WONG CHICK KEUNG AND ANOTHER v. WOO MAN SANG AND OTHERS

HCMP3490/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.3490 OF 1991

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J U D G M E N T

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1. The 1st defendant, Mr Woo, and the 2nd plaintiff, Madam Wan, were husband and wife. At the material times, the 1st plaintiff, Mr Wong, and the 2nd plaintiff, Madam Wan, were estate agents as Manager and Supervisor in the same company and Mr Woo was a taxi driver.

2. In or about mid July 1991, the plaintiffs intended to pull their resources together and invest in the property market. At the request of Madam Wan to her husband, he agreed to act as nominee of the plaintiffs in purchasing the property at Flat 3, 7th Floor, Block B, Greenview Garden, Shatin, New Territories, Hong Kong ("the Property") as tenant-in-common in equal shares. On 30 August 1991, the Property was assigned to Mr Woo who signed as the sole registered owner, but all the purchase price, legal expenses and stamp duty of the Property were paid by the plaintiffs. (In fact, when the sale and purchase agreement was signed on 14 July 1991, Madam Wan signed for the estate agent, her then employer.)

3. In purchasing the Property together, both Mr Wong and Madam Wan had obtained the prior approval of their employer, Mr Tin of Fortune Reality, who had reluctantly given his approval for once to them for the purchase of the Property as this would create certain conflict of interest between them and their clients and also with their subordinates as well.

4. Thus, the plaintiffs claim to be the beneficial owners of the Property and Mr Woo was just the trustee.

5. In the trial before me, counsel for the 2nd to 4th defendants and counsel for the third party had tried their best, which was entirely proper for them to do so, to question the plaintiffs as to whether the purchase price was actually paid by them instead of by the 1st defendant, Mr Woo. I do not intend to go into detail of the allegations and the version put forward by Madam Wan and Mr Wong. I accepted their evidence. In any event, any allegation in Mr Woo's defence was never supported by any evidence as he disappeared from the scene shortly afterwards as disclosed in the ensuing events hereinafter.

6. On or about 4 August 1991, Mr Woo had a great quarrel with Madam Wan at home. As a result of which, Madam Wan was assaulted by him. The marital relationship between the two of them deteriorated thereafter. By or about 12 October 1991, Mr Woo moved out from the then matrimonial home with Madam Wan and lived with his mother at Sau Mau Ping.

7. In the meantime, in mid September 1991, Mr Wong also had matrimonial problem with his own wife. In about mid September 1991, he moved into the Property and slept there three or four nights a week. By the end of September 1991, Madam Wan and Mr Wong decided to put the property up for sale. By this time, Mr Wong and Madam Wan had set up their own estate agency, called Lee Tat Kui ("利達居"), and their staff, a Ms Kwok, was responsible for the sale of the Property.

8. It was at this time that the 2nd to 4th defendants - the Mo's sisters (Lai Lung, Sim Lung and Oi Lung) - came into the scene. They were interested in about late October or early November 1991 in jointly purchasing a residential unit in Sha Tin area, either for investment or for self-use purposes. In the afternoon of 3rd November 1991, Lai Lung and Sim Lung (2nd and 3rd defendants) and their friend went to view the Property through Ms Kwok of Lee Tat Kui. They met Ms Kwok together with Madam Wan and Mr Wong at the entrance to the Property. They were introduced to the two sisters as Ms Kwok's colleagues. The price offered at that time was $1.9 million and the Mo's sisters counter-offered the price of $1.85 million. Two days later, i.e. on or about 5 November, Ms Kwok telephoned Lai Lung that the owner was willing to sell at $1.85 million.

9. In the evening of 7 November 1991, the three Mo's sisters together with their parents went with Ms Kwok to view the Property again. Mr Wong was already in the Property at that time. The next day, Ms Kwok asked Lai Lung whether she could sign the provisional sale and purchase agreement right away. Lai Lung asked her to relate to the owner to reduce the price to $1.83 million. Ms Kwok came back that evening and said the owner was only prepared to reduce the price to $1.842 million.

10. The next morning on 9 November 1991, Ms Kwok telephoned Lai Lung again and Lai Lung told her that she was willing to pay the price of $1.842 million and asked her to arrange with the owner to sign the provisional sale and purchase agreement. However, Ms Kwok later that morning informed her that she was unable to contact the owner. In the afternoon, Ms Kwok telephoned Lai Lung and informed her that the owner had then decided not to sell the Property.

11. The whole sequence of event seems to be a bit strange. However, what actually happened on the other side of the camp was that on or about 8 November 1991 when Mr Wong returned to the Property, he found that the lock of the gate and the door had been changed. The old lock had been prized open and was replaced by a new lock and an iron chain was applied to the iron gate. He suspected the lock was changed by Mr Woo. By then, he had already been informed earlier in November that Madam Wan had instituted divorce proceedings against Mr Woo. He informed Madam Wan of this matter.

