MORAL LUCK FINANCE LTD v. LAW KIN LEUNG

DCMP 2062/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2062 OF 2011

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R U L I N G

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The Application

1.  This is an application taken out by Bank of Communication Co. Ltd. (“the Bank”) under Order 17 rule 1 of the Rules of District Court.  The factual background of this application is set out in the affirmation of Yeung Ming Johnny filed herein on 6 March 2013.

2.  The subject matter of this application is the title documents of Flat 17, 29/F., Choi Tin House (Block 3), Hing Tin Estate, No. 8 Lin Tak Road, Kowloon (hereinafter called “the Property” and the title documents thereof “the title documents”).  The title documents include the document set out in “JY-2” of the said affirmation of Mr. Yeung, together with the Discharge hereinafter mentioned.

3.  At the material time, the Defendant (“Mr. Law”) was the registered owner of the Property and by a Legal Charge dated 27 March 2002 (M/N UB8653611 hereinafter called “the Charge”), the Property was charged by Mr. Law to the Bank as security for a loan of $200,000.  Upon execution of the Charge, the title documents were delivered to the Bank.

4.  According to the affirmation of Mr. Yeung, the loan has been repaid some time ago.  Upon discharge, the Bank should return the title document to Mr. Law.  But for reason unknown to the Bank, the Defendant did not take out the formalities in discharging the Charge.  The title documents remain with the Bank.

5.  The Bank has no interest in the title documents as the loan has been repaid.  But 4 parties claim entitlement to the title documents as hereinafter explained.  The Bank applies under Order 17 for leave to deposit the title document with this Court for the claimants to show their case.  I first refer to some factual background which is necessary for my determination.

Background

6.  It is helpful to set out the relationship of these 4 claimants, and how they come to claim interest in the Property and/or the title documents.

7.  One of the claimants is the Plaintiff (“Moral Luck”) which is a moneylender and it has lent $30,000 to the Defendant.  The loan has not been repaid and Moral Luck started DCCJ 736/2011 to recover the loan and interest.  Default Judgment had been obtained and Moral Luck further obtained a charging order absolute against the Property on 29 July 2011(“the Charging Order”).

8.  By DCMP 2062/2011, Moral Luck applied to enforce the Charging Order by an order of sale.  Order of sale had been granted by Master T. Chan (as she then was) on 20 October 2011 together with an order for possession (“the Order of Sale”).  And it is provided in the order that the Plaintiff may sell the Property by private treaty or public auction in the open market after paying the premium to the Housing Authority at a price not less than $1,950,000 or in the secondary market at a price not less than $1,000,000.

9.  Pursuant to the Order of Sale and by a provisional agreement dated 19 January 2012, Moral Luck agreed to sell the Property to Madam Wong Wai Ha (“Madam Wong”) for the consideration of $1,950,000. 

10.  After possession of the Property has been obtained by the Plaintiff through bailiff in January 2012, Madam Cheung Kwai Yin (“Madam Cheung”), the wife of Mr. Law applied to this Court for, firstly, an injunction to restrain sale of the Property, and secondly for an order to appoint her as the guardian ad litem for the Defendant (on the ground that he is a mentally incapacitated person) and to set aside the default judgment Charging Order and Order for Sale.  This application came before me in February 2012 and it was partly resolved when the Plaintiff undertook to withhold completion of the sale under the said provisional agreement. 

11.  The application of Madam Cheung has been dismissed.  (I do not repeat my judgment given on 25 October 2012.)  And the default judgment, the Charging Order and Order of Sale have not been set aside. 

12.  On or about 2 January 2013, Madam Cheung applied for leave to appeal against my decision, and for stay of execution.  I refused her application.  (I do not repeat my written ruling given on 23 April 2013.) 

13.  And after my rulings, the sale to Madam Wong was completed.  In relation to the sale of the Property to Madam Wong, the following facts appear in her affirmations and are not disputed

	a.	Madam Wong paid $80,000 as initial deposit upon signing of the provisional sale and purchase agreement;
	b.	On 30 January 2012, Madam Wong paid further deposit of $115,000;
	c.	On 30 January 2012, Madam Wong paid further deposit of $115,000;
	d.	On 2 November 2012, Madam Wong signed a third supplemental agreement to postpone the completion date to 4 February 2013 or 7 days after issuance of the Notice of Premium Assessment by Housing Authority;
	e.	Sale of the Property was completed on 8 February 2013 when balance was paid.

