IP JENNIFER JIANG GEE v. CHEUNG TING IU

DCMP 3122/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3122 OF 2011

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JUDGMENT

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1.  The plaintiff in 2004 acquired a piece of land in the New Territories registered in Land Registry as Section A of Lot No 493 and the Remaining Portion of Lot No 493 both in Demarcation District No 94 (the “Land”). The Land was carved out from Lot No 493 in D D No 94 (the “Mother Lot”) by a Deed Poll in 2000. The Mother Lot was acquired by the plaintiff’s father in June 1989. Since then, the plaintiff and her father occupied the Mother Lot without any interference or disturbance from others. However, there is a mortgage registered against the Mother Lot in favour of a Mr. Cheung Ting Iu, the defendant named herein (the “Mortgage”). The Mortgage was created in 1905. It secured payment for “$170 with interest 11.9 shek payable yearly.” No discharge or release has been registered. It is not known whether it has ever been discharged. In fact, it is not known whether Mr Cheung was still alive, though in all likelihood he would have died.

2.  The plaintiff made affirmations deposing to the efforts made to locate Mr Cheung or his descendants. These included:-

(a)  making enquiries with neighbours, village representative as well as elderly living in the vicinity;

(b)  making enquiries with the Land Registry, District Lands Office North, North District Office; and Legal Advisory and Conveyancing Office Tai Po and North; and

(c)  checking the Probate Registry of the High Court.

3.  Having failed in these efforts, the plaintiff applied for substituted service of the application on the defendant in August 2012.  The court granted leave for the plaintiff to serve the application on Mr Cheung by advertising in a widely circulated Chinese newspaper in Hong Kong.  The plaintiff placed an advertisement of the application in the Oriental Daily Newspaper.  Its size was 2x2 square inches.

4.  This application was originally made under section 19 of the Limitation Ordinance (Cap 347).  Section 19(1) provides that:-

“(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 12 years from the date when the right to receive the money accrued.”

Basically the plaintiff is seeking a declaration from the court that any claims under the Mortgage would be time-barred and not enforceable against the plaintiff or her successor in title.

5.  A day before the hearing, I send a note to the plaintiff’s solicitors inviting them to address the court on the implications of the following cases on the plaintiff’s application:-

“Shum Chin Kit v The Estate of Lok Lai Sheung, Deceased, HCMP 1647/1998, unreported (21 August 2001); and

Chan Kam Kee v Chan Kam Nan [1983] 3 HKC 417.”

6.  Both cases concern applications to the court for declaration that the applicants have obtained title to a piece of land by virtue of adverse possession.  In neither case was there any person claiming to evict the applicants.  Both cases were dismissed on the ground, inter alia, that the court would not entertain applications for declaration on academic or hypothetical questions.

7.  In fact, such principle has been well established and succinctly explained in a para under 15/16/2 of Hong Kong Civil Procedure, 2013 edition:-

“The court will not generally decide academic or hypothetical questions (Tindall v Wright [1922] WN 124; Re Barnato [1949] Ch 258, CA; Chan Kam Kee v Chan Kam Man [1998] 3 HKC 416; City West Investment Ltd v Hong Kong Bar Association, unreported, No 28 of 1997, CA; and Charter View Development Ltd v Golden Rich Enterprises Ltd & Another, unreported, HCA No 7056 of 1999, 19 January, 2000, [2000] HKLRD. (Yrbk) 161; [2000] HKEC 64). In exercising its discretion the court will consider whether any useful purpose would be served by granting declaratory relief (Tsang Yuen Ling v. Incorporated Owners of Siu Lung Court, unreported, LDBM No 199 of 2001, September 18, 2001, [2001] HKEC 1121). The court has no power to make a declaratory judgment including an order of a purely advisory character in relation to the meaning of the Pensions Regulations (Cap 89) (Jackson v Att-Gen [1980] HKLR 323; [1980] HKC 182, CA). Nor can a person against whom no claim has been made obtain a declaration that no such claim exists (Re Clay [1919] 1 Ch 66, CA).”

8.  At the hearing, realizing that there is little chance that the court would grant the declaration sought in light of these authorities, counsel for the plaintiff applied to amend the Originating Summons to become one based on section 12A of the Conveyancing and Property Ordinance (Cap 219) (“CPO”).  This is a rather fundamental amendment which the court should normally be slow to allow.  However, considering the special circumstances of this case, in particular the fact that no one is likely to be prejudiced by the amendment, and subject to the safe guard I shall mention below, I granted leave to amend and dispensed with service of the amended application.

9.  Another reason for me to grant leave to amend is that the evidence presented to the court under the original application is essentially the same as the evidence required under section 12A of the CPO.  By getting leave to amend the Originating Summons, the plaintiff was thus saved the time and costs for launching a new application.

10.  Section 12A of the CPO provides as follows:-

“(1) Wher eland 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; and

(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.”

