GUANG XIN ENTERPRISES LTD. v. LEUNG KWAI MUI

1996, No.MP2024

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

H E A D N O T E

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

Vendor and purchaser summons.

Held : Mortgagee in possession exercising power of sale does not require leave of the court to sell the property.

1996, No.MP2024

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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

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

J U D G M E N T

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

The Background

1. The Plaintiff and the Defendant have entered into an agreement dated 18th March 1996 for the sale and purchase of a property at Flat B, 11/F, Fu Wa Mansion, Nos.25-33 Kweilin Street, Kowloon, Hong Kong ("the property").

2. The Plaintiff is the mortgagee in possession of the property. The property was mortgaged by Mr Shan Shiao May Robert ("Mr Shan") to the Plaintiff on 27th June 1994 ("the Mortgage"). The Plaintiff commenced proceedings against Mr Shan and by an Order dated 27th September 1995, the High Court gave judgment to the Plaintiff against Mr Shan for the money secured under the mortgage and possession of the property.

3. A receiving order was made against Mr Shan and he was declared bankrupt by an Order dated 29th December 1995. The Plaintiff obtained vacant possession of the property on 29th January 1996. The Plaintiff is exercising its power of sale under the Mortgage.

Requisition on title

4. The Defendant purchaser raised requisitions on title on the property which the Plaintiff said have been answered. Three issues arise in this vendor and purchaser summons taken out by the Plaintiff :

(1) Whether the Plaintiff as mortgagee vendor should obtain an order for sale from the Court instead of relying on the power of sale in the mortgage?

(2) There was a Sale and Purchaser Agreement dated 29th July 1992 made between Mr Shan and one Madame Lai as the purchaser. This document had not been cancelled prior to the execution of the mortgage between the Plaintiff and Mr Shan. The question is whether the agreement is still subsisting; this is raised in the argument of the Defendant.

(3) Whether the Official Receiver, Mr Shan and Madame Lai should be joined as confirmors to the assignment because Mr Shan was declared bankrupt by the creditors?

Mortgagee exercising power of sale

5. The power of sale of the Plaintiff is contained in Clause 7(b)(ii) of the Mortgage. Clause 7(b)(ii) provides that if there is breach of the mortgage, it is lawful for the Plaintiff, without consent of, inter alia, Mr Shan to exercise the powers mentioned in the 4th Schedule of the Conveyancing & Property Ordinance, in particular the power to sell the property by public auction, tender or private treaty. Schedule 4 of the Conveyancing & Property Ordinance contains the powers of the mortgagee which include the power of sale.

6. To make the matter beyond doubt, s.51 of the Conveyancing & Property Ordinance provides that there shall be implied in the mortgage the powers exercisable by the mortgagee in the 4th Schedule. The mortgage of the property was by way of legal charge (Clause 2(b) of the Mortgage).

7. Section 12 of the Bankruptcy Ordinance expressly preserves the power of a mortgagee in possession to sell or realise the property despite the making of a receiving order against the bankrupt. It provides as follows :

"12.(1) On the making of a receiving order, the official receiver shall be thereby constituted receiver of the property of the debtor and thereafter ... no creditor to whom the debtor is indebted ... shall have any remedy against a property or person of the debtor or shall commence any action or other legal proceedings unless with the leave of the Court and on such terms as the Court may impose.

(2) This section shall not affect the power of any secured creditor to realise or otherwise deal with his security."

See also Williams and Miur Hunter on The Law and Practice in Bankruptcy (19th Ed.) p.528.

8. The Official Receiver is fully appraised of the sale through the documents supplied by the Plaintiff. Up to now the Official Receiver has raised no objection. Indeed, I just cannot see on what basis the Official Receiver can object to the sale.

9. The Defendant has not cited any authority that leave of the Court is required before the sale. On the contrary, Megary and Wade on the Law of Real Property (5th Ed.) p.938-939 stated that :

"THE MORTGAGEE'S RIGHTS. In general, the statutory power of sale is exercisable without any order of the court. This is the principal advantage over foreclosure. The mortgagee may sell by public auction or private contract and has a wide discretion as to the terms and conditions upon which the sale is made, and as to making the sale subject to restrictions. The power is exercised as soon as a contract for sale is made, even if it is merely conditional; thereafter the mortgagor's equity of redemption is suspended while the contract subsists, and he cannot stop the sale by tendering the money due. A disposition or contract to sell made by the mortgagor has no effect on the mortgagee's power of sale."

10. On the first issue, it is clear that the leave of the Court to sell the property is not required.

Previous agreement

11. On the second issue, on 29th July 1992, Mr Shan sold the property to Madame Lai. The sale was never completed. By letter of 16th October 1992, Madame Lai's solicitors sought the return of the deposit and damages. In the letter, it was stated that Madame Lai elected to treat the agreement as terminated due to the breach of Mr Shan. An action was commenced on 3rd December 1992 by Madame Lai seeking the return of the deposit and damages. Specific performance was not claimed. Judgment was given on 29th July 1994 for the sum of $596,035. There was a payment into court which was used as partial satisfaction of the judgment leaving a balance of about $36,000 together with interest and costs. A Charging Order was made on 30th December 1994 in respect of this outstanding amount.

12. Mr Yeung argued that the Mortgage was defective because at the time of its creation, there was the sale and purchase agreement between Mr Shan and Madame Lai. He relied on the well-known principle of Lysaght v. Edwards [1857] 2 Ch.D.499 in which Jessel MR stated that :

" ... the moment you have a valid contract for sale the vendor becomes in equity a trustee for the purchaser of the estate sold and the beneficiary ownership passes to the purchaser, the vendor having a right to the purchase money, a charge or lien on the estate for the security of that purchase money, and a right to retain possession of the estate until the purchase money is paid, in the absence of an express contract as to the time of delivering possession."

13. However, no authority was cited that a mortgagor cannot mortgage the property when there was in existence a prior agreement for sale. It certainly was not prudent to the mortgagee or its solicitors to accept such a mortgage. But in this case, the letter of 16th October 1992 showed that Madame Lai had no intention to pursue with the sale. It is clear beyond all doubt that Madame Lai has by now no interest whatsoever in this agreement. It is unrealistic to argue that the agreement is still valid. The rights of Madame Lai were merged in the judgment and she is estopped from reopening the issue : Phipson on Evidence, 14th Ed., para.33-24 and 33-25 and Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] AC 581.

Parties to the sale

14. Despite the requisition, no authority has been shown that the Official Receiver, Mr Shan or Madame Lai should be parties to the sale. To require them to join in the sale is, in my view, totally contrary to the established principles of mortgagee exercising power of sale.

Conclusion

15. In the circumstances, I would grant the relief sought by the Plaintiff.

16. I would like to add that solicitors who handle conveyancing matters must take upon themselves to decide whether there are any merits on the requisition on title. There are far too many vendor and purchaser summonses on title which are extremely trivial in nature and do not require the adjudication of the Court. If the vendor's solicitors regard that requisition had been answered, then they should press for completion leaving the purchaser and his solicitors to decide whether to complete or not or face the risk of having the deposit forfeited or the possibility of a law suit.