CHONG HING BANK LTD v. CENTRE GAIN INVESTMENTS LTD AND OTHERS

HCMP3056/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3056 OF 1996

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BETWEEN

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J U D G M E N T

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1.  This is an appeal (and cross-appeal) from the order of Master Kwang made on 14 November 2008.

2.  On 14 November 2008, Master Kwang ordered :

(a) upon the application of the plaintiff, amendment of an order of Master Jones made on 11 February 1997 (“Master Jones’ Order”) under the slip rule; and

(b) dismissal of the plaintiff’s application to make absolute a Charging Order nisi which had been obtained against the 4^th defendant and the 6^th defendant.

3.  Initially, the 4^th and 6^th defendant appealed against (a) above, and the plaintiff cross-appealed against (b) above.

4.  At the commencement of the hearing, I was informed by the parties that agreement had been reached between the plaintiff and the 6^th defendant, the terms of which were contained in a Consent Summons already signed but which the solicitors for the parties undertook to file. Order in terms of that Consent Summons was granted which disposed of the 6^th defendant’s appeal in this matter, leaving only the appeal by the 4^th defendant (and also the cross-appeal by the plaintiff) to be dealt with.

Background

5.  The plaintiff is a bank.

6.  The 1^st and 2^nd defendants are companies incorporated in Hong Kong.

7.  The 2^nd defendant obtained loan facilities from the plaintiff.

8.  As part of the security for the loan being granted to the 2^nd defendant, the 1^st defendant mortgaged its property known as 15^th floor, West Grand Court, 403 and 405 Queen’s Road West, by a mortgage dated 11 April 1994 (“the Mortgage”).

9.  The 3^rd to 6^th defendants, all individuals, executed a guarantee in favour of the plaintiff to secure the indebtedness of the 2^nd defendant under the Mortgage.

10.  The 2^nd defendant started to default repayments relating to the loans by August 1996 and the present proceedings were commenced by Originating Summons on 6 September 1996.

11.  The Originating Summons claimed against all sixdefendants. The claim against the 1^st defendant was for enforcing the mortgage by an order for possession of the mortgaged property and for the outstanding loan. The claim against the 2^nd defendant, as borrower, was for the outstanding loan. The claim against the 3^rd to 6^th defendants was on the guarantee for the moneys owed by the 2^nd defendant to the plaintiff.

12.  The 4^th defendant had acknowledged service of the Originating Summons and had indicated in that acknowledgment that he would contest the claim by the plaintiff. Initially the 4^th defendant was represented by solicitors. In December 1996, however, the 4^th defendant filed a Notice to Act in Person.

13.  The Originating Summons was heard by Master Jones on 11 February 1997. At that hearing, none of the defendants appeared. Master Jones’ Order was made in the absence of alldefendants at the hearing. The relevant parts of that sealed order read as follows :

“ UPON the application of the Plaintiff by the Originating Summons dated 6 September 1996.

UPON Hearing the Solicitors for the Plaintiff and the Defendant being absent.

AND UPON READING the Affirmation ofSiu Chung Loong together with exhibits referred to filed herein on 22^nd day of November 1996 in support of the Plaintiff’s application.

THIS COURT DOTH ORDER THAT :-

1. The Plaintiff do recover against the Defendant the sum of HK$5,726,384.12 secured by a Mortgage dated 11 April 1994 together with interest on :-

(i) the outstanding balance under the Current Account No.267-10-048499-0 in the sum of HK$765,009.27 at the rate of 14.5% per annum (at a daily rate of HK$303.90); and

(ii) the outstanding principal under the Overdue Bills Receivable in the sum of HK$4,906,000.00 at the rate of 13.5% per annum (at a daily rate of HK$1,814.55)

respectively from 22 November 1996 to the date hereof and thereafter at judgment rate until payment.

2. The Defendant do within 28 days after service upon him of the Order deliver to the Plaintiff vacant possession of the property comprised in the said Mortgage dated 11 April 1994 and registered in the Land Registry by Memorial No. 5992557 more particularly described in the schedule of the Originating Summons and known as ALL THOSE 8 equal undivided 205^th parts or shares of and in ALL THOSE pieces or parcels of ground respectively registered in the Land Registry as INLAND LOT NO. 5294 and INLAND LOT NO. 5295 And of and in the messuages erections and buildings thereon now known as “WEST GRAND COURT (宏立閣)” Nos. 403 AND 405 Queen’s Road West, Hong Kong (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT the whole of the FIFTEENTH FLOOR of the Building as shown on the 3rd–24th Floor Plan annexed to an Assignment registered in the Land Registry by Memorial No. 5769943 and thereon coloured Pink.

