NANYANG FINANCE CO LTD v. CHAN KWOK WING

HCMP 2227/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2227 OF 2002

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REASONS FOR JUDGMENT

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Introduction

1. This is the vendor's (plaintiff's) application brought pursuant to s. 12, Conveyancing and Property Ordinance (Cap. 219) for (among other relief) a declaration that the vendor has shown and proved good title to the suit property (a unit in "KINGSWOOD VILLAS" in Tin Shui Wai, Yuen Long). At the end of the hearing on 5 May 2003, I made the following orders:-

(a) the vendor's claim is dismissed;

(b) the vendor do return the deposit in the sum of $108,000 to the purchaser (defendant) with interest thereon at judgment rate from 25 February 2002 to date of judgment;

(c) costs of the action (including any reserved costs) be paid by the vendor to the purchaser to be taxed if not agreed on party-and-party basis.

I indicated that reasons for this Judgment would be handed down later. These are the reasons.

Background Facts

2. The background facts are undisputed and can be summarised as follows. The vendor was the mortgagee of the suit property. The mortgagor defaulted and the vendor obtained a judgment on 24 August 2001 in its favour for the sum of $982,564.83 with interest and an order for possession of the suit property.

3. In exercise of its power of sale as mortgagee, the vendor entered into a preliminary sale and purchase agreement with the purchaser on 16 January 2002 (no formal sale and purchase agreement was executed) ("the S & P Agreement"). The purchase price was $1,080,000 and completion was scheduled to be on 18 February 2002 but that was extended by agreement to 25 February 2002. It is common ground time was of the essence of the S & P Agreement. Deposit in the sum of $108,000 was paid by the purchaser.

4. It is undisputed it was a term of the S & P Agreement that the vendor has to show and prove good title to the suit property. Title documents were sent by the vendor's solicitors to the purchaser's solicitors on about 1 February 2002. By a letter dated 5 February 2002, the purchaser raised 4 requisitions on title.

5. By the time of the hearing of this action, only one requisition was outstanding and hence needed to be dealt with in this Judgment. It was concerned with a notice for ancillary relief registered with the Yuen Long Land Registry on 20 May 2000 by the mortgagor's wife ("the wife"). The notice referred to 3 properties (including the suit property). The relevant parts of the notice read:-

"TAKE NOTICE that [the wife] intends to apply to the Court for maintenance pending suit, periodical payments, secured periodical payments, a lump sum order, a settlement property order and/or transfer of properties order in respect of ... (2) [the suit property] ... " (emphasis supplied).

The notice is headed "Form 8: Notice of Application for Ancillary Relief" and appears to have been taken out in the Family Court. It is undisputed at the hearing of this action that the wordings of the notice follow exactly those in Rule 68(1), Matrimonial Causes Rules (Cap. 179). Provisions of Cap. 179 and/or those of the Matrimonial Proceedings and Property Ordinance (Cap. 192) are relevant to the issues raised herein. They will be discussed in the paragraphs below.

6. The purchaser's solicitors wrote to the wife's solicitors on 15 February 2002 as follows:-

"We act for the intending purchaser ... and understand ... your firm did act for [the wife] ... and have caused Notice of Application for Ancillary Relief to be registered against [the suit property] ...

Our client is keen to know about the outcome of [the wife's] application for ancillary relief before completion since it would seriously affect his interest in [the suit property]. As such, we should be grateful if you would let us know the name of the firm ... assigned by the Legal Aid Department ... ".

On 18 February 2002, the wife's solicitors wrote to the purchaser's solicitors:-

"We refer to your letter of 16th February 2002.

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

Apparently, the purchaser's solicitors have written to the wife's solicitors again on 21 February 2002 because the wife's solicitors wrote on 25 February 2002:-

"We refer to your letter of 21st February 2002.

Without prejudicing all rights of our client reserved under the Form 8 registered against [the suit property] ... we would like to reply your letter as below ...

Since we have already made crystal clear our client's position under the Form 8 (in this letter as well as in our previous letter), unless you have very good reasons, we are not going to answer you [sic] further enquiry for the sake of costs and public fund. Indeed, we suppose that you may conveniently obtain details of the proceedings from [the husband] through [the vendor]".

The purchaser' s solicitors wrote in turn to the vendor's solicitors on the same day:-

"We enclose herewith, for your reference, copy letter of [the wife's solicitors] ...

The content of the said letter confirmed our view that title to [the suit property] remains doubtful if not bad or defective. Good title to [the suit property] not having been shown and proved by your client, our client is therefore not obliged to complete the transaction herein".

By another letter dated 25 February 2002, the purchaser's solicitors alleged that the vendor had failed to prove good title by the deadline for completion. They rescinded the S & P Agreement and demanded the return of all deposits paid by the purchaser.

7. The vendor treated the S & P Agreement as having been repudiated by the purchaser and it accepted the repudiation by a letter dated 28 February 2002.

