YIM TIN FOOK AND ANOTHER v. YU CHOR LAI AND OTHERS

HCA 2613/2006

[2020] HKCFI 337

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

________________

________________

(By Original Action)

________________

(By Counterclaim)

_____________

DECISION

_____________

1.  By my Decision herein dated 16 October 2019 (the “Order 14A Decision”), I resolved certain questions in these proceedings under Order 14A. By my Decision on Relief and Costs dated 6 December 2019 (the “Decision on Relief and Costs”), I pronounced orders consequential on the Order 14A Decision.

2.  I refer to the background and issues as set out in those decisions, and adopt the terminology used therein.  

3.  By summons dated 9 December 2019 (the “Stay Summons”), D2 applied for, inter alia, a stay of the orders referred to at paragraph 24 of the Decision on Relief and Costs, pending determination of D2’s intended appeal to the Court of Appeal from the two said decisions.

4.  This is my decision on the Stay Summons.

5.  The Stay Summons came before me for a call-over hearing on 17 December 2019, at which I: (i) granted an interim stay of execution of certain of the orders pronounced in the Decision on Relief and Costs, pending determination of the Stay Summons; and (ii) gave directions for the filing of evidence, written submissions and disposal of the Stay Summons on paper.

6.  I have now received and considered the evidence filed and written submissions lodged by D2 and Ps. The other parties to the proceedings did not participate in the Stay Summons[1].

Principles

7.  There was no dispute as to the principles applicable to an application for a stay of execution pending appeal, which were summarised by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at paragraphs 6 to 10.

Arguable appeal

8.  The existence of an arguable appeal is a minimum requirement before a court will consider granting a stay: Star Play at paragraph 9(6).

9.  D2’s grounds of appeal are set out in his draft Notice of Appeal, all of which relate to Question 3 in the Order 14A Decision. Ps and D2 disagree as to whether these grounds are arguable. D2 asserts that the points raised are difficult and important, and not covered by direct authority in Hong Kong (citing the Order 14A Decision at paragraph 108).

10.  I will not debate the merits of D2’s arguments, many of which are detailed, and were canvassed in the Order 14A Decision. However, I accept for present purposes that the appeal raises arguable points.

Stay of orders for demolition and vacant possession

11.  D2 sought a stay of (inter alia) the orders for demolition of structures and delivery of vacant possession, pronounced at paragraph 24(2)(a) of the Decision on Relief and Costs.

12.  D2 cited Star Play at paragraph 9(1): where the relevant order is for possession of premises, more often than not, it is likely that an appeal will be rendered nugatory without a stay of execution. To satisfy the requirement that an appeal be rendered nugatory, it can be sufficient to demonstrate that the failure grant a stay would have a serious deleterious effect: Star Play at paragraph 9(4).

13.  Evidence was filed for D2 to the effect that: (i) the disputed land forms part of a compound known as Westfield Gardens, which has been in the possession of D2 (and following his death, of D2’s son) since around 1974, and which forms a single unit enclosed by a wall and fence; (ii) permitting other parties to gain possession of portions of the compound would compromise its integrity leading to security risks to the residents; (iii) the two structures on Ps’ Land cross over onto other portions of land retained by D2, such that their demolition would be only partial or would affect structures on land retained by D2; and (iv) demolition or alternation to the structures, walls or fences would likely be without recompense to D2, should the appeal succeed.

14.  On this issue, Ps disputed the alleged security risks, asserted that the structures were a warehouse and village type house used for storage (rather than for residential use), and argued that the fence could be altered to enclose only other portions of lands belonging to D2.

15.  I accept that D2 has filed sufficient evidence of prejudice to the integrity of the compound and possible alterations to fences, walls and structures which, in the absence of a stay of execution, would at least be complex or difficult to reverse, in the event of a successful appeal.

16.  I consider that the preferable course of action is to preserve pending D2’s appeal the status quo in respect of the compound, its fences and walls, and the structures on Ps’ Land, particularly given the further points considered below.

Alleged prejudice to the plaintiffs

17.  Ps argued that delay to their recovery of vacant possession would cause them prejudice in the form of (further) delay to the exercise of their rights as indigenous male villagers under the Small House Policy. They filed evidence that their applications for licenses to build small houses on Ps’ Land have for many years been delayed by their lack of vacant possession. Further, Ps referred to their age and P1’s medical condition(s), arguing that their small house rights would or may be lost should they pass away before recovering vacant possession. 

18.  Though I consider it in the balance, I place limited weight on this factor, given the long period of time taken to progress this action. The assignments to Ps were in 1997, the proceedings were commenced in 2006, yet the Order 14A summonses were not heard until 2019[2]. On any view, Ps cannot be said to have progressed the matter with urgency. 

19.  Ps further argued that the structures on Ps’ Land are unauthorised, which may prompt the Government to exercise a right of re-entry, to Ps’ detriment. D2 responded that the structures are long-standing, and tolerated under the Lands Departments’ relevant policy. I consider that Ps’ argument here is rather speculative, and does not take matters significantly further.

20.  As a fall-back position, Ps argued that any stay of execution should be limited to only the order for demolition of structures, or to actual possession of Ps’ Land, but without prejudice to Ps’ rights to take or complete all or any procedures to apply for the necessary licenses or permits to erect their small houses on Ps’ Land and to complete all procedures up to but excluding actual possession (compare Star Play at paragraphs 4 and 14). D2 did not object, in principle, to a limitation of this nature, and I am minded to proceed in this way. 

Stay of other orders

21.  D2 also sought a stay of execution of the other orders pronounced at paragraph 24 of the Decision on Relief and Costs, notably the assessment of damages by way of mesne profits, and the costs orders.

22.  D2 argued that: (i) the assessment(s) would be a waste of time and costs in the event of a successful appeal; and (ii) neither Ps nor any of the defendants to counterclaim are known to be persons of means, such that any amounts paid would or may be unrecoverable following a successful appeal.

23.  However, there is no evidence from D2 that any other parties lack financial means, and by reply submissions D2 relied on inference essentially from the fact that Ps are retired and the absence of evidence from Ps as to their means.

24.  In my view these features, which would be present in many cases, are insufficient to discharge D2’s burden of establishing a good reason to deprive the other parties of the fruits of their success, pending appeal.

25.  Accordingly, I decline to stay the execution of the other orders made.

Disposition

26.  I will order that pending the final determination of D2’s appeal or further order, there be a stay of execution of the orders for demolition and of actual possession referred to at paragraph 24(2)(a) of the Decision on Relief and Costs.

27.  As to the meaning of actual possession, I refer to paragraph 20 above.

28.  I make an order nisi that the costs of the Stay Summons, including the hearing on 17 December 2019, be in the cause of D2’s appeal.

HCA 2613/2006

[2019] HKCFI 2933

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

________________

________________

(By Original Action)

________________

(By Counterclaim)

____________________________________________

DECISION ON RELIEF AND COSTS

____________________________________________

1. I refer to my Decision herein dated 16 October 2019 (the “Order 14A Decision”), and adopt the terminology in that Decision.  

2.  At §§126 – 128 of the Order 14A Decision, I gave directions for the exchange of written submissions on the form of judgment and orders(s) sought by the parties, together with costs.

3.  I subsequently received the parties’ said written submissions, and now give my decision on those issues.

Form of judgment and orders

4.  In their post-Decision written submissions, D1 and D2 objected to only very limited portions of the judgment and orders proposed by Ps.

5.  For example, D1 and D2 raised no objection to Ps’ request for an order that D1 and D2 demolish the structures on land belonging to Ps, and deliver vacant possession to Ps, nor to an assessment of damages by way of mesne profits.

6.  Other than arguments on costs, the only real point taken by D1 and D2 was that the resolution of questions under Order 14A should not be effective in favour of DC3, DC4, DC5 or DC9, because those parties did not appear at the hearing or resist D2’s claim.  For the same reason, it was submitted that D2’s counterclaim should not be dismissed as against DC3, DC4, DC5 or DC9.

7.  I do not accept these points.  D2’s summons under Order 14A sought the resolution of questions of law and construction and the entry of judgment as against all defendants to D2’s counterclaim.  The determination of three questions in the Order 14A Decision takes effect as between all parties to the proceedings, including those who did not appear.  It follows that D2’s counterclaim fails as against all of the Registered Owners.

8.  On a related note, by written submissions DC6 sought (inter alia) final judgment for an order that D1 and D2 demolish the structures on DC6’s portion of the land and deliver up vacant possession to DC6.  Whilst D2’s counterclaim against DC6 falls to be dismissed, I do not see that DC6 is entitled to this additional relief since DC6 never issued a counterclaim against D1 and D2 for such relief.

9.  As to D2’s counterclaim against DC8 (and DC7), D2 and DC8 were ad idem that the extant issues would have to proceed to trial (unless resolved by agreement): see Order 14A Decision §§118 – 123.

Assessment of damages between Ps, D1 and D2

10.  By their post-Decision written submissions, Ps sought (inter alia) interlocutory judgment against D1 and D2 for damages by way of mesne profits, to be assessed, and further requested directions for an assessment of damages.

11.  As noted above, the reply submissions of D1 and D2 contained no objection on these points and expressly stated that D1 and D2 had no comment on (inter alia) Ps’ proposed directions for an assessment of damages.

12.  Accordingly,I will grant the orders and directions sought by Ps in this regard, subject to minor revisions as set out below.

Costs

13.  Ps sought their costs from D1 and D2, in respect of the original action, counterclaim and two Order 14A summons, on the basis that Ps have ultimately succeeded.  DC6 sought a similar costs order.

14.  D1 and D2 argued that there were three main questions considered in the Order 14A Decision, and that Ps and DC6 should be deprived of their costs in relation to two of those, on which they failed.

15.  The principles on “issue based” costs orders are well known, and are summarised in Hong Kong Civil Procedure 2020 at §62/5/7.  I have considered these principles, but am not persuaded that I should deprive Ps or DC6 of any of their costs.

16.  I accept that D1 and D2 succeeded on certain of the legal issues considered in the Order 14A Decision, and that inevitably, these would have increased the time taken for the hearing and the costs incurred, to some extent.

17.  However, I also consider the following: (i) the Registered Owners are the clear overall winners on the central issue of title in the Order 14A Decision and these proceedings (ie the “real winners”); (ii) D2 initiated the Order 14A proceedings with the objective of resolving the entire action in his favour, but the outcome is essentially the opposite; (iii) the discrete legal points upon which the Registered Owners failed were difficult points, and the result on those points is somewhat counterintuitive (see Order 14A Decision §§80 – 87); (iv) on the findings made the Registered Owners have been wrongly deprived of possession of their respective properties for many years, and on the basis of a case pleaded by D2 which has shifted multiple times.

18.  Ultimately, the court exercises a discretion to make a costs order which is fair and just in all the circumstances. Given the outcome and features referred to above, I do not consider it fair to deprive the Registered Owners of any of their costs.  Further, given the complexity of the issues, a certificate for two counsel is justified for the hearing before me.