12. In early November 1991, Madam Wan had already petitioned for divorce through her then solicitors, Messrs Paul Kwong & Co. Shortly before that, Mr Woo had sold another property held by him as a trustee for Madam Wan and refused to pay her the balance of the proceeds of about $400,000. Thus I was informed that in the matrimonial proceedings, Madam Wan had applied for an injunction order against Mr Woo and she filed an affirmation on 7 November 1991 in support of her application for an injunction order. But detail of this part of the matrimonial proceedings was not relied on in the action before me.

13. By 8 November 1991, although the purchase price had been agreed between Mr Wong and Madam Wan on one part and the Mo's sisters on the other part through Ms Kwok at $1.842 million, the beneficial vendors, i.e. the plaintiffs, could not secure Mr Woo to sign the sale and purchase agreement. That explains the back-out of the plaintiffs from the oral agreement with the Mo's sisters. On the next day, i.e. 9 November 1991, the plaintiffs had instructed Messrs Paul Kwong & Co. to institute legal proceedings against Mr Woo to protect their interests.

14. However, on 10 November 1991, Lai Lung received a telephone call from one of her agents looking for property for her, a Ms Queenie Ng ("Ms Ng"), an estate agent of Ever-Trust Property Consultant Company ("Ever-Trust"), informing her that there was an unit at Greenview Garden urgently for sale. The offered price was $1.75 million. The three sisters went to Greenview Garden in the afternoon and Ms Ng actually led them to the very property in question whilst on the previous day, the three sisters were informed through Ms Kwok that the owner had decided not to sell the property. Ms Ng had the key to the Property which she said was given to her by the owner. This time, Ms Ng informed the Mo's sisters that the owner wished to complete the sale of the Property as soon as possible and, in any event, the completion should be by the end of November 1991. Later that afternoon, the three sisters met Mr Woo at the office of Ever-Trust. After some negotiation, the price was agreed at $1.76 million.

15. Lai Lung did ask Ms Ng about the offer she received in the earlier days concerning the same property but Ms Ng said she did not know about that. The sisters were quite concerned as to the ownership of Mr Woo because of the happening before with Ms Kwok of Lee Tat Kui. Ms Ng then requested the 1st defendant to show them the mortgage documents in respect of the Property bearing his name thereon. Having been satisfied with Mr Woo's legal ownership of the Property, Lai Lung then signed on the provisional sale and purchase agreement prepared by Ever-Trust, and Mr Woo in turn also signed on the agreement.

16. The sisters then orally retained the third party, a firm of solicitors, Messrs Stevenson Wong & Co., to act as solicitors in the purchase of the Property and a copy of the provisional sale and purchase agreement was forwarded to them by Ms Ng at Lai Lung's instructions. Several days later, on or about 18 November 1991, the Mo's sisters attended the office of the third party. They paid to the third party, as stakeholder, the balance of the 10% deposit and signed on the formal sale and purchase agreement. The 1% estate agent's commission was also paid to Ever-Trust on the same day. The formal sale and purchase agreement was eventually dated 19 November 1991. Presumably, Mr Woo signed on the next day. It was then registered by the solicitors on 25 November 1991 and that is within one month of the date of the instrument.

17. In the meantime, on 18 November 1991, Messrs Paul Kwong & Co. issued an inter partes summons in the High Court (instead of an originating summons) seeking a vesting order on behalf of Mr Wong and Madam Wan against Mr Woo of the Property in question on the ground of the aforesaid beneficial ownership. They relied on a resulting trust in favour of them as they had paid all the purchase price for the Property. This so-called inter partes summons was registered in the Land Office by way of lis pendens on 22 November 1991.

18. On 4 December 1991, the third party requested the Mo's sisters to make a final inspection of the Property. Upon inspection which was accompanied by Mr Woo, they noticed that a set of hi-fi had already been removed and there were a few sundry items left in the wardrobes. Mr Woo told them that they could throw them away if they wished to do so. After the inspection, the sisters went to the office of the third party and signed on the assignment and the mortgage deed of the Property. The balance of the purchase price was also paid to the third party for onward transmission to the vendor, i.e. Mr Woo.

19. The third party in the correspondence with Messrs Paul Kwong & Co. stated that they had made a search shortly before 5 December 1991, i.e. the completion date of the Property and could not find the lis pendens registered against the Property. I am afraid I could not take that as evidence from the third party who did not give any evidence. There is a letter from the Land Registry clearly stating that by the time the lis pendens was registered, it would appear in the registry open to any body to search. At best, I would consider that the third party or the handling solicitor thereof had been misinformed by his clerk that a search had been made and no other encumbrances had been found when none was made or for whatever reason he did not notice the lis pendens registered. Be that as it may, it is the responsibility of the handling firm of solicitors to make a search shortly before the completion as has always been the standard practice of conveyancing in Hong Kong.

