YIM TIN FOOK, since deceased (YIM LOK MAN WINNE, appointed by Order dated 10 May 2024 to represent the Estate of YIM TIN FOOK, deceased) AND ANOTHER v. YU CHOR LAI, KONG WAI HUNG and SOU KA LUN trading as WANG CHEUNG INDUSTRIAL CHEMICALS CO AND ANOTHER

CACV 5/2020, [2025] HKCA 675

On Appeal from [2019] HKCFI 2511

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 5 OF 2020

(ON APPEAL FROM HCA NO 2613 OF 2006)

________________________

(By Original Action)

(By Counterclaim)

________________________

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J U D G M E N T

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Hon Barma JA:

1.  I agree with the judgment of G Lam JA.

Hon G Lam JA:

Introduction

2.  This is one of those cases where one may be forgiven for wondering whether the facts have been ingeniously designed for the purpose of raising nice questions of law.  In 1983, the owner of a piece of land in the New Territories, held under a Government lease for a term expiring on 27 June 1997, granted a sub-lease to her tenant for a term of 15 years. The sub-lease was in writing but never registered.  In 1986, the owner assigned the land to herself and her adopted son as joint tenants.  In 1988, a law was passed extending the term of the Government lease to 30 June 2047.  In 1990 the owner died.  In 1997 the adopted son sold and assigned the land to a company. After dividing the land into various sub-plots, the company sold and assigned them to various purchasers, who registered their assignments.  A dispute has arisen as to whether these purchasers can claim possession from the sub-lessee.

3.  Three questions arising in this dispute have been identified, concerning, broadly, (1) whether the sub-lease being for a term exceeding the original term of the Government lease operated as an assignment of it to the sub-lessee; (2) who was entitled to the benefit of the statutory extension of the Government lease; and (3) whether the sub-lease being unregistered is null and void as against the ultimate purchasers by virtue of section 3(2)  of the Land Registration Ordinance (Cap 128)  (“LRO”).  The judge below determined them as questions of law pursuant to Order 14A of the Rules of the High Court (Cap 4A).  The parties dissatisfied with each determination now appeal to this court.

Factual background

4.  The facts are not in dispute at least for the purposes of the determination of the questions of law, and may be stated in greater detail as follows.  The land in question is located near Nai Wai village (泥圍村)  in Tuen Mun.  Many indigenous inhabitants of that village are surnamed “To”.  Madam Tang Yin (鄧然)  (also known as To Tang Yin (陶鄧賢))  (“Madam Tang”), was a widow in this village.  In 1958, the Government lease of a piece of land in that area, namely, Section A of Lot 1180 of Demarcation District 130, devolved to her.  She held it as lessee under a Block Crown Lease[1] dated 1905 (“Government Lease”). 

5.  As was typical for Government leases in the New Territories granted until 1959,[2] the Government Lease was for a term of 75 years from 1 July 1898 renewable for a further term of 24 years less 3 days without payment of premium.  By virtue of the New Territories (Renewable Government Leases)  Ordinance (Cap 152)  enacted in 1969, the right of renewal was deemed to have been exercised, and on 1 July 1973 there was deemed to be granted to Madam Tang a new lease of Section A of Lot 1180 for a term of 24 years less 3 days, i.e. up to 27 June 1997.

6.  In around 1974, Madam Tang carved out and disposed of two portions of the land, leaving the Remaining Portion of Section A of Lot 1180, which has been called the “Parent Lot” in this litigation.  Apparently, in the same year, Madam Tang orally let the Parent Lot to a fellow villager, Mr To Cheong Lam (陶昌林), who was the 2^nd defendant in the action below, on a yearly tenancy.  Mr To Cheong Lam has died and the litigation has been carried on since May 2019 by his son and personal representative, Mr To Sze On (陶仕安).  I shall use “D2” below to refer to the late Mr To or his son as may be appropriate.

7.  In 1983, the letting to D2 was put on a more formal basis.  Madam Tang and D2 signed an agreement written in Chinese dated 15 November 1983 (“1983 Lease”).  The 1983 Lease provided, inter alia, that: (i) Madam Tang leased the farm sheds, land and all buildings and structures situated in the Parent Lot; (ii) the term of the tenancy was 15 years from 15 November 1983 to 14 November 1998; (iii)  the monthly rental was $1,500 to be paid in advance, with the landlord otherwise having a right to recover the land; (iv)  three years after the expiry of the term of the tenancy, the method of rental increase would be subject to negotiation and agreement by the parties in accordance with commodity prices; and thereafter rental would be adjusted once according to the aforesaid method every three years.  The 1983 Lease was never registered at the Land Registry.  It appears that D2 continued to pay rent up to February 1997.

8.  Whilst the 1983 Lease was intended as a sub-lease, it will be noted that it was granted for a term that, as at 1983, exceeded Madam Tang’s own term under the Government Lease.  This has given rise to the first question of law determined by the judge, which is whether for this reason the 1983 Lease operated as an assignment of the Government Lease to D2.

9.  On 25 January 1986, Madam Tang executed a Deed of Gift (“Deed of Gift”), by which she purported to assign to herself and Mr To Shui Ki (陶瑞麒)  who is her adopted son and the 8^th defendant by counterclaim in the action (“DC8”), inter alia, the Parent Lot and the Government Lease in respect of it, to be held by them as joint tenants for the residue of the term of years under the Government Lease.  The Deed of Gift was registered at the Land Registry.

10.  In 1988, the New Territories Leases (Extension)  Ordinance (Cap 150)  (“NTLEO”)  was enacted, pursuant to which the term of New Territories leases to which it applies – and the Government Lease is one such lease – was extended to 30 June 2047 without payment of any additional premium.  This has led to the second question of law, which concerns who is entitled to the benefit of the extended lease.

11.  On 5 January 1990, Madam Tang died aged 83, leaving DC8 to take by right of survivorship any interest they held under the joint tenancy created by the Deed of Gift.

12.  In 1997, DC8 purported to sell the Parent Lot to W. S. Realty Co Ltd, which was the 7^th defendant by counterclaim in the action (“DC7”), for a consideration of $1,100,000.  They entered into a sale and purchase agreement dated 1 February 1997, which was registered in the Land Registry.  That agreement expressly provided, inter alia, that the property was sold subject to and with the benefit of the 1983 Lease, which was attached.  Subsequently they executed an assignment dated 11 April 1997, which was registered on 21 May 1997 (“DC8/DC7 Assignment”).  That assignment provided for the property sold to be held by DC7 for the residue of the term of years created by the Government Lease subject to, inter alia, the existing tenancy.

13.  On 7 May 1997, DC7 executed a deed poll to subdivide the Parent Lot into 14 portions (namely, Sub-sections 3 to 15, and the Remaining Portion, of Section A of Lot 1180).  The deed poll was registered. 

14.  DC7 then proceeded to dispose of these various parcels of land to various purchasers respectively, including the two plaintiffs in the action (“Ps”)  and the 3^rd, 4^th, 5^th and 6^th defendants by counterclaim (respectively “DC3”, DC4”, “DC5” and “DC6”).  Each of them purchased one or more sub-sections of Section A of Lot 1180 from DC7 on dates ranging from May to July 1997.  The 9^th defendant by counterclaim (“DC9”)  purchased a sub-section from DC5 in 2003.  DC7 was wound up subsequently in 2005.

15.  The assignments by which these sales were completed were all registered in the Land Registry.  Hence Ps, DC3, DC4, DC6 and DC9 are, in common parlance, the “registered owners” of the parcels they purchased.  I shall adopt the judge’s terminology and refer to them collectively as the “Registered Owners”.  In the case of Ps, the assignment by DC7 of Sub-sections 3, 8 and 9 to P1 and of Sub-sections 6, 7 and 15 to P2 were both dated 10 May 1997 and registered on 28 May 1997 (“DC7/Ps Assignments”).  These assignments stated that the property in question was assigned to the purchaser to be held for the residue of the term of years created by the Government Lease, subject to the payment of government rent and the covenants conditions and provisos contained in the Government Lease.  They were not stated to be subject to any tenancy and did not refer to the 1983 Lease.  The third question of law thus arises, which is whether the 1983 Lease being unregistered is null and void as against the Registered Owners by virtue of the LRO.

The action and the parties’ cases

16.  As the land Ps had purchased apparently continued to be occupied by D2 or by his licensees who were named as the 1^st defendants in the action (“D1”), on 23 November 2006 Ps instituted an action against D1 and D2, seeking vacant possession and damages for trespass.  D2 filed a defence and counterclaim in March 2007, which had since undergone numerous changes ending with his Re-Re-Re-Amended Defence and Counterclaim dated 8 October 2015.  The parties’ pleaded cases have been summarised by the judge[3] which I gratefully adopt below.

17.  The heart of D2’s latest pleaded case is that the 1983 Lease, which created a term longer than Madam Tang then held under the Government Lease, operated not as a sub-lease but as an assignment to D2 of Madam Tang’s interest in the Government Lease pursuant to the principle in Milmo v Carreras [1946] KB 306 (see §40 below)  (“Milmo rule”).  As a result, says D2: (i) the 1986 Deed of Gift was void because Madam Tang no longer had any title to the Parent Lot; (ii) all subsequent assignments from DC8 to DC7, and from DC7 onwards, were void and ineffective to transfer any title in the Parent Lot; (iii) accordingly, D2 owns and is in lawful possession of the land.

18.  D2 pleads an alternative case that if, which D2 denies, DC8 ever had any title to the Parent Lot, then DC8 held the legal estate on trust for D2 who remained the beneficial owner.  The DC8/DC7 Assignment, says D2, was a breach of trust by DC8, which caused loss to D2. DC7 acted dishonestly in assisting this breach of trust, and was in knowing receipt of trust property.

19.  D2 further pleads that Ps (and all the Registered Owners)  knew or ought to have known that D2 was the sole legal and beneficial owner of the land, relying upon D2’s apparent occupation and references to the 1983 Lease in the DC8/DC7 Assignment.  D2 says that the Registered Owners had actual or constructive notice of DC8’s breach of trust, that none of them is a bona fide purchaser without notice, and that all are knowing recipients of trust property.  In this respect the judge recorded that counsel for D2 conceded that due to section 4 of the LRO, the question of actual/constructive notice was irrelevant to D2’s position vis-à-vis the Registered Owners, such that the court need not deal with the pleaded issues as to notice.[4]

20.  D2 counterclaims, inter alia: (i) declarations that D2 owns and is entitled to exclusive possession of the Parent Lot; (ii) declarations that the Deed of Gift and the DC8/DC7 Assignment were void; and (iii)  damages against DC8 for breach of trust and against DC7 for knowing assistance.

