RICH PROSPER LTD v. YEUNG TING CHEUNG AND OTHERS

DCMP 1476/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1476 OF 2003

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REASONS FOR DESICION

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1. This is 2^nd and 3^rd defendants’ application to set aside the ex-parte order made by Master M Lam dated 13 October 2014 and the Writ of Possession consequently issued on 13 November 2014.

2. On 28 April 2015 after hearing submissions of Counsel, I ordered the ex-parte order and the Writ of Possession be set aside with costs on an indemnity basis to the 2^nd and 3^rd defendants, with certificate for one counsel, to be taxed if not agreed. The reasons for my decision are now set out below.

Background

3. By a default judgment made on 19 December 2002, the 1^st defendant was adjudged to pay the plaintiff a sum of $190,720 with interest at the rate of 32.08% from 11 January 2002 until date of judgment and thereafter at judgment rate. On 17 March 2003, the plaintiff obtained a charging order on the premises at Lot No 35 in D D 187 (87 Hin Tin, Shatin, New Territories, Hong Kong).  The house built on the said Lot (“the Property”) consisted of the ground floor, first floor, second floor and the roof.  The 1^st defendant occupied the second floor and the roof, whereas the 2^nd and 3^rd defendants occupied the ground floor and 1^st floor.

4. The 2^nd and 3^rd defendants are also the third chargees on the Property in the sum of $1,737,000.00.

5. On 8 October 2003, the plaintiff obtained an order for sale of the Property.  A total of 3 Writs of Possession, dated 26 January 2004, 10 May 2005, and 23 February 2009 respectively, were issued since the order for sale was granted. 

6. The plaintiff obtained possession of the second floor and the roof on 10 May 2005 but was unable to obtain possession of the ground floor and first floor.

7. On 10 June 2011 the 2^nd and 3^rd defendants commenced an action in the High Court (HCA 972/2011) regarding the agreement to sale and purchase the second floor and roof of the Property.  I shall not repeat the details of that claim.  Suffice to say, the 2^nd and 3^rd defendants sought an order for specific performance against the plaintiff to sell the second floor and the roof of the Property at the agreed price to the 2^nd and 3^rd defendants.

8. On 10 April 2014, the Honourable Mr Justice To dismissed the 2^nd and 3^rd defendants’ action but made various recommendations to the District Lands Officer.

9. On 15 July 2014, the plaintiff made an ex-parte application by way of affirmation asking the court to grant leave to issue a Writ of Possession out of time.  The supporting affirmation was brief and only set out the interim stay of executions granted.  The explanation for the delay was not clearly set out in the supporting affirmation and caused Master M Lam to raise requisitions with the plaintiff.

10. By reason of the requisitions raised by Master M Lam (“the Master”), the plaintiff filed the 2^nd Affirmation of Ng King Fan Dominic (“the 2^nd Affirmation”).  A copy of the High Court Action judgment was annexed to the said affirmation but no mention was made about Mr Justice To’s findings on the plaintiff’s secret rental profits or his recommendations to the District Land Officer.

11. On 26 August 2014 further requisitions were raised by the Master.  Most importantly, the Master asked the plaintiff to state in the affirmation the amount of original judgment debt and the amount still remaining due.

12. This caused the plaintiff to file the 3^rd Affirmation Ng King Fan Dominic (the 3^rd Affirmation”) on 24 September 2014.  Although the plaintiff did set out the sums outstanding as at the time of the 3^rd Affirmation, there was no mention of whether it had received any rental income on the Property.  Instead, the plaintiff set out all outstanding sums in the 3^rd Affirmation as if that was the whole sum remained outstanding.  

13. On 13 October 2014, the Master granted leave to the plaintiff to issue a Writ of Possession out of time. Subsequently the 4^th Writ of Possession was issued on 13 November 2014.

14. By way of an inter-parte summons filed on 31 December 2014, the 2^nd and 3^rd defendants applied to set aside the said ex-parte order and the Writ of Possession.

Reasons for decision

15. It is trite law that in making an ex-parte application, the plaintiff must disclose all material facts to the court.  Any fact which may affect the outcome of the application is considered material.  These principles are succinctly set out in paragraph 32/6/16 Hong Kong Civil Procedure 2015, Vol. 1.

16. Mr Justice To in his judgment specifically found the plaintiff to have dishonestly concealed having received rental income from the Property and to have had no intention to account for the rental income “obviously intending to make secret profit by attempting to discount from the purchase price of the Property a fictitious claim of decoration expenses of $800,000.” Mr Justice To observed the plaintiff “was in serious breach of its duty as chargee” and found the plaintiff to have more than fully recovered its loan and interest through the rental income received. (See paragraphs 99 and 101 of Mr Justice To’s judgment).

17. It is evident the plaintiff should have disclosed the following material facts when it made its ex-parte application:

1)   In addition to being the occupants of the ground floor and 1^st floor, the 2^nd and 3^rd defendants are also the third chargees in the Property.

