HARVEST DEVELOPMENT LTD v. THE PERSONAL REPRESENTATIVE OF THE ESTATE OF LIU WA FUK, DECEASED

DCMP 1367/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS

ACTION NO. 1367 OF 2006

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REASONS FOR DECISION

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1.  This is an application by the Plaintiff for a declaration that the mortgage (“the Mortgage”) in favour of one Liu Wa Fuk (“the Mortgagee”) stated in the Schedule to the Block Government Lease dated 27 March 1905 (“the Block Lease”) in respect of the land known as Lot Nos. 695, 705, 711, 720, 723 and 730 in D.D. 206, Sha Tin, New Territories (“the Lots”) is incapable of subsistence and is unenforceable by the operation of the Limitation Ordinance, Cap. 347.  I would regard this as the first claim of the Plaintiff.  In the hearing on 28 August 2007, the Plaintiff applied to further amend the Re-Amended Originating Summons by adding the second and the third claims as follows:

(i)	a declaration that the Plaintiff and its predecessors in title had already recovered possession of the Lots and the Mortgage affecting the Lots had accordingly been discharged;
(ii)	alternatively, under s. 12A of the Conveyancing and Property Ordinance, Cap. 219 (“the CPO”), an order that the Plaintiff be at liberty to pay into court the sum of HK$400, being the principal and interest due under the Mortgage, and a declaration that, upon payment into court of the said sum, the Lots be discharged from the Mortgage.

2.  As the Plaintiff has made considerable efforts in trying to locate the Mortgagee or his successor in title but with no fruitful result, it is unlikely that anyone would appear and contest the application, I therefore allowed the application for the further amendment of the Re-Amended Originating Summons and made an order dispensing with the service of the same.

3.  In the hearing, I also allowed the Plaintiff’s third claim and made an order that the Plaintiff be at liberty to pay into court the said sum of $400, and a declaration that upon such payment, the Mortgage be discharged and the Lots be free from such encumbrance.  I now give my reasons.

Background of the case

4.  The Plaintiff acquired the interest in the Lots in 3 stages in the period from May 1992 to July 1996.  The Lots are held under the Block Lease, and it is stated in its schedule that the Lots are subject to the Mortgage for HK$16 in favour of the Mortgagee who was said to be in possession of the Lots.

5.  Before the Plaintiff acquired the first 1/3 share of the Lots in 1992, the Lots were vacant and the then registered owners of the Lots had exclusive possession of the same.  Since the Plaintiff became the sole registered owner of the Lots in 1996, it has been using the Lots for car parking purposes.  Throughout the years, there has been no interruption or interference with the Plaintiff’s use of the Lots, and the Plaintiff has not received any demand or notice from the Mortgagee or anyone claiming through or under the Mortgage, whether for payment of the mortgage money or otherwise.

6.  The Plaintiff claims that it is necessary for it to obtain the relief sought.  In fact, the Plaintiff proposes to surrender the Lots, together with the adjourning land, to the Government in exchange for a new lot for development purposes.  However, the Lands Department insists that, in land exchanges cases, the Government should obtain a clear and valid title and requests the Plaintiff to obtain a declaration of the court to the effect that the Lots are free from the Mortgage before the Government would accept the surrender of the Lots.

Jurisdictional issue

7.  Before I proceed to deal the merits of the application, I need to satisfy myself that the District Court has jurisdiction to entertain such claim.  In my decision in Wong Kum Chi v Lee Tit Ying [2002] 1 HKLRD 420, I have already set out the reasons why the District Court has limited jurisdiction in hearing claims concerning title in land.  In short, s. 36 of the District Court Ordinance, Cap. 336 (“the DCO”), which carries a rather misleading heading of “jurisdiction where title in question”, is not by itself a “jurisdiction-conferring” provision, and hence unless a plaintiff’s claim falls under one of the other “jurisdiction-conferring” provisions such as s. 32 (for actions of contract, quasi-contract and tort), s. 33 (for actions to claim for money recoverable by enactment), s. 35 (for actions for recovery of land) and s. 37 (for certain specified actions relating to equity jurisdiction) of the DCO, the District Court has no jurisdiction to hear the claim.

