XCHRX PANBILLION FINANCE CO. LTD. v. FULL COUNTRY PROPERTY DEVELOPMENT LTD. AND OTHERS

HCA10274/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10274 OF 1999

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J U D G M E N T

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1. This is an application by the plaintiff for final judgment against all the defendants. The application, by summons, is made under Order 13 rule 6, Order 14 rule 1, Order 19 rule 7 and Order 88 rule 6 of the Rules of High Court. There is also a second summons before me taken out by the 4th defendant under Order 15 rule 6 for an order that it ceases to be a party to these proceedings. Since the arguments in respect of both these summonses are interlinked, I shall deal with them together.

2. It should be noted at the outset that the plaintiff's claim in this case relates only to one property, namely, Unit 21C of Profit Mansions ("the suit premises"). I mention this at the outset because the background of this case involved numerous other units in the same building as well. To properly understand this case, it will be necessary to go into some of the background. Happily, the facts, in so far as the background is concerned, are not in dispute between any of the parties.

Background

3. Full Country Development Limited ("Full Country") was the registered owner of a number of units in the building named Profit Mansions. These units included the suit premises. By two separate Sale and Purchase Agreements dated 27 October 1995 and 1 November 1996, Full Country sold all of those units owned by it (particularized in Schedule 1 and Schedule 2 of the Statement of Claim) in Profit Mansions to the 1st defendant. To finance this purchase by the 1st defendant, the plaintiff loaned to the 1st defendant the sum of HK$69 million pursuant to a Loan Agreement dated 15 October 1996. As a security for such loan, an Equitable Mortgage was executed in respect of all the units particularized in Schedule 1 and Schedule 2 of the Statement of Claim (and therefore including the suit premises) by the 1st defendant in favour of the plaintiff. The Equitable Mortgage was executed on 1 November 1996 and registered by the plaintiff in the Land Registry on 25 November 1996 - i.e. within one month from the date of its execution.

4. At the time this Equitable Mortgage was executed, and also when it was registered in the Land Registry, the building called Profit Mansions was still under construction. The occupation permit in respect of Profit Mansions was only issued on 20 December 1996.

5. By the terms of the Loan Agreement, the loan amount of HK$69 million was repayable two years from drawdown or upon demand by the plaintiff. On 23 July 1998, the plaintiff demanded repayment of the loan from the 1st defendant. Upon the 1st defendant's failure to repay the loan, the plaintiff brought an action and obtained judgment against the 1st defendant in HCA16788/1998 for the sum of HK$63,879,601.56 and interests thereon.

The suit premises

6. By a Provisional Sale and Purchase Agreement dated 11 October 1997 ("the Provisional S.P. Agreement"), the 1st defendant sub-sold certain of the units in Profit Mansions, including the suit premises, to the 2nd defendant. By an assignment dated 12 November 1997 ("the 21C Assignment"), Full Country then assigned the suit premises to the 2nd defendant with the 1st defendant as confirmor. In so selling and assigning the suit premises as confirmor to the 2nd defendant, the 1st defendant was in breach of the terms of the Equitable Mortgage as well as the terms of a proforma Legal Charge attached thereto (which the 1st defendant has covenanted to execute and complete to mortgage the various units to the plaintiff immediately upon those units being assigned to the 1st defendant) in that the Provisional S.P. Agreement was entered into between the 1st and 2nd defendants without the knowledge, notice or consent of the plaintiff and without redeeming or discharging the Equitable Mortgage or repaying the loan to the plaintiff.

7. On the same day that the suit premises was assigned to the 2nd defendant, namely 12 November 1997, the 2nd defendant mortgaged the suit premises to the 5th defendant ("the JCG mortgage") to secure credit facilities granted by the 5th defendant to the 2nd defendant.

8. On 28 November 1997, by way of a 2nd Legal Charge ("the 2nd Legal Charge"), the suit premises was purportedly charged by the 2nd defendant to the 6th defendant to secure a loan of HK$10 million and interest thereon granted by the 6th defendant to the 2nd defendant and one Eastern Star Limited.

9. Moreover, the 1st defendant, in so permitting or allowing the 2nd defendant to mortgage the suit premises to the 5th defendant, and creating a 2nd Legal Charge in favour of the 6th defendant, was in further breach of the Equitable Mortgage and Legal Charge.

10. On 2 January 1998, the 4th defendant obtained a Charging Order in HCA10146/1993 against, inter alia, the suit premises ("the Charging Order").

11. The Provisional S.P. Agreement, the 21C Assignment, the JCG mortgage, the 2nd Legal Charge and the Charging Order were all subsequent in time to the registration of the Equitable Mortgage in the Land Registry.

12. In HCA10258/1997, the 3rd defendant sued Full Country for specific performance of an Agreement dated 31 May 1994 to sell to the 3rd defendant the suit premises. Specific performance was granted to the 3rd defendant by an order of the High Court on 21 March 1998. The writ in that action was registered in the Land Registry on 30 September 1997 but the Agreement itself dated 31 May 1994, upon which the 3rd defendant's claim was based, had never been registered in the Land Registry. Presently, the 3rd defendant is in occupation of the suit premises. The plaintiff says it took the Equitable Mortgage without any notice of the Agreement of 31 May 1994 and that the 3rd defendant is occupying the suit premises without the agreement or consent of the plaintiff.

