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THE UNIVERSITY OF HONG KONG

DEPARTMENT OF PROFESSIONAL LEGAL EDUCATION

PROPERTY TRANSACTIONS I (2024-25)

LECTURE NO 9 (6 NOVEMBER 2023)

COMPLETION & POST-COMPLETION

THE PURPOSE OF THIS LECTURE is:

(i) to identify the purpose of completion;

(ii) to consider the purpose of completion statements and their content;

(iii) to consider the methods of completion by undertakings and formal completion;

(iv) to consider the system of deeds registration and identify which documents
should be registered and the procedure for registration

1. INTRODUCTION

In its simplest form completion involves the payment of the purchase price by the
purchaser in return for the execution of the assignment by the vendor and the handing
over to the purchaser of all the original title deeds in his possession or power. Post
completion involves the stamping and registration of the assignment etc. Completion
is, however, often more complex with the addition of a purchaser's mortgagee and
perhaps a vendor's mortgagee where the vendor is intending to pay off the
outstanding mortgage from the purchase price received from the purchaser or the
purchaser's mortgagee (`a four-party completion’).

2. COMPLETION STATEMENTS

To assist the purchaser in knowing what he will have to pay at completion two forms
of completion statement will be drawn up and sent to the purchaser.

(i) A statement by the vendor's solicitors which sets out the amount required to be
paid by the purchaser at completion:

This sum will include:

* the balance of the purchase price;
* the apportioned outgoings due to the vendor from the purchaser and due
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from the vendor to the purchaser;

* any legal costs payable by the purchaser to the vendor's solicitor (see
the Solicitors Costs Rules attached).

(ii) A statement from the purchaser's solicitor to the purchaser informing him as to
the total sum of money he must have available at completion to pay the vendor and
his own solicitor

This sum will include:

* the balance of the purchase price;
* the balance of the apportioned outgoings due from the purchaser to the
vendor;
* any legal costs payable by the purchaser to the vendor's solicitor; and
* the purchaser's solicitor's fees for approving the sale and purchase
agreement, for drafting the assignment and for drafting the mortgage
(assuming the purchaser's solicitor is instructed by the mortgagee).

3. THE MANNER OF COMPLETION

As we have already seen, completion may either take place in person (formal
completion) or by way of solicitors' undertakings. In Hong Kong completion by
undertaking is by far the more common. As we have already seen, a term will not be
implied into sale and purchase agreements that the parties may complete by undertaking
and, if the parties so wish, they should provide expressly in the sale and purchase
agreement that completion must be effected by way of mutual undertakings: Chong Kai
Tai Ringo v Lee Gee Kee [1997] 1 HKC 359, PC (1); Cheng Jui Lung Kris v Perfect
Best Ltd (1999) HCA 1347/1998.

(A) Completion by way of undertakings

Completion by way of undertakings consists of the cashier order/cheque for the

residue of the purchase money being sent to the vendor's solicitor on or before the
agreed completion date in return for an undertaking by the vendor's solicitor to
provide the requisite documents (including the executed assignment) to the purchaser
within a specified number of days.

(i) Split cheques

If the property to be purchased is subject to a mortgage which will be discharged before

completion, the cheque must be split; the sum of money required to discharge the
mortgage must be paid in one cheque made payable to the mortgagee and the residue
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must be paid by way of a separate cheque payable to the vendor's solicitor (applying
the advice laid down by the Privy Council in Edward Wong Finance Co Ltd v
Johnson Stokes and Master [1984] AC 296)(2). In such circumstances there is an
implied term in the sale and purchase agreement that the vendor will supply the
necessary details as to how the cheques are to be split in good time before
completion: see Whale View Investment Ltd v Kensland Realty Ltd [2002] 1 HKC
243, CFA (3)

See also Tse Chun Hung Herby v Chang Chung Paul [1999] 3 HKLRD 138 (4)
(purchaser's solicitors asked for instructions from the vendor's solicitors as to how
the payment of the balance of the purchase price should be split, the property being
subject to a mortgage; no response was forthcoming from the vendor's solicitor and
the sale fell through; Dty Judge Li held that there was an implied term in the sale and
purchase agreement that the balance of the purchase price would be paid by split
cheques; the vendor was therefore obliged to give instructions in good time as to how
the payment of the balance of the purchase price must be split; since the vendor had
failed to do so, he had breached the agreement).

(ii) Bouncing cheques

Where there are insufficient funds in the client’s account so that the completion cheque
(usually for 90% of the purchase price) `bounces’, the purchaser will have committed a
repudiatory breach of the sale and purchase agreement allowing the vendor to rescind,
forfeit the purchaser’s deposit and sue for damages. In certain circumstances the
purchaser’s solicitor may be liable in negligence for allowing this state of affairs to
occur: see Chua Ming Yuen v Hentron Investments Ltd [2005] 1 HKLRD 611 (5)
(cheque from purchaser’s mortgagee only received on day of completion and funds not
cleared in time; purchaser’s cheque bounced; purchaser’s solicitor held liable in
negligence for leaving the securing of the cheque from the mortgagee to such a later
stage when it must have been foreseeable that it would not be cleared in time; the
solicitor appealed on the assessment of damages.

