LAU AH SUM v. JING YING SHE LTD.

HCMP 6497/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6497 OF 1998

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J U D G M E N T

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1. This is an action by way of Originating Summons in which the Plaintiff, who is the Registered owner of a property known as Shop No. 4, Ground Floor, 93, Lion Rock Road, Kowloon City, Kowloon, applies to have removed from the Register of Land, a 'lis pendens' registered by the Defendant.

2. The facts giving rise to this are shortly stated. On or about 19th August 1997 the Plaintiff agreed to sell his property to Horn Group Limited, completion to take place on or before 31st March 1998. This agreement is referred to as the Principal Agreement.

3. By a Sub-sale agreement dated 27th August 1997 Horn Group agreed to sell to Right Fine (Hong Kong) Limited completion, to take place on or before the 31st March 1998.

4. Finally by a Sub-sub-sale agreement dated 3rd September 1997, Right Fine agreed to sell to the Defendant in this action.

5. Deposits were paid in respect of all three transactions.

6. On the date specified for completion in the Principal Agreement, Horn Group failed to complete the purchase and the Plaintiff's Solicitors gave notice of acceptance of the repudiation and of forfeiture of the deposits paid. The Plaintiff's Solicitors had registered at the Land Registry the Principal Agreement. Accordingly, as provided for by clause 11(3) it registered, on the 11th May 1998, a Memorandum of Rescission (dated 20 April 1998).

7. The position in relation to the parties to the Sub-sales is not wholly apparent save that Right Fine, for some reason, attempted to forfeit the deposit paid by the Defendant in respect of the last Sub-sale. How the Defendant's deposit came to be so vulnerable and unprotected is unknown and is not the concern of this Plaintiff, unfortunate though it obviously is for the Defendant. It is this state of affairs which has given rise to this Plaintiff's action.

8. The Defendant commenced proceedings against Right Fine on 8th April 1998 claiming, inter alia, return of deposit, damages and a declaration for an equitable lien on the property, the subject matter of the Sub-sale - i.e. the Plaintiff's property. Neither the Plaintiff nor any other party in the proposed chain of transactions was a party to that action. The Defendant registered the Writ in the Land Registry on its date of issue.

9. The Defendant eventually obtained a judgment against Right Fine on the 27th November 1998. Two earlier applications had been unsuccessful, I know not why. Right Fine had filed no Defence.

10. The Defendant's judgment in that action was for the amount of the deposit paid, ($2.68m.); it was also to have damages for breach of contract assessed. The Court did not grant the declaration for a lien upon the property. There was no appeal by the Defendant against this refusal. The Defendant has refused the Plaintiff's requests to vacate the registration of the Writ.

11. The Defendant if it sought to pursue any issue in respect of the chain of transactions with a view to obtaining some remedy against one or more of the parties thereto, or some security in respect of the property in question, could, and should have joined those parties. There is no litigation by the Defendant pending against the Plaintiff, the Defendants action in registering the Writ being solely to try and secure repayment of the deposit or payment of the damages for breach of the contract of the Sub-sub-sale, against the Plaintiff's property.

12. From the outset it has struck me that there is a seeming lack of equity and logic in the Defendant's action.

13. Section 1A of the Land Registration Ordinance defines "lis pendens" as "any action or proceeding pending in a Court or tribunal that relates to land or any interest in land or charge on land." The Defendant's action against Right Fine did not relate to "land or any interest in land or charge on land." It simply sought a declaration for an equitable lien on the property which was not in Right Fine's ownership and in which Right Fine had no interest. Furthermore the Defendant's action relates to a claim for the return of the deposit and damages. The declaration it sought which was not granted and which it has not pursued was the means of securing what it sought on the property of a person who was not a party to the action. The purpose of registering a pending action as a land charge is to prevent alienation during the pendency of the suit or action without notice to a potential purchaser or mortgagee of the litigation. If the litigation is not concerned with land or an interest in land it should not be registered.

14. Section 19 of the Ordinance enables a Court to make an order vacating the registration if it is satisfied that the litigation is not pursued bona fide, or for other good cause shown. If I am wrong on my interpretation of section 1A's definition of "lis pendens" it is paramount that good cause has been shown by the Plaintiff why it should be vacated. The declaration sought by the Defendant has been refused. It has no interest in the Plaintiff's land which could possibly justify its conduct. The Plaintiff has not been made a party to any litigation relating to land. The Defendant has had ample opportunity to pursue this if it wished to do so and it is apparent that it has not done so because it does not consider it has any such interest. The Defendant's claim against Right Fine does not aver or allege anywhere that it has any interest in the property concerned. Indeed it seeks a declaration that its Sub-sub-sale agreement was rescinded.

15. Mr. Lin on behalf of the Plaintiff has referred to a number of authorities which set out the common sense of the position. With great industry - I cannot find it cited in any of the major reference volumes or series - he has unearthed Schofield - v - Solomon - the Law Times - Ch. Div. 1885. I am content to accept the words there of Kay, J. who was concerned with the costs of a person who was not a party to the action and yet had had registered against him, he having purchased property bona fide from the defendant in the action, a 'lis pendens' which the Plaintiff in the action had eventually deemed it wise to vacate:

" In what position is a man where a 'lis pendens' is registered against him? It is a registration in the proper office provided for the purpose of the fact that there is pending litigation against him.

