LAW WAI HAN TIKI v. CHAN WAN CHOI

HCMP 1414/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1414 OF 1999

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J U D G M E N T

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Introduction

1. This is a mortgage action by the plaintiff wife as mortgagee against her defendant husband as mortgagor. Previously, the Defendant had applied for legal aid but his application was refused on 29 April 1999. He was then represented by private lawyers. At a pre-trial review held on 19 December 2002, the Defendant's then solicitor confirmed that the Defendant was ready to proceed to trial. Then on 2 January 2003, i.e. 18 days before the trial, the Defendant filed a notice to act in person. On the following day, he applied for legal aid for a second time. Having read the parties' witness statements and the documents filed, I was satisfied that there were no complicated questions of law or issues of fact in this case such that the Defendant would be prejudiced by lack of legal representation. Having regard to this, that the Defendant's former solicitors had confirmed that the defence was ready, that the Defendant's application for legal aid had been refused before, and that the trial was imminent, I did not consider it appropriate to stay the action for the usual period of 42 days. Accordingly, I made a contrary order pursuant to section 15(4) of the Legal Aid Ordinance, Cap. 91, that the action be stayed for 17 days, being not less than 14 days as provided for by that section.

2. Before the trial began on 20 January 2003, I invited the Defendant to renew his application for adjournment. The Defendant said he had been sick since 1999 and had no means to engage private legal representation. He said he could not meet his solicitors' demand for legal fees on 31 December 2002 and was then advised to file a notice to act in person. He received $5,000.00 rent from his village house or Ting house but had to pay $4,500.00 maintenance for his son. This is contrary to his evidence filed in his matrimonial proceedings that he had sold the Ting house for $3 million and received a down payment of $1 million and a monthly instalment of $25,000.00. I am mindful that circumstances might have changed since filing of those evidence and that he might genuinely be out of funds to pay his solicitors. He had been legally represented until 2 January 2003 and must have been advised or otherwise aware well in advance of the approximate amount of fees required. If he has no means to fund his litigation, he should have applied for legal aid well before that time. Yet, he took no steps to apply for legal aid until 17 days before the scheduled hearing and did not prosecute his application diligently since. Enquiries with the Legal Aid Department revealed that the Legal Aid Department could not process the application in time because the Defendant only provided evidence of his means very recently. Even according to him there was no change in circumstances since he last applied for legal aid. I was not satisfied that his application for adjournment was bona fide. An adjournment would only result in prejudice to the Plaintiff in terms of time and costs. He refused my offer to adjourn the hearing on condition that he paid the Plaintiff's wasted costs assessed at $20,000.00. As I considered the Defendant would not suffer any prejudice due to lack of legal representation and as he had not diligently prosecuted his legal aid application, I refused his application for adjournment.

The background

3. The following facts are not in dispute. The Defendant and the Plaintiff were husband and wife. They cohabited together for some time before they married in 1981. At that time they resided in a house belonging to the Defendant's brother. Being an indigenous villager of the New Territories, the Defendant obtained a licence to build a Ting house in Lung Mei Village in Tai Mei Tuk. On 28 January 1986, the couple signed a mortgage agreement in their solicitors' office. Under the terms of that agreement, the Plaintiff agreed to lend $250,000.00 to the Defendant to be paid in accordance with the progress of the building of the Ting house. The mortgage was secured by way of a legal charge over the Defendant's interest in the land on which the Ting house was to be built. The loan shall be repaid within 14 days of the date of issue of the Certificate of Compliance by the District Lands Office with interest at 12% per annum. The agreement was duly registered in the Tai Po New Territories Land Registry.

4. At that time, the Plaintiff and her brother operated a bicycle hiring stall called Lung Kee in Tai Mei Tuk. Since 1991, the Plaintiff became the licensee of the stall. The stall was later leased out to other operators for $4,500.00 per month.

5. The Certificate of Compliance for the Ting house was issued on 16 January 1987. The couple and their child moved into the Ting house. They occupied the second floor and roof, while the ground floor was used for storing bicycles in connection with the business of the Plaintiff's bicycle stall. The first floor was rented out with rent collected by the Plaintiff.