(iii) Standard forms of undertakings

As a result of criticism by the Privy Council in Edward Wong Ltd v Johnson, Stokes and
Master [1984] 2 WLR 1 of the prevailing method of Hong Kong conveyancing, the Law
Society has issued standard forms of undertakings which should be used, although their
use has not been made mandatory. They are now commonly used by solicitors. These
forms comprise eight letters in two series. Part I (series of four letters) should be used
for first sales of recently completed units. Part II (series of four letters) should be used
for subsequent sales of completed units. The purchaser (vendor where new development)
usually prepares the draft letters of undertaking and they are agreed by the vendor's and
mortgagee's solicitor prior to completion. They are sent out to the vendor's solicitor
together with the draft assignment. If agreement cannot be reached,
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the parties must complete by way of completion in person (formal completion).

First Letter

From purchaser's mortgagee to purchaser's solicitor. This letter will only be used
where the purchaser is buying with the assistance of a mortgage. The purchaser's
mortgagee sends the cheque for the mortgage sum in return for an undertaking by the
purchaser's solicitor to return the relevant documents to him within 21 days. The
relevant documents are (i) the assignment to the purchaser and memorial; (ii) cheque
for registration of mortgage and assignment (unless paid in advance); (iii) title deeds
including discharge from present mortgage (if any) and DMC; (iv) stamp duty
questionnaire and cheque for $100.

The second and third letters are alternatives.

Second Letter

This letter is used where the property is not subject to a mortgage which will be
discharged prior to completion. It is sent from purchaser's solicitor to vendor's
solicitor. The purchaser sends the cheque for the purchase money to the vendor's
solicitor in return for an undertaking by the vendor's solicitor to send the purchaser
within 17 days (where there is a purchaser's mortgagee) or 21 days (where there is no
purchaser's mortgagee) (i) the assignment; (ii) title deeds; (iii) the keys to the
property where vacant possession will be given.

Third Letter

This letter is used where the property is subject to a mortgage which will be
discharged prior to completion. The purchaser's solicitor sends split cheques to the
vendor's solicitor (one for vendor; one for vendor's mortgagee) as against an
undertaking by the vendor's solicitor to send within 17 (where there is a purchaser's
mortgagee) or 21 days (where no purchaser's mortgagee) (i) the assignment; (ii)
discharge of mortgage; (iii) title deeds; (iv) keys where vacant possession given.

Fourth Letter

This letter is only used where the property is subject to a mortgage which will be
discharged prior to completion. It is sent by the vendor to his mortgagee enclosing
the cheque for discharge of the mortgage in return for an undertaking by the vendor's
mortgagee to send with 12 days (i) the discharge; (ii) the title deeds.

The letters of undertaking may have other clauses added; for example, the purchaser
might require the vendor to demolish an unauthorised structure or pay off outstanding
management fees. The vendor might require his mortgagee to provide a statutory
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declaration by way of proof that a power of attorney under which the discharge is
executed by the bank has not been revoked.

(iv) The Law Society Qualifications

All undertakings given should be expressly stated to be subject to `the Law Society's
Qualifications'. These Qualifications provide that, if a party whose execution of any
document is required by any undertaking is unable or unwilling to do so, all moneys sent
must be immediately returned and the undertaking would be discharged without
prejudice to the rights of the parties. This would apply, for example, upon the death or
bankruptcy of the person required to execute the assignment or discharge the mortgage.

(v) Completion where sub-sale involved

Where there is a sub-sale to be effected by confirmatory assignment, the sale and

purchase agreement between the vendor and the head purchaser will provide for
completion in the normal manner as set out above. The sub-sale agreement between the
head purchaser and the sub-purchaser will, however, provide that the sub-sale be
completed by undertaking (ie delivery of the balance of the purchase price) before the
date and time agreed for completion of the sale between the vendor and head purchaser.
This is, of course, necessary since the head purchaser will use the money received from
the sub-purchaser to pay the residue of the purchase price to the vendor.

The vendor will, however, first supply the original title deeds to the head purchaser
who will then supply them to the sub-purchaser (or the parties could agree that the
vendor supply them directly to the sub-purchaser).

(B) Completion in person (`formal completion')

Formal completion is rare in Hong Kong but might be used where there is a very
large sum of money involved or the parties do not trust one another. The solicitors of
all the parties involved would attend at the office of the vendor's solicitor. The
purchase money would be handed over to the vendor and, where appropriate, his
mortgagee, any outstanding mortgage would be discharged and the vendor would
execute the assignment.

The Law Society has issued a circular (No 91 of 1982) which requires three days’
working notice to be given `as a matter of professional courtesy’ before formal
completion is insisted upon.

Let us look at the rather scant case law where formal completion has been considered
by the courts.

See Cheng Jui Lung Kris v Perfect Best Ltd (1999) HCA 1347/1998 (parties agreed in
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sale and purchase agreement that completion `shall take place at vendor’s solicitors’
office’ on 24 January 1998; purchaser wrote to vendor 3 days before completion date
confirming that formal completion was required; vendor gave necessary split cheque
directions on 22 January; vendor was, however, unable to secure attendance of
mortgagee on completion date to execute discharge of mortgage and wrote to
purchaser undertaking to have mortgage discharged after completion; purchaser
refused to complete and rescinded agreement; vendor forfeited purchaser’s deposit;
held first that parties were obliged by agreement to carry out formal completion and
no term could be implied into the agreement that completion could be carried out by
mutual undertakings; secondly, by failing to secure the attendance of the mortgagee
at completion to discharge the outstanding mortgage, the vendor was in breach of the
agreement and the purchaser had been entitled to rescind the agreement; he was also
entitled to the return of his deposit, per Recorder Edward Chan SC).