11.  The history and ambit of this section as well as proper practice for invoking it have been explained in admirably clear terms by Deputy Judge Lam (as he then was) in the following two cases:-

Re Cheung Chi Wang & Another [2002] 1 HKLRD 409, and Man Chi Kan v Man Tsak Lun [2003] 2 HKLRD 489.

12.  The following principles and practice so far as they are relevant to the present case could be gleaned from these two cases:-

(a) The purpose of s12A is to give the court the power to declare land to be free from an encumbrance on payment of sufficient money into court.  It was not predicated upon a sale of land;

(b) S12A is only applicable when the land in question is subject to the encumbrance in question.  However, if there is a doubt as to whether the encumbrance exists, s12A applies;

(c) The first stage of an application under s12A is to obtain the direction or approval of the court regarding payment into court under s12A.  Before an applicant could ask the court to exercise its discretion under s12A(1), 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;

(d) After money is paid into court, the second stage is for the court to consider whether to exercise its discretion under s12A, 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;

(e) Although s12A did not specify that the amount paid into court should take into account an additional amount on account of the contingency of further costs, expenses and interests, in exercising its discretion under s12A(1) or (2), the court could take such a contingency into account; and

(f) The matter would come back to the court at the third stage, when the encumbrancer, or any person entitled to the money, applied to the court for payment under s12A(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.

13.  Thus it could be said that section 12A is an exception to the principle against academic or hypothetical declaration.  Applying these principles to the present case, in view of the evidence described above, I am satisfied that the plaintiff has brought herself within the ambit of the first stage of a section 12A application.  Hence, I shall grant leave to the plaintiff to make the necessary payment into court.

14.  The starting point for calculating the appropriate amount of payment should naturally be the Mortgage.  Unfortunately, the relevant provision in the Mortgage as recited in para 1 above is not entirely clear.  Despite the diligence of counsel, he was not able to determine what the term “11.9 shek” in the Mortgage means.  In the circumstances, the court could only adopt a pragmatic approach on this issue.  In two cases, Man Chi Kan (supra) and Wu Cho Yeung & Others v Yeung Muk Shing HCMP 1461/2011, the mortgage did not specify the interest rate.  The court in both cases adopted the interest rate of 20% p.a. and calculated interest on simple basis.  In this case, I shall apply the same approach. Accordingly, the required amount would be:-

          $170 + ($170 x 20% x 109) = $3,876

Giving some further margin, I give leave to the plaintiff to pay $4,000 into court as the first step in the section 12A application.

15.  As regards the second and third stage of the application, I shall respectfully adopt the approach of Suffiad J in the Wu Cho Yeung case and make the following orders modelled on that case:-

(1) pursuant to section 12A(1) of the Conveyancing and Property Ordinance Cap 219, the plaintiff do make payment of the sum of $4,000 into court to redeem the mortgage registered against the Land and any interest thereon;

(2) within 7 days after the said payment into court, the plaintiff do advertise in a widely circulated local Chinese newspaper and a widely circulated local English newspaper a notice making known the aforesaid order and the fact that payment has been made into court pursuant to such order with full particulars of the land, the mortgage 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 mortgage and in the payment into court aforesaid may apply within 28 days to be joined as a respondent to these proceedings; and

(3) there be a further order that the plaintiff may, after a lapse of no less than 35 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 said lot be free from the mortgage or encumbrance.

16.  I should mention two points about the above orders.  First, I deem it appropriate for the plaintiff to place advertisement again despite what she has already done in relation to the original application under section 19 of the Limitation Ordinance.  Firstly, this is a new application based on section 12A of the Conveyancing and Property Ordinance.  Hence, the notice by way of substituted service under the original application based on section 19 of the Limitation Ordinance would be of doubtful validity.  Secondly, as I mentioned in para 3 above, the plaintiff published an advertisement by the size of 2x2 square inches as the means to bring the application to the notice of Mr Cheung.  If Mr Cheung were still alive, I do not think he would have good enough eyesight to notice the advertisement, nor indeed do I think a normal human being could.  As mentioned by Chung J in Chan Kam Kee (supra), substituted service is meant to be the means to bring proceedings to the notice of the respondent, not a mere formality.  As leave for substituted service is usually granted on ex parte application, if subsequently a judge should form the view that the leave for substituted service is not properly granted or is abused, he could set it aside.  Such comment is worth bearing in mind by those applying for substituted service.

17.  Secondly, as noted in the orders, and explained by Deputy Judge Lam J in Re Cheung Chi Wang (supra), the section 12A procedure would not extinguish the right of the mortgagee to claim the secured amount from the mortgagor or his successor in title.  It merely removes the encumbrance on the land.  The mortgagee, or his descendant, may come back to court to assert his rights.  Hence, even if the amount of payment into court is not correctly calculated, it should not seriously prejudice the mortgagee’s rights.

18.  There will be no order as to costs in this application.