NANYANG FINANCE CO LTD v. CHAN KWOK WING

CACV 125/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 125 OF 2003

(ON APPEAL FROM HCMP NO. 2227 OF 2002)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of Chung J given on 5 May 2003. The application before the judge was the hearing of a vendor and purchaser summons whereby the plaintiff sought a declaration, as the vendor of Flat C on the 4th floor of Block 2, Lynwood Court, Kingswood Villas, Tin Shui Wai ("the property"), that it had shown and proved good title to the property in accordance with the sale and purchase agreement and that it was entitled to rescind that agreement and had effectively done so. The plaintiff also claimed a declaration that it was entitled to forfeit the deposit in the sum of HK$108,000 which had been paid. The judge dismissed the plaintiff's claim and ordered the return of the deposit together with interest and costs in favour of the defendant. At the conclusion of the hearing of this appeal, judgment was reserved.

Background

2. The plaintiff was the mortgagee of the property under a mortgage registered on 20 August 1996. On 20 May 2000 the mortgagor's wife, Cheung Sau Ying, ("the wife") registered, as a charge against the property, a sealed copy of Form 8 Notice of Application for Ancillary Relief. The Form 8 notice makes clear that the wife was the petitioner in a Matrimonial Cause No. 3375 of 1999. On 5 June 2001 the plaintiff issued an originating summons claiming vacant possession of the property. There is no dispute between the parties that notice of that application had not been served on the wife.

3. The Form 8 application gave notice that the wife intended to apply to court not only for maintenance pending suit and periodical payments but for lump sums and "a settlement property order and/or transfer of properties order in respect of" three flats including, in particular, the property.

4. On 16 January 2002 the plaintiff, exercising its power of sale as mortgagee, entered into a preliminary sale and purchase agreement with the defendant for the sale of the property in the sum of HK$1,080,000. Completion was to take place on 18 February 2002. There is no dispute that that date was extended to 25 February 2002. There was payment of a total deposit of $108,000. Likewise the parties are in agreement that it was the plaintiff's obligation to show and prove good title to the property.

The requisitions

5. By letter dated 5 February 2002 the defendant's solicitors raised four requisitions. Only one of those requisitions is of relevance for these proceedings. By that requisition the solicitors drew attention to the registration of the notice for ancillary relief which had been registered against the property. The requisition concluded

"Subject to your production of the said Notice for our perusal, we take the view, according to general law, that the same do adversely affect title since disposition of the Property shall be subjected to the right of the applicant therein named. Please comment."

The reply dated 9 February 2002 said:

"Without disrespect, given the Mortgage Memorial No. 690690 in favour of our client was created and registered much earlier than the Sealed Copy Form 8 Notice of Application for Ancillary Relief Memorial No. 920030 ('the said Notice') and thus apparently takes priority over the same, we fail to appreciate how, and based on what 'general law' as alleged, the disposition of the subject property would be subject to the said Notice and the said Notice would 'adversely affect title' to the said property."

6. Two days later on 11 February 2002 the defendant's solicitors wrote a fairly lengthy letter to the plaintiff's solicitors raising a number of points in relation to the registration. Amongst other things it was pointed out that although the plaintiff was a mortgagee purportedly exercising its power of sale pursuant to the mortgage, it would nevertheless be subject to any equitable interest, the existence of which was yet to be decided by a court. The letter also pointed out the fact that a proprietary claim had been made on behalf of the wife. The letter concluded:

"In view of the arguments as advanced, please let us have documentary evidence to prove that your client's exercise of their power of sale is exercised free from the Petitioner's interest."

7. The correspondence continued. The plaintiff's solicitors maintained their stance that by reason of the registration of this mortgage prior to the wife's registration of the Form 8 notice, there could be no claim made by the wife which would affect the title to the property. The defendant's solicitors continued to point out that there was a proprietary claim which had purportedly been made by the wife and that it was the subject of the registration. In the mean time, however, the defendant's solicitors also made enquiries of the wife's solicitors. They received in reply a letter dated 18 February 2002 which said:

"Please be informed that both the divorce proceedings and the Petitioner's application for ancillary relief are outstanding. All rights and claims of the Petitioner pleaded under the Notice of Application for Ancillary Relief (Form 8) dated 18th May 2000 were and remain reserved."