See also Plus Lucky Ltd v Chin Yak Luen Francis [2002] 3 HKLRD 199 (6)
(formal completion must take place in two stages; first both parties dhave the right to
check the other side’s documentation ie purchaser should check the conveyancing
documents and vendor the cashier order or cheque; second stage purchaser must hand
over cashier order/cheque in return for executed assignment; here purchaser had
refused to hand over cashier order for checking and was at fault; obiter, where
vendor’s mortgagee not present and hence must hand over the executed release
before he is paid, the vendor may satisfy his mortgagee by making pledge of money
outstanding to bank).

See also Yee Pui Pui Anna v Lam Mei Lin (2007) DCMP 1377/2007 (7) (vendor
agreed to sell his flat to the purchaser; flat was subject to a mortgage which was to be
discharged at completion; parties entered into a provisional agreement which provided
that completion would take place on or before 20 April 2007; whilst negotiating the
formal agreement the vendor’s solicitors proposed in their draft a clause providing for
completion by mutual undertakings, but the purchaser deleted the clause saying that it
was unacceptable; parties were eventually unable to agree on the terms of a formal
agreement; on 19 April the purchaser’s solicitors sent the draft assignment for approval
and the vendor’s solicitors approved the draft assignment at the same time requesting
draft letters of undertaking for use by way of completion; late on the same day the
purchaser’s solicitors replied saying that formal completion was required the following
day (ie on 20 April the agreed completion date); vendor’s solicitors unable to secure the
attendance of the mortgagee’s representatives to execute the discharge of their mortgage
on 20 April and informed the purchaser’s solicitors that they would be unable to
complete on 20 April by way of formal completion saying that they required three
working days’ notice if formal completion was to be insisted upon; on 20 April the
purchaser attended the offices of the vendor’s solicitors bringing with her a cashier order
for the residue of the purchase price made payable to the vendor; vendor’s solicitor was
not present and completion did not take place; HH Judge Mimmie Chan noted first that
the Privy Council had held in Chong Kai Tai
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Ringo v Lee Gee Kee [1977] HKLRD 461, PC, and Edward Wong Finance Co Ltd v
Johnson Stokes & Master (a firm) [1984] 1 AC 296, PC, that a party to a sale and
purchase agreement was entitled to require formal completion unless there was
agreement to the contrary; on the evidence the parties had agreed upon formal
completion; purchaser had made it clear that she insisted upon formal completion by
rejecting the vendor’s proposal to insert a clause in the formal sale and purchase
agreement providing for completion by mutual undertakings; ideally the purchaser’s
solicitors should have reiterated this closer to the time for completion, but there had
been nothing in the correspondence between the parties to show that the purchaser
had agreed to complete by way of mutual undertakings; nor was there any legal
requirement for three days notice to be given if formal completion was required;
Recorder Edward Chen SC had ruled in Cheng Jui Lung Kris v Perfect Best Ltd
(1999) HCA 1347/1998 that the rights of a purchaser under the sale and purchase
agreement to complete by way of formal completion could not be varied by the Law
Society’s Circular which required three days’ working notice to be given `as a matter
of professional courtesy’ before formal completion; nor would a term be implied in
the sale and purchase agreement that reasonable notice for formal completion had to
be given before a party could insist upon its right to complete by way of formal
completion; declaration made that the vendor had repudiated the sale and purchase
agreement).

(C) The relative advantages and disadvantages of formal completion and

completion by undertaking

(i) The advantages of formal completion are that it is:

(i) absolutely safe for all parties (if payment by cashier order);
(ii) quick; one day;
(iii) safe for purchaser's mortgagee and purchaser in that the assignment
and mortgage can be stamped and registered almost immediately and
certainly in time to avoid any penalty for late stamping and to comply
with the backdating provision in section 5 of the Land Registration
Ordinance (see registration below).

(ii) The disadvantage of formal completion is that all parties (and/or their solicitors)
must be present; where multiple sales of high rise buildings formal completion would
be impracticable.

(iii) The advantage of completion by undertaking is that it is convenient for solicitors

and banks, especially in the case of sales of multiple units in high rise buildings.

(iv) The disadvantages of completion by undertaking are twofold:

(i) there is often a delay, especially on the part of a vendor's mortgagee,

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to execute documents. This has adverse effect upon stamping and

registration - documents should be stamped and registered within one
month of execution to avoid any penalty for late stamping and to take
advantage of the backdating provision in section 5 LRO for priority
purposes. It is, of course, improper to date a document wrongly for the
purposes of gaining priority in registration. To protect itself, the
purchaser’s mortgagee should, therefore, register the mortgage
executed by the purchaser as an equitable mortgage, which will be
converted into a legal mortgage upon execution of the assignment by
the vendor; and
(ii) it is the solicitor who gives the undertaking whereas the documents
have to be executed by the client. This is unsatisfactory as the solicitor
cannot compel the client to honour the undertaking.

