HKSAR v. PANG KO FAI

HCMA1230&1178/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Appellate Jurisdiction)

MAGISTRACY APPEAL NO. 1230 & 1178 OF 1998

(On appeal from ESS 14169 & KTS 10986 of 1998)

-------------

-------------

---------------

J U D G M E N T

---------------

1. On 23 November 1998, J Brennan Esquire, magistrate, convicted the appellant for having entered into an agreement for sale and purchase of that property comprising Flat 14, 14th Floor, Block A, Hong Wah Court, Lam Tin, Kowloon, which was void by virtue of Section 17B of the Housing Ordinance, Cap. 283 contrary to Section 27A Cap. 283. The appellant appeals that conviction.

2. Although evidence was adduced at the trial, the facts, are I believe, agreed or otherwise not in dispute. They are as follows:

(1) By deed of assignment dated 5 February 1987, the Hong Kong Housing Authority (HKHA) assigned the property the subject of the charge (the property) to the appellant for consideration.

(2) Clause 3 of the assignment recorded: "It is subject to the terms, convenants and conditions (hereinafter called the said terms, convenants and conditions) mentioned in the schedule to the Housing Ordinance, Cap. 283 and any amendments thereto."

(3) Section 1 of that schedule prohibits disposition of property subject to the ordinance unless 10 years have elapsed since its purchase, and the owner thereof has first made payment of a premium to be assessed by the Director of the HKHA to the HKHA.

(4) Section 4(b)(ii) of that schedule says that the owner thereof may, after 10 years have elapsed since his purchase, enter into an agreement for sale and purchase of the property, even if he has not paid the premium, "providing it is a condition of such agreement that the premium as assessed .... be paid prior to assignment, and within 28 days of the date of the agreement, or within such period as may be otherwise stipulated by the Director of the HKHA."

(5) Clause 17B Cap. 283 renders void any alienation entered into by an owner in breach of the deed of assignment under which he holds the property.

(6) Clause 27A Cap 283 states that the purchaser who enters into an agreement rendered void by Clause 17B commits an offence.

(7) By application received by the HKHA on 25 March 1997, the appellant applied for assessment of the premium payable in respect of the property.

(8) On 16 April 1997, the appellant, as vendor, entered into an agreement for sale and purchase of the property with a purchaser for value.

(9) Clause 31 of the agreement begins:

"The vendor [appellant] and the purchaser hereby declare and confirm that the said premises are sold subject to the terms and conditions contained in the schedule to the Housing Ordinance Cap. 283, which, inter alia, prohibits the sale of the said premises unless the premium calculated ...... has been paid to the Hong Kong Housing Authority."

(10) By letter dated 5 May 1997 the Director of the HKHA notified the assessment of premium to be paid provided that it be paid by 4 August 1997.

(11) By notice to the purchaser dated 24 June 1997 the appellant purported to exercise his right to rescind the agreement.

(12) By letter dated 9 October 1997 the HKHA acknowledged receipt of the premium, as reassessed, paid by the appellant. The appellant was summonsed for alleged breach under Section 27A Cap. 283.

3. The magistrate in his statement of findings said that the appellant had not paid the premium within 28 days of the agreement for sale and purchase of 16 April 1997 and before assignment, and was therefore not in compliance with requirements set out in the schedule to Cap. 283. In any event, as he said, that agreement was rescinded by the appellant. He found that on 16 April 1997, the appellant purported to enter into an agreement for sale and purchase of the flat without first having paid the premium and satisfying the conditions in paragraph 4(b)(ii) of the schedule. He found the purported agreement void under the provision of Section 17B. He found the appellant guilty as charged.

4. I have had the benefit of extensive written arguments from counsel for the appellant and the prosecutor, and gained considerable assistance from this material. Before me both effectively adopt their respective submissions.

5. It seems to me that what is crucial to the prosecution case is not what the appellant did or did not do after the agreement was entered into, but what form the agreement itself took. After all, the offence is alleged to have been committed when the appellant entered into the agreement. If it complied with paragraph 4(b)(ii) then it was not an agreement which offended against Section 17B, and was not under that section void. That sub-section states that the agreement must have as a condition of it that the premium as assessed be paid prior to assignment, and within 28 days of the agreement, or within such period as may be otherwise stipulated by the Director.

6. The purpose of this stipulation, which is a relatively recent addition to the rules governing assignments, is that it allows a Home Ownership Scheme owner to enter into an agreement to sell his property ahead of his payment of the premium. It also protects the HKHA from a sale going through with distribution of the sale proceeds without it having first received payment of the premium.

7. So, the prospective vendor, as I see it, is required to ensure that the agreement he has with his purchaser is conditional upon his obtaining an assessment from the HKHA as to the amount of the premium, and then paying the same to it at or prior to the assignment. If this is not done or arrangements are made and not complied with, then failure of the condition terminates the agreement. In legal terms he is required to make compliance with the obligation to meet the premium a condition precedent in his agreement with his prospective purchaser. If the condition is not satisfied by its due date, then the agreement is cancelled.

8. So the question is, was there such a condition in this agreement? Well, not in so many words. But Clause 31 did in its first part stipulate that it was "subject to the terms and conditions contained in the schedule ...." By that the parties declared themselves bound by all of the schedule including the provisions of Clause 4(b)(ii).

