XCHRX YU TAI HING CO. LTD. v. RIGHTAN TRADING LTD. AND OTHERS

HCMP 1175/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1175 OF 2000

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J U D G M E N T

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1. This is an appeal of the 3rd Defendant, Madam So So Heung, against the Order of Master Jones made on 16 November 2000 whereby the Master made a charging order absolute in respect of the 3rd Defendant's beneficial interest in two properties, namely, Unit 8, 23rd Floor, Southorn Garden, No. 2 O'Brien Road, Hong Kong ("the 3rd Defendant's 1st Property") and Flat D, 6th Floor, Pak Lee Building, Nos 6-8 King's Road, Hong Kong ("the 3rd Defendant's 2nd Property").

2. The background matters and facts not in dispute may be set out as follows.

3. By a Legal Charge dated 7 July 1997 made between the 1st Defendant, Rightan Trading Limited, as the mortgagor and the Plaintiff as the mortgagee, the 1st Defendant mortgaged the property known as House 37, 5th Street, Section L, Fairview Park, Yuen Long, New Territories ("the Mortgaged Property") to the Plaintiff. By a guarantee dated 5 July 1997, the 2nd Defendant, Madam So Yan Yan, and the 3rd Defendant guaranteed the 1st Defendant's debt under the Legal Charge.

4. On 3 March 2000, the Plaintiff issued an Originating Summons against the 1st, 2nd and 3rd Defendants under Order 88 of the Rules of the High Court seeking vacant possession of the Mortgaged Property and payment of the sum owing under the Legal Charge. On 20 June 2000, Master Lung made an order in the mortgage action by which it was ordered that the Plaintiff was to recover from the 1st, 2nd and 3rd Defendants the sum of HK$6,560,241.24 with interest and that the 1st Defendant was to deliver up vacant possession of the Mortgaged Property to the Plaintiff within 28 days of the order. That order was served on the Defendants on 28 June 2000 but up to 4 July 2000, no payment of any part of the judgment debt had been made.

5. According to the evidence adduced by the Plaintiff, which is not disputed, the Mortgaged Property even if sold was unlikely to satisfy the judgment debt in the sum of approximately HK$6.5 million. There was evidence of a recent transaction of another property in the Fairview Park which fetched only HK$3.18 million.

6. On 4 July 2000, the Plaintiff applied ex parte to a Master and obtained a charging order nisi against the 3rd Defendant's 1st and 2nd Properties on 7 July 2000. It was provided in the charging order nisi that the parties were to attend court on 3 August 2000 for the 3rd Defendant to show cause.

7. On 14 July 2000, the 1st Defendant sold the Mortgaged Property to a purchaser at HK$3 million, having been allowed by the Plaintiff to do so. The purchaser's solicitors paid HK$3 million directly to the Plaintiff. In addition, the 1st Defendant gave the Plaintiff a cashier order for HK$180,000.00 and a cheque post-dated to 30 July 2000 for HK$25,000.00 to the Plaintiff's solicitors to cover the Plaintiff's costs in the mortgage action. How and why these additional sums came to be paid is described below.

8. On 1 August 2000, the 3rd Defendant filed an affirmation setting out her ground for opposing a charging order absolute on her properties. The only ground of opposition is an alleged agreement to compromise made between her husband, Ip Lam On, on her behalf and Lo Siu Tong and James Lee Ying Kun on the Plaintiff's behalf in which it was agreed that the Plaintiff would allow the 1st Defendant to sell the Mortgaged Property at HK$3 million and forgo the balance of the judgment debt provided that (1) the sale proceeds plus another HK$180,000.00 would be paid to the Plaintiff; and (2) HK$25,000.00 was to be paid towards the legal costs of the Plaintiff in the mortgage action.

9. On 3 August 2000, at a hearing before a Master, the Plaintiff's application for a charging order absolute was adjourned to 31 August 2000 with directions given for the filing of evidence.

10. On 22 August 2000, the affirmation of Ip Lam On was filed on behalf of the 3rd Defendant. In Mr Ip's affirmation, he raised the same ground of opposition as in the 3rd Defendant's affirmation. Mr Ip's affirmation was filed late.

11. At the hearing before a Master on 31 August 2000, the time for the Plaintiff to file evidence in reply to the 3rd Defendant's evidence was extended. On 15 September 2000, the Plaintiff filed evidence in reply. This was the 3rd affidavit of Vivian Li Yuk Hing.

12. On 31 October 2000, the Plaintiff's solicitors sent to the 3rd Defendant's solicitors the affirmation of James Lee being further evidence the Plaintiff intended to file in reply. That affirmation was made on 31 October 2000. In the covering letter to the 3rd Defendant's solicitors, the 3rd Defendant's solicitors were asked to take note that the Plaintiff intended to use James Lee's affirmation at the hearing on 16 November 2000. It was explained in James Lee's affirmation that the Plaintiff was able to contact him only recently, hence James Lee's affirmation was prepared late.

13. The conduct of the 3rd Defendant's solicitors on receipt of this late affirmation was curious. By a letter of the same date, they returned the letter and James Lee's affirmation to the Plaintiff's solicitors. The Plaintiff's solicitors responded by a letter dated 7 November 2000 in which they made the observation that the 3rd Defendant, if she had so wished, would have more than two weeks before the hearing on 16 November 2000 to deal with the matter raised in James Lee's affirmation by filing a further affirmation to which the Plaintiff would have no objection. The Plaintiff's solicitors put on record that if the 3rd Defendant should choose to sit back and do nothing but ask the court to grant an adjournment at the coming hearing, they reserved the right to produce the letter to the court for its decision. They ended by saying that there was still ample time for the solicitors to take the 3rd Defendant's instructions on James Lee's affirmation and they invited the 3rd Defendant's solicitors to do so, so that the court's time would not be wasted. No affirmation made by the 3rd Defendant in reply to James Lee's affirmation was prepared before the hearing on 16 November 2000 or even up to today.

