Archive for the ‘Land Registration Ordinance’ Category

Non-registration of trust. Dispositions to defraud creditors

June 1, 2016

In Goldfame Consultants Ltd v Tse Sai Ming ([2016] HKEC 1113, CFI) TCS agreed to sell land to Goldfame. The contract provided for the payment of deposits and then for the payment of the balance of the purchase price to be made on 14 August 2006. The contract provided that the assignment of the land would take place within 7 days of receipt of a letter from the Buildings Department approving the proposed site formation plan or at such other time as the purchaser might specify. The balance of the purchase price was duly paid on 14 August 2006 but the approval had not been received and the assignment did not take place. Instead, TCS executed Declarations of Trust under which he held the land on trust for Goldfame. TCS also nominated Goldfame as attorney to act for him in relation to the land. Neither the contract nor any of the other documents were registered with the Land Registry.

TCS died intestate in 2010 and TSM was granted letters of administration of his estate. TSM sold the land to H. Goldfame brought an action against TSM for breach of contract seeking damages or the return of the price paid to TCS. It also sought a declaration that TSM held the land on trust for Goldfame. It sought to have the sale to H set aside under section 60 of the Conveyancing and Property Ordinance.

There was no answer to the breach of contract claim and TSM was ordered to repay the purchase price with interest. It was accepted on all sides that the sale contract and the declarations of trust were void as against H since they had not been registered and there was no reason to doubt his good faith. Section 3(2) of the Land Registration Ordinance took effect.

Goldfame was forced to rely on section 60 of the Conveyancing and Property Ordinance. In Tradepower (Holdings) Ltd (in liquidation) v Tradepower (Hong Kong) Ltd, Ribeiro PJ  said that ‘where the disposition was made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s. 60 is engaged.’ (at [88]). The sale to H was not at an undervalue, nor was there any intention to defraud creditors ([94]). The claim against H failed.

In commenting on the expert evidence as to the market value of the property at the time of the sale to H, Recorder Coleman SC expressed his preference for valuation methods based on direct comparables where available. The subject matter of the transaction (undeveloped rural land where there was no guarantee that the approvals needed for development would be obtained) was somewhat out of the ordinary and so indices looking at the property market as a whole were unhelpful. Valuations based on the residual method involved too many assumptions to be as useful as direct comparables.

Michael Lower

Registration of a personal loan agreement unjustified

May 4, 2016

In Flat 4 on 3/F of Block A, Tin Yau Court, No 1 Tin Shing Road, Tin Shui Wai, Yuen Long, New Territories ([2016] HKEC 751, CFI) title to the property had been in the joint names of a husband and wife. An order had been made to the effect that when a decree absolute had been made in the matrimonial proceedings, the husband would transfer his interest in the property to his former wife but it seems that this transfer did not take place. Over three years after the order, the husband entered into a personal, unsecured loan agreement. The lender sought to register the agreement against the property at the Land Registry. It was not registered but appeared as a deed pending registration. The wife asked the lender to withdraw the registration but it refused to do so. The wife applied for, and  was granted, a declaration that the loan agreement did not create an interest in land and so was not registrable. The court has an inherent jurisdiction to vacate the registration or purported registration of any instrument in the Land Registry which does not affect land ([16]). The question of costs was left for later but Anderson Chow J. referred to authorities where, on similar facts, costs had been awarded to the property owner on an indemnity basis; the courts are concerned to prevent the abuse of the land registration process ([9] – [10]).

Michael Lower

Land Registration Ordinance: a lis pendens involves a claim to a proprietary interest

January 27, 2016

In Wide Power Corp Ltd v Manhattan Court (IO) ([2015] 4 HKLRD 480, CFI) the incorporated owners of a building sought an injunction requiring an owner to remove unauthorised building works carried out in breach of the DMC. They registered the claim as a lis pendens. The owner successfully argued that the counterclaim did not relate to land or any interest or charge on land and so did not fall within the definition of a lis pendens in section 1A of the Land Registration Ordinance. A lis pendens must involve a claim to a proprietary interest or right in real property (Louis Chan J. at [76]). Here, the claim was an in personam claim against the owner. If the owner were to sell the property, the new owner would not be affected by the proceedings against the former owner. He would, of course, be liable under the terms of the DMC but this would involve a fresh claim against the new owner.

