AMPLE SKY HOLDINGS LTD v. TRILLION WIDE CREDIT FINANCE LTD

HCMP 2203/2019

[2020] HKCFI 2862

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2203 OF 2019

_____________

_____________

_____________

JUDGMENT

_____________

Introduction

1.  By the Plaintiff’s Originating Summons, by which these proceedings were commenced, the Plaintiff (“P”) seeks relief consequent upon the application made by the Defendant (“D”) to the Land Registry for registration of a document purporting to be a loan agreement between P as purported borrower and D (a licensed moneylender) as purported lender (“the Purported Loan Agreement”) against the property known as Flat A, 16th Floor, High West, 16 Clarence Terrace, Hong Kong, of which P is the registered legal owner (“the Property”)

2.  In short it is P’s case that the Purported Loan Agreement is not a registrable document.

3.  The Land Registry has independently withheld registration of the Purported Loan Agreement pursuant to Regulation 15 of the Land Registration Regulations (Cap 128A) but, as the Land Registry has observed in a letter dated 12 March 2019, written to P, there is no provision in the Land Registry Ordinance (Cap 128) allowing the Registry unilaterally to remove an instrument which has been so withheld. In these circumstances, by its Originating Summons, P seeks an order from the court that the Purported Loan Agreement be forthwith vacated, de-registered or otherwise removed (or alternatively that any reference in the Land Register to the Purported Loan Agreement be removed) and a declaration that the Purported Loan Agreement is not a registrable instrument.

4.  The issue with which the Originating Summons is concerned was originally the subject of the counterclaim in HCA 288/2019, in which D is the Plaintiff and P is the Defendant (“the Writ Action”). In the Writ Action, D (as Plaintiff) makes claim for the principal sum and interest allegedly due under the Purported Loan Agreement. By way of defence in those proceedings, it is P’s case (as Defendant therein) that the Purported Loan Agreement is a forged document and that no loan was advanced by D to P.

5.  On the same day as the Originating Summons was issued (29 November 2019), P issued a summons in the Writ Action, applying for leave to amend its Counterclaim to delete the claim concerning D’s application for registration of the Purported Loan Agreement (the intention being to hive off this issue, to be litigated in the proceedings commenced by the Originating Summons). A consent summons was then issued on 3 December 2019 and, on the same day, the Master made an order by consent giving leave to amend the Counterclaim. The counterclaim was amended pursuant to this consent order on 5 December 2019. The result is that the claim that the Purported Loan Agreement is not a registrable instrument is no longer pursued in the Writ Action.

6.  P’s rationale in hiving off the issue relating to the attempted registration of the Purported Loan Agreement in this way is that, in applying for and maintaining the application for the registration of the Purported Loan Agreement, D is abusing the land registration system with a view to “freezing” the Property and that D should be restrained from such conduct at the earliest possibility.

APPLICABLE LEGAL PRINCIPLES

7.  it is common ground that an instrument may only be registered with the Land Registry under the Land Registration Ordinance, (Cap 128) if it creates some interest, legal or equitable, in the parcel of land in question (see, Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76 at 81).

8.  It is also common ground that the Court has inherent jurisdiction (a) to grant a declaration as to the registrability or otherwise of any document lodged with the Land Registry for registration and (b) order the removal or vacation of registration if the document in question is not registrable, if appropriate by summary determination (see Mok Mei Ling Rekeir v Lau Muk Fat [2019] 4 HKLRD 206 at §§35-37).

THE PARTIES’ CASES

9.  Quite apart from P’s case that it did not enter into the Purported Loan Agreement and that the loan described in it was not advanced (issues which are to be tried in the Writ Action), P contends that, the document does not and cannot create an interest in the Property and that therefore on any view is not registrable.

10.  On the other hand, D argues that the Purported Loan Agreement did create a registrable interest in the Property, specifically, either an equitable mortgage or an equitable charge.

11.  Whilst, plainly there is a difference in law as between an equitable mortgage on the one hand and an equitable charge on the other, it is not disputed that:

11.1   if it can be shown that, by the document in question, the parties intended to create an immediate interest in the relevant property, the document will be registrable: See, Gain Hero Finance Ltd v. Winland Finance Limited [2019] 2 HKLRD 503 at 518-519 (§43), and

11.2   it is not enough for the document in question merely to provide machinery whereby a registrable interest either will or may be created by some other transaction, the document itself must itself have the effect of creating the interest.

12.  I accept that, in determining whether or not the document in question does or does not create an immediate registrable interest in the relevant property, it is permissable not only to have regard to the language adopted in the document and the immediate surrounding circumstances but also to the parties’ subsequent conduct: see The Law of Personal Property (2nd edn, 2018), §15.092 (p. 411); The interpretation of Contracts (6th edn, 2015), p. 182, Agnew v, Commissioner of Inland Revenue, §48, In re Spectrum Plus Ltd (In Liquidation) [2005] 2 A.C. 680, §§159-160 and AG Securities v Vaughan [1980] 1 AC 417 at 469G.

