Standard Chartered Bank v. Kwok Fat

For Reference

DCMP 3555/2000

Headnote

Mortgagee Action - Charging Order - Jurisdiction - Enforcement - District Court Ordinance, Cap. 336 s. 37(1) and 52AB - Section 20A of the High Court Ordinance, Cap. 4.

The Plaintiff obtained judgment and charging order against the Defendant under a mortgagee action in the Court of First Instance. The property the subject of the charging order is worth only $250,000. When the Plaintiff took out an originating summons in the District Court for enforcement of the charging order, question arises as to jurisdiction.

Held : (1) By section 52AB of the District Court Ordinance, Cap. 336, a charging order is deemed an equitable charge in that it is a charge on equitable interest (in contradistinction to a charge on legal interest). (2) Section 37(1) of the District Court Ordinance, Cap. 336 confers jurisdiction upon the District court to hear and determine a mortgagee action but not an application to enforce a charging order made under a successful mortgagee action in another court; (3) pursuant to section 52AB of the District Court Ordinance, Cap. 336 and section 20A of the High Court Ordinance, Cap. 4, a charging order should be enforced in the court which made the order which is the Court of First Instance in this case; and (4) as a matter of principle and practicality, the matter should be transferred to the Court of Instance.

For reference

DCMP 3555/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3555 of 2000

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Judgment

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1. This is an appeal against Registrar Au-Yeung's decision ordering the transfer of this matter to the Court of First Instance. After hearing the appeal, I dismissed it and said that a written judgment will be handed down for reference. This is my judgment for whatever its worth.

2. The Plaintiff took out a mortgagee action in the Court of First Instance against the Defendant herein and another person under HCMP 4507 of 1999. On 22 October 1999, Master Lok sitting in the High Court gave judgment for the Plaintiff against the Defendant herein for approximately $3.3 million. On 25 January 2001 Master Lung of the High Court in that same HCMP 4507 of 1999 made a charging order absolute against a property ("the Property") of which the Defendant herein is the registered owner. The said judgment of Master Lok and charging order by Master Lung are still valid and subsisting.

3. The Property is a small shop purchased by the Defendant for about $600,000. The Plaintiff's valuation expert estimates that it is now only worth $250,000. Still the Plaintiff wishes to enforce the charging order by seeking an order for sale. The proper procedure to enforce a charging order, there can be no doubt, is to take out an originating summons like a new matter. Hence the originating summons herein. It is to be expected that, unless the Defendant can raise some ground to have the Court of First Instance judgment or charging order set aside, in due course an order for sale of the Property will be made. The Defendant at the hearing before me has indicated that he does not oppose the application to enforce the charging order. Problem arises, however, as to whether this originating application to enforce a charging order made by the Court of First Instance may be issued in the District Court. The problem bothers those acting for the Plaintiff. I was told by Mr. Pang, counsel for the Plaintiff, that a definitive ruling on this jurisdiction point is important because there are similar cases forthcoming.

4. Counsel for the Plaintiff drew my attention to two sections in the District Court Ordinance, Cap. 336 :-

37. Equity jurisdiction

(1) Subject to the maximum limits in amount or value set out in subsection (2), the Court has jurisdiction of the Court of First Instance to hear and determine the following proceedings -

(a) proceedings relating to or for the administration of the estate of a deceased person;

(b) proceedings for the execution of a trust or for the declaration that a trust subsists or proceedings under section 3 of the Variation of Trusts Ordinance (Cap. 253);

(c) proceeding for the foreclosure or redemption of a mortgage or for enforcing a charge or lien;

(d) proceedings for the specific performance, or for the rectification, rescission or delivery up or cancellation of an agreement for the sale, purchase or lease of property;

(e) proceedings for the maintenance or advancement of an infant;

(f) proceedings for the dissolution or winding up of a partnership, whether or not the existence of the partnership is in dispute;

(g) proceedings for relief against fraud or mistake.

52AB. Provisions supplementary to sections 52A and 52B

(1) A charging order may be made either absolutely or subject to conditions as to notifying the judgment debtor or as to the time when the charge is to become enforceable, or as to other matters.

(2) The Land Registration Ordinance (Cap. 128) applies to charging orders as it applies to other orders or writs issued or made to enforce judgments.

(3) A charge imposed by a charging order has the same effect and is enforceable in the same courts and in the same manner as an equitable charge created by the judgment debtor by writing under his hand.

(4) The Court may at any time, on the application of the judgment debtor or of any person interested in any property to which the order relates, make an order discharging or varying the charging order.

(5) The Land Registrar shall, on the filing with him of a memorial and an office copy of an order under subsection (4) discharging a charging order registered under the Land Registration Ordinance (Cap. 128), enter a discharge of the charging order on the register. The Land Registrar may issue certificates of the entry.

