RE ENGLAND CORPORATION LTD

DCMP 3358/2023

[2023] HKDC 1548

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3358 OF 2023

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JUDGMENT

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INTRODUCTION

1.  The applicant is the registered owner of a property known as Flat RA on 58^th Floor of Tower 1, Le Prestige of Lohas Park, No. 1 Lohas Park Road, Tseung Kwan O, New Territories, being All Those 931 equal undivided 41, 992, 406^th parts or shares of and in the Remaining Portion of Tseung Kwan O Town Lot No. 70 (“the Property”).

2.  By an ex parte originating summons, the applicant applies for relief under section 12A of the Conveyancing and Property Ordinance, Cap 219 (“CPO”) in relation to an encumbrance over the Property.

3.  The matter was first listed before me on 5 September 2023. It transpired from the case papers that the applicant entered into an agreement for sale and purchase dated 6 July 2023 to sell the Property for a consideration of HK$11,450,000. The completion was due to take place in October 2023.

4.  Upon my enquiry, Ms Tina Mok, counsel for the applicant, informed the Court that the intended purchaser under the agreement for sale and purchase was not aware of these proceedings.

5.  The hearing was adjourned to 28 September 2023 to, inter alia, enable the applicant to notify the intended purchaser and also the encumbrancer of these proceedings, including the date of the adjourned hearing, such that the intended purchaser or the encumbrancer may apply to be joined as a party to these proceedings, if they deem fit.

6.  By the two supplemental affirmations filed by the applicant on 12 September 2023 and 22 September 2023, the applicant confirmed that the intended purchaser was notified of the present proceedings and further attempts were made to contact or locate the encumbrancer and its former director.

7.  None of the intended purchaser or the encumbrancer applied to be joined as a party. Nor did they turn up at the adjourned hearing on 28 September 2023.

8.  For these reasons, I was satisfied that it was proper for the matter to be proceeded with on an ex parte basis, following Re Cheung Chi Wang & Anor [2002] 1 HKLRD 409 at 417-418, §§18-21; Man Chi Kan v Man Tsak Lun [2003] 2 HKLRD 489 at 492, §11 and Ma Fat Ching v Wan Sui Shang, HCMP 2640/2015, 27 January 2016, unrep, p 6, §19.

BACKGROUND

9.  The applicant is a company incorporated in Hong Kong on 22 June 2009.

10.  On 20 July 2009, the Property was purchased by the applicant for a consideration of HK$6,990,000. By an Assignment dated 24 August 2010, the applicant became the registered owner of the Property.

11.  At the time when the Property was acquired, Mr Han Chun (“Han”) was the sole shareholder and director of the applicant.

12.  According to Ms Chong On Nei (“Ms Chong”), who made 4 supporting affirmations for the present application, Han was having an intimate relationship with her at the time.

13.  It is also the evidence of Ms Chong that the Property was purchased by Han (through the applicant) for Ms Chong to own and live in.

14.  On 1 February 2011, Han transferred his entire shareholding in the applicant to Ms Chong.

15.  According to her evidence, Ms Chong moved into the Property in about March 2011 and has been living there ever since. Ms Chong and Han broke up in about October 2011.

16.  It is the evidence of Ms Chong that in late 2010 or early 2011, Han told her that he had mortgaged the Property for loan(s) of up to HK$4 million in order to repay his gambling debt but as Han promised her that he would be responsible for repayment of those loan(s), Ms Chong did not press for further details about the mortgage loan(s).

17.  In about early 2012, Ms Chong started to receive at the Property documents demanding for repayment of the loans borrowed by Han by mortgaging the Property.

18.  Ms Chong discovered that Han had taken out two mortgages unbeknownst to her at the time.

19.  The first mortgage was taken out on 19 October 2010 with The Hongkong and Shanghai Banking Corporation Limited (“the HSBC Mortgage”).

20.  The mortgage which forms the subject-matter of the present application was created on 2 March 2012 (“Second Mortgage”) for the purposes of securing a loan of HK$1,500,000 lent to Han by National Resources Properties Mortgage Limited (“National Resources”) with an interest rate of 42% per annum.