3. UPON the Defendant paying to the Plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the Plaintiff by the said Mortgage (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) the Plaintiff do re-deliver to the Defendant possession of the mortgaged property and release to the Defendant the security constituted by the said Mortgage as the Defendant may agree or this Honourable Court may direct.

4. There be liberty to apply.

5. The Defendant do pay the Plaintiff costs of these proceedings on a full indemnity basis to be taxed if not agreed.

Dated the 11^th day of February 1997.”

14.  There is also some suggestion by the 4^th defendant that in around August or September 1998, the 5^th defendant had negotiated with the plaintiff on behalf of himself, the 4^th and the 6^th defendants as well.

15.  After September 1998, the matter became dormant in so far as the 4^th defendant was concerned, albeit that some steps were taken by the plaintiff in an attempt to recover some of the judgment debt out of properties owned by the 1^st, 2^nd and 3^rd defendants.

16.  In December 2007, this matter was revived where the 4^th defendant was concerned when a staff of the plaintiff reviewed the file and came to know that the 4^th defendant (as well the 6^th defendant) owned a property. The matter was then passed over to the plaintiff’s present solicitors who made an application by Affirmation of Wong Wai Man dated 24 December 2007 seeking for charging orders against both the 4^th and 6^th defendants.

17.  On the strength of that application by Affirmation of Wong Wai Man, a Charging Order nisi was made on 7 January 2008 against both the 4^th and 6^th defendants. That Charging Order nisi was based on Master Jones’ Order.

18.  The hearing before Master Kwang on 14 November 2008 was for the 4^th and 6^th defendants to show cause as to why the Charging Order nisi should not be made absolute.

19.  In his skeleton submission at the hearing before Master Kwang, counsel for the 4^th and 6^th defendants took the point that Master Jones’ Order as can be seen from the sealed order did not make specific mention of the 4^th and 6^th defendants but only mentioned “Defendant” in the singular.

20.  As a result, the plaintiff applied by Summons dated 12 November 2008 (i.e. two days before the hearing below) to amend Master Jones’ Order under the slip rule.

21.  Both matters were heard by Master Kwang on 14 November. The orders made by Master Kwang in relation to the two matters before him are the subject of the present appeal and cross-appeal.

Amendment of Master Jones’ Order under the slip rule

22.  Master Kwang acceded to the plaintiff’s application and ordered Master Jones’ Order to be amended in the manner suggested by the plaintiff under the slip rule.

23.  The 4^th defendant now appeals against this part of Master Kwang’s order.

24.  In a nutshell, the submission by the 4^th defendant’s counsel is as follows :

(a) the ‘slip rule’ was geared to apply to only to accidental slip or omission in a judgment or order to correct no more than typographical errors. It cannot be used to correct an error of substance;

(b) looking at the sealed Order, it is not apparent that it was the manifest intention of Master Jones that the order was to apply to the 4^th defendant;

(c) on the face of the sealed Order, it was directed against the 1^st defendant, being the mortgagor and not anyone else, thus accounting for the “Defendant” being in the singular; and

(d) The application leading to Master Jones’ Order was an application under Order 88 of the RHC, thus Master Jones sitting in chambers only had jurisdiction to deal with claims arising out of a mortgage, and had no jurisdiction to give judgment for a debt not secured by a mortgage.

25.  Effectively, the argument of counsel for the 4^th defendant was that there was no error on the face of the sealed Order of Master Jones since he only had jurisdiction to deal with the 1^st defendant as mortgagor under Order 88 of the RHC. Therefore the slip rule does not apply.

26.  The only authority relied on by the 4^th defendant in advancing this point as to jurisdiction is the case of China State Bank Ltd v Goboway Investment Ltd [2002] 1 HKC 566. However, the facts of that case is clearly distinguishable from the present case in that in Goboway’s case, by the time the hearing before the master took place, the plaintiff in that case has already signed a release discharging the mortgage such that the debt which was claimed from the guarantors were no longer “monies secured by a mortgage”. As such the claim did not come within a mortgage action under Order 88 of RHC and the master had no jurisdiction to enter judgment pursuant to Order 88 of RHC.