13. The plaintiff now claims inter alia for declarations against all the defendants that the Equitable Mortgage takes priority over all the other interests of all the defendants where the suit premises is involved. As against the 3rd defendant, the plaintiff further claims for the delivery of vacant possession of the suit premises. Although there was also a claim for mesne profits against the 3rd defendant, in the writ of summons by counsel for the plaintiff that the plaintiff would waive this claim for mesne profits against the 3rd defendant.

The 1st and 2nd defendants

14. The 1st defendant, being the main culprit in this case, has not even acknowledged service of the writ upon it. The 2nd defendant, while it has acknowledged service, has not filed any defence in this matter. Neither the 1st nor the 2nd defendant had seen fit to appear at the hearing. It is clear that there is no defence by either of them to the plaintiff's claim against them. Accordingly, as against the 1st and 2nd defendants, there will be a declaration that the plaintiff is entitled to exercise the power of sale as provided in the Equitable Mortgage in relation to the suit premises and further an order that the suit premises be sold by the plaintiff in accordance with the terms of the Equitable Mortgage.

15. The plaintiff further asked for an order that vacant possession of the suit premises be forthwith delivered to the plaintiff by the 1st and/or 2nd defendants. However, it is clear, even on the plaintiff's own case, that possession of the suit premises is no longer with the 1st or the 2nd defendant. Accordingly, I am not prepared to grant that order sought by the plaintiff against them.

The 3rd defendant

16. As against the 3rd defendant, the plaintiff is asking for a declaration that the Agreement dated 31 May 1994 is, as against the plaintiff, absolutely null and void to all intents and purposes; secondly, for a declaration that the plaintiff's rights, interest, claims and/or entitlements under the Equitable Mortgage take priority over the claims, interest or rights of the 3rd defendant under the Agreement dated 31 May 1994 and/or the lis pendens; thirdly, for a declaration that the 3rd defendant's claims against the suit premises are subject to the rights, interest, claims and entitlements of the plaintiff; and fourthly, for an order that vacant possession of the suit premises be forthwith delivered to the plaintiff by the 3rd defendant.

17. In the hearing before me, the plaintiff has proceeded on the footing that the 3rd defendant has failed to file any defence in this matter. The 3rd defendant appears in these proceedings in person. However, the 3rd defendant had in fact filed in court an affidavit in opposition to the plaintiff's application but this was not known to the plaintiff because the 3rd defendant, acting in person, had failed to serve such affidavit on the plaintiff. The affidavit describes how in 1994 agreement was reached between the 3rd defendant and Full Country for the 3rd defendant to surrender to Full Country the premises in which the 3rd defendant was then residing, being Room 3, 6/F, Flat A, Shun Fung Building at Nos.112-128 Wan Fung Street, Fung Wong Sun Chuen, Kowloon, for the purposes of redevelopment by Full Country and in consideration of being promised in exchange thereof one unit in Profit Mansions to be developed, being the suit premises. It goes on to describe that in March 1997, she was given keys to the suit premises by Full Country. However, because the title deeds were not given to her by Full Country, she initiated proceedings in the High Court against Full Country in HCA10258/1997 and obtained judgment against Full Country. It goes on to describe that in October 1998, she and other landlords suspected that they had been deceived and a report was made to the Commercial Crime Bureau.

18. Much as I sympathize with the 3rd defendant, what has been stated by her in her affidavit does not even begin to suggest a defence to the plaintiff's claim herein. For her to contest the plaintiff's claim herein, she would have to show either a prior interest in the suit premises or, alternatively, to show the lack of bone fide on the part of the plaintiff. The fact that she had successfully sued Full Country in HCA10258/1997 cannot, in my view, assist her in so far as the present claim is concerned. It is also clear from the land search records in relation to the suit premises that if there was an agreement in writing between the 3rd defendant and Full Country in 1994, such agreement has never been registered in the Land Registry against the suit premises. In the circumstances, I have no alternative but to grant to the plaintiff the reliefs which it seeks against the 3rd defendant as stated above save that there will be a stay of three months in respect of the order for delivery up of vacant possession of the suit premises.

The 4th defendant

19. There is no dispute that the 4th defendant has obtained a Charging Order on 2 January 1998 in HCA10146/1993 against a number of units in Profit Mansions, including the suit premises. There is also no dispute that this Charging Order was not registered in the Land Registry against the suit premises but that if it had been so registered, it would rank after the Equitable Mortgage. It further appears from paragraph 32 of the Statement of Claim that the plaintiff accepts that it had made no pre-action demand to the 4th defendant (although there was such pre-action demand to the 2nd, 3rd, 5th and 6th defendants) before it issued the present Writ of Summons on 23 June 1999. After the Writ of Summons was issued, there were communications between the 4th defendant and the plaintiff's solicitors firstly by phone, and then by correspondence, starting from 12 July 1999. Without going into the details of the correspondence, it suffice to say that the 4th defendant was prepared to acknowledge that the plaintiff's entitlements under the Equitable Mortgage took priority over the 4th defendant's Charging Order in so far as the suit premises was concerned. However, the plaintiff was only prepared to discontinue the action against the 4th defendant on condition that the 4th defendant acknowledged the plaintiff's entitlement under the Equitable Mortgage took priority over all the units comprised in the Charging Order obtained in HCA10146/1993 and such acknowledgement to be properly attested by a solicitor. This the 4th defendant was not prepared to do on grounds that the 4th defendant would be put to unnecessary expenses. This deadlock resulted in the 4th defendant taking out its application for an order that it ceases to be made a party to the present proceedings.

