LAM SAU WAH v. TAM CHI HUNG AND ANOTHER

HCMP3135/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.3135 OF 2000

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J U D G M E N T

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1. This case concerns Flat G, 27th Floor, Yee Shan Mansion, Kao Shan Terrace, 7 Tai Fung Avenue, Tai Koo Shing, Hong Kong ("the Property").

2. On 21 February 1992, the plaintiff became the registered owner of the Property.

3. On 14 November 1997, one China Weal Ltd issued a Writ and a Statement of Claim against the plaintiff. On 18 November 1997, the Writ was registered in the Urban Land Registry against the Property under Memorial No.733958.

4. In that case, China Weal Ltd claimed a declaration that the Property was held by the plaintiff on trust for China Weal Ltd absolutely and for vacant possession of the Property and consequent orders. The plaintiff defended the case and won.

5. On 18 April 2000, the court declared that China Weal Ltd was not entitled to register the Writ and ordered that the registration be vacated. It was duly vacated by registration of the sealed copy judgment on 8 May 2000 under Memorial No.8069554.

6. On 22 April 2000, the plaintiff and the defendants entered into a provisional agreement for sale and purchase of the Property at a price of $3,050,000 and paid an initial deposit of $100,000. This was registered on 19 May 2000 under Memorial No.8079911.

7. On 12 May 2000, they entered into a formal agreement for sale and purchase, which superseded the provisional agreement, and the defendants paid a further deposit of $205,000. This formal agreement was registered on 26 May 2000 under Memorial No.8086233.

8. On 29 May 2000, China Weal Ltd appealed against the judgment and on the same day registered the Notice of Appeal under Memorial No.8090562. No application was made for any stay of execution of the judgment pending appeal.

9. Various requisitions were raised by the defendants' solicitors in their letter of 15 June 2000 to the plaintiff's solicitors. One related to the registration of the Notice of Appeal. The defendants' solicitors required this to be vacated before completion could take place on the basis that it was equivalent to a pending land action. The plaintiff's solicitors argued that it was not. Accordingly, these proceedings were issued for a declaration that good title to the Property has been shown and for a declaration that the requisition or objections to the title to the Property raised by the defendants in their solicitors' letter of 15 June 2000 have been sufficiently answered.

10. In fact, the only question now before me is that which relates to the Notice of Appeal. The question is whether the plaintiff has shown and can pass a good title to the Property to the defendants notwithstanding the registration of the Notice of Appeal.

11. The plaintiff argues that the Notice of Appeal is not a pending land action within the meaning of the Land Registration Ordinance because the main land action has already been tried and determined by the Court of First Instance. The plaintiff further relies on the fact that no application was ever made for stay of execution pending appeal, and that by Order 59, rule 13(1) of the Rules of the High Court, an appeal does not operate as a stay except insofar as the court below, or the Court of Appeal, or a single judge may otherwise direct.

12. If, however, the Notice is a pending land action, the plaintiff says that the sale and purchase agreement has priority as having been registered first. Ho King Yim v. Lau King Mo [1980] HKLR 42 is relied on as authority for the proposition that once there is an assignment, it merges with the contract for sale and purchase, so a charge created after the date of the contract cannot rank prior to the interest of the purchaser. This was followed in Country Rich Development Ltd v. Ma Chan Fuk-kiu and Others [1995] 1 HKLR 265.

13. The defendants say that they should not be forced to "buy a lawsuit". They rely on the dictum of Lindley LJ in Re Heaysman and Tweedy's Contract (1893) 69 LT 89 :

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

14. So long as the Notice of Appeal remains on the Register, the defendants are in any event buying a lawsuit because it is they who will have to apply to vacate it. They are not getting the title they contracted for, particularly by reference to clauses 5, 23 and 33 of the sale and purchase agreement. They cannot dispose of the Property freely to another third party or even mortgage it, so long as the Notice remains on the Register.

15. A good title is such title as will enable the purchaser to hold the property against any challenger; see Sihombing and Wilkinson, Hong Kong Conveyancing, Vol. 1, Chap. V[2]; also Kan Wing-yau v. Hong Kong Housing Society [1988] 2 HKLR 187 at 193 where, as Clough JA put it :

"A good title is one which can at all times and in all circumstances be forced on an unwilling purchaser in an action for specific performance".

16. The first question must be whether the defendants, if they buy the Property with the registered Notice of Appeal, will be able to hold it against China Weal Ltd.

17. In section 1A of the Land Registration Ordinance, Cap.128, "lis pendens" is defined as :

"(a) any action or proceeding pending in a court or tribunal that relates to land or any interest in or charge on land...."

It seems to me that the Notice of Appeal must come within this definition.

18. By section 11 of the Ordinance, the provisions relating to judgments are extended to lites pendentes. Section 2 provides for the registration of judgments; and section 3 provides :

"(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."

19. There is no doubt that the sale and purchase agreement was registered before the Notice of Appeal. At that stage, the original registration of the Writ taken out by China Weal Ltd had been vacated. Relying on the authorities cited by the plaintiff, it would follow that the plaintiff has priority and could successfully resist any claim by China Weal Ltd.

20. The defendants seek to distinguish these cases, which related to the priority of written instruments, by referring back to the original equitable claim of China Weal Ltd. The defendants say that the Ordinance only protects written instruments but not unwritten interests in land. The general law principles of priority apply to them. The defendants are bona fide purchasers, but they had notice of a prior equitable interest before completion and, therefore, would remain subject to that interest.

