KWOK LAM KUK AND ANOTHER v. The personal representative of YIP WAI MING KAVIN, deceased

DCCJ 3309/2021

[2025] HKDC 188

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3309 OF 2021

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REASONS FOR DECISION

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Introduction

1.  By way of their Summons filed on 13 December 2024 ("the Summons"), 1^st and 2^nd Plaintiffs (Judgment Creditors) applied for post judgment discovery of banking documents in relation to a bank account allegedly maintained by the Defendant (Judgment Debtor) with HSBC.

2.  Before the hearing scheduled for 8 January 2025, a letter from HSBC dated 3 January 2025 was passed through the Plaintiffs' solicitors to the Court indicating that they took a neutral stance to the Summons and would seek the Court's permission to excuse their attendance, and leave was so granted.

3.  According to the Plaintiffs, they need to seek the relevant banking documents to ascertain the account number of the alleged bank account of the Judgment Debtor, so as to answer requisitions raised by Masters on their earlier ex-parte application seeking a garnishee order nisi in respect of a debt owed by HSBC to the Judgment Debtor ("the garnishee nisi application").

4.  At the hearing on 8 January 2025, leave was granted to the Plaintiffs to withdraw their discovery summons, and this Court seized jurisdiction to deal with and granted the garnishee nisi application, with some further attendant directions. At that hearing, I also gave a brief reasoning for my Decision, and indicated that I would deliver my full written reasons in due course. That I now do.

5.  In order to enable one to properly comprehend where the real forensic need lies in this case, I think it is necessary for me to set out its background and procedural history with a bit more detail below.

Background and procedural history

6.  On 26 March 2021, the Plaintiffs entered into an agreement with one Mr Yip Wai Ming Kavin ("Mr Yip") to purchase the latter's property at Flat C on 11^th Floor of Tower 2A, Oceanaire, Sha Tin, New Territories (“the Property”) for HK$9.99 million.

7.  The Property was subject to an encumbrance of mortgage executed in favour of HSBC under a Mortgage Deed dated 10 May 2012 ("the Mortgage").

8.  Very tragically, Mr Yip had committed suicide before the completion of the sale and purchase, which naturally fell through thereafter. The deposit of HK$990,000 previously paid by the Plaintiffs was not returned to them.

9.  This led the Plaintiffs to institute the present action on 14 July 2021 to seek for recovery of the deposit and other related reliefs flowing from the breach of contract by the late Mr Yip ("the Deceased").

10.  Since the Deceased has passed away, it appears that no personal representative has been appointed for his estate, even up to the date of the hearing, and the Plaintiffs do not know of any of the Deceased’s family members, let alone having any means to contact them.

11.  Since no personal representative of the Deceased can be located, the Plaintiffs approached the Official Solicitor and obtained his consent on 25 August 2022 to represent the Deceased's estate for the limited purpose of accepting service of the Writ. The consent summons to that end was filed on 21 November 2022, and was made order in terms by the Court on 15 December 2022.

12.  On 17 May 2023, the Plaintiffs managed to obtain leave from a Master to proceed in this action in the absence of a person representing the Deceased's estate.

13.  Against such a backdrop, on 11^th July 2023, the Plaintiffs obtained a final and interlocutory Judgment against the Defendant for the sum of HK$990,000 with interest and costs.

14.  However, the Plaintiffs' solicitors only took out an ex parte application to impose a charging order nisi against the Property on the Plaintiffs' behalf for the first time on 19 December 2023, ie about 5 months after the default judgment was granted.

15.  Apparently unbeknown to the Plaintiffs, HSBC had in fact exercised its power of sale conferred under the Mortgage, about a month before that ex parte application, to enter into a sale and purchase agreement with one Mr Mun on 17 November 2023. And, about two weeks before the application was made, that agreement was registered with the Land Registry on 7 December 2023. Yet, the Plaintiffs' solicitors were ignorant of this matter because the land search as exhibited to their then supporting affirmation was only updated to 21 November 2023.

16.  The mortgagee sale of the Property was completed on 31 January 2024.

17.  Without having the benefit of seeing the updated land search exhibited to the Plaintiffs' handling solicitor's three supporting affirmations (the second and third ones were filed on 20 February 2024 and 27 March 2024 respectively), the Master based on the materials before him granted the charging order nisi on 23 May 2024, which was ineffective as there was no longer any beneficial interest retained by the Judgment Debtor in the Property to impose on by then.