6. In the meantime, there was some discord in their matrimonial relations which resulted in the Defendant chopping and wounding the Plaintiff's younger brother on two occasions in 1986 and again in 1987. On the last of these occasions, the Defendant was sentenced to 9 months' imprisonment.

7. The Plaintiff's second child was born in 1989. In 1991, the ground floor was also let out for rental income. In 1992, the family moved to a unit in Block D in Plover Cove Garden held in the name of the Plaintiff. The entire Ting house was rented out. Later, the family moved to a larger unit in Block A, which was also held in the name of the Plaintiff. The unit in Block D was then sold. In 1995, the relations between the Plaintiff and the Defendant further deteriorated and ended in a divorce. In 1997 the Plaintiff and her two children moved out of Plover Cove Garden and lived in Parc Versailles purchased by the Plaintiff's sister.

8. On 17 September 1998, the Plaintiff received a letter from Messrs Raymond Hung & Co., purportedly acting on behalf of the Defendant, enquiring the outstanding amount owed by the Defendant under the mortgage as the Defendant wanted to redeem the property. At about the same time, the Defendant also approached the tenants in the Ting house and claimed for rent. With effect from December 1998 or January 1999, he started collecting rent from the tenants to the exclusion of the Plaintiff. On 3 February 1999, the Plaintiff's solicitors wrote to the Defendant demanding payment of the principal sum lent under the mortgage and interest. The Defendant failed to pay.

The Plaintiff's case

9. The Plaintiff's case is that she paid the $250,000.00 direct to Yue Fook Construction Materials Co. ("Yue Fook") engaged to build the Ting house pursuant to the deed of mortgage. Upon completion of the Ting house, she and the Defendant and their eldest child occupied the second floor and roof as their residence. It was agreed that the ground and first floor would be let out to provide rental income for the maintenance of the family. The Plaintiff denied any agreement to apply the rental income towards repayment of the mortgage.

The Defendant's case

10. With respect to those who settled the pleadings for the Defendant, it is difficult to understand what his pleaded case is. The Plaintiff pleaded the building mortgage entered between the couple, the terms of the building mortgage and the grant of the loan to the Defendant pursuant to the deed of mortgage in paragraphs 2 to 5 of her Statement of Claim. In paragraph 3 of his defence, the Defendant admitted these paragraphs, save and except (a) the Ting house was built, (b) the Plaintiff provided $250,000.00 as construction costs direct to the contractors and (c) the Defendant never received the said sum of $250,000.00. Reading the Defendant's witness statement, it is clear that these three averments are the allegations of the Defendant on which his defence was based and the defence is a denial of paragraphs 2 to 5 of the Statement of Claim instead of an admission.

11. In his witness statement, which he repeated in his evidence in court, he said he did not know English and he signed the deed of mortgage merely to please his wife. He had no idea of the nature and content of the document he signed. As the Defendant was not represented and as the allegation had been made in his witness statement, I assume in his favour that the plea of non est factum has been raised.

12. Thus, his defence is that there was no loan agreement, the Defendant never received the said sum of $250,000.00 from the Plaintiff, though the Plaintiff contributed to the building costs by paying the building contractors. Secondly, as against the deed of mortgage, the Defendant relied on non est factum. Thirdly, the Defendant pleaded section 54 of the Conveyancing and Property Ordinance, Chapter 219 that the income collected by the Plaintiff from the Ting house should be applied towards repayment of the loan. Fourthly, the Defendant pleaded limitation under section 19 of the Limitation Ordinance, Chapter 347. He counterclaimed for an account of the rent received and an order that the mortgage be discharged or alternatively a declaration that he is entitled to redeem the mortgage at such sum as the Court thinks fit.

The defence of statute bar

13. It would be convenient to deal with the Defendant's last defence first as it does not involve any factual dispute. Under Clause 1 of the deed of mortgage, the date of repayment was stipulated to be within 14 days of the date of issue of the Certificate of Compliance by the District Lands Office. As the Certificate was issued on 16 January 1987, the cause of action accrued 14 days thereafter on 31 January 1987. Since the action was not instituted until 8 March 1999, the Defendant pleaded section 19 of the Limitation Ordinance, Cap. 347, which provides that no action shall be brought to recover any principal sum of money secured by a mortgage after the expiration of 12 years from the date when the right to receive the money accrued.

