FUNG KAM CHEUNG (OR CHEONG) AND ANOTHER v. KWOK YIU WING AND ANOTHER

[Consideration should be given to amending the Conveyancing and Property Ordinance so as to provide a procedure for discharge of an incumbrance on payment into court; but in any event an incumbrance should not be regarded as a blot on the title when the time for payment accrued more than 20 years ago and there is no suggestion of the incumbrance having been kept alive by acknowledgment or part payment]

1990, M.P. No. 1493

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is a vendor and purchaser summons. The plaintiffs, FUNG Kam-cheung and FUNG Kun-cheong, are the vendors under an agreement for sale and purchase dated 27th November 1989 (I shall refer to them as "the vendors"). The defendants are KWOK Yiu-wing and WAN Juen-hing, the purchasers under this agreement (I shall refer to them as "the purchasers"). The property the subject of the agreement comprises Lot Nos. 3412, 3416, 3403, 4149, and 4018 all in Demarcation District No. 104, Yuen Long, New Territories, Hong Kong. This summons is concerned solely with Lot 4018.

2. The problem arises because on 25th August 1931 a mortgage affecting this property was created and registered in the District Office by a memorial No. 80261. The then owner of the property appears to have mortgaged it to one CHEUNG Kwok-ping. The memorial indicates that the property was mortgaged "for securing payment on the 17th day of the Chinese 7th and 10th months in each year up to and including the 7th month of the year 1942 at $16.50 as the mortgage money without interest".

3. Subsequent to the mortgage, there has been a number of transactions or dealings in respect of the property, all of them voluntary. I need refer only to a succession to property dated 25th October 1966 registered under Memorial No. 158480. This does not indicate that the mortgage dated 25th August 1931 is still subsisting. This is not surprising, since the last instalment of the mortgage money was due to be paid in 1942 and we are now in 1966, 24 years later. It is, as it seems to me, a reasonable assumption, and indeed the only reasonable assumption, that the mortgage had long since been discharged. There is, however, no satisfactory conveyancing evidence to that effect.

4. When the parties entered into the agreement dated 27th April 1989 they did so with the problem, if any, created by the mortgage of 25th August 1931 in mind. The agreement provided (by Clause 21) as follows :-

"21.    Notwithstanding anything hereinbefore contained the Vendor and the Purchaser hereby mutually agree admit and acknowledge that this sale and purchase is subject to the Order granted by the Supreme Court of Hong Kong that the Mortgage dated 25th August, 1931 registered in the District Land Office Yuen Long by Memorial No. 80261 be discharged. The Vendor will after the signing of this Agreement, apply to the Supreme Court of Hong Kong to discharge the said Mortgage and will use his best endeavours to discharge the said Mortgage prior to completion.  If the Vendor being unable to obtain the said Order prior to the Completion Date, then the Completion Date hereof shall be extended until and unless the said Order for discharging the said Mortgage shall have been granted."

5. The parties have since agreed to extend the time for completion so as to enable this court to pronounce upon the matter of the mortgage dated 25th August 1931. I have no criticism of the parties in bringing the matter before the court in this way, although I have not in the circumstances had the benefit of any real adversary argument against the contention of the vendors that the mortgage of 25th August 1931 does not constitute a blot upon the vendors' title.

6. The provisions of Clause 21 contemplated an order being made by this court to discharge the mortgage. Counsel for the vendors accepted that the court has no jurisdiction to make any such order. The court in England and Wales has power, under section 50 of the Law of Property Act 1925, to declare land to be free from an incumbrance on payment of sufficient money into court to meet the incumbrance, together with interest and costs. But there is, unfortunately, no similiar provision in any Hong Kong Ordinance and I would suggest that when the Conveyancing and Property Ordinance is next revised consideration ought to be given to the incorporation in the Ordinance of such a provision.

7. This is not the first case which has come before this court in which a problem has been created by the existence of a mortgage, the mortgagee under which cannot be found, and the provisions of Section 50 are apt to deal with this sort of problem. An alternative is for the intending vendor to institute proceeding against the mortgagee (applying for leave, if he cannot be found, to serve  him by substituted service) asking for a declaration that the mortgage is no longer subsisting or capable of taking effect. Indeed I venture to suggest that that would be a better course than leaving the question to be dealt with after contract as between vendor and purchaser on the hearing of a vendor and purchaser summons, which is what has happened here. But, be that as it may, the only point I now have to consider is whether I ought to make any, and if so, what order upon this present summons.

8. The originating summons asks for a declaration that the mortgage dated 25th August 1931 "be discharged and/or declared null and void". As I have indicated, I cannot make any such order; and counsel for the vendors did not as me to do so.  Prompted by a suggestion from the bench, counsel for the vendors now asks for a declaration that the mortgage of 25th August 1931 is no longer subsisting or capable of taking effect. And it seems to me that, if I am in the vendors' favour, that is the form of declaration which I ought to make.

9. The case for the vendors is that the mortgage of 25th August 1931 is barred by limitation. The vendors rely on section 19(1) of the Limitation Ordinance, Cap. 347 which provides as follows:-

"19.    (1) No action shall be brought to recover any principal sum of money secured by a mortgage or other charge on property, or to recover proceeds of the sale of land, after the expiration of 20 years from the date when the right to receive the money accrued."

10. The right to receive the money here appears to have accrued at the latest by the end of 1942, under the terms of the mortgage which I have already set out. So after 1962 no action could have been brought on the mortgage in the absence of any acknowledgment or part payment. The effect of the statutory provision I have just read seems to me to be the same as the effect of the corresponding statutory provision in the English legislation (save that the time of 20 years applies in Hong Kong as against the time of 12 years which applies in England and Wales). In England and Wales, the position is that the mortgagee's right to foreclose, to sue for possession, and to sue for principal, all become barred after 12 years from the date when repayment became due under the mortgage and (as is pointed out in Lewis v. Plunket [1937]1 All E.R. 530, see especially at page 534) the mortgagee's title is then extinguished. Time can begin to run afresh if during the period the mortgagor makes any written acknowledgment, or if he, or the person in possession of the land, makes any payment of interest or of capital under the mortgage. But there is no evidence of any such acknowledgment or payment here, and indeed I would not expect it. It might perhaps have been better if the vendors had made a statutory declaration to the effect that they had neither given nor made any such acknowledgment or payment, but I do not regard that as essential in the present case.

11. In the result, I am completely satisfied that the mortgage of 25th August 1931 is indeed no longer subsisting or capable of taking effect and I propose to delcare that accordingly. It must be appreciated that such a declaration operates only as between the vendors and purchasers, the parties to these proceedings, and does not bind the mortgagee. But I cannot see that that gives rise to any real difficulty. I would hope that no subsequent purchaser or lender will, in the future, seek to raise any objection to the title here based on the existence of the mortgage of 25th August 1931, but nothing in the order I make in this action can preclude him from doing so.

12. For the reasons I have endeavoured to state, I shall declare that the mortgage dated 25th August 1931 is no longer subsisting or capable of taking effect, and constitutes no valid objection to the title of the vendors. The vendors do not ask for costs, and so I make no order as to costs.