21.  Ps’ main pleaded answers to D2’s case are that: (i) Ps do not admit the 1983 Lease as a matter of fact; (ii)  in any event that lease expired at the latest by 1998; (iii)  alternatively, that lease was repudiated in 2006 and/or by non-payment of rent in 1997; (iv) Ps deny the alleged assignment by operation of law under the Milmo rule; (v) Ps deny having any actual or constructive notice; (vi)  in any event, under the LRO the 1983 Lease is void as against Ps since it was unregistered and Ps were bona fide purchasers for valuable consideration.

22.  DC8’s pleaded position is, in summary that: (i)  the 1983 Lease did operate as an assignment of the Government Lease to D2; (ii)  thereafter Madam Tang retained only contractual rights against D2 for rent and re-entry for breach; (iii) the Deed of Gift and the DC8/DC7 Assignment assigned only such contractual rights; (iv)  DC8 never owned the legal estate in the Parent Lot, was never a trustee for D2 or in breach of trust, and any damage suffered by D2 was the result of D2’s own failure to register the 1983 Lease; (v) due to negotiations between D2 and DC8 in 1996, D2 is estopped from contending that DC8 had no right to sell the land; (vi) D2’s claim against DC8 is time-barred; and (vii) DC8 counterclaims that, if the DC8/DC7 Assignment was void as alleged by D2, then limited contractual rights remain vested in DC8, pursuant to which DC8 claims arrears of rent from D2.

The questions of law

23.  Both Ps and D2 applied by summons under Order 14A of the Rules of the High Court (Cap 4A), asking the court to determine certain questions of law arising in the action.  The judge had reservations whether that procedure was suitable but was eventually persuaded to determine three main questions as mentioned above,[5] which the judge formulated as follows:

(1)  Question 1: Did the 1983 Lease (if validly executed)  operate as an assignment from Madam Tang to D2 of the leasehold estate held by Madam Tang in the Parent Lot for the residue of the term under the Government Lease?

(2)  Question 2: What was the effect of the NTLEO and the extension of leasehold term thereunder, on the ownership of the leasehold estate in the Parent Lot?  Who was entitled to the benefit of the extended lease granted by the NTLEO?

(3)  Question 3: By virtue of the LRO, is the 1983 Lease, which was registrable but not registered, null and void as against the Registered Owners as bona fide purchasers for value under assignments which were duly registered?  What is the effect of the LRO on the competing claims to title made by D2 and the Registered Owners?

The judge’s decision and orders

24.  The judge heard submissions on the Questions from Ps, D2, DC6 and DC8.  In a decision admirable for its clarity and succinctness handed down on 16 October 2019 (“Decision”),[6] the judge held in favour of D2 on Questions 1 and 2, but held in favour of Ps on Question 3.

25.  As to Question 1, although the judge had some sympathy for the criticisms made of the Milmo rule, he considered that the principle forms part of the common law applied in Hong Kong and other jurisdictions and saw no proper basis to depart from it.[7]  He rejected Ps’ argument that the rule did not apply because it was likely as at 1983 that the Government Lease would be extended or renewed beyond its original term.[8]  The judge also rejected Ps’ submission that even if a Milmo assignment occurred in 1983, Madam Tang still retained legal title to the Government Lease but held the reversion on trust for D2.[9] Accordingly, the judge answered Question 1: “Yes.”

26.  On Question 2, based on the Court of Final Appeal’s decision in Chan Tin Shi & Others v Li Tin Sung & Others (2006)  9 HKCFAR 29, the judge considered that to ask to whom the NTLEO granted the extended lease, is to ask the wrong question, since the NTLEO simply extended the term of New Territories leases themselves, without changing the legal or beneficial ownership of those leases.  Whatever was the legal and beneficial ownership of a particular New Territories lease before 25 April 1988 (the date of extension), that position remained unchanged after that date, save that the term of the lease was extended.  The contrary arguments raised by Ps were all rejected by the judge on this basis.  Accordingly, in light of his answer to Question 1, the judge answered Question 2 as follows: “The statutory extension of the term of the [Government] Lease which was effected by the NTLEO in 1988, did not alter the legal or beneficial ownership of the leasehold estate in the Parent Lot, which remained with D2.”

27.  On Question 3, the judge noted that it was common ground that the 1983 Lease was registrable but unregistered.[10]  D2 and DC8 argued before the judge that the system of registration in Hong Kong is one of registration of deeds and not of title, under which registration concerns priority not validity, and cannot create title from nothing.  They argued that by reason of the Milmo rule, Madam Tang had assigned to D2 the Government Lease and could not assign again via the Deed of Gift what she no longer had (nemo dat quod non habet), and that likewise, DC8’s successors-in-title (i.e. DC7, and subsequently, the Registered Owners)  could receive no more than what Madam Tang (and DC8)  had to give.  They argued that section 3(2)  of the LRO does not avail the Registered Owners since it does not enable something to be created from nothing.[11]  The judge rejected D2’s and DC8’s arguments.  He distinguished the case they relied on, Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd [1985] HKLR 103, as a decision relating to section 3(1)  rather than section 3(2)  of the LRO.[12]

28.  The judge considered the authorities relied on by Ps supported their position: Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1990] 2 HKLR 84; [1991] 2 AC 43; Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44; and Mak Him v Chan Hung-pak [1965] HKLR 87.  The judge did not think that those authorities could properly be distinguished on the ground that they concerned lesser encumbrances such as a lease or charge which, by lack of registration, was rendered null and void as against a subsequent purchaser, whereas the 1983 Lease operated as an assignment of the entire estate Madam Tang had.[13]  Regarding the point that DC8 was a volunteer, the judge held that the correct approach is to examine title and priority as a relative matter, from the viewpoint of the competing claims made by D2 and the Registered Owners.  As such, the judge considered that to hold that a bona fide purchaser is vulnerable to an historic defect in title in the form of an assignment of the land to a third party which breaks the chain of title of his predecessors – no matter how distant in time and no matter that that assignment was unregistered, would be inconsistent with the wording and purpose of section 3(2).[14] 

29.  Accordingly, the judge answered Question 3: “Yes.  Pursuant to section 3(2)  of the LRO, the Registered Owners took good title to their respective portions of land deriving from the Parent Lot, and D2’s rival claim based on the unregistered 1983 Lease is defeated.”

30.  After receiving submissions on the relief to be granted, in a further decision dated 6 December 2019,[15] the judge, inter alia, entered judgment for Ps against D1 and D2 for an order that they demolish the structures on the relevant parcels of land and deliver up vacant possession to Ps and for damages by way of mesne profits to be assessed.  D2’s counterclaim against Ps, DC3 to DC6 and DC9 was dismissed.  On 5 March 2020 the judge granted a stay of execution of the demolition and possession order pending this appeal.[16]

The appeal and cross-appeal

31.  D2 appeals against the judge’s determination of Question 3 and the consequential orders, contending that the answer to Question 3 should instead be:

“ No. The 1983 Lease is not null and void. The Assignments to DC1-9[17] did not affect land within the meaning of LRO sections 2(1)  and 3(1)  and were thus not registrable under the LRO. Nor were DC1-9 bona fide purchasers for value pursuant to LRO section 3(2). D2/PC remains the legal and beneficial owner of the Disputed Land.”

On this basis, D2 contends that the judgment entered against him for possession and damages should be set aside and that his counterclaim should be set down for trial on liability, with leave to amend it to include a claim against DC1 to DC6 and DC9 for breach of trust and damages.

32.  By a respondents’ notice, Ps contend that the judge’s answer to Question 1 should be replaced by:

“ No. Madam Tang remained the registered owner and Government lessee of the Parent Lot.”

and that the judge’s answer to Question 2 should be replaced by:

“ The NTLEO has the effect of automatic extension of the leasehold term of the [Government] Lease. Madam Tang as the Government lessee and her successors-in-title were and are at respective times as registered [owners] in the Land Registry entitled to the benefit of the extended term under the NTLEO.”

Ps do not seek to disturb the orders subsequently made by the judge by way of relief.

33.  By a respondent’s notice dated 22 January 2020 that effectively operates as an appeal, DC8 takes a position similar to D2’s.  He contends that the judge’s answer to Question 3 should be replaced by the following:

“ No. LRO provides for registration of instruments affecting land to enable title to land to be traced and ascertained. A ‘registered owner’ in the true sense is an owner whose claim of title to land may be traced back to an instrument duly registered under the LRO, which instrument on the face of it validly conveyed the land concerned. The so-called Registered Owners’ rights and interests traced back to DC8 Assignment. But DC8 Assignment manifestly transferred only some personal rights. It did not convey any interest in land DC8 had never had and did not own. Thus the so-called ‘Registered Owners’ are not bona fide purchasers of any interest in land. They are unable to rely on section 3(2)  of the LRO to defeat D2/CP’s legal estate acquired under the unregistered 1983 Lease that divested from Tang the legal estate previously held by her, the predecessor of DC8.”

34.  DC8 contends that there should be a declaration that D2 is the sole legal and beneficial owner of the land in question and an order that D2’s counterclaim against DC8 be dismissed. DC8 also seeks an order that the registration of certain specified documents including the Deed of Gift, the DC8/DC7 Assignment and the DC7/Ps Assignments be vacated from the Land Registry.

35.  DC8 has thus taken the remarkable stance that he had no title to the land at all even though he made an assignment in favour of DC7.  For my part, I doubt whether this position is tenable in light of the principle that a grantor is estopped from denying the validity and effect of his own grant (see e.g. First National Bank plc v Thompson [1996] Ch 231, 237)  and in light of DC8’s covenants[18] that he had good right and title to assign the land and that the land may be quietly entered into and enjoyed by the purchaser and any person deriving title under him without interruption or disturbance.  Since DC8’s arguments on this appeal are largely the same as D2’s, however, it is unnecessary to deal with this except potentially in relation to costs.

36.  Apart from Ps, D2 and DC8, none of the other parties have taken part in the appeal and cross-appeal.

37.  Although Ps do not challenge the consequential orders made by the judge, their challenge against the judge’s determinations of Questions 1 and 2 may be regarded as a cross-appeal.  I shall deal with Questions 1, 2 and 3 in that order.

Question 1

38.  The Milmo rule has been stated by the judge below as follows:[19]

“ where a tenant (T)  purports to grant a sub-lease to a sub-tenant (S)  for a term which is equal to or greater than the term remaining in the head lease between T and his own landlord (L), then by operation of law, the sub-lease takes effect as an assignment from T to S of the remainder of T’s term under the head lease, rather than creating a sub-lease between T and S. The result is that the relationship of tenure ceases to exist between L and T, and arises directly between L and S, although contractual rights apparently remain unaffected.”

