HCMP1908/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO.1908 OF 2004
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BETWEEN
THE HONGKONG
AND SHANGHAI
Plaintiff
BANKING
CORPORATION LIMITED
and
LEE SHIU PING
1st Defendant
MANENDER GREWAL
2nd Defendant
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Before : Deputy High Court Judge Fung in Chambers (Open to the public)
Date of Hearing : 2 September 2005
Date of Handing Down Judgment : 6 September 2005
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J U D G M E N T
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1. The plaintiff is appealing against the decision of Master J. Wong dated 3 March 2005 in ordering the plaintiff to give discovery of documents sought by the summons of the 2nd defendant dated 20 January 2005. In the Notice of Appeal, the plaintiff also asked for an order before this court that the 1st and 2nd defendants do deliver vacant possession of the mortgaged properties to the plaintiff, and that the 1st defendant do pay all moneys due to the plaintiff under the mortgage.
2. The 2nd defendant is appealing against the two orders of Master Lung dated 22 April 2005 pursuant to the plaintiff’s summonses dated 11 April 2005 in :
(1)
granting
leave to the plaintiff to amend the Originating Summons; and
(2)
ordering
the 2nd defendant to make interim payment to the plaintiff.
Background
3. The plaintiff is the mortgagee and the 1st defendant is the mortgagor of the properties of the flat and carpark at Laguna City. The two mortgages dated 17 and 18 April 1996 are identical in terms.
4. The loan was also secured by personal guarantees by Leung Po Ching dated 25 March 1996 and 2 April 1996. Leung Po Ching is the son of the 1st defendant. It is common ground that the instalments are in arrears.
5. On 22 November 2000, the 1st defendant let the mortgaged properties to the 2nd defendant. The 2nd defendant is a practicing solicitor. The tenancy agreement was renewed on 20 October 2003.
6. Clause 7.01(x) of the mortgages contains the following prohibition :
“The Borrower will not, without the prior written consent of the Lender and then only in conformity with any conditions whatsoever the Lender may reasonably impose (and subject to the payment of such fees as the Lender may reasonably impose), part with the use, occupation or possession of the Property in any way whatsoever whether by way of letting, sub-letting, lending, sharing, assigning or other means whereby any person other than the Borrower obtains the use, occupation or possession of the Property, irrespective of whether any rental or other consideration is given for such use, occupation or possession;”
7. No prior written consent has been given by the plaintiff.
8. On 4 August 2004, the plaintiff took out an Originating Summons under Order 88 of the Rules of the High Court (Cap.4A) (“RHC”) for recovery of possession and money judgment against the 1st defendant.
9. The 1st defendant was served at the mortgaged property as the address stipulated for service under the Clause 14.01 of the mortgage, and also at an address at Nob Hill, the last known address of the 1st defendant. No appearance has been entered by the 1st defendant.
10. On 28 October 2004, the 2nd defendant intervened to join as a defendant to the action.
11. On 21 December 2004, the plaintiff filed a Notice of Appointment to hear the Originating Summons.
12. On 22 December 2004, the 2nd defendant’s firm wrote to the plaintiff seeking discovery of documents relating to the application, granting and the maintaining of the mortgage between the plaintiff and the 1st defendant, and on any personal guarantee given.
13. On 10 January 2005, Miss Carmen Chan, solicitor for the plaintiff, filed an affirmation giving discovery of documents while reserving its position on the relevance of the documents sought. The plaintiff disclosed the guarantees by Leung Po Ching and also a joint and several guarantee by the 1st defendant, Leung Po Ching and Leung Po Yip Patrick dated 6 July 1997 (which does not relate to the mortgaged properties). Mr Chan for the plaintiff submitted that legal requirement aside, the plaintiff made the discovery for the practical consideration of speeding up recovery.
14. On 20 January 2005, the 2nd defendant took out the subject summons under Order 24, rule 3, RHC for further and better discovery against the plaintiff. At the call over on 24 January 2005, the Registrar ordered the summons be heard before the hearing of the plaintiff’s Notice of Appointment. On 26 January 2005, the summons for discovery was heard before Master J. Wong. On 3 March 2005, Master J. Wong handed down his decision in granting the 2nd defendant’s application and adjourning the hearing of the Notice of Appointment with liberty to restore after discovery and filing of a further affirmation by the 2nd defendant.
