JOY ZONE CAPITAL INVESTMENT LTD v. THE DIRECTOR OF LANDS

HCMP 493/2019

[2019] HKCFI 2958

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 493 OF 2019

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J U D G M E M T

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Introduction

1.  This is an application by the plaintiff land owner against the defendant, the Director of Lands (“DOL”), for a ruling that the plaintiff is not bound by a set of conditions of cancellation which has not been registered in the Land Registry.

2.  The background is largely undisputed.  The land in question is Lot No 502 in DD 185.  It was the subject matter of New Grant No 8100 of 17 June 1952 when one Yuen Siu Lau and one Yuen Chap Won (“the Yuens”) acquired the land for residential purpose.

3.  Since 1952, there had been 9 changes in ownership of the Land, together with other dealings such as aborted sales, mortgages and charges.  The plaintiff acquired the Land on 9 March 2012 at $7 million.

4.  A document known as Memorial of Re-entry by the Crown was registered with the Land Registry by Memorial No 132204 of 23 March 1956 enclosing gazette GN No. 388 of 1956.  The gazette mentioned the following:

“… notice is hereby published that the Memorial of the Crown’s Re-Entry on Lot No. 502 in Demarcation District No. 185 at Ha Wo Tso, Shatin District, has been cancelled by Order of the Governor-in-Council with effect from 1^st March 1956.”

5.  On 16 March 1956, the Yuens signed the Conditions of Cancellation “in consideration of Government giving consent to the Cancellation Memorial of Re-entry of the [Land]” (“the Conditions of Cancellation”).

6.  In a minute enclosed with the Conveyance for Sale registered with the Land Registry by Memorial No 139264 of 12 March 1959 (in relation to one of the predecessors in title of the plaintiff), an officer within the District Office reported to the District Office that, “... the [Land] is free from encumbrance ...”.

7.  Six years after the plaintiff acquired the Land on 8 March 2018, the plaintiff’s architects submitted proposals for development of the land to the Lands Department.

8.  On 12 April 2018, the Lands Department replied to the plaintiff as follows (“the 2018 Letter”):

“Your submission has not been checked due to the following ground and is hereby disapproved:-

(i) The proposed development is a fundamental breach of the restriction of “Not more than one residence of European type building with an area not exceeding 2,560 sq.ft.” under addition Condition 1(b) to New Grant No. 8100 governing the Lot.

     I take this opportunity to remind you that failure to comply with any lease conditions may result in enforcement action being taken and the lot being re-entered by Government.”

9.  Upon request of the plaintiff’s solicitors, the Lands Department provided, on 5 October 2018, a copy of the Conditions of Cancellation.  That was when the plaintiff first had notice of the document.

10.  The Conditions for Cancellation has never been registered with the Land Registry pursuant to the Land Registration Ordinance of 1953.  Nor had it been referred to in any of the actual and abortive sale and purchase agreements, assignments, mortgages or charges or otherwise in the chain of changes in ownership since 1952.

11.  By letters before action, the plaintiff had, through its lawyers, advised the Lands Department that by reason of failure to register with the Land Registry, the Conditions of Cancellation would be null and void for all intents and purposes. The plaintiff therefore requested the Lands Department to process the plaintiff’s development proposal without regard to the restrictions imposed by the Conditions of Cancellation.

12.  No consensus was reached.  Accordingly, the plaintiff issued the present originating summons inviting the court to answer the following questions:

(1)     Whether the Conditions of Cancellation signed by the Yuens but which has never been registered with the Land Registry pursuant to the provisions of the Land Registration Ordinance of 1953, has any legal effect as against any person other than the Yuens (“Question 1”);

(2)     Whether the Plaintiff, as a bona fide purchaser for valuable consideration without notice of the Conditions of Cancellation, who obtained assignment of the Land pursuant to:

(i)     an agreement for sale and purchase of 16 January 2012; and

(ii)     an assignment of 9 March 2012,

would be bound by the Conditions of Cancellation (“Question 2”); and

(3)     Upon determination of the 2 questions above, whether DOL's disapproval/refusal in the 2018 Letter, is valid in law and binding upon the Plaintiff (“Question 3”).

The words underlined form the subject matter of dispute.

Analyses of the facts

13.  Under section 3(2) of the Land Registration Ordinance, Cap 128 (“LRO”), “deeds, conveyances, and other instruments in writing which are not registered shall, as against any subsequent bona fide purchaser for valuable consideration of the same parcels of ground be absolutely null and void to all intents and purposes.”