Michael Lower

A lis pendens must affect land

December 23, 2015

In Luen Ford Industrial Co Ltd v Woo Ming Han Juliana ([2015] HKEC 2639, CFI) D alleged that her father had procured her late mother’s execution of a transfer of the mother’s shares in a company (‘the parent company’) through the exercise of undue influence.  Her primary claim was for a declaration that the transfer was null and void. A subsidiary of the parent company (‘the subsidiary’) owned an industrial unit (‘the property’). D also sought orders preventing the subsidiary from selling the property or, alternatively, from disposing of the proceeds of sale. D’s solicitor registered the writ as a lis pendens against the property.

Deputy Judge Kenneth Kwok SC  ordered the registration to be vacated pursuant to section 19 of the Land Registration Ordinance. He referred to Thian’s Plastics Industrial Company Limited v Tin’s Chemical Industrial Company Limited and Anstalt Nybro v HK Resort Company Limited. This litigation did not affect land. There was no action against the owner of the land (the subsidiary). The action concerned the father and the parent company and their future conduct. The claim for an injunction to restrain the sale of the land was an artifice designed to give the appearance that there was a claim affecting land:

‘The registration was a blatant tactical move to bring about a standstill in the sale of the Subject Property. What is objectionable is that Juliana Woo and her then solicitors did not seek judicial approval to achieve her objective. Instead, they simply abused the registration system.’ ([33])

The alternative claim restraining the disposal of the sale proceeds was adequate protection for D.

The judgment closes with this warning:

‘Registration of a lis pendens is a clog on the owner’s title. Those who act in concert to procure registration of a lis which does not affect land should beware of possible liability.’ ([36])

Costs were awarded against D on an indemnity basis.

Michael Lower

The court’s power to vacate a lis pendens

December 2, 2015

In Join Win Holdings Ltd v City Target Ltd ([2015] HKEC 2477, CA) the first instance judge dismissed P’s claim for a declaration that it had entered into an oral contract for the acquisition of D1’s property and for specific performance of that contract. There was no writing to satisfy section 3(1) of the Conveyancing and Property Ordinance and part performance had not been pleaded. The judge had also ordered that the lis pendens registered at the Land Registry be vacated. P appealed against this judgment and registered the notice of appeal as a lis pendens at the Land Registry. D1 successfully applied for the vacation of the notice of appeal from the Land Registry.

The Court of Appeal (Cheung JA giving the only full judgment) referred to the court’s power under section 19 of the Land Registration Ordinance to order the vacation of a lis pendens when it is satisfied that ‘the litigation is not prosecuted bona fide, or for other good cause shown.’ It also pointed to its inherent jurisdiction to order the vacation of a registration.

In deciding whether or not to vacate the registration, the court had to assess the merits of the appeal. This appeal was doomed to fail given the lack of any writing to satisfy section 3(1) ([2.11]). ‘The notice of appeal should never have been registered because putting the plaintiff’s case at its highest it is not one that can be said to affect the property.’ ([2.16]).

Michael Lower

 

Effect of failure to register a written declaration of trust

July 15, 2014

In HKSAR v Lau Kam Ying ([2013] HKEC 1503, CFA)  Company X transferred the title to land to indigenous villagers. The villagers executed declarations of trust to the effect that each of them held his section on trust for company X. This declaration was never registered. Company X was wound up.  When the Government resumed the land, some of the villagers assigned their land to Company Y which had been set up to collect compensation on their behalf. They made false statutory declarations to the effect that the title deeds had been lost. These were then submitted to the Government as part of the process of claiming the compensation.

The leading players behind the scheme were convicted of conspiracy to defraud. They had falsely represented that company Y was a bona fide purchaser for valuable consideration and concealed the beneficial interest of company X. In this decision, the Court of Final Appeal rejected the defendants’ application for leave to appeal against the convictions.