18.  Before that, the Plaintiffs had in fact taken out another ex parte application to apply for garnishee order nisi against HSBC on 10 May 2024, apparently after the mortgagee sale had finally dawned on their solicitors[1]. In this connection, the Plaintiffs' solicitors approached HSBC's solicitors, Mayer Brown, and they were told there was a balance of sale proceeds left over. Unsurprisingly, Mayer Brown refused to further disclose the exact amount kept by HSBC due to the latter's duty of confidentiality as owed to their customer.

19.  In passing, it seems that the Plaintiffs' solicitors did not inform the Court of the mortgagee sale even by then, for if they did, the Master would not have made the charging order nisi as he did on 23 May 2024.

20.  In their ex-parte garnishee application, the Plaintiffs were nonetheless stuck with a requisition raised by another Master on 7 June 2024 requiring them to provide documentary proof such as banking record that shows the name of the Judgment Debtor and his bank account number.

21.  The Plaintiffs' solicitors therefore wrote to Mayer Brown on 11 June 2024 requesting HSBC to assist by providing the "banking record" to enable the Plaintiffs to answer the Court's requisition.

22.  By way of their letter dated 17 July 2024, Mayer Brown replied that HSBC could not accede to the Plaintiffs' request, again due to the confidentiality reason. The same letter also pointed out that the Plaintiffs did not assert any proprietary claim over the Property in this action, and no charging order was registered against the Property before the completion of the mortgagee sale despite the Plaintiffs had obtained a judgment back in July 2023.

23.  The Plaintiffs' solicitors tried their luck again by writing further to Mayer Brown on 30 July 2024 asking them to confirm whether HSBC would pay the balance surplus to the Deceased's estate by depositing the same into a bank account maintained by the late Mr Yip with HSBC. By their reply letter dated 5 August 2024, Mayer Brown likewise turned down such request.

24.  Thereafter, the Plaintiffs' solicitors arranged their clients to depose another affirmation, that is their 5^th affirmation, on 22 August 2024, drawing the Court's attention to these two replies of Mayer Brown with a view to seek leave to dispense with the requirement for providing the information/documents as related to the alleged "bank account" of the late Mr Yip, and further submitting that they had already adduced sufficient evidence to show that the intended garnishee bank is indebted to the Judgment Debtor. This 5^th affirmation was dealt with by another Master who did not share the Plaintiffs' solicitors' view and repeated essentially the same requisition directing the Plaintiffs to adduce the same information/documents.

Analysis

25.  With respect, the Plaintiffs' post-judgment discovery application is strictly speaking unnecessary.

26.  To begin with, as a matter of law, the debts that are subject to a garnishee order under Order 49 of the Rules of District Court (Cap 336H) are not confined to common law debts, but also cover equitable debts.

27.  In this connection, Hong Kong Civil Procedure 2025, vol 1, para 49/1/15 (as quoted below) provides, among many others, an example of attachable debt being money held by a receiver in administration:-

"6. Money held by a receiver in administration action—This was held to be attachable by a judgment creditor of a beneficiary (Re Cowan’s Estate (1880) 14 Ch.D. 638): but that case is only applicable now to money already in the receiver’s hands (Webb v Stenton (1883) 11 Q.B.D. 518, CA)." (emphasis supplied)

28.  In the case of Webb v Stenton as cited in the above commentary, Lindley LJ referred to the then English counterpart of the relevant rule of our Order 49, and had the following to say at p 526:-

"... The important point is that the affidavit must shew that the third person, called the garnishee, is indebted to the judgment debtor, and that the subject-matter to be attached is a debt " owing or accruing " from the garnishee.

Now, I quite agree that the word " debt" in this order includes not only what was a common law debt before the passing of the Judicature Act, but also what was a mere equitable debt, that is to say a liquidated sum of money owing in equity from one person to another. I do not doubt that the power of attachment is extended to equitable debts. But is a trustee a debtor to his cestui que trust ? You cannot say he is unless he has got in his hands money which it is his duty to hand over to the cestui que trust; then of course he is a debtor and there is no difficulty in attaching such a debt under this Order..." (emphasis supplied)

29.  In this case, the surplus proceeds retained by HSBC (qua the mortgagee) coming from the mortgagee sale, is prima facie money that it holds on trust (in a constructive sense) for the Deceased's estate, or borrowing the phrase from Lindley LJ, money in the hands of HSBC, who has the duty to hand over the same to the Deceased's estate. For, it is an equitable debt by nature, and therefore also liable to attachment.

30.  ln light of the aforesaid, I would think that had the Plaintiffs' solicitors conducted proper legal research by looking into the Hong Kong White Book, they would have a good chance to persuade the Master(s) that a sufficient case for the Court to issue garnishee order nisi against HSBC is made out by drawing their attention to the aforesaid authorities.

