LIU CHONG HING BANK LTD v. HOMEX RATTAN HONG KONG LTD AND OTHERS

IN THE HIGH COURT OF JUSTICE, HONG KONG

MISCELLANEOUS PROCEEDINGS

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DECISION

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1. The Appellant in this matter, the Liu Chong Hing Bank, is the mortgagee of certain premises, namely, Workshops A and B on the 8th Floor and Car Parking Space No. 12 on the ground floor of Tung Luen Industrial Building. The Defendant in the action is the mortgagor.

2. There are three mortgages affecting the premises, the latest of which is dated the 16th of November 1982. Prior to the taking out of that last mortgage, the Defendant had let the premises to a company known as Homex Weaving Limited. The tenancy came to end on the 31st of March 1983. Thereafter, on the 31st of January 1984, the Defendant entered into a Tenancy Agreement with Homex Holdings Limited (the 1st Applicant), and subsequently on the 15th of February 1984, Homex Holdings Limited, entered into a Sub-tenancy Agreement with the 2nd Applicants, Ying Hong Shun Company Limited and Tsinghua Architectural Designers (Hong Kong) Limited.

3. It is not necessary to go into the history of this matter in any great detail, the order of events having been set out most helpfully by Miss Yuen in a chronological list. Suffice it to say that the Defendant did not keep to the terms of his mortgage agreement with the Appellant and an action was commenced against the Defendant as a result of which on the 30th of July this year an Order of Possession was made. Subsequently, the 1st and 2nd Applicants applied under Order 15 Rule 10 to be joined as Defendants on the basis of their physical occupation or possession of the premises. That application was granted by the Master and it is against the Masters decision that an appeal is now made.

4. It is readily conceded by Mr. Yu for both the 1st Applicant and the 2nd Applicants that there is no merit in any defence available to either of them. They occupy solely under the title of the 1st Defendant. Their agreements were entered into long after the date of the Third Mortgage and after the expiry date of the tenancy to Homex Weaving Limited, which was itself, I believe I am right in saying, expressed to be subject to the rights of the mortgagee.

5. In those circumstances was the Master right to give leave for these Applicants to be added as Defendants?  In a decision of the Court of Appeal, Yuen Ka-Kwok v Ho Nai-sun and another^.(1), it was held that in order for an application under this order to succeed, it must be shewn firstly that the failure to appeal timeously, that is before the Order of Possession was made, was not due to wilful default, and that secondly there is a defence on the merits. In that case, the Court of Appeal was dealing with the situation where the Applicants were not in actual or physical possession at the date of the application, in other words, possession had been recovered and it may be that the distinction has to be drawn with regard to the exercise of the Court's discretion between such a case and the case where, as in the present, it seems probable that the Applicants are in actual or physical possession. If there is no defence on the merits but the Applicant is in occupation, it is only the party claiming possession who may be prejudiced by a refusal of leave in having to bring separate proceedings. That is a matter I mentioned to Miss Yuen in the course of argument but on instructions she takes the view that is to the advantage of the Appellant in this case to continue the appeal and it is not for me to say she is wrong.

6. As I have said there is, in this case, no defence on the merits. There were notices posted at the premises prior to the hearing in which possession was obtained.

7. I think that, if I am to exercise my discretion properly, I am bound to allow this appeal and to refuse leave to the Applicants to be joined as Defendants. Where that leads, is not for me to comment upon. The Appellant believes that it will give it the right to take possession straight away. I do not know whether that is right or not. So I allow this appeal in the exercise of my discretion but with the reservations indicated in the course of argument and in the course of giving my reasons.

(1)   [1980] HKLR 646