THE BANK OF EAST ASIA, LTD v. WONG KWOK WA

DCMP 3591/2023

[2024] HKDC 76

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3591 OF 2023

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BETWEEN

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JUDGMENT

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A. Introduction

1.  By an Originating Summons dated 2 August 2023, the Plaintiff commenced the present mortgagee action against the Defendant.

2.  By a summons dated 8 August 2023 (the “Intended Interveners’ Summons”), the Intended Interveners applied for:

(1) leave to join the present mortgagee action; and

(2) a stay of these proceedings pending the judgment of the High Court action between the Defendant and the Intended Interveners in HCA 1806 / 2021 (the “High Court Action”).

3.  At the hearing, the Intended Interveners were represented by Mr. Wallace Cheung and the Plaintiff was represented by Mr. Martin Lau. The Defendant was acting in person. These are the reasons for my decision on the Intended Interveners’ Summons.

B. The facts

4.  The present dispute concerns a property known as “Flat E, on the 7th Floor of Block 13, No. 9 Shung King Street, Whampao Garden Site 2, Kowloon” (the “Property”).

5.  According to the land search records:

(1) On or about 30 April 1987, the Intended Interveners became the joint tenants of the Property.

(2) On or about 23 November 1989, the Intended Interveners assigned the Property to the Defendant for a stated consideration of HK$780,000.

6.  On or about 2 July 2021, the Defendant entered into a facility letter with the Plaintiff. Pursuant to the facility letter, the Plaintiff advanced to the Defendant a loan of HK$2,700,000, to be secured with a “First Legal Charge / Mortgage” over the Property.

7.  Afterwards, the Plaintiff carried out title investigations. On 15 July 2021, Messrs. Cheung & Liu advised the Plaintiff of its investigation results which did not reveal the Intended Interveners’ interest.

8.  On or about 22 July 2021, the Defendant executed an all-moneys Legal Charge / Mortgage (the “Mortgage”) in favour of the Plaintiff. The Mortgage was registered on the Land Registry on or about 5 August 2021.

9.  On or around 1 December 2021, the Intended Interveners commenced the High Court Action against the Defendant. Among other things, the Intended Interveners asked for a declaration that they were the beneficial owner of the Property.

10.  According to the Intended Interveners’ case in the High Court Action:

(1) The Defendant had been holding the Property on resulting trust for the Intended Interveners.

(2) The Property had been used for renting out since the assignment to the Defendant on 23 November 1989.

11.  On or about 10 February 2022, the Defendant commenced proceedings in the Small Claims Tribunal against the existing tenant for arrears of rent in the sum of HK$75,000 from 10 September 2021 to 10 January 2022. According to the defence filed by the tenant:

(1) In or about September 2020, he came to know one Mr. Wong Kwok Chung (“Mr. KC Wong”, one of the Intended Interveners) through an estate agent. Afterwards, Mr. KC Wong and himself carried out the negotiation on the terms of the tenancy agreement. Mr. KC Wong was the person who signed the tenancy agreement as landlord. He and Mr. KC Wong each paid half of the commission and the stamp duty.

(2) For those reasons, he believed that Mr. KC Wong was the beneficial owner of the Property.

(3) He had never had contact with the Defendant.

(4) He had properly paid rent according to Mr. KC Wong’s instructions.

12.  On or about 24 October 2022, the Defendant withdrew his claim in the Small Claims tribunal.

13.  In the meantime, on or about 17 June 2022, the Defendant gave an undertaking in the High Court Action not to sell, charge or in any way dispose of the interests in the Property pending the judgment of the High Court Action or further order. The trial of High Court Action is scheduled to commence on 12 May 2025 for 6 days.

14.  Later on, the Defendant ran into default on the loan. On or around 2 August 2023, the Plaintiff commenced this mortgagee action claiming (inter alia):

(1) Payment of all moneys due to the Plaintiff; and

(2) In default of such payment, an order for delivery up of the Property.

15.  The Defendant stated that he had no intention to contest these proceedings. The first hearing of these proceedings is scheduled for 4 January 2024.

C. The Intended Interveners’ joinder application

16.  The Intended Interveners’ joinder application was made under Order 15, rule 6(2), the relevant part of which states that:

“Subject to in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application—

(a) …

(b) order any of the following persons to be added as a party, namely—

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

17.  In Chen Hongqing v Liu Yiu Keung Stephen [2021] HKCFI 440, Yeung J held that:

“25. The wordings of Order 15, rule 6(2)(b) are wide. I highlight the fact that Limb 1 refers to “all matters in dispute in the cause or matter”, and Limb 2 refers to “a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter”.