14.  I also note that on 31 January 2012, Mr. Law and Madam Cheung issued a new action in the District Court, being DCCJ 303/2012, against Moral Luck and Madam Wong.  I note that in the title, Madam Cheung stated that she sued as guardian ad litem.  It is not clear if Madam Cheung also brings the action in her personal capacity.  No statement of claim has been filed and according to the endorsement of claim, the plaintiffs Mr. Law and Madam Cheung seek, inter alia, a declaration that the provisional agreement between Moral Luck and Madam Wong is null and void.  And under prayer 4, they seek a declaration that the 2^nd Plaintiff is entitled to the legal, beneficial and equitable interest in the Property.  No particulars of the basis of the claim are given.

15.  A copy of the writ has been registered in the Land Registry against the Property on or about 31 January 2012.  It is not disputed that this writ has not been served and the validity has expired. 

Facts leading to the interpleaders application

16.  Around 21 December 2012, solicitor for Moral Luck wrote to the Bank requesting for the title documents on the ground that they have obtained the Order of Sale.  The exchange of correspondence has been produced and I do not need to go into the details.  It is the Bank’s position that they are reluctant to release the title documents to Moral Luck without the consent of Mr. Law.

17.  Around 1 February 2013, Messrs. Kok & Ha acting for Mr. Law wrote to the Bank asking for all the title documents to prepare the Discharge for the Property.  The Bank had been informed by Moral Luck that Mr. Law claimed to be a mentally incapacitated person in this action and they were reluctant to send over the title document before the mental capacity of Mr. Law is clarified.

18.  And around 4 February 2013, the Bank also received a letter from Messrs. Paul W. Tse acting for Madam Cheung.  They alert the Bank that Madam Cheung would appeal against my decision given herein and requested the Bank to withhold releasing the title documents.  By letter dated 5 February 2013, the Bank agreed to withhold releasing the title documents.

19.  Madam Cheung now claims to have a beneficial interest in the Property which I would come to later herein.  This claim is not set out in the letter of Messrs. Paul W. Tse to the Bank and has not been raised in these proceedings before.

20.  And around 15 February 2013, the Bank received a further request from Messrs. Kenneth C. C. Man, solicitors for Madam Wong, who claims to be the new purchaser and registered owner of the Property. Madam Wong asked the Bank to release the title documents to her.  An assignment dated 4 February 2013 is produced which shows that Moral Luck relies on the Order of Sale to sell and assign the Property to Madam Wong.

The Claim of Madam Wong

21.  By a Summons taken out by Madam Wong’s new solicitor, Messrs. Deannie Yew & Associates, and her affirmation filed on 18 April 2013, she applies to be joined in the interpleaders proceedings and claims the title documents from the Bank.

22.  It is Madam Wong’s case that she has purchased the Property from Moral Luck as authorized by the Order of Sale.  The Defendant’s title to the Property is extinguished.  She as the legal owner is entitled to the title documents. 

23.  Referring to the case of Madam Cheung hereinafter mentioned, Mr. Ng also argues that there is no evidence in writing to show the creation of Madam Cheung’s interest in the Property pursuant to the so called gift.  And for her to establish proprietary estoppels, she has not adduced evidence to show that Mr. Law promised to give her an interest in the Property.  The essence of proprietary estoppels is the conduct of the legal owner has so conducted himself that the claimant believes he has, or will obtain some right in the land, and he has acted to his detriment on the basis of the induced belief.  Madam Cheung only said the father of Mr. Law promised to give her an interest in the Property.

24.  Mr. Ng submits that the case is straight forward.  He invites me to summarily determine the issue under Order 17 rule 5(2)(b) and direct the title documents be given to Madam Wong.

