RE FUNG CHI HON

DCMP 1631/2018

[2018] HKDC 1080

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1631 OF 2018

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JUDGMENT

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Introduction

1.  The applicant is the registered owner of a piece of land known as Lot No 1388 (“the Lot”) in Demarcation District No 93 (“DD No 93”).  As per the Block Government Lease of DD No.93 executed on 27 March 1905 (“the Lease”), the Lot is subject to a mortgage in favour of Lam Kam Po (林金保) (“the mortgagee”) for HK$26 (“the encumbrance”).  The applicant now pursuant to s 12A of the Conveyancing and Property Ordinance (“CPO”) seeks a declaration that the Lot be free from the encumbrance.

The Facts

2.  The term of the Lease commenced in 1898.  The Lease was executed on 27 March 1905.  As per the Lease, the Lot is subject to the encumbrance.  However, no clause on the interest rate of the mortgage can be found in the Lease.  There is also no document registered in the Land Registry recording any information concerning the interest rate.

3.  On 8 February 1963, the applicant’s father succeeded the ownership of the Lot from the applicant’s grandfather.  On 20 February 2013, the father transferred the Lot to the applicant’s elder brother.  On 22 October 2015, the elder brother transferred the Lot to the applicant.

4.  There is no evidence showing that the encumbrance has been discharged.

5.  The applicant has made inquiries with his relatives including his father, mother, paternal grandfather and paternal grandmother regarding the encumbrance and whether they have ever received any correspondence, notice or information in whatsoever nature from the mortgagee or his agent.  All the applicant’s relatives have heard nothing concerning the encumbrance, the mortgagee or his agent.  No one has ever demanded for the repayment of the loan secured by the encumbrance.

6.  The applicant’s solicitors have conducted a probate search of the name “Lam Kam Po” and “林金保”.  No relevant result can be found.

The Law

7.  CPO s 12A provides:-

“(1) Where land is subject to any encumbrance, whether immediately realizable or payable or not, and the encumbrancer is out of the jurisdiction, cannot be found or is unknown, or if it is uncertain who the encumbrancer is, the court may, if it thinks fit, on the application of the party for the time being entitled to redeem the encumbrance, direct or allow payment into court of a sum of money sufficient to redeem the encumbrance and any interest thereon.

(2) Upon payment into court of the sum referred to in subsection (1), the court may, if it thinks fit, and either after or without any notice to the encumbrancer, as the court thinks fit, declare the land to be free from the encumbrance, and make any order for conveyance or vesting order as appropriate, and give directions for the retention and investment of the sum of money paid into court and for the payment or application of the income thereof, and for the payment of an amount certified by the court to be the reasonable costs of the applicant in making the application, such amount to be deducted from the sum of money paid into court.

(3) On application by the encumbrancer or any person entitled to the money or fund in court, the court may direct payment or transfer thereof to the persons entitled to receive or give a discharge for the same, and generally may give directions respecting the application or distribution of the capital or income thereof.

(4) In this section, “court” (法院) means the Court of First Instance unless the party to the application submits to the jurisdiction of the District Court.”

8.  The applicant has chosen to make his application here and hence has submitted to the jurisdiction of this court.

9.  In Re Cheung Chi Wang & Another[1] [2002] 1 HKLRD 409, DHCJ Lam (as he then was) has given clear guidance in respect of applications made under CPO s.12A:-

(1)   The purpose of s 12A is to give the court the power to declare land to be free from an encumbrance on payment of sufficient money into court. It is not predicated upon a sale of land.

(2)   S 12A is only applicable when the land in question is subject to an encumbrance.  Yet, if there is a doubt as to whether the encumbrance exists, s 12A still applies.

(3)   The first stage of an application under s 12A is to obtain the direction or approval of the court regarding payment into court under s 12A.  Before an applicant can ask the court to exercise its discretion under s 12A, he has to establish that the encumbrancer could not be found, or is unknown.  The applicant must take reasonable steps to find out the encumbrancer and place the evidence of his efforts before the court.

(4)   After money is paid into court, the second stage is for the court to consider whether to exercise its discretion under s 12A to declare the land free from an encumbrance.  The court has discretion as to whether notice should be given to the encumbrancer. In practice, such notice would often have to be given by advertisement in a newspaper.

(5)   In determining the amount to be paid into court, the court may take into account an additional amount on account of the contingency of further costs, expenses and interests.

(6)   The matter would come back to the court at the third stage, when the encumbrancer, or any person entitled to the money, apply to the court for payment under s 12A(3).  If there are other parties who might have an interest in the money, the court would require notice to be given to such parties before deciding on how to exercise its discretion.

10.  It is not permissible to adopt a “practical one-stage approach”, that is to direct payment into court of a sum of money sufficient to redeem the mortgage of the lot in question pursuant to under the s 12A(1) (ie the 1^st Stage), and on the same occasion or during the same hearing, declare that upon payment being made, the lot be free from the mortgage (ie the 2^nd Stage)[2].

11.  Nevertheless, the court may deal with the 2^nd stage on paper[3].

Analysis

12.  Based upon the evidence before the court, I am of the view that the Lot is subject to the encumbrance.

13.  In Re Light Time Investment Ltd, the applicant only conducted probate search of the mortgagees in question, which revealed nothing in connection with the mortgagees.  The applicant did not attempt to make inquiries with the applicant’s predecessors for the whereabouts of the mortgagees or their descendants.  Most of the mortgages involved in those applications were created in or before 1905, with one exception, which was created in 1934.  The court was satisfied on such evidence that the mortgagees in those applications could be found, and that in order not to create any risk of injustice to the mortgagees or their descendants, the court ordered that the applicant should advertise in a widely circulated local Chinese newspaper a notice making known the court’s order and the fact of payments having been made into court pursuant to this order, and stating that any person interested in the mortgages (and/or the aforesaid payments) might apply within 14 days to be joined as a respondent to the proceedings.

14.  In this case, the applicant has not only conducted a probate search, but has also made inquiries with his relatives.  Notwithstanding all these efforts, nothing concerning the mortgagee has been revealed.  In my judgment, the applicant has established that the mortgagee could not be found.

15.  As to the amount of money payable under s 12A(1), the usual practice is where the mortgage-creating instrument contains no provision on the calculation of interest, the interest rate used is 20% p.a., calculated on simple basis[4]. I would adopt this approach.

16.  The applicant proposes to pay HK$700 into court.  Assuming that the encumbrance was there at the earliest time, ie at the commencement of the term of the Lease, which was 1898, the amount required for redeeming the mortgage would be HK$26 x 20% x 120 years = HK$624.  I am satisfied that the proposed amount of HK$700 is a sufficient sum.

17.  Accordingly, I would direct the applicant to pay HK$700 into court.  I would also direct that the application in the 2^nd stage be dealt with on paper.

Disposition

18.  I make the following order:-

(1)   the applicant do pay HK$700 into court to redeem the encumbrance within 14 days;

(2)   within 7 days after the said payment into court, the applicant do advertise in a widely circulated local Chinese newspaper a notice making known this ex parte application, this order and the fact that payment has been made into court pursuant to the order with full particulars of the Lot, the encumbrance and the names of the mortgagee and mortgagor and further stating that any person who has any interest or entitlement in or derived from the encumbrance and in the payment into court aforesaid may apply within 28 days to be joined as a respondent to these proceedings;

(3)   the applicant may, after a lapse of no less than 28 days from the publication of the advertisement, make a paper application for a declaration that the Lot be free from the encumbrance.

19.  There be no order as to costs.

20.  Lastly, it remains for me to thank counsel for the helpful assistance provided to the court.