2)   The findings made by Mr Justice To in respect of the rental income and whether the plaintiff had received rental income.

3)   If the plaintiff had received such rental income, the total sum of the rental income received up the date of the ex-parte application, and the whereabouts of the money received.  

18. Regrettably, despite the requisitions raised by Master M Lam, the plaintiff chose not to disclose these material facts to enable the Master to reach a proper decision.

19. Counsel for the plaintiff submitted the plaintiff never received any rental income and therefore did not see the need to make relevant disclosure. However I have grave doubts as to the veracity of the plaintiff’s claim. It is telling to note despite having filed 4 affirmations in respect of this application, the plaintiff had never once denied it received rental income on the Property. The plaintiff only denied receiving rental income from the 2^nd and 3^rd Defendants but remained silent on whether it rented the second floor and roof to those persons named in the 3^rd defendant’s witness statement exhibited at “CLK 16”. It is clear the plaintiff had the opportunity to reply to the allegations made by the 2^nd and 3^rd defendants but chose to remain silent on the issue.

20. Even if the plaintiff maintains it did not receive any rental income, this is not an excuse for remaining silent on the contrary findings made by Mr Justice To. It is the plaintiff’s duty to disclose all facts to the Master, whether those facts are favourable to the plaintiff or not. It is insufficient to merely enclose a copy of the judgment in the supporting affirmation without mentioning the findings and the significance of the findings of the judge.

21. Counsel for the plaintiff further explained the plaintiff’s non-disclosure is innocent as it believed any rental income received is irrelevant to the ex-parte application. I find the plaintiff’s assertion to be disingenuous.  The plaintiff’s right to take enforcement action on the Property is only limited to satisfying the outstanding debt due from the 1^st defendant.  The plaintiff is not entitled to recover more than what the charging order allows it to recover. If the judgment debt is no longer outstanding, or if the outstanding sum is a small sum that would not justify taking steps to recover the sum by way of selling the Property, the Master may not have granted leave to the plaintiff to issue the Writ of Possession. I fail to see how, in all the circumstances, the plaintiff can genuinely claim it believed any rental income received would have no effect on the outstanding judgement debt.

22. It is also incumbent on the plaintiff to disclose the true nature of the interest held by the 2^nd and 3^rd defendants in the Property to enable the Court to consider whether it would be just for the plaintiff to execute a Writ of Possession so as to force the 2^nd and 3^rd defendants out of the Property in all the circumstances.  Mr Justice To in his judgment explains that the 2^nd and 3^rd defendant had an agreement with the 1^st defendant to build a house on the Property. The building of the house was partially financed by 2^nd and 3^rd defendant. The 2^nd and 3^rd defendants were granted a charging order in respect of the sum lent to the 1^st defendant to build the house is the sum. If the 2^nd and 3^rd defendants have an equitable interest in the Property or have a right to occupy the ground floor and 1^st floor by virtue of an agreement with the 1^st defendant, the Master must consider the interest of the 2^nd and 3^rd defendants when deciding whether a Writ of Possession should be granted in respect of the ground floor and 1^st floor.

23. I note the firm of solicitors representing the plaintiff in this present application and the ex-parte application is same firm of solicitors who represented the plaintiff in the High Court Action.  The legal representatives must have been fully aware of these material facts when drafting the supporting affirmations for and on behalf of the plaintiff.  Any competent solicitor would have advised the plaintiff of the relevancy and materiality of any receipt of rental income and the nature of the 2^nd and 3^rd defendants’ interest when making an ex-parte application for Writ of Possession. Hence it is highly unlikely the plaintiff failed to appreciate the relevancy of the material facts to its ex-parte application.

24. Having considered all the evidence before me and the submissions of Counsel, I find there has been material non-disclosure in the plaintiff’s ex-parte application.

25. I have considered plaintiff’s Counsel’s request to consider the application for the Writ of Possession as if it were heard inter-partes and to re-grant the plaintiff the same order.  However I find that in absence of the material information relating to the rental income received by the plaintiff and the disposal of such sums of money, if any, it is inappropriate to grant the plaintiff leave to issue the Writ of Possession out of time. The plaintiff cannot cure the impropriety of the ex-parte order by merely undertaking to file an affirmation to disclose those matters. Moreover, the plaintiff, in deliberately choosing not to disclose material facts to the Master, cannot then ask this Court to re-grant the same order in the name of convenience and practicality. I refuse the plaintiff’s request to re-grant the same order or to make directions for the same purpose.

26. By reason of the matters set out above, I ordered the ex-parte order made on 13 October 2014 and also the Writ of Possession consequently issued on 13 November 2014 be set aside.

27. Material non-disclosure is serious and cannot be condoned. I see no reason why indemnity costs should not be ordered. I therefore ordered costs be to the 2^nd and 3^rd defendants on an indemnity basis with certificate for one counsel, to be taxed if not agreed.