14. Prior to 1991, the limitation period provided for under section 19 was 20 years. The section was amended by the Limitation (Amendment) Ordinance 1991 which reduced the period of limitation period from 20 years to 12 years since 1991. But the 1991 amendment included a transitional provision which was enacted as section 38A of the Limitation Ordinance. Section 38A provides that if the time for bringing proceedings accrued before 1 July 1991 and if not already expired shall expire when it would have expired notwithstanding the provision of the Limitation (Amendment) Ordinance 1991 which reduced the period of limitation from 20 years to 12 years since 1991. In the present case, the time for bringing proceedings accrued before 1991 and had not expired under the former provisions. The Plaintiff's right of action has been preserved under section 38A and would not be extinguished until 31 January 2007. Thus, the plea of limitation is unsustainable. With this conclusion, it is unnecessary to determine the issue of acknowledgement raised by the letter from Messrs Raymond Hung & Co.

Credibility of the witnesses

15. The Plaintiff's evidence is simple and straightforward. It is consistent with her pleadings and supported by contemporaneous documents, such as the deed of mortgage and the building contract between the Defendant and Yue Fook. She gave evidence in a forthcoming manner. She was not shaken under cross-examination. The Plaintiff's brother was equally impressive.

16. On the contrary, the Defendant impressed me as an unreliable witness. He departed freely from his pleadings and from his own witness statement which was prepared by his solicitors for this litigation. As the Defendant was not legally represented at trial and in view of the ambiguity in the pleaded defence I referred to earlier, I give him the benefit of not drawing any adverse inference against him in respect of departures from his pleaded case. But I cannot overlook his deviation from his witness statement. When his evidence contradicted with what he said in his witness statement, he accused his solicitors of teaching him what to say in his witness statement and to copy the Plaintiff's evidence as his. His allegations are, as I shall show below, inherently incredible. I find the Plaintiff and her brother credible and accept their evidence. I reject the evidence of the Defendant.

The loan agreement, deed of mortgage and non est factum

17. According to the Plaintiff, the Defendant requested her to lend him $250,000.00 for the purpose of financing the construction of the Ting house. She agreed on condition that a building mortgage was to be entered into so as to protect her for the repayment of the money she lent. Her very business-like attitude may not commend to many, especially as the money was to be spent on the matrimonial home. However, the intention and agreement of the couple and the veracity of her evidence could not be doubted in view of the deed of mortgage signed by the couple in the presence of their solicitors, Messrs K M Lai & Li. And as time tells, she was right to be cautious and prudent.

18. On the other hand, the Defendant, apart from denying there was any loan agreement, claimed he did not know the document he signed was a deed of mortgage and did not understand its content. He said he was taken by the Plaintiff to the office of Messrs K M Lai & Li. There he was told by a staff of the solicitors firm to sign the document for his wife's protection in respect of the Ting house. The staff did not explain the nature and content of the document to him. He signed just to please his wife.

19. The deed of mortgage contained an interpretation clause showing that it has been explained to the parties to the deed. Furthermore, the Defendant said in evidence that since he knew there was a building mortgage he had never mentioned to the Plaintiff that he was going to sell the Ting house. This proves that all along he knew of the existence of the mortgage and must have known or been explained the nature of the document he signed at Messrs K M Lai & Li. The Defendant's evidence of the circumstances surrounding the signing of the deed of mortgage is contradictory, inherently incredible in the face of the document and in the light of the totality of the evidence and is only to be rejected. In any event, even on his own evidence, he had been told by a staff at the office of Messrs K M Lai & Li that the document was to protect his wife's interest in the Ting house. Accordingly, I am satisfied that he knew the nature of the document he signed. The deed of mortgage was not a document totally different in nature from what he believed it to be. On his own evidence, he was negligent in not seeking a full explanation of the document before signing it. His plea of non est factum must fail.

The loan

20. The Plaintiff said she advanced the loan by paying Yue Fook by stages in accordance with the building contract between the Defendant and Yue Fook. Due to lapse of time, she could not produce receipts of such payments.