31.  But, for the sake of completeness, I may need to say something more about the equitable nature of the mortgagee sale's surplus proceeds by referring to some other relevant authorities as discussed below.

32.  First, in Fisher and Lightwood's Law of Mortgage (15^th ed), para 30.46 provides a commentary on the legal nature of mortgagee sale proceeds as follows:-

" PROCEEDS OF SALE

Trust of sale moneys

30.46 A sale destroys the equity of redemption in the mortgaged property and constitutes the mortgagee exercising the power of sale a trustee of the surplus proceeds of sale, if any, for the interested persons according to their priorities. Formerly the mortgagee would sometimes be declared trustee of the proceeds of sale by the mortgage deed itself, now such trusts are declared by s 105 of the Law of Property Act 1925.[2] The trust under s 105 arises as soon as the proceeds of sale are received. Even if the mortgagor is liable to account to the mortgagee for the surplus under another claim, the surplus does not form part of the mortgage debt and the mortgagee is required by s 105 to hold it in trust for the mortgagor. This will apply where a mortgage is obtained by fraud, if the mortgagee elects to affirm the mortgage and exercise his power of sale. As regards the mortgagor, an express trust and, it is submitted, the statutory trust, applies only to the surplus and cannot be enforced by him for any other purpose.

Where the statutory trust is not imposed, such as where the sale is under an express power, and the mortgage deed merely declares that the mortgagee shall apply the purchase money in a manner stated, or where the sale is under another statute which contains no special provision for the application of the purchase money, a constructive trust arises and the mortgagee becomes a constructive trustee of the surplus as soon as it is shown that there is a surplus. Whether the trust is statutory, express or constructive, time will not run against the person or persons entitled to the surplus, if the selling mortgage retains the surplus or converts it to his own use" (emphasis supplied)

33.  Section 54 of Hong Kong Conveyancing and Property Ordinance (Cap 219) only deals with application of money from mortgagee sale or other dealings of the mortgaged land received by mortgagee or receiver. Neither that provision, nor in other places of the Ordinance created a statutory trust on the mortgagee sale's proceeds, like what section 150 of Law of Property Act 1925 does. Upon perusal of the Mortgage Deed in this case, I found no express provision therein declaring such sale proceeds as trust money held by the mortgagee either.

34.  That notwithstanding, a constructive trust would nonetheless arise with respect to the surplus proceeds as held by the mortgagee for the mortgagor, as can be discerned from the commentary of Fisher and Lightwood quoted above and the authorities cited at footnote 7 thereunder.

35.  In Banner v Berridge (1881) 18 Ch D 254 (as cited in that footnote), Kay J at p 269 after reviewing the authorities concerning the mortgagees exercising their power of sale held that:-

" ...But I take the true result of these decisions to be this, that in this particular case, where there was no trust expressed either in writing or verbally of the proceeds of the sale, no trust can possibly arise until it is shewn there is a surplus, and then I should be disposed to hold that there is sufficient fiduciary relation between the mortgagor and mortgagee to make the mortgagee constructively a trustee of the surplus, in case it is shewn there is a surplus. But that seems to me to be a case not of express trust at all but of constructive trust, that is to say, a case of a trust which only arises on proof of the fact that there was a surplus in the hands of the mortgagee after paying himself..."

36.  Hence, it would appear to me that the following legal propositions can be distilled from the above authorities: upon the mortgagee's exercise of its power of sale of the mortgaged property in the Hong Kong regime, as opposed to the position in England where statutory trust was created over the sale proceeds, a constructive trust would nonetheless be imposed on the surplus proceeds once the money falls into the hands of the mortgagee (despite the absence of express trust created in the mortgage instrument, nor under the statute). As such, the mortgagee would be liable under an equitable duty to account to the mortgagor such money, being a liquidated sum owing in Equity from the mortgagee to the mortgagor as in the present case, and hence also qualifying as an "equitable debt" (in Lindley LJ's words) that is attachable under garnishee proceedings.

37.  When considering the Plaintiffs' present discovery application, this Court also had the opportunity to fully review the affirmations adduced by the Plaintiffs to support the garnishee nisi application. I see it just and appropriate that this Court should seize jurisdiction over this matter right now so that it can be disposed of expeditiously with further delay. This would be in line with the CJR objective and spirit. Mr Jonathan Tai, counsel appearing for the Plaintiff, agreed with such course and also invited this Court to rule on the garnishee nisi application.