......

It is a step taken by an adverse party, who represents that he is litigating with him, to prevent him from dealing with certain property pending the litigation. I should be strongly inclined if the words of the Act were weaker than they are, to hold that the Court has jurisdiction in a case of manifest wrong so glaring as this is, where as against the present applicant, the registration of the 'lis pendens' is entirely improper."

16. Blair - Kerr, J. very much followed the same principle in Thian's Plastics Industrial Co. Ltd - v - Tins' Chemical Industrial Co. Ltd H.K.L.R. 1970 p.498. In a dispute between two family companies and the two largest individual shareholders (the Third Plaintiff and the Second Defendant) the third Plaintiff caused a "lis pendens" to be registered against the properties of the companies. The main action concerned allegations of fraud etc. by the Second Defendant that the First Defendant company had been established by money borrowed by the Second Defendant from the Plaintiff companies and by means of overdrafts secured by mortgages on their property. The learned Judge there held that it would be good ground for vacating the registration of a "lis pendens" if it were shown that it had been registered against a person not a party to the action. The lands in question were not in litigation in the action.

17. The 19th century Chancery Case of Wigram - v - Buckley (1894) 3 Ch. 483 and In Re Barned's Banking Company (1867) 2 L. R. Ch. App. 171 were considered in argument and in the judgment of Blair Kerr, J. In the former the Court of Appeal, confirmed that "the doctrine of 'lis pendens' applies not to every suit but to a suit the object of which is to recover or assert title to specific property". In the latter (at p. 178), it confirmed 'lis pendens' aways implied a claim of right or a claim to charge some specific property. Faced with an argument that there was some other purpose, or there might be some other purpose ... for which 'lis pendens' would be useful, that is to say, that there was some undefined purpose which might be obtained by registering this 'lis pendens' the Court roundly rejected it:

"Now in the first place I think that would not be a course which the court would be willing, to sanction - to register a 'lis pendens' upon the idea that it might hereafter, upon some imaginary or undefined purpose be found to be useful."

18. In answer to the Plaintiff's case as advanced by Mr. Lin, Mr. Mak had to struggle with the considerable disadvantage of the common sense argument being against him. There was a host of facts which he had to explain - the fact that the Principal Agreement was rescinded, there being no subject matter for any Sub-sale; the absence of any claim by the Defendant against the Plaintiff and the rejection of the Defendant's application for a declaration that he was entitled to a lien on the property.

19. Mr. Mak relied essentially upon the decisions at First Instance and in the Court of Appeal of the Karex cases (Karex (Hong Kong) Limited - v - Fortune Talent Development Limited - 1999 2 HKC 365 and C.A. unreported 30th July 1999.) The facts of those cases are not relevant to the issues before me. Karex was an action to which all the vendors and purchasers in the principal agreement and chain of transactions were parties in the action. The end purchaser having registered a 'lis pendens', sought a lien against the head vendor as alleged constructive trustee of the deposit paid by the end purchaser. I need not going into those cases in detail. It is patently obvious that the Plaintiff there sought to register a Writ and sought a declaration that he was entitled to a lien over the property of the First Defendant as constructive trustee. No such issue arises in the case which I am considering. The Plaintiff is not a party to the Defendant's action against his subvendor. He has been refused his declaration of a lien and not appealed against that decision. There is no basis in law or in equity for his maintaining the registration of the "lis pendens".

20. The only other authority cited by Mr. Mak which I need to consider is that of the Court of Final Appeal in Ji Shan International Investment Ltd. - v - Resources Main Enterprises Ltd - 1999 1 HKC 12 and the judgment of Lord Hoffmann. The facts of that case and the judgment do not in my view assist Mr. Mak at all. They are wholly and unarguably far distant from the circumstances of this case.

21. Almost as a last resort Mr. Mak invited me to consider the joinder of the other parties involved in the chain of transactions, including this Plaintiff, in the Defendant's action which had been registered as the 'lis pendens', and in effect adjourn the hearing of this action. I declined to do so. It is not for the Court to contrive a scenario in which to enable a party to try and find some proper basis for the defence, if one exists. Had the Defendants thought that there was any basis for a claim against the Plaintiff and/or the property concerned it would have formulated an action some time ago. Instead it has sought by a 'back door means' to try and handicap the Plaintiff in the free disposal of his property.

22. Since the declaration for a lien by the Defendant had been refused, the Defendant had had ample opportunity to vacate the registration.

23. The Plaintiff is entitled to the order he seeks. The registration of the writ is to be vacated forthwith. The Defendant is to pay the costs of this action. Because I regard the Defendant's litigation as lacking 'bona fides - in my view there was not even a proper basis for the registration of the "lis pendens" in the first place given the limited ambit of that action - the costs to be paid by the Defendant should be on an indemnity basis. I make that costs order nisi because the basis of costs was not argued before me. A number of my conclusions set out in this judgment make it clear why I have come to that provisional view.