EARN BENEFIT LTD v. TAM CHUEN ON RAYMOND AND ANOTHER

HCMP 108/2020

[2021] HKCFI 315

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 108 OF 2020

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REASONS FOR DECISION

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APPLICATIONS

1.  I have before me two applications.  First, the application by Earn Benefit Limited (the “Plaintiff”) for an order in terms of its originating summons dated 22 January 2020 (the “Originating Summons”) and Freeway Finance Company Limited’s (the “Intended 2^nd Defendant) application to be joined as a party to these proceedings dated 5 June 2020 (the “Joinder Summons”).

2.  By an order dated 2 July 2020, it is agreed by the parties that:

“The hearing for the Plaintiff’s Originating Summons dated 22^nd January 2020 and the Intended 2^nd Defendant’s Summons dated 5^th June 2020 fixed on 8^th July 2020 at 9:30 a.m. shall be vacated and adjourned to a date to be re-fixed by the parties in consultation with counsel’s diary within 14 days from the date hereof for argument with 2 hours reserved.”

3.  By a notice of hearing dated 4 August 2020, both applications were then fixed for substantive arguments before this Court.

MATERIAL FACTS

4.  The Plaintiff and the Defendant are the registered tenants in common in equal shares of a property known as the Ground Floor & Cockloft, Mou Fat Building, No. 77 Nam On Street, Hong Kong (the “Property”).

5.  This Court notes that the Plaintiff’s 50% interest in the Property was recently acquired from Tam Siu Po Rosanna and Tam Siu Wai in 2019. The Plaintiff’s 50% interest in the Property is unencumbered.  It is at the hearing that the Court’s attention was drawn to the fact that the Plaintiff in fact has acquired over 80% of the undivided shares of Mou Fat Building (“the Building”).  Mr Cheung for the Plaintiff confirmed that after taking instructions.

6.  The Defendant’s 50% interest in the Property is subject to legal charges in favour of the Intended 2^nd Defendant.

7.  The Plaintiff had written to the Defendant to see if it could acquire full ownership of the Property but there is no reply from the Defendant.  From the Skeleton Submissions of the Intended 2^nd Defendant, the legal mortgagee of the Defendant’s 50% of the Property, it appears that the Defendant has been heavily indebted and has since disappeared.

8.  After the disappearance of the Defendant, the Property had been managed and rented out to a Mr Chan by the Intended 2^nd Defendant pursuant to a power of attorney.  Half of the rent was paid to the Intended 2^nd Defendant to set off the outstanding debt, and the other half of the rent was paid to the predecessors of the Plaintiff.

9.  Mr Yuen for the Intended 2^nd Defendant submitted that the rental arrangement lasted for about 10 years until late 2019 when Mr Chan terminated the tenancy agreement on the basis that he had been repeatedly disturbed by people claiming to be property developers to acquire the Property for redevelopment.  Then, the lock to the Property was changed but it was found to be broken in February 2020 allegedly by people associated with the property developers.

THE ORIGINATING SUMMONS

10.  Mr Cheung for the Plaintiff has filed a very helpful and comprehensive skeleton submissions.  I am satisfied that the Defendant has been properly served and, prima facie, the Plaintiff is entitled to an order for sale vis-à-vis the Defendant.  However, that is not the end of the matter.

11.  I am of the view that it is only sensible that this Court deals with the Intended 2^nd Defendant’s joinder application first for if the Intended 2^nd Defendant is joined, there are issues raised by the Intended 2^nd Defendant which this Court needs to take into consideration before exercising its discretion to make an order for sale and if so, on what terms.

THE JOINDER APPLICATION

Legal Principles

12.  The principles in relation to the joinder of a party to a set of proceedings are well established (See §§15/6/7 and 15/6/8 of the Hong Kong Civil Procedure 2021, Vol.1).

13.  Order 15, rule 6(2) provides that:

“Subject to the provision of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either on its own motion or on application-

(b) order any of the following person to be added as a party, namely –

(i) Any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) Any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.” (Emphasis added).

