FU KIN CHOW AND OTHERS v. IP KAT FAN

DCMP 1314/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 1314 OF 2007

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BETWEEN

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REASONS FOR DECISION

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1.  The Fu’s (the Plaintiffs) became the owners of various lots of land in the northern New Territories.  Lot No. 1582 in Demarcation District No. 79 is one of them.  They intend to sell the lot and have entered into agreement with the purchaser.  Completion would take place this month.  The land search reveals that the lot is subject to a mortgage in favour of Ip (the Defendant) created in 1936.  There is no indication of discharge of that mortgage ever since.  The Fu’s took out these proceedings last May with a view to freeing the lot from the mortgage.

2.  Prior to the hearing before this court, the Fu’s took out an application to amend these proceedings to essentially include an application pursuant to section 12A of the Conveyancing and Property Ordinance, Cap.219 (the CPO).  I allowed the amendment.  After hearing the application as amended, I also granted the following orders:

(1)	leave to the Fu’s to pay into court, to the credit of these proceedings, a sum of HK$4,600 being the principal and interest due under the mortgage, within 14 days;
(2)	a declaration that upon payment into court as aforesaid, the lot be freed and discharged from the mortgage;
(3)	no order as to costs of the application.

3.  I now give my reasons.

BACKGROUND

4.  The lot was first granted under the Block Crown lease in 1905.  The land search reveals that the lot was mortgaged by Fu Tsoi Sham, the owner, to Ip in 1936 for the principal sum of HK$250.  There is no indication of discharge of the mortgage at any stage.  The Fu’s became the owners of the lot by various deeds of gifts by their father/uncle in 2002.  According to the affirmations filed in support of the application, the Fu’s predecessors in title, i.e., their father/uncle, have never mentioned anything about the mortgage.  The Fu’s and their then solicitors have made enquiries with the Births and Deaths Registry, the North District Office, the Rural Committee of Ta Kwu Leng and the Probate Registry.  Neither Ip nor his successors in title, if any and surviving, could be located.  There is no evidence that any of them has ever come forward to assert any right under the mortgage since 1936.

EX PARTE HEARING

5.  Considering the affirmations and the documentary evidence, I am satisfied that this is a case where despite considerable effort, the encumbrancers cannot be found or, in case where the mortgagee has died, the encumbrancers are unknown or uncertain.

6.  Though the Fu’s named Ip as the Defendant, there was no way they managed to satisfy the court that the proceedings could be brought to the attention of Ip by way of substituted service.  In similar circumstances, the court has allowed the matter to be proceeded with on an ex parte basis: see Man Chi Kan v Man Tsak Lun [2003] 2 HKLRD 489 at 492G-I.

7.  Yet, the Fu’s did apply for leave for substituted service of these proceedings and somehow managed to obtain such leave.  The Fu’s also did so by way of advertisements in the local newspapers.  Having said that, I do not think that the Fu’s having done so should now become a reason for not allowing them to proceed on an ex parte basis in the circumstances of this case.

THE AMENDMENT

8.  The application was originally taken out for a declaration that the mortgage is incapable of subsistence or is unenforceable by the operation of the Limitation Ordinance, Cap.347, or the enforcement of the right of Ip under the mortgage has otherwise been waived or abandoned.

9.  To begin with, such claim would have given rise to a jurisdictional issue because this did not come within the jurisdiction conferring provisions of the District Court Ordinance, Cap.336: see Harvest Development Limited v The Personal Representative of the Estate of Liu Wa Fuk, deceased, DCMP 1367/2006, 19 September 2007 at paras.7-8.

10.  As mentioned above, the Fu’s applied to amend the proceedings to include an application pursuant to section 12A of CPO.  In court, Mr Lau for the Fu’s confirmed that they would abandon the claim on the basis of limitation and simply pursue the claim pursuant to the CPO.  The court in Harvest Development Limited apparently saw no real prejudice in allowing similar application for amendment.  In the circumstances of this case as mentioned above, I hold the same belief and therefore allowed the amendment and dispensed with the service of the amended application.