8.  As demonstrated by the latest Re-Re-Amended Originating Summons, the Plaintiff’s claims are now formulated in 3 ways.  The first claim is based on s. 19 of the Limitation Ordinance, which provides that no action shall be brought to recover the money secured by a mortgage 12 years after the date when the right to recover the money accrued.  However by such claim, the Plaintiff is only asking the court to clear the title of the Lots and the claim does not fall into any of the “jurisdiction-conferring” provisions in the DCO, and hence this court has no jurisdiction to make the order sought.  In any event, the Plaintiff has difficulty in discharging the evidential burden for the limitation claim, and so such claim was not pursued in the hearing.

9.  The second claim is made on the basis that the Mortgage was a Chinese customary mortgage and the same was discharged upon recovery of the possession of the Lots by the Plaintiff’s predecessors in title.  The Mortgagee was stated in the Block Lease to be in possession of the Lots, and this was one of peculiar features of Chinese customary mortgage.  In Appendix III of the Government Report on the New Territory at Hong Kong written by the then Colonial Secretary of Hong Kong, Mr. J. H. Stewart Lockhart, the following account was given about such kind of mortgage:

“

There are also mortgages, operating as deeds of sale, redeemable within 30 years ……

If any owner wishes to sell his land, he is supposed to offer such land in the first instance to his nearest relatives, and is not at liberty to sell to anyone outside of his clan, unless the nearest relatives are unwilling to purchaser.  In large clans transactions in land take place, as a rule, between different members of the clan without the property ever being disposed of to outsiders.  In such transactions the deed of transfer is invariably worded as if it were a mortgage, and no period for redemption is fixed, the vendor or mortgagor, or his descendants, thus having every opportunity to redeem the property at the original price even several generations after the transaction has been made.  It is customary for the mortgagor to enter into possession, so that a Chinese mortgage is often equivalent to a sale.”

10.  For Chinese customary mortgage, if the mortgagee is no longer in possession of the land, it may be inferred that the mortgage in question has already been discharged.  Such inference was indeed made in Re Cheung Chi Wang and Anr., unreported, HCMP No. 6097 of 2001 (decision on 31 December 2001), in which Deputy High Court Judge Lam, as he then was, said the following about the discharge of Chinese customary mortgage:

“	14.	…… the Property was stated to be subject to a mortgage in favour of Cheung Iu Tsung Tso for $30 [“the Mortgage”] and the mortgagee was said to be in possession.  It seems to me that the mortgage would probably be a Chinese customary mortgage under which the mortgagee entered into possession when the mortgage was created.  The mortgagee had the use and occupation of the land in lieu of interest.  That kind of mortgage was subsequently given statutory recognition as Form C mortgage under the New Territories Ordinance Section 30 (which has since been repealed).  The mortgagee would remain in possession until redemption.
		………
	16.	…… Hence, if there is evidence showing that possession of the Property had been given back to the mortgagor or his successors, a reasonable inference is that the mortgage had been discharged,  This inference could be reinforced by the lack of action on the part of the mortgagee to enforce the mortgage. ……”

11.  As the Mortgagee or his successor in title is no longer in possession of the Lots, the Plaintiff is inviting the court to make the same inference in the present case.  However under such claim, the Mortgage is no longer in subsistence, and the Plaintiff is asking the court to clear the title of the Lots without relying on any of the claims specified in the “jurisdiction-conferring” provisions of the DCO.  In such circumstances, the District Court again has no jurisdiction to hear the claim.

12.  Facing the aforesaid difficulties, the Plaintiff can only rely on the third claim which is one made pursuant to s. 12A of the CPO.  Such claim is based on the premise that the Mortgage is still subsisting, but as the Mortgagee or his successor in title cannot be located, the Plaintiff is asking the court to discharge the Mortgage once the money owed under the Mortgage, including the interest, is paid into court.  Since this claim can be regarded as an action for the redemption of a mortgage and the annual rent of the Lots is nominal, the District Court has jurisdiction to entertain such claim under s. 37 of the DCO.  But unlike the first two claims, this claim is proceeded on the basis that the Mortgage is still subsisting, and so this claim is mutually exclusive with the first two claims stated in the Re-Re-Amended Originating Summons.

