XCHRX LEUNG CHI KWAN v. CHAN CHI KO

HCMP4150/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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REASONS FOR DECISION

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1. The Defendant and Plaintiff were husband and wife who owned a property in Kowloon ("the property") as joint tenants. They were divorced in 1996. In their divorce proceedings, an Order was made by H.H. Judge Hartmann (as he then was) in the Family Court affecting their respective interests in the property. The present proceedings arose in the course of enforcement of that Order.

The Family Court Order

2. The relevant part of the Family Court Order, made on 19 January 1996, is as follows:

"In full settlement of all ancillary relief claim[s], the Petitioner [Plaintiff] shall within 60 days from the date hereof transfer to the Respondent [Defendant] all her right, title and interest of and in the matrimonial home known as Flat B, 13th Floor, Hai Tin Mansion, Nos.224-226 Hai Tan Street, Sham Shui Po, Kowloon, Hong Kong ("the property") subject to a legal charge being registered over the property in favour of the Petitioner [Plaintiff] for 50% of the net value of the property as and when it is sold, such charge not to be enforced before the expiration of one year from the date of this ruling. The costs of effecting transfer and registering the charge shall be borne by the parties in equal shares." (my emphasis)

3. So under the Family Court Order, the Plaintiff was to have transferred her interest in the property to the Defendant in March 1996 and the Defendant would thereafter sell the property, with the Plaintiff being entitled to a charge for 50% of the value of the property at the date of sale.

Date of transfer of Plaintiff's interest

4. As events transpired however, the Plaintiff assigned her interest in the property to the Defendant only in July 1997, and not in March 1996 as ordered under the Family Court Order. There is no evidence before me to explain the delay, nor is it for me here to consider the reasons for that delay; it is the consequences of that delay that are relevant to the present matter before me.

Legal Charge

5. On the same day that the Plaintiff assigned her interest in the property to the Defendant, the Defendant executed a Legal Charge in favour of the Plaintiff.

6. Although it is recited in the Legal Charge that it was in pursuance of the Family Court Order, there are a number of provisions which are difficult to reconcile with the Family Court Order as I understand it.

7. Clause 2.1 provides that in pursuance of the Order, the Mortgagor [Defendant] covenants that he "will on the Repayment Date pay the Mortgagee [Plaintiff] the Specified Sum".

8. "Repayment Date" is defined as the earlier of two dates:- (a) 19 January 1997; and (b) any disposition of legal or equitable interest in the property by the Defendant. Since there was no disposition of the property by the Defendant prior to 19 January 1997, the Repayment Date was (as defined) 19 January 1997. It is surprising that Cl. 2.1 of the Legal Charge dated 22 July 1997 was expressed in the future tense when the Repayment Date (19 January 1997) had already passed.

9. "Specified Sum" is defined (in the event that the property is not sold on or before 19 January 1997) as 50% of the Open Market Value of the property, which is in turn defined (in the event the property is not sold on or before 19 January 1997) as the value of the property with vacant possession as determined by valuers as at 19 January 1997.

10. So under the Legal Charge (purportedly made pursuant to the Family Court Order) the Defendant was to have paid the Plaintiff on 19 January 1997 a sum of money being 50% of the assessed value of the property on the basis of a notional sale on that date.

11. This is difficult to reconcile with the Family Court Order. The Family Court Order was that the Defendant should pay the Plaintiff 50% of the value of the property as and when sold, after the Plaintiff had transferred her interest to the Defendant; not that the Defendant should pay the Plaintiff 50% of an assessed value without a sale, assessed as at a date before the Plaintiff had even transferred her interest to the Defendant.

Originating Summons

12. The property has not been sold, even now. On 2 December 1997, the present Originating Summons was issued in which the Plaintiff seeks payment of $620,000 (being 50% of the value of the property assessed as at 19 January 1997) together with interest from 19 January 1997 and costs and expenses. The Defendant did not appear at the appointment before the master.

13. The master ordered that the Defendant pay $715,155.18 to the Plaintiff, and in default of payment, deliver up possession of the property for sale.

Appeal

14. The Defendant filed a Notice of Appeal and in an affirmation, alleged that he had not received notice of the appointment before the master, contrary to an affirmation of service. It was possible therefore that the Defendant (who was acting in person) was applying actually to set aside the master's order on the ground that it had been irregularly obtained.

15. In the event, the juridical basis of the Defendant's application probably did not matter, as there is authority now for the proposition that even an irregularly obtained judgment would not be set aside if the defendant would be bound to lose in any subsequent application for summary judgment (Faircharm Investments Ltd v Citibank International plc The Times Law Reports, 20 February 1998, unrep.)

16. As it was, the Defendant applied to cross-examine the process-servor Mr Philip Cho Kwok Chung, and the Plaintiff's solicitor in turn also applied to cross-examine the Defendant on his affirmation denying receipt of the notice of appointment.

17. In the exercise of my discretion, and without objection from the Plaintiff, I allowed cross-examination to take place on this limited issue. I find Mr. Cho to be a reliable witness. His evidence accords with the contemporaneous evidence, his affirmation of service having been filed soon after the documents were served. There was no reason why he should have lied that he had posted up the Notice to Occupants and inserted the notice of appointment in the letter-box, if he had not in fact done so. He could not have made a mistake over the location of the property as he had been to the property before to serve the Originating Summons (which the Defendant admitted he had received by way of similar service).

18. I find therefore that the documents had been properly served and I treated the Defendant's application as an appeal from the master's order, which is by way of a rehearing.

Difficulties

19. At the hearing, I voiced my concerns to the parties regarding the conceptual difficulties I have found with enforcement of the Order, and at the request of the Plaintiff's solicitors, I adjourned the matter for him to seek clarification of certain matters. To assist him in seeking such clarification, I said I would express my concerns in writing, and I do so now.

20. For the reasons I have expressed previously, it is difficult to reconcile the Legal Charge with the Family Court Order. Whatever the parties may have agreed in the Legal Charge, a conceptual difficulty stems from the fact that as at 19 January 1997, the Plaintiff had not assigned her interest in the property to the Defendant. That assignment was to have triggered off the legal charge.

21. So if she had not divested herself of her interest in the property as at 19 January 1997, she could not have been entitled to a legal charge as well on that date. And if she was not entitled to a legal charge on that date, it is difficult to see how she could take that date as the notional date for a sale of the property and the enforcement of her charge.

22. The order of the Master presupposes that the Defendant could have sold the property on 19 January 1997, but the Defendant could not have effected a sale when the Plaintiff still retained her interest in the property, contrary to the terms of the Family Court Order.

23. On the other hand however, I can also see the Plaintiff's difficulties now, because she has disposed of her interest in the property, but has no means of forcing the Defendant to sell the property to enforce her charge over 50% of the value at sale.

24. In the circumstances, at the request of the Plaintiff's solicitors and in the exercise of my discretion by reason of the matters set out above, I decided to adjourn the further hearing of the appeal to enable the matter to be brought back to the Family Court. It may be that that Court would be able to vary its order in relation to time for compliance, so that the present impasse regarding its enforcement would be resolved.