21.  Amongst the documents received by Ms Chong were court documents relating to an action commenced by National Resources against the applicant as the 1^st defendant and Han as the 2^nd defendant seeking repayment of monies due to National Resources under a Deed of Loan dated 2 March 2012, secured by the Second Mortgage (“HCMP 746/2012”).

22.  In April 2012, Ms Chong reported Han’s conduct in relation to the HSBC Mortgage and the Second Mortgage to the police.

23.  On 5 May 2012, Ms Chong became the sole director of the applicant. It is in that capacity that Ms Chong made the 4 supporting affirmations in these proceedings.

24.  Ms Chong and the applicant commenced an action on 8 June 2012 against Han and others for, inter alia, a declaration that the Property was held on trust by the applicant for Ms Chong (“HCA 995/2012”).

25.  In August 2012, Han commenced proceedings against the applicant seeking, inter alia, a declaration that the Property was held by the applicant on trust for Han (“HCA 1545/2012”).

26.  Meanwhile, by an instrument dated 12 June 2012, the Second Mortgage was transferred from National Resources to Col-Win Limited (“Col-Win”), whereby all the rights and benefits under the Second Mortgage was transferred from National Resources to Col-Win.

27.  This was followed by a Consent Summons filed on 14 June 2012 in HCMP 746/2012 stating in the preamble that the claim by National Recourses was fully satisfied by Han (as the second defendant).

28.  This resulted in an Order made by Master Levy on 18 June 2012 granting leave to National Resources to discontinue HCMP 746/2012.

29.  It can be seen from the land search record that as of today, no discharge or release in respect of the Second Mortgage has been registered.

30.  By a Tomlin Order dated 24 August 2022, Ms Chong and Han settled HCA 995/2012 by reaching an agreement to sell the Property and divide the sale proceeds in this manner: (i) a sum of HK$3,694,735.61 representing her contribution for repayment of the HSBC Mortgage to be paid to Ms Chong; and (ii) legal costs and other conveyancing expenses to be deducted from the sale proceeds; and (iii) the balance, if any, to be paid to Ms Chong and Han in equal shares.

31.  The HSBC Mortgage was released on 20 October 2022.

32.  By a Consent Order dated 11 April 2023, HCA 1545/2012 was dismissed.

33.  On 15 June 2023, the applicant entered into a preliminary sale and purchase agreement to sell the Property for the consideration of HK$11,450,000. This resulted in the formal agreement for sale and purchase dated 6 July 2023 as referred to above.

34.  Whilst there is no release or discharge of the Second Mortgage, it came to the attention of the applicant that Col-Win was dissolved and struck off from the Companies Register on 31 December 2015.

35.  It is against the above background that the applicant has applied for relief pursuant to section 12A of the CPO in respect of the Second Mortgage.

36.  Subsequent to the hearing on 28 September 2023, by the Fourth Affirmation of Ms Chong filed on 19 October 2023, the applicant has informed the Court that the applicant and the intended purchaser have been discussing the possibility of postponing the completion and the most updated position is that the intended purchaser will only consider the applicant’s proposal to postpone the completion to December 2023 after the judgment for the present application is handed down.

THE LAW

37.  The Section 12A of the CPO provides:-

“(1) Where land is subject to any encumbrance, whether immediately realizable or payable or not, and the encumbrancer is out of the jurisdiction, cannot be found or is unknown, or if it is uncertain who the encumbrancer is, the court may, if it thinks fit, on the application of the party for the time being entitled to redeem the encumbrance, direct or allow payment into court of a sum of money sufficient to redeem the encumbrance and any interest thereon.

(2) Upon payment into court of the sum referred to in subsection (1), the court may, if it thinks fit, and either after or without any notice to the encumbrancer, as the court thinks fit, declare the land to be free from the encumbrance, and make any order for conveyance or vesting order as appropriate, and give directions for the retention and investment of the sum of money paid into court and for the payment or application of the income thereof, and for the payment of an amount certified by the court to be the reasonable costs of the applicant in making the application, such amount to be deducted from the sum of money paid into court.