Section 52AB of the District Court Ordinance, Cap. 336, it must be noted, is in exactly the same terms as section 20A of the High Court Ordinance, Cap. 4.

5. According to Mr. Pang, since a charging order is deemed an equitable charge under section 52AB (or section 20A), the court has jurisdiction conferred by section 37(1) to enforce the charge. This would be an irresistible conclusion but for the words "a charging order is enforceable in the same courts" in section 52AB.

6 ． In my view, the problem lies in, perhaps, the unfortunate wording "for enforcing a charge" in section 37(1). I believe the word "enforcing" in section 37(1) carries a different connotation from the word "enforceable" in section 52AB. Under section 37(1), the court has jurisdiction to "hear and determine ...... proceedings ...... for enforcing a charge". The distinguishing word is "determine" which envisages decision on legal and factual issues. For enforcement of a charging order within the meaning of section 52AB, the court is not required to make a determination. The liability on which the charging order is based has been determined. The charging order has been made absolute and so there can be no dispute over whether the property the subject of the charge is liable to be sold. All that the court has to do for enforcement of a charging order is to consider whether and how to exercise its discretion.

7. In short, "enforcing a charge" in section 37(1) should not be read alone. That phrase should be read with "proceedings" so that the combination "proceedings ..... for enforcing a charge" in truth means "mortgagee action", not the enforcement of a charging order made after a successful mortgagee action.

8. With respect, counsel for the Plaintiff misunderstood the import of section 52AB deeming a charging order an equitable charge. Counsel thought that the deeming provisions relates to the question of jurisdiction. On the true interpretation of section 52AB, I find that deeming a charging order an equitable charge means that the charge is on an equitable interest (in contradistinction to a legal interest). By deeming a charging order as a charge on equitable interest, section 52AB fixes the priority of a charging order vis-à-vis other charges, encumbrances and dispositions. See NG Kam-ha v. Vincent Sina Traders (H.K.) Ltd. [1987] HKLR 1193, YAU Siu-yeung v. Wing Sum-Lo (t/a Wing Sum Lo & Co.) MP No. 1027 of 1987 and TSE Fook-choy v. Kwong On Bank Ltd. MP No. 2596 of 1998. Equity, in appropriate cases, may relieve a party of the harshness of strict law. For instance, one recalls readily relief against foreclosure. By deeming a charging order as an equitable charge, section 52AB reserves unto the court a discretion to, say instead of making an order for sale outright, give the defendant significantly larger period of time to vacate the property, or allow a friend or relative of the defendant to purchase the property by private treaty (instead of sale by public auction) at the price indicated by the chargee's valuation expert, or deal with the property in some other way as the court thinks just.

9. It follows from the above reasons that section 37(1) of the District Court Ordinance, Cap. 336 in fact does not confer jurisdiction to enforce a charging order. The charging order, in accordance with section 20A of the High Court Ordinance, Cap. 4 (or section 52AB of the District Court Ordinance, Cap. 336), ought to be enforced by the court that made the charging order. In this case, the proper forum is the Court of First Instance.

10. In any case, even if both the District Court and the Court of First Instance have jurisdiction to enforce the charging order under consideration, since the charging order was made by the Court of First Instance based on that court's judgment on liability, it is expedient that the Court of First Instance should enforce it. So Registrar Au-Yeung in any event was justified in ordering the transfer of the matter to the Court of First Instance.

11. There is one more practicable angle which practitioners should bear in mind. Although I or any other judge of the District Court may confidently decide on this jurisdiction point. There is always a possibility of appeal against such decision and the Court of Appeal, in its infinite wisdom, may well come to a different conclusion. A safe course to take, in this sort of cases where jurisdiction is regarded as doubtful, is to transfer. It does not matter which direction the transfer is to take effect. A transfer from the Court of First Instance to the District Court or vice versa automatically gives the destination court jurisdiction to deal with matter. Upon transfer, the matter proceeds and the desired result is obtained without further ado. There really is no advantage in lodging an appeal over a fine point of jurisdiction. Given that the Defendant is already heavily in debt, more hearings on esoteric points of law only increases costs which are unlikely to be recoverable in any event and the hearings clog up the (whichever) court's diary. Nonetheless, in the instant case, I suppose, there is still justification for appeal as a test case.

12. In conclusion, the appeal is dismissed. The decision of Registrar Au Yeung is affirmed. Having ascertained from the Defendant that he earns $650 per day on casual basis, I ordered the Plaintiff to bear the Defendant's costs for the appeal fixed at $300 although I believe this amount and the amount awarded by Registrar Au Yeung will be set off against a much much larger amount of taxed costs owing by the Defendant to the Plaintiff under HCMP 4507 of 1999.