Unregistered legal charge: void but still an encumbrance

In Siu Wing Yee Angeline v Earning Yield Ltd ([2013] HKEC 868, CFI) S had agreed to sell property to P. Both parties wanted to proceed. The question was, though, whether S’s title was subject to an encumbrance. S had been a shareholder and director of company H. She had granted a charge to company N, a fellow shareholder in H. H was struck off the register. N was later also struck off the register. There had been no release of the charge granted by S to N.

The District Court had ordered the vacation of the entry relating to the legal charge at the Land Registry so that the charge was now unregistered and so void, as between N and a later bona fide purchaser or mortgagee (Land Registration Ordinance s.3(2)). The shareholders of N had sworn statutory declarations purporting to acknowledge that any action to recover debts due to N from S would be time-barred, The statutory declarations stated that they had no intention of enforcing the charge and had no objection to the entry relating to it from being vacated from the Land Registry.

The Court held, nevertheless, that S’s title was bad. The court order dealt with registration but the legal estate remained in existence. The effect of the order was not (and could not be) to bring the legal estate to an end.  There was no evidence to show when the debts secured by the mortgage would fall due and so the Limitation Ordinance could not help. Although the charge could not be enforced against a subsequent purchaser or mortgagee, it was still in existence. Section 12A of the Conveyancing and Property Ordinance could, potentially, have been of use but there was no information to show what the appropriate payment into court would be.

The risk of enforcement may be low but this is irrelevant when the title is indisputably bad. S had agreed to sell the property free from encumbrances but could not do so.

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Procedure where owner of an encumbrance cannot be found

Section 12A of the Conveyancing and Property Ordinance sets out the procedure to be followed where the owner of an encumbrance (such as a mortgage) is out of the jurisdiction, cannot be found or is unknown or where the identity of the owner is uncertain. It prevents titles from becoming unmarketable because of these encumbrances that the landowner is willing to discharge. In Cheung Ting (or Teng) Fan (or Fun) Tso ([2011] HKEC 1369) the Tso was the Government lessee of land. A Chinese Customary Mortgage of the land had been created in 1923. The Tso was unable to find the person entitled to the benefit of the mortgage and to repay them. In fact, it was highly possible that the mortgage had already been paid off. The Tso made an application under section 12A. The court permitted them to make a payment into court. The Tso was then to advertise the fact of the payment into court in a widely circulated local Chinese newspaper (the last time the mortgagee was heard of he was living in Shenzhen). No less than 21 days after the advertisement, the Tso could apply for a declaration that its title was free of the mortgage. This would facilitate any dealing with the property.