19.  DC8 sought his costs of D2’s summons from D2.  D2 argued that the extant questions between D2 and DC8 will be resolved in due course, such that costs between D2 and DC8 should be reserved.

20.  On the three main questions considered in the Order 14A Decision, DC8 took the same position as D2.  As to the other questions relating to D2 and DC8 — which were not summarily resolved — DC8 did not uniformly oppose their summary resolution.

21.  I consider that in respect of D2’s Order 14A summons, as between D2 and DC8, the fair order is DC8’s costs in the cause.  The same applies as between D2 and DC7.

Other matters

22.  There was reference in the correspondence and post-Decision submissions to certain issues regarding a potential appeal from the Order 14A Decision.

23.  In light of the further correspondence and submissions received, I do not consider it necessary to deal with these points (some of which were in any event for an appellate court, if any).

Disposition

24.  For the reasons above, I will make orders to the following effect:

 (1) The following questions are determined between the parties under Order 14A of the Rules of the High Court (with terms as defined in the Decision herein dated 16 October 2019):

Question 1:	Did the 1983 Lease (if validly executed) operate as an assignment from Madam Tang to D2 of the leasehold estate held by Madam Tang in the Parent Lot for the residue of the term under the Block Lease?
Answer   :	Yes.
Question 2:	What was the effect of the NTLEO and the extension of the leasehold term thereunder, on the ownership of the leasehold estate in the Parent Lot?  Who was entitled to the benefit of the extended lease granted by the NTLEO?
Answer   :	The statutory extension of the term of the Block Lease which was effected by the NTLEO in 1988, did not alter the legal or beneficial ownership of the leasehold estate in the Parent Lot, which remained with D2.
Question 3:	By virtue of the LRO, is the 1983 Lease, which was registrable but not registered, null and void as against the Registered Owners as bona fide purchasers for value under assignments which were duly registered?  What is the effect of the LRO on the competing claims to title made by D2 and the Registered Owners?
Answer   :	Yes.  Pursuant to section 3(2) of the LRO, the Registered Owners took good title to their respective portions of land deriving from the Parent Lot, and D2’s rival claim based on the unregistered 1983 Lease is defeated.

 (2) Final and interlocutory judgment be entered for Ps against D1 and D2 as follows:

 (a) There be an order that D1 and D2 do forthwith demolish the structures on subsections 3, 8 and 9 and subsections 6, 7 and 15 of Section A of Lot No 1180 in Demarcation District No 130, Tuen Mun, New Territories, Hong Kong(collectively “P’s Land”) as more particularly defined in the Amended Statement of Claim filed on 15 December 2014, and deliver up vacant possession of the said land to P1 and P2 respectively.

 (b) Damages by way of mesne profits, together with interest thereon, to be assessed, be payable by D1 and D2 to Ps in respect of the said land.

 (3) As to the said assessment of damages between Ps, D1 and D2: 

 (a) Ps do have leave to adduce expert evidence in the form of a valuation report from surveyor Mr Keith L H Siu of RHL Appraisal Limited on the issue of mesne profits in respect of P’s Land from 10 May 1997 up to the date of the valuation report;

 (b) The said valuation report shall be filed and served within 60 days from the date of this order;

 (c) D1 and D2 do have leave to file and serve a valuation report on mesne profits within 60 days from the date of this order;

 (d) Thereafter the parties shall apply to the Practice Master for an appointment for the assessment of damages and leave to set it down for hearing;

 (e) Unless otherwise directed, the signed witness statements of Ps and D2 already filed and exchanged do stand as evidence at the hearing for assessment of damages;

 (4) D2’s counterclaim herein be dismissed as against Ps, DC3 to DC6 and DC9;

 (5) Save that the costs of the assessment of damages be reserved:

 (a) Ps’ costs of the original action including all costs reserved, and of Ps’ Order 14A summons, be paid by D1 and D2 jointly and severally; and

 (b) Ps’ costs of D2’s counterclaim including all costs reserved, and of D2’s Order 14A summons, be paid by D2;

with certificate for two counsel, to be taxed if not agreed.

 (6) The costs of DC3 to DC6 and DC9 of D2’s counterclaim, including all costs reserved and D2’s Order 14A summons, be paid by D2, to be taxed if not agreed. 

 (7) The costs of DC7 and DC8 in respect of D2’s Order 14A summons, as against D2, be DC7’s and DC8’s costs in the cause. 

 (8) There be liberty to D2 and DC3 to DC9 to apply regarding other matters outstanding in respect of D2’s counterclaim. 

HCA 2613/2006

[2019] HKCFI 2511

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

________________

________________

(By Counterclaim)

_____________

DECISION

_____________

A. INTRODUCTION

1.  There were before me two summonses, each taken out under Order 14A of the Rules of the High Court, namely:

  (1)  A summons dated 21 November 2016 taken out by the 2^nd defendant (by original action)/plaintiff (by counterclaim) (“D2”);

  (2)  A summons dated 27 June 2018 taken out by the 1^st and 2^nd plaintiffs (by original action) / 1^st and 2^nd defendants (by counterclaim) (“Ps”).

2.  The action concerns a long-running dispute over the ownership of parcels of land in the New Territories.

3.  The two summonses seek resolution by the Court of a number of questions said to be of law and/or construction: see further below.

4.  The oral hearing was set down for three days, and lasted two.  I heard submissions from: Ms Audrey Eu SC [1] for Ps; Mr Benjamin Chain for the 1^st defendant (by original action) (“D1”) and D2 [2] ; Mr Roger So, for the 6^th defendant by counterclaim (“DC6”);  and Mr David PH Wong, for the 8^th defendant by counterclaim (“DC8”) [3].

5.  At the conclusion of the hearing I reserved my decision, which I now give.

B.  SUITABILITY FOR ORDER 14A

6.  The principles applicable to an application under Order 14A are well known [4].

7.  At the outset of the hearing, I raised with the parties my reservations as to the suitability of proceeding under Order 14A given that: (i) it was not clear whether the questions framed could be resolved without recourse to disputed facts; (ii) it appeared that at least some issues in the proceedings would/may remain extant notwithstanding determination of the questions framed in the summonses; (iii) it appeared more sensible and efficient to simply proceed to trial and resolve all issues at the same time in the usual way; particularly where witness statements have already been filed.

8.  I received submissions in response to the effect that: (i) at least three major issues or questions (see Questions 1 to 3 below) could be resolved as questions of law or construction and on the basis of undisputed facts; (ii) the parties were keen to have, at the least, these three major questions resolved as soon as possible; and (iii) resolving these questions could result in the partial or entire disposal of the proceedings.  No party submitted that I should not resolve these three questions under Order 14A, nor that the summonses should be dismissed on such a basis.

9.  I must say that I still have reservations as to the use of the Order 14A procedure in this case, for the reasons at §§7(ii) and (iii) above.

10.  However, on balance, I am persuaded to exercise my discretion to resolve under Order 14A the three main questions framed, because:

  (1)  I accept that they raise questions of law and/or construction which can be resolved without recourse to disputed facts.

  (2)  Their resolution should dispose of at least the main issues as between most of the parties (see below).

  (3)  By the time the summonses reached me, much cost would already have been incurred in instructing lawyers and preparing detailed written arguments for the hearing; which cost would have been largely wasted had I then declined to entertain Order 14A.

  (4)  As noted above, the parties were ad idem that I should proceed to resolve at least the three major questions. 

11.  However, I exercise my discretion against the determination under Order 14A of certain additional “minor” questions framed, which relate to D2’s counterclaim against the 7^th defendant by counterclaim (“DC7”) and DC8: see further below.

C.  KEY RELEVANT FACTS

12.  The key relevant facts were undisputed between the parties, at least for present purposes:

  (1)  By a Block Crown Lease dated 1905 (the “Block Lease”), the Remaining Portion of Section A of Lot 1180 in Demarcation District 130 (the “Parent Lot”) was granted to the original Crown lessees.

  (2)  In 1958, ownership of the Parent Lot under the Block Lease devolved to one Madam Tang Yin (“Madam Tang”), an indigenous villager of Nam Wai village.

  (3)  According to D2, in 1975 Madam Tang granted to him an oral yearly tenancy of the Parent Lot [5].

  (4)  Madam Tang and D2 executed an agreement dated 15 November 1983 (the “1983 Lease”) written in Chinese [6].  The 1983 Lease provided (inter alia) that: (i)Madam Tang leased the farm sheds, land and all buildings and structures situated in Demarcation District 130 and registered under her name to D2; (ii) the term of the tenancy was 15 years from 15 November 1983 to 14 November 1998; (ii) the monthly rental was HK$1,500, with the landlord otherwise having a right to recover the land; (iii) three years after the expiry of the term of the tenancy, the method of rental increase would be subject to negotiation and agreement by the parties in accordance with the commodity price; and thereafter rental would be adjusted once according to the aforesaid method in every three years [7].

  (5)  I note at this juncture that Ps and DC6 do not admit that the 1983 Lease was in fact executed, and reserve the right to proceed to trial on this factual point, should I find against them on the other main questions framed.  However, for present purposes only, I assume that the 1983 Lease was validly executed by Madam Tang and D2 [8].

  (6)  The 1983 Lease was never registered at the Land Registry.

  (7)  Madam Tang executed a Deed of Gift dated 25 January 1986 (the “Deed of Gift”), by which she (inter alia) purported to assign to DC8, her adopted son, the Parent Lot and the Block Lease in respect of it, to be held by Madam Tang and DC8 as joint tenants for the residue of the term of years under the Block Lease.  The Deed of Gift was registered at the Land Registry.

  (8)  In 1988, the New Territories Leases (Extension) Ordinance (Cap 150) (the “NTLEO”) was enacted, pursuant to which the term of New Territories leases was extended to 2047: see further below.

  (9)  On 5 January 1990, Madam Tang passed away, leaving DC8 to take as the surviving tenant in respect of any joint tenancy created by the Deed of Gift.

  (10)  In 1997, DC8 purported to sell the Parent Lot to DC7, a property developer, for a consideration of HK$1,100,000.  This was effected by:

  (i)  A sale and purchase agreement dated 1 February 1997, which was registered in the Land Registry.  That agreement expressly provided (inter alia) that the property was sold subject to and with the benefit of the 1983 Lease, and the 1983 Lease was attached thereto; 

  (ii)  An assignment dated 11 April 1997 (the “1997 Assignment”), which was registered in the Land Registry.  That assignment provided for the property sold to be held by DC7 for the residue of the term of years created by the Block Lease subject to (inter alia) the existing tenancy (though the 1983 Lease was not attached thereto) [9].

  (11)  DC7 executed a deed poll dated 7 May 1997, to subdivide the Parent Lot into 14 portions [10]. The deed poll was registered in the Land Registry. 

  (12)  Ps, DC6, and also the 3^rd, 4^th, 5^th, and 9^th defendants by counterclaim (respectively “DC3”, DC4”, “DC5” and “DC9”) are persons who purchased the various parcels of land derived from the Parent Lot following its subdivision by the said deed poll.  In particular:

  (i)  Each of these persons purchased sub-section(s) of Section A of Lot 1180 in Demarcation District 130 from DC7 on dates ranging from May to July 1997.  The exception is DC9, who purchased sub-section 10 from DC5 in 2003.