(3) On application by the encumbrancer or any person entitled to the money or fund in court, the court may direct payment or transfer thereof to the persons entitled to receive or give a discharge for the same, and generally may give directions respecting the application or distribution of the capital or income thereof.” (emphasis added)

38.  After reviewing the relevant authorities, His Honour Judge M K Liu in In the Matter of Fung Chi Hon [2018] HKDC 1080 at §§9-11 summarized the legal principles governing section 12A of the CPO as follows: -

(1)  The purpose of section 12A is to give the court the power to declare land to be free of an encumbrance on payment of sufficient money into court. It is not predicated upon a sale of land.

(2)  Section 12A is only applicable when the land in question is subject to an encumbrance. Yet, if there is a doubt as to whether the encumbrance exists, section 12A still applies.

(3)  The first stage of an application under section 12A is to obtain the direction or approval of the court regarding payment into court under s12A. Before an applicant can ask the court to exercise its discretion under section 12A, he has to establish that the encumbrancer could not be found, or is unknown. The applicant must take reasonable steps to find out the encumbrancer and place the evidence of his efforts before the court.

(4)  After money is paid into court, the second stage is for the court to consider whether to exercise its discretion under section 12A to declare the land free from an encumbrance. The court has discretion has to whether notice should be given to the encumbrancer. In practice, such notice would often have to be given by advertisement in a newspaper.

(5)  In determining the amount to be paid into court, the court may take into account an additional amount on account of the contingency of further costs, expenses and interests.

(6)  The matter would come back to the court at the third stage, when the encumbrancer, or any person entitled to the money, apply to the court for payment under section 12A(3). If there are other parties who might have an interest in the money, the court would require notice to be given to such parties before deciding on how to exercise its discretion.

39.  The above principles have also been set out and applied in Lau Kom Wah v Lau Kun Sau [2019] HKDC 267 at p 5-6, §10.

DISCUSSION

40.  The applicant has submitted to the jurisdiction of the District Court by commencing its action here.

41.  The primary position of the applicant is that the encumbrancer of the Second Mortgage cannot be found.

42.  From the First, Second and Third Affirmations of Ms Chong, there is evidence showing the efforts made by the applicant to contact or locate Col-Win and/or its former director starting from July 2017, including but not limited to:-

(1)  Letters sent by the applicant (through solicitors) to the registered office address of Col-Win at Flat E, 59/F, Block 3, Central Park Tower, Tin Shui Wai, New Territories, Hong Kong to enquire about the Second Mortgage.

(2)  The first attempt by post was returned by the Hong Kong Post Office with remark “Addressee unknown”.

(3)  The second attempt by hand had also failed. The current occupier of the address said that there was no company known as Col-Win and refused to acknowledge receipt of the letter.

(4)  Letters to the sole director of Col-Win (before its dissolution), namely a Mr Tao Deyi, by registered post to his address in Tianjin Shi, China.

(5)  This included (i) a letter setting out the proposed application and (ii) court documents filed in these proceedings.

(6)  The letters were shown to be successfully delivered.

(7)  Despite the above efforts, the applicant has not heard any response from Col-Win or the said Mr Tao.

(8)  A search of the records at the Companies Registry revealed that Col-Win was already dissolved and struck off the Registry.

(9)  A search of the records at the Official Receiver’s Office Compulsory Winding Up Search Report revealed that there is no outstanding winding-up petition against Col-Win.

43.  After the hearing on 28 September 2023, it came to the attention of the Court that section 752 of the Companies Ordinance, Cap 622 (“CO”) is relevant to the question whether it can be established that the encumbrancer “cannot be found” in view of the fact that Col-Win was dissolved.

44.  Col-Win was struck off the Companies Register and is accordingly dissolved pursuant to section 746 of the CO with effect from 31 December 2015 (see p 249 of the hearing bundle).