13.  With the passage of time, it would be very difficult for the court to know now whether the Mortgage had been discharged when the Plaintiff’s predecessors in title repossessed the Lots probably in the earlier part of the last century.  However as there is no evidence about the discharge of the Mortgage as shown in the Block Lease, I am prepared to proceed on the basis that the Mortgage is still subsisting now and that the Plaintiff is seeking to discharge the Mortgage under s. 12A of the CPO.  In such case, this court has jurisdiction to make the declaration as sought by the Plaintiff.  However, in order to avoid future argument on such jurisdictional issue, I would certainly advise practitioners to commence similar actions in the Court of First Instance in the future, unless the claim is brought exclusively under s. 12A of the CPO.

Merits of the s. 12A claim

14.  S. 12A of the CPO reads as follows:

“	(1)	Where land is subject to any encumbrance, whether immediately realizable or payable or not, and the encumbrancer is out of the jurisdiction, cannot be found or is unknown, or if it is uncertain who the encumbrancer is, the court may, if it thinks fit, on the application of the party for the time being entitled to redeem the encumbrance, direct or allow payment into court of a sum of money sufficient to redeem the encumbrance and any interest thereon.
	(2)	Upon payment into court of the sum referred to in subsection (1), the court may, if it thinks fit, and either after or without any notice to the encumbrancer, as the court thinks fit, declare the land to be free from the encumbrance, and make any order for conveyance or vesting order as appropriate, and give directions for the retention and investment of the sum of money paid into court and for the payment or application of the income thereof, and for the payment of an amount certified by the court to be the reasonable costs of the applicant in making the application, such amount to be deducted from the sum of money paid into court.
	(3)	On application by the encumbrancer or any person entitled to the money or fund in court, the court may direct payment or transfer thereof to the persons entitled to receive or give a discharge for the same, and generally may give directions respecting the application or distribution of the capital or income thereof.
	(4)	In this section, the ‘court’ means the Court of First Instance unless the party to the application submits to the jurisdiction to the District Court.”

15.  In Re Cheung Chi Wang, ibid., Deputy Judge Lam had already highlighted some of the features of s. 12A and I do not want to repeat the same here.  In the present case, it is sufficient for me to say that considerable efforts have been made to locate the Mortgagee and his successor in title, including the inquiries made with the Probate Registry of the High Court, Heung Yee Kuk and Rural Committee Shatin, and the Registry of Births and Deaths, and yet the Plaintiff cannot locate anyone who claims to have an interest in the Mortgage.  Hence, I accept that this is a case where the encumbrancers cannot be found or, in the scenario that the Mortgagee has died, the encumbrancers is unknown or uncertain, and I see no reason not to make the order as sought by the Plaintiff.

16.  The figure of $400 was arrived at by the Plaintiff adopting a notional interest rate of 20% per annum with some additional margin.  This was the same formula approved by Deputy Judge Lam in Re Cheung Chi Wang, and I am satisfied that such amount should be adequate to satisfy whatever interest the Mortgagee might have in the Mortgage.

17.  It is suggested in Re Cheung Chi Wang that s. 12A application should consist of different stages.  After the court directs the applicant to make the payment into court in the first hearing, the court would then hold a second hearing to decide whether to make a declaration that the property concerned be discharged from the encumbrance.  However, I agree with Ms. Ngai, counsel for the Plaintiff, that a practical approach should be adopted in the present case, as it is highly unlikely that the court would be presented with new materials for the purpose of deciding whether a declaration under s. 12A should be made, particularly where the encumbrancer or his successor in title cannot be found or located.  In fact, a “one-stage” approach, ie. with the order for payment into court and the declaration to clear the title of the property made in one single hearing, had been adopted by Deputy High Court Judge Gill in Re Queen Cheers Development Limited, HCMP No. 2731 of 2003 (order made on 17 July 2003) and Deputy High Court Judge Saunders, as he then was, in Re Lung Cheung Development Company Limited, HCMP No. 960 of 2004 (order made on 5 May 2004), and I agree that the same should be applied in the present case.  I therefore granted the relief accordingly.