27.  In the present case, when the matter came before Master Jones in chambers, the Mortgage was still in existence and had not been discharged or released. The loan facilities granted to the 2^nd defendant was secured by the Mortgage. The guarantee given by the 3^rd to 6^th defendants was given to secure the monies owed by the 2^nd defendant secured by the Mortgage.

28.  In those circumstances, there can be no doubt that the whole proceedings against all the defendants in the present case was a “mortgage action” within Order 88 since the monies claimed against all defendants were monies secured by the Mortgage.

29.  I am therefore satisfied that Master Jones had the necessary jurisdiction to deal with the 4^th defendant at the time of the hearing before him.

30.  The second and more difficult issue which needs to be resolved relates to what was the manifest intention of Master Jones when he made the order. The difficulty would not be so great if Master Jones is around to give that answer, but where that is not possible, others will have to ascertain what was the intention of Master Jones at the time he made the order.

31.  There is in the court file, a note taken by Master Jones at the time of the hearing before him.

32.  The heading on that note, relating to the parties involved in the proceedings indicate that Miss A. Chan appeared for the plaintiff and all the six defendants were absent at that hearing. (The fact that the defendants did not appear at that hearing is not in dispute.)

33.  Following that, the handwritten words (presumably those of Master Jones) were as follows :

“28 days possession order

and money judgment

and indemnity costs”

followed by the initial of Master Jones.

34.  Given that all defendants were absent from the hearing before Master Jones, and given that Master Jones had jurisdiction to deal with the claims by the plaintiff against all the defendants, there is every indication from his written notes that Master Jones had dealt with and disposed of the entire claim brought by the plaintiff. Nothing in his notes suggest that there was any part of the claim not dealt with by him.

35.  It must have been clear therefore that the manifest intention of Master Jones was that the “28 days possession order” relates only to the mortgagor, while the “money judgment” and “indemnity costs” related to all defendants who did not choose to appear to defend the plaintiff’s claim against them.

36.  In the circumstances, I do not see that Master Kwang was wrong to have decided the ‘slip rule’ application in the way that he did.

37.  Accordingly, the appeal by the 4^th defendant on this issue is dismissed.

Dismissal of the Charging Order nisi

38.  Turning now to deal with the cross-appeal by the plaintiff.

39.  In the affidavit evidence filed on behalf of the 4^th defendant, a number of points were raised as to why the Charging Order ought not to be made absolute. The points raised can be summarized thus :

(a) that the guarantee signed by the 4^th defendant was a director’s guarantee and would cease to have effect after his resignation as director;

(b) that after the 4^th defendant acted in person in this matter, he did not receive anything from the plaintiff or its solicitors until April 1998 including Master Jones’ Order;

(c) that the 4^th defendant was told by the 5^th defendant that the bank manager handling the loan applications of the 2^nd defendant, a Cheng Choi Fai, had been bribed to granting further credit facilities to the 2^nd defendant;

(d) that there was a settlement agreement successfully negotiated on their (both the 4^th and 6^th defendants) behalf by the 5^th defendant with the plaintiff and that the plaintiff had agreed not to take further action against them in this matter; and

(e) it would not be fair and just to enable the plaintiff due to the long delay of some 10 years to enforce the judgment debt against the 4^th defendant since the 4^th defendant had incurred detriment by making improvements or renovations to his property.

40.  At the hearing of this appeal, (a), (b) and (c) above were no longer pursued by the 4^th defendant leaving only the alleged settlement agreement and the long delay. However, counsel for the 4^th defendant did raise one further point, namely, that paragraph 2 of the Affirmation of Wong Wai Man filed on behalf of the plaintiff may well have misled the court into granting the Charging Order nisi which was applied for ex parte by the plaintiff when, on such ex parte application, the plaintiff was under a duty to make full and frank disclosure, but had failed to do so.

41.  I shall deal first with the settlement agreement point raised by the 4^th defendant.

42.  I find no merit in that point for the simple reason that the evidence adduced by the 4^th defendant only showed that the 4^th defendant was informed by the 5^th defendant that there had been a settlement agreement with the plaintiff.

