LIN KAM CHANG v. CHAK KWOK WING AND ANOTHER

HCMP3540/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.3540 OF 2000

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J U D G M E N T

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1. This is the action brought by the plaintiff as purchaser for the return of the deposit from the defendant vendor on a purchase agreement entered into by the parties whereby on the due date of completion, the plaintiff purchaser failed to complete and the deposit paid by the plaintiff purchaser was forfeited by the defendant.

2. This originating summons had been brought by the plaintiff for the return of deposit for the declaration that the requisitions given by the plaintiff purchaser to the defendant had not been properly answered and no proper title had been shown by the defendant.

3. Two issues really called for consideration. The two issues had been argued. The first issue is whether the Loan Agreement entered into between the defendant vendor and some money lenders was in breach of the special conditions of the Housing Authority, in particular whether it was in breach of Special Condition 1(D) and the second issue is really in two parts, but it can be stated this way. The second issue is whether the plaintiff was entitled to the original of the Loan Agreement which was registered as it is admitted it had not been supplied. The defendant has two defences to that contention. They said firstly, the Loan Agreement was never registered in the Land Registry and secondly they say even if it was registered, it was not an instrument affecting land capable of being registered and therefore there was no obligation to produce the original of that Loan Agreement.

4. I would consider each issue in turn. As to the first issue, clause 7 of the Loan Agreement is the key clause. Clause 7 set out at page 41 of the bundle provides :

"(a) The Borrower shall not sell or create or enter into any charge (whether legal or equitable) liens or other incumbrances over the Property or otherwise dispose the Property after the date hereof until and unless the Borrower has made full repayment of the Loan together with interest under this Deed to the Lender.

(b) As security for repayment of the Loan and interest payable hereunder, the Borrower hereby irrevocably appoint the Lender as his lawful attorney to receive the payment of balance of purchase price payable on completion of the sale of the Property to the extent of the amount of the Loan together with interest or any part thereof for the time being remaining unpaid."

5. Those are the operative part of the Loan Agreement between the vendor defendant and the money lender. The operative part of the section 1(D) of the Special Conditions of Sale provides at page 114 of the bundle :

"... no owner shall, during the period of 10 years from the date of the assignment to him of a unit, assign, mortgage, charge, demise, underlet, part with the possession of or otherwise dispose of such unit or any part thereof or any interest therein or enter into any agreement so to do, or solicit or accept, whether directly or indirectly, any money, money's worth or other valuable consideration or enter into any agreement so to do in respect of any transaction, present or future, affecting such unit."

6. Now the primary objective as I see it of section 1(D) of the Special Conditions is that there should be no assigning, mortgaging, charging, demising of the property, that is any alienation, anything done affecting that property and charge on mortgage are primary examples of such acts done affecting the property as to injure the interest of the government. As far as I can see Special Condition 1(D) is in no way breached by clause 7 of the Loan Agreement. Clause 7(a) is a personal convenant between the borrower and the lender as to what the borrower promised of restriction of his freedom to deal with the property, but it does not in any way give rise to any interest to the money lender in the property or create any charge. Clause 7(b) as to the proceeds of sale of the property again gives rise to no right of the lender in the property. It seems to me very clear whether on an initial reading or on careful reading of clauses 7(a) and (b), that they give rise to no charge on the property and therefore they do not constitute any breach of clause 1(D) of the Special Conditions. This being the case, it seems to me that on the first issue, the plaintiff was clearly wrong to regard the existence of the Loan Agreement as thereby creating a possible fetter on the land and giving rise to the right of the plaintiff to consider that good title had not been shown or that the requisition had not been properly answered.

7. I therefore turn to issue two. The argument of counsel for the plaintiff is that, in any event, the plaintiff was entitled to receive the original copy of the Loan Agreement as requested in the requisition. That depends firstly on whether it was registered. The evidence as disclosed on page 33 of the bundle, that is the search of the Land Registry clearly shows that the Loan Agreement was not registered but only pending registration under the heading "Deeds Pending Registration". No registration date can be found anywhere in the bundle before me. In fact, the subsequent searches show the total disappearance of even the pending registration entry and the reason for this is because the application to register was withdrawn by the money lender when it was pointed out presumably by the solicitors for the vendor that the document was not capable of registration. So the evidence clearly shows there was no registration and if there was no registration, the case of the plaintiff that they are entitled to the document, that is the original, disappears.

8. The subsidiary or backup argument of counsel for the defendant is that even if there was registration, there was no obligation to produce the original because in this particular case, it can be clearly shown that the document was not capable of registration. Having come to the conclusion that there was no registration, it was not necessary for me to really deal with that point but I can just briefly state what my view would have been if it was necessary for me to decide the point. It seems to me that if a document can be shown as in this case to be clearly not registrable and not affecting land, then the right of the purchaser cannot be elevated merely because of a wrongful registration and it seems to me that one needs to be a little bit more sensible and says that although prima facie registration gives rise to the case of an instrument affecting land if on closer analysis such as reading a copy of the document, it can be shown that it is not something affecting land then the requirement for calling the original seems to disappear. But it is, strictly speaking, not necessary for me to do decide. I therefore hold on issue two also against the plaintiff. It seems to me that the action of the plaintiff therefore must fail. The action therefore is dismissed with costs. It follows from what I have said that the counterclaim of the defendant must succeed together with the declaration they seek that the registration of the lis pendens should be vacated in the Land Registry.