26. Relying on Securities and Futures Commission v Mo Shau Wah [2018] HKCFI 596 at §§20-21 and Man Whi Chung v Man Ping Nam [2003] 1 HKC 549 at §§14-22 and the authorities cited therein, Mr Wong submits, which I accept, that:

(a) A liberal approach should be given to this rule so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided;

(b) Under Limb 1, a party might be added if his rights against or liabilities to any party to the action in respect of the subject matter of the action will be directly affected by any order which may be made in the action;

(c) Specifically, under Order 15 rule 6(2)(b)(ii), the intervener is required to show that he has some interest which in some way directly related to the subject matter of the action. A mere commercial interest in its outcome, divorced from the subject matter of the action is not enough;

(d) Whilst some interest which in some way directly related to the subject matter of the action is necessary, the existence of a cause of action between the intervener and one of the parties is not a necessary perquisite for the purpose of joinder;

(e) Even where the interest in the subject matter alleged by the intervener is doubtful, the court is nevertheless prepared to exercise its discretion to allow the joinder so that the alleged interest could be properly tested at trial.

27. Mr Lam does not dispute those principles. Any difference between him and Mr Wong is more a matter of emphasis than substance.

28. What Mr Lam highlights is that whilst the Court will not at the joinder stage engage itself in a scrutiny of merits or an adjudication of facts, it does not mean that the Court would take an intervener’s assertion of sufficiency of interest at face value and ignore any obvious legal impediments to its claim. He further submits that it will disallow a joinder application if it is “plain and obvious” that there can be no claim between the original parties and the party proposed to be joined. He relies by way of illustration on Yeung Pui Ying Anna v Day & Chan (a firm) & Ors, unrep, CACV 67/2010, 20 July 2010, wherein the Court of Appeal, having approached the matter “as though it had been an application to strike out”, held that the plaintiff’s application to join the 2^nd defendant should be refused as the plaintiff’s intended claim against him had been time-barred.

29. Mr Lam’s submissions are in my view not controversial. It stands to reason that the Court will not exercise its discretion in favour of joinder if it is plain and obvious that the joinder of the proposed intervener would be pointless and futile. This is not unlike the approach which the Court adopts when approaching an application for amendment of pleadings.” (emphasis added)

18.  According to the Intended Interveners’ case:

(1) They are the beneficial owners of the Property; and

(2) The Plaintiff had imputed or construction notice of their interest.

19.  Applying Chen Hongqing v Liu Yiu Keung Stephen to the present case, I consider that:

(1) The Intended Interveners’ joinder application falls within Limb 1 because their claimed rights against the Plaintiff in respect of the Property will be directly affected by any order which may be made in the present mortgagee action, such as an order for delivery up of the Property to the Plaintiff.

(2) The application also falls within Limb 2 because if the Intended Interveners’ claims succeed, it is not disputed that the Intended Interveners’ interest in the Property will have priority over the Plaintiff’s interest and such interest is directly related to the subject matter of the present mortgage action and not a mere commercial interest in its outcome divorced from the subject matter of the action.

20.  The real issue in this application, therefore, is whether I should allow the Intended Interveners’ joinder application so that their claimed interest in the Property can be properly tested at trial or “it is “plain and obvious” that there can be no claim between the original parties and the party proposed to be joined” in which case it will be pointless and futile to grant the joinder.

21.  Mr. Lau who appeared on behalf of the Plaintiff did not dispute that there was a triable issue regarding the question of whether the Intended Interveners are the beneficial owners of the Property, which ought to be determined at the trial of the High Court Action and could not be determined in this application. His main submission was in respect of the merit of the Intended Interveners’ case on notice. He argued that the Plaintiff had neither imputed nor constructive notice of the Intended Interveners’ interest in the Property at the time of the Mortgage.

22.  So far as imputed notice is concerned, the Interveners’ case was that:

(1) Messrs. Cheung & Liu had knowledge of the Intended Interveners’ interest in the Property before July 2021:

(a) On 27 February 2015, Mr. KC Wong discharged the Property’s previous mortgage with Wing Lung Bank by instructing Messrs. Cheung & Liu. Since then, on the Intended Interveners’ instruction, the title documents of the Property were kept by Messrs. Cheung & Liu. Upon paying Messrs. Cheung & Liu for discharging the said mortgage, the Intended Interveners told one Mr. Wu Chi Wai (“Mr. Wu”) of Messrs. Cheung & Liu that the Property had been transferred by them to the Defendant without consideration in 1989.