9. The agreement thus in its form as signed was in compliance and did not offend Section 17B. It would certainly have been clearer if there had been a clause instead of Clause 31, along the following lines, namely:

"This agreement is conditional in all respects upon the vendor paying to the HKHA the premium to be assessed prior to assignment, and on or by 28 days after the date of this agreement or within such period as may be otherwise stipulated by the Director of the HKHA. If this condition is not satisfied by due date, time being of the essence, this agreement shall be void and of no effect, and the vendor shall forthwith refund without reduction the deposit and any other moneys paid by the purchaser to the vendor on account of the purchase price."

10. But in my view, by the wording of Clause 31, the parties expressed themselves bound to comply with such condition, as if there was expressly inserted a clause in the agreement in the manner that I have spelt out.

11. Thereafter, it would have been incumbent upon the vendor/appellant to protect his contractual position and press for an assessment of his premium and pay within time or otherwise seek an extension. As he did neither the condition was not in time satisfied and the agreement, in my view, lapsed as at 29 days after the date it was entered into.

12. Now, that viewpoint affects the position of the parties thereafter, and puts in jeopardy the validity of the appellant's notice of rescission. That is not a matter for this forum. I understand there is a civil action under way to deal with that. Suffice to say that in my view the purported non-performance by the appellant in time, served only to terminate the agreement as between himself and his purchaser. Though it became void as between them, it was not void under Section 17B.

13. It follows that I respectfully disagree with the magistrate's finding that the appellant was in breach of Section 27A.

14. The appeal is allowed and the conviction set aside. The fine, assuming that it has been paid, shall be repaid to the appellant.

[Submissions on costs]

COURT: Costs of this appeal and below shall be to the appellant taxed if not agreed.

15. The appeal 1178/98 concerns the same appellant, and derives from similar facts in the appeal I have just dealt with under 1230/98.

16. In this matter I S Candy Esquire, principal magistrate, on 6 November 1998 convicted the appellant for having created a mortgage over the property which is void by virtue of Section 17B Cap. 283, contrary to Section 27A Cap. 283. The appellant appeals that conviction.

17. Although evidence was called it seems that the essential facts are agreed or not challenged. Setting out the background, I do not propose to repeat what is recorded in 1230/98. Those further matters relating to this appeal are as follows:

(1) Section 1 of the schedule to Cap. 283 prohibits charging of the property unless 10 years has elapsed since its purchase and payment of the premium has first been made.

(2) Section 4 of the schedule allows the owner to mortgage the land with prior approval of the Director of the HKHA on terms authorised by him, notwithstanding the premium has not been paid.

(3) Section 17B Cap. 283, renders void any mortgage entered into by an owner in breach of the deed of the assignment under which he holds the property.

(4) The perpetrator commits an offence under Section 27A.

(5) On 30 September 1997 the appellant signed a mortgage of the property.

(6) On 7 October the mortgagee sent a cheque for the principal sum to the solicitors acting for both mortgagor and mortgagee.

(7) On 9 October the solicitors paid out of the proceeds the premium to the HKHA, that having been assessed on 13 September.

(8) The appellant neither sought, nor was given, approval by the Director of the HKHA to mortgage the property prior to payment of the premium.

18. The magistrate found that the mortgage was created on the date it was executed, which was prior to payment of the premium. He found it was thus void under Section 17B, and the appellant guilty as charged.

19. It has been contended before me that this amounted to an error in that the legal charge, being the mortgage, did not come into effect until the date upon which the premium was paid, namely, 9 October 1997.

20. The crucial question to be answered is, when did the mortgage come into being?

21. It is a well-settled feature of conveyancing law and practice that once parties have entered into an agreement which deals with real property in some way, such as a sale and purchase, or the borrowing and advancing of a secured loan, the documents necessary, in these examples, to transfer or charge title are prepared ahead of the declared completion date and generally, for convenience, are executed also ahead of that date. Assuming solicitors are involved, then the solicitor for the vendor or the mortgagor, as the case may be, holds the documents on behalf of his client pending completion, and does not deliver them to his counterpart acting for the purchaser or mortgagee until he is satisfied that all matters have been dealt with, that is, payment in full of the purchase price or advance, as the case may be, clearance of any encumbrance on title, and removal of any prior charge that is not supposed to be there. If there is a flaw completion is deferred, and settlement is later completed only after that flaw has been dealt with.

22. Though the formal transfer might recite, "I hereby transfer" and though the formal mortgage may recite, "I hereby mortgage" that does not take effect unless and until it is delivered to the other side, or his solicitor if there is one. So, unless the signing of the document in question happens to be on the same date as the day for completion, the actual day of execution is incidental to the process.

23. Where the same solicitor acts for both parties the point of delivery may be harder to ascertain. But invariably it will occur when some overt act is undertaken by him which points to a notional delivery, such as a book entry in the trust accounts of two clients or the payment out of one client's account to the benefit of the other.

24. In the case of the appellant on the agreed or unchallenged facts I am satisfied that the notional point of delivery was the date upon which the funds received from the mortgagee bank, after clearance, were used as to part to meet for the appellant the payment of the premium. Thus the date upon which the mortgage was, to use the word of the summons "created", was the same date upon which the premium was paid and received.

25. It follows that no prior approval was required from the Director of the HKHA because the premium was simultaneously paid. The mortgage thus was not void under Section 17B.

26. It follows that I respectfully disagree with the magistrate's finding that the appellant was in breach of Section 27A.

27. The appeal is allowed and the conviction set aside. The fine if paid by the appellant shall be repaid to him.

[After submissions on costs]

Costs of the appeal and below shall be to the appellant taxed if not agreed.