SECTION 12A OF THE CPO

11.  Section 12A provides the mechanism of discharge of encumbrances by the court.  Where the land is subject to any encumbrance, and the encumbrancer cannot be found or is unknown, or if it is uncertain who the encumbrancer is, a party for the time being entitled to redeem the encumbrance may apply pursuant to section 12A(1) for leave to make payment into court of a sum of money sufficient to redeem the encumbrance and any interest thereon.  In view of the record in the land search here, the mortgage should be considered as subsisting for the purpose of the application of section 12A: see Man Chi Kan (above) at 492D-E.  Considering the Fu’s such claim as an action for the redemption of a mortgage and the nominal annual rent of the lot, I rule that this court has jurisdiction to entertain the application: see section 37(1)(c) of Cap.336; Harvest Development Limited (above) at para.12.

12.  In the circumstances of this case, I am satisfied that leave should be given to the Fu’s to make payment into court of a sum sufficient to redeem the mortgage.  The principal was HK$250 in 1936.  The Fu’s proposed to adopt a notional interest rate of 20% per annum for the past 72 years.  The principal plus interest would amount to HK$3,850.  An additional margin of HK$750 is proposed and thus the total sum would be HK$4,600.  This method of calculation is in line with the decided cases: see Man Chi Kan (above) at 492F (followed in Cheung Tak Lee v Ng Ching Kiu, HCMP 1263, 6 November 2007 at paras.8-9).  I am satisfied that this sum would be sufficient for the purpose of section 12A(1) in the present case.

13.  This deals with stage one of the section 12A mechanism.  But the Fu’s also applied for a declaration that upon their payment into court, the lot should be freed and discharged from the mortgage.  This is stage two of the section 12A mechanism.  Section 12A(2) provides that upon payment into court, the court may, if it thinks fit, and either after or without notice to the encumbrancer, as the court thinks fit, declare the land to be free from the encumbrance, etc.

14.  In Man Chi Kan (above) and Cheung Tak Lee (above), the court granted the plaintiff leave under section 12A(1) with liberty to apply under section 12A(2) for a declaration freeing the property from the mortgage upon payment.  A second hearing for the application for the declaration is entailed.  Now the Fu’s effectively asked me to compress these 2 stages of section 12A into this single hearing.  Mr Lau for the Fu’s cited Harvest Development Limited (above, at para.17) in support of his submission that the court may in appropriate case adopt the practical one-stage approach.

15.  While the court has explained that the section 12A mechanism would be proceeded with at three different stages, the court also recognised that section 12A is to provide a practical solution.  From the wordings of section 12A(2), it is envisaged that in a proper case, proceedings could be conducted without notice to the mortgagee.  The court seizing with the matter can consider on the facts of the case before it whether to direct notice to be given to other parties so as to enable such party to apply to be joined as a defendant to the proceedings: see Cheung Chi Wang (above) at 335D-F.  In circumstances similar to the present case, the court might allow the proceedings up to stage 2 to be continued on an ex parte basis: see Man Chi Kan (above) at 492I.

16.  What is unique in the present case is that for what is worth, the Fu’s even attempted substituted service of the proceedings and that of the notice of today’s hearing by advertisements in local newspapers this January and March respectively.  Practically, there is really no basis to believe in any likelihood of interested party or new materials (at least locally) emerging, if the court defers deciding whether to grant the declaration to a second (likely ex parte) hearing after the Fu’s have made the payment under section 12A(1).  Likewise, in view of the relatively small amount to be paid into court in the present case, there is no practical need for a second hearing for any direction under section 12A(2) for the retention, investment or application of any income from the sum so paid.  The money shall simply be retained in court pending any application by third party pursuant to section 12A(3).

17.  On the other hand, the Fu’s do have a genuine need for such relief by the completion date in mid-April.  I am satisfied that the fullest justice could be achieved by my exercising discretion to grant the relief in this hearing on the basis of the proved circumstances of this case and the Fu’s fulfilment of the order under section 12A(1): see also Hong Kong Civil Procedure 2008 at 15/16/2.

COSTS

18.  I refused the Fu’s application for costs of this application.  But for the recent amendment of their application, they would not have been able to obtain the relief sought.  Also considering the circumstances of this case as analysed above, I think the appropriate order should be one of no order as to costs.

Representation: