TSE FOOK CHOY, JOEY CALLAN v. KWONG ON BANK LTD.

1998 M.P. No. 2596

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This application arises out of efforts by the Defendant to enforce its judgment against the former wife of the Plaintiff in respect of her interest in the proceeds of sale of the former matrimonial home.

2. In late November 1987 the Plaintiff and his former wife bought as joint tenants the former matrimonial home, a flat in Heng Shan Mansion on the Taikoo Shing Road. Unhappily the marriage broke down a few years later and in early 1992 she moved out of the flat. In April of that year the Plaintiff served notice of severance of the joint tenancy and as a result, he and his former wife became tenants in common. Two years later she purchased a flat in Yu Chau Street although it appeared that mail addressed to her, continued to arrive at the former matrimonial home, which the Plaintiff used to give to the children, who lived with him, to hand to her when they saw her. I do not find those circumstances surprising.

3. In November 1994 the former wife, Madam Man and a man named Chan, executed a guarantee in favour of the Defendant bank in respect of banking facilities to a company, Evertime Asia, of which she was director and shareholder. She gave as her address a flat at Chung Wo Commercial Centre, Shanghai Street. The following month, they both mortgaged to the Defendant bank some factory premises of Evertime Asia in Wang Tai Road, as security for a loan to the company. She gave the commercial premises as her address.

4. In 1997 a number of events occurred. Madam Man planned to move to Canada. She resigned as a director of Evertime Asia, though remained a shareholder, it seems. She signed a sale and purchase Agreement in respect of her Yu Chau Street flat.

5. In August 1997, the Defendant demanded payment under the guarantee and the mortgage. The demands were sent to Wang Tai Road and the company's registered office. Writs were issued against Madam Man and served at the Wang Tai Road premises and the company's registered address by post.

6. On the 8th September the Plaintiff's solicitors conducted a search at the Land Registry which confirmed that he and Madam Man were the registered owners of the former matrimonial home, and that it was unencumbered. On the same day the Plaintiff signed a sale and purchase agreement with his former wife to acquire her share in the property. He was to pay her $1.5m. on completion of the transaction, and a further $490,000.00 on his subsequent sale of the premises. The consideration for this was that she would not seek to increase the maintenance order.

7. Two days later, on the 10th September, the Defendant obtained judgment in default against Madam Man in one of the actions. On the 15th September the Defendant made a search in the Land Registry against the former matrimonial home. No encumbrance or charge was shown. One week later the Defendant obtained a Charging Order against Madam Man's interest in the premises. On the 25th September the Plaintiff registered the sale and purchase agreement in the Land Registry. As a consequence he obtained priority as from the date of the agreement itself (i.e. 8th September) by virtue of section 3(1) of the Land Registration Ordinance. Two days after that the Defendant registered the Charging Order nisi against Madam Man's interest in the premises.

8. The transfer of ownership of the premises to the Plaintiff was completed on the 13th October. One week later the Charging Order was made absolute and a search by the Defendant at the Land Registry disclosed that Madam Man had been owner of the Yu Chau Street flat until 3rd April 1997 when she entered into a sale and purchase agreement. Within two or three days the Defendant discovered that completion had already taken place in respect of the Yu Chau Street flat. The Defendant registered the Charging Order absolute in the Land Registry on the 25th October. The Plaintiff registered the assignment of Madam Man's interest in the premises on the 3rd November. In February 1998 the Plaintiff no doubt as a consequence of a search at the Land Registry preparatory to a sale requested the Defendant to vacate the registered Charging Orders. The Defendant declined, hence these proceedings.

9. One of the contentions of the Defendant is that the Plaintiff, either himself or through his solicitors had actual notice of the Charging Order nisi of the 22nd September 1997 by virtue of its registration in the Land Registry on the 27th September. The onus of proving this is upon the Defendant. In effect the contention is that either the Plaintiff's solicitors in fact knew of it and deliberately did not make a search of the Registry after the search on the day on which the sale and purchase agreement was signed so as to avoid being fixed with the knowledge which would result from a search; or they avoided professional recommendations from their legal body and took a risk in not carrying out a further search on or before the date of completion. The latter argument is really one of constructive notice but that is of academic interest only since having heard the evidence of the Plaintiff and his solicitor I am quite satisfied that neither knew of the judgment or Charging Order nor did either of them fail deliberately or negligently to do anything which would have revealed its existence. The Plaintiff was a bona fide purchaser without notice when he entered into the sale and purchase agreement with his former wife. Neither he nor his solicitor had actual notice of the Charging Order nisi before the assignment on the 13th October 1997 (nor would they have had constructive notice if that were an issue).