The nature of the solicitor’s undertaking was considered in Ying Ho Co Ltd v Man
Kwok Leung t/a David Man & Co (a firm) [2000] 3 HKLRD 191, CA, [2000] 3
HKC 209, CA (8) (sale of letters A by undertaking; vendor was impostor and after
V’s solicitor had given the undertaking to provide the duly executed assignment, he
was unable to do so; held obligation of vendor’s solicitor under the undertaking was
not absolute to the extent that it guaranteed against fraud; duty of solicitor only to
take reasonable care; it was a question of fact in each case whether reasonable care
had been taken; order for summary judgment refused since arguable case).

(D) Execution of the assignment, mortgage and discharge of mortgage

The general principle is that a deed takes effect upon execution and delivery. This is
the case where the mortgage is executed by the mortgagee and the assignment is
executed by the vendor.

In two cases, however, deeds are often executed in escrow - that is conditionally in
advance. The mortgage is usually executed in escrow by the mortgagor/purchaser
conditional upon the loan being made and the assignment is executed in escrow by
the purchaser conditional upon the vendor executing the assignment. A deed
executed in escrow only takes effect upon the condition being fulfilled.

(E) Duty of solicitor for purchaser

The purchaser’s solicitor who fails to arrange for the delivery of the completion cheque
on time may be liable to his client in negligence: see Wu Wai San Janet v Chu Cheong
Kit Raymond, t/a Raymond Chu & Co (2010) DCCJ 2672/2008 (9) (completion
cheque delivered 6 minutes late; held that defendant solicitor had been well aware that
time was of the essence and, by failing to have the cheque
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delivered within the time agreed, defendant had failed to discharge his duties owed to
the purchaser with the standard required of a reasonably competent solicitor).

(F) Death of vendor prior to completion; duty of his personal representatives

Where a vendor dies before completion has been effected, his personal
representatives have a duty to comply with the completion date and failure to do so
might constitute a repudiation of the sale and purchase agreement: see European
Asia (Hong Kong) Ltd v Wong Shun On Anthony [2011] 1 HKC 417, [2011] 1
HKLRD 35, CA (10) (death of vendor prior to completion; delay in obtaining
limited grant of letters of administration by personal representatives under s 36,
Probate and Administration Ordinance (Cap 10) in completing constituted
repudiation by vendor’s estate).

See also East Epoch International Ltd v Wong Poon Ting [2010] 3 HKLRD 495,
[2010] 5 HKC 112 (11) (death of vendor prior to completion; tender of cheque by
purchaser on completion date; refusal to accept cheque by vendor’s personal
representatives who sought postponement of completion; purchaser refused extension
and claimed repudiation of sale and purchase agreement; held that, where vendor died
before completing the sale, his personal representatives had to take all necessary steps
to complete the sale at the agreed date of completion; in the case of vendor dying
intestate, before the grant of letters of administration, the most appropriate method by
which to proceed was to obtain a limited grant for the purpose of completion under s 36,
Probate and Administration Ordinance (Cap 10); if this was not done and there was
delay in completion, the personal representatives (as representing the deceased’s estate)
would be liable for any loss suffered by the purchaser for which the vendor (if still alive)
would have been liable in the same circumstances and it was generally immaterial why
the vendor failed to complete: Raineri v Miles [1981] AC 1050, HL; purchaser had been
fully entitled to reject the offer to extend time for completion; finally, the doctrine of
temporary impossibility did not apply to a claim for damages for delay in completing a
contract for the sale and purchase of land; even if it did, the personal representatives
had failed to apply for a limited grant for completion; purchaser was, therefore, entitled
to claim damages for any loss it had sustained through the delay in completion). This
decision was followed in Leung Hol Wai Brian v Wong Kwok Hon [2022] HKEC
5282 (12) (The vendor passed away before completion and it was held that the estate of
the vendor was in breach of the sale and purchase agreement in failing to complete in
time and liable for damages to the purchaser).

4. REGISTRATION OF DEEDS AND DOCUMENTS AFFECTING LAND

(A) The system of deeds registration

The system of deeds registration has been in place in Hong Kong since 1844. The
Lands Titles Ordinance was intended to introduce for the first time a system of title
registration but has never taken effect.
(B) What documents may be registered

According to section 2 of the Land Registration Ordinance:

The Land Registry shall be a public office for the registration of deeds,
conveyances, and other instruments in writing; and all deeds etc ... by
which any parcel of ground or premises may be affected, may be entered
and registered in the said office.

Note that registration is discretionary rather than mandatory: see Fast Forward v
Magicsound Co Ltd [1991] 2 HKLR 529, 523 (13) but adverse consequences may
follow upon failure to register.

Solicitors should, therefore, arrange for the registration of sale and purchase
agreements, assignments, DMCs, mortgages and charges, discharges of mortgages,
certificates of compliance, occupation permits, lites pendentes, charging orders,
covenants, powers of attorney affecting land, easements and long term leases. It has
also been held in Markfaith Investment Ltd v Chiap Hua Flashlights Ltd [1990]
WLR 76, PC (14), that an option to purchase should be registered even if contained
in a short term lease which need not be registered. Same conclusion reached in
Wellmake Investments Ltd v Chau Yiu Tong [1996] 1 HKC 528, CA (15).