  (ii)  The assignments by which these sales completed, were all registered in the Land Registry.  Hence Ps, DC3, DC4, DC6 and DC9 are, in common parlance, the “registered owners” of the plots derived from the Parent Lot.  I will refer to them collectively as the “Registered Owners”.

  (13)  On 7 September 2005, DC7 was ordered by the Court to be wound up.

D.  THE PARTIES’ PLEADED CASES

13.  The pleadings are reasonably complex.

14.  As noted above Ps—who are brothers—are the “registered owners” of certain sub-sections (“Ps’ Land”) derived from the Parent Lot, having each purchased from DC7 in 1997.

15.  By the original action, Ps claim that D1 and/or D2 at a time unknown entered Ps’ Land and unlawfully built structure(s) thereon.  The main remedies sought are: (i) an order that D1/D2 demolish the structure(s) and deliver vacant possession; and (ii) damages for (inter alia) loss of use of the land.

16.  By its defence, D1 denies occupation/possession of Ps’ Land, alternatively, claims that it occupies as D2’s licensee; and denies that it has power to demolish the structure(s).  It was submitted to me, in essence, that D1’s position adds nothing of substance since D1 is at most D2’s licensee. 

17.  D2’s pleading has been amended numerous times. The heart of D2’s currently pleaded case is that the 1983 Lease, which created a term longer than Madam Tang then held under the Block Lease, operated not as a sub-lease but as an assignment to D2 of Madam Tang’s interest in the Block Lease pursuant to the principle in Milmo v Carreras [1946] KB 306: see below.

18.  As a result, says D2: (i) the 1986 Deed of Gift was void because Madam Tang no longer had any title to the Parent Lot; (ii) all subsequent assignments from DC8 to DC7, and from DC7 onwards, were void and ineffective to transfer any title in the Parent Lot; (iii) accordingly, D2 owns and is in lawful possession of the land.

19.  D2 pleads an alternative case that if, which D2 denies, DC8 ever had any title to the Parent Lot, then DC8 held the legal estate on trust for D2 who remained the beneficial owner [11]. The 1997 Assignment, pleads D2, was a breach of trust by DC8, which is the cause of any loss suffered by D2.  D2 also pleads that DC7 acted dishonestly in assisting this breach of trust, and was in knowing receipt of trust property.

20.  D2 further pleads that Ps (and all the Registered Owners) knew or ought to have known that D2 was the sole legal and beneficial owner of the land; relying on D2’s apparent occupation and references to the 1983 Lease in the 1997 Assignment documents.  D2 pleads that the Registered Owners had actual and/or constructive notice of DC8’s breach of trust, that none is a bona fide purchaser without notice, and that all are knowing recipients of trust property.

21.  D2’s counterclaim seeks (inter alia): (i) declarations that D2 owns and is entitled to exclusive possession of the Parent Lot; (ii) declarations that the Deed of Gift and the 1997 Assignment were void; and (iii) damages against DC8 for breach of trust and against DC7 for knowing assistance.

22.  Importantly, Mr Chain for D2 conceded orally that due to section 4 of the Land Registration Ordinance (Cap 128) (the “LRO”), the question of actual/constructive notice was in fact irrelevant to his client’s position vis-à-vis the Registered Owners, such that I need not deal with the pleaded issues as to notice.

23.  Ps’ main pleaded answers to D2’s case are that: (i) Ps do not admit the 1983 Lease as a matter of fact; (ii) in any event that lease expired at the latest by 1998; (iii) alternatively that lease was repudiated in 2006 and/or by non-payment of rent since 1997; (iv)Ps deny the alleged assignment under Milmo v Carreras; (v) Ps deny actual/constructive notice; (vi) in any event, under the LRO the 1983 Lease is void as against them since it was unregistered and Ps were bona fide purchasers for valuable consideration [12]. 

24.  DC8’s pleaded position is, in summary that: (i) the 1983 Lease did operate as an assignment; (ii) thereafter Madam Tang retained only contractual rights against D2 to a rentcharge and re-entry for breach; (iii) the Deed of Gift and the 1997 Assignment assigned only such contractual rights; (iv) DC8 never owned the legal estate in the Parent Lot, was never a trustee for D2 or in breach of trust, and any damage to D2 was the result of D2’s failure to register the 1983 Lease; (v)due to negotiations between D2 and DC8 in 1996, D2 is estopped from contending that DC8 had no right to sell the land; (vi) D2’s claim against DC8 is time-barred under the Limitation Ordinance(Cap 347); (vii) DC8 counterclaims that, if the 1997 Assignment was void as alleged by D2, then limited contractual rights remain vested in DC8, pursuant to which DC8 claims arrears of rent from D2. 

E.  THE THREE MAIN QUESTIONS

25.  Below, I consider in turn the three main questions of law/construction canvassed orally at the hearing, which I frame as follows [13] :

  (1)  Question 1: the “Milmo Question”.  Did the 1983 Lease (if validly executed) operate as an assignment from Madam Tang to D2 of the leasehold estate held by Madam Tang in the Parent Lot for the residue of the term under the Block Lease?

  (2)  Question 2: the “NTLEO Question”. What was the effect of the NTLEO and the extension of leasehold term thereunder, on the ownership of the leasehold estate in the Parent Lot?  Who was entitled to the benefit of the extended lease granted by the NTLEO?

  (3)  Question 3: the “LRO Question”. By virtue of the LRO, is the 1983 Lease, which was registrable but not registered, null and void as against the Registered Owners as bona fide purchasers for value under assignments which were duly registered?  What is the effect of the LRO on the competing claims to title made by D2 and the Registered Owners?

26.  Mr Chain fairly accepted that in order to succeed on his claim to title, D2 needed to succeed on all three of these points.

F.  QUESTION 1:  THE MILMO QUESTION

27.  The principle in Milmo v Carreras [1946] KB 306 (the “MilmoPrinciple” [14])is that where a tenant (T) purports to grant a sub-lease to a sub-tenant (S) for a term which is equal to or greater than the term remaining in the head lease between T and his own landlord (L), then by operation of law, the sub-lease takes effect as an assignment from T to S of the remainder of T’s term under the head lease, rather than creating a sub-lease between T and S.  The result is that the relationship of tenure ceases to exist between L and T, and arises directly between L and S, although contractual rights apparently remain unaffected.

28.  The Milmo Principle is discussed and explained in a number of texts and authorities.  See eg Megarry & Wade, The Law of Real Property (9^th ed) at §§16-142 to 16-143; Woodfall: Landlord and Tenant at §§16.082, 16.083 and 16.157; S H Goo & Alice Lee, Land Law in Hong Kong (4^th ed) at §9.34; Malcolm Merry, Hong Kong Tenancy Law (6^th ed) at pp 165 and 172; Chan Sang v Choy Yuk [1963] HKLR 476; Leung Hok-shing v Lee Mang-tong HCA 817/1973, Cons J (as he then was), 15 March 1974; Cheung Wah Nin v Land Registry [2016] 5 HKLRD 356; Grosvenor Estates Belgravia v Cochran [1991] 44 EG 169; Neva Holdings v Wilson [1991] 3 NZLR 422; Lee v Ferno Holdings Pty Ltd (1993) 33 NSWLR 405; Parc Battersea Ltd v Hutchinson [1999] 2 EGLR 33 [15].

29.  The Milmo Principle does not apply where, at the time of the purported sub-lease, the term of the head lease may be longer than that of the sub-lease, such as where the head lease is a periodic tenancy or there is an option to renew the head lease [16].

30.  The rationale for the principle, broadly, is that one cannot describe a transaction as a lease unless it creates some lesser estate out of a greater one.  If T retains no reversion, there cannot be privity of estate between T and S [17].

31.  It is the substance of the transaction which matters, not the way it is described by the parties, nor their intentions as to its legal effect.  The substance of an assignment is a disposition of the whole leasehold estate, whilst the substance of a sub-lease is the retention of that estate and the carving out of a lesser estate, with the sub-lessor retaining a reversion [18].  The lessee who demises his whole term divests himself of the leasehold estate and all he has in the land.  He is thereafter a stranger to the land, though the purported sub-lease still has contractual force [19].

32.  As noted above, D2 and DC8 argue that by virtue of the Milmo Principle, the 1983 Lease took effect not as a sub-lease, but as an assignment by Madam Tang to D2 of her leasehold estate.  That is because in 1983, the remaining term under the Block Lease ran up to 27 June 1997, whereas the term of the purported sub-lease granted by 1983 Lease ran, at the least, to 14 November 1998.

33.  In my view, this argument is correct in law.  I accept it.

The plaintiffs’ arguments on Question 1

34.  Ms Eu, for Ps, whose submissions were adopted by Mr So for DC6, resisted the application of the Milmo Principle.

35.  First, Ms Eu drew attention to two academic articles which criticise the Milmo Principle, namely: (i) ‘Where the law went wrong? — Milmo v Carreras’ by Mark Wonnacott QC [20] ; and (ii) ‘The principle in Milmo v Carreras: when the term of a sub-lease equals or exceeds that of the head lease’, by Alexander Hill-Smith [21].

36.  Focusing on the second of these, by Mr Hill-Smith, the criticisms made include that: the rule is artificial since it makes the sub-lessee privy to the head lease, and thereby imposes on the parties a bargain which was never intended; this runs contrary to general principle that the law seeks to uphold the parties’ bargains subject to overriding public policy considerations; the rule often applies only as a result of a conveyancing slip, and leads to numerous legal difficulties and complications; there is no practical need for the rule, and it would be preferable to give the “wait and see” approach (of Oxley v James(supra) and Neva Holdings (supra)) more general effect.

37.  By the “wait and see” approach is meant that the sub-lease is permitted to take effect as a sub-lease, on the assumption that the intermediate tenant will be able to obtain an extension of the head lease.  If that does not occur, the sub-lease simply ceases to have effect when the head lease ends, absent statutory protection.

38.  I have some sympathy for the criticisms made of the Milmo Principle in the said article, for the reasons there stated. Indeed, the present case may provide an illustration of unintended or surprising consequences which can flow from its operation: see §§80 to 87 below.

39.  However, as things stand, the Milmo Principle forms part of the common law applied in Hong Kong and other jurisdictions: see eg the case law referred to above.  I do not see a proper basis for me to depart from the Milmo Principle; and when asked, Ms Eu did not dispute that it forms part of Hong Kong law.  

40.  Second, and related to the first point, Ms Eu invited me to adopt a “wait and see” approach by analogy to Neva Holdings v Wilson (supra).  In that respect, Ms Eu prayed in aid the situation and expectations in Hong Kong in 1983, in respect of Crown leases.  Although at that time the Sino-British Joint Declaration had yet to be signed there was, she submitted, at least a hope or expectation that Crown leases would be extended beyond 1997; and it was beyond imagination that all such leases would end in 1997.

