BELAIR GARDEN MANAGEMENT CO LTD v. SOON WAH KIAW AND ANOTHER

DCMP 3355/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3355 OF 2013

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REASONS FOR DECISION

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Introduction

1.  The 1^st and 2^nd defendants are the registered owners of Car Parking Space 373 at Level 1 of the Swimming Pool and Tennis Court of Belair Gardens, No 52 Tai Chung Kiu Road, Shatin, New Territories (the “Property”).  The plaintiff is the manager of Belair Gardens.

2.  By an Originating Summons dated 31 December 2013 (“OS”), the plaintiff commenced the present proceedings to recover arrears of outstanding management fees and interest payable by the defendants to the plaintiff, as well as to enforce two Memorandums of Outstanding Management Fees dated respectively 8 September 2000 and 25 April 2013 by 9an order for the sale of the Property.

3.  On 16 April 2014, Master M Lam granted an order for substituted service of the OS and the order made therein by (1) sending these documents by prepaid ordinary post to (a) Flat C, 11^th Floor, Lincoln Heights, Belair Gardens, No 52 Tai Chung Kiu Road, Shatin, New Territories; and (b) Workshop No 15, 12^th Floor, Worldwide Industrial Centre, Nos 43-47 Shan Mei Street, Shatin, New Territories (the “Addresses”); and (2) advertising a notice of these proceedings once in Sing Tao Daily.  Service shall be deemed to have been effected on the day of the publication of the said advertisement and the time for acknowledgement of service shall be 14 days thereafter.

4.  According to the Fourth Affirmation of Service of Ng Siu Tong filed on 14 July 2014, the plaintiff served the OS and the Order of Master M Lam dated 16 April 2014 on the defendants by ordinary post sent on 8 May 2014.  A notice of the proceedings was also advertised and published in Sing Tao Daily on 5 May 2014.  Thus, service of the OS and the Order of Master M Lam dated 16 April 2014 was deemed to have been effected on 5 May 2014.

5.  According to the Affirmation of Service of Mok Chu Fai filed on 25 July 2014, both the Notice of Appointment to Hear Originating Summons dated 14 July 2014 and the Affirmation of Dong Chi filed on 14 July 2014 were served on the defendants by ordinary post sent to the Addresses on 22 July 2014.  A Notice to Occupants filed 14 July 2014 was also posted up on a conspicuous place at the Property on 22 July 2014.

6.  On 30 July 2014, the plaintiff filed a Certificate certifying that no notice of intention to defend had been given by the defendants as at that date, notwithstanding that the time for acknowledgement of service had expired on 19 May 2014.

7.  The OS was heard before Deputy District Judge Richard Leung on 1 August 2014 who adjourned the same to 1 September 2014 for substantive hearing with directions given for substituted service of the notice of the substantive hearing on the defendants in the same manner as provided for by the order of Master M Lam, namely, by ordinary post and advertisement in a Chinese newspaper.

8.  According to the Second Affirmation of Service of Mok Chu Fai filed on 19 August 2014, the Notice of Appointment for the Adjourned Hearing of Originating Summons dated 11 August 2014 was served on the defendants by ordinary post sent to the Addresses on 13 August 2014 and advertised once in Sing Tao Daily on 14 August 2014.  A Notice to Occupants filed 13 August 2014 was also posted up on a conspicuous place at the Property on 15 August 2014.

The plaintiff’s case

9.  The Property is subject to a Deed of Mutual Covenant dated 8 March 1982 registered in the Land Registry (the “DMC”). The DMC contains the following provisions in Section IV, Sub-Section E which are of particular relevance to these proceedings:-

“Clause 4: In the event of any Owner failing to pay any sum due and payable by him in accordance with the provisions of this Deed or the Sub-Deed or failing to pay any damages awarded by any court for breach of any of the terms or conditions of this Deed or the Sub-Deed within 30 days of the date on which the same became payable, the amount thereof together with interest as aforesaid and the said collection charge and all costs and expenses which may be incurred in recovering or attempting to recover the same including the legal expenses referred to in Clause 3 of this Sub-Section E and in registering the charge hereinafter referred to, shall stand charged on the Undivided Shares of the defaulting Owner and the Manager shall be entitled without prejudice to any other remedy hereunder to register a Memorial of such charge in the said District Land Office against the Undivided Shares of the defaulting Owner and the Unit or property or Car Park held therewith. Such charge shall remain valid and enforceable as hereinafter mentioned notwithstanding that judgment has been obtained for the amount thereof unless and until such judgment has been satisfied.