38.  For this purpose, in the course of the hearing I stood down the case for the Plaintiffs' solicitors to prepare a revised draft garnishee order nisi for this Court's approval, and to update the outstanding judgment debt and interest remaining unpaid. After some discussion with Mr Tai over his proposed terms of the draft Order, and subject to the Plaintiffs' undertaking to file an affirmation within 7 days stating the outstanding indebtedness (calculated up to the date of hearing), I made an order in terms of the submitted Draft Order (as amended) granting leave to the Plaintiffs to issue a garnishee order nisi against HSBC accordingly.

Costs

39.  In these circumstances, it is no longer necessary for this Court to deal with the Plaintiffs' present discovery application. I grant leave to the Plaintiffs to withdraw the Summons. What remains is the question of costs thereof.

40.  Initially, Mr Tai submitted that costs of and occasioned by the Plaintiffs' discovery application should still be borne by the Judgment Debtor. After exchanges between the Bench and the Bar, Mr Tai very fairly and sensibly withdrew such costs application, and only invited the Court to make a usual costs order that as between the Judgment Creditor and HSBC, costs of and occasioned by the Summons be paid by the Plaintiffs to HSBC, to be taxed if not agreed.

41.  I am also inclined to think that had the Plaintiffs' solicitors done their job properly by conducting an up-to-date land search when taking out the charging order nisi application for the Plaintiffs on 19 December 2023, they would have discovered the sale and purchase agreement, which HSBC entered into with Mr Mun as registered with the Land Registry back then (see : paragraphs 14 to 16 above), and given the urgency of the matter, they could even apply before a practice master, if needed, to have their application heard before the then completion was due to take place on 31 January 2024.

42.  In my view, the charging order nisi can still be granted by the Court before the Assignment was entered into, and also registrable against the Property, even though this is a case of the mortgagee exercising its power of sale rather than the mortgagor himself entering into a sale. In principle, I see no difference between the two situations for the viability of the charging order being made before the mortgagor's title was transferred by way of the Assignment to Mr Mun, for the Deceased's estate would still retain a sufficient beneficial interest in the Property before that time for the charging order to impose upon.

43.  In this connection, Hong Kong Civil Procedure 2025, vol 1, para 50/9A/26 provides that:

"... Where the charging order nisi is registered after the registration of the sale and purchase agreement but before the execution and registration of the assignment, it was held in Ho King Yim v. Lau King Mo [1980] H.K.L.R. 42, CA that (a) after the agreement the “substantial beneficial interest” (per Huggins J.A. at 44) was in the purchaser; (b) the registration of the charging order could not destroy the effect of a prior registered agreement and thus affect the purchaser’s beneficial interest which the agreement had transferred; (c) no charge created after the date of the contract could rank prior to the interest of the purchaser. Thus the purchaser’s sale and purchase agreement had priority over the charging order. However, the Court of Appeal held that the vendor retained a “limited beneficial interest” (per Huggins, J.A. at 44) which could be the subject matter of a charging order. In Ho King Yim the purchaser conceded that at the time of the assignment he did in fact have notice of the chargee’s claim. The chargee however made no attempt to claim what was due to him. It was only the purchaser who sought a remedy. The Court of Appeal stated obiter (at 48) that on receipt of actual notice of the charge the purchaser “should have paid the balance of the purchase price to the chargee” (per Cons J. at 48)." (emphasis supplied)

44.  And by way of section 54 of the Conveyancing and Property Ordinance concerning the application of money received for mortgaged land, had the charging order been duly made and brought to the attention of HSBC back then, the latter would in my view be obliged to pay over the surplus proceeds from the mortgagee sale to the subsequent mortgagee, which would include an equitable chargee, ie the Plaintiffs in the present case, if they had obtained the charging order before the completion of the mortgagee sale, but unfortunately they had not.

45.  According to section 2 of Conveyancing and Property Ordinance, 'mortgage' is defined as "a security over land for security money or money's worth", which in my view is wide enough to cover an equitable charge. See also : Winland Finance Ltd v Gain Hero Finance Ltd (2022) 25 HKCFAR 17, at para 38.

46.  Given the aforesaid, it is my view that had the Plaintiffs' solicitors done their job properly back then when they took out the charging order nisi application on behalf of the Plaintiffs, the subsequent garnishee nisi application (let alone the present third party discovery) would have become unnecessary, and both sets of costs could have been avoided.

47.  In the hearing, I have expressed my observation made in the preceding paragraph to Mr. Tai. After taking instructions, Mr Tai indicated that the Plaintiffs' solicitors is prepared to undertake to the Court that they would not claim any costs in relation to the Summons from the Plaintiffs. I think that is a fair and sensible course to take and such undertaking is put on the Court's record accordingly.

48.  Lastly, it remains for me to thank Mr Tai for his assistance rendered to the Court.