20. There are minor discrepancies between the evidence of Mr Wong and Madam Wan on one part and the Mo's sisters on the other part concerning the presence of Mr Wong on both occasions and the condition of the Property. The discrepancies were to my mind not material. For example, whether Mr Wong was present in both occasions when the Mo's sisters took a view of the Property with Ms Kwok or whether there were broken dishes in the kitchen on both occasions giving the Mo's sisters the impression that the Property had not been occupied by anyone. Both Mr Wong and Madam Wan had frankly admitted that even for whatever reason, if a purchaser, including the Mo's sisters, asked them who were the actual owners of the Property, they would not reveal at that time that they were actually the true beneficial owners of the Property. Thus it is not a case where due enquiry should be made and if made, the beneficial interest of another person could have been discovered.

21. Mr Woo had never appeared in these proceedings since filing his defence. The fight was between the beneficial owners and the Mo's sisters who also joined their previous solicitors as third party. In so far as may be necessary, I prefer the evidence of the clear, frank and prompt evidence of the Mo's sisters to that of Mr Wong and Madam Wan as to their presence.

22. But all witnesses who have given evidence before me are honest witnesses. I just found that Mr Wong and Madam Wan might not be accurate as they have seen several purchasers (three to four prospective purchasers), and they might have confused those occasions with the two occasions with the Mo's sisters after nine years. However, the Mo's sisters wanted to paint a picture that they could not detect any habitation or occupation of the Property. This is not necessary since the true owners would not reveal their identity any way. Thus, no reasonable and due enquiry could discover the beneficial ownership of the Property and the matter only could be considered as to the various equitable rights and priorities under the doctrine and principle of Equity and The Land Registration Ordinance which I shall consider hereinafter.

23. But before I do, I would just add here that since the aforesaid events, Madam Wan has divorced from Mr Woo and she has married Mr Wong and they are now husband and wife.

Two competing equities

24. In considering two competing equities, the rule of equity is that the first in time would prevail. The resulting trust must be first in time before the Mo's sisters' sale and purchase agreement on 19 November 1991. However, this rule of equity is subject to the proviso that the plaintiffs' beneficial interest would be defeated by a bona fide purchaser without notice of their interest in equity. It has never been suggested that the Mo's sisters were not bona fide purchasers. The only curious incident which did occur to them was that they were informed previously by Ms Kwok of another estate agency that the owners (but in Cantonese there is no singular or plural in the word itself) have decided not to sell the Property on 8 November whereas they met the owner the next day through another agent, Ms Ng. This put them on notice and they had made due enquiry in order to ascertain the identity of the true registered legal owner. Mr Woo did satisfy them by producing his document evidencing that he was the registered owner. Since, as I have said, both Mr Wong and Madam Wan had said that they would not reveal their beneficial interest to a prospective purchaser even on his specific enquiry, there was no possibility that any purchaser would have known their beneficial interest behind this trust until they had taken action by registering their so-called inter partes summons.

25. Thus, simply on the principle of equities, the beneficial interest of the plaintiffs under the resulting trust would be defeated by the Mo's sisters in entering into a sale and purchase agreement with Mr Woo, the legal trustee as a bona fide purchaser without notice.

The Land Registration Ordinance

26. The formal sale and purchase agreement was registered within one month of estate, i.e. on 25 November 1991. The inter partes summons was issued on 18 November 1991 but was only registered on 22 November 1991. What is the priority of these registrations? The following provisions under the Land Registration Ordinance, Cap.15 ("the Ordinance") are relevant :

"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.

.....

5. Period within which instruments to be registered after execution

All deeds, conveyances, and other instruments in writing, and judgments, which are duly registered within the respective times next mentioned, that is to say, all deeds, conveyances, and other instruments in writing which are registered within one month after the time of execution thereof respectively, and all judgments which are registered within one month after the entering up or recording thereof, shall severally be in like manner entitled to priority, and shall take effect respectively by relation to the date thereof only in the same manner as if this Ordinance had not been passed.

5A. Priority of registered charging orders and lites pendentes

Notwithstanding section 3 or section 5 a charging order or lis pendens which is duly registered shall have priority from the commencement of the day following the date of its registration." (emphasis added)

By reason of the aforesaid provisions, under section 5, the sale and purchase agreement would take effect on the date of its instrument, i.e. 19 November 1991 since it was registered within one month of its execution, whereas the lis pendens would only take effect on the day following the date of its registration, according to section 5A, i.e. 23 November 1991. Thus, according to section 3(1) of the Ordinance, they shall have priority one over the other according to the priority of the respective dates of registration, which date shall be determined in accordance with regulations made under this Ordinance.