15. On 9 August 2005, Fok Siu Lan, Assistant Manager of the Collections and Recoveries Unit of the plaintiff filed a 4th Affirmation producing the omitted reverse sides of the standard conditions, and confirmed that there was no Home Loan Operations Checklist. She verified that the “Collateral File” was the file containing all relevant documents kept by the plaintiff in respect of the individual customer’s home mortgage loans which in the present case had already been disclosed.
16. On 11 April 2005, the plaintiff took out a summons to amend the Originating Summons by : (1) adding an address for service on the 1st defendant; (2) praying for relief against the 2nd defendant. The plaintiff also took out a summons for interim payment against the 2nd defendant. On 22 April 2005, Master Lung granted the two summonses in terms. On 25 April 2005, the 1st defendant was served at the additional address.
17. On 9 May 2005, the 2nd defendant took out a summons for :
(1)
stay of
execution of the order of interim payment; and
(2)
stay of
proceedings in respect of the order for leave to amend the
Originations Summons made by Master Lung.
18. On 30 May 2005, both parts of the summons were dismissed by Deputy Judge K.Y. Chan. Thereafter, the 2nd defendant made the interim payment.
19. As to the entering of judgment, Mr Chan submitted that Master J. Wong should not have allowed discovery nor adjourned the Notice of Hearing. At least as against the 1st defendant, this court should enter judgment against him upon hearing the matter de novo . As against the 2nd defendant, Mr Chan accepted that it was in the court’s discretion to leave the matter for hearing before the master, and if so, he does not object to the filing of the further affirmation by the 2nd defendant.
Specific Discovery
20. The discovery sought are documents relating to the guarantee as set out in paragraph 13 of the 3rd Affirmation of 2nd defendant dated 20 January 2005. They are :
(i)
all
documents relating to due diligence carried out by the plaintiff
against the guarantor;
(ii)
all
correspondence between the plaintiff and the guarantor in his
capacity as guarantor and as allegedly as “true owner”,
including his entitlement to stay in the Mortgaged Property;
(iii)
documents
relating to accounts maintained by the guarantor with the
plaintiff in respect of the guarantee;
(iv)
correspondence between the plaintiff and the guarantor regarding
arrears and payment of arrears against the guarantor;
(v)
correspondence between the plaintiff and the guarantor regarding
enforcement of the guarantee against the guarantor; and
(vi)
all
documents held in the “collateral file” referred to in the Home
Mortgage Loan Operation Checklist disclosed in “CYMC-2” page 14.
21. The relevant issue is whether the plaintiff is bound by the tenancy of the 2nd defendant.
22. Mr Chan submitted that a tenancy granted by the mortgagor against express prohibition unless with the prior written consent of the mortgagee is void against the mortgagee (see Fisher & Lightwood’s Law of Mortgages (11th Ed.) at 19.18; Typhoon 8 Research Ltd v. Seapower Resources International Ltd & anor [2002] HKLRD 660).
23. Fisher & Lightwood at 19.19 stated that a tenancy granted after the mortgage will be effective against the mortgagee if the mortgagee treats the tenant as his own, by an implied agreement or estoppel. The test is whether, looking at all the facts, the mortgagee has accepted the tenant as his own.
24. In Nijar v. Mann (1998) 32 HLR 223, the bank seemed well aware that the mortgagor (Mrs Caine) had borrowed the money in order to convert the premises into about 17 flats and bed-sits with a view to letting them and they were so let. Mrs Caine had not obtained the bank’s consent in writing to the grant of the plaintiff’s tenancy. The loan repayments fell into arrears. Mrs Caine surrendered the property to the bank and disappeared. The bank appointed a receiver for the property. The receiver both demanded and accepted rent from Mrs Caine’s tenant. The defendants as purchasers of the property contended that they were not subject to the tenancy of the plaintiff. The trial judge found that the bank, as mortgagee in possession, accepted the plaintiff as their own tenant. The English Court of Appeal held that :
(1)
Where a
mortgagor grants a tenancy in contravention of a term in the
mortgage deed, the mortgagee may treat the tenancy as a nullity;
a mortgagee with knowledge of the tenancy may allow the tenant
to remain in possession for a very long period without being
taken to have affirmed the tenancy; something more than mere
knowledge and inaction is required.