21. Not only did the Defendant deny that the Plaintiff paid the contractor $250,000.00, but he also said he never contracted with Yue Fook and that what purported to be his signature on the building contract was a forgery. He said Yue Fook defaulted and he purchased materials and engaged and paid workers with his own funds to complete the house at a cost of $450,000.00. Under cross examination, the Plaintiff agreed with the Defendant that the construction costs were in the region of $450,000.00 and not $250,000.00 as stated in the contract with Yue Fook, but she said these costs were all paid by her as the Defendant had no money. She did not sue for the whole amount as she considered her claim was limited by the amount stated in the deed of mortgage. Indeed any amount over and above that has been barred under the Limitation Ordinance.

22. These payments were admitted by the Defendant in his pleadings in the way I understand them. However, even assuming that they were denied, the Defendant unequivocally stated in his witness statement prepared by his solicitors for the purpose of this litigation that the Plaintiff paid the said sum of $250,00.00 to the contractor but not to the Defendant. His evidence was also inconsistent with his witness statement yet in another context where he said he and the Plaintiff agreed that the Plaintiff would collect rent from the Ting house as his repayment of the loan made by her for building the Ting house. He was retracting from his statement. I do not consider him credible and reject his evidence.

23. The building contract produced in court is a copy discovered from the Plaintiff's solicitors as being in existence at the time when the deed of mortgage was executed. Though the original is not available, in view of the circumstances, I have no doubt as to its authenticity and am satisfied that it was signed by the Defendant. I accept the Plaintiff's evidence that she paid Yue Fook in excess of $250,000.00 for the construction of the Ting house, pursuant to the deed of mortgage. I reject the Defendant's evidence that he was the one who paid for the construction costs. The payment terms under the deed of mortgage coincided with the payment terms under the building contract. As the Plaintiff paid the said sum of $250,000.00 to Yue Fook pursuant to the deed of mortgage and to discharge the Defendant's liability to pay Yue Fook under the building contract, I am satisfied that the amount of $250,000.00 paid to Yue Fook was a loan advanced to the Defendant pursuant to the deed of mortgage.

Income from the bicycle stall, rental income, family maintenance, defence under section 54 of Conveyancing and Property Ordinance

24. In his defence, the Defendant pleaded the mortgagee's duty under section 54 of the Conveyancing and Property Ordinance, Cap. 219, to apply the income from the mortgaged property towards repayment of the mortgage loan. In his witness statement, he further alleged an express agreement between him and the Plaintiff to the same effect. The Plaintiff denied there was such an express agreement and alleged that the rental income was applied towards maintenance of the family and payment of pocket money for the Defendant in the monthly amount of $3,000.00. She said she had to supplement the expenses of the family by working in the bicycle hiring stall during holidays and weekends and working in her younger brother's video shop. Her younger brother paid her about $2,000.00 per month. She sold vegetables for her mother who in return looked after her children. She said she had a very close family relationship and her brothers and sisters were very generous to her and her children. Her younger brother provided her accommodation in Plover Cove Garden, which his brother purchased in her name, while her sister provided her the present accommodation in Parc Versailles.

25. According to the Plaintiff's brother, PW2, he was inspired by his former employer to look for a suitable location in the New Territories to operate a bicycle hiring business. He set up a small stall near the barbeque area in Tai Mei Tuk under the name of Lung Kee. He denied the name of the stall had anything to do with the Defendant. At that time, the Plaintiff and the Defendant had married. He paid the Plaintiff $200.00 per day for assisting him in the business. After two years, he gave the business to the Plaintiff as the Defendant did not work or provide maintenance for the family. The business prospered. In 1984 or 1985, PW2 leased some land from a villager on the opposite side of the road and set up another bicycle stall by the name of Rainbow Bicycles renting bicycles, boats and canoes to picnickers. In 1989, he set up another business renting video tapes. As the video tape business expanded into a chain business, management of both Lung Kee and Rainbow Bicycles were left to the Plaintiff. In 1991, government repossessed the site formerly occupied by Lung Kee and offered a tenancy of another site in exchange. As he had to manage his video tape rental business, it was agreed that the lease should be taken up by the Plaintiff. Hence, the Plaintiff became the licensee of Lung Kee.