14.  The Conditions of Cancellation has not been registered. 

15.  DOL has not raised issue as to the price for the Land paid by the plaintiff being below the then market value.  There is thus no evidence to show that the plaintiff was anything but a bona fide purchaser for value.

16.  Mr Ng Ting Biu of the plaintiff, who personally handled purchase of the Land, deposed to lack of notice of the Conditions of Cancellation until DOL provided a copy on 5 October 2018.  DOL has not rebutted the evidence.

17.  By virtue of section 3(2) LRO, the Conditions of Cancellation is null and void as against the plaintiff.

18.  By the time of this hearing, the dispute between the parties boiled down to what the terms of the order should be. 

Terms of the Order

19.  With regard to Question 1, DOL suggests that the words underlined should be replaced by “as against any subsequent bona fide purchaser or mortgagee of the lot for valuable consideration without notice of the Conditions of Cancellation”.

20.  In my view, the words underlined in Question 1 are extremely wide as covering any predecessor in title who were not bona fide purchasers for value or had actual notice of the Conditions of Cancellation; and future purchasers of the Land who are not before this court.  This is not a vendor and purchaser summons under which the plaintiff needs to show good title.  There is no reason for making an order that affects any other person except the parties to this case.

21.  DOL’s suggestion is correct as a matter of law but there is no need to put down such a legal proposition in a court order.

22.  I decline to answer Question 1.

23.  Upon my finding that the plaintiff was a bona fide purchaser for value without notice, I answer Question 2 in the negative.

24.  It follows from the answer to Question 2 that the answer to Question 3 is in the negative.

25.  The answers to Questions 2 and 3 are therefore to prevent DOL from rejecting the plaintiff’s development proposals on the ground of violation of the Conditions of Cancellation but not on other grounds.

Costs

26.  Costs follow the event and should, in principle, be borne by DOL.

27.  The plaintiff, however, seeks costs on indemnity basis on the ground that there had been a letter before action dated 9 November 2018, which DOL did not respond to. The plaintiff also relies on a sanctioned offer dated 5 June 2019 inviting DOL to concede to negative answers to all 3 questions.

28.  I am unable to agree as the plaintiff is not entirely successful in obtaining answers to all the questions sought.

29.  Further, DOL has engaged in settlement discussions with the plaintiff. On 3 July 2019, DOL counter proposed terms (with reasons) along the lines proposed in his summons.  With the plaintiff’s possible need to register a court order with the Land Registry in mind, DOL gave, on 22 July 2019, the alternative of asking the plaintiff to withdraw the originating summons with a written confirmation from DOL that the Conditions of Cancellation was not binding and that the refusal in the Letter be set aside. 

30.  All along DOJ was prepared to pay 75% costs to the plaintiff.  DOJ made clear that the terms proposed were “subject to further agreement of the exact wording of the answers to the 3 Questions or the exact terms of a consent order to be sought”. This judgment effectively was along the lines of DOL’s stance. 

31.  Whilst working on the terms of the order, the plaintiff’s solicitors opened up lengthy correspondence that made unnecessary allegations as to litigation conduct of DOL and his making a “threat” to future development proposals of the plaintiff.  There were also unnecessary, pedantic exchanges on issues of law and procedure. 

32.  After the settlement discussion fell through, DOL filed an affirmation in opposition which raised new, unnecessary issues in paragraphs 11-14 therein.  DOL even used the wrong procedure of issuing a summons to seek directions for trial instead of issuing a notice pursuant to Order 28, rule 3(3) and Practice Direction 5.8 and indicating that he would not contest the proceedings.

33.  This is not a vendor and purchaser summons involving issues of title. The 2018 Letter was issued in the course of the plaintiff’s application for development approval and DOL’s proposals on settlement terms were reasonable.

34.  With respect to the parties, the correspondence simply blew out of proportion to the issue at stake. The plaintiff’s costs statement seeking an exorbitant figure of just under $1,400,000 spoke for itself. 

35.  In situations like these where there is no dispute as to substance but declaratory relief could not be obtained by consent, the parties could jointly inform the court of their agreed (and non-agreed) terms and ask the court to pronounce the relief (if deemed fit) or adjourn for argument.  A joint memorandum with a half hour hearing would suffice for that purpose.  This court dealt with the dispute at the call over hearing without a trial.

36.  Since the parties could not agree on the form of the order, the present hearing is indispensable.  Neither party is entirely blameless.

37.  Taking all circumstances into account, the appropriate order is for DOL to pay 75% of the plaintiff’s costs on the usual party and party basis up to 22 July 2019 plus the costs of this hearing.  I summarily assess the plaintiff’s costs in the sum of $150,000.