27. In short, the agreement should take priority over the lis pendens in favour of the purchasers, i.e. the Mo's sisters, being the 2nd to 4th defendants herein.

28. When the purchasers had priority over the registered lis pendens, their equitable interest would have already defeated the priority of the plaintiffs' beneficial interest under the resulting trust. By 5 December 1991, the Property was completed and the trustee had conveyed the legal title to the purchasers. The only recourse of the plaintiffs as beneficial owner under the resulting trust was against the trustee. Accordingly, the action of the plaintiffs against the 2nd to 4th defendants failed.

The position of the third party

29. It is accepted that all solicitors owe their clients, the purchasers, the duty in contract and torts to exercise all due professional care, skill and diligence as solicitors in relation to the conveyance of the property. On the facts of this case, I must say that they had failed to meet this standard and requirement. It is a well established conveyancing practice that a prudent solicitor representing a purchaser should conduct at least two searches in the Land Registry so as to ensure that there is no adverse encumbrances on the register of title first. The first search may be either historical search extending back to the root of the title or a current search disclosing details of current ownership only. In any event, a competent and prudent solicitor must conduct a second search before completion. In Hong Kong, the second search is usually done on the date of completion. See Barnsley's Conveyancing Law and Practice (4th ed.) at page 375 and Sihombing & Wilkinson : Hong Kong Conveyancing Law & Practice at VI [318] and XIV [44]-[46].

30. In this case, I have found, as a matter of fact, that no such search has been done by the third party. The purchasers were not informed or otherwise totally kept in the dark until after the completion of the transaction of the Property, notwithstanding there was a registration of the plaintiffs' inter partes summons in the Land Registry on 22 November 1991. Thus, the third party was in breach of its professional duty to the purchasers and therefore should be liable for any loss and damages suffered by the purchasers. This is in respect of their liability.

31. In the event of what had happened in this case, the purchasers gained priority by the registration of the formal sale and purchase agreement. This does not mean the third party has no liability for their breaches but the event would only save the third party in terms of minimizing the quantum of damages. The 2nd to 4th defendants are entitled to be totally indemnified by the third party in respect of any costs or expenses which they have to pay but could not recover from the plaintiffs. For what is worth, this quantum would have to be assessed if there is no agreement between the parties, and I think the fairer course is just to order assessment of damages before a master should such course is required.

Conclusion

32. The action of the plaintiffs against the 1st defendant, Mr Woo, i.e. the 2nd plaintiff's ex-husband, has not met any opposition ever since the filing of the 1st defendant's defence. However, since it is my decision that the 2nd to 4th defendants have gained priority in this case and their legal title could not be disturbed, the action against Mr Woo for the vesting of the legal title on the plaintiffs would fail. But the plaintiffs are entitled to all damages suffered by them as a result of the breach of trust of the 1st defendant as a trustee.

33. They are also entitled to the claim of conversion of those chattels which were probably converted by Mr Woo but not the Mo's sisters.

34. Thus I would order that the plaintiffs (as claimed by them) are entitled to a declaration against the 1st defendant that the 1st defendant has since 5 December 1991 been holding the proceeds of sale of the Property on trust for the plaintiffs absolutely and the incidental tracing order and accounts, and enquiries and payment of all sums due to and damages suffered by the plaintiffs against the 1st defendant in breach of the said resulting trust. They are also entitled to judgment in the sum of $46,000 (by way of their claim in conversion) against the 1st defendant with interest at 10% from the date of the writ until judgment.

35. The claims of the plaintiffs against the 2nd to 4th defendants are dismissed.

36. The 2nd to 4th defendants are entitled to an order of indemnity for all costs and expenses incurred by the 2nd to 4th defendants in defending the present action of the plaintiffs, against the third party and all damages, if any, to be assessed by a master, suffered by them by reason of the third party's aforesaid negligence.

37. In respect of costs, the 2nd to 4th defendants are entitled to costs in defending the action against the plaintiffs, and also the costs in the third party proceedings against the third party.

38. The plaintiffs are entitled to costs against the 1st defendant and an order of indemnity of their costs in this action against the 1st defendant. The plaintiff's own costs are to be taxed according to the Legal Aid Regulations. I therefore make the costs order nisi accordingly as aforesaid.

Epilogue

39. It is noted that in the judgment herein, I have not cited the number of cases referred to me by the three counsel appearing in their submissions, further submissions and reply submissions. I intend to deal with the issue of priority simply on the accepted principle in equity and the statutory provisions. It is by no means disrespectful to their efforts. On the contrary, I am deeply grateful to their enormous assistance in this case.