WELLMAKE INVESTMENTS LTD v. CHAN YIU TONG

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Land Registration Ordinance of Hong Kong is a piece of legislation of respected antiquity in Hong Kong's legal history, being the 3rd of the 4 ordinances passed on 28th February 1844 by the then newly constituted Legislative Council of Hong Kong. According to the article "The Land Registration Ordinance of Hong Kong: Historical and Legal Aspects" (Hong Kong Law Journal, 1974, Volume 4, page 242) by Mr. W.K. Thompson who was the Registrar General of Hong Kong from 1958 to 1969, the Land Registration Ordinance (hereinafter referred to as the "Ordinance") is the oldest legislation on the statute book of Hong Kong. This Ordinance is the subject matter of the present dispute between the Plaintiff and the Defendant in this Action.

2. By a Tenancy Agreement dated 3rd October 1992 ("the Tenancy Agreement") the premises at Ground Floor of No. 609 Tai Nan West Street, Kowloon ("the Property") registered at the Land Office was let to the Defendant for 3 years from 29th September 1992 to 28th September 1995 at the monthly rent of $45,000 per month together with an option to the Defendant to renew for a further term of 2 years upon the expiration of the 3 years at the monthly rent of $56,250. For the sake of convenience I will hereinafter refer to the part of the Tenancy Agreement granting the right of option to the Defendant as the "Option Agreement". Unfortunately, neither this Tenancy Agreement nor its part, the Option Agreement was immediately or shortly after execution registered in the Land Office. The failure to register the Tenancy Agreement by the Defendant until when it was too late, is the main cause of this dispute which the Court now has to resolve.

3. Some 16 months after the execution of the Tenancy Agreement, the Plaintiff as undisclosed principal, by its agent Super Champ Properties Limited (hereinafter referred to as "the Agent") agreed by a Sale and Purchase Agreement dated 7th February 1994 ("the Purchase Agreement") with the owner Kwok Kow to purchase the Property for the sum of $15 Million. Clause 6 of the Purchase Agreement provides that the Property is sold subject to the existing tenancies particulars of which are set out in the Schedule of the Purchase Agreement and that Schedule of the Purchase Agreement sets out amongst other details the option granted to the Defendant for a two year term at the rent of $56,250. This Purchase Agreement was registered on 16th February 1994.

4. Pursuant to the right given under the Purchase Agreement for the Agent to nominate the person to take the assignment of purchase, on 8th August 1994 the Agent (as Nominator) together with its principal, the Plaintiff (as Beneficial Owner) executed a Nomination Agreement, whereby the Agent gave notice to the owner Kwok Kow that the Plaintiff was the true principal under the Purchase Agreement having provided the deposit money paid for the purchase and that the Agent nominated the Plaintiff to take up the Assignment and declared that the Plaintiff should have all the rights of the owner in the Property and that the Agent renounced to the Plaintiff all rights to the Property and/or under the Purchase Agreement. This Nomination Agreement was registered on the 31st of August 1994. Shortly before this registration, the Tenancy Agreement was registered at the Land Office on 4th August 1994.

5. On 8th August 1994, the Plaintiff completed the purchase of the Property and paid the balance of the purchase price to the owner, Kwok Kow. The Property was assigned by Kwok Kow the owner directly to the Plaintiff by an Assignment dated 8th August 1994 ("the Assignment"). The Assignment was expressed as being subject to the existing lettings and tenancies. This Assignment was registered on the 31st August 1994.

6. After the Plaintiff became owner, the Defendant continued to stay on as tenant and the Plaintiff accepted the Defendant as the tenant under the Tenancy Agreement for the remaining period up to the end of the 3 year term. There was however considerable exchange of correspondence between the two sets of solicitors as to whether the Plaintiff was bound by the Option Agreement with each side maintaining a different view of the law. On 20th March 1995 the Plaintiff gave formal notice to the Defendant to quit the premises at the end of the 3 years period namely on 28th September 1995 as the Plaintiff wanted to redevelop the Property. The Defendant did not quit and this Originating Summons was issued on 29th September 1995, in which the Plaintiff asked for possession, a declaration that the Option Agreement is null and void against the Plaintiff and for mesne profits and damages.

7. At the hearing before me, three issues were canvassed, two by Mr. Mok for the Plaintiff and one by Mr. Chan for the Defendant. Mr. Mok contends firstly that the Privy Council decision of Markfaith Investment Ltd. v Chiap Hua Flashlights Ltd. [1991] 2 A.C. 43 makes it clear that as provided by section 3(2) of the Ordinance, the prior registration of the Purchase Agreement makes the Option Agreement void against the Plaintiff purchaser. His second point is that in any event, the lack of a reference to or an entry about the option in the Memorial of the Land Registry renders the registration of the Tenancy Agreement ineffective. For the Defendant, Mr. Chan makes simply one bold point which he submits is an answer to both points of Mr. Mok and his "killer" point is that because the Purchase Agreement and the Assignment were both expressed to be subject to the Option Agreement, the Purchase Agreement and the Option Agreement were not in conflict and that there was no necessity for the Option Agreement to be registered and the Plaintiff is therefore bound by the Option Agreement. Mr. Chan contends that his submission is borne out by the Markfaith judgment and is not contrary to it.

