SQW v. LPC

FCMC 7628 / 2023

[2025] HKFC 56

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES

NO. 7628 OF 2023

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REASONS FOR DECISION
(Joinder, Forum involving 3^rd party charging order)

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A.  The Application

1.  This is NRCL’s application by a Summons dated 18 October 2024 (“the Summons”)  for joinder in these matrimonial proceedings as intervener “on the issue of interest in and/or disposition of the matrimonial home property” (“Joinder Application”).

2.  After hearing the parties’ substantive argument, I made the following orders in the Joinder Application:

2.1.  NRCL be joined in the ancillary relief proceedings of this action on the issue of NRCL’s interest in the parties’ matrimonial home (“MH”), if any.

2.2.  The Respondent be renamed as the 1^st Respondent in this action.

2.3.  NRCL be renamed as the 2^nd Respondent in this action.

2.4.  Costs of the Joinder Application (except for today’s hearing)  be in the cause of the question whether the 2^nd Respondent shall receive an award out of the value of the MH.

2.5.  The 2^nd Respondent do pay the Petitioner and the 1^st Respondent’s costs of today’s hearing to be taxed if not agreed on party and party basis, with certificate for counsel.

2.6.  The Petitioner and the 1^st Respondent’s own costs be taxed in accordance with the Legal Aid Regulations.

3.  These are the reasons for my decision.

B.  Background

4.  The parties were married in February 2005. This is a long marriage of 18 years. They have a child born in December 2006, now aged 18.

5.  The major family asset of the parties is the MH acquired by the Respondent (“H”)  prior to their marriage. H is the sole legal and beneficial owner of the MH. Both parties and the adult child are residing in the MH.

6.  NRCL is a moneylender who had lent a loan to H in the sum of $350,000 on 17 June 2019. Subsequently on four occasions, NRCL granted loans to H for refinancing of his then existing liabilities.  According to NRCL, the latest one was granted in January 2023 in the sum of $980,000 (“the Loan”). 

7.  On 11 July 2023, the Petitioner (“W”)  presented a petition for divorce on the ground of unreasonable behaviour (“FC Action”). She registered a Form 25[1] in the Land Registry against the MH on 1 August 2023.

8.  About a week later (8 August 2023), NRCL sent H a demand letter for his defaulted repayment of the Loan.  H did not make the repayment. On 16 August 2023, NRCL issued a writ in the District Court (“DC Action”)  against H for recovery of the outstanding Loan and interest.

9.  On 19 September 2023, H and W appeared in person at a first appointment hearing in the FC Action before Deputy Judge J Chow (as she then was). The Deputy Judge made orders for directions on their ancillary relief dispute and recorded in the Recital the following consent of the parties and H’s undertaking in Chinese (“September Consent”):

“又基於雙方同意 ，在房委會的同意下，答辯人以低（sic） 價港幣2,000,000 元出售【地址】，扣除所有出售開支，及清還該物業的押記令負債後，答辯人向呈請人及法院承諾，承諾（sic）餘款須於成交後7天之内繳存法院”

10.  W contended that she did not consent to the settlement of the outstanding Loan from the sale proceeds of the MH. She (acted in person)  took out a Summons in the FC Action on 3 April 2024 seeking to remove from the September Consent the phrase “及清還該物業的押記令負債後” (“April Application”). W also took issue of H’s failure to serve (while he acted in person)  his evidence in opposition within the time allowed in the unless order given by Master TK Lam.  H (through his counsel)  submitted today that he will take out an application for relief from sanction.

11.  In the meantime, NRCL continued its claim in the DC Action as follows:

11.1.  On 6 December 2023, NRCL entered a judgment in default of H’s appearance (“DC Default Judgment”).

11.2.  On 9 January 2024, NRCL applied in the DC Action for a charging order over the MH.

11.3.  In February 2024, Master Li raised requisitions on clerical errors and calculations of interest on the judgment debt. NRCL answered these requisitions by supplemental affirmation.

