FANG MENG SUNG, JOHN v. CHAN YING KAI AND ANOTHER

HCA 2021/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2021 OF 2011

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HCMP 1246/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1246 OF 2007

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JUDGMENT

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1. There are two actions which have been ordered to be tried together. In HCA No. 2021 of 2006 (“the Loan Action”), the plaintiff, Mr Fang Meng Sung, John (“Mr Fang”) is suing Mr Chan Ying Kai as the 1^st defendant (“Mr Chan”) and Madam Hung Sin Yee Josephine (“Madam Hung”) as the 2^nd defendant for repayment of an outstanding debt in the sum of $3,480,000 with interest. In HCMP No 1246 of 2007 (“the Vacation of Registration Action”), the plaintiff, Well Prestige Investment Limited (“Well Prestige”), of which Madam Hung was one of its former directors, claims against Mr Fang to vacate the registration in the Land Registry of an equitable mortgage signed by Mr Chan in favour of Mr Fang (“the Equitable Mortgage”) and a statutory declaration by Mr Fang dated 3 June 2005 explaining the previous loss and misplacement of the Equitable Mortgage (“the Statutory Declaration”). In the counterclaim in the same action, Mr Fang claims against Well Prestige, Mr Chan and Madam Hung for, inter alia, a declaration that the sale of the Property by Mr Chan and Madam Hung to Well Prestige is subject to the Equitable Mortgage, or alternatively, the sale of the Property to Well Prestige shall be void under s 60 of the Conveyancing and Property Ordinance, Cap 219 (“CPO”).

BACKGROUND

2. Mr Fang was a former practising solicitor. Through the introduction of a legal executive of his firm, Mr Hui Man Pau Stanley (“Mr Hui”), Mr Fang came to know the married couple, Mr Chan and Madam Hung.  It is Mr Fang’s case that he had advanced various loans to Mr Chan and Madam Hung in 1994 and 1995.  At one stage, the total amount of the loans was up to the sum of $9,180,200.  As a security for the loans advanced to Mr Chan and Madam Hung, Mr Chan executed the Equitable Mortgage in 1994 in favour of Mr Fang, by which Mr Chan agreed to use his property jointly owned with his wife, Madam Hung, known as House 1, Dragon Lake Villa, 18 Silver Crest Road, Sai Kung, New Territories (“the Property”) as security for a loan of $8,330,000 advanced by Mr Fang to them.

3. Mr Chan and Madam Hung had from time to time made repayments to Mr Fang.  On 16 September 2000, Mr Chan and Madam Hung signed a loan agreement (“the Loan Agreement”) acknowledging that they still owed the outstanding debt in the total sum of $3,480,000 to Mr Fang.  The Loan Agreement was drafted and prepared by a solicitors’ firm known as Yu Hung & Co, and it is common ground that the handling solicitor, Mr James Yuen, was instructed by Mr Chan to prepare the Loan Agreement.

4. The Loan Agreement provided the following:

(i)  Mr Chan and Madam Hung agreed to repay and Mr Fang agreed to accept payment of $3,000,000 (instead of the whole outstanding amount of $3,480,000) without interest by 86 monthly instalments; and

(ii)  in the case of default in the payment of any instalments, Mr Fang would be entitled to institute legal proceedings to recover the outstanding balance of the entire loan of $3,480,000 with interest at judgment rate from the date of default until full payment.

5. It is common ground that Mr Chan and Madam Hung have not paid any instalments to Mr Fang under the Loan Agreement, and so Mr Fang brought the claim in the Loan Action against them.

6. In opposing Mr Fang’s claim on the outstanding loan, Mr Chan and Madam Hung allege that the loans were actually advanced to Mr Hui and one Mr Tse Kam Wing Danny (“Mr Tse”).  They claim that the loans had been fully repaid by Mr Hui and Mr Tse.  For the various documents relied on by Mr Fang in support of the claim including the Loan Agreement and the Equitable Mortgage, Mr Chan and Madam Hung claim that they had been pressured by Mr Fang to sign on those documents, an allegation which is strenuously disputed by Mr Fang.

7. I then turn to the claim in the Vacation of Registration Action.  On 31 May 2005, Mr Chan and Madam Hung entered into a sale and purchase agreement for the sale of the Property to Well Prestige, a limited company of which Madam Hung’s mother, Madam Ho Lai Ki (“Madam Ho”), was the majority shareholder and Madam Hung was one of its directors.  The sale and purchase agreement was registered in the Land Registry on 16 June 2005.  The sale of the Property was completed on 30 June 2005 and the assignment was registered in the Land Registry on 14 July 2005.  Madam Hung resigned as a director of Well Prestige after the sale of the Property.