8. In order to properly understand what the Privy Council was being asked to decide it is necessary to first study the relevant provisions of the Ordinance. The Preamble of the Ordinance recites that the Ordinance is "to provide for the registration of deeds, conveyances, judgments and other instruments affecting real or immovable property, the keeping of Land Registry records, and for other matters relating to land registration". Section 2(1) of the Ordinance provides:-

"The Land Registry shall be a public office for the registration of deeds, conveyances, and other instruments in writing, and judgments, and all deeds, conveyances, and other instruments in writing, and all judgments, by which deeds, conveyances, and other instruments in writing, and judgments, any parcels of ground, tenements, or premises in Hong Kong may be affected, may be entered and registered in the said office in the prescribed manner."

Section 3 of the Ordinance provides:-

Section 4 of the Ordinance provides:-

"No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered."

9. It is to be noted from the above cited provisions of the Ordinance that the Ordinance is concerned only with documents relating to or affecting land and not concerned with interest in land. The registration is of documents and not of interests created by documents. Section 3(2) which is the key provision, said to be the special provision of this legislation, makes all documents not registered void against the purchaser. This is the provision of the Ordinance which is the subject of critical analysis by the Privy Council in Markfaith which is relied on by Mr. Chan as being either in support of his submission or at the least not contrary to his "killer" point.

10. As the point raised by Mr. Chan is vital to the outcome of the case, it seems to me that I should give primary consideration to his point and to ascertain whether a fair reading of the Markfaith judgment supports his submission.

11. The case of Markfaith has the same element as in this case of dispute as to the binding effect of an option in a tenancy agreement. There it was the purchaser who refused to complete and accept an assignment of the vendor expressed to be subject to the existing letting and tenancies on the basis that the purchaser would be bound by the unregistered option. The vendor regarded the non-completion as a repudiation of the contract and sued for forfeit of the deposit and damages. At first instance Mr. Justice Godfrey decided against the purchaser on the basis that the purchaser had accepted the title and that even if the option might have rendered the title defective, there was waiver by the purchaser. When the case went to the Court of Appeal, an additional but different point was taken for the first time by the vendor namely that in any event, by reason of the non-registration of the option, the purchaser would not be bound by the option as it was void against the purchaser. This point succeeded in the Court of Appeal. The Privy Council dismissed the appeal of the purchaser and held against the purchaser on the basis that non-registration of the option by the tenant rendered it unenforceable and void against the purchaser. It is clear from the Law Report which sets out in considerable detail the arguments of counsel that the very point raised by Mr. Chan now before me was canvassed before the Board in the course of the 6 days hearing and was rejected by the Privy Council.

12. The rejection of the argument by the Privy Council can be clearly seen from the following passage of the speech of Lord Templeman at page 59D-H where he said:-

After saying at page 61H that the terms of assignment was irrelevant, Lord Templeman drove home the point and put it beyond argument where at page 63B-F, he said:-

13. The point was clearly decided by the Privy Council and the authority of Markfaith is binding on me and on the Hong Kong Court of Appeal on the very point of the effect of Section 3(2) of the Ordinance. It applies directly to this case. Transposing somewhat the words of Lord Templeman cited above, I can say that section 3(2) of the Ordinance is a special provision of legislation which rendered this Option Agreement contained in the unregistered Tenancy Agreement void against the Plaintiff as soon as the Plaintiff through its Agent registered its Purchase Agreement on 16th February 1994. The Assignment was not apt to create a new obligation by the Plaintiff to the Defendant and the terms of the Assignment between the Plaintiff and the owner (not between the Plaintiff and the Defendant or between the Defendant and the owner) is simply irrelevant. In my view, the Assignment would have been carried into effect, as being subject to the Tenancy Agreement (containing the Option Agreement) if this instrument was properly registered in time but it was not and it was due to its nonregistration that section 3(2) has its operation under the Ordinance.

14. It is clear to me that Mr. Chan's submission is based on a misreading of the Markfaith judgment and rather that the Markfaith judgment supports his contention, a careful reading of the Markfaith judgment will show that it is fatal to his submission and that it wholly supports the submission made by Mr. Mok. In the circumstances, the "killer" point of Mr. Chan fails and the section 3(2) point of Mr. Mok succeeds.

15. Having reached this conclusion, it is unnecessary for me to consider the second and subsidiary point of Mr. Mok, namely the failure to specify in the Memorial the Option Agreement renders the registration of the Tenancy Agreement bad. As the point raised is of considerable general importance, touching on the interpretation of provisions of the Ordinance and the Land Registration Regulations and the binding effect if any of Fast Forward Ltd. v Magicsound Co. Ltd. & Others [1991] 2 HKLR 529 on the interpretation of these provisions, I take the view that I should refrain from embarking on a full consideration of this question unless I found it necessary to do so. As I have said I do not find it necessary to do so. In declining to go fully into this question, I take into account that in this case I have not heard full or proper arguments from the parties on:-

16. In the circumstances for the reasons given earlier, I must give judgment to the Plaintiff on the main reliefs sought of possession, declaration and mesne profits. I will hear parties on the form of the Order I should make and any matter arising out of this Judgment.