11.4.  On 25 March 2024, in default of H’s appearance, Master Li granted a Charging Order Nisi (“Charging Order Nisi”)  over the MH in favour of NRCL.

11.5.  On 13 June 2024, the Charging Order Nisi was made absolute (“Charging Order Absolute”)  by an order made by Master Chak, again in default of H’s appearance.

12.  As W is not an owner of the MH nor a party to the Loan, she did not have notice of the above proceedings in the DC Action.

13.  W through her solicitors assigned by the Director of Legal Aid discovered in early June 2024 from the land search records of the MH a registration of the Charging Order Nisi.

14.  W (with legal representation)  took out a Summons in the DC Action (“W’s DC Summons”)  on 24 July 2024, seeking orders that:

14.1.  W be joined as a party to the DC Action;

14.2.  the Charging Order Absolute be set aside;

14.3.  the Charging Order Nisi be stayed, and the application for making the Charging Order Nisi absolute be adjourned to be dealt with in the FC Action.

15.  On 28 August 2024, DC Master J Chow granted an order to join W as an intervener in the DC Action and adjourned the argument of W’s DC Summons to 21 November 2024 before another DC Master.

16.  As mentioned above, NRCL took out this Joinder Application in the FC Action in October 2024.

17.  DC Master R Chu heard the parties’ substantive argument on W’s DC Summons on 21 November 2024, and made the following orders (“DC Adjournment Order”):

“Upon the undertaking of [NRCL] to stay the proceedings and to withhold from and/or stay execution of the Charging Order Absolute dated 13 June 2024 until the ancillary relief matter in FCMC 7628/2023 has been determined by the Family Court,

IT IS ORDERED that:

1. [W’s DC Summons] be adjourned sine die with liberty to restore on a date not before the determination of [NRCL]’s Summons dated 18 October 2024 to intervene in FCMC 7628/2023;

2. Liberty to apply;

3.  Costs reserved …”

18.  This Court was not provided with the transcript of the hearing before Master R Chu nor the reasons for his decision. For want of evidence, I declined to accept the parties’ submissions on the suggested reasons for the DC Adjournment Order.  On a plain reading of the Order, its practical effect is:

18.1.  W’s DC Summons was adjourned pending the determination of the Joinder Application by this Court. In other words, the parties may restore the hearing in the DC Action after determination of the Joinder Application.

18.2.  No order was made to transfer the application before the DC to the FC Action.

18.3.  Substantive arguments on the setting aside of the Charging Order Absolute was heard in the DC Action. Decision on merits has not been (or yet to be)  made.

18.4.  There was an undertaking from NRCL not to execute the charging order until after the determination of the ancillary relief in the FC Action.

C.  NRCL’s Joinder Application

19.  In the margin of the Summons, NRCL stated that it relied on Order 15 Rule 6(2)  of the Rules of the High Court (“RHC”)  and inherent jurisdiction.

20.  This Court is a division of the District Court which was established by statute. Ms Leung for NRCL rightly confirmed at today’s hearing that NRCL could not rely on any inherent jurisdiction which this Court does not have.

21.  The other legal basis advanced is Order 15 Rule 6(2)  of RHC. NRCL has not made clear on papers, including its written submission[2], which limb of Order 15 Rule 6(2)  it relied on. Upon the Court’s enquiry at today’s hearing, Ms Leung told the Court that NRCL relied on Order 15 Rule 6(2)(b)(ii)  only, that is the joinder of :

“(ii)  any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

22.  I have set out the relevant legal principles in §§35 to 45 of PMCL aka LMC aka KLMC v AKK aka KAK & others [2023] HKFC 34 which I apply here. In gist, this Court shall be satisfied that:

22.1.  there is a bona fide claim and a proper question to be tried as between the parties herein and NRCL; and

22.2.  it is just and convenient to join NRCL for the resolution of the questions or issues between the parties and NRCL as well as between the parties herein (i.e. H and W). 

23.  To determine whether there is a proper question to be tried and whether the proposed joinder is just and convenient for resolution of the question, we have to consider NRCL’s intended scope of the joinder.