What constitutes `other instruments in writing’ was considered by Dty Judge

Seagroatt in Lau Kam Sing v Chung Cho Development Ltd (2014) HCMP
361/2014 (16) (at issue was whether a notice signed by the lender some 15 years
after the deposit of title deeds was registrable; the Notice stated: `Notice is hereby
given to all parties intending to deal with the property that for the valuable
consideration given by us [the defendant] to [the plaintiff], the title deeds in respect
of the property [the relevant plot of land] dated 8 October 1996 have been deposited
with us since 1996 and are now in our possession’; it was signed by the defendant;
the learned judge first observed in Financial and Investment Services for Asia Ltd v
Baik Wah International Trading Co Ltd [1985] HKLR 103 (17) Hunter J had said
that an instrument in writing was an instrument which either created or affected legal
or equitable rights or liabilities and which was authenticated by the signature of the
author; he had further observed that it was uncertain whether a more extended
meaning could properly be given to the words that would cover documents which
did not themselves affect rights but merely evidenced rights; for example, a note or
memorandum of an agreement sufficient to satisfy s 3(1) of the Conveyancing and
Property Ordinance; in Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR
76 at 81, PC (18) Lord Lane had earlier expressed the view that it was only where
the agreement might create some interest, legal or equitable in the parcel of ground
that the instrument could be subject to registration under the Land Registration
Ordinance; in the instant case the Notice could not constitute a valid legal or
equitable interest; further, the Notice had only been signed by the defendant and not
the plaintiff, so it could not even constitute evidence of the equitable mortgage; the
Notice was not, therefore, registrable in the Land Registry).

See also Zhang Xueshuai v Lai Chan Wing [2015] 2 HKLRD 246, CA (19), where
Cheung CJHC raised the question whether Litton NPJ’s proposition in De Monsa
Investments Ltd v Whole Win Management Fund Ltd [2011] 4 HKLRD 478, CFA,
that a note or memorandum supporting an equitable mortgage was void if
unregistered would only be correct where the written memorandum actually created
the equitable mortgage but would not apply where the written memorandum only
evidenced the creation of the equitable mortgage; this was because s 3(2) of the Land
Registration Ordinance only rendered null and void a registrable but unregistered
instrument but not the underlying transaction insofar as it could survive without the
instrument.

See also Mok Mei Ling Rekei v Lau Muk Fat [2019] HKCFI 1647 (20) (Judge
Linda Chan SC applied Anstalt Nybro v Hong Kong Resort Co Ltd [1980] HKLR
76A and held that a 2013 memorandum was not registrable since it was at best a
self-serving notice that a Tso intended to make a claim, and it was not an
instrument that may create any interest legal or equitable in the nine lots in
question).

See also Winland Finance Ltd v Gain Hero Finance Ltd [2022] HKCFA 3 (21)
(the Court of Final Appeal held that an assignment of the future proceeds of sale of a
property contained in a loan agreement did not create an interest in the property so
the loan agreement was not registrable under the Land Registration Ordinance.

See also Edmund WH Chow & Co v Land Registrar [2023] HKCFI 1269 (22)
(Coleman J held that the Land Registrar was not entitled to withhold registration of
an assignment based on the view that the vendor might not (or did not) have capacity
and authority to assign what the assignment on its face set out to assign to the
purchaser.

See also Smart Edge v HG Property Investment HK Ltd [2023] HKEC 1647 (23)
(Yvonne Cheng J held that an agreement for sale and purchase of shares of a
property holding company did not create any legal or equitable interest in the
property and is not registrable under s.2(1) of Land Registration Ordinance.

(C) Exceptions to registration

Short term tenancy agreements in writing for 3 years or less at a rack rent need not be
registered: s 3(2) Land Registration Ordinance (failure to register does not affect
priority). But the tenancy agreement must be at a rack rent: see Tse Siu Hoi v Lee
Dick Gold and Jewellery Ltd (2015) LDPE 1132/2014; judgment 27 August 2015
(tenancy for 2 years was granted at a rent of $57,000 per month; expert evidence
showed that this was 15% below market rent and the Lands Tribunal concluded that,
because it fell below a rack rent, the lease was required to be created in writing or by
deed and fell outside the exceptions for short term tenancies in section 3(2) of the
Ordinance). Note that there is no requirement for such short term written tenancies to
take effect in possession (unlike the requirement for oral short term tenancies).

Floating charges are not registrable until crystallization but should be registered upon
crystallization: s 2A of the Land Registration Ordinance.

Licences do not affect land and therefore may not be registered: Ashburn Anstalt Ltd
v Arnold [1988] 2 WLR 706. See Land Registry Circular Memorandum 1/2013
which confirms the general principle that licences cannot be registered but states that
certain licences (eg a licence that removes or varies the offensive trades clause in the
Government lease) may be.

(D) The procedure of registration

According to r 5 of the Land Registration Regulations registration is effected by the

delivery into the Land Registry of the instrument together with a memorial thereof in
the prescribed form. Many years ago the memorial was a summary of the contents of
the instrument and this summary, verified by a solicitor, was registered instead of the
document. The present procedure is that the memorial is presented for registration
together with a photocopy of the instrument. The memorial is now in e-form. A
microfilm copy of the registered document is retained by the Registry for the
purposes of registration.

The memorial must be prepared and verified by a solicitor: r 7 of the Land

Registration Regulations. The form of the memorial is found in the First Schedule to
the Land Registration Regulations.