(2)
The
mortgagee may act in such a way as to preclude him from saying
that he has not consented to the tenant as his own under a new
tenancy; this may arise by express or implied agreement, or by
way of estoppel; the question is whether, looking at all the facts, the mortgagee has accepted the tenant as his own.
(3)
On the
facts of the case, particularly the manner in which the sale of
the property had been conducted by the bank, it was clear that
the creation of a fresh tenancy between the bank and the tenant
could be inferred, which tenancy was binding on the defendants.
25. Mr Chan submitted that notwithstanding that the issue of implied consent or agreement might be relevant, the discovery sought was too wide in scope without reference to the issue in question, namely the plaintiff’s dealings in relation to the 2nd defendant and/or any tenant of the 1st defendant after 2000. Mr Chan further submitted that in any event, all the plaintiff’s documents relating to the mortgage and the guarantees have been disclosed by the Affirmation of Carmen Chan prior to the hearing before Master J. Wong.
26. Mr Chan referred to the Hong Kong Civil Practice at 24/7/1 that “where a claim to see a class is made, the class must not be defined or described so widely as to include documents which are not relevant to the issue (Molnlyeke AB v. Procter & Gamble Ltd (No.3) [1990] RPC 498)”.
27. Where a class of documents sought contains both relevant as well as irrelevant documents, the order for discovery may be narrowed down.
28. Mr Chan submitted that with regard to any implied agreement or estoppel, the point of relevance must only commence with the tenancy of the 2nd defendant and not at the time of the mortgage and guarantee. The implied agreement or estoppel must relate to the specific terms of the tenancy of the 2nd defendant. The fact that the plaintiff has given consent to any previous tenancy, if at all, would be of no relevance.
29. Mr Bedford for the 2nd defendant referred to the memo of credit analysis on 26 March 1996 by the plaintiff on the 1st defendant which stated that the 1st defendant was a housewife and Leung Po Ching would be paying the mortgage instalments. Leung Po Ching was of high net worth and he wanted to improve his standard of living. But due to tax reasons, the property would be purchased in the name of the 1st defendant. Leung Po Ching was considered the “true owner” by the plaintiff.
30. Mr Bedford submitted that from the credit analysis and the plaintiff’s record of the 1st defendant’s address showing addresses different from the mortgaged property, the plaintiff must have known that the 1st defendant was not living there, and hence, the possibility of letting.
31. Awareness of possible letting is neither here nor there as there is no outright prohibition against letting, but only no letting without prior written consent. From the same credit analysis, the plaintiff took it that Leung Po Ching wanted to improve his standard of living in purchasing the property, and any implied consent for the 1st defendant to part with possession of the mortgaged property would be in relation to occupation by Leung Po Ching.
32. Mr Bedford was asked how would the dealing by the plaintiff with the guarantor be relevant to the issue of whether the tenancy was binding on the plaintiff. He submitted that Leung Po Ching is not a party to the mortgage. But as beneficial owner, he could let the mortgaged property without the plaintiff’s consent. On the other hand, he might have told the plaintiff about his plans of letting. These are the sort of documents the 2nd defendant was looking for.
33. The tenancy agreement was signed by the 1st defendant. Leung Po Ching must have been acting as the 1st defendant’s agent in letting as far as the plaintiff is concerned. As to beneficial ownership, with due deference, Deputy Judge K.Y. Chan in dismissing the 2nd application for stay of execution said that he did not see how the allegation on the 1st defendant’s beneficial interest would affect the 2nd defendant’s position. With respect, Mr Bedford has not persuaded me to differ from Deputy Judge K.Y. Chan.
34. In relation to the possibility of Leung Po Ching informing the plaintiff his plans to let the mortgaged property, prima facie , it seems that the 2nd defendant’s request is fishing. Be that as it may, Mr Chan submitted that full discovery had already been made. After the order of Master J. Wong, Fok Siu Lan verified that the “Collateral File” had been disclosed and that should be conclusive of the matter. Mr Chan submitted that as the file covered all the six categories of documents sought, and there was no occasion of narrowing down any order of discovery by this court.