8. Mr Fang registered the Equitable Mortgage and the Statutory Declaration in the Land Registry on 2 July 2005.  It is Well Prestige’s case that, since the registration of the sale and purchase agreement had priority, the subsequent registration by Mr Fang was wrongful.  Well Prestige therefore commenced the proceedings in the Vacation of Registration Action claiming for an order to vacate the registration of the Equitable Mortgage and the Statutory Declaration.

9. By way of counterclaim in the Vacation of Registration Action, Mr Fang claims that the sale was a sham transaction with a view to defeat his interest in the Equitable Mortgage.  With full knowledge of the existence of the Equitable Mortgage, Mr Fang claims that Well Prestige was not a bona fide purchaser for value, and he therefore asks the court to make a declaration, inter alia, that the sale of the Property is subject to the Equitable Mortgage, or alternatively, the sale of the Property to Well Prestige shall be void under s 60 of the CPO.  Since the counterclaim may affect the interest of Mr Chan and Madam Hung, I have made an order at the trial to add them as the 2^nd and 3^rd defendants in the counterclaim in the Vacation of Registration Action.

10. As one can see from the issues above, the main disputes between the parties are factual ones.  In determining the merits of the claims in both actions, the court therefore has to evaluate the evidence adduced by the parties at the trial.

 THE FACTUAL ISSUES

11. The following witnesses testify at the trial: Mr Fang, Mr Chan, Madam Hung and Madam Ho.

(i)  The evidence of Mr Fang

12. According to Mr Fang, he advanced various sums of money to Mr Chan and Madam Hung in 1994 and 1995.  At one stage, the total amount of the loans advanced to them was up to $9,180,200.  Against each sum of money advanced to them, Mr Chan and Madam Hung would issue a cheque in the corresponding amount to Mr Fang as security.  Most of the loans advanced by Mr Fang were paid by him into the personal bank account of Madam Hung, and so most of the cheques were issued by Madam Hung herself.

13. As a security for the various loans advanced to Mr Chan and Madam Hung, Mr Chan executed the Equitable Mortgage in favour of Mr Fang in 1994 which was very much a homemade document.

14. The loans were intended to be short-term loans, which would be repaid after Mr Chan and Madam Hung had obtained banking facilities from the banks.  Mr Chan and Madam Hung made part repayments of the loans from time to time.  On or about 4 January 1995, Mr Chan and Madam Hung signed on a piece of paper with the letterhead of one Encawin Industries Ltd (“Encawin”), acknowledging that the amount of the outstanding loans was $7,920,000 (“the Written Acknowledgement”).  Mr Chan and Madam Hung also confirmed in the Written Acknowledgement that they would make part repayment of $5,000,000 within 2 days and the balance of $2,920,000 within 21 days.  It is common ground that, on or about 5 January 1995, an amount of $5,000,000 was repaid to Mr Fang by Gold Profit Consultants Ltd (“Gold Profit”), which was one of the companies owned by Mr Chan.  The date on the Written Acknowledgement was 4 January 1955, but all parties agree that the correct date of the said document should be 4 January 1995. 

15. With a view to provide further security of some form which could be registered in the Land Registry to Mr Fang, Mr Chan and Madam Hung signed a sale and purchase agreement in August 1994 whereby they agreed to sell 5% of the interest in the Property to Mr Fang at a price of $480,000.  According to Mr Fang, he did pay the sum of $480,000 to Mr Chan and Madam Hung pursuant to the agreement.  Mr Fang duly registered the sale and purchase agreement in the Land Registry.  Later, the parties agreed to cancel the sale and purchase agreement to enable Mr Chan and Madam Hung to obtain banking facilities.  After obtaining the facilities, the same parties executed the second sale and purchase agreement in nearly identical terms in January 1995.  The agreement was later cancelled for the same reason.  According to Mr Fang, there were all together 3 such sale and purchase agreements executed by Mr Chan and Madam Hung.

16. According to Mr Fang, he believed that a “bad settlement” was better than a “good law suit”, and he had not exerted great pressure on Mr Chan and Madam Hung to repay all the outstanding balance of the loans.  On 16 September 2000, Mr Chan and Madam Hung executed the Loan Agreement which was prepared and drafted by Mr. Chan’s solicitor known as Mr James Yuen.  Since Mr Chan and Madam Hung did not repay any instalments under the Loan Agreement, he brought the claim in the Loan Action against them.