41.  Properly read, I do not think that Neva Holdings assists Ps in this argument.  In that case, the New Zealand Court of Appeal explained the Milmo Principle, and held that it did not apply on the particular facts.  The correct approach, said the Court, is to look at the substance of the contract at the time it was entered into, and determine whether it was at that time certain that no reversion remained in the sub-lessor.

42.  In Neva Holdings, a Milmo assignment was held not to have occurred because at the time of the sub-lease there remained a possibility that the sub-lessor retained a reversion.  The key facts were apparently that: both the head lease and the sub-lease were on terms that they were renewable for specified periods; it was possible that the head lease would be renewed but the sub-lease not renewed; such that at the time of the sub-lease the term of the head lease might extend beyond that of the sub-lease.  For these reasons, the sub-lessor had not necessarily divested itself of the entire leasehold tenure.

43.  Accordingly, Neva Holdings — like other scenarios referred to at §29 above — rests on a disapplication of the Milmo Principle where, on the provisions of the head lease and the sub-lease (or under statute), the term of the head lease might exceed that of the sublease.  Contrast the present case: on the terms of the Block Lease and the 1983 Lease as at 1983, the term of the latter must exceed that of the former.

44.  Ps’ argument is that in 1983, it was factuallylikely that the landlord would extend or renew the head lease; rather than relying (as in Neva Holdings) on a legal possibility or right of extension arising from the legal instruments themselves.  No case was cited to me in which such a factual possibility or likelihood defeated the Milmo Principle.  As Mr Chain submitted, this line of argument could (at least potentially) be applied in every case to defeat Milmo v Carreras. 

45.  In addition, as D2 submitted, a very similar point was considered by Godfrey Lam J in Cheung Wah Nin v Land Registry (supra) at §29.  The plaintiffs there argued that there was no Milmo assignment since (inter alia) they retained a “potential right” to an extension of the relevant Government leases beyond 2047.  The learned Judge rejected this argument since this was a “mere hope” rather than a right.  It could not alter the fact that by the sub-lease the entire residue of the estate had been disposed of such that there was no tenure left in the reversion; and that accordingly, the relevant instruments, by operation of law, effected an assignment of the Government leases.  In the present case, Ps’ second argument is similar, and I reject it for the same reasons.

46.  Third, Ms Eu argued that even if a Milmo assignment occurred in 1983, Madam Tang could only have assigned what she then held, namely an interest in the Block Lease up to 1997, and not any extended term granted under the NTLEO.  I consider this argument as part of Question 2, below.

47.  Fourth, Ms Eu argued orally that even if a Milmo assignment occurred in 1983, thereafter Madam Tang still retained legal title to the Block Lease, and any assignment was only in equity, with Madam Tang holding the reversion on trust for D2.

48.  Ps relied on: (i) the fact that the 1983 Lease was never registered such that Madam Tang (and subsequently DC8) remained the “registered owner(s)” of the Block Lease; and (ii) a provision in the Block Lease that the lessee shall not assign or otherwise part with the demised premises without registering such alienation in the Land Office.

49.  Further, Ms Eu cited the following from Mr Hill-Smith’s article (supra): 

“ Where the head lease is registered at the Land Registry, then the legal title in the head lease will continue to be vested in the intermediate lessor until such time as the title of the sub-lessee to the head lease is registered. For so long time as the intermediate lessor continues to be registered as the proprietor of the intermediatelease, the head lessor will continue to be able to enforce the terms of the head lease against the intermediate lessor. The intermediate lessor will hold the intermediate lease on trust for the sub-lessee. However, the intermediate lessor will be able to claim from the sub-lessee the amount of rent due under the sub-lease as a matter of contract.”

50.  This line of argument is of significance, more for the purposes of Question 2: see further below.  

51.  I do not think that the argument is correct, under Hong Kong law.  In my view, the said principles referred to in Mr Hill-Smith’s article are a consequence of the system of registered land in England, wherein the transfer of a registered lease must be completed by registration, failing which the legal estate remains vested in the transferor who holds it on bare trust for the transferee [22]. 

52.  The position differs in Hong Kong, since a failure to register the 1983 Lease does not per se bar it from operating as an assignment of a legal estate.

53.  As to the provision on registration in the Block Lease, Ms Eu confirmed that it was not Ps’ position that this, of itself, precluded a Milmo assignment [23]. I am unsure how this clause advances argument that any Milmo assignment was effective only in equity [24].

Conclusion on Question 1

54.  Accordingly, I conclude that the answer to Question 1 is “yes”.

G.  THE 1986 DEED OF GIFT

55.  I deal here shortly with the Deed of Gift in 1986, which is the next chronological event.

56.  Mr Chain argued that since in 1983 the leasehold estate was assigned to D2 under Milmo, the 1986 Deed of Gift by which Madam Tang purported to assign her half share to DC8, was void.  He highlighted that as a volunteer, DC8 could not rely on section 3(2) of the LRO.

57.  Mr Wong, for DC8, took the same position, though he argued that the Deed of Gift was still effective to assign to DC8 a share in certain contractual rights retained by Madam Tang against D2: see further below.

58.  Ps did not argue, for example, that in 1986 DC8 could still take title under the Deed of Gift, on the basis of section 3(1) of the LRO (which is available to a volunteer), and given that the deed was registered but the 1983 Lease was not [25].  Rather, Ps argued that whatever the position between D2 and DC8 in 1986, Ps were in 1997 bona fide purchasers for value, and as such entitled to rely on section 3(2) of the LRO to defeat D2’s claim based on the unregistered 1983 Lease.

59.  Accordingly, I proceed on the basis that given my conclusion on Question 1, the Deed of Gift was ineffective (at least as at 1986 and as between D2 and DC8), to transfer to DC8 a half share in the leasehold estate in the Parent Lot.

H.  QUESTION 2:  THE NTLEO QUESTION

60.  The history and effect of the NTLEO were analysed in some detail by the Court of Final Appeal (“CFA”) in Chan Tin Shi & Others v Li Tin Sung& Others (2006) 9 HKCFAR 29.

61.  That case concerned the interaction between the extension of leases effected by the NTLEO, and squatters’ rights acquired by adverse possession.  I will not recite the detail of the CFA’s analysis, but I highlight the following points:

  (1)  The NTLEO came into force on 25 April 1988, at which time existing Block Crown leases in the New Territories generally had approximately nine years to run up to 27 June 1997 (§§4, 14 and 21).

  (2)  The legislative intention was the continuance of an existing state of affairs, not the creation of a new one (§5) [26]. 

  (3)  The Court rejected argument that the NTLEO created new title or new leases.  Rather, the meaning of section 6 was plain: by statute, the term of existing leases was extended from the date upon which they would otherwise expire (27 June 1997) until 30 June 2047.  (§23)

  (4)  The NTLEO was a legislative intervention to alter the character of every existing New Territories leasehold estate by extension of the term; but the extended lease continued to be the same lease, not a new lease.  Section 6 created no new interest and the lessees’ title remained the same.  (§§27, 29 and 35)

62.  The extension of leases effected by the NTLEO took place on the “appointed day”, namely, 25 April 1988: see section 3(1) of the NTLEO and Chan Tin Shi v Li Tin Sung (supra) at §§5 and 8.

63.  There was debate before me as to who was the correct beneficiary or recipient of the extended lease granted by the NTLEO in 1988, assuming that a Milmo assignment had taken place in 1983.

64.  In my view, Question 2 can be disposed of reasonably quickly on the basis of the CFA’s judgment referred to above, and an appreciation of what the NTLEO did and did not do.  It seems to me that to ask to whom the NTLEO granted the extended lease, is to ask the wrong question, since the NTLEO did not grant an extended lease to anyone.  Rather, the NTLEO in 1988 simply extended the term of New Territories leases themselves.  The NTLEO did not make any change to the legal or beneficial ownership of New Territories leases.  Whatever was the legal and beneficial ownership of a particular New Territories lease before 25 April 1988, that position remained unchanged after that date, save that the term of the lease was extended.

65.  For this reason, if I am correct on Question 1 above — that the 1983 Lease took effect as an assignment by Madam Tang of the leasehold estate in the Parent Lot to D2 — then that position was unaffected by the statutory extension of the term of that leasehold estate which occurred in 1988.  The result is that thereafter, the leasehold estate — with term now extended to 2046 — continued to be vested in D2.

The plaintiffs’ arguments on Question 2

66.  Ps (and DC6) made a number of arguments that, even if there had been a Milmo assignment in 1983, D2 could not have taken the benefit of the extended lease under the NTLEO.  I consider that all of those arguments are defeated by the points at §64 above.

67.  First, Ps relied on section 5 of the NTLEO which provides:

“ 5. Option by the lessee

(1) A lessee may exclude from the application of this Ordinance his interest under a lease, other than an undivided share in the land to which the lease relates, by registering in the Land Office register, before the appointed day, a memorandum in a form specified by the Land Officer.

(2) In this section ‘lessee’ (承租人)—

(a) means a person whose name is registered in the Land Office as owner, leaseholder or holder; and

(b) where more than one person is so registered in respect of the same interest or, in addition to any person so registered, any other person has an interest under—

(i) an agreement for sale; or

(ii) a mortgage,

registered in the Land Office, means all of them acting jointly.”

68.  Ms Eu argued that the definition of “lessee” in section 5 — namely the person whose name is registered in the Land Office as owner, leaseholder or holder — tells one the identity of the party entitled to receive the extended lease under the NTLEO.  Since in 1988 Madam Tang and DC8 had registered the instruments from which their interests derived, whilst D2 had not, the extended lease was granted to Madam Tang and DC8.

69.  Whilst there is some initial attraction to the point, I do not think it can be correct, for the reasons identified at §64 above.  Under the general law in Hong Kong, registration is not per se equivalent to title (see further below).  If the effect of the NTLEO was that the extended lease was necessarily granted to the “registered owner”, the result would be that, in at least some cases, the NTLEO would or could in 1988 alter the ownership of leases [27].  But that is not the effect or intention of the NTLEO.

70.  Rather, I accept Mr Chain’s submission that the definition of “lessee” in section 5 of the NTLEO only identifies the party entitled to exercise the “opt out” option provided thereunder.  It does not define the beneficiary or owner of the extended lease[28].  

71.  Second, Ps argued that notwithstanding any Milmo assignment to D2, Madam Tang (and later DC8) retained legal title to the Block Lease, holding it on trust for D2: see discussion above under Question 1.  Accordingly as legal owners, Madam Tang and DC8 were the beneficiaries of the extended lease under the NTLEO.

72.  I consider that this argument fails for the reasons already stated at §§47 – 53 and 64 above.

73.  Third, Ps argued that even if the Milmo Principle applied, the most that could occur in 1983 was an assignment by Madam Tang to D2 of the then remaining term of the Block Lease, namely, up to 27 June 1997.  Madam Tang could not assign more than she had, so could not in 1983 have assigned the extended Block Lease which was subsequently granted by the NTLEO.  In other words, the Milmo assignment could not prevent the head landlord (the Crown) from subsequently granting to Madam Tang an extended term in 1988, nor could it bind the head landlord beyond 1997.

