WONG CHING HOI v. CHAN SAU MAN

HCMP 835/2021 &
HCMP 836/2021
(Heard together)

[2022] HKCFI 273

HCMP 835/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 835 OF 2021

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AND

HCMP 836/2021

MISCELLANEOUS PROCEEDINGS 836 OF 2021

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(Heard Together)

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J U D G M E N T

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A.   INTRODUCTION

1.  These are two applications by Originating Summonses, both dated 17 June 2021 and issued against Chan Sau Man (“the Wife”), to vacate the registration of a lis pendens.

2.  In HCA 835/2021 (“the 835 Action”), the Plaintiff (“the Husband”) seeks to vacate the registration of a Notice of Application for Ancillary Relief in FCMC 7874/2020 (“the 835 Form A”) against Factory No.13 on 9/F, Elite Industrial Centre, No.883 Cheung Sha Wan Road, Kowloon (“the 835 Property”).

3.  In HCA 836/2021 (“the 836 Action”), the Plaintiff (“Essence Knitting”) seeks to vacate the registration of a Notice of Application for Ancillary Relief in FCMC 7874/2020 (“the 836 Form A”) against Workshop D on 3rd Floor, Nos.760-762 Cheung Sha Wan Road, Kowloon, and Workshop D on 10th Floor, Nos.760-762 Cheung Sha Wan Road (“the 836 Properties”).

B.   THE BACKGROUND

4.  The Wife petitioned for divorce from the Husband in FCMC 7874/2020 by a petition of 2 September 2020, and sought ancillary relief.  On the same day, she registered the 835 Form A and the 836 Form A against the 835 Property and 836 Properties respectively, to prevent the properties being sold, which would frustrate her application for ancillary relief.

5.  It is the Wife’s case that the Husband wholly owns the 835 Property and, through his majority shareholding in Essence Knitting, an interest in the 836 Properties, and that this should be taken into account in the ancillary relief proceedings.

6.  The Husband says that whilst the 835 Property is registered in his name, he holds it on trust for his younger brother (“the Brother”).  As for the 836 Properties, it is not disputed that they are owned by Essence Knitting, but he says (in his affirmation filed in the current proceedings) that he does not own any beneficial interest in the properties, and (in the Financial Statement (Form E) in FCMC 7874/2020), that his interest in Essence Knitting has yet to be determined.

C.   THE GROUNDS FOR VACATING THE LIS PENDENS

7.  At the hearing, counsel for the Husband, Mr Avery Chan, submitted that:

(i)    in relation to the 835 Action, there were strong merits in the Husband’s claim that he did not have any interest in the 835 Property.  Furthermore, there was “good cause” to vacate the registration of the lis pendens under s.19 of the Land Registration Ordinance (Cap.128) (“the LRO”), the Husband having offered an undertaking not to sell the 835 Property until the resolution of the ancillary relief proceedings;^[1]

(ii)   in relation to the 836 Action, his primary ground for vacating the registration of the lis pendens was that it was not registrable as a matter of law, the ancillary relief proceedings not relating to land as the Wife claimed an interest in the Husband’s shares in Essence Knitting rather than the 836 Properties.  His secondary ground was that the shareholders and directors of Essence Knitting were willing for the company to offer an undertaking that it would not transfer or sell the 836 Properties before the conclusion of the ancillary relief proceedings.[2]

D.   THE 835 ACTION

D1.    Strength of the Husband’s claim not to own the 835 Property beneficially

8.  Mr Chan accepted that the ancillary relief proceedings could in theory relate to land, since the Wife claimed (inter alia) an order for transfer of property of the 835 Property.  He argued, however, that there was “overwhelming evidence” that the property belonged to the Brother, so that it was most unlikely that the 835 Form A would turn out to affect the 835 Property.

9.  Mr Chan cited Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR 76 and Join Win Holdings v City Target Limited, unreported, CACV 190/2015, 23 November 2015 in support of the proposition that the court will take into account the merits of the parties’ claims when deciding whether or not to vacate a lis pendens.