17. In or about June 2005, Mr Fang learned about the sale of the Property by Mr Chan and Madam Hung to Well Prestige.  To protect his interest, he registered the Equitable Mortgage and the Statutory Declaration in the Land Registry.  As it is Mr Fang’s case that the sale was a sham transaction with a view to defeat his interest in the Equitable Mortgage, he brought the counterclaim in the Vacation of Registration Action seeking for the declarations mentioned above.

(ii)  The evidence of Mr Chan

18. In his witness statement, Mr Chan provides what appears to be a checkered history of the money dealings between Mr Hui, Mr Tse and himself that involved obtaining mortgage loans on certain properties owned by them or some of them or their corporate vehicles for the benefit of their mutual businesses and dealings.

19. At the trial, he testifies that the need for the various sums of money advanced by Mr Fang all arose from a blunder of Mr Fang’s law firm at that time, J Fang & Co, made in the course of the mortgage arrangements with Daiwa Bank in relation to 4 properties with Mr Chan’s companies, Gold profit and Wing Kin Garment factory (“Wing Kin”), as borrowers.  According to him, certain properties to be mortgaged to Daiwa Bank were not redeemed from the previous mortgage banks, and as a result Daiwa Bank decided to stop the banking facilities until the properties were properly mortgaged to the Bank. By that time, a sum of about $2,000,000 had already been drawn down from Daiwa Bank, and so the borrowers (ie Gold Profit and Wing Kin) had to repay the Bank for such sum of money.

20. Mr Chan confirms that the banking facilities were obtained to finance the mutual garment business with Mr Hui and Mr Tse. Further, the sum of $2,000,000 drawn down from Daiwa Bank was used to pay the suppliers of the materials to Gold Profit.  However, the suppliers, which were actually companies or entities owned by Mr Hui and Mr Tse, did not supply the materials to Gold Profit.  According to the testimony of Mr Chan, it seemed that Gold Profit had to take up the liability to repay the amount of about $2,000,000 to Daiwa Bank whereas such sum of money was actually pocketed by Mr Hui and Mr Tse.  To repay the amount owed to Daiwa Bank, Mr Chan therefore sought the assistance of Mr Fang for the provision of the loans.

21. According to Mr Chan, the loans were advanced by Mr Fang to Mr Hui and Mr Tse and not to himself, and the latter had repaid the loans in full.

22. Mr Chan maintains that all the documents relied on by Mr Fang in support of his claim, except perhaps the Written Acknowledgment, were signed by him under the pressure from Mr Fang.

23. Some time in mid-2005, Mr Chan and Madam Hung were in need of money to finance their business and to buy a house for their daughter in the United Kingdom.  Madam Ho decided to offer assistance by purchasing the Property from them, and that was why the Property was sold to Well Prestige in 2005.

(iii)  The evidence of Madam Hung

24. According to the oral testimony of Madam Hung, she has no knowledge of the details of the business dealings between her husband, Mr Tse and Mr Hui.  She admits that the alleged loans were paid into her bank account and she issued various cheques corresponding to the amounts paid into her bank account.  She did so at the request of her husband, and she did not ask her husband the detailed reason for issuing the cheques. Similarly, she did not question her husband and Mr Fang as to why she had to sign 2 sale and purchase agreements for the sale of 5% interest in the Property.  In respect of the Written Acknowledgment, that document was actually in blank when she signed on the same.  Again, she did not question her husband in any detail as to why she had to sign that document in blank.

25. Madam Hung repeats the reason given by her husband as to why they had to sell the Property to Well Prestige in 2005.  She was a director of Well Prestige but she resigned after the completion of the sale of the Property.  She maintains that the sale was a genuine transaction.  Madam Hung confirms that her family including Mr Chan and Madam Ho continued to live in the Property after the sale of the Property to Well Prestige.

(iv)   The evidence of Madam Ho

26. According to Madam Ho, she retired at the age of 55.  Upon the advice of her son-in-law Mr Chan, she set up Well Prestige to operate a chain of Japanese restaurants at the age of 67.  When the business first started, it was Mr Chan who did all the preparation and liaison work. Despite that, she contributed all the capital for the running of the business. Madam Ho is now 77 years old.

27. At all material time, Madam Ho was the majority shareholder of Well Prestige owning 99.99% of the shares, while the remaining 0.01% of the shares was owned by Madam Hung’s daughter.