35. Mr Chan said he had already told Master J. Wong that full discovery had already been made in Carmen Chan’s affirmation (as mentioned in paragraph 7 of Master J. Wong’s decision), but the Master was under the impression and the discovery by Carmen Chan was not a full one, as her discovery was based on knowledge and information only from the Collections and Recoveries Unit rather than from the plaintiff, and that the Collateral File was somewhere else,.
36. Mr Chan said that Fok Siu Lan now confirmed that the Collections and Recoveries Unit had full access to all the plaintiff’s documents on the subject. Mr Chan submitted that in fact this affirmation was not necessary because Carmen Chan had already affirmed that the plaintiff had made a full search of its records and she set out what the plaintiff had and did not have in relation to the documents sought in the 2nd defendant's letter dated 22 December 2004.
37. Mr Bedford submitted that the discovery made by the affirmations of Carmen Chan and Fok Siu Lan were not complete. He raised the following queries :
(1)
it is
inconceivable that the plaintiff has not done any due diligence
on the 1st defendant as stated;
(2)
there is no
record of change of address recording the Nob Hill address for service of the Originating Summons;
(3)
a copy of
the repayment schedule dated October 2002 which was produced by
Leung Po Ching has not been disclosed by the plaintiff;
(4)
the 4th Affirmation of Fok Siu Lan did not refer specifically to paragraph 13 of the 3rd Affirmation of the 2nd defendant, nor the Order of Master J. Wong, nor the six categories of documents sought; and
(5)
not every
one who has dealt with the transaction or being identified in
the documents has gone on oath.
38. Just as in persuading Master J. Wong that the Collateral File was elsewhere, Mr Bedford tries to persuade this court that the Collateral File may not contain all the relevant documents of the mortgage transaction. I am satisfied that the Collateral File contained all the relevant documents, and the plaintiff has disclosed all relevant documents.
39. I find that the order of Master Wong is too wide, but in any event, as at the date of hearing of the summons before Master J. Wong, apart from the omitted obverse copies referred to in category (vi), the Affirmation of Carmen Chan has already made full discovery in relation to the six categories of documents sought in the 3rd Affirmation of the 2nd defendant. Since the omission is not material to the issue in question, the appeal against the order of Master J. Wong is allowed, save insofar as to the filing of an affirmation by the 2nd defendant before the hearing of the Originating Summons.
Amendment to the Originating Summons
(1) Address for service
40. Master Lung granted leave to the plaintiff to add the South Horizons address for service. That was the plaintiff’s correspondence address prior to the Nob Hill address. The plaintiff applied for the amendment because the 2nd defendant disclosed in his 2nd Affirmation dated 25 October 2004 that on 5 August 2004, the 1st defendant was living thereat. Without prejudice to the previous service and as a precautionary measure, the plaintiff sought to add that address.
41. Mr Bedford submitted that a last known address will not be good for service if it is known that the defendant no longer resides there. He also referred to the Land Registry record dated 24 October 2004 which showed the 1st defendant had entered into Provisional Sale and Purchase Agreement dated 23 September 2004 for the sale of the South Horizons property. The record was disclosed to the plaintiff on 25 October 2004.
42. Mr Chan submitted that the 2nd defendant lacks locus in challenging service on the 1st defendant. Although the plaintiff’s dealings with the 1st defendant may be relevant, the 2nd defendant is not claiming through the 1st defendant. The 1st defendant lacked title to confer on the 2nd defendant a tenancy binding on the plaintiff. The 2nd defendant is seeking to bind the plaintiff on acquiescence or implied agreement.
43. Further, even if the South Horizon address may not be good for service, there is nothing wrong to add it as a precautionary measure.
44. I agree with the argument of Mr Chan. Without prejudice to the raising of any issues involving the 1st defendant and/or the guarantor, the 2nd defendant has no locus . The 2nd defendant’s appeal on service is dismissed.