74.  On this line of argument, Ms Eu cited Leung Hok-shing v Lee Mang-tong HCA 817/1973, 15 March 1974.  In that case, a tenant granted a sub-lease for a period longer than extant on the head lease, but subsequently, the head landlord granted a fresh lease to the intermediate tenant.  Cons J held that although the original sub-lease operated as a Milmo assignment, the tenant could not assign more than he had, so that he assigned only the term remaining on the head lease.  Once the head lease expired the estate reverted automatically to the landlord, who was free to grant a fresh lease to the tenant.

75.  However, I do not think that this case assists Ps.  Mr Chain accepted the legal principle in Leung Hok-shing, and that in 1983, Madam Tang could only have assigned what she then had, namely a Crown lease up to 1997.  Leung Hok-shing is distinguishable because the landlord in that case granted a fresh lease, indisputably to the intermediate tenant; and after the expiry of the head lease.  If, in the present case, the Crown and Madam Tang/DC8 had in 1988 executed a fresh or extended head lease for a term beyond 1997, then I could well understand Ps’ argument.  But that is not what the NTLEO did.  As noted above, that ordinance did not grant any fresh lease nor did it grant an extended lease to anyone.  There is in my view no valid basis to assume that the extension was granted to Madam Tang any more than to any of her predecessors or successors in title [29].

76.  In addition, Ps’ proposition that the Milmo Principle cannot bind the head landlord, goes too far.  The effect of Milmo, as I understand it, is that the assignment does create tenure (privity of estate) between the head landlord and the purported sub-tenant (assignee).  What was said in Leung Hok-shing is that a Milmo assignment cannot operate as against the head landlord beyond the original term of the head lease; which as noted above, is uncontroversial and does not assist Ps in this case.

77.  Fourth, Ps relied on the provision in the Block Lease on registration of assignments (§48 above) and D2’s failure to register the 1983 Lease.  Ps argued that: (i) whatever was the position in respect of privity of estate, there remained after 1983 privity of contract between Madam Tang and the Crown such that it was to Madam Tang that the Crown would look for performance of leasehold covenants; and (ii) this supported a conclusion that Madam Tang was the beneficiary/recipient of the extended lease granted by the NTLEO.

78.  However, I do not think this line of argument advances Ps’ position or alters the conclusions set out above in respect of the NTLEO.

Conclusion on Question 2

79.  On Question 2, I conclude that the statutory extension of the term of the Block Lease which was effected by the NTLEO in 1988, did not alter the legal or beneficial ownership of the leasehold estate in the Parent Lot, which remained with D2.

80.  I would comment, at this juncture, that I reach my conclusions on Questions 1 and 2, with some hesitation.

81.  The result — that following the 1983 Lease D2 took as an assignee of the leasehold estate, and subsequently had the benefit of the extended term under the NTLEO — seems surprising.

82.  As Ms Eu pointed out, the witness statements filed make quite clear that it was never the intention of the parties to the 1983 Lease that Madam Tang’s interest in the Block Lease be assigned to D2.

83.  On the contrary.  D2’s witness statement filed in 2013 includes evidence that: (i) in 1985 Madam Tang promised D2 that if he continued as her tenant he could purchase the Parent Lot at market value in the future, in accordance with village custom; (ii) D2 relied on that promise including by making improvements to the land; (iii) in 1996, D2 and DC8 instructed solicitors and negotiated for the sale of Parent Lot from DC8 to D2 for a price slightly over HK$1 million, but that sale was never completed; (iv) up to 2006, D2 continued to use the lot as previously, regarding himself as owner, waiting to complete the purchase that had been agreed and promised by Madam Tang according to village tradition [30].

84.  DC8’s witness statement filed in 2013 includes evidence which: (i) denies D2’s assertion of an oral promise by Madam Tang; (ii) confirms that in 1996, D2 and DC8 negotiated, unsuccessfully, for sale of the Parent Lot.

85.  As Ms Eu noted, it is surprising that in such circumstances D2 could have obtained a claim to title to the leasehold estate in the Parent Lot.  The parties to the 1983 Lease intended it only as a sub-lease.  D2 only ever paid periodic rent, never paid a purchase price for the Parent Lot, and in 1996 negotiated (unsuccessfully) to purchase that lot for a substantial sum which was never paid.

86.  Notwithstanding these points, I do not see any valid answer to D2’s legal arguments on Questions 1 and 2; and indeed these factual points do not appear to have been relied on by Ps as providing legal answers per se.

87.  To the extent that the outcome seems anomalous or to result in a windfall to D2 at Madam Tang’s expense, that may simply be a consequence of the Milmo Principle: see comments at §§36 and 38 above.

I.  QUESTION 3:  THE LRO QUESTION

88.  Sections 3 and 4 of the LRO provide as follows:

“ 3. Priority of registered instruments; effect of non-registration

(1) Subject to this Ordinance, all such deeds, conveyances,and other instruments in writing, and judgments, made,executed, or obtained, and registered in pursuance hereof,shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2) All such deeds, conveyances, and other instruments in writing,and judgments, as last aforesaid, which are not registered shall,as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground,tenements, or premises, be absolutely null and void to all intents and purposes:

Provided that nothing herein contained shall extend to bona fide leases at rack rent for any term not exceeding 3 years.

4. Notice of unregistered instrument not to affect registered instrument

No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered.”

89.  Ps and DC6 rely on sections 3(2) and 4 to argue that whatever the effect of the 1983 Lease — and even assuming that it operated as a Milmo assignment — since that lease was a registrable instrument which was not registered, they take free of its effects as bona fide purchasers for value.  Accordingly, even if they fail on Questions 1 and 2, Ps and DC6 have good title to the plots derived from the Parent Lot.

90.  I accept this argument.

91.  It is common ground that the 1983 Lease was an instrument registrable under the LRO, which was not registered.  It is also, apparently, undisputed that the Registered Owners took under assignments which were duly registered.

92.  In my view, the effect of section 3(2) of the LRO, is that in determining the competing claims to title and priority as between the Registered Owners and D2, the 1983 Lease is treated as “absolutely null and void to all intents and purposes”; such that the Registered Owners succeed and D2 fails.  Pursuant to section 4 of the LRO, even if the Registered Owners had actual or constructive notice of the 1983 Lease, the result would be unaffected (absent fraud, which was not alleged) [31].

Authorities cited by the plaintiffs

93.  Ps cited a number of authorities. 

94.  In Markfaith Investment Ltd v Chiap Hua Flashlights Ltd[1990] 2 HKLR 84, the Privy Council considered in some detail the meaning of section 3(2) of the LRO.  Their Lordships concluded that the provision’s effect was to render void, as against a bona fide purchaser of the reversion of a registered Crown lease who registered his sale and purchase agreement, options to renew tenancy agreements in respect of the premises; since the tenancy agreements were registrable but not registered.  That was so despite express provision that the sale was subject to the tenancy agreements [32].

95.  The reasoning of Lord Templeman included the following at 91D–G:

“ … s. 3(2) of the Ordinance is a special provision of legislation which rendered the options to renew contained in the unregistered tenancy agreements void against the purchasers as soon as the purchasers registered their sale agreement …. As a general rule s. 3(2) of the Ordinance renders void a registrable and unregistered tenancy agreement against a bona fide purchaser of a head lease who registers and completes his contract for assignment. The terms of the assignment agreed between vendor and purchaser are irrelevant. The assignment may be drafted so that it does not mention the tenancy agreement. Alternatively, the assignment may be expressed to be subject to the tenancy agreement. …”

96.  Markfaith was followed by the Court of Appeal in Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44, in a similar factual scenario.  The Court of Appeal again held that the purchaser of a head lease took free from a tenant’s option to renew where the tenancy was registrable but unregistered, by reason of section 3(2).  This was so notwithstanding that the sale was expressly subject to the tenancy and the option.  Even the purchaser’s actual notice of the of the option, was insufficient to defeat section 3(2), and it was not fraudulent for the purchaser to rely on its statutory rights thereunder [33].

97.  See also Mak Him v Chan Hung-pak [1965] HKLR 87, where the Full Court held that section 4 of the LRO precluded a registered purchaser of land from being affected by an unregistered prior tenancy, unless his conduct amounted to actual fraud.  Mere notice of the tenancy was insufficient.

D2’s and DC8’s arguments on Question 3

98.  Ps’ arguments on Question 3 were strenuously resisted by Mr Chain (for D2) and Mr Wong (for DC8).

99.  Mr Chain and Mr Wong argued, broadly, as follows: (i) the system of registration in Hong Kong is one of registration of deeds and not title [34] ; (ii) registration under the LRO concerns priority not validity, and registration cannot create title from nothing; (iii) due to the Milmo Principle, following the 1983 Lease, Madam Tang had disposed of her title to the Block Lease and could not assign more than she had (ie the nemo dat rule); (iv) DC8 purported to take under the 1986 Deed of Gift as a volunteer, but could receive no more than Madam Tang had (ie nothing); (v) similarly, DC8’s successors in title (ie DC7, and subsequently, the Registered Owners) could receive no more than Madam Tang (and DC8) had to give; (vi) section 3(2) of the LRO does not avail the Registered Owners since it does not permit something to be created from nothing.

100.  Mr Chain relied heavily on Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd [1985] HKLR 103.  In that case, Hunter J (as he then was) considered the question of priority as between the plaintiffs’ and defendants’ interests in a property where: (i) the plaintiffs became equitable assignees of a mortgage over the property; (ii) the defendants subsequently obtained and registered a charging order against the property; (iii) the plaintiffs thereafter entered into and registered an assignment of the mortgage over the property in their favour.

101.  Hunter J analysed the position at common law and equity, and under the LRO, concluding for the plaintiffs.  In the course of so doing, the learned judge made statements of principle upon which Mr Chain relied, especially at 112H – 113B, 113H–I [35].

102.  However, the context of these dicta was, apparently, the defendants’ argument that the test of ownership was registration, so that the timing of registration of the assignment of mortgage was conclusive in their favour.  Second, and importantly, the Court’s analysis related to section 3(1) and not section 3(2) of the LRO.  Section 3(2) was expressly held to be inapplicable since the defendants, as beneficiaries of a charging order, were not bona fide purchasers for value (110J – 111F).  Third, the main basis for the outcome was that that prior to the defendants’ charge, the plaintiffs had acquired an unwritten equity which was not registrable and therefore not caught by the provisions of the LRO. 

103.  Accordingly, whilst the dicta of Hunter J regarding the nature of land registration in Hong Kong are notable, I consider the case to be of more limited assistance on the meaning and effect of section 3(2) [36].

104.  Mr Chain also cited dicta of Lam J (as he then was) in Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 5) [2007] 5 HKC 122 at §32 [37].  However, the context of those dicta was a discussion of the nature of land registration in Hong Kong, in the course of determining the compatibility of the law of adverse possession with the Basic Law.  Again, the Court’s comments were not directed to section 3(2) of the LRO itself[38].

105.  I consider that the authorities cited by Ps — which concern section 3(2) specifically — are more directly on point, and support the position of Ps and DC6, by parity of reasoning.