The Claim of Madam Cheung

25.  By a Summons taken out by Messrs. Paul W. Tse, solicitors for Madam Cheung, she claims entitlement to the title documents in her personal capacity.  Mr. Wong, counsel for Madam Cheung refers me to the affirmation of Madam Cheung filed on 16 May 2013.

26.  Madam Cheung said the Property was purchased by the father of Mr. Law (“Law’s father”) in about 2002.  The Property was registered in the name of Mr. Law.  She married Mr. Law in 2007. At the time she married Mr. Law, Mr. Law’s father said to her that the Property is a gift to them for their marriage “呢間屋係送比你地結婚架喇”. Madam Cheung said it was the common intention that the Property would be held by Mr. Law and her in equal shares and she is one of the beneficial owners of the Property.

27.  Madam Cheung further said, in light of the promise, she had been responsible for various outgoings of the Property (such as rental and management fees and maintenance).

28.  In further support, Madam Cheung said in 2008, Mr. Law applied to the Housing Authority to assign the Property to himself and Madam Cheung.  This was approved by Housing Authority on or about 22 December 2008.  However, the Property was subject to the Charge and could not be assigned to Mr. Law and Madam Cheung.

29.  It is her case that notwithstanding the assignment has not been executed, she has a beneficial interest in the Property and hence a right or interest in the title documents.  Mr. Wong submits that the title documents should not be released to Madam Wong.

30.  Madam Cheung also claims that Madam Wong is not a bona fide purchaser.  She initially claims that the sale is a sham arrangement but at the hearing, Mr. Wong agrees that he only seeks to argue that Madam Wong is not a bona fide purchaser without notice of the interest of Madam Cheung in the Property.

31.  Mr. Wong submits that in view of the complexity in terms of facts and law, I should not summarily determine the issue.  The title documents should be deposited with this Court and the parties claiming entitlement should then state their respective cases and the matter should be referred to trial.

Claim of Moral Luck

32.  Moral Luck now agrees that they have no further claim to the title documents as they have sold the Property to Madam Wong pursuant to the Order of Sale.  They only claim costs of these proceedings which I would come to later.

Claim of the Defendant

33.  And for the Defendant, he is unrepresented.  He has filed an affirmation stating that he objects to the release of title documents to Madam Wong with no detailed reason.  He further said he would adopt the affirmation of Madam Cheung filed herein in support.

The Bank

34.  After the preliminary hearings, the Bank agrees to prepare the Discharge of the Property (“the Discharge”) and has deposited the Discharge together with all the title documents with the Court and/or to deliver the same to the party that this Court found should be entitled.

35.  Since the Bank has no interest, this is proper case for the title documents be deposited with the Court for interested parties to claim.

Legal Principles

36.  On whether to determine an interpleader application summarily, I refer to the judgment of Mr. Justice To given in Nanyang Commercial Bank Limited v. The Personal Representative of Vannee Nativivat, deceased and another HCMP 2027/2011:-

11.  On hearing the application, the court has wide discretion, including dismissing the application on grounds that the prerequisites in rule 1 or the formal requirements in rule 3 are not satisfied; making a summary determination of the claim; and giving direction as to the further conduct of the proceedings: rule 5 and Hong Kong Civil Procedure 2012 paragraphs 17/5/2 to 17/5/9.  Summary determination is the course most commonly taken in straightforward cases, particularly where expedition is desirable.  But if the subject matter is of considerable value and difficult questions of law may arise, summary determination is not appropriate, even if the parties so consent: Fredericks and Pelhams Timber Buidings v Wilkins, Read (Claimant) [1971] 1 WLR 1197; [1971] 3 All ER 545 (CA).

12.  A summary determination, being summary in nature, is only appropriate for clear cases to which summary judgment under Order 14 is applicable.  The legal principles applicable to summary judgment under that order are also applicable to a summary determination under Order 17.  Summary determination is therefore appropriate for cases in which there is no material factual dispute and if there is a legal issue, then no more than a crisp legal question as well decided summarily as otherwise.  The court must not embark on a mini trial on affidavits.

37.  A similar observation is made by the learned authors of the Hong Kong Civil Procedure 2013 at paragraph 17/5/4.  I agree with the able judgment of Mr. Justice To.

