RE CHEUNG TING (or Teng) FAN (or Fun) TSO

DCMP 2731/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2731 OF 2010

____________

______________

REASONS FOR DECISION

BACKGROUND

1.  The applicant was the Government Lease grantee of the Lots.

2.  By the Mortgage dated 8^th March 1911, the applicant mortgaged the Lots to a Lam Kwai Chung for securing payment of HK$240 on 8^th March 1921 without interest.

3.  Under a Transfer of Chinese Customary Mortgage dated 7^th March 1923 and registered in the Land Registry with Memorial No.YL55092, the said Lam Kwai Chung transferred his interest under the Mortgage to a Cheung Lun Chung.

4.  Under a Transfer of Mortgage dated 11^th April 1923 and registered in the Land Registry with Memorial No.YL55530 (“the 2^nd Transfer”), the said Cheung Lun Chung further transferred his interest under the Mortgage to a Lam Yung Chi (“Lam”).

5.  A portion of Lot 1349 was subsequently resumed by the Government on 25^th April 2008.  The un-resumed portion of Lot 1349 was then known as and registered in the Land Registry as The Remaining Portion of Lot No.1349 in Demarcation District No.96.

SECTION 12A OF THE CPO

6.  In the present application, the applicant seeks leave to make a payment into court pursuant to section 12A of the Conveyancing and Property Ordinance (Cap.219, Laws of Hong Kong).

7.  For the sake of easy reference, section 12A is set out below:

“(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’ means the Court of First Instance unless the party to the application submits to the jurisdiction of the District Court.”

8.  Section 12A was introduced into Hong Kong under section 7 of the Statute Law (Miscellaneous Provisions) Ordinance, Ordinance No.32 of 2000 which came into operation on 9^th June 2000. After a decade, it is now clear that there are three stages in this application: 

(a) The first stage is for the party for the time being entitled to redeem the encumbrance to obtain a direction or approval of the court regarding payment into court provided it is shown that the encumbrancer is out of the jurisdiction, cannot be found or is unknown, or if it is uncertain who the encumbrancer is. 

(b) In the second stage, on the basis that payment into court is made pursuant to the court’s approval, the court will consider the exercise of its discretion and declare the land to be free from the encumbrance.  

(c) The matter would come to its third stage when the encumbrancer or any person entitled to the money paid into court applies to the court for payment.

(Re Cheung Chi Wang & Another [2002] 1 HKLRD 409 at paragraphs 10, 11 and 13)

THE PRESENT CASE

9.  The mortgage in question is a Chinese customary mortgage.  If there is evidence showing that the possession of the Lots had been given back to the mortgagor or his successors, a reasonable inference is that the mortgage had been discharged.  This inference could be reinforced by the lack of action on the part of the mortgagee to enforce the mortgage. Therefore, arguably, the Lots are no longer subject to the mortgage and Section 12A does not come into play (Re Cheung Chi Wang & Another (supra) at paragraph 16).

10.  Having said that, I am prepared to proceed as if the mortgage is still subsisting.  Given the lapse of time, there is no evidence as to what exactly had happened when the Mortgage was entered into, and it is unknown as to whether the operation of the Mortgage was any different from other Chinese customary mortgages.

11.  If the mortgage has already been discharged, the grant of any order herein would not affect the mortgagee’s interest anyway.  The only party who will be prejudiced is the applicant as he will be required to make a payment into court.  However, Mr. Kwok for the applicant indicated that the applicant still wants to obtain an order from the court even though it may well be that such an order is not needed in the circumstances of the case.

12.  On the other hand, the grant of this order would be helpful in any future transactions in respect of the Lots in that any possible argument relating to the Mortgage may be avoided. 

13.  The applicant has placed before me evidence showing that the encumbrancer (Lam) cannot be found despite reasonable steps have been taken to locate him.   Furthermore, according to the description of Lam in the 2^nd Transfer (“Lam Yung Chi of Chik Mi”), it may well be that Lam was residing in Shenzhen in 1923 (it is evident that “Chik Mi” is a place in Shenzhen).  Hence, he, if still alive, is probably out of the jurisdiction.

14.  I am therefore satisfied that I have power under section 12A to allow a payment be made into court.

15.  The next question is the amount of payment. 

16.  The principal of the Mortgage which was created on 8^th March 1911 was HK$240.  Adopting a notional interest rate of 20% per annum (as adopted in cases such as Man Chi Kan v Man Tsak Lun [2003] 2 HKLRD 489 and Fu Kin Chow & Others v Ip Kat Fan (DCMP 1314/2007, unreported, 1^st April 2008)), the total amount of principal plus interest should be HK$5,040.  The applicant proposes that a round-up figure of HK$5,200 be paid into court.  I am satisfied that this round-up figure is sufficient for the present purpose.

17.  Under section 12A(2), this court may only declare the land to be free from encumbrance after payment into court has been made.  Therefore, despite the attraction of efficiency, it is not feasible for the court to compress the first two stages into one (see Fu Sum & Others v Fu San Fat [2008] 5 HKLRD 271 at paragraphs 10 to 17). In other words, in this hearing, the court should not make any declaration which would come into effect upon the payment into court.

18.  Bearing in mind the fact that it is unlikely that the encumbrancer may appear in these proceedings, I hold the view that the applicant is sensible in proposing that the approach adopted by Deputy High Court Judge L Chan in Re Light Time Investments Limited (HCMP 326/2010, unreported, 25^th March 2010) be followed.  I agree that this approach would not create any risk of injustice to Lam or his descendents but on the other hand provide a practical solution by which this matter may be dealt with in a more cost-effective way.

19.  I therefore order that:

(1)  Leave be granted to the applicant to pay into court a sum of HK$5,200 being the principal and interest due under the Chinese customary mortgage dated 8^th March 1911 and registered in the Land Registry by Memorial No.YL32869 against the properties known and registered in the Land Registry as The Remaining Portion of Lot No. 1349, Lot No.1365 and Lot No.1400 all in Demarcation District No.96;

(2)  Within 7 days after the payment into court is made, the applicant do advertise in a widely circulated local Chinese newspaper a notice making known this Order and the fact of payment having been made into court pursuant to this Order and stating that any person interested in the mortgage and/or the payment aforesaid may apply within 14 days to be joined as a respondent to these proceedings;

(3)  The applicant may after the lapse of no less than 21 days from the publication of the advertisement make a paper application pursuant to section 12A(2) of the Conveyancing and Property Ordinance for a declaration that the aforesaid properties be free from the aforesaid mortgage; and

(4)  There be no order as to the costs of the hearing today.