28. Mr Chan has never been a shareholder or director of Well Prestige.  However, Madam Ho gave him the working title of “managing director” to facilitate his work in running the restaurants.

29. As to the reason for the sale of the Property, her evidence is the same as that of Mr Chan and Madam Hung.  The purchase price agreed by the parties was $19,500,000.  For the payment of the purchase price, Well Prestige paid a sum of $10,000,000 to Mr Chan and Madam Hung, leaving the balance of $9,500,000 be paid by way of mortgage facilities obtained from Dah Sing Bank.  Before the sale, Well Prestige had no knowledge of the Equitable Mortgage and so the sale was a genuine one.

(v)  Assessment of the factual evidence

30. Having carefully considered all the circumstances of the case, I reject the evidence of Mr Chan, Madam Hung and Madam Ho for the following reasons.

31. Firstly, Mr Chan’s account of the loan transactions is extremely vague.  According to Mr Chan, the loans originated from a blunder in Mr Fang’s law firm, but he cannot explain what exactly the problem was that led to the non-discharge of the previous mortgages of the properties.  Mr Chan said he had approached Mr Hui, who was a legal executive of Mr Fang’s then law firm, for an explanation, but Mr Chan is unable to explain to the court what the problem was.

32. Further, it is also unclear as to whether the loans advanced by Mr Fang were, as alleged by Mr Chan, for the sole benefit of Mr Tse and Mr Hui.  In his oral testimony, Mr Chan admits that the banking facilities were sought from Daiwa Bank for the benefit of the mutual garment business of Mr Tse, Mr Hui and Gold Profit (Mr Chan’s company).  If the loans advanced by Mr Fang were used to pay off the debt owed to Daiwa Bank, it is at least arguable that the loans were partly intended to be for the benefit of Mr Chan and his company.

33. Mr Chan’s account of the loan transactions also defies common sense.  According to Mr Chan, Mr Hui and Mr Tse had double-crossed him.  It was they who actually pocketed the money advanced by the bank.  In such circumstances, why was Mr Chan be prepared to sign on numerous documents acknowledging his liability for the debts which, according to him, were in fact owed by Mr Tse and Mr Hui?  What is also surprising is that Mr Hui and Mr Tse had signed no document acknowledging the debts themselves.  Mr Chan was even willing to execute the Equitable Charge on the Property by acknowledging that he owed a sum of $8,330,000 to Mr Fang as at 29 November 1994.  If Mr Chan’s account was the truth, what started off as a mortgage blunder resulting in an incurrence of a liability of about $2,000,000 to Daiwa Bank had ended up with himself and her wife signing documents, issuing cheques, and eventually acknowledging a debt up to about $9,180,000 owed to Mr Fang. This simply defies common sense.

34. Further, both Mr Chan and Madam Hung are sophisticated businessmen.  I do not accept that they would have simply yielded to the pressure by Mr Fang in signing all these documents.  It is also common ground that the Loan Agreement was prepared by a solicitor known as Mr James Yuen who was retained by Mr Chan.  According to Mr Chan’s explanation, it was Mr Fang who had asked him to approach Mr Yuen to prepare the Loan Agreement.  If that was the case, why did Mr Fang not prepare the document himself?  In referring Mr Chan to another solicitor, there was always a risk that Mr Chan might obtain independent legal advice to protect his interest.  If Mr Chan was a victim of Mr Fang’s exploitation as he alleges, it would not have been in interest of Mr Fang to make such referral.  Further, there should have been legal costs incurred in preparing the document and such costs were probably paid by Mr Chan.  Why would Mr Chan have agreed to pay such costs?  It is also quite incredible that Madam Hung would have issued the cheques and signed the Loan Agreement and the sale and purchase agreements for the sale of 5% interest in the Property, which was quite an unusual arrangement, without questioning her husband the underlying purposes of these arrangements.  To me, these do not make a lot of sense.

35. According to Mr Chan, Mr Fang was of such a powerful character that he was able to dictate the contents of the documents for Mr Chan to write and sign.  If Mr Chan was a victim of Mr Fang’s exploitation, it is also difficult to imagine why Mr Fang had not prepared proper and more legalistic loan documents and a proper legal charge of the Property for Mr Chan to sign.

36. I also reject Mr Chan’s evidence that Mr Tse and Mr Hui had fully repaid the debts owed to Mr Fang.  According to Mr Chan, the source of the information was from Mr Hui.  However, Mr Chan claims that Mr Hui had cheated him before, and so how can the court trust the words of Mr Hui? Further, there should have been some documents to support the repayment of the loans, and yet none is produced to the court.  Coupled with the fact that Mr Hui is not available for cross-examination, I attach no weight to the hearsay evidence that Mr Hui and Mr Tse had fully repaid the loans.