10.  It is pertinent to note that those were cases where the court came to the view that the party seeking to maintain the registration in fact had no viable claim against the land, and therefore the pending proceedings did not sufficiently affect the land so as to be registrable.  See:

(i)  Anstalt Nybro at 81-82 per Lord Lane:

“The question that has to be considered in the present case is this.  If the case proceeds to trial is there any likelihood that specific performance of the option agreement would be ordered? If so, then the land may be “affected” by Nybro’s equitable interest and the agreement is registrable.  If not, there is no sufficient interest affecting the land and it was right to order the entries to be vacated. …

… Even at this interlocutory stage, if it is clear that no court directing itself properly would grant a decree of specific performance then the entries should be vacated…”

(ii)   Join Win Holdings at 2.11 per Cheung JA:

“In considering the 1st defendant’s application to vacate the lis pendens, this Court inevitably has to assess the merits of the appeal. The plaintiff’s case based on an oral contract is doomed to fail for not being in compliance with section 3 of CPO. The Judge was plainly right when he held that there is no likelihood that specific performance of the oral contract would be ordered. As such the plaintiff’s action does not have any sufficient interest affecting the land and the Judge was also plainly right to order the vacation of the lis pendens.”

11.  In the present case, I do not consider that I can confidently conclude at this stage that there is no likelihood of the Wife being able to establish that the Husband has a beneficial interest in the 835 Property.  There is a conflict of evidence on the affirmation evidence.

12.  The Husband’s evidence is that the 835 Property was transferred to him to be held on trust for the Brother, in accordance with his father’s will.  He produced a copy of the will, which has been admitted to probate, and the assent, which vested the 835 Property in the Husband on trust for the Brother.

13.  The Wife has raised a number of doubts regarding the Husband’s claim that he is not the beneficial owner of the 835 Property.

(i)    The Husband declared himself to have full ownership of the property in his tax return for 2018/19 and 2019/20.

(ii)   The will stipulated that the property would be held on trust until the Brother turned 35. He was already about 40 years old, yet the property had not been transferred to him.

(iii)  The property had been rented out and the Husband had received rental income of $372,000 for the year from 1 April 2018 to 31 March 2019.

(iv)  The Wife’s understanding, based on what the Husband had told her during their marriage, was that the Brother had sold the property to the Husband.

14.  To this, the Husband said that:

(i)    he had declared himself to have full ownership of the 835 Property in his tax returns because he did not know the difference between legal and beneficial ownership;

(ii)   he has been paying the rental income, minus various expenses, to the Brother, and is currently paying $20,000 per month to the Brother;

(iii)  he has delayed transferring the property to the Brother as his own subordinates are still responsible for collecting rent and maintaining the property, whereas the Brother does not have subordinates to do this.

15.  The Wife does not accept the Husband’s responses.  For example, she points out that another property, purchased using the proceeds of sale of another property which was originally devised to the Husband to hold on trust for the Brother, was registered in the joint names of the Husband and the Brother.  The Husband had explained[3] that this was because the Brother wished to become one of the legal owners and directly handle matters relating to the property himself – which would seem to be somewhat at odds with what the Husband said about the 835 Property remaining in his name so as to facilitate property management.

16.  It can be seen that is not possible to resolve the factual dispute regarding the ownership of the 835 Property on the affirmations alone.  I am not able to say that the Wife’s case is so weak that she is unlikely to succeed, that therefore the ancillary relief proceedings cannot affect the 835 Property and the lis pendens should be vacated.

17.  Mr Chan submitted that I do not need to make any definitive finding as to the merits, and simply need to take a preliminary view for present purposes.  He cited Ho Yau-kong v Ho Cheng Kwai-ying and others [1991] 1 HKLR 649 at 652C for the proposition that the mere fact that there is an arguable case for a registrable interest does not invariably defeat an attempt to vacate the registration.  However, what Bokhary J (as he then was) was saying was that merits was one factor to be put into the balance in the context of considering whether good cause was shown under s.19 LRO for vacating a lis pendens.  He was not suggesting that the court should simply take a preliminary view of the merits and determine the issue of vacating the lis pendens solely by reference to such a view.  I turn to a consideration of s.19 LRO next.

D2.    Whether good cause shown to vacate lis pendens

18.  Section 19 of the Land Registration Ordinance (Cap.128) provides that the court may vacate a lis pendens for “good cause shown”.

