be secured. If on the other hand the 1st Defendant failed to complete with the Purchaser then the option of seeking specific performance of the 2nd Defendant's agreement was still open to her.

Mr. Lam argued that in those circumstances the application for the Mareva Injunction could not possibly be considered as a conclusive election for the claim of damages but no more than a means to protect the 2nd Defendant's interest in the event that the Plaintiff did complete its transaction.

Referring me then to the cases of Morel v. Westmorland and Bonus Garment Co. v. Karl Rieker, Mr. Lam pointed out that in both, when a party obtained judgment in relation to one of two or more alternative claims then it had abandoned the other claim(s); and that in Bonus Garment, emphasis was laid upon the obtaining of judgment it being expressed as "being a step of such consequence that it must upon the authorities be taken as conclusive election by the Plaintiff". An application of both of those authorities to the present action, suggests Mr. Lam, could not result otherwise than in a finding that only on 23rd February 1998 when the 2nd Defendant elected to enter judgment for damages against the 1st Defendant did she abandon her claim for specific performance and, prior to that, she had not conclusively elected one way or the other.

7. Finally, Mr. Lam submitted that even after 23rd February 1998, only the 1st Defendant (and not the Plaintiff) could properly apply for the vacation of the registration of the 2nd Defendant's agreement. Bearing in mind that the Plaintiff and the 1st Defendant still have not at the date of this trial completed the conveyancing transaction, Mr. Lam suggests that it is at least questionable whether the Plaintiff had sufficient interest in the property to apply for vacation.

Conclusions

1. The registration in the Land Registry of the 2nd Defendant's agreement having been specifically withdrawn on 28th February 1998 this action now concerns only the question of costs. It is a great pity that no accommodation could be reached between the parties on or shortly after 28th February, the Plaintiff having achieved what it wanted to achieve. The costs of this action have undoubtedly escalated between that day and the day of trial.

2. By the actions of the 1st Defendant, the 2nd Defendant was placed in an invidious position. She agreed to purchase the property from the 1st Defendant presumably unaware of the fact that the 1st Defendant had already agreed to sell it to the Plaintiff. By virtue of her sale and purchase agreement with the 1st Defendant, the 2nd Defendant acquired an interest in the property. She registered that interest with the Land Registry. The Plaintiff sought to get the 2nd Defendant to vacate that registration. The 2nd Defendant was quite happy to vacate it provided that the sale to the Plaintiff proceeded to assignment and completion. It did not do so and indeed it has not yet done so albeit that by the Consent Order of 10th June made between the Plaintiff and the 1st Defendant completion is now anticipated within weeks.

3. The 2nd Defendant had a choice. Either she could seek specific performance of her sale and purchase agreement with the 1st Defendant or she could proceed against the 1st Defendant for damages. She accepted that the Plaintiff had priority in respect of the Plaintiff's purchase of the property and that therefore she could not seek specific performance unless and until the transaction between the Plaintiff and the 1st Defendant fell through.

4. The 2nd Defendant commenced proceedings against the 1st Defendant for damages. That did not, however, in my view, preclude her (should the sale to the Plaintiff fall through) from pursuing a claim for specific performance against the 1st Defendant at any time up until her claim for damages was resolved. When that claim was resolved the 2nd Defendant vacated the registration of her agreement with the 1st Defendant

5. In my view, the 2nd Defendant has been blameless throughout these proceedings. She has from the very beginning admitted the priority of the Plaintiff. She specifically promised the Plaintiff that she would waive her claim to specific performance against the 1st Defendant provided that the Plaintiff should proceed to complete its purchase. She had not at any stage prior to February 1998 categorically refused to vacate the registration: but she refused to vacate "for the time being" as on 30th October 1997 when the Plaintiff had not completed its purchase with the 1st Defendant. As soon as that she had elected to enter judgment for damages against the 1st Defendant, the 2nd Defendant indicated to the Plaintiff through her solicitors, that she would not seek to re-register her agreement with the 1st Defendant.

6. Had the Plaintiff commenced its action to get the 2nd Defendant to vacate the registration after it had completed its purchase of the property from the 1st Defendant, then the Plaintiff would undoubtedly have succeeded, as at that time the 2nd Defendant's interest in the property would have been totally extinguished. That was not however the case, because as I have said more than once in this judgment even at the date of trial the purchase by the Plaintiff from the 1st Defendant had not been completed. The Plaintiff commenced its action against the 2nd Defendant whilst the latter had a very real interest in the property which interest was both registerable and registered. She was under no obligation to vacate that registration at the suit of the Plaintiff whilst the possibility existed that the Plaintiff might not be able to complete its purchase and whilst she had not settled her claim against the 1st Defendant for damages.

7. In all of these circumstances, the Plaintiff's claim for costs against the 2nd Defendant in respect of the 2nd Defendant's vacating of the registration must fail. In my view the claim against the 2nd Defendant is misconceived. Had it been made against the 1st Defendant who created the difficulty in the first place by purporting to sell the property twice then the position might be very different.

8. I make an order nisi that the Plaintiff do pay the costs of the 2nd Defendant in this action. Such costs to be taxed if they cannot be agreed.

(C.G. Jackson)

Deputy Judge of the Court of First Instance