SI TOU CHOI KAM v. WEALTH CREDIT LTD

DCMP 537/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 537 OF 2016

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DECISION

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INTRODUCTION

1.  The plaintiff applies for leave to discharge and vacate the charging orders registered in the Land Registry by the defendant in both DCCJ 252 of 2009 and DCCJ 3761 of 2009 respectively.

BACKGROUND

2.  The plaintiff and Edmond Cheung (“Cheung”) are wife and husband.  They purchased the property of Flat A, 18^th floor of Block 2, the Pinnacle, 8 Wan Hang Road, Tseung Kwan O, Sai Kung, New Territories, Hong Kong (“the Property”) as joint tenants with the financial assistance of the Hong Kong Housing Society under the Sandwich Class Housing Scheme.  The plaintiff paid all deposits, legal costs and incidental expenses.  Cheung did not contribute any monies in the purchase of the Property.  The plaintiff has also paid all the mortgage payments.  The mortgage of the property was discharged in mid 2008.

3.  In or about mid November 2013, the plaintiff was served with an originating summons (DCMP 2064 of 2013) issued by the defendant against Cheung for an order for sale of the Property under the charging order obtained in DCCJ 252 of 2009. As appeared on the land search, the charging order to show cause and charging order absolute were registered on 19 May 2009 and 15 June 2009 respectively. The proceeds of sale be applied in settlement of judgment debt in the amount of HK$627,254.01. The plaintiff opposed to the order for sale. For reasons unknown, the defendant discontinued the said originating summons.

4.  Apparently, there were other charging orders registered by the defendant in another civil action, DCCJ 3761 of 2009. As appeared in the land search, the charging order to show cause and the charging order absolute was registered on 13 November 2009 and 31 December 2009 respectively.

5.  The plaintiff issued a proceeding by way of an originating summons against Cheung in the Court of First Instance (HCMP 3339 of 2013), she applied for a declaration that the interest and benefit of the Property held by Cheung as trustee and in trust for the sole benefit and interest of the plaintiff absolutely since purchase.

6.  Cheung did not appear throughout the proceedings.  As Cheung was adjudged bankrupt on 17 September 2014, the official receiver was being notified of this application and was added as the 2^nd defendant.  It turned out the official receiver did not contest but had taken a neutral stance.

7.  The defendant was put on notice the proceedings of HCMP 3339 of 2013, a director of the defendant was present at the hearings without joining as a party.

8.  On 26 November 2015, Mr Justice Lok ordered a declaration since the purchase of the Property on 20 August 1997 by the plaintiff and Cheung as joint tenants, “the interest and benefit of and in the Property has been and is held by them as joint tenants as trustees thereof in trust for, and for the sole and entire benefit and interest of the plaintiff absolutely.”  He also ordered the officer receiver “do execute an assignment…. of the said legal estate in the Property formerly held and registered in the name of ……Cheung to the plaintiff at nil monetary consideration absolutely and free from the bankruptcy order and other incumbrances subject to the approval of the Housing Society” (“the Declaration”).

9.  The plaintiff therefore applies for an order that the two charging orders obtained by the defendant in DCCJ 252 of 2009 and DCCJ 3761 of 2009 be discharged and vacated accordingly.

THE DEFENDANT’S ARGUMENT

10.  The defendant opposed on three grounds.  Firstly, the Declaration has never been served on the defendant by way of Form 52 pursuant to Order 15 rule 13A of the Rules of District Court, Cap 336H (“the RDC”).  The effect of this order is that the party being served whom might be affected by the judgment was given a chance to make application to vary that judgment.  Order 15 rule 13A(1) reads,

“At any stage in an action to which this rule applies, the Court may, on the application of any party or of its own motion, direct that notice of the action be served on any person who is not a party thereto but who will or may be affected by any judgment given therein.”

11.  Secondly, the defendant argued Cheung was not holding the property in trust for the plaintiff.  The defendant then attempted to give evidence that Cheung has contributed to the purchase price of the Property.

12.  Thirdly, the defendant argued should Cheung has more than a bare legal estate, his interest in the Property is capable to be charged.

THE PLAINTIFF’S REPLY

13.  The plaintiff complained the inaction on the part of the defendant at time when the HCMP 3339 of 2013 application was ongoing.  The defendant was duly notified and it has chosen not to intervene with the application.  The HCMP 3339 of 2013 order prevails and supersedes the charging orders obtained by the defendant and thus its registration in the Land Registry has no effect.

14.  As Cheung was an adjudged bankrupt, the defendant is in no position to argue in this application whether Cheung is and was vested with any beneficial interest in the Property.  Or alternatively, the defendant is not entitled to reopen the issue of discussing the same issue here.

15.  The plaintiff further complained the defendant changed its stance of seeing the HCMP 3339 of 2013 order, the defendant agreed to be bind by it in previous correspondence of the defendant with the plaintiff, the defendant even suggested to the plaintiff to ask the official receiver to make application to vacate the said charging orders.  The defendant’s resistance of the plaintiff’s application is not consistent with its previous conduct and amount to an abuse of process.