37. In my judgment, the evidence of Mr Chan and Madam Hung about the signing of the Written Acknowledgment in January 1995 is also incredible.  According to Mr Chan, Mr Hui approached him and told him that Mr Fang requested for a document to acknowledge the amount of the outstanding loan owed to him, and Mr Chan therefore wrote and signed on the Written Acknowledgment without any intimidation on the part of Mr Fang.  However if that was the case, why did Mr Chan have to first ask her wife to sign the document in blank?  Further, why did Mr Chan and Madam Hung, without any intimidation or pressure from Mr Fang, have to sign the Written Acknowledgment which, according to them, the debt was actually owed by Mr Hui?  It is also surprising that Mr Hui did not have to sign on the document himself.  Both Mr Chan and Madam Hung cannot provide satisfactory answers to these questions, and so I do not believe that they are telling the truth in court.

38. I also reject the evidence of Mr Chan, Madam Hung and Madam Ho about the true reason for the sale of the Property to Well Prestige in 2005.  According to their evidence, Mr Chan and Madam Hung sold the Property in order to obtain money to finance their business and to pay for the house they bought for their daughter in the United Kingdom.  If that was the truth, why did Madam Ho not just simply lend the money to them?  There were many ways that Well Prestige could obtain security for the loan advanced to Mr Chan and Madam Hung, which could save all the trouble and costs associated with the sale of the Property.

39. Further, I have no doubt in my mind that Madam Ho is not telling the truth in court.  Firstly, it was quite extraordinary for a retired person to start a business of such scale at the age of 67.  Even if she was the true owner of the business, in view of her age and the important role of Mr Chan in running the business, it would only have been sensible to include her son-in-law, Mr Chan, as a director of Well Prestige. However, Madam Ho is quite evasive when she is asked about the reason as to why she has not invited Mr Chan to be a director of Well Prestige.  As I see it, this was a deliberate arrangement on their part so as to portrait a picture that Mr Chan was not involved in or in any way associated with the business of Well Prestige.

40. In support of her allegation that she is the real owner of Well Prestige, she claims that she returns to the office of Well Prestige every day to oversee matters including signing cheques.  However, when she is asked about the approximate profit of her business in the last financial year, she cannot even provide the court with a rough figure.  She also cannot tell the court the price that Well Prestige had paid for purchasing the office in Kwun Tong.  Such queries cast doubt on Madam Ho’s evidence as to whether she is the real owner of Well Prestige.

41. Madam Ho’s evidence about the purchase of the Property in 2005 is also far from satisfactory.  According to Madam Ho, the purchase price was paid in the following manner: $6,000,000 by direct payment from Well Prestige, $4,000,000 from the overdraft facility of Well Prestige and the balance of $9,500,000 by way of a mortgage loan from Dah Sing Bank. However, apart from the receipt clause in the sale and purchase agreement and the completion statements, Madam Ho cannot produce any direct evidence such as cheques or cashier orders to prove that Well Prestige had actually paid the sum of $6,000,000 to Mr Chan and Madam Hung.  Further, there is some confusion in Madam Ho’s evidence as to whether the cheque in the sum of $4,000,000 issued by Well Prestige to K B Chau & Co was for the purpose of paying part of the purchase price.

42. More importantly, both Madam Hung and Madam Ho cannot provide a satisfactory answer as to why the former resigned as a director of Well Prestige after the sale of the Property.  In the sale and purchase agreement, Madam Hung signed both as one of the vendors and as a director of the purchaser of the Property, but her resignation came soon after the making of such agreement. Again, I have reason to believe that the resignation was a deliberate attempt by Madam Hung to show that she was not involved in or associated with Well Prestige, and as a result the Property could be transferred to Well Prestige free from the interest of Mr Fang in the Equitable Mortgage.

43. On the other hand, I find Mr Fang to be an honest and truthful witness.  Mr Fang is a straightforward witness who provides the court with a candid account about the dealings between Mr Chan, Madam Hung and himself relating to the advancement of the loans.  The loans were intended to be short-term loans, and Mr Fang expected to be repaid soon after Mr Chan had obtained the banking facilities.  As Mr Chan had made repayments to him from time to time, he did not press Mr Chan and Madam Hung for full repayment of the loans.  Mr Chan believed that a “bad settlement” was better than a “good law suit”, and that explains the “tardiness” with which he sought to recover the sums owing to him and the looseness of the documents prepared by him to secure his position.  Further, the only explanation for the continuous creation of various documents to cater for his security is that he had been continuously negotiating with Mr Chan and Madam Hung for the repayment of the loans.  Despite the vigorous cross-examination, Mr Fang makes no attempt to evade any questions put to him.

44. Further, Mr Fang’s evidence is supported by many contemporaneous documents produced by him in the case, including the Loan Agreement, the Equitable Mortgage, the Written Acknowledgment, the 2 sale and purchase agreements for the sale of 5% interest in the Property, the cheques issued by Mr Chan and Madam Hung as the security for the loans and the records showing the payment of various sums of money into the bank account of Madam Hung.  In my judgment, these documents strongly support Mr Fang’s case and I have no hesitation in accepting Mr Fang’s evidence as the truth.

CONCLUSION

45. By reason of my aforesaid factual findings, I accept that the loans were actually advanced by Mr Fang to Mr Chan and Madam Hung and the latter have not repaid the outstanding balance of the loans in the amount of $3,480,000.  I therefore grant judgment in favour of Mr Fang for the said sum in the Loan Action.

46. So far as interest is concerned, Mr Fang claims that Mr Chan has agreed to pay him 1.8% monthly compound interest on the outstanding amount.  Despite such agreement, clause 2 of the Loan Agreement provides that, in the case of default of payment of any instalments, Mr Fang is entitled to institute legal proceedings against Mr Chan and Madam Hung for the recovery of any outstanding balance together with interest on the outstanding balance at judgment rate from the date of default until the date of full payment.  As Mr Fang is relying on the Loan Agreement as the basis of his claim and he has not included the claim for the higher interest in the Statement of Claim, I only allow Mr Fang to claim interest in accordance with the provision in the Loan Agreement.  I therefore award interest on the judgment sum of $3,480,000 at judgment rates which are applicable from time to time from 16 September 2000 (which was the date of default of the first instalment according to the Loan Agreement) to the date hereof and thereafter at judgment rate.

47. I then turn to the Vacation of Registration Action.  It is Well Prestige’s case that since the registration of the sale and purchase agreement of the Property was first in time, it had priority over the registration of the Equitable Mortgage and the Statutory Declaration under s 3 of the Land Registration Ordinance, Cap. 128, with the result that the latter registration should be vacated.

48. However, the rule of first in time in registration takes priority is only applicable where the equities of the competing interests are equal.  If the equities are not equal, it is possible for a subsequent interest in term of registration to have a better equitable right over that of another interest which has been registered earlier (see: Chu Kit Yuk & Anr v Country Industrial Ltd & Ors [1995] 1 HKC 363 (CA) at pp 370-371).

49. In the present case, I find that the sale of the Property by Mr Chan and Madam Hung to Well Prestige was not a genuine transaction. Since the director of Well Prestige by that time, Madam Hung, should have had knowledge of the Equitable Mortgage, I accept that the sale was a sham transaction with a view to defeat Mr Fang’s interest in the Equitable Mortgage. In such case, the sale of the Property should be subject to Mr Fang’s interest in the Equitable Mortgage.  Hence, there is no basis for Well Prestige to ask for the vacation of the registration and I dismiss Well Prestige’s claim in the Vacation of Registration Action.

50. So far as the counterclaim is concerned, Mr Vaughan, counsel for Mr Fang, is not asking the court to set aside the sale of the Property to Well Prestige so long as the court makes a declaration that the sale of the Property is subject to the Equitable Mortgage.  Based on my factual findings above, I make the declaration accordingly.

51. In his submission, Mr Vaughan does not mention that Mr Fang is seeking the other declarations claimed in the prayer for relief in the counterclaim.  In the case that Mr Fang wishes to pursue the other declarations in view of my findings in this Judgment, Mr Fang has to make such application within 14 days of the handing down of this Judgment.

52. The Equitable Mortgage was executed by Mr Chan alone, and there is no basis for the court to conclude that Mr Chan was executing the Equitable Mortgage as agent for his wife.  Hence, only Mr Chan’s interest in the Property had been charged under the Equitable Mortgage.  All the counsel agree that I do not need to decide the extent of Mr Chan’s interest in the Property for the purpose of the equitable charge, and so I leave this matter to be determined in an appropriate forum in the future.

53. I also make an order nisi that the costs of both actions be to Mr Fang, which shall be made absolute 14 days after the date of the handing down of this Judgment.