39.  The doctrine is traceable to Hicks v Downing (1696)  1 Ld Raym 99, although the reliability of that report has been questioned: see M. Wonnacott, Where the Law Went Wrong? – Milmo v Carreras [2013] 17 L & T Rev 167.  The stream of authorities had initially not been entirely uniform, and there were cases holding that such a demise would be an underlease although it would not entitle T to distrain against S: see e.g. Preece v Corrie (1828)  5 Bing 24; Milmo v Carreras [1946] KB 306, 310.  By 1847, however, the principle was considered by a well-known textbook as established.[20]  In Beardman v Wilson (1868)  LR 4 CP 57, the court said the matter must be considered to be settled.

40.  The rule is now usually associated with Milmo v Carreras.  The tenant there had a lease of a flat for a term of seven years expiring on 28 November 1944.  In October 1943 he entered into an agreement in writing to sub-let the flat to a sub-tenant for one year from 1 November 1943 and thereafter quarterly until either party should give three months’ notice. On 27 April 1945 the tenant served on the sub-tenant a notice to quit on 1 August 1945 and, on default of the sub-tenant to vacate, claimed possession. By then the head lease had of course expired.  The tenant’s action failed.  The actual decision was therefore simply that in these circumstances, the tenant had no right to seek possession from the sub-tenant.  In the course of his judgment, however, Lord Greene MR gave an explanation of the rule (at pp 310-312)  which has generally been considered authoritative:

“ For the purposes of this case, I think it is sufficient to say that, in accordance with a very ancient and established rule, where a lessee, by a document in the form of a sub-lease, divests himself of everything that he has got (which he must necessarily do if he is transferring to his so-called sub-lessee an estate as great as, or purporting to be greater than, his own)  he from that moment is a stranger to the land, in the sense that the relationship of landlord and tenant, in respect of tenure, cannot any longer exist between him and the so-called sub-lessee. That relationship must depend on privity of estate. I myself find it impossible to conceive of a relationship of landlord and tenant which has not got that essential element of tenure in it, and that implies that the tenant holds of his landlord, and he can only do that if the landlord has a reversion. You cannot have a purely contractual tenure. Tenure exists by reason of privity of estate. That seems to me to be the effect of all the decisions, and that position is recognized by all the decisions.

We have, therefore, this position arising in the present case.  After the execution of this document, subject to a point I will mention later, the plaintiff became a stranger to the land.  He had no estate in the land, the whole estate which he had held under the head lease passed to the defendant, and from that moment onwards, although some contractual relationship might still remain between him and the defendant, in the sense that perhaps he could have sued for the so-called rent, he no longer had any connexion with the flat in the capacity of landlord.  His case is this: he says ‘Under this document I had power to bring the so-called term to an end.’  That seems to me to be quite unarguable, because there never was a term.  All that the document did, and could do, was to transfer to the defendant the whole of the plaintiff’s then existing term under the head lease.  The obligation to deliver up in the so-called sub-lease cannot be construed to be a mere contractual obligation as between the plaintiff personally as an individual and the defendant.  I think that is clear, when the document is examined. …  The document did not create a term because in law it was incapable of doing so.  …  [The plaintiff] was a stranger to the land once he had parted with the whole of the estate vested in him.  I cannot see how, in view of the effect which the law compels us to give to this document, it is possible to find any right in the plaintiff to have possession delivered up to him.  The position would appear to be that, when this document was executed, the defendant became the assignee of the plaintiff’s term.  He became, therefore, tenant of the Haversham Estates under the head lease which expired on November 28, 1944.  When that expired, subject to the Rent Restrictions Act, he was bound to deliver up possession to Haversham Estates.”

41.  Since Madam Tang held the Government Lease the term of which would, as at 1983, expire on 27 June 1997, and she entered into the 1983 Lease purporting to grant a sub-lease to D2 for a term up to 14 November 1998, if the Milmo rule is applied, she would be treated as having assigned her term under the Government Lease to D2. 

42.  Resisting this outcome on behalf of Ps, Ms Audrey Eu SC has raised three alternative arguments: (1) the Milmo rule is wrong and should not be accepted as part of the law of Hong Kong; (2) the Milmo rule should not be applied to Government leases in Hong Kong; and (3) the Milmo rule is subject to exceptions, in particular a “wait and see” exception, which applies in the present case.

43.  As her first argument, by way of a frontal attack on the Milmo rule, Ms Eu submits as follows:

(1)  The rule is based on the necessity of an estate, in the sense of tenure or reversion, retained by the landlord, but this is inconsistent with the House of Lords’ decision in Bruton v London and Quadrant Housing Trust [2000] 1 AC 406 which held that a person without an estate or indeed any proprietary interest in the land can nevertheless create a tenancy in favour of another.

(2)  There is no good reason for the law to override the intention of the contracting parties by turning their transaction into something radically different from what they intended.  That would be contrary to the well-established principles of contractual interpretation, and the principle that the law should seek to uphold the parties’ bargains, subject to any overriding public policy considerations.  Madam Tang did nothing inconsistent with public policy.  Nor did the parties try to contract out of a statute.

(3)  The rule creates legal difficulties, complications and anomalies among the landlord (L), the tenant (T), and the sub-tenant (S).  Even where the rule applies, T retains the right to receive rent from S, and the right to re-enter.  The rights T retains are inconsistent with a deemed outright assignment of the head lease to S.  It is illogical to characterise T, who possesses such rights, as a “stranger to the land”. 

44.  I can see the force of these arguments, but I do not accept Ms Eu’s contention.  In the first place, I do not think the rationale of the Milmo rule has been destroyed by Bruton as Ms Eu suggests.  In that case, a housing trust was granted a licence by the local authority to use certain properties for temporary accommodation for homeless persons.  The trust entered into an agreement with one such person, Mr Bruton, for the occupation of a flat in one of the properties on a temporary basis.  The question arose whether the agreement amounted to a tenancy so that the trust had repairing obligations under section 11 of the (UK)  Landlord and Tenant Act 1985.  Though described as a weekly licence, it was held that the agreement granted Mr Bruton a right to exclusive possession.[21]  It had been held in Street v Mountford [1985] AC 809 that a tenancy is a contractually binding agreement, not referable to any other relationship between the parties, by which one person gives another the right to exclusive occupation of land for a fixed or renewable period or periods of time, usually in return for a periodic payment in money.  On this basis, the House of Lords held that Mr Bruton was a tenant of the trust.

45.  Ms Eu relies upon in particular what Lord Hoffmann said (at pp 414G-415C)  in rejecting the reasoning of the majority of the English Court of Appeal:

“ In the leading majority judgment, Millett L.J. said [1998] Q.B. 834, 845 that an agreement could not be a lease unless it had a further characteristic, namely that it created a legal estate in the land which ‘binds the whole world.’ If, as in this case, the grantor had no legal estate, the agreement could not create one and therefore did not qualify as a lease. The only exception was the case in which the grantor was estopped from denying that he could not create a legal estate. In that case, a ‘tenancy by estoppel’ came into existence. But an estoppel depended upon the grantor having purported to grant a lease and in this case the trust had not done so. It had made it clear that it was only purporting to grant a licence.

My Lords, I hope that this summary does justice to the closely reasoned judgment of Millett L.J. But I fear that I must respectfully differ at three critical steps in the argument.

First, the term ‘lease’ or ‘tenancy’ describes a relationship between two parties who are designated landlord and tenant.  It is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties.  A lease may, and usually does, create a proprietary interest called a leasehold estate or, technically, a ‘term of years absolute.’  This will depend upon whether the landlord had an interest out of which he could grant it.  Nemo dat quod non habet.  But it is the fact that the agreement is a lease which creates the proprietary interest.  It is putting the cart before the horse to say that whether the agreement is a lease depends upon whether it creates a proprietary interest.”

46.  The sentence in the above passage that a tenancy “is not concerned with the question of whether the agreement creates an estate or other proprietary interest which may be binding upon third parties” was cited by the Court of Final Appeal in Cheung Yat Fuk v Tang Tak Hong (2004)  7 HKCFAR 70 at §7 in support of the principle that a squatter can grant a tenancy of land of which he is a squatter, even before he has completed the statutory period of possession to bar any claim by the true owner.

47.  Ms Eu says that since T can grant a sub-lease to S even though T has no estate in the land, and S is estopped from denying T’s title, the rationale of the Milmo rule that T needs to retain a reversion has been “exploded” by Street, Bruton and Cheung Yat Fuk.

48.  In my respectful opinion, Ms Eu’s argument is flawed. It fails to recognise the potential duality in the character of a lease.  As pointed out by Lord Hoffmann in the passage quoted above, a lease may and usually does create a leasehold estate out of an estate held by the landlord.  Where it does so, the lease is “both an executory contract and an executed demise”[22] and, as recognised by Lord Hoffmann in a case decided shortly before Bruton, “a lease is a contract as well as an estate”.[23] Similarly, in Chan Tin Shi v Li Tin Sung (supra)  at §35, Lord Hoffmann NPJ said: “A lease is a bundle of rights which subsist in a legal estate, a proprietary interest in land.”  There may be tension in terms of legal incidents between the proprietary nature and the contractual character of a lease, which it is unnecessary to explore here.  A controversial decision,[24] what Bruton decided is that a tenancy does not necessarily confer a proprietary estate in the form of a term of years on the tenant, and does not require for its existence the capacity on the part of the landlord to confer such an estate.  A purely contractual agreement by which a person without an estate in the land gives another the right to exclusive possession may be regarded as a tenancy.  But in my view this is not inconsistent with the proposition that where a person does have a leasehold estate and grants a sub-lease that is co-extensive with or exceeds his estate, he thereby “exhausts” his estate which the law regards as being conveyed to the sub-tenant.  The Milmo rule is concerned with the proprietary nature of a sub-lease; it does not deny effect to the contract between the parties.  Indeed Lord Greene MR said in Milmo (at p 311)  that “some contractual relationship might still remain between [the tenant] and the [sub-tenant], in the sense that perhaps he could have sued for the so-called rent”.  In Baker v Gostling (1834)  1 Bing N C 19, where such a claim for rent was upheld, Tindal CJ said (at p 28): “It is a fallacy to say that the plaintiffs sue as assignees of the reversion; they sue on privity of contract; and the contract is one on which they are entitled to recover.”  That contractual right can even be assigned: Williams v Hayward (1859)  1 El & El 1040.  Captain Milmo failed in his action for possession not only because he no longer had any estate in the land, but also because the court held that the obligation to deliver up possession in the sub-lease, as a matter of the construction of the document in that case, was not “a mere contractual obligation as between the plaintiff personally as an individual and the defendant” but instead meant that the defendant “should deliver up to a person having the reversion at the time of the expiration” of the sub-lease (see pp 311-312). 