The defendants argued, first, that the declarations were null and void as against company Y as a result of section 3(2) of the Land Registration Ordinance. This failed since sections 3 and 4 of the Land Registration Ordinance, ‘concern priorities between registered instruments but do not affect remedies which may be available whether in contract, tort or equity.’ (Tang P.J. at [19]). The second argument was that the declaration was unenforceable on the grounds of public policy. This would have failed anyway since company X would not need to plead an illegal act (Tinsley v Milligan) ([20]).

In any event, the conviction relied on the fact of the concealment not on whether company X had an indefeasible beneficial interest ([21]).

 

 

Application to vacate the registration of a writ

November 12, 2013

In Huen Wai Kee v Choy Kwong Wan Christopher ([2013] HKEC 1784, CFI) H and C were the shareholders of P Ltd. C agreed to buy H’s shares for HK$40 million. C agreed that property (‘the property’) owned by R Ltd (a company controlled by C and his wife) would be security for C’s payment obligations under the share sale agreement. R Ltd entered into an agreement to sell the property to CG Ltd (a company controlled by H for HK$38.4 million). Any amount unpaid by C in respect of the shares would be set off against the price to be paid by CG Ltd. C failed to pay the full purchase price.

H and CG Ltd brought proceedings against C and R Ltd. H / CG Ltd sought the amount unpaid under the share sale agreement and in respect of dishonoured cheques and specific performance of R Ltd’s agreement to sell the property to CG Ltd.

They obtained an order for the payments to be made and, in the alternative, for specific performance of the agreement to sell the property to CG Ltd (with the amount owed by C being deducted from the purchase price of the property).

The order was registered at the Land Registry. C then entered into an agreement to sell the property to a third party for much more than the price payable by CG Ltd. C and R Ltd sought the vacation of the registration of the writ under section 19 of the Land Registration Ordinance.

They failed. The court’s intention was that it was H and CG Ltd who, under the terms of the order that had been made, had the option as to whether or not to insist on specific performance.

This hearing was not the occasion on which to argue that the order should not have been made.

Michael Lower

Unregistered legal charge: void but still an encumbrance

June 28, 2013

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.

Part performance: contract unregistered and in breach of New Grant

May 6, 2013

In Silver Hope Ltd v Chan Kwai Wah Alice ([2013] 1 HKLRD 823, CFI) W had entered into a contract to purchase the property in 1996. The contract amounted to a breach of the New Grant covenants concerning the property. W paid the entire purchase price and entered into possession. The contract was stamped but not registered. In 2012, P obtained a charging order in respect of the property and later an order for sale. W now sought to be joined as a defendant to the proceedings and to stay the execution of the order. To succeed, W needed to show that there was an arguable case that he had an equitable interest in the property. W was met by two arguments. First, that the contract was unlawful and so void (because it was formed in breach of covenant). Second, that the charging order (which had been duly registered) had priority over the unregistered contract.

W succeeded in being joined as a party. He was not relying on the contract but on the equity that arouse out of his having paid the entire purchase price and gone into possession (presumably this is on the basis of the doctrine of part performance). Hence, it could be argued that W would not need to plead the unlawful contract (see Tinsley v Milligan).

As for registration, after Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd, it is clear that the court can look at the substance of the competing interests (and then consider the impact of registration or a failure to register). This could be seen as a contest between two equitable interests (Hong Kong Civil Procedure 2012 50/9A/17). Thus, it is arguable that W’s equitable interest has priority over the charging order notwithstanding the failure to register it.

Registration of Bankruptcy Order against spouse’s property

March 6, 2013

In Re Flat F 30/F Tower 20 (Hoi Kwai Mansion), Riviera Gardens ([2013] HKEC 286, CFI) H gave W the net proceeds of sale of a property he had sold. She used this money towards the cost of the renovation of a flat that she bought in her sole name. H became bankrupt and the Official Receiver registered the bankruptcy order against the title to the flat. W now sought to have the registration removed. She failed. Rule 73 of the Bankruptcy Rules allows the Official Receiver to register a bankruptcy order against the property of a spouse. W’s attempt was not helped by the fact that she had acknowledged that H had an interest in the flat (though it is not clear that the lack of such an acknowledgement would have made a difference). A bankruptcy order is not a lis pendens.