Clause 5: Any charge registered in accordance with the last preceding paragraph shall be enforceable as an equitable charge by action at the suit of the Manager for an Order for sale of the Undivided Shares of the defaulting Owner together with the right to the exclusive use, occupation and enjoyment of the Unit or property or Car Park held therewith and the provisions of Clause 3 of this Sub-Section E shall apply equally to any such action.  Any such equitable charge shall rank in priority to any legal or equitable charge given or made by the Owner in respect of such Undivided Shares and the Unit or property or Car Park held therewith notwithstanding that such other charge shall have been created and registered prior to such equitable charge.”

10.  The defendants have failed to pay management fees since February 1999.  The plaintiff instituted a number of recovery actions against the defendants in the Small Claims Tribunal.

11.  On 13 April 2000, an award for the sum of HK$2,255.00 was made against the defendants in SCTC 4/2000 for arrears of management fees from 1 February 1999 to 31 December 1999 with interest and costs (the “1^st Award”).

12.  On 14 July 2000, an award for the sum of HK$615.00 was made against the defendants in SCTC 16511/2000 for arrears of management fees from 1 January 2000 to 31 March 2000 with interest and costs (the “2^nd Award”).

13.  On 15 August 2000, an award for the sum of HK$61.50 was made against the defendants in SCTC 34264/2000 for arrears of management fees from 1 April 2000 to 30 June 2000 with interest and costs (the “3^rd Award”).

14.  The defendants failed to satisfy all three Awards.

15.  Pursuant to the DMC, the plaintiff created a Memorandum of Outstanding Management Fees dated 8 September 2000 in reliance upon the 2^nd Award and caused the same to be registered against the Property in the Land Registry by Memorial No. 1185709 on 12 October 2000 (the “1^st Memorandum”).  On 25 April 2013, the plaintiff created a further Memorandum of Outstanding Management Fees in reliance upon the 1^st and 3^rd Awards and caused the same to be registered against the Property by Memorial No. 13050600350161 on 6 May 2013, which was amended and re-registered by Memorial No. 13102301420011 on 23 October 2013 (the “2^nd Memorandum”).

16.  According to the updated calculations submitted by the plaintiff’s solicitor, as at the date of the hearing, the amount of outstanding management fees together with interest accrued thereon and costs charged under the 1^st and 2^nd Memorandums stand at HK$9,077.51.

17.  The plaintiff also seeks recovery of the arrears of outstanding management fees and interest due and payable by the defendants to the plaintiff on the Property from 1 July 2000 up to the date of judgment totalling HK$90,170.69.

Analysis

18.  The validity of the 3 Awards and hence that of the 1^st and 2^nd Memorandums are beyond question.  I am satisfied that the plaintiff is entitled to relief in respect of the outstanding management fees together with interest accrued thereon and costs charged under the 1^st and 2^nd Memorandums.

19.  As to whether the plaintiff is entitled to recover the arrears of outstanding management fees and interest from 1 July 2000 up to the date of judgment, I was referred to the decision of HH Judge CB Chan in Guardian Property Management Ltd v Golden Cheer (HK) Co Ltd, unreported, DCMP 1572/2003, 4 December 2003.  In Guardian Property Management Ltd, the learned Judge considered a similarly worded charging clause in a Deed of Mutual Covenant and stated as follows at paragraph 9:-

“So what stands charged against the property is, as already referred to, all sums payable in accordance with the provisions of the DMC which have not been paid. The moment it has not been paid beyond 30 days, then such sum automatically is charged on the shares of the defaulting owner.”

20.  In other words, the charge arises by virtue of the charging clause in the DMC itself.  It matters not whether a memorial of this charge has been registered against the share or shares of a defaulting owner in the Land Registry.  The purpose of the memorial is merely to bring about a notification of the charge of certain sums due and outstanding at a certain period.