Discussion and Ruling

38.  To determine if the case can be summarily determined, the key is to identify the issue in dispute.

39.  Though there is a long history, most of them are background and not relevant to the determination herein.  I agree with Mr. Ng that the only issue before me is the possessory rights to the title documents.  The question for my determination is who should be entitled to have the title documents.

40.  As to the legal principle on who would be entitled to possessory right to the title documents of a property, Mr. Wong accepts that a purchaser is entitled to the originals of all title documents which relates exclusively to the Property upon completion.  He refers to De Monsa Investments Ltd v. Whole Win Management Fund Ltd [2011] 4 HKLRD 478.

41.  There is further appeal from the said judgment to the Court of Final Appeal, which is FACV 6/2012.  While this judgment has been overturned by the Court of Final Appeal, the Court of Final Appeal reconfirmed that the vendor has a duty to handover the title documents in his possession which relates exclusively to the property in issue.  This is a case on the duty of the vendor to prove his title by producing the original title documents.  This is not directly on the point as to who should have the title documents but extremely helpful.

42.  Applying this principle, when Mr. Law first became the owner of the Property, he indeed obtained the title documents from the vendor and had the possessory right to the title documents.  He passed on his possessory right to the Bank when he executed the Charge, possibly as co-lateral security.  Without the action, when the Charge is discharged, the title documents should be returned to him.

43.  The first issue I would consider is whether the right of Mr. Law to the title documents has been varied, as at today.

44.  It must be noted that upon granting of the Order of Sale, Mr. Law is also ordered to do all act necessary to transfer the title of the Property to the new purchaser and to obtain the necessary release of all title documents from the Bank.  Hence Mr. Law is obliged to transfer the title documents to the new purchaser.  The intention of the order is to give a perfect title to the new purchaser.

45.  If Moral Luck sells according to the Order of Sale, the interest in the Property would pass to the new purchaser. And Mr. Law is obliged to pass the title documents to the new purchaser.  If the title documents are being kept by his agent, as in this case by the Bank who has no interest in the title documents, he has to procure the transfer of the title document to the new purchaser.  Clearly, his possessory right to the title document is governed by the Order for Sale.  The Order of Sale has not been set aside and should be complied.

46.  Mr. Ng submits that Mr. Law’s entitlement to the title documents is extinguished upon sale of the Property to Madam Wong.  I agree that unless it could be established that there is no sale to Madam Wong under the Order of Sale, the Defendant’s claim to the title document must fail.

47.  Mr. Law has not raised any arguable case.  Understandably, Mr. Law being unrepresented has not raised any argument why the title documents should not be released to Madam Cheung.  I take it that he adopts the argument of Madam Cheung.

48.  It is the argument of Mr. Wong that Madam Wong is not a bona fide purchaser without notice of the interest of Madam Cheung.  I come first to look at the argument and see if a triable issue is raised or is there any reason for the argument be set down for trial.

49.  Mr. Wong argues that the burden rest on Madam Wong to prove that she is a bona fide purchaser.  It is not disputed that the Property was sold by private treaty and not by auction.  But this mode of sale is permitted by the Order of Sale. 

50.  The undisputed fact is Madam Wong acquired the Property from Moral Luck who sold the Property according to Order of Sale.  The assignment has been registered and produced.  And there is no dispute that Madam Wong paid the purchase price.  I fail to see what other matter she has to show that she is a bona fide purchaser.  It would be for Madam Cheung, and/or Mr. Law to show there is any arguable issue that Madam Wong is not a bona fide purchaser. 

51.  In the written submission, Mr. Wong claims that the sale to Madam Wong is a sham.  On submission, Mr. Wong does not relying on the argument that the sale is a sham arrangement anymore. 