106.  Mr Chain and Mr Wong sought to distinguish those authorities.  During oral submissions, they discussed the following hypothetical scenario: (i) A sells land to B; (ii) A subsequently sells the same land to C; (iii) the second assignment (A to C) is registered before the first assignment (A to B).  It is assumed that both B and C are bona fide purchasers for value.

107.  Mr Chain argued that in such a scenario, C cannot rely on section 3(2) to take good title, because by the time of the assignment to C, A has already disposed of everything he had.  Section 3(2) cannot assist C, because the approach is validity first, priority second, and the provision cannot create rights or title from nothing.  Mr Chain argued that the position differs where B takes an charge over or a sub-lease of the land, since A then still has some title to convey to C, such that C can invoke section 3(2) to take free from B’s interest created by an unregistered instrument [39].

108.  The nub of Mr Chain’s submission, therefore, was that a line  fell to be drawn in the operation of section 3(2), such that it could not cure a situation in which, but for its operation, there was no title to convey at all.  On this point, I was told that there was no direct authority either way. 

109.  I do not accept Mr Chain’s argument.  One must examine the text of section 3(2).  First, the provision is directed to “… all such deeds, conveyances, and other instruments in writing …”.  I do not think that this wording warrants a distinction between an instrument conveying the entirety of an estate and one which carves out a lesser interest or encumbrance; but such a distinction seems to be required by D2’s argument.  Second, the wording is wide, directing that the deed, conveyance or instrument shall, as against a bona fide purchaser for value, be “absolutely null and void to all intents and purposes”.  Applying this wording to the hypothetical scenario, C should be entitled to treat the conveyance to B as absolutely null and void for all intents and purposes.  In short, I do not see the textual basis for the limitations which Mr Chain places on section 3(2).

110.  On the hypothetical scenario referred to above, Mr Wong’s position differed to Mr Chain’s.  Mr Wong accepted that in such a scenario, C is entitled to invoke section 3(2) to take good title.  Mr Wong explained this in terms that under section 3(2), the power of disposal is treated (from C’s perspective) as restored to A; though that is a legal fiction.

111.  However, argued Mr Wong, the present case differed as the chain of title was broken since: (i) by the 1986 Deed of Gift DC8 took as a volunteer; and/or (ii) the 1997 Assignment documents (DC7 to DC8) made specific reference to and attached the 1983 Lease: see §12(10) above.

112.  As to the second of these points, I am unsure how this assists, given that DC7 was presumably a bona fide purchaser for value entitled to rely on sections 3(2) and 4 of the LRO.

113.  In any event, the correct approach is in my view to examine title and priority as a relative matter [40], from the viewpoint of the competing claims made by D2 and the Registered Owners.  D2’s claim to title arises squarely from the 1983 Lease.  D2 and DC8 allege historic defects in the chain of title above the Registered Owners, which defects arise solely from the 1983 Lease.  The effect of section 3(2) is to render, for the purposes of resolving these completing claims, the 1983 Lease null and void to all intents and purposes.  This entitles the Registered Owners to claim title, from the moment they registered their assignments, on the basis that the 1983 Lease is and was null and void; with the result that they take good title and defeat D2’s rival claim [41].

114.  Compare, for example, Markfaith (supra) at 89H–I:

“ In the present case the tenants and the purchasers claim and compete for the same parcel of ground; the tenants claim under an unregistered instrument which is void against the purchasers. Any other conclusion is inconsistent both with the language and the obvious purpose of the Ordinance.”

115.  I consider the last sentence pertinent.  The effect of D2 and DC8’s argument is that a bona fide purchaser of land is vulnerable to an historic defect in title in form of an assignment of that land to a third party which breaks the chain of title of his predecessors — no matter how distant in time and no matter that that assignment was registrable but unregistered.  In my view, such a position would be inconsistent with the wording and purpose of section 3(2)[42].

116.  D2 could have registered the 1983 Lease, but did not.  It is consistent with the wording, purpose and scheme of the LRO that as against bona fide purchasers for value, whatever interest D2 derived from the 1983 Lease is defeated [43].

Conclusion on Question 3

117.  On Question 3, I conclude that the answer is “yes”.  By virtue of section 3(2) of the LRO, Ps, DC6 and the Registered Owners took good title to their respective portions of land deriving from the Parent Lot, and D2’s rival claim based on the unregistered 1983 Lease is defeated.

J.  OTHER QUESTIONS RAISED

118.  The parties’ oral submissions dealt, almost exclusively, with the three Questions which I have considered and determined above.  At the conclusion of the hearing, I sought clarification as to which, if any, of the other questions framed in the summonses, I was still being asked to determine.

119.  This culminated in a direction that the parties seek to agree, by post-hearing correspondence, a revised list of questions sought to be determined. 

120.  Unfortunately, the parties were unable to reach agreement, and I received differing revised lists of questions, though I do not consider the differences to be very substantial.

121.  The extant questions from the revised lists are relevant to D2’s alternative claims against DC8 (and DC7) for breach of trust (see §19 above [44]); and not to the lis between D2 and the Registered Owners.  There is a dispute between D2 and DC8 — on the assumption that there was a Milmo assignment — as to the nature of any rights to charge rent and re-entry nonetheless retained by Madam Tang against D2, and whether these were passed on to Madam Tang’s successors in title [45].  Mr Chain invited me to resolve this issue if so minded; whilst indicating that it was a comparatively minor point between D2 and DC8, not required to be presently resolved, and that the focus was on the major Questions 1 to 3.  Mr Chain submitted that if I chose to deal with this minor issue also, D2 and DC8 would be in a position to work out the consequences of my answer. 

122.  I am not prepared to proceed in this way.  I was not asked to resolve the breach of trust claim itself, various aspects of which were said to be unsuitable for resolution under Order 14A [46].  I consider it unworkable for me to attempt to lift out certain sub-issues of the (potential) breach of trust claim against DC8 (and DC8’s counterclaim against D2), and to resolve such sub-issues piecemeal and in a vacuum.

123.  Accordingly I decline, in the exercise of my discretion, to resolve the any further question(s) under Order 14A[47].

K.  CONCLUSIONS

124.  I conclude as follows:

  (1)  Question 1:  Did the 1983 Lease (if validly executed) operate as an assignment from Madam Tang to D2 of the leasehold estate held by Madam Tang in the Parent Lot for the residue of the term under the Block Lease?

Answer:  Yes.

  (2)  Question 2:  What was the effect of the NTLEO and the extension of the leasehold term thereunder, on the ownership of the leasehold estate in the Parent Lot?  Who was entitled to the benefit of the extended lease granted by the NTLEO?

Answer:  The statutory extension of the term of the Block Lease which was effected by the NTLEO in 1988, did not alter the legal or beneficial ownership of the leasehold estate in the Parent Lot, which remained with D2.

  (3)  Question 3:  By virtue of the LRO, is the 1983 Lease, which was registrable but not registered, null and void as against the Registered Owners as bona fide purchasers for value under assignments which were duly registered?  What is the effect of the LRO on the competing claims to title made by D2 and the Registered Owners?

Answer:  Yes.  Pursuant to section 3(2) of the LRO, the Registered Owners took good title to their respective portions of land deriving from the Parent Lot, and D2’s rival claim based on the unregistered 1983 Lease is defeated.

L.  RELIEF

125.  Given the above conclusions, on the central issue of title in these proceedings, Ps, DC6 and the other Registered Owners succeed and D2 fails.

126.  However, I consider that the parties should have an opportunity to make additional submissions as to the precise form of judgment to be entered and/or order(s) made, in light of the determinations set out above.   

127.  I therefore direct that the parties do within 14 days herefrom lodge written submissions (not exceeding 5 pages) on the said points together with costs, with a right of reply submissions (not exceeding 5 pages) within 7 days thereafter.

128.  The said submissions should be limited to such matters, rather than requesting the resolution of additional substantive questions. 

129.  Finally, I thank all of the parties’ representatives who appeared for their helpful submissions.

HCA 2613/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

____________

____________

(By Original Action)

____________

(By Counterclaim)

______________

D E C I S I O N

______________

1.  This is a summons by D8 concerning various costs orders. The history leading up to this summons can be briefly stated as follows.

2.  On 25 February 2015, a master struck out the counterclaim of D2/P against D8.  On 10 June 2015, I took into account what was described as the “purple version” of the counterclaim of D2/P and allowed D2/P’s appeal against the master’s decision.  I also gave leave to D2/P to file and serve that violet version.

3.  I made an order that the appeal be allowed and the order of the learned master be set aside.  I also made an order nisi on costs of the striking out summons before the master and the appeal against the striking out order be to D8, and for costs of the appeal before me to be summarily assessed at $100,000.

4.  D8 has filed a summons to vary the costs order nisi which I have dealt with on 10 July 2015.  Subsequent to the order on 10 July 2015 the parties still had concerns about other costs in relation to the learned master’s order.  I therefore directed that the order dated 10 July should not be sealed in the meantime.

5.  By their present summons, D8 applied for, amongst others, the following orders.

(1)     Paragraph 1A of the summons, the costs of defending the counterclaim of D2/P up to 25 February 2015 (ie, the hearing before the master) to be taxed and paid forthwith.

(2)     Paragraph 1B, the costs of and occasioned by D8’s strike out application before the master be taxed and paid forthwith.

Legal principles

6.  D2/P accepts that the court has inherent jurisdiction to reconsider and vary its orders before they are sealed: Wong Kam‑hong trading as Continental Knitting Factory v Triangle Motors Limited [1998] 2 HKLRD 330; HKSAR v Tins Label Factory Limited (2008) 11 HKCFAR 637. 

7.  This jurisdiction must be exercised judicially and not capriciously, and only where exceptional circumstances demanded recourse to it in the interests of justice.  The court will have to balance the need for certainty and finality in its decision with its duty to do justice between the parties and avert an unnecessary appeal: Sun Jianqiangv Trans‑Island Limousine Service Ltd [2004] 1 HKC 533 (CA) 542D-544D.

8.  I will add that this jurisdiction may also be exercised to clarify any ambiguities in the court’s order so as to facilitate the parties’ understanding and the taxing master’s understanding of the court’s intention when making the costs order.

9.  Before making this decision, I have made it absolutely clear to the parties that this should be the final application in relation to any costs orders arising out of the hearing of the appeal against the striking out order before me.

Paragraph 1A of the summons

10.  At the appeal before me, D2/P put forward the purple version of its counterclaim.  D8 had notice of it only a few days before that appeal.  I took into account the purple version to revive the counterclaim, but of necessity the implication of my order was that the old version of pleading for the counterclaim remained (as ordered by the master) struck out.  As a result, it is only fair that costs arising out of that purple version should be to D8.  The question is only in relation to the proper formula for this set of costs. 

11.  In paragraph 13 of my decision dated 10 June 2015 in relation to the appeal, I stated that:

“... when one looks at the substance [of the purple version], the new pleas are directed at the legal effect of facts already before the court and the concession of D8 that the lease operated as an assignment. (That concession escaped the attention of all the lawyers on both sides until D8’s case went into the able hands of Mr Wong). The only new “fact” relied on is that D2/P allegedly acquired knowledge of D8’s alleged breach of trust in 2006 - a factor disclosed in the witness statement of D2/P but not in the hearing bundle.”