10. One of the fundamental questions of law is whether the Charging Orders nisi and absolute were in any event validly registered.

11. Section 20 of the High Court Ordinance enables a judgment creditor to obtain a Charging Order "on any such property of the debtor as may be specified in the order" so as to enforce that judgment or order and secure payment of money due. Under order 20A the charge may be imposed only on, inter alia, an interest held by the debtor beneficially in any asset of a kind mentioned in subsection (2). Those specified are, land, identified securities, and funds in court. The order obtained by the judgment creditor specifically stated that the beneficial interest of the judgment debtor (Madam Man) in the Heng Shan Mansion flat (the former matrimonial home) was to be charged with payment of the judgment debt, interest and fixed costs.

12. Did Madam Man have a beneficial interest in those premises at the date of the Charging Order (i.e. 22nd September 1997)? - or at the date of the registration of the Charging Order at 28th September 1997 (i.e. one day after actual date of registration)? The answer is straightforward. She must have had an interest beneficially because her tenancy in common was not assigned until completion day i.e. 13th October 1997. If her interest had ceased on the signing of the sale and purchase agreement, she would have had no interest to subsist until the assignment five weeks later. After the date of the sale and purchase agreement she held her interest in the premises as trustee for the purchaser but retained a beneficial interest. Shaw v. Foster [1872] L.R. 5 H.L. p.321. [See Ho King Yim v. Lan King Mo [1980] H.K.L.R. (C.A.) p.42.] The position is by implication confirmed by the decision of Mayo J. (as he then was) in Ng Kam Ha v. Vincent Sina Traders (HK) Ltd. [1987] 2 H.K.C. p.517. In that case although judgment had been obtained before the assignment no Charging Order had been obtained until after the assignment. The learned judge held that with the assignment passed any interest in the land so there was none to charge.

13. What then is the position where a Charging Order is valid and registered before the assignment disposes of the judgment debtor's interest in the land? The position was considered by the Court of Appeal in Ho King Yim's case where the facts were identical to those in this case. A Charging Order had been obtained and registered after the registration of the sale and purchase agreement but before the registration of the assignment.

14. The registration of the Charging Order could not eliminate the effect of the prior, registered agreement and thus affect the purchaser's beneficial interest. In fact the purchaser's beneficial interest in land, created by the sale and purchase agreement, whether registered or not, is not affected by the subsequent registration of a Charging Order. It is still a valid and enforceable interest.

15. The interest on which the charge originally fastened was an equitable interest of the vendor, in this case Madam Man. That interest did not pass to the Plaintiff. The prior registered agreement did not give way to a subsequently registered Charging Order because the purchaser had already acquired his beneficial interest. In any event what registration was concerned with was priority of interests. The assignment though registered after the Charging Order related back to the contract, and no Charging Order created after the date of contract could gain priority to the interest of the purchaser or his successors in title.

16. In Ho King Yim's case it was conceded that the purchaser did have actual notice of the chargee's claim and the chargee proceeded to argue that the charge remained as an encumbrance upon the land to the extent of the balance of the purchase monies payable on assignment. However it was accepted that if there was no notice of the charge, then the purchaser would have taken free of the charge completely. In that event, the court held that notice alone was of no effect. As stated earlier the vendor's interest did not pass to the purchaser so the charge could not continue as an encumbrance upon the land. The court went on to consider Rayne's case (1859 1. GIF p.241) but that was an instance of the purchaser having notice and therefore being liable to pay the balance of the unpaid purchase monies to the third party, with whom the vendor had deposited the title deeds to secure advances.

17. The Charging Orders must be vacated from the Land Registry. There is now no interest upon which they can fasten. There remains the question of the Defendant's interest in the balance of the purchase monies due to Madam Man in the event of the Plaintiff selling the premises - which is likely. It has been argued that the Charging Orders should stay to secure this. That in my view cannot be right. The Charging Orders were a charge on Madam Man's interest in land. She has none now that the assignment has taken place. She has an entitlement to a sum of money in a certain event.

18. What Madam Man has is an equitable lien in respect of the balance of the purchase-money i.e. $490,000.00. It is not registered. But in any event it is not an interest in land so as to validate a Charging Order. Therefore the Defendant cannot rely on the existing Charging Orders to secure payment of that sum. They cannot subsist. [And see Stevens v. Hutchinson [1953] Ch. p.299. The Plaintiff now of course has clear notice of the Defendant's judgment. Proceedings would in the normal course of events ensue to attach these monies. The Plaintiff has very sensibly and fairly given an undertaking to pay that balance of $490,000.00 into court pending resolution of any claims in respect of it and I incorporate that undertaking in this order.

19. The costs of these proceedings are to be to the Plaintiff to be taxed if not agreed.