52.  Madam Cheung sets out in her affirmation the following facts and said Madam Wong is a related person to Moral Luck.  I asked Mr. Wong if “related person” is a legal concept and he agrees that it is not.  And he submits all he wants to prove at trial is that the sale to Madam Wong is suspicious, or not bona fida.  He refers to the affirmation of Madam Cheung, that

	a.	The sole direction of Moral Luck is Mr. Jason Ip.
	b.	Mr. Jason Ip and one Ip Chi Man are the shareholders and directors of Timemark Investment Limited.
	c.	Ip Chi Man and Lam Chak Sun are the shareholders and directors of Intell Finance and Mortgage Limited.
	d.	Intell Finance and Mortgage Limited and Timemark Investment Limited have the same registered office at Flat G, 4/F, Prince Edward Building, which is also the residential address of Mr. Jason Ip.

53.  Mr. Wong pointed out that there is some common address between the above three companies.  But there is no suggestion that Madam Wong has any interest in these companies.

54.  Madam Cheung further says that Mr. Lam Chak Sun and Madam Wong are the directors of Dream Optical City Limited, and Dream Group Limited.

55.  The only link between Dream Optical City Limited and Dream Group Limited with Moral Luck is that they are appointed one Wisdom Business Services Limited as company secretary.

56.  Madam Cheung claims that by reason therefore, Madam Wong and Moral Luck are related and not a bona fide purchaser.

57.  As analysed above, Madam Wong is not a shareholder or director of Moral Luck.  The fact that Dream Optical and Dream Group had the same company secretary is not sufficient to suggest that Dream Optical and Dream Group are related company of Moral Luck or raise any reasonable suspicion that suggest Madam Wong is not a bona fide purchaser. 

58.  Mr. Wong also argues that it is unusual for a purchaser to buy a property without title document, and without inspection.  The evidence to establish that Madam Cheung is not a bona fide purchaser is flimsy.  Taking all the submission, I am not convinced that there is any reasonable argument or triable issue that Madam Wong is not a bona fide purchaser.

59.  Further, Mr. Wong seeks to establish that, even if she is a bona fide purchaser, Madam Wong has knowledge of the equitable interest of his client and therefore she holds the Property subject to the right of Madam Cheung.  But what is the claim of Madam Cheung?

60.  Madam Cheung claims to be entitled to some beneficial interest in the Property as a gift from Law’s father as mentioned above.  Mr. Wong argues that, though the gift is not completed, she had contributed to the outgoings of the Property.  Mr. Law and/or his father would be estopped from denying that she should be entitled to some beneficial interest in the Property. 

61.  Mr. Wong argues that Madam Wong would have constructive notice of the right of Madam Cheung as Madam Wong did not inspect the Property, or the title documents before completion.  Mr. Wong refers me to the case of Wong Chim Ying v. Cheng Kam Wing CACV 75/1990.  He said Madam Wong has not inspected the Property and she would be imputed with knowledge of the beneficial right of Madam Cheung.  For reason following, I do not have to consider at length the case of Wong Chim Ying save that I do not agree the principle of constructive notice is applicable to this case.

62.  Mr. Wong further argues that Madam Wong would have actual or implied knowledge of the Writ filed in DCCJ 303/2012.  The writ has been registered in the Land Office and Madam Wong or her solicitors should have searched the record before completion.  She should be imputed with knowledge of the contents of the writ and the beneficial interest of Madam Cheung.  Again, I do not have to consider this argument for reason following.  But I should note that the statement of claim has not set out the basis of the claim of Madam Cheung.

63.  Mr. Ng submits that Madam Cheung’s claim on proprietary estoppels is misconceived.  The essence of proprietary estoppels is that the legal owner has so conducted himself to make the claimant believes that he/she has some rights in the property, and he/she acted to his/her detriment on the basis of the induced belief.  I agree.

64.  Mr. Ng submits that the promise of gift to Madam Cheung come from Law’s father, according to her own evidence.  There is no evidence that Mr. Law promised to give an interest in the Property to Madam Cheung.  Even accepting that there is evidence that Mr. Law has applied to the Housing Authority to transfer the Property to the joint name of himself and Madam Cheung.  But we have no evidence on the reason for making this application.  And it is never the case of Madam Cheung that Mr. Law promised to give her an interest. 

65.  It is not clear if the father retains any interest in the Property when he promised Madam Cheung an interest in the Property as alleged, as the Property was registered in the name of Mr. Law.  It is for Madam Cheung to state clearly if the father retains any right to the Property before she could argue the claim of gift and proprietary estoppel.  Since she has not set out the essential element of her claim, she does not begin to have an arguable case of proprietary estoppels to establish her interest in the Property.

