NG KAM KUK v. CHAN FUNG CHUN

HCA 1432/2015

[2018] HKCFI 600

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1432 OF 2015

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J U D G M E N T

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Introduction

1.  On 30 November 2011, the Plaintiff (“Ng”) and the Defendant (“Chan”) became joint tenants of the property registered in the Land Registry as Section A of Lot No 1540 in Demarcation District No 39 situated at No 101 Ma Tseuk Leng, Sha Tau Kok, North, New Territories (“Property”), having purchased it at the price of HK$6,180,000.  The purchase was financed by a mortgage loan of HK$3,090,000 from the Bank of China (Hong Kong) Limited.

2.  Ng and Chan were said to be friends but, in or about 2013, their relationship turned sour.  On 21 January 2015, solicitors for Chan served a Notice of Severance on Ng which was subsequently registered in the Land Registry.

3.  On 26 June 2015, Ng issued the Writ of Summons in this action seeking a declaration that the Property is beneficially owned by the parties and that their respective shares of beneficial interest in the Property shall be calculated in accordance with their respective amounts of contribution towards the Property.  Ng also seeks an order that the Property be sold and the net sale proceeds be distributed to the parties in accordance with their respective beneficial interest as determined by the Court.  The parties’ dispute is principally over the precise beneficial interest that each is entitled to.  That can only be resolved at trial.

4.  Meanwhile, by summons dated 22 March 2016 issued under RHC O 31 rr 1 & 2, Chan applied for an order for sale of the Property at open market value and an order that the net sale proceeds be paid into Court pending determination of the parties’ beneficial interest.  Chan’s application was opposed by Ng.

5.  At the substantive hearing on 15 May 2017, Master S Kwang granted Chan’s application.  Paragraphs 1 and 2 of the Order made by the learned Master provided:

“(1) There be an Order for Sale of the subject Property by way of an auction at the open market value with a reserve price of HK$10.5 million;

(2) Parties are to propose consequential orders for carrying out the sale of the property by way of a consent application to be lodged with the Court within 14 days; failing agreement, their respective proposed orders;”

6.  At a subsequent hearing on 25 September 2017, the learned Master gave a number of consequential orders with a view to facilitating the sale of the Property.  Paragraph 8 of the Order provided:

“(8) The Plaintiff shall, at her own costs and expenses, pay and discharge the Amended Charging Order Nisi and Charging Order Absolute Memorials No. 16090901320036 and 16102402210011 respectively [collectively referred to as “the charging orders”] … before completion of sale of the Property;”

7.  This is Ng’s appeal against that part of paragraph 8 of the Order directing her to discharge the Charging Orders at her own costs and expenses before completion of the sale of the Property (“Disputed Order”).   

8.  The Charging Orders were granted in HCA 1516/2016. In that action, the plaintiff Wu Yiwu (“Wu”) obtained a judgment on 27 July 2016 against Ng as the defendant for the sum of around HK$3.75 million together with interest and costs.  Wu then applied for and was granted a  Charging Order Nisi on 10 August 2016[1] against Ng’s interest in the Property.  The Charging Order Nisi was made absolute on 5 October 2016.  In the schedule to the Charging Order Absolute, Ng’s interest in the Property was stated to be “1/2 share”.  This, of course, may or may not be accurate, depending on the ultimate result of the present action.

Deliberation

9.  There is no dispute that an appeal from a Master to a Judge is by way of an actual re‑hearing of the application and the Judge treats the matter as though it came before him for the first time: Killenny Limited & Ors v AG unrep, CACV 157/1995, 20 October 1995 at p 8 (per Litton V‑P).  The Judge will give the weight it deserves to the decision of the Master but he is in no way bound by it: Hong Kong Civil Procedure 2018 vol 1 para 58/1/2.

10.  In Mr Oh’s skeleton submissions, it is stated that the appeal is based on two grounds:

(a) The Court does not have jurisdiction (whether under RHC O 31 rr 1 & 2 or under its inherent jurisdiction) to make the Disputed Order (“Ground 1”).

(b) Even if the Court does have jurisdiction to grant the Disputed Order, the Court should not exercise its discretion to grant it (“Ground 2”).