14. When the application came before Master Jones on 16 November 2000, the Plaintiff's solicitors sought leave to file James Lee's affirmation out of time. Leave was granted by the Master.

15. According to the affirmation of the 3rd Defendant's solicitors, Mr Luk Kwok Wai, filed on 4 December 2000, at the hearing before Master Jones, he had applied to the court for leave to file an affirmation in reply. However, the Master gave no response to his application and proceeded to hear the Plaintiff's application for a charging order absolute. Mr Luk made the point in his affirmation that without having an opportunity to file evidence in reply to James Lee's affirmation, the 3rd Defendant has suffered manifest prejudice. That same point was made by Miss Annie Lai, who has appeared for the 3rd Defendant today.

16. I am unable to see how it could be said that the Master had erred in not allowing the 3rd Defendant an opportunity to file evidence in reply, having regard to the history of the correspondence between the parties and that the 3rd Defendant had ample opportunity to prepare and adduce evidence in reply before the hearing on 16 November 2000 if she was minded to do so. Moreover, the appeal from the Master's decision is a hearing de novo. Up to now, the 3rd Defendant has not come up with even a draft affirmation that she would like to use in reply to James Lee's affirmation. Last but not least, Miss Lai informed me today that she does not even know what the 3rd Defendant would like to say in reply to James Lee's affirmation. She said that she was instructed to seek an adjournment for the 3rd Defendant to file evidence in reply and that the 3rd Defendant would be willing to suffer any consequence as to costs.

17. I do not think the Master has erred in his discretion in refusing the 3rd Defendant an opportunity to file evidence in reply. Likewise, I am not prepared to grant an adjournment to the 3rd Defendant for that purpose. I would add that I do not think James Lee's affirmation has made such a material difference to the Plaintiff's case. Even without James Lee's affirmation, I am satisfied that it was proper for the Master to make a charging order absolute as I shall explain below.

18. I turn to the substantive ground of opposition put up by the 3rd Defendant. This was rejected by the Master because it was a bare allegation, contradicted by contemporaneous documents, and was incredible. Moreover, the purported defence raised in the 3rd Defendant's affirmation and Mr Ip's affirmation is bad in law. I agree entirely with the Master's conclusions.

19. According to the affirmation of the 3rd Defendant and her husband, it was alleged that the 1st Defendant intended to sell the Mortgaged Property in early July 2000 and the Plaintiff agreed with the 3rd Defendant's husband that the Plaintiff would forgo the balance of the debt under the Legal Charge on the terms as I have described earlier. This allegation is contradicted by the letter of the 3rd Defendant herself to the Plaintiff dated 29 March 2000. The allegation that it was only in July 2000 that the 1st Defendant had intended to sell the Mortgaged Property is also contradicted by the contemporaneous documents. A provisional sale and purchase agreement was signed as early as 1 March 2000. Further, there were letters between the 1st Defendant's solicitors and the Plaintiff in April, May, and June 2000 on the amount payable on discharge of the Legal Charge, and the supply of title deeds and documents in anticipation for the sale.

20. There was no mention in any of the letters that the Plaintiff was to relinquish any part of the indebtedness under the Legal Charge. Besides, the Plaintiff had obtained judgment on 20 June 2000 for HK$6.5 million. It is inconceivable that the Plaintiff would give up more than half of the judgment debt to allow the sale of the Mortgaged Property to go ahead at HK$3.18 million, which was something that the Plaintiff was entitled to do any way under the Legal Charge.

21. The defence of the alleged agreement to forgo the balance of the debt is also bad in law as there is no consideration for such an agreement. The payment of a lesser sum of HK$3.18 million on 14 July 2000 cannot be in satisfaction of the judgment debt of approximately $6.5 million which was outstanding since 20 June 2000 (Foakes v. Beer (1884) 9 App Cas 605).

22. To get over this difficulty, Miss Lai has put forward a new case in her submission today. She stated that the 3rd Defendant's case was based on a collateral agreement whereby the Plaintiff would relinquish the balance of the debt in return from an undertaking from the 3rd Defendant's husband, Ip Lam On, to pay the balance of the debt.

23. There are two difficulties about that new case of a collateral agreement.

24. Firstly, this alleged collateral agreement is in contradiction to the affirmations of the 3rd Defendant and Mr Ip. In those affirmations, no mention was made of any such collateral term or agreement. The alleged collateral agreement is such an important term that one would not have expected the 3rd Defendant and Mr Ip to fail to mention in their affirmations. In my judgment, the new case of a collateral agreement is totally incredible.

25. Secondly, Miss Lai has pointed to the letter of the 3rd Defendant to the Plaintiff dated 29 March 2000 and submitted that it supported her case of a collateral agreement. I am quite unable to read the letter in that light. I do not think this letter would have constituted any kind of support for a collateral agreement. The letter did not say that the Plaintiff would release the 3rd Defendant from her obligation to pay the balance of the debt. What was written by the 3rd Defendant in the letter was merely an offer on her part that her husband would assume liability to pay the balance of the amount for the Plaintiff to allow the 1st Defendant to sell the Mortgaged Property.

26. I do not think the case of a collateral agreement would get off ground. The 3rd Defendant has failed to discharge the burden why a charging order absolute should not be made. I therefore dismiss the 3rd

Defendant's appeal from the Order of Master Jones. I would hear the parties on costs.