THE TERMS OF THE PURPORTED LOAN AGREEMENT

13.  The Purported Loan Agreement is in Chinese. According to the certified court translation, its terms are as follows:

13.1     In the Recital of the Loan Agreement [HB/11/61], it is provided that:-

(a)     P, for personal investment activity, applied to borrow from D, with Mr He Xu Zhong and Mr Huang Ying Pin acting as guarantors (the “Guarantors”);

(b)     The Property would act as “collateral”.

(c)     On this basis, “this agreement is hereby entered into after negotiation…so that the parties shall be bound together”.

13.2     By Clause 1 [HB/11/61], the loan is a Hong Kong dollar facility.

13.3     By Clause 2 [HB/11/61], the loan is to be used for the purchase of the Property.

13.4     By Clause 3 [HB/11/61], the loan is for the amount of HK$6,350,000.

13.5     By Clause 4 [HB/11/61], the interest rate is 15% per annum.

13.6     By Clause 5 [HB/11/62], the loan period shall be 12 months, and the loan amount shall be transferred from D to Messrs Lo & Lo.

13.7     By Clause 6 [HB/11/62]:-

13.7.1     The source of repayment fund shall be “profit generated from legal commercial activities”;

13.7.2     The method of repayment is by way of 11 instalments each in the sum of HK$79,375, and for a final instalment in the sum of HK$6,429,375;

13.7.3     Time shall be of the essence.

13.8     By Clause 7 [HB/11/62], P undertakes and agrees to repay the loan to D as soon as possible until all loan amount has been repaid.  If P fails to repay an instalment (on time), the balance of the loan shall become due immediately and must be repaid in full forthwith.

13.9     By Clause 8 [HB/11/62-63]:-

13.9.1     P must utilise the loan in accordance with the use set out in the Loan Agreement;

13.9.2     P must repay the principal and interest in accordance with the terms of the Loan Agreement;

13.9.3     P has the obligation to accept D’s inspection to supervise the use of the loan proceeds and to understand P’s operations, and that P shall provide D with the relevant financial and accounting statements and information.

13.9.4     If “guarantee by guarantor is necessary”, the Guarantors shall perform the repayment obligation jointly and shall repay D all loan and interest due by P.

13.10     By Clause 9 [HB/11/63-65], P’s liability upon breach of the Loan Agreement is set out.  Specifically:-

13.10.1     If P does not repay the loan when it is overdue, D shall have the right to claim back the loan, and additionally charge penalty interest (at a monthly flat rate of 5% which is accrued on a daily basis) [HB/11/64/§9(1)];

13.10.2     If P defaults repayment for over 3 days, P and the Guarantors agree and authorise D to retain debt collectors to collect the defaulted payment, and agree to D disclosing P’s and the Guarantors’ information to those debt collectors, as well as for D to commence legal proceedings.  All such costs and expenses shall be borne by P and the Guarantors [HB/11/64-65/§9(2)].

13.11     By Clause 10 [HB/11/65], D is entitled to terminate the agreement by giving P one month’s written notice.  P shall within such notice period fully repay the unpaid principal and interest.

13.12     By Clause 11 [HB/11/65-66], the Loan Agreement is governed by Hong Kong law, and the parties agree to submit to the non-exclusive jurisdiction of the Hong Kong courts.  Furthermore, “[i]f there is any unresolved matter in this agreement, a supplemental regulation [agreement] shall be made through joint negotiation among all parties [concerned]”.

14.  P takes the following points in respect of the terms of the Purported Loan Agreement:

14.1    nowhere in the Purported Loan Agreement are the words “mortgage” (按揭) or “charge” (押記) used;

14.2    the word “Collateral does not create an interest in the Property;

14.3   there are no provisions expressly spelling out the terms or nature of the “collateral” or any enforcement procedure in relation thereto;

14.4   the document does not specify whether the “collateral” was intended to secure the payment of all moneys due from P to D or was limited to the outstanding amount of the purported loan referred to therein;

14.5   the document does not address the question of priority in respect of the “collateral” (this point was advanced in the context of the initial belief on the part of those representing P that Hang Seng Bank had advanced a loan and obtained a mortgage over the Property but, at the hearing, Counsel for P, Mr Martin Ho, acknowledged that there was no evidence of this and, stated that is was P’s case that the entire purchase price had been provided personally by Mr Huang, P’s sole director and shareholder, through the intermediary of a Mr He, apparently an acquaintance of Mr Wong Oi Chun, a director of D, to whom Mr He introduced Mr Huang);

14.6   the document is wholly silent as to how the “collateral” is intended to operate, and

14.7   these features (as summarised in paragraphs 14.1 to 14.6 above) are, so P contends, most surprising if the parties (especially D, a licensed moneylender and what P describes as a “professional party”) had genuinely intended the Purported Loan Agreement to have created any security interest in favour of D.