49.  Accordingly I reject the submission that the Milmo rule is incompatible with Bruton.  I may add that after Bruton the Milmo rule has been referred to in the English courts, without any disapproval, in PW & Co v Milton Gate Investments Ltd [2004] Ch 142 at §§80-81 (per Neuberger J); Mexfield Housing Co-operative Ltd v Berrisford [2012] 1 AC 955 at §63 (per Lord Neuberger MR with whom the other members of the court agreed); Cobalt Data Centre 2 LLP v Revenue and Customs Commissioners [2022] EWCA Civ 1422 at §§108 and 136(ix); and Kumar v Kolev [2024] 4 WLR 93, §§4 & 29.

50.  This also provides the answer to Ms Eu’s argument that subject to public policy, the intention of the contracting parties should be upheld.  The Milmo rule does not remove the parties’ freedom of contract.  Despite the rule, the 1983 Lease remained a contract that subsisted between the parties.  The rule instead focuses on the consequences of the parties’ agreement in property law.  These consequences flow from a corpus of land law which has stood for centuries.  It is not uncommon for the law, in order to maintain its internal coherence, to override the parties’ subjective intention or the labels they have used.  Street and Bruton are such cases, where the court held a tenancy was created in law even though the parties had expressed their agreement that it was a licence.  Likewise, whether a particular transaction has created a sub-lease or an assignment of the head lease is a matter of substance and not of form, and the law may override the label chosen by the parties: see Gray and Gray, Elements of Land Law (5^th ed), §4.2.16.  Thus examined, the Milmo rule was simply an example of the parties’ intention being thwarted by the “tenurial nature” of a lease: PW & Co (supra), at §81.

51.  I do not accept Ms Eu’s argument that the rights the tenant (T)  retains are inconsistent with a deemed outright assignment of the head lease to the sub-tenant (S).  As mentioned above T’s right to receive rent from S stems from the contract between them, and is not inconsistent with T being treated as having assigned the head lease to S.  Nor is T’s right to re-enter upon a breach of covenant inconsistent with an assignment, for it is not the case that only a person with a reversion can exercise a right of re-entry: see Doe d. Freeman v Bateman (1818)  2 B & Ald 168, where Abbott CJ gave the example of a right of entry attached to a fee simple.  T’s right of re-entry is not inconsistent with the assignment, but simply means it is defeasible.  In contrast it has been held that T, having parted with all his estate in the term created by the head lease, has no right to distrain: Parmenter v Webber (1818)  8 Taunt 593; Lewis v Baker [1905] 1 Ch 46, 50. 

52.  The intricacies generated by the Milmo rule and the cases that dealt with them are referred to in the article by Alexander Hill-Smith, The Principle in Milmo v Carreras: When the Term of a Sub-lease Equals or Exceeds That of the Head Lease (2013)  77 Conv 509, 512-514.  On the whole they seem to me to be the general results when a lease is assigned, whether by deed or by operation of law, where complexities can arise due in part to the mismatch between privity of estate and privity of contract.  I do not regard these complexities as sufficient justification in themselves for rejecting the Milmo rule which is a rule of long standing in the common law and continues to be cited in the textbooks (see e.g. Megarry and Wade, The Law of Real Property (10^th ed), §16-142; Gray and Gray, Elements of Land Law (5^th ed), §4.2.16).  It has been applied in other common law jurisdictions: see Burrell v Duncan [1957] St R Qd 52; Lee v Ferno Holdings Pty Ltd (1993)  33 NSWLR 404; Price v Mayman [1948] SASR 241; Neva Holdings Ltd v Wilson [1991] 3 NZLR 422; Wotherspoon v Canadian Pacific Ltd [1987] 1 SCR 952, §§91-93; Goldman, in trust et al v 682980 Ontario Limited (2002)  62 OR (3d)  21.

53.  The Milmo rule has been assumed to be the law in Hong Kong (see the Full Court’s decision in Chan Sang v Choy Yuk [1963] HKLR 476)  and has been applied at first instance in Leung Hok-shing v Lee Mang-tong (HCA 817 of 1973, 15 March 1974)  and Cheung Wah Nin v Land Registry [2016] 5 HKLRD 356, though there was no argument in either case whether the rule was correct or should be applied in Hong Kong.  Mr Edward Chan SC, appearing for D2, has rightly drawn our attention to the need to avoid disturbing settled titles.  As Lord Millett NPJ said in China Field Ltd v Appeal Tribunal (Buildings)  (No 2) (2009)  12 HKCFAR 342 at §82: “In developing the law, the courts must always be mindful of the need to avoid disturbing settled laws on which people have relied when arranging their business or other affairs.”  Accordingly I would reject Ms Eu’s submission and hold that the Milmo rule is part of Hong Kong law.

54.  Ms Eu’s second line of attack is that the Milmo rule should not be applied to Government leases in Hong Kong.  She submits that privately owned land in England is held in freehold, whereas land in Hong Kong is State property[25] and private ownership is based on leaseholds granted by the Government.  This may be so, but in my view it does not follow that the Milmo rule is inapplicable to Government leases in Hong Kong.  Under our law, Government leases are generally treated like any other leases and the Government and its lessees like private landlords and tenants: see the long line of authorities stemming from Hang Wah Chong Investment Co Ltd v Attorney General [1981] HKLR 336.  There is no valid basis for exempting Government leases alone from the operation of the Milmo rule.

55.  Ms Eu’s third line of attack is that the Milmo rule is subject to a “wait and see” exception.  She submits that there was an expectation that the Government Lease in this case would be extended beyond 27 June 1997.  Beginning from 1982, there were formal negotiations between the People’s Republic of China and the United Kingdom on the future of Hong Kong.  The 1983 Lease expressly mentioned negotiations of rent increase after the 15-year term.  One should wait and see whether the Government Lease actually expired before the end of the 1983 Lease.  As a matter of fact, before it expired, the term of the Government Lease was extended to 30 June 2047 by the NTLEO.  The Milmo rule, it is submitted, does not apply in these circumstances.

56.  I am unable to accept this argument.  It is true there is an exception as shown in the cases.  Oxley v James (1844)  13 M & W 209 (applied by the Full Court in Chan Sang v Choy Yuk (supra))  shows that “if a tenant from year to year demises for a term of years, and the original tenancy from year to year lasts beyond that term, such a demise is not an assignment” of all the interest he has as tenant from year to year.  Likewise, a tenant holding from year to year, and underletting from year to year, was held to have a reversion: Curtis v Wheeler (1830)  Mood & M 493.  In William Skelton & Son Ltd v Harrison & Pinder Ltd [1975] 1 QB 361, although the underlease was for a longer term than the head lease, the term in the head lease would, by operation of an existing statute, continue indefinitely, defeasible by notice, and had not actually been terminated at the expiry of the underlease.  It was held that the underlease did not have effect as an assignment.  In Neva Holdings Ltd v Wilson (supra), the head lease was for a term of four years from 1 March 1984 renewable for three further terms of four years each.  The sub-lease was for an initial term from 7 September 1987 to 1 March 1992, renewable for a further term of eight years. This means that if the sub-lease was renewed there would be no reversion left, even assuming the head lease was renewed for all three further terms, as both would expire on 28 February 2000.  It was held that since it was not certain that the term granted by the tenant would last as long as or longer than his own (e.g. if the head lease was renewed but the sub-lessee did not seek a renewal), the sub-lease did not take effect as an assignment of the head lease.

57.  As the judge pointed out,[26] these cases rest on a disapplication of the Milmo rule where on the provisions of the head lease and the sub-lease (or under statute), the term of the head lease might exceed that of the sub-lease.  It does not follow that even without such existing provisions, one should wait and see whether, as it turns out in fact, the tenant’s term is subsequently extended by the landlord beyond that of the sub-lease.  When the 1983 Lease was entered into, Madam Tang did not have any right of renewal of the Government Lease.  She might or might not have expected a renewal, but even if she did, this was a “mere hope” rather than a right, and does not take the case out of the Milmo rule: see Cheung Wah Nin v Land Registry (supra), §29.

58.  For all these reasons, in agreement with the judge, I consider that the answer to Question 1 is “yes”.  The 1983 Lease did operate as an assignment by Madam Tang to D2 of her leasehold estate in the Parent Lot.

Question 2

59.  On the basis that the 1983 Lease operated as an assignment of the Government Lease to D2, the answer to Question 2 is in my view clear in the light of the Court of Final Appeal’s decision in Chan Tin Shi v Li Tin Sung (supra).

60.  The NTLEO, as its name suggests, deals with the extension of Government leases of land in the New Territories.  The background to its enactment was explained in Chan Tin Shi v Li Tin Sung at§14. Section 2 provides that the Ordinance applies to every Government lease of land in the New Territories that existed at the commencement date of 26 February 1988 and that, but for the Ordinance, would expire before 30 June 1997.  Sections 5 and 6 provide as follows:

“ 5. Option by the lessee

(1)  A lessee may exclude from the application of this Ordinance his interest under a lease, other than an undivided share in the land to which the lease relates, by registering in the Land Office register, before the appointed day, a memorandum in a form specified by the Land Officer.

(2)  In this section lessee (承租人)—

(a)  means a person whose name is registered in the Land Office as owner, leaseholder or holder; and

(b)  where more than one person is so registered in respect of the same interest or, in addition to any person so registered, any other person has an interest under—

(i)  an agreement for sale; or

(ii)  a mortgage,

registered in the Land Office, means all of them acting jointly.

6. Extension of leases

The term of a lease to which this Ordinance applies is extended, from the date on which it would, apart from this Ordinance, expire, until the expiry of 30 June 2047, without payment of any additional premium.”

61.  The “appointed day” on which section 6 came into operation was 25 April 1988: see section 3(1).

62.  Chan Tin Shi v Li Tin Sung concerned the effect of the NTLEO on the legal position of Government lessees of New Territories land and squatters on such land who had been in possession for the requisite period under the Limitation Ordinance (Cap 347).  The issue was whether the effect of section 6 was to grant the Government lessees a new lease, which was a new title not extinguished by the squatters’ possession, or it simply extended the term of the existing estates, which remained the same titles barred and extinguished by limitation as against the squatters.  The Court held it was the latter.  Lord Hoffmann NPJ, with whom the other members of the Court agreed, said:

“ 23. The issue of law is whether s. 6 created new leasehold estates, either by way of regrant after surrender or in reversion after expiry by effluxion of time, or whether it merely extended the term of the existing estates. The language of s. 6 is in my opinion clear. It says that the term of the existing leases is extended from the date on which they would otherwise have expired, i.e. 27 June 1997, until 30 June 2047. Every existing lease, instead of being for a term expiring on 27 June 1997, is by force of statute to be for a term expiring 30 June 2047. But it continues to be the same lease. If it were a new lease, whether from 28 April 1988 or from 28 June 1997, it could not be said that its term had been ‘extended’.