8. Although the correspondence between the parties continued until the expiry of the time for completion, which had been extended to 25 February 2002, their positions did not alter. There was a further letter from the wife's solicitor dated 25 February 2002. That was a little more forthcoming to the extent that it explained that the trial of the wife's claims against the mortgagor had been part-heard and the resumed date had been vacated due to the mortgagor's failure to attend court. The letter went on to say that the solicitors considered it was unnecessary to repeat what had already been said and concluded their letter with the remark "Indeed, we suppose that you may conveniently obtain details of the proceedings from the Respondent through the mortgagee bank."

9. It was in those circumstances and against that background that these proceedings were commenced by the plaintiff.

The proceedings below

10. The plaintiff's case in the court below was the same as was argued in this court. It centred on the point that proceedings under the Matrimonial Proceedings and Property Ordinance, Cap. 192, only empowered court to make an order for the transfer or settlement of the property under section 6(1)(a) and 6A(1). For an order to be made under either of those two sections the property in question had to be either in the possession or reversion of the person against whom the order was made. It was Mr Lin's argument that since the making of the possession order on 24 August 2001 the mortgagor had not been entitled either to possession or to any reversion in respect to the property. In the course of his argument Mr Lin referred to the fact that there may be an excess remaining after the sale of the property and the application of the proceeds to pay off the mortgage debt which he said would have been paid into court under the provisions of the Trustee Ordinance should there have been competing claims.

11. The judge below accepted that in normal circumstances a claim for ancillary relief made and registered after the creation and registration of a mortgage could not affect the title to property. Nevertheless the entry on the register with the reference to the Form 8 notice and the terms of the Form 8 notice made it clear that the wife's solicitors were in the words of the judge below:

"... somehow asserting the wife may have a right in the suit property not only as against the husband, but also as against the purchaser (and possibly also the vendor)."

He drew attention to the final paragraph of the letter of 25 February 2002 quoted above. As he pointed out, this was indicative of the fact that despite the wife's solicitors being aware of the default in relation to the mortgage and the sale of the premises by the mortgagee in possession, nevertheless, an assertion of a proprietary claim was still being made. In those circumstances, the judge considered that he could not be satisfied that he should conclude that the wife's claims would be illusory.

This appeal

12. In reality no new arguments were advanced on this appeal. In my view the judge was correct in his conclusion that a proprietary claim was being made in the Form 8 notice and was being asserted against the property. In view of the registration by the wife it is, perhaps, a little surprising that the plaintiff did not apparently give notice of the proceedings for possession to the wife. Be that as it may, it appears to me to be important, first of all, that there was a registration of Form 8 as a land charge.

13. As Mr Chow argued, on behalf of the defendant, such a registration would, at the very least, be an embarrassment to any purchaser and would undoubtedly make the property more difficult to sell. A purchaser of the property would not have the knowledge of the plaintiff. It is significant that the plaintiff neither asserted that when the mortgage was created it had been a bona fide purchaser for value without notice of any potential claim that could be made by the wife nor did the plaintiff suggest any indemnity be given in respect of that registration. As to the latter, see Re Heaysman's and Tweedy's Contract (1893) 69 LT 89. Still less did the plaintiff volunteer to take proceedings to have the registration vacated either directly or by taking proceedings against the wife for a declaration. In my view, the defendant was entitled to regard the reliance by the plaintiff solely upon the provisions of the Matrimonial Proceedings and Property Ordinance as not giving a proprietary right as being insufficient. The judge in my view was correct not to foist upon the defendant a title which clearly had all the hallmarks of potentially leading the defendant, as purchaser, into litigation.

14. In the course of his argument Mr Lin suggested that the property would be unsaleable in the hands of the plaintiff unless the registration of the Form 8 notice in the circumstances were to be ignored. There is, it seems to me, a clear solution to any problem that might have arisen. Instead of requiring the purchaser to sign a standard form preliminary sale and purchase agreement, the effect of which was to require the plaintiff to show and give good title, the plaintiff could easily have drawn attention to the registration in question and made the sale subject to any rights of the wife in the property. If the plaintiff had been so sure of the non-existence of any such rights and could have persuaded a purchaser to enter an agreement with full knowledge of the registration, no problem would have arisen.

15. In my view, therefore, this appeal should be dismissed and I would make an order nisi of costs in favour of the defendant.

Hon Le Pichon JA:

16. I agree.

Hon Sakhrani J:

17. I also agree.