20. Mr Chiu who appears for the 4th defendant submits that there is really no dispute between the plaintiff and the 4th defendant. He further submits that what the plaintiff is really asking for is for the court to paraphrase section 3 of the Land Registration Ordinance, which is not disputed by the 4th defendant. Therefore, since there is no lis between the parties, it was not proper for the plaintiff to have brought the present proceedings against the 4th defendant and the 4th defendant should cease to be a party to these proceedings.

21. Having heard arguments from both sides, I am of the view that the plaintiff was entitled to the declarations it seeks against the 4th defendant if for no other reason than to enable it to exercise its rights under the Equitable Mortgage - by sale if necessary. The fact that the plaintiff had failed to make a pre-action demand from the 4th defendant is a matter which should only go to costs. The plaintiff, however, overstepped the line when it demanded the 4th defendant to acknowledge the plaintiff's priority in relation to other units in Profit Mansions since this action relates only to the suit premises alone. On the other hand, the defendants' application for an order that the 4th defendant ceases to be made a party to these proceedings is wholly misconceived. This is not, as suggested by Mr Chiu, a hypothetical situation or an academic point of law. Here exists a real situation between the plaintiff and the 4th defendant upon which the court is asked to grant these declarations. Accordingly, the 4th defendant's application is dismissed.

22. I will grant to the plaintiff the declarations that the plaintiff's rights, interest, claims and/or entitlements under the Equitable Mortgage in relation to the suit premises take priority over the claims, interest or rights of the 4th defendant under the Charging Order, and further that the 4th defendant's claims against the suit premises are subject to the rights, interest, claims and entitlements of the plaintiff.

The 5th defendant

23. The 5th defendant's rights originate from the JCG mortgage which was dated 12 November 1997 and registered in the Land Registry on 24 December 1997. As such, it clearly ranks subsequent to the Equitable Mortgage. Whilst the 5th defendant has expressly admitted that the JCG mortgage was registered subsequent to the Equitable Mortgage, the 5th defendant has at the same time refused to acknowledge the plaintiff's priority despite the pre-action demand. The defence filed by the 5th defendant is one which puts the plaintiff to strict proof of its claim. For present purposes, the plaintiff says that the 5th defendant has no defence at all to its claim.

24. The 5th defendant, on the other hand, argues that the plaintiff has at least to prove its bona fide. I cannot accept that argument since it is a fact that the plaintiff's Equitable Mortgage was registered prior in time to the 5th defendant's JCG mortgage. In the circumstances, there is no need for the plaintiff to show that it is a "subsequent bona fide purchaser or mortgagee for valuable consideration".

25. In my view, the 5th defendant clearly has no defence to the plaintiff's claim. Accordingly, there will be a declaration that the plaintiff's rights, interest, claims and/or entitlements under the Equitable Mortgage in relation to the suit premises take priority over the claims, interest or rights of the 5th defendant under the JCG mortgage, and further a declaration that the 5th defendant's claims against the suit premises are subject to the rights, interest, claims and entitlements of the plaintiff.

The 6th defendant

26. The 6th defendant did not appear at the hearing before me having indicated by a consent summons that they do not oppose the orders sought by the plaintiff against them and accordingly, they will not be appearing at the hearing of the application by the plaintiff. Although declarations are not simply made by consent, I can see no reason why I should not make the declarations sought by the plaintiff against the 6th defendant and which the 6th defendant do not oppose. Accordingly, there will be a declaration that the plaintiff's rights, interests, claims and/or entitlements under the Equitable Mortgage in relation to the suit premises take priority over the claims, interests or rights of the 6th defendant under the 2nd Legal Charge and further a declaration that the 6th defendant's claims against the suit premises are subject to the rights, interest, claims and entitlements of the plaintiff. In so far as the 6th defendant is concerned, it has been agreed between the parties that there should be no order as to costs against the 6th defendant in this action.

Costs

27. I shall make the following costs order nisi :-

(a) Costs of this action be to the plaintiff against the 1st, 2nd, 3rd and 5th defendants.

(b) In so far as the 4th defendant is concerned, because of the plaintiff's failure to issue a pre-action demand against the 4th defendant, I have already indicated that this is a matter that should be reflected in the costs order. On the other hand, the 4th defendant's application has been dismissed. In the circumstances, the fairest costs order that I can make is that the 4th defendant and the plaintiff are each to bear their own costs.

(c) As agreed between the 6th defendant and the plaintiff, there will be no as order to costs against the 6th defendant.