(b) In April 2019, Mr. KC Wong instructed Messrs. Cheung & Liu to transfer the Property to his youngest son. On 9 November 2020, Mr. KC Wong confirmed to Mr. Wu by a WhatsApp message that the Property would be transferred to his youngest son. On 18 November 2020, Mr. KC Wong instructed Mr. Wu to prepare the documents for transferring the Property to his youngest son for a purported consideration of HK$6M.

(c) On 25 February 2021, Mr. KC Wong sent a picture of the name card of Mr. Wu to the Defendant by a WhatsApp message and told him to go the Messrs. Cheung & Liu to sign the documents for transferring the Property to his youngest son.

(2) On 2 July 2021, the Defendant and the Plaintiff entered into the facility letter. On 15 July 2021, the same firm of solicitors (i.e. Messrs. Cheung & Liu) advised the Plaintiff of its investigation results. On 22 July 2021, the Defendant and the Plaintiff entered into the Mortgage and Mr. Wu was stated to be the person who interpreted the Mortgage to the Defendant. It was not until 21 October 2021 that Messrs. Cheung & Liu told Mr. KC Wong by telephone that they could no longer represent the Intended Interveners as they had already represented the Defendant.

(3) Therefore, at the time of the Mortgage, Messrs. Cheung & Liu were acting for both the Intended Interveners and the Plaintiff and there was an issue of whether Messrs. Cheung & Liu’s notice could be imputed to the Plaintiff.

23.  Mr. Cheung (who appeared on behalf of the Intended Interveners) submitted that the Intended Interveners’ case of the Plaintiff’s imputed notice ought to be properly tried and tested at trial.

24.  In response, Mr. Lau submitted that:

(1) There was no evidence to suggest that Messrs. Cheung & Liu had actually transmitted the Intended Interveners’ messages to the Plaintiff.

(2) Although Messrs. Cheung & Liu were instructed by both the Intended Interveners and the Plaintiff in July 2021, the case handlers were different. While the Intended Interveners’ case was handled by Mr. Wu, it appears from Messrs’ Cheung & Liu’s letter dated 15 July 2021 that the Plaintiff’s case was handled by one Mr. William Li.

(3) There was also a significant time lapse between the Intended Interveners’ instructions (in November 2020) and the Mortgage.

(4) In any event, Mr. Wu of Messrs. Cheung & Liu would not have been allowed to divulge their client’s information in breach of their duties of confidentiality. Accordingly, he could not have released any information he received from the Intended Interveners to the Plaintiff.

25.  While I see some force in Mr. Lau’s submissions, I do not accept that it is plain and obvious that the Intended Interveners had no case. Much will depend on the Intended Interveners’ further investigations on, for example, (1) who was/were involved in handling the Intended Interveners’ case and the Plaintiff’s case within Messrs. Cheung & Liu, (2) the communications which were passed among themselves, and (3) the communications which were passed between the firm and the Plaintiff. I do not think it is proper to conclude that the Intended Interveners’ case of imputed notice must have no merit and it should be shut out at this stage. I agree with Mr. Cheung that the Intended Interveners’ case of the Plaintiff’s imputed notice ought to be properly tried and tested at trial.

26.  The Intended Interveners’ case on constructive notice was as follows:

(1) According to circular 92-125 issued by the Law Society dated 25 June 1992, a reasonably prudent purchase or mortgagee ought to inspect the subject property.

(2) The Plaintiff failed to carry out any inspection of the Property.

(3) Had it done so, it would have discovered that the Property was not occupied by the Defendant himself but a tenant who would have informed the Plaintiff that his tenancy was made with Mr KC Wong and he did not know the Defendant.

(4) That would have been sufficient to put the Plaintiff on an inquiry and enable the Plaintiff to discover the Intended Interveners’ interest in the Property.

27.  Mr. Lau did not seriously dispute that the Plaintiff should have inspected the Property and failed to do so. He cited CS Credit Ltd v Marspan Ltd [2021] HKCFI 3707 and his main submission was that the failure would not assist the Intended Interveners because any inspection of the Property would not have revealed the probable existence of the Intended Interveners’ claim.

(1) The requirement to obtain confirmation from the “Occupier” could only mean obtaining confirmation from the tenant.

(2) The tenant, however, was not asserting any interest in the Property. He would have confirmed that “…he/she has no right or interest whatsoever in the property…”. This would have put the enquiry to an end.