…

29. … Section 6 of the Extension Ordinance creates no new interest because it simply says that the existing lease shall be extended. …

…

35.  …  A lease is a bundle of rights which subsist in a legal estate, a proprietary interest in land.  It is delimited in space by the parcels and in time by the term of years granted.  The existence of the estate confers the right to possession.  The Limitation Ordinance bars the right to claim possession in right of the lessee’s estate or title.  If the estate or title is still the same, it remains barred, notwithstanding any variation in the description of the estate or the rights attached to it.  In the present case, the legislature has used language which makes it clear that the lease is to continue to exist but that the term is to be extended.  It must follow that the lessee’s title remains the same and that it continues to be barred.”

63.  On this basis, in the present case the judge held that the NTLEO simply extended the term of New Territories Government leases themselves in 1988 without making any change to their ownership.  The legal and beneficial ownership of any particular New Territories Government lease before 25 April 1988 remained unchanged after that date, save that the term of the lease was extended.[27]

64.  On this appeal, Ms Eu has essentially repeated her argument below that the legislative intention of the NTLEO was the continuance of an existing state of affairs, which in this case was that Madam Tang and her adopted son DC8 were the registered Government lessees.  The assignment of the Government Lease to D2 by virtue of the Milmo rule had no effect on the Government as the head landlord, from whose perspective Madam Tang and DC8 remained the lessees.  It follows that when the Government Lease was extended, it was vested in them as the lessees.

65.  I do not accept this argument.  Section 6 provides that the term of the lease is extended until 30 June 2047.  It does not provide that an extended term is granted to the registered lessees.  Whoever held the lease took the benefit of the extension. This may be contrasted with Leung Hok-shing v Lee Mang-tong (supra)  where a tenant granted a sub-lease for a period that went beyond the term of the head lease, but on the expiry of the latter the head landlord granted a new lease to the tenant.  It is true that the Milmo assignment did not “bind” the Government as head landlord in the sense that the Government can continue to look to the original tenant for the payment of rent and the performance of other covenants, there being privity of contract.  But the leasehold estate had been assigned to the sub-tenant, who therefore had privity of estate with the Government.  NTLEO simply meant that this state of affairs was extended: Madam Tang and DC8 were in no better position after 25 April 1988 or 27 June 1997 than immediately before the NTLEO was enacted.

66.  Nor does section 5 assist Ps.  It is true that Madam Tang and DC8, being registered, were the “lessees” as defined in section 5(2), and they were the persons entitled to opt out of the extension by virtue of section 5(1).  But I do not accept Ms Eu’s argument that this indicates that the extended term was meant for the registered Government lessee only and not anyone else.  It does not follow from the fact that the right to opt out was conferred on the registered lessee, that the benefit of the extension was likewise conferred on that person.  The NTLEO operated by simply extending the term of the lease rather than by granting an extended term to a specified person.

67.  For these reasons I take the view that the judge’s answer to Question 2 is correct.  Ps’ cross-appeal must therefore be dismissed. If the matter had stopped here, some may find the outcome unsatisfactory.  It would mean that by accident, unknown to and unintended by either party to the 1983 Lease, D2, who agreed to take a 15-year lease expiring in 1998, had on 25 April 1988 become entitled to the land until at least 30 June 2047, leaving Madam Tang and her successors with practically nothing.  The judge found this result, which he reached “with some hesitation”, “surprising” and “anomalous”.[28]  By another twist of fate, however, the matter does not stop here, for D2 had failed to register the 1983 Lease.  This leads to Question 3 which is about the effect of that failure.

Question 3

68.  The issue is whether the 1983 Lease, by not being registered, was rendered null and void by the LRO as against the subsequent purchasers of the land in question (i.e. the Registered Owners).  Sections 3 and 4 of the LRO provide as follows:

“ 3. Priority of registered instruments; effect of non-registration

(1)  Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2)  All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes:

Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years, or to a regulated tenancy (as defined by section 120AA(1)  of the Landlord and Tenant (Consolidation)  Ordinance (Cap. 7).

4. Notice of unregistered instrument not to affect registered instrument

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.”

69.  The judge answered Question 3 in favour of the Registered Owners, for the reasons summarised in §§27-28 above.  Before us Mr Edward Chan SC contends that the judge fell into error.  His submissions may be summarised as follows:

(1)  The system under the LRO is one of registration not of title but of documents affecting title.  Registration of title deeds constitutes prima facie evidence only and is not the test of ownership. Registration is separate from the legal effects of the underlying transaction.

(2)  The system is for registration of instruments “by which … any parcels of ground, tenements, or premises in Hong Kong may be affected”: section 2(1).  Only documents that affect title or interest in land may be registered: Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76, 81-82.  Registration itself does not create any interest in land.

(3)  An instrument which does not affect land does not have effect under sections 3 and 4 even if it has been (wrongly)  registered. The correct approach is first to ascertain the validity and effect of the instrument itself, before considering its priority over other instruments by virtue of the LRO: Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd [1985] HKLR 103.

(4)  On the facts of the present case, by operation of the Milmo rule the 1983 Lease took effect as an assignment to D2 of the Government Lease.  It follows that Madam Tang had nothing left to assign to herself and DC8 as joint tenants by the Deed of Gift in 1986.  In 1988 the NTLEO simply extended the term of the leasehold estate already assigned to D2. It follows that DC8 acquired nothing by right of survivorship upon Madam Tang’s death in 1990, that DC8 had nothing to convey to DC7, and that DC7 in turn also had nothing to convey to Ps and the other purchasers.

(5)  Accordingly the Deed of Gift and the various subsequent assignments did not convey any interest in land and did not affect land.  They could not be and should not have been registered.  Section 3, including section 3(2), is premised on the validity of the instrument as one affecting land.  It does not assist Ps as their assignments did not affect the land.

(6)  Further, DC8 was a volunteer and not a purchaser for valuable consideration within the meaning of section 3(2).  Likewise Ps were not purchasers as there was nothing they could purchase from DC7.

(7)  In addition, Ps were in any event not purchasers “of the same parcels of ground” as the land held by D2 within the meaning of section 3(2), because DC7 had sub-divided the land and conveyed the divided parcels to different persons.  Not all of those persons have been joined as parties to the action.

70.  On behalf of DC8, Mr Anthony Chan SC essentially adopts these submissions.  He further submits that all that Madam Tang was left with after 1983 was a right to receive rent and a right of re-entry, which are contractual rights or mere equities and not interests in land, and that an assignment of such rights is not registrable under the LRO.

71.  To assess the arguments, it is necessary to examine section 3 more closely.  First enacted in 1844, the LRO can trace its ancestry to the system in Van Dieman’s Land (now Tasmania)  and in Western Australia and the Irish Registration Act of 1707 (6 Anne, c. 2, Ir.)[29] as well as the Acts establishing the West Riding Registry in Yorkshire (2 & 3 Anne, c. 4)[30] and the Middlesex Registry (7 Anne, c. 20)[31]: see W K Thomson, The Land Registration Ordinance of Hong Kong: Historical and Legal Aspects (1974)  4 HKLJ 242, 243-247; Bramwell, Conveyancing in Hong Kong (1981), p 198.  The object and wording of the LRO significantly differ however from the English Acts[32] and the Irish Act, and it is the provisions of the LRO that we must apply in the light of the applicable authorities.  Many of the authorities in Hong Kong have been discussed in the valuable article by Malcolm Merry, Nullity or Merely Lost Priority?  The Effect of Failure to Register a Document Concerning Land (2015)  45 HKLJ 87. 

72.  I start with the terms of section 3 itself.  It contains two subsections but it is important to note that they deal with different subjects.  Whereas subsection (1)  is concerned with the relative priorities between registered instruments – a question of precedence for satisfaction of the rights created by the instruments, subsection (2)  deals with the validity of an unregistered instrument as against two classes of persons.  Provided a person is a (i) bona fide (ii) subsequent purchaser or mortgagee[33] (iii) for valuable consideration (iv) of the same parcels, subsection (2)  stipulates that “all” registrable but unregistered instruments are “absolutely null and void to all intents and purposes” as against “any” such person.  These are clear, explicit, strong and unqualified words used by the Legislature to which the courts must give effect having regard to the objects of the statute. 

73.  There is no dispute that the 1983 Lease was registrable but unregistered, and that Ps were bona fide persons who paid market prices to purchase the land in question.  A straightforward application of the terms of section 3(2)  to the facts seems to me to suggest that the 1983 Lease cannot be set up by D2 as a defence to Ps’ claim. I must however examine the contrary arguments put forward on behalf of D2 and DC8.

74.  The main argument, as summarised above, is that the DC7/Ps Assignments do not affect land and are not registrable, since the title to the land had already been transferred to D2, and that section 3(2)  can therefore have no application.  The first problem with this argument, as it seems to me, is that this is not what the statute says. Section 3(2)  is not about the relative force or priority of registered instruments and, in contrast to the English and Irish Acts, does not in terms require the instrument by which the subsequent purchase is made to be registered.

75.  This was recognised in the earliest reported appellate decision on section 3(2)  of the LRO.  In Kwok Siu Lau v Kan Yang Che (1913)  8 HKLR 52, the defendant acquired a lease for five years of part of a property in March 1911, but failed to register it.  In October the plaintiff entered into an agreement for the purchase of the whole property without knowledge of the lease, and registered the agreement in November 1911 after learning of the existence of the lease.  The purchase was completed in January 1912 and the assignment was also registered.  When the plaintiff claimed possession from the defendant, at first instance Rees Davies CJ said that the wording of sections 3 and 4 is clear and should be applied according to its literal meaning.  He thought that the plaintiff, taking a legal estate after notice of a prior right, would not have been a bona fide purchaser but for the provisions of section 4, but held that in light of that provision, the plaintiff must succeed.  On appeal, the Full Court affirmed the decision. Havilland de Sausmarez J, giving the lead judgment, said (at pp 64-66):

“ Subsection (2)  provides that unregistered deeds are void against ‘any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels,’ apparently whether such a purchaser has registered or not. The Middlesex Registry Act is, it is contended, the same in its effect as Sub-section (2)  except that the words bona fide occur, and an ingenious argument was based on their presence in the Ordinance; but there is another and a material difference, for after providing for registration the Act goes on that every deed shall be adjudged fraudulent against any subsequent purchaser or mortgagee for valuable consideration unless such memorial thereof be registered before the registering of the memorial of the deed or conveyance under which such subsequent purchaser or mortgagee shall claim. The corresponding provision is contained rather in Sub-section (1)  than in Sub-section (2), and there is no reason why we should read them into the latter. Section 3(2)  appears to me to deal simply with unregistered instruments and it places a heavy disability on unregistered deeds, postponing them to other instruments whether registered or unregistered, under which a subsequent bona fide purchaser for value may claim the property in question. … It is said that the legislature cannot have intended to postpone a prior to a subsequent unregistered deed. That is an argument which would be of weight could not the priority of unregistered deeds inter se immediately be altered or confirmed by the registration of one of them. The penalty is severe, but the escape is easy.