21. With respect, I do not see that this can be right. I have not seen the judge's reasons for his judgment in China Weal Ltd's case against the plaintiff, but he must have decided that China Weal Ltd had no prior equitable interest in the Property, otherwise he would not have ordered the vacation of the registration of the Writ. Until the Court of Appeal, or the Final Court of Appeal decides otherwise, there is no equitable interest. China Weal Ltd may still be asserting such an interest by appealing but that does not mean that it exists. One cannot simply assume that an equitable interest will be found to have existed at the end of the day nor should the plaintiff have to wait and see what China Weal Ltd will do, and how far that company will take the matter.

22. It seems to me that the plaintiff has priority and could successfully resist a claim for possession by China Weal Ltd. However, this still leaves open the defendants' objection that they are in any event in practice "buying a lawsuit", and that they are not getting what they contracted for in terms of clauses 5, 23 and 33 of the sale and purchase agreement and so are entitled to rescind. It also leaves open the question of their ability in practice to sell or mortgage the Property.

23. Clause 5 provides that the vendor shall assign the Property as legal owner and free from incumbrances. Clause 23 provides :

"The Vendor hereby declares and confirms that no third party and/or occupier (whether related or otherwise) has any right or interest whatsoever whether legal or equitable in the Property. The Vendor confirms that he is the sole legal and beneficial owner of the Property. In the event of any third party or occupier claims to the Property, the Vendors shall forthwith return all the deposits or all other money paid by the Purchaser and without prejudice to the Purchaser's right to claim against the Vendors for all losses and damage sustained by the Purchaser (including stamp duty paid or payable) by reason of the Vendor's failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendors for execution. This clause shall survive completion of the sale and purchase of the Property hereof."

Clause 33 provides :

"The Vendor hereby warrants and undertakes to vacate or discharge the Writ of Summons Memorial No 7339548 before completion. Otherwise, the Purchaser shall be entitled to rescind this Agreement and all deposits paid hereunder shall be returned forthwith to the Purchaser."

24. Clause 23 seems to me to provide an insurance, to be continued after completion, against all and any claims by a third party. That is what it says. It does not qualify the claim in any way. No doubt this is a standard catch-all clause put in to enable a purchaser to get out of the contract and get his money back even after completion if some third party claim is made, whether by an occupier or anyone else.

25. I do not necessarily see that clause 33 is related directly to clause 23 as the defendants argue, but this does not matter. Clause 23 is wide enough, it seems to me, to give the defendants the option to rescind if there is any third party claim. Here, there is a third party claim by China Weal Ltd even if it is a defeasible claim.

26. The defendants say that they are not getting the title they contracted for and so long as there is an outstanding claim of this nature, that seems to me to be right.

27. The other problem is, of course, that no matter how defeasible the claim of China Weal Ltd may be, as long as the Notice remains on the Land Register, it is a blot on the title. I have not heard any evidence that it would cause a mortgagee not to lend money, or a purchaser not to purchase, though I can well imagine that it might. I cannot see that it can be disregarded when one looks at the commercial reality of the position of the parties.

28. The defendants rely on Luxmoore J's description of a "good marketable title" in Re Spollon and Long's Contract [1936] Ch 713 at 718 where he said :

"The purchaser having bought on an open contract, was entitled to have a good marketable title, which, as I understand it, is a title which will enable him to sell the property without the necessity of making special conditions of sale restrictive of a purchaser's rights."

29. Obviously, it would be in the defendants' interest to remove the blot. To do so, they would have to apply to the court, as they could, under section 19 of the Ordinance. No doubt the court would have little difficulty in making an order to vacate the registration. However, they would still have to make the application. They would be buying a lawsuit along with the title even if it is one they could expect to win.

30. The plaintiff says that a good title need not be a perfect title and for authority relies on the dictum of Litton PJ in Mexon Holdings Ltd v. Silver Bay International Ltd [2000] 2 HKC 1, at page 8G-H:

" First principles

A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain."

31. It is certainly true that the courts apply a common sense approach to the question of title. I refer to the words of Liu JA in Jumbo Gold Investment Ltd v. Yuen Cheong Leung and Another [1999] 3 HKLRD 825 at 833F-G:

"In a vendor and purchaser summons under s.12 of the Conveyancing and Property Ordinance (Cap.219), the court would be considered best guided by the commercial reality as to whether there is any real risk of problems in title. It is not to be troubled by the absence of an absolute risk-free assurance, nor unduly hampered by strict legal proof in matters requisitioned. Conveyancing practice must be geared to uphold bargains."

Though Liu JA gave the dissenting judgment in the Court of Appeal in that case, his approach was approved by the Court of Final Appeal in its decision in the same case reported at [2000] 1 HKLRD 763.

32. The problem is that this approach, which is essentially the same approach taken by Lindley LJ in Re Heaysman and Tweedy's Contract, involves looking at the likelihood that a third party will in fact pursue a possible claim which will interfere in some way with the purchaser's title. If there is the slightest reasonable chance of any lawsuit being instituted, then the title is not good.

33. Mexon Holdings Ltd and Jumbo Gold Investment Ltd were decided on the basis that while Government might have had a claim, there was no real likelihood that a lawsuit would be instituted. These authorities do not cover the position in this case where the purchasers, irrespective of whether or not a third party claim is likely to be pursued, or, if pursued, successful, will themselves require to institute a lawsuit, at a cost to themselves, to remove the blot from the title. It seems to me that the common sense approach here must be on the side of the defendants.

34. For these reasons, it seems to me that the plaintiff has not shown and cannot convey a good title to this Property. I find in favour of the defendants and dismiss the plaintiff's claims. As counsel have indicated, the parties have agreed to bear their own costs, so I make no order as to costs.