14.  In Man Whi Chung v Man Ping Nam [2003] 1 HKC 549, Deputy High Court Judge Andrew Cheung (as he then was) at §14 said:

“It is essential for an intending defendant to show that, he is sufficiently interested in the proceedings to which he or she wishes to be joined as an additional party. Under r 6(2)(b)(i) (limb (i)), a person ‘who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually or completely determined and adjudicated upon’, may be added as a defendant.”

15.  Under limb (ii), the intended defendant is required to have some interest which is in some way directly related to the subject matter of the action whilst a mere commercial interest in its outcome is not enough. There must exist between the intended defendant and any party to the cause or matter a question or issue arising out of, or relating to, or connected with any relief or remedy claimed in the cause or matter, which the Court consider it just and convenient to determine (See Wong Chun Loong Tony v Ada Ltd [1991] 1 HKC 86 at 94E-95D per Clough JA).

16.  In discussing section 3(3) and 3(4) of the Partition Ordinance, Cap 352, Deputy High Court Judge To in Chan Shee Yuen v Chan Shu Fong, HCA 93 of 2002, unreported, 28 April 2006 in §§18-19 said:

“18.   …From these provisions, it is amply clear that the intent of the legislature is that any co-owner of a property, whether as a joint tenant or tenant in common may institute proceedings against another co-owner without joining any or all of the other co-owners. The Court’s discretion to join other co-owners as parties may only be exercised if it is necessary, proper or desirable.

19.   In considering whether it is necessary, proper or desirable to join in any other co-owner, the Court must have regard to all the likely consequences of the trial. In an action under the Partition Ordinance, the Court may order partition under section 4 or sale under section 6 or may make no order.” (Emphasis added).

Analysis

17.  Having carefully considered the parties’ submissions, I am of the view that the Intended 2^nd Defendant should be joined as a party to these proceedings.  First, the Intended 2^nd Defendant is a person interested in the Property for the purpose of the Ordinance.  It means the Intended 2^nd Defendant has the locus to institute proceedings under section 3 of the Ordinance.  A fortiori, it must have locus to oppose such proceedings taken out by another interested party.

18.  The Intended 2^nd Defendant is the legal charge of 50% share of the Property owned by the Defendant.  There is no other encumbrance with higher priority.  As held by this Court in Fan Kiu v Li Kwai Wan [2020] 1 HKLRD 659 at §43, a legal mortgagee of a tenant in common who can sue for possession and foreclosure of the mortgaged property is entitled to apply for partition.  Mr Yuen for the Intended 2^nd Defendant informed this Court that the Intended 2^nd Defendant has commenced foreclosure proceedings against the Defendant.

19.  The Intended 2^nd Defendant is also entitled to enter into and take possession of the Property without consent of the Defendant upon the Defendant’s default in payment pursuant to Clause 5(d) of the 1^st and 2^nd Legal Charges.  In Maxcolm Finance Limited v Cheng Chi Man & Or, HCMP 948/2018, unreported, 3 December 2019, Madam Justice B Chu at §32 held that a party being entitled to take possession of a property after an event of default occurred is a person holding an interest in possession in the property for the purpose of the Ordinance.

20.  I am of the view that the Intended 2^nd Defendant’s interest is directly related to the subject matter of the action, namely, whether an order for sale under the Ordinance should be made.

21.  Secondly, the presence of the Intended 2^nd Defendant is both necessary and desirable to ensure all matters in dispute in the subject matter may be fully ventilated and determined.  The matter in dispute in the Originating Summons is not restricted to whether an order for sale should be made, but also the manner of sale and the reserve price of the sale to be set.  I agree with Mr Yuen for the Intended 2^nd Defendant that as all these matters would affect the interest of the Intended 2^nd Defendant as a secured creditor, it should be entitled to be heard as a party so that a fair mechanism is in place to ensure the Property would be sold at its market price.

22.  Thirdly, under section 3(4) of the Ordinance, the Court is conferred with the discretion to direct such inquiries as to the persons interested in the Property and to add any person as a party.  A party interested in a property, which is subject to an application under the Ordinance, is, prime facie, entitled to be heard as inevitably its interest in the property will be affected.