24.  NRCL prayed in the Summons for joinder “on the issue of interest in and/or disposition of the [MH]”.  In the FC Action, the interest in and/or disposition of the MH is to be determined in the ancillary relief dispute.

25.  In NRCL’s supporting affirmation[3], it suggested that the issues of the validity and/or effect of the Charging Order Absolute (or the Charging Order Nisi)  has arisen as a preliminary issue in W’s ancillary relief proceedings.  NRCL had not made application for a hearing of the validity[4] or effect of the charging order as a preliminary issue. Even if it had, it is inappropriate in this case to hear and determine the validity and effect of the charging order separate from the determination of the ancillary relief dispute.

26.  The Joinder Application was first heard on 25 November 2024 for call over (“Call Over Hearing”).  Prior to the Call Over Hearing, H indicated his neutral stance on the Joinder Application, and W has no objection to the joinder provided that it was limited to NRCL’s interest in the MH. 

27.  Unexpectedly, at the Call Over Hearing, the Solicitor appeared for NRCL adamantly and repeatedly maintained that (1)  NRCL did not want to participate in the April Application or the ancillary relief proceedings; and (2)  the issues relating to the Charging Order Absolute has to be determined in the DC but not to be transferred to the FC.

28.  This Court asked what exactly did NRCL want to join in this case as the competing claims between the parties and NRCL over the MH is a matter to be considered in the ancillary relief dispute, and the April Application would have a material impact on the manner in which the MH is to be dealt with. Regrettably, NRCL failed to give any meaningful answer. 

29.  It is in these circumstances that the Court has to adjourn the Joinder Application to today for substantive argument with directions for the parties to file evidence and submission. It was also because of NRCL’s stance at the Call Over Hearing that both H and W opposed the Joinder Application.

30.  The above pertinent question of the Court was not answered in the submissions and evidence filed by NRCL (not prepared by Ms Leung).

31.  It was only at today’s hearing and upon enquiry by this Court that we heard NRCL’s final position, that is, contrary to the submissions at the Call Over Hearing, NRCL is seeking to join in the ancillary relief proceedings on the question regarding NRCL’s interest in the MH; and is also seeking to participate in the April Application.

32.  On this note and with consent of all parties, I made an order to join NRCL as a party to the ancillary relief proceedings in terms set out in paragraph 2.1 above.

33.  Today’s hearing would not be necessary but for the ambiguous and shifting stances held by NRCL.  It is fair that H and W’s costs of today’s hearing be paid by NRCL, hence my order at paragraph 2.5 above.

D.  Case Management

34.  I fixed a Case Management Hearing to be heard immediately after the Joinder Application with a view to expedite the conduct of these proceedings, bearing in mind the potential costs and proportionality in the conduct of this litigation.

35.  The parties’ substantial matrimonial asset is the MH which was estimated to worth about $2 million. The current outstanding principal and interest owed to NRCL accumulated to more than $1 million, with an interest of 26% per annum accruing until payment[5].  It is obvious that the parties have a pressing need to resolve their disputes in a cost effective manner.

36.  One of the purposes for joinder is to avoid multiplicity of proceedings. In light of the procedural history outlined above, irrespective of my decision on the Joinder Application, the parties’ disputes remain to be heard in different courts as the parties will have to go back to the DC for a determination on the validity of the Charging Order Absolute which has been heard in the DC.

37.  I have explored with the parties the possibility of an agreement to transfer the dispute on the Charging Order to this Court, hopefully to save some costs. The parties could not reach an agreement to transfer mainly, as I understand, because of the costs already incurred in the DC for the substantive argument of W’s DC Summons.

38.  On case management, I made directions on the disputes relating to W’s April Application.  I made clear to the parties that they shall restore the DC hearing as soon as possible so that the necessary information on the outstanding issues will be available at the next Case Management Hearing to enable this Court to give directions to advance the case in a more sensible and proportionate manner.

E.  Forum to decide the making of charging order over matrimonial property owned by a party in divorce proceedings

39.  I have heard some submissions on the appropriate forum to deal with matters on third party charging order over a property owned by a party who has divorce proceedings on foot. I take this opportunity to summarise the relevant legal principles and approaches below.