43.  In the absence of any direct evidence coming from the 5^th defendant, no weight could be placed on the evidence which comes only from the 4^th defendant as to what was told to him by the 5^th defendant.

44.  I turn now to deal with the point of the lengthy delay.

45.  There is no dispute that after Master Jones’ Order, no steps had been taken by the plaintiff to enforce the judgment as against the 4^th defendant until the application made ex parte on 24 December 2007 seeking a Charging Order nisi. The Charging Order nisi was made on 7 January 2008.

46.  In this respect, counsel for the plaintiff has referred me to section 4(4) of the Limitation Ordinance which allows the plaintiff a period of 12 years to enforce a judgment. To that extent, it was submitted that the plaintiff is not out of time in seeking to enforce the judgment against the 4^th defendant when it did. It was also provided in that sub-section that no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years form the date on which the interest became due.

47.  I was told by counsel for the plaintiff that the Master, at the hearing below, had stated in his oral reasons for discharging the Charging Order nisi that the plaintiff’s lack of action in pursuing the judgment debt for a period of over 9 years had allowed interest to accrue substantially and it would therefore be inequitable to grant an Order Absolute in the plaintiff’s favour.

48.  Mr Wong submits that in the light of section 4(4) of the Limitation Ordinance referred to above, the plaintiff was entitled as of right to enforce the judgment within the period of 12 years and that the reason given by the Master was a wrongful exercise of his discretion.

49.  In this respect, I bear in mind that the granting of a charging order is discretionary for which the court is required to take into account all the circumstances of the case.

50.  Quite apart from the question of interest, which incidentally has accrued to such an extent that the interest now exceeds the outstanding principal (para. 5 Affirmation of Wong Wai Man refers), since the time that judgment had been obtained, the 4^th defendant had not only spent considerable amounts of money in renovating the property over which the charging order is now sought, but has also fully paid off the mortage to the property in October 2003, thereby rendering it free from encumbrances, only to find that property the subject of a charging order applied for in December 2007 with the Charging Order nisi being made on 7 January 2008.

51.  Given these circumstances which no doubt the Master had taken into account, it must be clear that the 4^th defendant would suffer great prejudice for the Charging Order nisi to be made absolute now which prejudice could only have come about due to the delay of the plaintiff in enforcing the judgment.

52.  I am therefore unable to say that the Master was wrong to have exercised his discretion the way he did. The only fault, if fault it be, on the part of the Master was that it was over-simplistic of him to have only referred to the interest as being the prejudice caused to the 4^th defendant in giving his oral reasons.

53.  Quite apart from the above, the further point taken by Mr Man at the hearing of the appeal was that when making the ex parte application for the Charging Order nisi on 24 December 2007 based solely on the Affirmation of Wong Wai Man, the plaintiff had failed to make full and frank disclosure to the court as they were obliged to do so since the application was an ex parte application.

54.  The failure to make full and frank disclosure was that in the Affirmation of Wong Wai Man, filed on 24 December 2007, not only was the court not informed of the fact that Master Jones’ Order made no specific reference to the 4^th (and for that matter also the 6^th) defendant, moreover a copy of the sealed order of Master Jones was not exhibited, and more importantly, paragraph 2 of that Affirmation was decidedly misleading by stating that the Order of Master Jones “ordered, inter alia, that the 4^th Judgment Debtor Yu Shiu Hung Joseph and the 6^th Judgment Debtor Lo On King Annabella do pay the Judgment Creditor … the sum of HK$5,726,384.12 together with interest …”. Had the court been appraised of the full picture, it may well have declined to make the Charging Order nisi sought, at least until Master Jones’ Order had been put right.

55.  The consequence of failing to make full and frank disclosure would be for the court to discharge any order so obtained by the party at fault irrespective of the merits.

56.  That is so even if it was not deliberate but came about through inadvertence.

57.  In my view, that is a further reason for discharging the Charging Order nisi so obtained by the plaintiff.

58.  Accordingly for the reasons given above, the cross-appeal by the plaintiff is also dismissed and the order made by the Master below is to stand in its entirety.

Cost

59.  The 4^th defendant and the plaintiff having each failed in their appeal and cross-appeal respectively, there will be no order as to cost but that each party is to bear its own cost of the appeal and cross-appeal. This cost order being a cost order nisi.