Any plan mentioned in or attached to an instrument delivered for registration must be

colour coded so that the colour can be identified on black and white microfilm: eg B
(brown), G (green) etc

(E) The effect of registration

Registration does not confer ownership (although it will if and when the Land Titles
Ordinance comes into effect) but merely affects priority.

(i) Registration of instruments other than charging orders and lites pendentes

According to s 3(1) of the Land Registration Ordinance all deeds etc shall have
priority according to the priority of their respective dates of registration. However, s
5 (the backdating provision) of the Ordinance should be borne in mind which
provides that all deeds etc registered within one month of the date of execution shall
have priority according to their dates of execution.
The doctrine of notice is, therefore, irrelevant: s 4 of the Land Registration Ordinance.

(ii) Registration of charging orders and lites pendentes and priority inter se

Charging orders and lites pendentes provide an exception, however, and a charging
order or lis pendens which is duly registered will have priority from the
commencement of the day following the date of registration of the order nisi: s 5A of
the Land Registration Ordinance. It was held in Bank of China (Hong Kong) Ltd v
Kanishi (Far East) Ltd (2001) HCMP 5045/2000 that there was nothing to prevent a
charging order absolute being made in respect of property over which a registered
legal or equitable mortgage already existed. The interest of the holder of the charging
order would, in such a case, be subject to the prior registered mortgage and rank in
effect as a second mortgage.

It has been held in Wong Kam Wing v Cyril Murkin (HK) Ltd [1989] 2 HKC 603
that, where two charging orders have been registered, their priority will depend on
the order of registration of the orders nisi and the respective dates of the orders
absolute are irrelevant for priority purposes).

The registration of charging orders and lites pendentes will lapse after 5 years since
their dates of registration: s 17 Land Registration Ordinance: see Ocean Rich
Investment Co Ltd v Leung Yiu Biu (1999) HCMP 1903/1998 (24) but they may be
renewed.

Of course, the provision in section 17 of the Land Registration Ordinance which

provides that a charging order will have no effect after 5 years unless re-registered
only affects priority vis-a vis subsequently registered interests and the charging order
itself is not invalidated: see Si Tou Choi Kam v Wealth Credit Ltd [2017] 1
HKLRD 1074, DCt. (25)

The court has held, perhaps surprisingly, that where (i) a charging order is registered
against the title in favour of A, (ii) a further charging order is registered
subsequently in favour of B and (iii) the first charging order in favour of A lapses
after 5 years and is only later re-registered, it has been held in Incorporated Owners
of Century Centre v Bank of China (Hong Kong) Ltd [2011] 4 HKC 439, applying
Beaven v The Earl of Oxford (1855) 6 De G M & G 492 and Shaw v Neale [1858] 6
HL Cases 581, that the re-registered charging order in favour of A will continue to
have priority over the previous charging order of B. Of course, the interest of A until
he re-registers will be void as against a subsequent purchaser or mortgagee for
valuable consideration in accordance with s 3(2) of the Land Registration Ordinance
which provides that an unregistered registrable instrument will be void as against a
subsequent bona fide purchaser or mortgagee for valuable consideration.

(iii) Illustrations of priority

 14

Illustration I

Let us assume that an assignment was executed on July 1st but only registered on
August 10th. A charging order nisi was registered on August 2nd. Prima facie the
effective date of the assignment is August 10th (the backdating provision in s 5 is
inapplicable as the assignment was not registered within one month of its execution).
The charging order takes effect the day after the registration of the order nisi - that is
August 3rd. Prima facie, therefore, the charging order takes priority over the
assignment and the assignee is bound by the charging order. However, in Yau Siu
Yeung v Wing Sum Lo [1988] HKC 693 (26) and Ng Kam Ha v Vincent Sina
Traders [1987] HKLR 1193 (27) the court held that the vendor had dispossessed
himself of all his interest in the land at the date of execution of the assignment
irrespective of whether the assignment was registered or not and, since the
assignment predated the charging order, the property is not encumbered by the
charging order.

Illustration II

Let us now assume that the sale and purchase agreement is executed on July 1st and
registered on July 20th. The charging order nisi is registered on July 10th. The
assignment is executed on 1st August and registered on 10th August. The charging
order cannot bind the land as, at the time of its registration, the vendor only holds the
bare legal estate (the equitable interest has, of course, passed to the purchaser). The
charging order, therefore, does not bind the property but the purchaser must pay
enough of the unpaid purchase money (ie the residue of the purchase price) to the
holder of the charging order to the extent as is necessary to discharge the charging
order: Ho King Yim v Lau King Mo [1980] HKLR 42 (28), per Huggins JA. This
was confirmed in Megalink Holdings Ltd v Whole Fortune Co Ltd (1998) HCMP
4482/1997 (29) and Tse Fook Choy, Joey Callan v Kwong On Bank Ltd [1999] 3
HKC 126 (30) (`no charging order created after the date of the contract could gain
priority to the interest of the purchaser or his successors in title').

This will only be the case where the purchaser has notice of the charging order but
such notice will arise as a matter of law where the charging order has been registered:
see Fortis Bank Asia HK v Yu Kam Hoi [2004] 2 HKC 314 (31) (purchaser who has
actual or constructive (ie by virtue of registration of charging order in the Land
Registry) notice of a prior registered interest has a duty to account to the person in
whose favour the interest exists for the balance of any unpaid purchase price; here
duty to pay unpaid purchase price to holder of charging order; Ho King Yim
approved).
 15

The same conclusion should apply even where the sale and purchase agreement is
not registered or where the charging order has priority over the sale and purchase
agreement.