…

The effect of the Ordinance, as I read it, is to make registration the test of priority, and by imposing harsh terms on persons failing to register to compel them to do so, and, further, to remove the doctrine of notice from transactions in land in the Colony.  For this course I can see excellent reasons. …”

Rees Davies CJ, also sitting in the appeal, said (at pp 66-67):

“ Section 3 sub-section (1)  deals with the priority of registered deeds. Subsection (2)  deals with unregistered deeds and provides that deeds which are not registered shall be void as ‘against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels,’ and I agree that it applies whether the subsequent purchaser has registered or not, and that the object of the Ordinance being to enforce registration the question of postponing a prior to a subsequent unregistered deed was apparently not regarded by the Legislature as an element of weight.”

The third judge, Gompertz J, was of the same view (see p 67).  Thus although in that case the purchaser’s assignment was in fact registered, all three judges of the Full Court recognised that the subsection hinges on the subsequent person being a bona fide purchaser for value rather than on whether he has registered his assignment or not.

76.  The same view was taken in Hang Tak Co Ltd v Chu Ying-lun [1965] HKLR 650.  In that case the defendants who were tenants of a property refused to deliver up possession upon the expiry of their term and tried to set up an option in writing to renew the lease as a defence to the purchaser’s action.  Blair-Kerr J held that the option was a fabricated document, but went on to say that even if it was genuine, it was unregistered and void as against the plaintiffs on the date of their assignment:

“ The plaintiffs were bona fide purchasers of the property for valuable consideration (apart from the fact that they had also registered their assignment). On the date of the assignment to the plaintiffs (1^st February, 1963), the alleged option for a further term of five years was absolutely null and void as against the plaintiffs. It was still null and void when the plaintiffs registered their assignment on 18^th February, 1963; and, even if the plaintiffs had been aware of the existence of such an option, this would not have prejudiced their position. They had complete protection under section 4 of the Ordinance, in the absence of fraud. By registering their assignment in 1963 they thereby gained priority, and their title was not adversely affected by the subsequent registration of a document purporting to be an exercise of an option to renew the lease.”

In this passage Blair-Kerr J clearly distinguished between the two subsections of section 3 and took the view that subsection (2)  takes effect upon the assignment to the subsequent purchaser.  Bramwell, op cit, at p 215 also states that “any unregistered instrument relating to the legal or equitable estate will be null and void as against a subsequent registered or unregistered instrument relating to the legal or equitable estate.”  Merry, op cit, at p 107 takes the same view that “[t]he nullity even applies if the deeds of subsequent purchase or mortgage are not registered.” 

77.  Indeed, a subsequent mortgage may not be registrable because there is no writing, such as in the case of an equitable mortgage by deposit of title deeds without an accompanying memorandum.  Mr Edward Chan accepts that in such a case a prior unregistered instrument would be rendered null and void as against a subsequent mortgagee when the mortgage was created.

78.  I should mention that in Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1991] 2 AC 43, which is discussed in §86 below, it was said that the unregistered written option was rendered void by section 3(2)  as against subsequent purchasers “as soon as the purchasers registered their sale agreement” (see p 63D).  The point was however not discussed in the Privy Council, and the reference to registration may have been derived from the statement in the Court of Appeal’s judgment that “by registering the agreement on the 18^th April the defendant had established its priority and after that date the holders of the options were unable to establish their priority by registering the tenancy agreements containing the options”.[34] The Court of Appeal was however referring to the agreement’s priority vis-à-vis the options if they were subsequently registered.  Further, it should be noted that by virtue of section 5 of the LRO, the priority of the agreement, if registered within one month, related back to its own date, i.e. 31 March 1988.  I do not think that Markfaith decided that section 3(2)  only applies when the subsequent instrument is registrable and registered.

79.  In any event, even if section 3(2)  only takes effect upon the registration of the subsequent purchaser’s agreement or assignment, for the reasons below I do not think this supports D2’s and DC8’s argument.

80.  One of the objects of the LRO, and in particular section 3(2), is, as stated in the Preamble of the LRO, “to prevent secret and fraudulent conveyances”.  Mr Edward Chan accepts that an unregistered deed creating an encumbrance or a lesser estate such as a lease would be null and void as against a subsequent bona fide purchaser for value, so long as there is something, however little, left in the estate purchased so that the purchaser can properly register his instrument as one affecting land.  But, he submits, an unregistered deed that conveyed the whole estate away from the purchaser’s predecessor-in-title means that the purchaser has acquired no interest in the land at all, that his assignment is therefore not registrable, and that section 3(2)  does not avail him.  With respect I can see no reason in policy or principle for a distinction to be drawn between these two kinds of secret conveyances for the purposes of section 3(2).  The subsection says “all” registrable but unregistered instruments are null and void, without distinction.  We are enjoined by section 19 of the Interpretation and General Clauses Ordinance (Cap 1)  to give the LRO “such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit.”  Plainly the object of section 3(2)  is to single out two classes of persons for protection, namely, subsequent purchasers and mortgagees, and to protect them against all kinds of registrable but unregistered instruments.  On D2’s argument, the LRO would fail to prevent a particular kind of secret conveyance, i.e. an unregistered assignment of the property, which would be impregnable under section 3(1)  or 3(2).  There is no reason to create such a lacuna in the law.

81.  In my opinion the flaw in the submission is that it wrongly applies the reasoning of cases on section 3(1)  to section 3(2).  In the context of section 3(1), there are numerous cases, many of which deal with charging orders, that emphasise that registration does not confer validity on an instrument and that to decide the true priority as between two instruments one has to take the approach of “validity first, priority second”. In the leading case of Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd (supra), the owner of a property had mortgaged it to a bank for loans but by way of refinancing decided to change bankers to the plaintiff.  On 23 February 1982, the plaintiff sent funds to the original mortgagee for discharging its mortgage.  On 1 March, the defendant, who had obtained judgment against the owner for a sum of money, obtained a charging order nisi on the property which was registered the next day, so that by virtue of section 5A the charging order had priority from 3 March.[35] On 13 March, the original mortgagee delivered a duly executed reassignment discharging its mortgage, and a fresh mortgage in favour of the plaintiff was entered into.  The reassignment was registered on 17 March, and the fresh mortgage on 8 April, which means that by virtue of section 5 these instruments had priority from 13 March.  On the face of it, therefore, the plaintiff’s interest under the fresh mortgage ranked after the defendant’s charging order.  Hunter J, however, accepted the plaintiff’s argument that by funding the discharge of the original mortgage on 23 February, it became entitled in equity to claim the same priority as enjoyed by the original mortgagee (see pp 107F-109H).  Further, the plaintiff’s equity thus arising was unwritten (p 110E-I)  and thus not registrable (pp 109J-110D).  The learned judge also rejected the defendant’s argument that it was a “subsequent bona fide mortgagee for valuable consideration” for the purpose of section 3(2), and so that provision did not avail it (pp 110J-111E).

82.  As regards section 3(1), disagreeing with the previous decisions of Briggs J in Consolidated Sales Ltd v Turner C Lynn [1970] HKLR 222[36] and of Mantell J in Kai Sun Investments Ltd v Dah Sing Bank Ltd [1986] HKLR 850, Hunter J said as follows (at pp 112H-113I):

“ … I can see no answer to the argument put … in the following terms: ‘the section only deals with the question of priority as between two or more validly registered interests. So you look to the question of validity first and priority second’.

…

Validity and priority are different concepts. The second only arises between valid effective documents. But a rule expressed like s. 3(1)  simply as a rule of priority, creates no presumption of validity and can operate satisfactorily without it. I can see no reason to make registration a test of validity or for suggesting that the invalid should somehow be perfected by registration. The words of the section require no more than that prima facie validity should be accorded to a registered document. If a challenge to such validity is made then the underlying transaction has to be investigated and the matter ruled upon. I can see no mandate in the section for shutting out such challenge in limine.

…

In my judgment s. 3(1)  does no more than provide for priority between valid documents of the defined classes which are registrable and registered.  Such registration is only prima facie evidence of ownership.  It does not exclude inquiry into the underlying transaction which is the subject matter of the registration.  The validity and effectiveness of such transactions depend upon the results of such inquiry independently of the fact of registration.”

83.  Similarly, in Si Tou Choi Kam v Wealth Credit Ltd [2018] 4 HKC 247, where a judgment creditor obtained charging orders against a property subsequently declared to have been wholly beneficially owned by the judgment debtor’s wife all along, this court held that the charging orders, granted against a property in which the judgment debtor had no interest, must be set aside, and that the question of priorities under section 3(1)  did not come into play.  Cheung CJHC explained as follows (at §14):

“ … section 3(1)  of the Ordinance, which provides that all instruments registered pursuant to the Ordinance ‘shall have priority one over the other according to the priority of their respective dates of registration’, simply does not come into play when one of the registered instruments is one that does not affect land. Instruments registered pursuant to the Ordinance in section 3(1)  can only mean instruments that are registrable in the first place and are in fact registered accordingly. An instrument which is not registrable has no place in the Ordinance, and the ranking of priority in accordance with the dates of registration as provided in section 3(1)  simply has no application. …”

84.  On behalf of Ps Ms Eu has no quarrel with these principles, but it should be borne in mind that they were set out in connection with section 3(1).  In contrast, section 3(2)  which employs the phrase “null and void” is concerned with validity.  Following Hunter J’s decision, in Ng Kam Ha v Vincent Sina Traders (HK)  Ltd [1987] 2 HKC 517 at 519F Mayo J stated that registration affected the priority of a transaction, not its validity, but his Lordship was careful to say this was “subject to the provision of s 3(2)”.  In fact, section 3(1)  begins with the words “Subject to this Ordinance”, which seem to me to mean that section 3(1)  is subject to the more particular provision in section 3(2)  in favour of subsequent purchasers where it applies.

85.  It is clear from the cases that section 3(2), where applicable, can operate to affect the validity of instruments and, in effect, confer a larger interest on the purchaser than his predecessor-in-title has.  Thus it has been held that a subsequent bona fide purchaser takes the property free of the following encumbrances binding on the vendor: an unregistered lease (Kwok Siu Lau v Kan Yang Che (supra); Mak Him v Chan Hung-pak [1965] HKLR 87; Citibank NA v Lai Tat-cheung [1986] HKLR 885), an unregistered option to renew a lease (Hang Tak Co Ltd v Chu Ying-lun (supra); Markfaith Investment Ltd v Chiap Hua Flashlights Ltd (supra)), an unregistered option to purchase units in a building to be constructed (Keep Point Development Ltd v Chan Chi Yim [2000] 2 HKLRD 145), an unregistered assignment of the right to use the roof (Fast Forward Ltd v Magicsound Co Ltd [1991] 1 HKLR 277), and an unregistered declaration of trust of the property (Chu Yam On v Li Tam Toi Hing (1956)  40 HKLR 250).