ANALYSIS

The Land Registration Ordinance, Cap 128

16.  The arguments of both the plaintiff and the defendant were not on point.  The issue of the plaintiff’s application rests with priority of the instrument and/or judgment.  The issue has never been raised in the hearing of the argument which I have then invited party to make written submissions.

17.  The relevant sections 3(1) and 3(2) are relevant sections of the Land Registration Ordinance, Cap 128 (“the LRO”), the sections regulate priority of interest in accordance with the respective dates of registration. Section 3 of the Land Registration Ordinance states,

“(1)  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. (Amended 50 of 1911 Schedule; 34 of 1978 s. 2; 56 of 1980 s. 4)

(2)  All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes.” [emphasis added]

18.  The plaintiff submitted section 3(1) and 3(2) of the LRO are inapplicable because unwritten equity is not registrable. Equities are equal the first in time prevails. The plaintiff has a beneficial interest over Cheung’s share at time of acquisition of the Property, although such right was subsequently declared, its existence shall prevail over the charging orders.  It must not be the case, there might be at times more than one unwritten equity on a piece of land, the function of the LRO which regulates the priority of interest when parties are competing against each other claiming rights over properties.

19.  The plaintiff further relied on section 17 of the Land Registration Ordinance, Cap 128) reads,

“The registration of a judgment, order or lis pendens shall cease to have effect at the end of 5 years from the date of registration, but the judgment, order or lis pendens may be re-registered from time to time and, if so re-registered, shall have effect for 5 years from the date of re-registration.”

The plaintiff argued the respective charging orders have expired in 2014.  The charging orders should have already ceased to have effect because such registration is only valid for 5 years from the date of registration.  The said two charging orders were not registered after their expiry.  I agree, but only to the extent that the effect of failure to re-register the said two charging orders are that they lost priority vis-à-vis subsequent registered interests, i.e. the Declaration, but not invalidating the orders itself.

20.  In this application, the answer to whether the said charging orders should be discharged and vacated must be canvassed on the priority of the interest of the Property at time of the creation of the loan by the defendant to Cheung.  I accept unwritten equities are not registrable. At time when the defendant advanced the loan to Cheung, nothing appeared in the land search record that Cheung was not a beneficial owner (as a joint tenant) of the Property.  No declaration has ever been obtained or registered.  Being a legal person in considering whether to advance a loan to Cheung in light of his beneficial share in the Property, there is nothing precluding from the defendant not to believe or to be alerted to Cheung was not the beneficial owner of the Property.  The same applies at time of the registration of the said charging orders, Cheung was shown in the land search record, a public record, that he is joint tenant, a beneficial owner of the Property.

21.  The Declaration was so ordered on 26 November 2015 and was registered on 28 January 2016.  The plaintiff’s interest in Cheung’s share of beneficial interest should have effect from 28 January 2016 (because the registration date is more than one month old), if any loans made to Cheung after this date, any charge by the lender, if any, should have no effect for reason of the declaration of the interest in HCMP 3339 of 2013. Sections 3(1) and 3(2) of the LRO explains the consequence of non-registration of an instrument or judgment.

THE ARGUMENTS OF THE PARTIES RAISED AT THE HEARING

22.  To address the argument of the plaintiff.  Be it not the crux of this application.  I am satisfied the plaintiff has yet to comply with Order 15 rule 13A of the RDC.  On the one hand the plaintiff complained the inaction of the defendant in HCMP 3339 of 2013, she has failed to join the defendant as a party to that application of which she could have done so.  The reason for inaction of both parties is obvious because the defendant will fall into an awkward position when the HCMP 3339 of 2013 application concerns beneficial interest between the plaintiff and the Cheung only.  I accept the plaintiff’s argument, should the plaintiff apply for the judgment be served pursuant to Order 15 rule 3A of RDC, it can achieve no practical effect.

23.  The plaintiff has correctly pointed out further the defendant is unable to argue for and on behalf of Cheung whether he has beneficial interest in the Property in this hearing.  The issue has been canvassed by Lok J in HCMP 3339 of 2013 which is incapable to be reopened for litigation.

24.  With regard to the change of stance of the defendant that it has agreed to be bind by the Declarations in various letters written to the plaintiff’s solicitors in the outset, I am not persuaded those correspondence should be final determination of its position. It would of course be better put when explanation be given of its change of stance, in absence of such, I do not see those correspondence would prejudice the defendant’s rights in this application.

CONCLUSION

25.  The only logical conclusion would be, prior to the registration of the Declaration (i.e. the HCMP 3339 of 2013 order), the interest of Cheung in the Property should be unaffected as a joint tenant, with beneficial interest.  The validity of the said charging orders obtained in both DCCJ 252 of 2009 and DCCJ 3761 of 2009 should not be affected.

COSTS APPLICATION

26.  I invite the parties to make costs application at the hearing.  I fail to see there are reasons that I shall depart from the general rule that costs to follow the event.

ORDER

27.  I therefore make the following orders:-

(i) The Originating Summons filed on 15 February 2016 be dismissed.

(ii) The plaintiff to pay the costs of the Originating Summons filed on 15 February 2016 to the defendant, including costs of this hearing with certificate for counsel, to be taxed if not agreed.