Illustration III

We now have a third scenario to consider. This is where the charging order is made
and registered against the owner’s title after a binding sale and purchase agreement
has been entered into but where no assignment follows because the sale and
purchase agreement is cancelled. In this situation the court could not follow the
conclusion reached in illustration (I) above because there is no assignment, nor the
conclusion reached in illustration (II) above since the purchaser no longer has any
duty to pay the outstanding purchase price. Does this mean that the charging order is
of no effect at all?

This third situation was considered by To J in Shih Ching Yang v Tsoi On Pong [2011]
3 HKC 432, [2011] 3 HKLRD 271 (32) (in this case the owner of property, which was
subject to a mortgage in favour of BOC, agreed to sell the property to a purchaser (the
plaintiff) who paid a deposit; two other banks, HSBC and DSB, which had lent money
to the owner, then registered charging orders over the property; the sale and purchase
agreement was subsequently cancelled by the consent of the owner and purchaser; when
the owner defaulted on his mortgage repayments the property was sold by the
mortgagee and the surplus paid into court; the purchaser claimed a lien in respect of his
deposit but the holders of the charging orders claimed priority; the purchaser claimed
that the charging orders were void since the beneficial ownership in the property had
already passed under the sale and purchase agreement and the owner therefore held no
property which could be the subject of a charging order; To J first held that the
purchaser’s lien had been extinguished by the making of the cancellation agreement; the
only remaining issue was whether the banks could enforce their charging orders ie
whether they were valid and effective; the learned judge noted that the issue was
whether the owner had, at the time the charging orders were registered, retained a
sufficient interest in the property which could be the subject matter of a charging order.
In Ho King Yim v Lau King Mo [1980] HKLR 42, CA, Huggins JA had said: `It is not
disputed that an order charging land can operate only against such interest as the
judgment debtor has. At the date at which the charging order was made in this case the
judgment debtor had already concluded a binding contract for the sale of the land to the
appellant. He therefore held the legal estate as trustee for the appellant and the
substantial beneficial interest was in the appellant. Nevertheless, the owner did retain a
limited beneficial interest … she had a personal and substantial interest in the property,
a right to protect that interest and an active right to assert that interest if anything should
be done in derogation of it … her rights were, I think, rights which could be the subject
matter of a charging order. In addition, the owner acquired a beneficial
 16

interest in the purchase money. When payment was made the owner ceased to have
any beneficial interest at all in the land … and such destroyed the basis of any
charging order on the owner’s interest. The result is that, although the charging
order was not totally ineffective, it was of very limited affect as an encumbrance on
the land and would cease to have even that limited effect upon completion’; further,
in the same case Cons JA had said: `As I see it the interest of the vendor, although of
a very particular character, is an interest in land and is capable of being charged. It is
another matter, however, whether the charge can be enforced against the land itself
unless, of course, the sale falls through and the agreement is removed from the
register’; the interest that the owner held after entering into a sale and purchase
agreement was a very limited interest which was incapable of precise definition; it
was, however, a sufficient interest for the charge to hang on to give validity to the
charge; it might be worth very little before execution of the assignment and nothing
thereafter; in this case there was no completion and the charging order would be
effective; the holders of the charging orders were, therefore, entitled be paid out of
the money paid into court in the order of their respective priority).

(iv) Subrogation

A special situation must be noted. Where a first mortgage is discharged by a third

party loan (eg by way of a fresh mortgage), the third party is subrogated to the right
of the discharged mortgagee and will take the priority enjoyed by the first mortgagee:
Hong Kong Chinese Bank Ltd v Sky Phone Ltd [2001] 1 HKC 50.

(F) Unregistered registrable interests are void against a bona fide purchaser or
mortgagee for valuable consideration

(i) The rule

According to s 3(2) of the Land Registration Ordinance all registrable deeds etc which
are not registered shall be absolutely void as against a subsequent bona fide purchaser or
mortgagee for valuable consideration. This does not, of course, apply to interests such as
short term written tenancies at a rack rent which are exempt from registration.

A lessee may be a `purchaser’ for some purposes: see Master Universe Development
Ltd v Mass Ocean International Ltd (2016) HCA 1295/2015 (subsequent lessee took
free of prior unregistered tenancy agreement).

(ii) Illustrations of the application of the rule

See, for example, Fast Forward v Magicsound Co Ltd [1991] 2 HKLR 529 (right to
exclusive use of roof not registered; held void against bona fide purchaser); Creator
 17

(HK) Ltd v Kwong Wing Food Industries Stainless Steel Engineering Ltd [2008] 2
HKC 245, [2008] 2 HKLRD 475, CA (owner of a building entered into two long
term tenancy agreements with tenants which were due to expire in 2011 and 2010
respectively; tenancy agreements not registered; in 2006 the owner sold the building
to the purchaser, the sale and purchase agreement and assignment being expressly
stated to be `subject to the existing tenancies’; soon after completion the purchaser
gave notice to the tenants to quit, but the tenants refused to give up possession; held
following Markfaith Investment Ltd v Chip Hua Flashlights Ltd [1991] AC 43, PC,
and Wellmake Investments Ltd v Chan Yiu Tong [1996] 2 HKLR 44 hat the tenancies
were void as against the purchaser since they had not been registered; mere
knowledge of the existence of the tenancies on the part of the purchaser did not have
the effect of imposing a constructive trust on the purchaser; purchaser had, therefore,
taken free of the unregistered tenancies and had a right to insist that the tenants quit).