86.  In Markfaith Investment Ltd v Chiap Hua Flashlights Ltd (supra), the question was whether an option to renew for two years contained in an unregistered lease for a term of less than three years[37] is binding on the purchaser of the reversion.  The Privy Council, distinguishing the House of Lords’ decision in Eyre v McDowell (1861)  9 H L Cas 619 which held that under the applicable Irish Acts a judgment creditor only became entitled to the beneficial interest of the debtor in the property charged, held (at p 61E):

“ In the present case, however, the Ordinance is not limited to beneficial interest. Section 3(2)  provides that all registrable, unregistered instruments in writing shall be absolutely null and void to all intents and purposes against any subsequent bona fide purchaser for valuable consideration of the same parcels of ground, tenements or premises. In the present case the tenants and the purchasers claim and compete for the same parcel of ground; the tenants claim under an unregistered instrument which is void against the purchasers. Any other conclusion is inconsistent both with the language and the obvious purpose of the Ordinance.”

Lord Templeman, who gave the judgment of the Privy Council, went on to say: “Section 3(2)  … puts the purchaser in a better position than his vendor” (p 61G)  and is a “special provision of legislation as to registration” which rendered the options to renew which were binding on the vendor null and void as against the purchaser, thereby placing the latter in a better position than the former (see pp 62-63).

87.  In Chu Yam On v Li Tam Toi Hing (1956)  40 HKLR 250, the defendants executed a declaration of trust of the property they owned in favour of a school in 1932, but it was not registered.  The defendants subsequently in 1943 agreed to sell the property to the plaintiff and executed what was called a Japanese assignment during the Japanese occupation which by subsequent legislation[38] was regarded as an agreement to assign.  On the plaintiff’s claim to enforce the agreement, the defendants argued that specific performance should not be decreed because the conveyance would constitute a breach of trust by the vendor, and that a purchaser would be bound by the trust if he had notice of it before completion.  Pausing here it will be noted that, as between equities which are equal, the school’s interest being earlier in time prevailed over the plaintiff’s.  And if specific performance would consequently not be ordered in favour of the plaintiff, then the agreement would not affect land and would not be registrable and all that the plaintiff had would be a claim against the defendants for damages: see Anstalt Nybro v Hong Kong Resort Co Ltd (supra).  It would follow from the argument of D2 here that section 3(2)  would have no application.  Yet it was held at all three levels of courts[39] that since the declaration of trust was unregistered, it was, as against the plaintiff who was found to be a bona fide purchaser for value, “absolutely null and void to all intents and purposes” by virtue of section 3(2).  Giving the judgment of the Privy Council, Lord Somervell said (at p 257):

“ The written declaration of trust was unregistered and therefore as against the respondent, a bona fide purchaser, was to be ‘absolutely null and void to all intents and purposes.’ If the existence of the trust is to prevent the respondent obtaining the assignment to which she would otherwise be entitled, is this contrary to the section? The learned Chief Justice so regarded it. Under the Ordinance he held the trust must be completely disregarded. To use it to deprive the respondent of the right which apart from this point she would have is to have regard to it and this the Ordinance forbids.

Their Lordships agree. …”

88.  The argument raised by D2 is also, as admitted by Mr Edward Chan, inconsistent with Fast Forward Ltd v Magicsound Co Ltd [1991] 1 HKLR 277 (affirmed on appeal: [1991] 2 HKLR 529).  In that case the vendor in 1970 sold certain undivided shares in a building to a person together with the right to the exclusive use of various parts of the building including the roof.  In 1988 the vendor sold certain other undivided shares in the building to another person together with the exclusive right to use certain parts of the building which also included the roof.  Although the 1970 assignment was registered in the Land Office, it was not registered in relation to the roof, and this meant that the right to use the roof was registrable but unregistered (p 291F).  When the 1988 purchaser claimed possession of the roof from the successor-in-title of the 1970 purchaser, one of the defences raised was the maxim: nemo dat quod non habet – that having conveyed the right to use the roof in 1970, the vendor could not effectively convey to the plaintiff what it had sold and was no longer possessed of (pp 284I-J, 289F).  Rejecting the argument, Liu J said the Privy Council’s decision in Markfaith “lays to rest the application of that maxim to our land registration” (p 289H-I)  and said (at p 291F-G):

“ The right to use the surface of the Main Roof is registrable but unregistered. I have found that the plaintiff had no notice of the 1^st defendant’s right over the Main Roof. In reality, as Lord Templeman has summed up [in Markfaith], section 3(2)  of the Ordinance puts the plaintiff as purchaser in a better position than its vendor, Sui Ying. The 1^st defendant’s unregistered interest through Wong is null and void as against the plaintiff, a subsequent bona fide purchaser under the 1988 Assignment. Moreover, that 1988 Assignment is registered. The reservation in the 1988 instruments, viz. ‘subject to and with the benefit of .... all other subsisting rights’, could only refer to valid subsisting rights binding on the plaintiff as purchaser. By virtue of section 3(2)  of the Land Registration Ordinance, the 1^st defendant’s right of user is not such a valid and binding right.”

89.  Section 3(2)  was again applied in Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44 where the purchaser had actual knowledge of an unregistered option.  There the owner of a tenanted property sold his reversion to the plaintiff.  The agreement for sale provided the property was sold subject to a three-year tenancy, of which particulars were given including an option to renew for a further term of two years.  The agreement for sale was registered soon after it was entered into, but the tenancy agreement was not registered until many months later.  The Court of Appeal held, following Markfaith, that the option was null and void as against the purchaser for want of registration and that whilst the court will not allow a statute to be used as an instrument of fraud, it is not fraud for the purchaser to rely on legal rights conferred by statute despite his knowledge of the option.

90.  Mr Edward Chan relies on a dictum of Tang PJ in HKSAR v Lau Kam Ying (2013)  16 HKCFAR 595 at §19 that sections 3 and 4 of the LRO “concern priorities between registered instruments but do not affect remedies which may be available whether in contract, tort or equity.”  This statement must be seen in its proper context. In that case a company assigned parcels of land to indigenous villagers (referred to as Dings)  who executed declarations of trust in favour of the company, which were not registered.  The company was later wound up.  When it became known that the land would be resumed by the Government, the two directors of the company agreed with a solicitor named Lau that another company would be set up to acquire the land from the Dings so as to receive compensation for resumption.  The two directors and Lau were later convicted of conspiracy to defraud by dishonestly and falsely representing to the Government, inter alia, that the second company had acquired the land as a bona fide purchaser, thereby concealing the first company’s beneficial interest under the declarations of trust.  Lau sought leave to appeal to the Court of Final Appeal against his conviction, arguing that because the declarations of trust were not registered, the second company took free of them and the first company only had a claim against its trustees the Dings, but not against the second company.  Reliance was placed on Midland Bank Trust Co Ltd v Green [1981] AC 513 which held that a purchaser who had notice of an option but nevertheless decided to buy the land relying on the absence of registration of the option, did not lack good faith simply because she was taking advantage of a situation that the law had provided.  Tang PJ, giving the determination of the Appeal Committee of the Court of Final Appeal refusing leave, said (footnotes omitted):

“ But it is clear from Midland Bank Trustee that the unregistered option was not absolutely null and void to all intent and purpose, thus, for example, the grantee had a claim against the purchaser for damages for procuring a breach of contract. Midland Bank Trustee was not concerned with breach of trust but we do not doubt that, in the case of a trust, the beneficiary would have a claim for breach of trust against a purchaser who had procured the breach of trust. We have no doubt that the provisions relied on by Mr Chan concern priorities between registered instruments but do not affect remedies which may be available whether in contract, tort or equity.”

91.  In my view this does not assist D2.  The dictum affirms the principle that the court will not allow the LRO to be used as an instrument of fraud.  In a footnote Tang PJ referred to Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044, 1049H.  That case, as explained by Godfrey JA in Wellmake (supra)  at p 47C, was an exceptional one where a provision that the land was sold to the purchaser subject to and with the benefit of the plaintiff’s contract had been inserted in the contract between the vendor and the purchaser with the express object of conferring new rights on the plaintiffs which they would not otherwise have enjoyed.  To allow the purchaser to escape from its contractual obligation so created by invoking the statutory provisions as to registration would be to allow the purchaser to use the statute as an instrument of fraud.  In Wellmake this court decided the principle had no application where the sale and purchase agreement simply provided that the property was sold subject to the option to renew.  In Chu Yam On the Privy Council decided that a purchaser took the property free of an unregistered trust even though he had notice of it after the agreement to purchase but before obtaining the assignment.  In the present case there are no exceptional facts posited based on which Ps may be subject to a collateral claim for procuring a breach of contract or breach of trust.

92.  Mr Edward Chan also relies on Winland Finance Ltd v Gain Hero Finance Ltd (2022)  25 HKCFAR 17.  In that case, under a loan agreement, which was registered, the borrower assigned in favour of the lender as security the balance of all future proceeds of sale of a property owned by the borrower.  Subsequently the borrower entered into a loan agreement with another lender, who later obtained judgment against the borrower for the outstanding amount and a charging order against the property.  The charging order was duly registered.  It was held at first instance, and no longer disputed on appeal, that the assignment of future sale proceeds did not create any interest in or otherwise affect the property.  The charging order, taking effect as an equitable charge on the debtor’s beneficial interest in the property itself (rather than on its proceeds of sale), was not subject to the earlier assignment of future sale proceeds.  Mr Chan relies on §26 of Cheung CJ’s judgment where his Lordship explained why the registration of the first lender’s loan agreement was rightly vacated, as follows (footnotes omitted):

“ … what was also no longer in dispute after the CFI decision was that the assignment of the future proceeds did not create any interest in or otherwise affect the Property, so much so that the registration of the Winland loan agreement in the Land Registry against the Property was rightly vacated. This is because only instruments in writing that affect land may be registered in the Land Registry under the Land Registration Ordinance: section 2(1). Instruments that do not affect land are simply not registrable. The provisions in sections 3(1)  and (2), which govern priority, are only applicable to instruments that are registrable under the Land Registration Ordinance – where the instruments are all so registered, section 3(1)  determines priority; where a prior instrument that is registrable is not registered, section 3(2)  applies to render it ‘absolutely null and void to all intents and purposes’ as against ‘any subsequent bona fide purchaser or mortgagee for valuable consideration of the same [land]’. Where, however, an instrument does not affect land and is therefore not registrable, those provisions simply have no application.”