Ground 1

11.  RHC O 31 rr 1 & 2 provide:

“1. Power to order sale of land (O 31, r 1)

Where in any cause or matter relating to any land it appears necessary or expedient for the purposes of the cause or matter that the land or any part thereof should be sold, the Court may order that land or part to be sold, and any party bound by the order and in possession of that land or part, or in receipt of the rents and profits thereof, may be compelled to deliver up such possession or receipt to the purchaser or to such other person as the Court may direct.

In this Order land (土地) includes any interest in, or right over, land.

2. Manner of carrying out sale (O 31, r 2)

(1) Where an order is made, whether in court or in chambers, directing any land to be sold, the Court may permit the party or person having the conduct of the sale to sell the land in such manner as he thinks fit, or may direct that the land be sold in such manner as the Court may either by the order or subsequently direct for the best price that can be obtained, and all proper parties shall join in the sale and conveyance as the Court shall direct.

(2) The Court may give such directions as it thinks fit for the purpose of effecting the sale, including, without prejudice to the generality of the foregoing words, directions —

(a) appointing the party or person who is to have the conduct of the sale;

(b) fixing the manner of sale, whether by contract conditional on the approval of the Court, private treaty, public auction, tender or some other manner;

(c) fixing reserve or minimum price;

(d) requiring payment of the purchase money into court or to trustees or other persons;

(e) for settling the particulars and conditions of sale;

(f) for obtaining evidence of the value of the property;

(g) fixing the security (if any) to be given by the auctioneer, if the sale is to be by public auction, and the remuneration to be allowed him;

(h) requiring an abstract of the title to be referred to counsel for his opinion thereon and to settle the particulars and conditions of sale.”

12.  Since it is Mr Liu, Chan’s counsel, who asserts that the Court does have power to grant the Disputed Order, it is convenient to recite the relevant parts of his skeleton submissions at paragraphs 20‑23, 25‑26:

“20. It is submitted that the powers under O 31 are wide.

21. It is envisaged under O 31 that:

(1) Parties may be compelled to deliver up possession;

(2) the Court may direct for the best price that can be obtained;

(3) the Court may permit the party or person having the conduct of the sale to sell the land in such manner as he thinks fit;

(4) the Court may direct for all proper parties to join in the sale and conveyance;

(5) The Court may give such directions as it thinks fit for the purpose of effecting the sale, including, without prejudice to the generality of the foregoing words, various directions as set out in O 31 r 2(2).

22. P had submitted that the Court had no power under O 31 to make the [Disputed Order] (see ¶15 of P’s Submissions).

23. Given the purpose and the express powers of O 31 (which itself provides that it is not limited to those expressed), D submits that the Court has power to make the [Disputed Order].

…

25. It is submitted that the Charging Orders are an encumbrance on the title of the Property and will affect the sale of the Property. See: Sihombing & Wilkinson, Hong Kong Conveyancing — Law and Practice, Volume 1(A), Chapter VI at ¶[50].

26. It is submitted that without dealing with the Charging Orders, by, for example, discharging them, the sale of the Property is likely to be jeopardized.”

13.  It can be seen from the above, and as confirmed by Mr Liu orally in Court, he is relying on RHC O 31 r 1 and r 2 as conferring jurisdiction to make the Disputed Order.  He submitted since the Court has power to give directions for the purpose of “effecting a sale”, and if “effecting a sale” requires the discharge of an encumbrance, the Court can order a party to discharge the encumbrance by his own means.

14.  With respect, this court is unable to agree.

15.  First, no authorities have been cited to support Mr Liu’s bare and, in my view, bold assertion.  As conceded by him at the hearing, RHC O 31 does not expressly empower the court to make the Disputed Order.

16.  Second, as a matter of legal analysis, RHC O 31 r 2 is purely procedural in nature and only authorizes the Court to give directions on the manner of carrying out a sale.  The examples given in RHC O 31 r 2 (2)(a) to (h), albeit not exhaustive, certainly support this view.  The Disputed Order, on the other hand, goes well beyond the procedural manner of carrying out a sale.  By compelling Ng to discharge the Charging Orders at her own costs and expenses, the Disputed Order affects the amount of net sale proceeds available for the eventual distribution between Ng and Chan at the end of the trial when their respective beneficial interests in the Property are ascertained.  In other words, the Disputed Order affects Ng and Chan’s substantive entitlement to the sale proceeds in a way which is adverse to Ng and in favour of Chan.