(2) Relief against the 2nd defendant
45. The 2nd defendant intervened to be joined as a defendant, hence, the plaintiff applied to amend the Originating Summons to include relief of recovery of possession against the 2nd defendant.
46. Mr Bedford submitted that was not necessary, as possession would be resolved upon the determination of the substantive issue of binding tenancy.
47. I find that the plaintiff is entitled to plead the specific relief of possession against the 2nd defendant. The appeal is dismissed.
(3) Interim relief
48. Mr Bedford indicated that he was not arguing against the merits of the interim payment. In fact, that has been effectively dealt with by Deputy Judge K.Y. Chan. He is arguing on a technical point of service.
49. Under Order 29, rule 10 of the RHC :
“The plaintiff may, at any time after the writ has been served on a defendant and the time limited for him to acknowledge service has expired, apply to the Court for an order requiring that the defendant to make an interim payment.”
And under Order 29, rule 18 of the RHC :
“The preceding rules in this Part of this Order shall apply, with the necessary modifications, to any counterclaim or proceedings commenced otherwise than by writ, where one party seeks an order for an interim payment to be made by another.”
50. Mr Bedford submitted that as at the hearing before Master Lung, both the original and amended Originating Summons had not been served on the 2nd defendant. Hence, there was no jurisdiction to make any interim payment.
51. Mr Chan pointed out that the 2nd defendant was not served in the first instance because he sought to be joined as a defendant on his own motion. Thereafter, he carried on the proceedings as if served. Hence, service must be taken to be dispensed with.
52. I agree with the submission of Mr Chan. The joinder of the 2nd defendant on his own motion must come within the necessary modifications under Order 29, rule 18. At any rate, as of today, the Amended Originating Summons has been served on the 2nd defendant. The 2nd defendant’s objection is devoid of any merit. Hence, the appeal is dismissed.
Judgment against the 1st defendant
53. Mr Chan submitted that Master J. Wong should not have adjourned the Notice of Appointment to hear the Originating Summons as against the 1st defendant because the 1st defendant was in default of appearance. He asked for judgment against the 1st defendant.
54. As to the amendment of the Originating Summons after the hearing before Master J. Wong, Mr Chan maintained that the original service was good, and the amendment did not detract from that, but related back the original date.
55. Mr Bedford submitted that the original service at the mortgaged property was bad. Under Order 10, rule 1(3)(b)(i), where service is in accordance with paragraph (2) (i.e. by way of an alternative to personal service) :
“
(b)
any affidavit proving due service of the writ must contain a
statement to the effect that –
(i)
in the opinion of the deponent (or, if the deponent is the
plaintiff’s solicitor or an employee of that solicitor, in the
opinion of the plaintiff), the copy of the writ, if sent to, or
as the case may be, inserted through the letter box for, the
address in question, will have come to the knowledge of the
defendant within 7 days thereafter;”
56. Mr Bedford referred to the Hong Kong Civil Practice at 10/1/23 that “Where the plaintiff is aware that the defendant is no longer at the address at the time of service, r.1(3)(b)(i) cannot be satisfied (Philip Securities (HK) Ltd v. Lam Chi Bin Stanley [2001] 1138 HKCU 1)”.
57. Mr Bedford also queried the Nob Hill address as the plaintiff never disclosed any change of address form stating the Nob Hill address.
58. Mr Chan’s main point was on locus. He maintained that the mortgaged property was the address for service as stipulated in the mortgage. Further, there was nothing to show the Nob Hill address was not the last known address.
59. As mentioned above, I agree with Mr Chan on the locus point. Without deciding on the service on the mortgaged property, I am satisfied that the service at Nob Hill was good.
60. In the premises, I shall enter judgment against the 1st defendant for recovery of possession as well as for the money judgment.
Costs
61. I shall order costs nisi against the 2nd defendant in relation to the appeal on all the summonses.
62. I shall also make an order nisi that the costs before Master J. Wong be to the plaintiff.
(B. Fung)
Mr Jeremy S.K. Chan, instructed by Messrs Johnson, Stokes & Master, for the Plaintiff
Mr Nigel Bedford, instructed by Messrs M. Grewal & Co., for the 2nd Defendant