93.  In my view this passage does not assist D2’s argument.  In so far as his Lordship said section 3(2)  is inapplicable to an instrument that is not registrable, he was plainly referring to the only “instrument” mentioned in section 3(2), i.e. the one that is unregistered and liable to become null and void as against a subsequent purchaser.  Similarly it is well established that where a prior interest in land is unwritten and therefore not registrable, it is not affected by section 3(2): see Ho See Shing v Wan Ying Him (No 2) [1959] HKLR 483, 509; Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd (supra), p 110D; Lam Sau Wah v Tam Chi Hung [2001] 2 HKLRD 104, 112G-113B; Kingsway Finance Ltd v Wang Qingyi (HCA 360/2012, 24 July 2013), §16.  In the present case it has not been argued that D2’s interest was unwritten because it arose by operation of law and was therefore unregistrable. On the contrary it is common ground that his interest, whatever it might be, was created by the 1983 Lease which was registrable but unregistered.

94.  For the above reasons I would reject the argument advanced as being contrary to the language and object of the LRO and to the authorities on section 3(2).

95.  There is a related argument raised by Mr Edward Chan that Ps were not “purchasers” under section 3(2)  because they purchased nothing as there was no interest in land left.  I regard this as simply a variant of the argument above that Ps’ claim is not based on a registrable instrument affecting land.  “Purchaser” is not a term defined in the LRO.  It is unnecessary to consider whether the word bears its technical meaning in land law of a person who does not take by descent or its wider commercial meaning (see Commissioners of Inland Revenue v Gribble [1913] 3 KB 212, 218).  For the reasons explained above, I do not think it should be construed in such a way that the purchaser is protected only against unregistered instruments that create an encumbrance but not against one that denudes the title.  In Chu Yam On section 3(2)  was applied even though the plaintiff, but for the statute, would have acquired nothing in the land, given that he only had the benefit of an agreement to acquire a property that was being sold in breach of trust.

96.  In Sumpter v Cooper (1831)  2 B & Ad 213, an English case decided under the Middlesex Registry Act (7 Anne, c. 20), a debtor executed an assignment of his interest in certain houses to his creditor, which was not registered.  The debtor subsequently became bankrupt, and the assignment of his houses from the commissioners to the assignees was duly registered.  It was held that the earlier assignment to the creditor was void as against the assignees from the commissioners.[40]  Thus the assignees were treated as “purchasers” within the meaning of the Act even though the debtor had earlier assigned all his interest to the creditor.

97.  Of course the purchaser must be one who will have acquired title but for the prior unregistered instrument: see the passage in Chu Yam On cited in §87 above.  Section 3(2)  is not intended to assist a purchaser with other defects in title.  Thus, for example, a person who has purchased land from a fraudster who has forged the owner’s signature, or from a representative of the owner who lacks authority to sell the land, cannot claim to have become the true owner by relying on section 3(2).  Irrespective of any prior unregistered instrument, such a person has no title to the property.

98.  A complication in the facts of this case is that Madam Tang’s title first passed to DC8 (as joint tenant via the Deed of Gift, and then by right of survivorship upon Madam Tang’s death).  It is common ground that DC8 was not a purchaser or mortgagee for valuable consideration.  Does this make a difference?  In the court below DC8’s advocate said it does.  Where A’s land was transferred to B by an instrument which was unregistered, and A subsequently sold the same land to C, DC8 accepted below that C would obtain good title by virtue of section 3(2).  But DC8 contended that if, after the transfer to B, A gifted the land to C who then sold it to D, then D does not prevail against B because the chain of title was broken by C, a volunteer.[41]  In contrast, Mr Anthony Chan SC, adopting a different position on behalf of DC8 on appeal, said the purchaser cannot avail of section 3(2)  in either situation.  Likewise, Mr Edward Chan disclaimed any argument that where there was an intermediate owner in the chain of title who was not a purchaser, the ultimate purchaser cannot rely on section 3(2).

99.  In any event, on analysis I do not think that the fact that the title passed through DC8 makes a difference. Section 3(2)  makes the prior unregistered instrument absolutely null and void as against “any” subsequent bona fide purchaser for value, not just as against one who purchases directly from a party to the prior instrument, and it is rendered null and void “to all intents and purposes”, not just for the purpose of the first assignment of the property after that instrument.  In the above example B’s instrument is by section 3(2)  regarded as null and void as against D for all purposes, including the purpose of tracing D’s title to A through C.  B cannot assert his unregistered instrument against D.  As far as D is concerned, the law regards C as having acquired good title from A by the gift (since B’s instrument is null and void)  and as having a valid title to pass to D.  In my respectful opinion the judge below is correct in saying (at §113 of the Decision, footnotes omitted):

“ … the correct approach is in my view to examine title and priority as a relative matter, from the viewpoint of the competing claims made by D2 and the Registered Owners. D2’s claim to title arises squarely from the 1983 Lease. D2 and DC8 allege historic defects in the chain of title above the Registered Owners, which defects arise solely from the 1983 Lease. The effect of section 3(2)  is to render, for the purposes of resolving these completing claims, the 1983 Lease null and void to all intents and purposes. This entitles the Registered Owners to claim title … on the basis that the 1983 Lease is and was null and void; with the result that they take good title and defeat D2’s rival claim.”

100.  On the wording of the Irish Registry Act of 1707, the House of Lords held in Warburton v Loveland (1832)  6 Bligh NS 1, 2 Dow & Clark 480, that the provision making an unregistered deed void as against a subsequent registered deed was also applicable where the subsequent deed was executed, not by the grantor of the prior deed, but by his successor-in-title.  In that case, a woman who held a long leasehold (399 years)  assigned the term by a deed, executed also by her intended husband, to trustees on trust for the husband to receive the rents for life and, after his death, for the benefit of the wife and after her the children.  After the marriage, the husband granted a lease of the land for part of the term (345 years).  The lessees later assigned the lease for a valuable consideration. The marriage settlement was not registered.  The lease by the husband was registered.  The assignment of the lease was assumed not to have been registered.  After the husband’s death, the question arose whether the assignees’ title under the lease granted by the husband prevailed over that of the widow and trustees.  The House of Lords, after obtaining the opinion of the judges, who unanimously advised that the title of the assignees was to be preferred, agreed with the opinion and upheld the assignees’ claim for ejectment.  In the opinion of the judges, read by Tindal CJ, it was said (at pp 27-29 & 34-35):

“ From this general view, therefore, both of the preamble and the five first clauses of the statute, we think it cannot be doubted but that the statute meant to afford an effectual remedy against the mischief arising to purchasers for a valuable consideration, from the subsequent discovery of secret or concealed conveyances, or secret or concealed charges upon the estate. Now it is obvious, that no more effectual remedy can be devised than by requiring, that every deed by which any interest in lands or tenements is transferred, or any charge created thereon, shall be put upon the register, under the peril that if it is not found thereon, the subsequent purchaser for a valuable consideration and without notice, shall gain the priority over the former conveyance, by the earlier registration of the subsequent deed.

If the words of the fifth section will bear this construction, it is to be preferred to that which limits the operation of the clause to those cases only where both the conveyances are the deeds of the same man. For in the latter case, the remedy is obviously incomplete. The mischief to the purchaser is the same, whether the secret conveyance or charge arises from the deed of his immediate grantor, or that of a former owner of the estate. If the words of the statute will comprehend both, why is he to be protected against the secret deed in the one case, and not in the other? What just ground of complaint can be urged against such a construction by the grantee under the unregistered deed, executed by a former owner of the estate? … The language of the act throughout, and more particularly in the fifth section, seems to establish this to have been its leading object; that as far as deeds were concerned, the registry should give complete information; and that any necessity of looking further for deeds than into the register itself should be superseded: and it is manifest that no construction of the act is so well calculated to carry into effect this, its avowed object, as that which forces all transfers and dispositions of every kind, and by whomsoever made, to appear upon the face of the register, so as to be open to the inspection of all parties who may at any time claim an interest therein.

…

Now, it may be admitted, that as against the husband, who was party to the deed of 1779, that deed was valid; it may be admitted, also, that he could not, of right, exercise any powers over the property inconsistent with that deed; but, as by the non-registration of that deed, the grantees suffered him to have the appearance of right to the world at large, neither they, nor any claiming under them, are at liberty to set up the deed in opposition to the persons who have been deluded by the appearance of right in the husband.  This argument, therefore, which would be good against the husband himself, cannot be heard from the parties claiming under the settlement, against his grantee for a valuable consideration.”

Thus although the original leasehold had been assigned by the woman to trustees on a marriage settlement and the subsequent lease was not granted by the woman but by her husband who had but a life interest under the settlement, it was held that section 5 of the Irish Act (see footnote 29 above)  rendered the unregistered settlement “fraudulent and void” as against the subsequent lease.

101.  Although section 3(2)  of the LRO is differently worded, what was said by the judges in Warburton v Loveland based on the Irish Act is in my view equally applicable here.  In particular, the mischief to the purchaser is the same whether the secret conveyance was carried out by an unregistered instrument executed by his immediate grantor, or one by a former owner of the estate further up the chain of title.  There is no reason in principle or in the language of the LRO why D2 should be in a better position and the subsequent purchaser in a worse position if the land was purchased from Madam Tang’s donee DC8 rather than from Madam Tang herself.

102.  Finally I also reject Mr Edward Chan’s argument that because Ps only purchased certain sub-plots out of the Parent Lot, they were not subsequent purchasers “of the same parcels of ground” as that held by D2 under the 1983 Lease within the meaning of section 3(2).  As Ms Eu submits, the greater includes the lesser.  The land purchased by each of the Registered Owners is comprised entirely within the Parent Lot.  They and D2 are in each case competing for the same parcel of ground.

103.  In the light of the conclusions above, it is unnecessary and I do not propose to deal with the debate as to whether Madam Tang and her successors-in-title in any event retained a right of re-entry and whether that limited right is one that affects the land and is registrable under the LRO.

104.  It is also unnecessary to deal with Mr Edward Chan’s application to withdraw the concession made on behalf of D2 by his previous counsel that due to section 4 of the LRO, the question of actual or constructive notice was irrelevant to D2’s position vis-à-vis the Registered Owners.[42]  Mr Chan was concerned that he might be precluded by the concession from advancing some of the arguments he put forward on Question 3, but Ms Eu does not contend for and, for my part, I do not see any such constraint.

105.  For these reasons, the judge’s answer to Question 3 is in my opinion also correct.

Conclusions

106.  In my judgment the judge’s answers to all three Questions are correct.  I would accordingly dismiss D2’s appeal and DC8’s respondent’s notice as well as Ps’ cross-appeal. 

107.  On the issue of costs I would direct that D2 and DC8 may lodge written submissions within 14 days of the date of this judgment, and that Ps may lodge written submissions in response within 14 days thereafter, which will be dealt with by the court on the papers.

Hon Chow JA:

108.  I agree.