21.  Applying Guardian Property Management Ltd, it is clear from the terms of the DMC and the 1^st and 2^nd Memorandums that a charge automatically arises in respect of all sums outstanding and due beyond 30 days, together with interest accrued thereon.  I am satisfied that the plaintiff is entitled to relief for the arrears of outstanding management fees and interest from 1 July 2000 up to the date of judgment, as per the updated calculations submitted by the plaintiff’s solicitor.

22.  I should note that there exists other encumbrances registered against the Property, namely, a Charging Order Nisi dated 18 July 2012 and registered by Memorial No. 12082402920023 on 24 August 2012, as well as a Charging Order Absolute dated 8 October 2012 and registered by Memorial No. 12101701590046 (“Charging Orders”), both in favour of the Secretary of Justice.

23.  The plaintiff argued that the 2^nd Memorandum ranked in priority to the Charging Order Nisi and the Charging Order Absolute, even though the 2^nd Memorandum was registered subsequent to the registration of the Charging Orders, by reason of Clause 5 of Section IV, Sub-Section E of the DMC (“Clause 5”). Clause 5 reads:-

“Any such equitable charge shall rank in priority to any legal or equitable charge given or made by the Owner in respect of such Undivided Shares and the Unit or property or Car Park held therewith notwithstanding that such other charge shall have been created and registered prior to such equitable charge.

24.  I disagree.

25.  In Beacon Heights (Management) Ltd v Leung Ping-Hung, unreported, HCMP 3570/1991, 7 October 1994, Godfrey JA (sitting as an additional High Court Judge) held that a charging clause (similar to Clause 4 of the DMC in this case) was enforceable in accordance with its terms against both the first owner (who signed the DMC) and successors in title of the first owner, even though the successors in title had not themselves signed any instrument of charge.  The learned Judge construed the charging clause as imposing on the first owner an obligation, akin to that of a positive covenant, to give a charge, when called on to do so, to secure payment of arrears due by the first owner, and held that this obligation bound successors in title of the first owner.

26.  I see no reason why Clause 5 of the DMC should be enforceable as against the Secretary of Justice in the present case, who is not a successor in title of the first owner.  Rather, the Secretary of Justice is a third party with no notice of the charge under the 2^nd Memorandum until the same was registered in the Land Registry.

27.  Under the Land Registration Ordinance Cap. 128 (“LRO”), priority between registrable interests is determined by their respective dates of registration.  Section 3(1) of the LRO provides that:-

“Subject to this Ordinance, all such deeds, conveyances, and other instruments in writing, and judgments, made, executed, or obtained, and registered in pursuance hereof, shall have priority one over the other according to the priority of their respective dates of registration, which dates shall be determined in accordance with regulations made under this Ordinance.”

28.  Although different security holders may agree among themselves the priority of their respective security interests without the consent of the debtor/mortgagor (see, eg Cheah Theam Swee v Equiticorp Finance Group Ltd [1992] 1 AC 472), it is clear there was no such agreement between the plaintiff and the Secretary of Justice in this case.  Indeed, in a letter dated 29 May 2014 to the plaintiff’s solicitor, Ms Fion Ng for the Secretary of Justice stated that, while there was no objection to the plaintiff applying for an order for sale, the plaintiff was expressly required to distribute the sale proceeds “according to the priority registered at the Land Registry” upon sale of the Property.

29.  In the circumstances, I reject the plaintiff’s submission that the 2^nd Memorandum ranked in priority to the Charging Orders.

Conclusion

30.  For the above reasons, the plaintiff is entitled to the relief sought in respect of the outstanding management fees together with interest accrued thereon and costs charged under the 1^st and 2^nd Memorandums, as well as the arrears of outstanding management fees and interest from 1 July 2000 up to the date of judgment.  I have made an order in terms of paragraphs 1 to 6 and 8 of the amended draft order submitted by the plaintiff’s solicitors, with a minor modification to the effect that the Charging Orders shall rank in priority to the 2^nd Memorandum.

31.  Costs should follow the event. Costs of the proceedings including the reserved costs order of Deputy District Judge Richard Leung dated 1 August 2014 and the costs of this application be to the plaintiff, such costs to be taxed if not agreed.