15.  D’s case as to the terms of the Purported Loan Agreement is as follows:

15.1   the recital in the Purported Loan Agreement to the effect that P had applied for the purported loan “with” the Property as “collateral” was sufficient to indicate the intention to create an immediate security interest in the Property;

15.2   the immediate context (an application for a loan to finance the purchase of the Property) was such that P could not have been under any illusion that it could have obtained such a loan without having to provide the Property as security. By signing the Purported Loan Agreement, the parties must have had the common intention of agreeing to and creating a security interest in the Property in return for the purported loan.

15.3   the Memorandum in respect of the purported loan closely follows the provisions of s 18(2) of the Money Lenders Ordinance (Cap 163), including, at (h), under the heading: “Method of security of loan”, the words “With one property” [specifying the address of the Property]”.

SUBSEQUENT CONDUCT

16.  The matters relied upon by P as casting doubt on the proposition that any secured interest was created by the Purported Loan Agreement are as follows:

16.1   P first  contends that if D had genuinely considered that the Purported Loan Agreement created a security interest in its favour and was registrable, it is unthinkable that it did not take steps to register it immediately after it was purportedly executed in order to preserve priority and avoid the risk of it being rendered null and void as against any possible subsequent registration of a document imposing any other interest on the Property, a  state of affairs which in fact subsequently occurred. In this respect, subsequent to the purchase of the Property and the date of the Purported Loan Agreement, a mortgage loan was apparently obtained from DBS Bank purportedly on the security of a mortgage against the Property (albeit a purported loan and mortgage which was entered into without Mr Huang’s knowledge or consent and without P’s authority).

16.2   Secondly, P points to the fact that, even though the Purported Loan Agreement is dated 9 February 2015, D did not attempt to register it until 29 January 2019, shortly before the commencement of the High Court proceedings as casting doubt as to whether D itself genuinely thought that it enjoyed any security interest over the Property and/or whether the Purported Loan Agreement was a registrable instrument.

16.3   Thirdly, P contends that if D genuinely thought that the Purported Loan Agreement created any security interest in its favour, it is unthinkable that D would not have resorted to O. 88 mortgage proceedings which would be the obvious step for any secured moneylender to take.

16.4   Fourthly, P retains the title deeds to the Property.

17.  The matters relied on by D as supporting the proposition that a secured interest in the Property was created by the Purported Loan Agreement are as follows:

17.1   D transferred the amount of the loan (HK$6,356,310) into the client account of Lo & Lo the solicitors for the developer/vendor of the Property to enable completion of the sale and purchase to take place;

17.2   By a written authorisation dated 20 March 2015 (“the Authorisation”), P purportedly appointed Wong Oi Chun, (“Mr Wong”, one of D’s directors and the deponent to the affirmation filed on behalf of D in these proceedings) to attend upon Lo & Lo to collect the title deeds relating to the Property.

18.  As regards the Authorisation to which reference is made in paragraph 17.2 above:

18.1   Mr Wong stated in his affirmation that, pursuant to the Authorisation, he collected the title deeds to the Property from Lo & Lo;

18.2   on the other hand, according to the affirmation of Lau Wai Leong, an assistant solicitor employed by Messrs Charles Chu & Kenneth Sit, P’s solicitors in this action, it is suggested that DBS Bank (Hong Kong) Limited had possession of the title deeds from 15 May 2015 until 12 January 2017; that P’s solicitors have thereafter had possession thereof and that at no material time has D had possession of the title deeds;

18.3   during the hearing of before me on 7 October, P’s counsel maintained (in his reply submissions) that the Authorisation is not a genuine document, albeit that it appears to bear P’s chop and a purported authorised signature.

18.4   I should add that in the defence filed in the Writ Action, it is pleaded that the purported mortgage of the Property to DBS Bank (Hong Kong) Limited was never authorised and that the Mortgage document was not executed by or on behalf of P.

DETERMINATION

19.  Whilst the wording of the Purported Loan Agreement certainly leaves a lot to be desired, I am not prepared to conclude summarily in P’s favour that it does not create a registrable interest in the Property. This is particularly so bearing in mind the contentious surrounding circumstances which in my view clearly require investigation at a trial at which the conduct of the leading players in this matter will come under full scrutiny with the assistance of cross examination.

20.  It is therefore in my opinion regrettable that the issue concerning the registrability or otherwise of the Purported Loan Agreement was split from the other issues in the Writ Action regarding the genuineness or otherwise of the document.

21.  Accordingly, I will make no order on the application before me other than to direct that these proceedings be stayed and stood over to the trial of the Writ Action, to be heard at the same time as that trial. I will make an order nisi that the costs of the Originating Summons be reserved to the Judge conducting the trial of the Writ Action.