66.  I agree with the submission of Mr. Ng that there is no reasonably arguable case that Madam Cheung having an interest in the Property as stated in her affirmation.  And it follows that the question of notice is of no assistance.  Her claim to the title documents is bound to fail.

67.  Further and in the alternative, the issue whether Madam Cheung has a beneficial interest in the Property is not an issue that affects my determination on who is entitled to the title documents.  Assuming for a moment that Madam Cheung has a right as claimed, would it affect the right of Moral Luck to sell the Property?  The answer is “no” for the following reason.

68.  Assuming Madam Cheung is entitled to claim an interest in the Property on proprietary estoppels against Mr. Law and the father.  But the right of Moral Luck to sell the Property stem from the Charging Order.  According to the Rules of District Court, the applicant has to serve notice on all occupiers and it is for the occupier to appear in Court to state their right.  No allegation of irregularity on obtaining the Charging Order has been raised.  Madam Cheung has not appeared in Court to claim her right or oppose the Charging Order.  She cannot now claim her interest against Moral Luck without first applying to set aside the Charging Order.  Indeed, she has not taken any action to set aside the Charging Order.  And as mentioned above, validity of the writ issued in DCCJ303/2012 has expired.

69.  When Madam Wong purchased the Property, she purchased it from Moral Luck who sold pursuant to the Order of Sale.  By the order, and pursuant to the common law principle that purchaser is entitled to title documents, she should be provided with the title documents. And as analysed above, Mr. Law is obliged to handover, or assist in the handing over of title documents.   

70.  Before Madam Cheung could set aside the Charging Order and Order of Sale, and seek a declaration of her right, Madam Wong would still be entitled under the Order of Sale to have possessory right to the title documents.  Hence the claim of Madam Cheung would not affect the right of Madam Wong to be the legal owner of the Property and to have the title documents.

71.  I need only repeat, I am to determine the possessory right of the title documents.  And I see no reason why the Order of Sale should not be complied with. 

72.  Mr. Ng, counsel for Madam Wong submits that the claim by Madam Cheung for beneficial interest in the Property on the ground of proprietary estoppels is barred by the principle of res judicata. Madam Cheung has elected to pursue the Defendant’s claim for setting aside the Order of Sale as the Defendant’s guardian ad litem.  Such application conflict with her claim for proprietary estoppels.  Having elected to apply to act as guardian ad litem of Mr. Law, it lies ill in her mouth to have a second bite of the cherry by dressing up herself a claimant for proprietary estoppels.

73.  I do not have to go into such argument as the above finding is sufficient to allow Madam Wong to have the title documents.  Anyway, this is not the venue to determine any claim by Madam Cheung to any interest in the Property against Mr. Law and/or Law’s father.

74.  The Bank has deposited the title documents to this Court under the interpleader proceedings.  In summing up, I conclude that the application can be and shall be summarily determined.  And with the above analysis, the title documents shall be released to Madam Wong, the new purchaser of the Property in compliance of the Order of Sale.  I therefore direct the title documents be released to Madam Wong.

75.  And for costs of Madam Wong in this application, I see no reason why cost should not follow the event.  Her application is contested by Madam Cheung and Mr. Law.  I would therefore grant an order nisi that Madam Cheung and Mr. Law shall jointly and severally bear the costs of Madam Wong in these proceedings, such costs to be taxed if not agreed.  I would also certify that this application is fit for counsel.

76.  As for the Bank, they should be indemnified for their costs.  This case is different from cases when the subject matter is cash, when the usual costs order is for the Bank to retain its costs before payment in.  In this situation, I would give an order nisi that the Bank shall recover the cost herein from Mr. Law and Madam Cheung. 

77.  I am not minded to award any costs to Moral Luck as when the Bank took out these proceedings, they have no further interest in the title documents.  They attendance is not required.  I make no order in favour of Moral Luck.

78.  I believe I covered all issues and I thanks counsels for their able assistance.

( R. Yu )   District Judge