The Issues in this Application

8. Respective skeleton submissions (and supplemental skeleton submissions) have been kindly provided by counsel for the parties. Counsel also elaborated on parts of their skeleton submissions during the hearing.

9. In short, the issues raised by the parties were:-

(1) the wife's claim was for ancillary relief only and there was no claim for beneficial interest in the suit property by her;

(2) even if the wife's claim against the suit property should include a proprietary claim, there could not be any valid claim as a matter of law;

(3) the requisition was not effectively raised in that it was not properly formulated with reasonable precision and/or the purchaser failed to show any proper foundation for raising the requisition.

Legal Principles Relating to Proof of Good Title

10. The relevant legal principles are undisputed. Where an agreement requires a vendor to show and prove good title to the property, such duty can only be discharged if he can show:-

"... such title as will enable the purchaser to hold the property against any challenger. In the words of Clough JA in Kan Wing-yau v. Hong Kong Housing Society [1988] 23 HKLR 187 at 193 (CA):

A good title is one which can at all times and in all circumstances be forced on an unwilling purchaser in an action for specific performance": Sihombing & Wilkinson's Hong Kong Conveyancing, Ch. V, pp. V 1-V 1A.

The test for ascertaining if a vendor has discharged the duty has been set out in MEPC Ltd. v. Christian-Edwards and Another [1981] AC 205, 220C-D:

"... if the facts and circumstances of a case are so compelling to the mind of the court that the court concludes beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of the incumbrance, the court should declare in favour of a good title".

In relation to the possibility of lawsuits which may be brought against the property to be sold, Sihombing & Wilkinson said:-

"... in Re Heaysman's and Tweedy's Contract (1893) 69 LT 89, ... Lindley LJ observed:

It is a general principle that a purchaser ought not to be forced to accept a doubtful title or buy a lawsuit. In applying that principle, however, we must exercise our common sense, and see if the supposed lawsuit has any basis whatsoever. We must see if there is the slightest reasonable chance of any lawsuit being instituted. If we come to the conclusion that the supposed lawsuit exists only in the imagination of the purchaser, we ought to disregard it, giving him the advantage of every reasonable doubt.

This test was applied in Hong Kong by Godfrey J in his judgment at first instance in Kan Wing Yau v Hong Kong Housing Society (1987) MP No 2436/87. In his words:

[I]f in a particular case the facts and circumstances are so compelling that, beyond any reasonable doubt, the risk is, for all practical purposes, illusory, the court can and should be prepared to ignore it and accordingly dismiss any objection to title founded upon it": at p. V 1A.

Was the Wife's Claim Related to the Suit Property?

11. Counsel for the vendor argues that the wife's claim was only for ancillary relief. Insofar as this may be intended by the vendor to mean that her claim has nothing to do with the suit property (or any interest in it), I cannot agree. That the wife's claim was intended to be concerned with the suit property has been made clear by:-

(a) the registration of the notice for ancillary relief with the Yuen Long Land Registry as an incumbrance against the suit property;

(b) the contents of the notice, especially the part which reads "TAKE NOTICE that [the wife] intends to apply to the Court for ... a settlement property order and/or transfer of properties order in respect of ... (2) [the suit property] ... ";

(c) the assertion by the wife's solicitors of her "... rights and claims ... pleaded under the Notice of Application for Ancillary Relief ... " when the purchaser's solicitors wrote to the wife's solicitors on 15 February 2002 stating "... [o]ur client is keen to know about the outcome of [the wife's] application ... since it would seriously affect his interest ... ". The assertion was repeated in the letter of the wife's solicitors dated 25 February 2002.

Whether her claim may be proprietary in nature will be discussed under the next heading.

Did the Wife Have an Arguable Claim against the Suit Property?

12. The Matrimonial Proceedings and Property Ordinance (Cap. 192) empowers the Family Court to make an order under s. 4, 5, 6 or 6A. An order under s. 4, 5 or 6 refers respectively to (1) a periodical payment order (with or without security) or a lump sum order, (2) for the benefit of a child of the family, a periodical payment order (with or without security) or a lump sum order, and (3) an order for the transfer and settlement of properties. S. 6(1)(a) provides:-

"On granting a decree of divorce, a decree of nullity of marriage or a decree of judicial separation, or at any time thereafter ... the court may ... make ... an order that a party to the marriage shall transfer to the other party, to any child of the family or to such person as may be specified in the order for the benefit of such a child such property as may be so specified, being property to which the first-mentioned party is entitled, either in possession or reversion" (emphasis supplied).

Likewise, s. 6A(1) provides:-

"Where the court makes an order under section 4, 5 or 6 then, on making that order or at any time after the making of that order, the court may make a further order for the sale of such property as may be specified in the order, being property in which or in the proceeds of sale of which either or both of the parties to the marriage has or have a beneficial interest, either in possession or reversion" (emphasis supplied).