40.  Section 52AB(3)  of the District Court Ordinance (equivalent to Section 20B of the High Court Ordinance)  provides that a charge imposed by a charging order shall have the like effect and enforceable in the same manner as an equitable charge created by the debtor by writing.

41.  Hence, a charging order, which has the effect of an equitable charge, does not confer any legal or equitable ownership of the property on the chargee. A charging order confers on the chargee rights to apply to the court for an order for sale or for the appointment of a receiver, but not the right to foreclose or take possession of the property, nor any proprietary right or title in the property.  The rights conferred by the charging order are different from the rights enjoyed by a mortgagee. These principles on the effect of a charging order were set out in Sino Billion Ltd v Lam Chok Wai [2003] 2 HKC 167, §12; confirmed by the Court of Appeal in Leader Screws Manufacturing Company Limited v Huang Shunkui [2023] HKCA 1193, §43.

42.  A charging order nisi, when made absolute, related back to the date of the order nisi, thus takes effect from the date of the order nisi.  This does not detract from the fact the order is defeasible if sufficient cause was shown: Hong Kong Civil Procedure 2025 §50/9A/17.

43.  In deciding whether to make a charging order, pursuant to Section 52A(2)  of the District Court Ordinance (equivalent to Section 20(3)  of the High Court Ordinance), the court has to take into account all circumstances of the case, in particular, any evidence before it as to (a)  the personal circumstances of the debtor; and (b)  whether any other creditor of the debtor would be likely to be unduly prejudiced by the making of the order. 

44.  In cases where the property is owned by a party who has divorce proceedings on foot, the protection of the needs of the children and the interest of the spouse in the property are held to be circumstances ought to be considered when making a charging order.  The need to consider such protection applies equally to cases where the property is held by one or both parties of the divorce proceedings.  It is “all circumstances of the case” that the court has to consider before granting a charging order. See the English Court of Appeal decisions in Harman v Glencross [1986] 1 All ER 545 and Kremen v Agrest [2013] EWCA Civ 41; and the Hong Kong Courts decisions in Chan Ting Wai, William v Lam Sai Pak & ors, HCA 2587/1997, 8 December 1998; IISW v SDS-W & ors, FCMC 1399/2006, 23 July 2014; and SJH v CYHC, FCMC 4264/2012, 26 May 2016. 

45.  With the helpful guidance laid down by the English Court of Appeal and the Hong Kong Courts in the above decisions, I summarise below the appropriate forum in different scenarios:

45.1.  Where a judgment creditor has obtained a charging order nisi over a matrimonial property and the application to have that order made absolute is heard before a divorce petition was presented, it is difficult to see why the civil court can refuse to hear the application as there is no other court to which the application can be transferred.

45.2.  If before the application for making the charging order absolute is heard, a divorce petition was presented irrespective of whether ancillary relief application has been made, the civil court should consider whether it is proper for it to make the charging order absolute.

45.3.  Unless it appears to the civil court hearing the application that the circumstances are so clear that it is proper to make the charging order absolute at that time, it is more prudent to transfer the application to the family court before the civil court hears the matter substantively so that the application can be heard together with the application for ancillary relief.  In which case, one court can be in a position to consider “all the circumstances of the case”, and be able to strike a balance between the interests of the judgment creditor and the interests of the spouse and the children. Generally, the interests of the judgment creditor should be respected, save to the extent that it is necessary to override them in order to make appropriate provisions for the spouse and any children. The family court can also consider options other than an immediate sale of the property, or an immediate full repayment to the judgment creditor from the sale proceeds of the property if it has to be sold. The availability of a financial dispute resolution procedure in the family court would also provide a platform to all parties (the husband, the wife and the judgment creditor)  to explore effective resolution of their disputes by settlement.

45.4.  After the charging order absolute has been made, it would normally require some special circumstances, such as the other spouse had no proper opportunity to put his/her case before the court making the charging order absolute, to set aside the charging order absolute.