45.  Section 752(1) of the CO provides:-

“If a company is dissolved under this Part [which section 746 falls within] or section 226A, 227, 239 or 248 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), every property and right vested in or held on trust for the company immediately before the dissolution is vested in the Government as bona vacantia.” (emphasis added)

46.  This statutory provision was not drawn to the attention of the Court during the hearing.

47.  Directions were then made to afford the applicant an opportunity to file supplemental submissions to address the Court on:

(1)  The combined effect of sections 746 and 752 of the CO on the applicability of section 12A of the CPO to the present case, including but not limited to whether or not the rights and benefits under the Second Mortgage are now vested in the Government of the Hong Kong Special Administrative Region (“Government”) as bona vacantia; and

(2)  Depending on (i), any proposal on how the present application may be proceeded with.

48.  In the Second Supplemental Submissions filed on 7 November 2023, it is now accepted on behalf of the applicant that since Col-Win has been struck off the Companies Register and dissolved under section 746 of the CO, every property and right vested in or held on trust for Col-Win immediately before the dissolution is vested in the Government as bona vacantia pursuant to section 752 of the CO.

49.  Ms Mok however argues that given that the Government has not made any claim to the Second Mortgage for nearly 8 years, it is a reasonable inference that the Government does not intend to assert any claim for bona vancatia or any interest Col-Win had or might have had under the Second Mortgage before the dissolution of Col-Win.

50.  As noted above, the applicant started to make attempts to contact or locate Col-Win and/or its former director in July 2017.

51.  There is no evidence showing that the applicant had made any effort to notify the Government of these proceedings or any intended application over these years prior to this issue being raised by the Court. Nor did Ms Mok suggest otherwise.

52.  For these reasons, I am unable to accept Ms Mok’s argument.

53.  Ms Mok also submits that, in the absence of the Government’s confirmation whether it would claim or disclaim its rights under the Second Mortgage, it is arguable that it is uncertain who the encumbrancer is for the time being as it remains open for an application to be made for Col-Win to be restored pursuant to sections 765 to 768 of the CO.

54.  There is presently no application for Col-Win to be restored. There is no suggestion that the applicant intends to make any such application.

55.  As it now stands, Col-Win is dissolved. According to the plain wording of section 752 of the CO, every property and right vested in or held on trust for Col-Win immediately before the dissolution is vested in the Government as bona vacantia.

56.  Despite her best efforts, I reject Ms Mok’s submission for the above reasons.

57.  Ms Mok further submits that if the Government makes a disclaimer of her claim for bona vacantia in respect of the Second Mortgage in the Property under section 753 of the CO, the rights under the Second Mortgage will be regarded as not having been vested in the Government.

58.  In that event, as Ms Mok argues, Col-Win would be regarded as the mortgagee of the Second Mortgage all along and the applicant will maintain its position that the encumbrancer cannot be found.

59.  The simple answer to Ms Mok’s argument is that there is presently no disclaimer made by the Government in respect of the Second Mortgage.

60.  According to the Second Affirmation of Lo Sze Man Xenia filed on 23 November 2023, the applicant’s solicitors wrote to the Registrar of Companies on 7 November 2023 giving notice of the present proceedings and seeking a disclaimer by the Registrar of Companies on behalf of the Government in respect of any property and right which may have been vested in the Government under the Second Mortgage.

61.  It is stated in that affirmation that other than a holding reply dated 10 November 2023, the applicant has not heard further from the Registrar of Companies.

62.  It is also stated in last paragraph of the same affirmation that the applicant will inform the Court when it receives a further response from Registrar of Companies.

63.  Despite the directions given by the Court earlier, the applicant makes no proposal as to how the present application may be proceeded with, given the effect of section 752 of the CO and absent any confirmation from the Government one way or the other in respect of the Second Mortgage.

64.  For the above reasons, I order that the originating summons be adjourned sine die with liberty to restore.

65.  Given my decision above and the uncertainty over the position of the Government as bona vacantia in respect of the Second Mortgage, I shall refrain from offering any views on whether or not the Property is subject to an encumbrance within the meaning of section 12A of the CPO as this matter may or may not be restored in the future before another judge.

66.  Given the way in which this application has been pursued (as detailed above), I make a costs order nisi that there be no order in respect of the costs of the originating summons up to and including the date of this judgment. This will become absolute unless there is any application to vary within 14 days.