17.  The matter can be tested in this way.  Suppose, for example, Ng is eventually found at the trial of this action to be entitled to only 20% of the Property which is worth around HK$2.1m, based on the reserve price of HK$10.5m.[2]  Why should she be compelled, against her will, to pay over HK$4.2m[3] to discharge the Charging Orders?  After all, the Charging Orders are only against Ng’s interest in the Property which ex hypothesis is worth only HK$2.1m.

18.  Third, charging orders in general, and their discharge and enforcement in particular, are governed by RHC O 50.  The relevant provisions are as follows:

“1. Order imposing a charge on a beneficial interest (O 50, r 1)

(1) An application by a judgment creditor for a charging order in respect of a judgment debtor’s beneficial interest may be made ex parte, and any order made on such an application shall in the first instance be an order, made in Form No 75 in Appendix A, to show cause, specifying the time and place for further consideration of the matter and imposing the charge in any event until that time.

…

3. Order made on further consideration (O 50, r 3)

(1) On the further consideration of the matter the Court shall either make the order absolute, with or without modifications, or discharge it.

7. Discharge, etc., of charging order (O 50, r 7)

(1) Subject to paragraph (2) on the application of the judgment debtor or any other person interested in the subject‑matter of the charge, the Court may, at any time, whether before or after the order is made absolute, discharge or vary the order on such terms (if any) as to costs or otherwise as it thinks just.

(2) Where an application is made for the discharge of a charging order in respect of the judgment debtor’s land on the ground that the judgment debt has been satisfied, the applicant shall state in his application, and the Court shall specify in its order the lot number of the land and the memorial number of any relevant charge registered against the land.

…

9A. Enforcement of charging order by sale (O 50, r 9A)

(1) Proceedings for the enforcement of a charging order by sale of the property charged must be begun by originating summons.

(2) The provisions of Order 88 shall apply to all such proceedings.”

19.  It is clear from RHC O 50 r 7(2) that a judgment debtor can apply to discharge a charging order in respect of his land on the ground that he has already satisfied the judgment debt, but there is no provision in RHC O 50 which compels the judgment debtor to do so.  If he is unwilling or unable to pay up the judgment debt and discharge the charging order, all that a judgment creditor can do is to invoke r 9A by issuing an originating summons seeking the sale of the property charged.  Not even a judgment creditor can seek an order under O 50 to compel the judgment debtor to pay up the judgment debt with a view to discharging a charging order.

20.  If RHC O 50 does not confer jurisdiction on the Court to compel a judgment debtor to discharge a charging order, it seems to this court wholly contrived to suggest that RHC O 31 can be interpreted to confer such jurisdiction, in the absence of an express provision to that effect.  It seems to this court even more contrived to suggest that, if Wu cannot seek a court order compelling Ng to discharge the Charging Orders, Chan, as a non‑party to HCA 1516/2016, can do so.

21.  Fourth, by directing Ng to discharge the Charging Orders at her own costs and expenses, the Disputed Order was in effect compelling Ng to pay off the judgment debt in HCA 1516/2016. Otherwise, it is difficult to see why Wu would consent to the discharge of the Charging Orders or how Ng can avail herself of RHC O 50 r 7(2).  At this juncture, one should turn to RHC O 45 r 1 which governs the manner in which a judgment for the payment of money can be enforced:

“1.—(1) Subject to the provisions of these rules, a judgment or order for the payment of money, not being a judgment or order for the payment of money into court, may be enforced by one or more of the following means, that is to say —

(a) writ of fieri facias;

(b) garnishee proceedings;

(c) a charging order;

(d) the appointment of a receiver;

(e) in a case in which rule 5 applies, an order of committal;

(f) in such a case, writ of sequestration;

(g) an order of imprisonment made under Order 49B."

22.  In Hong Kong Civil Procedure 2018 at para 45/1/3, the learned editors observed that:

“… a judgment for the recovery of money from a person cannot be enforced by an order of committal or writ of sequestration, nor can a supplemental order be made fixing a time for payment by a certain day or limiting the time within which it is to be made, so as to found a right to sequestration or committal in default of payment (Re Oddy [1906] 1 Ch 93; Hulbert v. Cathcart [1894] 1 Q.B. 244).”