(3) The inquiries with the tenant could not have revealed the Intended Interveners’ interest. On the evidence, the tenant himself was unsure about who the actual owner of the Property was.

28.  I do not accept Mr. Lau’s submission. As held by Recorder Sit SC in CS Credit Ltd v Marspan Ltd, at [52(4)], “the inquiry as to whether a purchaser has made all usual and proper inquiries is a fact-sensitive one and depends on all the circumstances of the case”. Similarly, in the present case, had the Plaintiff carried out an inspection of the Property, the question of what inquiries the Plaintiff should have made to the tenant and what information would have been disclosed to the Plaintiff is again fact-sensitive. I do not agree that enquiries with the tenant, had they been carried out, would have necessarily yielded no result of the Intended Interveners’ interest in the Property.

29.  I was referred by the Intended Interveners to the case Hunt v Luck [1902] 1 Ch 428 whereby it was held that the occupation of land by a tenant affected a purchaser of the land with constructive notice of all that tenant’s rights, but not with notice of his lessor’s title or rights.

30.  I note that the facts of the case were different and it was found at p. 434 that:

“… on the facts of this case, … , if inquiry had been made of the tenants, the equitable title of Dr. Hunt and Mrs. Hunt would not have come to the knowledge of the intending mortgagees.”

31.  Therefore, I do not consider Hunt v Luck to mean that the Intended Interveners’ case on constructive notice will necessarily fail.

32.  For the reasons above, I reject the Plaintiff’s challenge on the merits of the Intended Interveners’ case on notice and grant leave to the Intended Interveners to join the present mortgagee action. To the avoidance of doubt, I stress that my grant of leave does not mean that I have made any conclusive findings on the Intended Interveners’ case. It only means I am satisfied that there are triable issues and the Intended Interveners’ case should not be summarily dismissed at this stage.

D. The Intended Interveners’ stay application

33.  The Court has a discretion under section 16(3) of the High Court Ordinance and Order 1B rule 1(2)(e) to order a stay of proceedings. When deciding how the discretion is to be exercised, the basic principle is what would serve the ends of justice between the parties and as far as the administration of justice is concerned. See: China Forestry Holdings Co Ltd (in official Liquidation) v. Top Wisdom Overseas Holdings Ltd and Another [2020] HKCFI 526, at §§19-23, per K. Yeung J.

34.  Mr. Cheung clarified at the hearing that the Intended Interveners do not seek a stay in relation to paragraph 1 of the Originating Summons which only concerns the payment of all moneys due between the Plaintiff and the Defendant. What they seek to stay are proceedings in relation to paragraph 2 of the Originating Summons which concerns the delivery of vacant possession of the Property to the Plaintiff.

35.  Mr. Cheung submitted that I should order a stay as a matter of case management:

(1) The High Court should first determine whether the Intended Interveners were the beneficial owners of the Property under a resulting trust in the High Court Action.

(2) It was only after such determination that the Plaintiff and the Intended Interveners should resolve the question of whether the Plaintiff was a bona fide purchaser of the Property without notice of the Intended Interveners’ interest in the present mortgage action.

36.  I accept Mr. Cheung’s submission. If the Intended Interveners fail in the High Court Action to establish their beneficial interest in the Property, there will be no need for the determination of the next question of whether the Plaintiff was a bona fide purchaser of the Property without notice of the Intended Interveners’ interest. This mortgage action may simply proceed without any further intervention by the Intended Interveners. A stay of these proceedings may therefore save time and costs in those circumstances.

37.  In any event, it was not suggested by Mr. Lau that the parties should proceed to resolve the notice issue in these proceedings concurrently with the High Court Action once the joinder application of the Intended Interveners was granted. On the contrary, the Plaintiff has recently applied for leave to join the High Court Action, which suggests that it intends to resolve the notice issue in the High Court Action.

38.  I take note that such a stay will delay these proceedings. However, balancing all the factors in this case, I am satisfied that it is appropriate to grant a stay of these proceedings in relation to paragraph 2 of the Originating Summons pending the judgment in the High Court Action.

E. Conclusion

39.  For the reasons above, I make the following orders:

(1) Leave be granted to the Intended Interveners to join the present mortgage action;

(2) A stay of these proceedings in relation to paragraph 2 of the Originating Summons pending the judgment in the High Court Action;

(3) Liberty to restore;

(4) There be a costs order nisi that the Plaintiff and the Defendant do pay the Intended Interveners the costs of the applications, to be taxed if not agreed, with certificate for counsel.

40.  Lastly, it remains for me to thank Mr. Cheung and Mr. Lau for their submissions.