19.  In Ho Yau-kong v Ho Cheng Kwai-ying and others [1991] 1 HKLR 649, Bokhary J observed that the terms of s.19 were very wide.  He was of the view (see 652G) that the court should approach s.19 by reference to what the normal considerations on an application for interlocutory injunctive relief, subject to the modifications that:

(i)    a person with a registrable lis pendens is in a stronger position than someone who is seeking an injunction, given that registration may be made without reference to a court or without having the burden of first making out a case;

(ii)   the court should be even more reluctant to vacate a registration than to refuse or discharge an injunction which would have similar effect.

20.  In that case, the plaintiff had a “barely arguable” case for an account against the defendant, justifying the registration of a lis pendens against the defendant’s properties.  Bokhary J ordered the vacation of a lis pendens on the defendant’s undertaking to make a payment of $1m into court (although the amount of the payment in was less than the value of the properties).

21.  Mr Chan submits that the undertakings offered by the Husband constitute good cause for vacating the lis pendens.  Indeed, he submits that the undertakings offered in the present case are even better than the payment into court in Ho Yau-kong, since it extends to the whole of the 835 Property, whereas the payment into court in Ho Yau-kong was only for part of the value of the property.  However, since the value of the claim in Ho Yau-kong does not appear from the report, it is difficult to make this comparison.

22.  The Wife, through her counsel Ms Yanky Lam, has indicated that she is not willing to accept the undertakings in return for vacating the registration, as she does not trust the Husband’s word.

23.  In my view, despite the offer of the undertakings, I do not consider there to be good cause to vacate the lis pendens against the 835 Property.

(i)  The starting point is that, as Mr Chan acknowledged, the 835 Form A affected the 835 Property and as such was properly registrable (subject to the issue of whether it could be said that the Wife’s claim was not viable).  The Wife was therefore entitled to the protection afforded by the registration of the lis pendens.

(ii)  The undertakings offered by the Husband do not, in my view, provide protection of the same nature. If the property were to be sold in breach of the undertakings, then even though it would be open to the Wife to issue proceedings for contempt of court, the Wife would nevertheless have been deprived of the opportunity to seek a transfer order in relation to the 835 Property.  Whilst it may be said that it would also be open to the Wife to make submissions in the ancillary relief proceedings to take account of any sale, the fact would remain that the property would have been sold; and whether or not there could be adequate compensation for this is unknown.

(iii)  I balance this consideration against the harm which may be caused to the Husband if the lis pendens were to be maintained.  He has stated that he has no intention of selling the 835 Property, so the lis pendens would not affect him adversely in this regard, but he does not want the lis pendens to affect the leasing of the property.  He says that the tenant of the 836 Properties raised verbal queries as to the title of the properties, and his lawyers had to explain the situation to the tenant in writing.  He says that the lease of the 835 Property is about to end in March 2022 and he wishes to make this application to allay the tenant’s concern and to reduce the risk of not being able to rent out the property.  However:

(a)  it is not clear what concern was raised by the tenant of the 836 Properties, so it is difficult to assess whether prospective tenants of the 835 Property would have a similar concern.  Essence Knitting’s affirmation merely says that there were “verbal queries as to the title of the [836 Properties]”, and the letter from Essence Knitting’s solicitors to the tenant of the 836 Properties did not refer to any query;

(b)  in any event, it is not clear why a prospective tenant of the 835 Property might be concerned about the lis pendens, since even if the ownership were to change hands, this ought not to affect the tenancy;

(c)  in other words, it does not seem that maintenance of the lis pendens would cause any real harm.

(iv)  I therefore do not consider that there is any sound basis for effectively compelling the Wife to accept the undertakings in lieu of the protection afforded by the lis pendens.

E.   THE 836 ACTION

E1.    Whether registrable lis pendens

24.  By the 836 Form A, the Wife gave notice that she was applying for, inter alia, a settlement of property order and a transfer of property order; and under the “particulars” for these two items, she stated:

“Respondent’s interests as 1 out of 2 directors and shareholders of and in Essence Knitting & Garment Factory Limited … which is and was the registered owner of the following properties [there then followed the addresses of the 836 Properties]”.

25.  Unlike the 835 Action, Mr Chan did not accept that the ancillary relief proceedings were capable of affecting the 836 Properties.  His primary submission was therefore that the 836 Form A could not properly be registered as a lis pendens against the 836 Properties.