26. The Defendant said he is an indigenous villager of Tai Mei Tuk which enabled him to illegally occupy the piece of government land and operate a bicycle hiring business. He is also known as Chan Tin Lung, from which the bicycle stall derived its name. He said outsiders could not occupy government land there or operate bicycle hiring business. His bicycle business expanded. In 1991, government offered to licence his business. As the licence could only be held in sole name and not in joint names, he agreed to let the Plaintiff hold the licence in her own name. He said he provided all the capital for the business.

27. As compared with PW2's evidence, the Defendant's evidence consisted of bald assertions and lacked in details. He knew almost nothing about the business and its profits. It is also incredible that he could have financed such an expanding business at a time when he had to borrow $250,000.00 for building the Ting house. He said he was a casual worker and substitute security guard, which is inconsistent with his allegation of being the beneficial owner capable of financing such a profitable business. On the other hand, PW2 impressed me as a successful entrepreneur. He gave a detailed account as to how he started the business and how it expanded both in size and in scope. He had business sense and foresight and diversified into a more profitable video tape rental chain business. He was successful and purchased a flat in Plover Cove Garden for the Plaintiff to use as a residence, which he later sold to finance the purchase of a larger unit for the Plaintiff. I have no doubt about the credibility of PW2 and accept his evidence. I reject the Defendant's evidence.

28. I therefore accept that PW2 was the owner of Lung Kee and not the Defendant. He later transferred the business to the Plaintiff. This discredited the Defendant's claim that his income from Lung Kee provided maintenance for the family so that the rental income of the house collected by the Plaintiff should be applied to repay the mortgage loan in accordance with section 54 of the Conveyancing and Property Ordinance. It also supported the Plaintiff's claim that there was an agreement between the couple that the rental income from the Ting house was to be used as maintenance for the family and as pocket money for the Defendant. Only two floors could be let out between 1987 and 1992. It was after 1992 when the Plaintiff moved to Plover Cove Garden that all the three floors could be let. It is not possible to be precise as to what amount was spent in the maintenance of the family and what amount of rent was collected. Allowing for the fact that not all the floors could be let and that the monthly rental was in the region of $4,000.00 to $7,000.00 per floor, I find that the rental income collected over the years had been applied towards maintenance of the family and as pocket money for the Defendant. Accordingly, this defence also fails.

Subsequent events

29. In view of the above conclusions, it is unnecessary to consider the subsequent events, such as the issue of acknowledgement raised by the letter dated 17 September 1998 from Messrs Raymond Hung & Co. enquiring about the outstanding loan and the Defendant's purported sale of the Ting house to Ms Ip. If at all the evidence of these subsequent events serve any purpose, they only serve to destroy the credibility of the Defendant and Ms Ip. Their evidence are contradictory and inherently incredible. These events show how the Defendant attempted to take the Ting house out of reach of the Plaintiff in the matrimonial proceedings. It is not necessary for me to go into those aspects of the evidence.

Conclusion

30. I am satisfied that the Plaintiff and the Defendant entered into a loan agreement with the Defendant's property as security, that the Defendant signed the deed of mortgage knowing full well its nature and content. The deed of mortgage is binding on the Defendant. I am also satisfied that pursuant to the deed of mortgage, the Plaintiff advanced more than $250,000.00 to the Defendant by paying the construction costs, though she could recover no more than $250,000.00. I reject the Defendant's claim that there was any agreement that the rent collected by the Plaintiff shall be applied towards repayment of the loan. I am also satisfied that the rental income had been applied towards maintenance of the family. Accordingly, the Defendant's defence under section 54 of the Conveyancing and Property Ordinance and counterclaim for an account must fail. I am also satisfied that the Plaintiff's claim has not been barred by the Limitation Ordinance.

31. In the circumstances, I enter judgment for the Plaintiff in respect of the mortgage loan of $250,000.00 with interest at the rate of 12% per annum from 30 January 1987 until 8 March 1999 and thereafter at judgment rate. The Defendant's counterclaim is dismissed. I also order that the Defendant shall pay the Plaintiff's costs of the action including the costs of the Plaintiff's claim and the Defendant's counterclaim.

32. The Defendant do within 7 days after service upon him of this order deliver to the Plaintiff vacant possession of the property and upon the Defendant paying to the Plaintiff the money with interest and costs hereby adjudged the Plaintiff do redeliver to the Defendant the possession of the property.