13. Counsel for the vendor submits that the phrase "in possession or reversion" in ss. 6 and 6A, Cap. 192 limits the court's powers under those provisions to cases in which the spouse (against whom an order is sought) is still in possession of the property, or has a reversionary interest in it. He relies on the following passage in Rayden & Jackson's Law and Practice in Divorce and Family Matters 16th Ed., para. 29.122:-

"... The court cannot, however, exercise its power of transfer in derogation of the rights of third party: it can only deal with property to the extent that one of the spouses is entitled to it, whether in possession or in reversion ...".

On the other hand, counsel for the purchaser says that the phrase in ss. 6 and 6A was intended to confer a wide-ranging power onto the court. I will, for the purpose of this Judgment, assume that the passage in Rayden & Jackson accurately summarises this aspect of the law and hence the vendor's submission is correct as a matter of law.

14. It is part of the vendor's case that it has entered into possession of the suit property on 24 August 2001 when an order for possession of the suit property was made in its favour. Since then, the vendor argues, the mortgagor is no longer entitled to the suit property. The vendor further argues that, because the mortgage was created (by a mortgage dated 29 July 1996) prior to the date of creation and registration of the wife's notice, the mortgage has priority over her claim.

15. The vendor's contention has not dealt with the potentially complicated issue regarding the nature of the mortgagor's right of redemption in the context of ss. 6 and 6A, Cap. 192. I will, again for the purpose of this Judgment, assume (in the vendor's favour) that such right cannot amount to a sufficient interest in the suit property on the mortgagor's part within the meaning of ss. 6 and 6A.

16. Claims brought by one spouse against the other spouse in relation to properties held in the name of the other spouse are commonly based on either or both of the following grounds:-

(a) purely on the strength of s. 6 and/or s. 6A, Cap. 192;

(b) the spouse making the claim having some kind of beneficial interest in the properties by reason of constructive and/or resulting trust.

In relation to (b) above, the claims of the spouse are usually premised on, for example, the spouse having earlier contributed to the purchase price of the properties, with the common intention that the spouse should have a share in the properties: see, for example, Sihombing & Wilkinson, pp. V 39-V 40; Gissing v. Gissing [1971] AC 886; Wong Chim Ying v. Cheng Kam Wing [1991] 2 HKLR 253; Lily Cheung v. Commissioner of Estate Duty [1988] 1 HKLR 517. Such claims may also be premised on the spouse having contributed other payments such as renovations or extensions to the properties or mortgage payments: Sihombing & Wilkinson, pp. V 41-V 43.

17. If in fact the wife's claim, albeit asserted by way of Form 8 pursuant to Cap. 179, is proprietary in nature, the vendor's case that the mortgage takes priority over her claim may be in doubt. The trust on which the wife's claim might have been based was not in writing, it could not be registered and so did not fall within the provisions of the Land Registration Ordinance (Cap. 128).

18. The vendor asserts that the wife's claim could not possibly be proprietary because her solicitors only asserted she had a claim "pleaded (or reserved) under the Form 8" and nothing further. It is a fact that her claim was made by way of a Form 8, but it is equally possible that the wife's solicitors might have failed to state clearly the true nature of the wife's claim, or they might have erroneously commenced the wife's claim in the Family Court. In this connection, it is important to note that the wife's solicitors were 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). It is also important to note the reference by the wife's solicitors in their letter dated 25 February 2002 to the vendor when they said:-

"... Indeed, we suppose that you may conveniently obtain details of the [matrimonial] proceedings from [the husband] through [the vendor]".

This shows that the wife was probably already aware of the mortgagor's default and/or the sale of the suit property by the vendor (as the mortgagee in possession). Nevertheless, she still asserted an interest in the suit property.

19. By reason of the above matters, I cannot be satisfied that the circumstances are so compelling that the court can or should conclude that the vendor has shown beyond reasonable doubt that the risk created by the wife's claim is illusory.

20. Counsel for the vendor also argues that any doubt which might have been created by the wife's claim should by now be dispelled by her inaction up to the time of the hearing of this application. It is trite law that whether there is any doubt in a vendor's title should be judged at the time of the scheduled conveyance, rather than with hindsight based on subsequent events.

Other Matters

21. Counsel for the vendor also complains that the requisition was imprecise. However, this complaint was never raised by the vendor's solicitors in the line of correspondence relating to the requisitions raised by the purchaser. The vendor's solicitors never appeared to have any difficulties in understanding the requisitions raised by the purchaser (including the one dealt with above). In fact, in their letter dated 15 February 2002, they asserted that all the requisitions had been satisfactorily answered. It will not be helpful to set out all the correspondence suffice it to say, having read the correspondence, I disagree with counsel's complaint.

22. The vendor's contention that the requisition has no proper basis has already been dealt with under the previous heading.

23. Counsel for the vendor made no comment on the relief granted on 5 May 2003 when invited to do so during the hearing.