23.  In this court’s experience, once a plaintiff has obtained a judgment in his favour, he can and usually will avail himself of the means provided by RHC O 45 r 1 to enforce the judgment or invoke the winding up or bankruptcy jurisdiction of the Court to put pressure on the judgment debtor to pay up the judgment debt.  This court is not aware of any law or practice which permits a judgment creditor to seek yet another court order to compel the judgment debtor to pay up.  Indeed, the authority cited in the preceding paragraph supports the proposition that such a course of action is not permissible.  If such a course of action is not open to Wu as the judgment creditor in HCA 1516/2016, it is difficult to see how or why such a course of action is open to Chan, who is not even a party to HCA 1516/2016.  

24.  Lastly, as a matter of practicality, it is true a purchaser will insist that all encumbrances over a property (be it a mortgage, charging order or anything else which has been registered in the Land Registry as an encumbrance) be discharged before completing the sale, and that there will simply be no sale if the encumbrances are not discharged.  To this extent, Mr Liu’s observation at paragraph 26 of his skeleton submissions quoted above is correct as far as it goes.  But that is the reality of the situation.  The fact that the sale of the Property cannot in practice be effected does not justify the “invention” of an otherwise non‑existent jurisdiction to compel one co‑owner, against his will, to discharge an encumbrance at his own costs and expenses in order to effect a sale.  In practice, what normally happens is that encumbrances are discharged with the balance of the purchase price payable on completion.  Solicitors for a purchaser typically send split cheques to solicitors for the vendor(s) and extract undertakings from the latter to discharge all encumbrances over the property in question.

25.  To conclude, for all the above reasons, this court is satisfied that there is no jurisdiction on the part of the learned Master to make the Disputed Order.  That is sufficient to dispose of this appeal.

Ground 2

26.  For completeness, this court will briefly deal with Ground 2.

27.  Mr Oh’s submissions on this are quite straightforward: on the evidence, Ng simply does not have the means to pay up the judgment debt in HCA 1516/2016 in order to discharge the Charging Orders.  He points out to this court that even Chan herself accepts that Ng is in financial difficulty in her 2^nd affirmation filed herein at paragraphs 12(c) and 14.

28.  In reply, Mr Liu points to a passage in Ng’s 3^rd affirmation at paragraph 14 in which Ng said the borrower who borrowed money from Wu had been making an effort to reach an amicable settlement with Wu, so that Ng’s liability as guarantor could be discharged.

29.  It is difficult to see how this passage assists Mr Liu.  The 3^rd affirmation was filed in November 2016. As at the date of this appeal in January 2018, the borrower still has not reached a settlement with Wu, Ng’s liability as guarantor has still not been discharged and the Charging Orders are still registered as encumbrances against the Property.

30.  Mr Liu then refers this court to another passage in Ng’s 4^th affirmation at paragraph 7 which suggested that Ng had a friend who, or rather whose maiden family, was quite well‑off in Australia.  The suggestion seems to be that Ng can borrow from her friend to pay off the judgment debt in HCA 1516/2016 and discharge the Charging Orders.

31.  The short answer to Mr Liu’s suggestion is this: the fact that Ng has to borrow from a friend in order to discharge the Charging Orders does not mean Ng has the necessary funds to discharge the Charging Orders — it means the exact opposite.  And the fact that Ng’s friend is well‑off does not mean her friend will lend her money for the supposed purpose, or any other purpose.

32.  All in all, it is reasonably clear that there was no evidence before the learned Master and there is still no evidence before this court that Ng is able to come up with HK$4.2m in order to discharge the Charging Orders.  Both counsel accept that as a general rule, the Court should, as far as legally permissible, not make an order which a party cannot comply with.  That being so, as a matter of discretion, the Disputed Order should not have been granted and should not be allowed to stand.

Disposition and costs order nisi

33.  In the premises, this court will allow the Plaintiff’s appeal and discharge the Disputed Order.

34.  There shall be an order nisi that costs of the appeal and below ie the hearing on 25 September 2017 before the learned Master be to the Plaintiff, to be taxed if not agreed, and paid forthwith, with certificate for counsel.