12.  The implication is that there may be some facts in the original counterclaim that may be of use under the purple version of the counterclaim.  In the premises, it may not be correct in principle to grant D2/P the costs of defending the counterclaim up to a certain date.  A more proper formula, in my view, is that suggested by Mr Chan, counsel for D2/P today, ie, the costs thrown away as a result of the purple version of the counterclaim and costs of and occasioned by that amendment be to D8. 

13.  Just to illustrate how this formula will work in practice, D8 will have to file a new defence to the purple version.  Anything arising out of that purple version reflected in this new defence would, of course, be costs to D8 to be borne by D2/P.  If some facts in the old counterclaim can be reused, maybe D2/P can save some costs.

14.  Likewise, if witness statements already filed, expert evidence already adduced have to be adjusted as a result of the purple version.  If any part of the witness statements or expert evidence has to be abandoned as a result of the purple version, that would be an example of costs being thrown away. 

15.  The next question is whether or not such costs should be taxed and paid forthwith, or should only be paid in any event. 

16.  In a previous case handled by myself as a master, Chan Woo Fui v Chan Wing Suen, I have pointed out that it is often difficult to decide what costs have been thrown away or incurred as a result of or incidental to the amendments until the subsequent pleading has been filed, or until it is clear that a subsequent pleading will not be filed, or even at a later stage ie, at trial.

17.  Any doubts will be resolved in favour of the paying party, unless the receiving party is very certain about his position on costs, or is ready to take a concessionary approach to his costs.  There is no point in insisting on an order for costs forthwith to be taxed in the context of amendment to pleadings.

18.  I hold the same view in respect of the present case which had a convoluted history since 2006.  In the premises, I will only order the costs to be payable in any event. 

Paragraph 1B of the summons

19.  The learned master did not order taxation of the costs of the striking out summons before her to be done forthwith.  It was not necessary because at that time she had struck out the whole counterclaim.  It went without saying that D8 could have gone to taxation forthwith.

20.  The situation is different since the appeal had been heard by me.  The counterclaim has been revived subject to filing the purple version.  It is thus open to this court to reconsider the position of taxation of costs. 

21.  I have taken into account the history of this matter.  Regrettably, of course, the counterclaim has to take such a convoluted route to reach the purple version. The matter ought to go to trial as soon as possible.  I do not think that parties’ attention should be wasted on taxation of costs in the meantime.  In particular, there will be taxation of D8’s costs arising out of the purple version at a later date.  It will not be desirable for the parties to waste their attention yet on another round of taxation in the meantime.

22.  I therefore decline to make an order for costs before the master to be taxed forthwith. 

23.  In summary, I order as follows:

(1) In relation to paragraph 1A, the costs thrown away as a result of the purple version of the counterclaim and costs of and occasioned by that amendment shall be to D8 to be borne by D2/P in any event. 

(2) The application under paragraph 1B of the summons for taxation forthwith is dismissed. 

24.  For the avoidance of doubt, the costs of the summons for striking out before the master should remain costs in favour of D8. 

25.  So I now deal with costs of this application.

(Submissions on costs)

26.  D8 has substantively won on paragraph 1A of the summons.  Paragraph 1B did not take up much time of this court.  It was not an unreasonable move on the part of D8 to seek the order under 1B having regard to the fact that on appeal this court did not actually disturb the master’s striking out order in relation to D2/P’s pleading in the counterclaim.  Paragraphs 1C and 1D of the summons are not necessary at all, but this court took up no time in relation to these two subparagraphs of the summons.

27.  In my view, the hearing in relation to paragraph 1A of the summons cannot be saved because D2/P had made no offers prior to today which was in any way close to what I have ordered today. 

28.  In principle, therefore, D8 should get costs in relation to paragraphs1A and 1B of the summons.  However, D8 had previously applied to vary this court’s order in relation to the appeal.  It led to the decision on 10 July. 

29.  At the hearing for variation of the costs order nisi, Mr Wong purported to argue matters in relation to paragraph 1A of today’s summons, but because he had not given sufficient notice to D2/P, the solicitor then acting for D2/P was not in a position to respond and, hence, the need for today’s summons.

30.  Had D8’s solicitors properly managed its arguments in relation to variation of the costs order nisi, today’s summons and hearing might have been spared subject to probably slightly longer hearing time in relation to the variation summons.

31.  A lot of the costs incurred for today’s hearing, for example, preparation of bundles and attendance on client costs and preparation for this hearing would thus be saved or reduced.

32.  In the premises, looking at matters in the round, I will order costs in favour of D8 but only to the extent of allowing costs summarily assessed at $10,000.

HCA 2613/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

____________

____________

(By Original Action)

____________

(By Counterclaim)

______________

DECISION
______________

1.  These are my short reasons for decision.

2.  D8 has filed a summons to vary the costs order nisi which I made on 10 June 2015 so as to increase the quantum of costs summarily assessed in his favour.  D2/P in turn filed a summons to vary the costs assessed downwards, but his summons is out of time.  Mr Wong, acting for D8, does not oppose the plaintiff’s summons for extension of time. 

3.  In my view, since the defendant has already applied to vary the costs order nisi, the order could not have been made absolute.  The parties are at liberty to argue the quantum.  The court, in addition, has power to extend time: see Hong Kong Civil ProcedureVol 1 paragraph 42/5B/1; and the case of Ma Wan Farming Ltd v Chief Executive in Council & Anr (No. 2) [1998] 2 HKLRD 314.

4.  I therefore grant the time extension sought by D2/P.

5.  There are a few points of principle that I would take into account before I deal with the actual quantum:

(1) Mr Lui for D2/P has urged upon me to consider that the Director of Legal Aid would not have allowed an hourly rate of above $4,000 for a senior solicitor.  I can find no authority for this proposition.

(2) Mr Wong has cited the case of Re A in support of the hourly rate claimed by him. However, with respect, what hourly rate should apply to a situation is often fact‑sensitive and in the discretion of the court.  Without disrespect, the case of Re A had not laid down any principle concerning what hourly rate to apply.  Still less, the hourly rate of a particular solicitor. 

(3) I do not think Mr Wong is at liberty to use the costs statement of another client of his which did not form part of the judgment in Re A as evidence of his appropriate hourly rate.  I accordingly disregard that costs statement.

6.  I turn to the particular situation in the present case.

7.  Indisputably, in the appeal before me, the parties virtually used the same bundle of documents before the learned Master with limited addition of documents.  The arguments, though not an exact re-run before the Master, had been reduced and confined eventually as a result of the change of sphere on the part of D2/P. 

8.  Mr Wong had presented very short and succinct written submissions before me at the appeal.  Such succinctness should not mislead one into thinking that little effort was used in preparation, or that Mr Wong just parroted what his previous counsel has said.  Indeed, his ability to come up with a point on land law was something which even senior counsel had missed.

9.  I do not see any reason why his hourly rate should be reduced because of the good and professional effort he spent to condense the arguments.

10.  He appeared himself as a solicitor advocate, but I consider it was appropriate on that occasion for him to be accompanied by another solicitor.  Although, without disrespect, I do not think that the hourly rate of $4,000 should apply to the solicitor accompanying him.  I nevertheless took the exceptional step of allowing the costs of two fee earners, both being solicitors. 

11.  I agree with the principles set out in paragraph 5 of Mr Wong’s submission. 

12.  In deciding the appropriate hourly rate and also the amount of costs to apply, it is no different from the principles that apply in taxation.  For example, the court would take into account factors like complexity of the case, novelty of the points of law, skill and specialised knowledge required, importance of documents, volume of documents, the importance of the costs for the client and potential sums or property at stake.

13.  I agree with the way in which Mr Wong looked at this case.  It was important to the client and there were difficult points of law involved concerning land law.

14.  In terms of preparation time, Mr Wong reminds me that D2/P only dropped their substantive arguments concerning contract law and presented limited new arguments close to the day of the appeal hearing.  And so much costs of D8 in preparation on arguments that have been dropped by D2/P have thus been wasted. 

15.  I have taken into account these wasted costs and the need to review the papers, despite the lapse of three months since the hearing before the Master. 

16.  For this hearing Mr Wong has shown the court various drafts of his skeleton submissions.  Whilst I have considered them, I want to make clear that for summary assessments it is not necessary to produce these drafts.  It is self-defeating, for summary assessment is to be quick and determinative.  In deciding the appropriate amount of costs to allow, the court already would have built into those costs the need for an advocate to review papers and to come up with more than one draft before the skeleton submission can be presented to the court.

17.  Overall, I consider that to suggest allowing $70,000 only to Mr Wong is an insult.  

18.  Although I allow time for D2/P to extend time to file and serve the summons, I dismiss it.

19.  In terms of D8’s summons, having considered all the circumstances and the principles outlined above, I am prepared to review the costs upwards and allow a total sum of $180,000. 

(Discussion as to costs)

20.  For D8’s summons, I summarily assess and allow costs of $20,000 to be paid by D2/P to D8.

HCA 2613/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2006

____________

____________

(By Original Action)

AND BETWEEN

______________

D E C I S I O N

______________

INTRODUCTION

1. A Master struck out the counterclaim of the 2^nd defendant and plaintiff by counterclaim (“D2/P”) against D8 by counterclaim, on the ground that the counterclaim disclosed no reasonable cause of action.  In this appeal, D2/P contends that his counterclaim should not be struck out as it is curable by yet a new set of amendment.

BACKGROUND

2. Madam Tang Yin (“Madam Tang”) held a government lease of the Remaining Portion of Section A of Lot No. 1180 in DD 130 (“the land”), which was due to expire on 27 June 1997.  By a written lease, she leased the land to D2/P at a rent $1,500 per month for 15 years from 15 November 1983, with provisions for rent revision at 3-year intervals after the 15-year term (“the lease”).  The lease was never registered.

3. It was accepted, at least by the plaintiff and D8, that by operation of law, the lease was an assignment, although Madam Tang and D2/P intended it to operate as a sub-lease. (See paragraph 20 below.)

4. By a deed of gift dated 25 January 1986, Madam Tang purported to assign the land to herself and D8 as joint tenants.

5. Madam Tang died on 5 January 1990.  By operation of law, D8 became the sole owner of whatever rights there remained over the land.

6. By an agreement for sale and purchase dated 1 February 1997 (“the SPA"), D8 purported to sell the land to D7 by counterclaim (“WS Realty”), subject to and with the benefit of the lease.

7. By an assignment dated 11 April 1997 (“the 1997 assignment”), D8 purported to assign the land to WS Realty, who then sub-divided the land and assigned it to, amongst others, the plaintiffs. 

8. The plaintiffs sought possession of the land against D2/P.  D2/P, in turn, counterclaimed against defendants by counterclaim for a declaration that D2/P was the owner of the land, and various other reliefs.

9. Despite an attempt to amend his pleading, D2/P’s defence and counterclaim were struck out.  This is D2/P’s appeal against that order.