As notice is irrelevant (s 4, LRO), the meaning of bona fide must be restricted to

fraud or improper motive and does not extend to actual or constructive notice: Mak
Him v Chan Hung-pak [1965] HKLR 87, CA; Keep Point Development Ltd v Chan
Chi Yim [2000] 2 HKC 53 (unless there was fraud involved, pursuant to s 3(1) of the
LRO a purchaser was conferred a complete and unfettered title by an assignment
even if the purchaser had notice of a prior unregistered interest).

(iii) Consequences of non-registration of registrable instrument; void only against

bona fide purchaser or everyone else?

As we have seen s 3(2) of the LRO renders the unregistered registrable instrument
void as against a bona fide purchaser.

But is it void as against everyone else? If it not, the bona fide purchaser may not receive
a good title. Such was the conclusion of To J in Siu Wing Yee Angeline v Earning Yield
Ltd [2013] 6 HKC 281. The vendor owned a flat which she charged to secure a loan and
a legal charge was duly registered against the property. The vendor applied to the
District Court for a declaration that the registration of the legal charge be vacated and
the court ordered that the legal charge be vacated. When the vendor agreed to sell the
flat to the purchaser, the purchaser raised a requisition contending that, in the absence of
a proper discharge of the charge, the charge remained an encumbrance upon the title to
the flat so that the vendor could not give good title. The vendor contended first that the
effect of vacating the charge was to render the charge void; in other words, the vacation
of the charge was as good as a discharge. The vendor further contended that, even if the
effect of the vacation of the charge was not to render the charge void, the charge then
became an unregistered registrable instrument which was void as against a bona fide
purchaser – ie the present purchaser - under s 3(2) of the Land Registration Ordinance.
As regards the effect of the vacation of the charge, To J ruled that the
 18

vacation of the registration of a charge only had the effect of removing its registration
from the Land Register. It did not have the effect of extinguishing the interest in land
created by the charge. The legal charge still existed and it remained an encumbrance on
the land. Without a valid release, the charge still encumbered the property. As to the
vendor’s second contention that, even if the effect of the vacation of the charge was not
to render the charge void, the charge then became an unregistered registrable instrument
which was void as against a bona fide purchaser – ie the present purchaser
- under s 3(2) of the Land Registration Ordinance. This was correct and would give
the present purchaser priority over the chargee. Again, however, registration only
affected priority and did not have the effect of discharging the charge. The defect in
title remained. The vendor had the obligation to give a good title free from
encumbrances and to show that all charges had been discharged. Although the
vacation order and registration of the assignment to the purchaser would give the
purchaser priority over the chargee, this did not have the effect of perfecting an
imperfect title. The legal charge still existed and had never been discharged. The
vendor had, accordingly, failed to give a satisfactory answer to the requisition raised
and had, accordingly, failed to show good title.

There is a second related issue. Although a bona fide purchaser will receive a title
free of the unregistered registrable instrument, an action may still lie (eg at the hands
of the dispossessed tenant or beneficiary) against the assignor/vendor in contract, tort
or breach of trust for selling the property to the bona fide purchaser and, thereby,
causing him loss. For example, where the owner of property holds that property on
trust for a beneficiary where the trust has not been registered and the owner sells the
trust property to a bona fide purchaser, the beneficiary will lose his beneficial interest
but may still sue the assignor/trustee for breach of trust: see HKSAR v Lau Kam Ying
(2013) 16 HKCFAR 595.

See also Midland Bank Trust Co Ltd v Green [1981] AC 513 (father gave option to
buy his farm to his son but option not registered; father sold farm to a bona fide
purchaser who had notice of the option; held that, although option now void as
against the bona fide purchaser, father liable in damages to son.
(iv) Priority of unregistered interests

At common law the priority of two unregistered interests (whether registrable or

unregistrable) will depend upon their respective dates of execution (unless s 3(2),
LRO, applies).

For a case illustrating the priority of an unregistered unregistrable interest as against a

registered interest see Abbey National Building Society v Cann [1990] 2 WLR 832, HL
(a person (`the claimant’) took up occupation of property, which had been purchased
 19

by way of a mortgage loan on completion; the claimant claimed to have acquired an

equitable interest by way of resulting trust in the property by virtue of having
provided part of the deposit and also claimed that his equitable interest took priority
over the interest of the chargee bank; the House of Lords held that, where a purchaser
relied on a loan from a bank or building society for completing his or her purchase,
the transactions of acquiring the legal estate and granting the charge were one
indivisible transaction; this was because the acquisition of the legal estate was
entirely dependent upon the provision of the loan; where, therefore, the loan was
made prior to the occupant entering into occupation, the equitable interest of the
occupier would not take priority over the interest of the lender/chargee. In the instant
case the mortgage took priority over the resulting trust).

Professor Michael Wilkinson

Revised and updated by Prof Richard Wu
21 August 2024