26.  A similar situation arose in Sun Ngai International Investment Ltd v Zhang Su Hua [2009] 1 HKLRD 48.  There were matrimonial proceedings in which the wife claimed that the husband was the beneficial owner of a majority of shares of a company, which owned a majority of shares in another company, which in turn owned a majority of shares in five other companies (including the plaintiff) company, which in turn owned various properties.  The wife sought to register a notice of application for ancillary relief against the properties, her case being that the husband beneficially owned his shares in the first company.  The husband’s stance was that his shares in the first company were held on trust for his girlfriend.  The plaintiff company wished to sell some of the properties it held.  It argued that the notice of application for ancillary relief was not registrable against its properties, since the wife had no possible claim to properties owned by the plaintiff rather than the husband.  Deputy High Court Judge Carlson held that the wife’s notice of application for ancillary relief was registrable, as it sought to attack all of the husband’s assets, including an alleged controlling shareholding in a company which ultimately owned the properties in the name of the plaintiff company.  The application for ancillary relief therefore came within the definition of “lis pendens” in the LRO, being “any action or proceeding pending … that relates to land or any interest in or charge on land” (see [24] of the judgment).

27.  Mr Chan accepted that in determining the Wife’s application for ancillary relief, the court would have the jurisdiction to make an order transferring the 836 Properties to the Wife, if it thought fit.  However, he argued that the Wife had not sought such an order in the first place, as she merely sought an order in respect of the Husband’s shares in Essence Knitting rather than the 836 Properties, so that the ancillary relief proceedings did not affect the properties.  This was the basis on which Mr Chan sought to distinguish Sun Ngai International Ltd from the present case.

28.  The judgment in Sun Ngai International Investment Ltd does not set out the exact terms in which the application for ancillary relief was framed.

(i)  Mr Chan placed emphasis on paragraph 15 of the judgment, where the wife’s counsel was recorded as submitting that the wife claimed a transfer of property order in respect of all 11 properties on the basis that the husband was the beneficial owner through his majority shareholding in the first company, which was the ultimate owner of the plaintiff company which owned the properties.  Mr Chan submitted that the wife must have framed her application in terms of a claim for the transfer of property rather than the husband’s shares.

(ii)  Ms Lam placed emphasis on paragraph 24 of the judgment, where Deputy High Court Judge Carlson expressed the view that the wife’s notice for ancillary relief was very wide in its reach, seeking to attack all of the husband’s assets including an alleged controlling shareholding in a company that was the ultimate owner of the plaintiff company and through that, ownership of the properties that stood in its name.  Ms Lam submitted that the wife must have framed her application in terms of a claim for the transfer of the husband’s shares.

29.  Even on Mr Chan’s reading of Sun Ngai International Ltd, in my view, it is not distinguishable from the present case.  The 836 Form A should be read against the background that on applications for ancillary relief, the court has wide powers in dealing with financial provision.  It does not seem to me that by the terms of the 836 Form A, the Wife has excluded herself from claiming an order in respect of the 836 Properties.  On the contrary, if her claim was intended to be confined to shares in Essence Knitting, there would have been no reason to go on to state that the company was the registered owner of the 836 Properties.

30.  On this reading of the 836 Form A, the application for ancillary relief must be one which relates to land or an interest in or charge on land.

E2.    Whether good cause shown to vacate lis pendens

31.  Essence Knitting’s alternative argument was that the undertakings which it and the Husband offered to the Wife constituted good cause to vacate the lis pendens. The Husband’s evidence is that Essence Knitting does not intend to sell the 836 Properties, but it does not want the registration of the lis pendens to affect leasing of the properties.

32.  For similar reasons as in the 835 Action, I do not consider that the undertakings offered constitute good cause to vacate the registration of the lis pendens.  Indeed, the protection which would be afforded by the undertakings would be less than the undertakings in the 835 Action.  If the 836 Properties were to be sold in breach of the undertaking by Essence Knitting, but somehow without the involvement of the Husband, the Wife may have limited redress in the ancillary relief proceedings (to which Essence Knitting is not a party).

F.   CONCLUSION

33.  I therefore dismiss both applications.  I further make a costs order nisi that the costs of the two Originating Summonses should be to the Wife, to be taxed if not agreed.