10. Five days before hearing of this appeal, D2/P took out a summons for leave to re-re-amend his defence and counterclaim as per a draft attached to the summons (“the purple version”). The material parts of the purple version affecting D8 pleaded that:

(i)     By reason of the lease operating as an assignment, the title and rights of Madam Tang in Lot No 1180 had been assigned to D2/P and so none of the defendants by counterclaim had any title or proprietary interest in that Lot (§58A of purple version).

(ii)    The 1997 assignment provided that D8 “as beneficial owner” assigned the land to WS Realty.  Since D8 admitted that the lease operated as an assignment, D8 was only a trustee of D2/P in respect of the legal estate of Lot No. 1180 and not the beneficial owner of it. D8’s assignment was in breach of trust to D2/P.  (§ 64A to 64E of the purple version).

(iii)    Even if D2/P has no claim against D8, the disputes among the plaintiff and the remaining defendants by counterclaim raise issues on the effect and validity of the SPA and/or the 1997 assignment. D8 is a necessary party to the counterclaim (§64F of the purple version).

NEW EVIDENCE ON APPEAL

11. Mr David Wong acting for D8 raises a preliminary objection under Order 58, rule 5(1), which provides that no further evidence (other than evidence as to matters which have occurred after the date on which the order was given) may be received on the hearing of an appeal under this rule except on special grounds: Hong Kong Civil Procedure 2015, Vol 1, para58/1/3.  He submits that in putting forth the purple version, D8 is in fact relying on new evidence. 

12. Mr Wong’s objection is legitimate.  It is of course regrettable that 8 years since the first filing of his counterclaim and only when faced with a striking out application that D2/P makes a second attempt to amend his pleading through a different team of counsel.  

13. However, when one looks at the substance, the new pleas are directed at the legal effect of facts already before the court and the concession of D8 that the lease operated as an assignment.  (That concession escaped the attention of all the lawyers on both sides until D8’s case went into the able hands of Mr Wong.)  The only new “fact” relied on is that D2/P allegedly acquired knowledge of D8’s alleged breach of trust in 2006 – a fact disclosed in the witness statement of D2/P but not in the hearing bundle.

14. Striking out is a draconian order.  A party should not be denied his day in court except for cogent reasons. In Patriarch Partners Media Holdings LLC v Wong Siu Wa Sammy & anor, CACV 248/2014, 22 May 2015, the Court of Appeal considered a new version of pleading which was not placed before the judge below.  It decided not to strike out the amended statement of claim but gave leave to defend.

15. I will therefore consider the purple version in this appeal to see if the defence and counterclaim is curable by amendment.

ISSUES ARISING UNDER THE PURPLE VERSION

16. Two issues arise under the purple version:

A.   Whether D8 had acted in breach of trust to D2/P;

B.   If he had, whether D2/P was time barred.

A.  Whether D8 had acted in breach of trust to D2/P

17. D2/P alleges that D8 acted in breach of trust when selling the land to WS Realty.

18. Mr Wong contends that D8 neither had privity of contract (not being a party to the lease) nor privity of estate with D2/P (as the lease was not registered).  As surviving joint tenant, D8 had rights to rent charges over the land although he retained no title over the land itself. He could not have acted in breach of trust when he believed that he had some valuable interest in the land and assigned them to WS Realty.  Even D2/P thought that there could be renewal of the rent charges in his own pleading (paragraphs 8, 9, 15, 17, 20 and 22 of the Defence).  In 1996, D2/P even offered to pay D8 $1,100,000 to purchase the land although the sale fell through.

19. Further, Mr Wong submits that the 1997 assignment was not executory in nature.  On completion, the assignment had the effect of transferring the legal title to the purchaser.  Title to the land was defeated by D2/P’s own failure to take steps to have his interest in land protected by registration.  The land eventually ended up in the hands of WS Realty, a bona fide purchaser for value without notice.  There was no reason for equity to salvage D2/P.

20. I start by looking at the legal effect of various transactions.  When Madam Tang granted the lease, by operation in law, it became an assignment to D2/P.  In Milmo v Carreras [1946] 1 All ER 288, 290G-H Lord Greene MR held that:

“In accordance with a very ancient and established rule, where a lessee, by a document in the form of a sub-lease, divests himself of everything that he has (which he must necessarily do if he is transferring to his so-called sub-lessee an estate as great as, or purporting to be greater than, his own) from that moment he is a stranger to the land, in the sense that the relationship of landlord and tenant, in respect of tenure, cannot any longer exist between him and the so-called lessee.”

21. The Land Registration Ordinance, Cap 128 (“LRO”) had not yet come into effect at the time of the lease.  The governing legislation was the Law Amendment and Reform (Consolidation) Ordinance, Cap 23.  It provided that simple writing (not necessarily by deed) would suffice to dispose of interest in land: section 6(1); but this section did not affect the creation or operation of resulting, implied or constructive trusts: section 6(2). 

22. The lease thus validly assigned the land to D2/P.  Madam Tang (and hence D8 by survivorship) retained only (a) the legal title; (b) the right to receive rental and (c) possibly, a right for rental to be negotiated or charged at the market rate when the 15 year lease “expired”.  In principle, D2/P could have directed D8 to transfer the title to D2/P.

23. In purporting to sell the land to WS Realty “as beneficial owner”, it is arguable that D8 acted in breach of trust as against D2/P.  He clearly knew of the interest of D8 (however termed) as the sale was subject to the lease.

24. Although the lease was not registered, for 2 reasons, the non-registration should not affect D2/P’s rights as beneficial owner. 

25. Firstly, D2/P as purchaser had no obligation to register: Fast Forward Ltd v Magicsound Co Ltd and others [1991] 2 HKLR 529, 532; following Wright v Dean [1948] Ch 686.  Of course, failure to register would expose him to potential risks over land rights. 

26. Secondly, non-registration merely made the lease null and void against a bona fide purchaser for value without notice, but it does not affect D2/P’s rights in equity against his trustee: HKSAR v Lau Kam Ying (2013) 16 HKCFAR 595, §19.

27. The relevant legislation is LRO which provides as follows:

“3(1) Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.

(2) All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes.

4.   No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered.”

28. The Court of Final Appeal held that those 2 sections concerned priorities between registered instruments but did not affect remedies which might be available whether in contract, tort or equity. For example, a beneficial owner would have a claim for breach of trust against a purchaser who had procured the breach of trust.

29. The Court of Final Appeal relied on the case of Midland Bank Trust Co Ltd v Green [1981] AC 513.  There, a father gave his son an option to buy his farm at £1 but the option was not registered.  The father later sold the farm to the mother (who had notice of the option) at £500, much below the market price of £40,000.  The trial judge held that the sale was genuine; the option was not specifically enforceable against the mother but the father had no answer to a claim for damages.  The decision was upheld by the House of Lords.

30. If Mr Wong is right in his submission in paragraph 19 above, the unregistered lease may be unenforceable against WS Realty.  However, D2/P could still sue D8 for breach of trust.  Accordingly, the purple version as set out in sub-paragraphs 10(i) and (ii) above does disclose an arguable counterclaim.

D8 being a necessary party

31. Mr Wong submits that D8 could not be a necessary party to this action.  This is because, as between the plaintiff and the defendants, the dispute is one of proprietary interest, which, unlike personal interest, is good against the whole world.  D8’s interest had been made absolutely clear. The effect of the lease is a question of law that did not require D8 to make further submission. There was no act for D8 to perform to complete anyone’s title.

32. With respect, Mr Wong overlooks the fact that the plaintiff claims through the 1997 assignment.  D2/P also sues other defendants by counterclaim for, amongst others, dishonestly assisting D8 in breach of trust or knowing receipt of trust property.  Moreover, D2/P is also seeking damages against D8 for breach of trust.  D8 is arguably a necessary party to the counterclaim as set out in paragraph 10(iii) above.

B.  Whether D2/P was time barred

33. Mr Wong submits that if the 1997 assignment was somehow wrongful, D2/P’s counterclaim has long become statute-barred, the limitation period being 6 years for an action founded on simple contract or on tort: section 4(1)(a), Limitation Ordinance, Cap 347 (“the LO”).

34. Mr Wong submits that D2/P could have sued for return of the land in 1996 when the sale fell through.  Instead, D2/P returned all the title deeds to D8.  Once again, D2/P missed the opportunity to register the lease or to sue D8 for return of the title to the land.  Delay defeated equity.  Moreover, it could not be said that D8 was fraudulent when D8 sold the land, a year later, subject to the lease and at the same price as D2/P previously offered to buy from him.

35. I do not think section 4(1)(a) LO is applicable.  Instead, section 20 of the LO is:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action-

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.”

36. Under section 26 of the LO:

“(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either-

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

37. It is arguable that the purported sale and purchase in 1996 was made when D8 and D2/P were both under misapprehension as to their title over the land.  No breach of trust occurred until the 1997 assignment. There is a dispute of fact as to whether D2/P acquired knowledge of the breach of trust only in 2006. The purple version, if allowed, will relate back to 2007 when D2/P’s defence and counterclaim was first filed.

38. Mr Wong points out that the limitation defence was a live issue before the Master but the current limitation points and fraud of D8 were never raised then.

39. Mr Wong is correct.  However, D2/P’s failure to plead D8’s fraud in the purple version is not fatal.  As a matter of pleading, a claimant may refrain from pleading a charge of fraud and wait to see if the defendant raises a defence of limitation.  If the defendant does, the claimant must plead fraud in reply and prove it, if he wishes to defeat the defence in that way; the defendant does not have to prove fraud to establish that the claim is statute-barred.  Lewin on Trusts (19^th ed) §44‑011.

40. The purple version does disclose an arguable case on breach of trust which may be within the limitation period.  Where a party has a viable claim which can be made good by amendment, his claim should not be struck out: Patriarch Partners Media Holdings LLC v Wong Siu Wa Sammy & anor, CACV 248/2014, 22 May 2015. 

41. Accordingly, I allow the appeal.  I also make an order granting leave to D2/P to file and serve its purple version on D8 within 7 days of the handing down of this decision.  D8 shall have 14 days in which to amend his defence to the counterclaim and D2/P shall have 14 days thereafter in which to amend his reply to defence to counterclaim, if so advised.

42. Given the age of this action, the parties shall proceed swiftly to trial.

COSTS

43. Mr Chan SC does not seek to disturb the order for costs before the learned Master.  He submits, however, that D8 should bear costs of this appeal having had the opportunity to consider the purple version.

44. With respect, it was a belated second attempt to amend 5 days before this appeal was heard that enabled D2/P to escape the consequence of a struck out.  Mr Wong’s arguments against the purple version are not just a re-run of those before the learned Master.  Justice demands that D2/P should bear D8’s costs of this appeal.

CONCLUSION

45. I allow the appeal and set aside the order for striking out.  I grant leave to D2/P to amend as per paragraph 41 above.

46. I make an order nisi that:

(1)  The costs of the summons before the Master and in this appeal be to D8. 

(2)  The costs of this appeal are summarily assessed at $100,000. 

(3)  Costs of and incidental to the amendments shall be to D8.

47. I thank counsel and Mr David Wong for their able assistance.