CITIBANK N.A. v. LAI TAT CHEUNG AND ANOTHER

1983, M.P. No. 1949

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

CIVIL JURISDICTION

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. On the 10th March 1982 the plaintiff CITIBANK N.A. executed a mortgage in favour of the 1st defendant for $170,000 repayable by 120 monthly instalments commencing on the 10th April 1982 on the security of the land and the building erected thereon known as Sheung Tsuen House Lot No. 275, Yuen Long. The mortgage was registered in accordance with the provisions of the Land Registration Ordinance on the 27th March 1982. The 1st defendant defaulted in his payments under the mortgage with the result that the plaintiff filed an originating summons on the 25th August 1983 claiming monies due and possessiion of the premises. Judgment in default of appearance was obtained against the 1st defendant on the 27th March 1984 for the sum of $188,704.62 together with interest and costs pursuant to an order made by Mr. Registrar Hansen on the 14th March 1984. The claim for possession was adjourned sine die. By another order of the same date Mr. Wong Shek Hing was joined as the 2nd defendant. On the 13th November 1984 the proceedings were ordered to be continued as if they had been commenced by writ of summons.

2. It is the plaintiff's case that when the 1st defendant applied for the mortgage he claimed to be the owner occupier of the premises and made no reference to any interest of the 2nd defendant. A survey on behalf of the plaintiff was carried out by a firm of valuers Asian Appraisal Hong Kong Ltd. in February 1982 who confirmed that the 1st defendant was the owner occupier.

3. Two affirmations affirmed on the 13th August 1984 and the 1st November 1984 have been filed by the 2nd defendant which evidence was agreed by the plaintiff. The 2nd defendant says that he had lived at Sheung Tsuen House No. 276 for about 10 years prior to an agreement that he made with the 1st defendant in the autumn of 1978. At that time the 2nd defendant asked the 1st defendant whether he would sell to him the land of Lot No. 275 so that he could build a house., The 1st defendant responded by allowing the 2nd defendant to build a house upon the land at his own expense and agreed that he and his family could live there for a period of 50 years after the house' had been constructed. After the period of 50 years the property was to revert to the 1st defendant or his successors in title. As a result of this arrangement, a house was built on the land at a cost of $95,000.

4. At the end of February 1979 the 1st and 2nd defendants executed a written document which incorporated the terms that had been agreed the previous autumn with the date of the tenancy to commence on the 1st March 1979. The document which is undated was signed by the 1st and 2nd defendants and was witnessed by the Village Elder of Sheung Tsuen. Since the execution of the agreement the 2nd defendant and his family have resided in the house. It is not in dispute that the document has not been registered under the Land Registration Ordinance.

5. The plaintiff concedes that it had constructive notice of the occupation of the 2nd defendant at the time of the creation of the mortgage. Accordingly the only matter that is in issue is whether the document is an instrument in writing for the purposes of the Land Registration Ordinance, It is therefore necessary to consider the relevant provisions of the Ordinance. Section 2(1) is concerned with registration of documents and reads:-

"The Land Office shall be a public office for the registration of deeds, conveyances, and other instruments in writing, and wills and judgments; and all deeds conveyances, and other instruments in writing, and wills and judgments, any parcels of ground, tenements, or premises in Hong Kong may be affected, may be entered and registered in the said office in the prescribed manner. "

Priority is governed by Section 3(1) which provides :-

"Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and wills 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. "

The effect of non-registration as against a subsequent bona fide purchaser or mortgagee for valuable consideration is contained in Section 3(2) which omitting the proviso which is not relevant reads :-

"All such deeds, conveyances, and other instruments in writing, and wills and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes. "

The effect of notice is set out in Section 4 thus :-

"No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or will or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered. "

6. Mr. Lam who appeared on behalf of the 2nd defendant submitted that the agreement with the 1st defendant did not stem from the written memorandum, but from the earlier oral arrangement that had been made in the autumn of 1978. He submitted that the subsequent signing of the written memorandum evidencing the arrangement did not alter the position and he cited in support of his argument - Fu11eerton v. Provincial Bank (1903) AC 309, Chu Yam 0n v. Li Tam Toi Hing (1954) HKLR 114 and (1956) HKLR 250 and Financial and Investment Services for Asia Ltd. v. Baik Wha International Trading Co. Ltd. (1985) HKLR 103. He argued that the memorandum does not constitute an instrument in writing affecting land as it merely serves an evidential purpose in the transaction so that it does not by itself create any rights affecting the property. Accordingly he submits that it does not fall within the ambit of the Land Registration Ordinance. Essentially he contends that the written document has no legal effect for he asserts that the arrangement between the 1st and 2nd defendants amounts to an unwritten equity so that the Land Registration Ordinance is not applicable. Mr. Pritchard who appeared on behalf of the plaintiff agreed with the propositions made by Mr. Dam but submitted that the written document is registrable under the Ordinance. The submission made by Mr. Dam is inconsistent with the 2nd defendant's second affirmation in which he refers to the document as a Chinese Tenancy Agreement and with paragraph 5 of the defence which states that the 2nd defendant will refer to the agreement for its full terms and effects at the trial.

7. Both counsel referred to Chu Yam On v. Li Tam Toi Hing (1956) HKLR 250 where it was held that a written declaration of trust not registered under Section 3 of the Land Registration Ordinance is absolutely null and void against a bona fide purchaser for value and must be completely disregarded. Mr. Pritchard cited a passage from the opinion of the Privy Council delivered by Lord Somervell of Harrow at page 258 which reads :

"The appellants had a further submission in order to avoid the consequences of the non-reqistration of the Declaration of Trust. There was a two days interval between the conveyance and the Declaration. In those two days the appellants would, it is submitted, have been bound by an oral resulting trust to hold the property for the school. It is then suggested that this oral trust survived the reduction of its terms into writing for the purpose of defeating the provisions of the Land Registration Ordinance. This would appear to have been the main point argued on appeal. It was rightly rejected by the Full Court. There is no suggestion that the Declaration of Trust was inconsistent with the prior position. As from its date the trust was contained in the document and in the document alone. "

Although I must express sympathy with the 2nd defendant, who as Mr. Pritchard said, appears to have been cheated by the 1st defendant, in my judgment there is no answer to the plaintiff's claim. The document executed by the 1st and 2nd defendants was clearly an instrument in writing which confirmed the earlier oral agreement, but with the addition of the date when the tenancy was to commence. The defendants clearly intended to rely upon this document whereby the 1st defendant agreed to hold the land upon trust for the 2nd defendant for a period of 50 years. This agreement superseded the earlier oral agreement. The document relates to an interest in land and in order to obtain priority over the plaintiff's mortgage, the document required to be registered under section 2(1) of the Land Registration Ordinance. Irrespective of the plaintiff's constructive notice of the 2nd defendant's occupation of the premises the agreement between the 1st and 2nd defendants is null and void against the plaintifff. As a result, the plaintiff is entitled to judgment against the 2nd defendant.