23.  Finally, I also agree with Mr Yuen for the Intended 2^nd Defendant that by reason of the power of attorney, the Intended 2^nd Defendant is in any event entitled to act on behalf of the Defendant in defending the Originating Summons (see Clauses 13, 17 and 25 of the power of attorney).

24.  Mr Cheung for the Plaintiff submitted that, first, the Plaintiff has already taken numerous steps to respect and safeguard the Intended 2^nd Defendant’s interests, as such there is no necessity to join in as a party.  I am not convinced that the fact that the Plaintiff has taken steps to safeguard the Intended 2^nd Defendant’s interest means that the Intended 2^nd Defendant should not be joined as an interested party.

25.  Secondly, Mr Cheung for the Plaintiff submitted that the Intended 2^nd Defendant is a mere charge without any legal and beneficial interest in the Property.  Unless the Intended 2^nd Defendant can demonstrate that it has any interest over and above that of a charge, the Intended 2^nd Defendant’s submissions would unlikely to be of any significant value to the Court.  I disagree.  On the contrary, I find Mr Yuen’s submissions very helpful in putting the Court into proper perspective about the redevelopment potential of the Building.

26.  Thirdly, Mr Cheung for the Plaintiff submitted that a mere possibility of redevelopment potential exists in many old buildings in Hong Kong, and it is highly speculative to take such redevelopment potential into account in an application under the Ordinance.  Importantly, the Intended 2^nd Defendant has not adduced any valuation evidence to counter and/or challenge the Plaintiff’s valuation evidence notwithstanding some 11 months have lapsed since the issuance of the Originating Summons. If the Intended 2^nd Defendant is serious about raising oppositions to the Plaintiff’s valuation evidence, the Intended 2^nd Defendant could have obtained such valuation evidence so as to (1) justify its joinder application and (2) substantiate the benefits that its participation could bring to these proceedings which can outweigh the delay that its participation would bring.

27.  Fourthly, Mr Cheung for the Plaintiff forcefully submitted that, in any event, it is difficult to see why the Intended 2^nd Defendant’s concern cannot be addressed by the market force in a public, transparent and competitive auction in the sense that if the Intended 2^nd Defendant intends to acquire the Plaintiff’s half share at the reserve price, the Intended 2^nd Defendant can participate in the auction and bid for the same.  On the other hand, if the alleged redevelopment potential would materially affect the value of the Property, in a public, transparent and competitive auction, purchasers would come forward to compete for the Property and that would bring the eventual selling price to a value that would reflect and/or capture any such redevelopment potential.

28.  Mr Cheung submitted that the market force will take care of the Intended 2^nd Defendant’s concerns.  There is no good justification for the parties and the Court to incur time and resources to have a full-blown litigation on valuation, particularly when the Intended 2^nd Defendant has not even adduced evidence to indicate the extent of benefits that can be brought by such full-blown litigation.

29.  Originally, I found Mr Cheung’s market force submission persuasive and there was no much added value in having the Intended 2^nd Defendant to be joined us if at the end of the day both parties’ best interest lies in selling the Property at its highest possible price in the market.

30.  However, in the course of Mr Yuen’s oral submissions, he helpfully drew this Court’s attention to the fact the Plaintiff has already acquired over 80% of the undivided shares of the Building.  In such circumstances, the Plaintiff can make an application for compulsory acquisition under Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545.  When such an application is made, the valuation has to be based on the redevelopment potential of the Property.

31.  This is not a point which was covered in Mr Yuen’s Skeleton Submissions.  However, it is a highly significant point and it changes the perspective of the Court. The redevelopment potential is not a mere possibility as submitted by Mr Cheung for the Plaintiff.  Although Mr Cheung, after taking instructions, submitted that the Plaintiff has no current plan to redevelop the Building, the fact is that the Plaintiff is at liberty to make an application to the Land Tribunal under Land (Compulsory Sale for Redevelopment) Ordinance, Cap 545 anytime.  I enquired with Mr Cheung on whether the plot ratio of the Building has been fully utilized but, to be fair to Mr Cheung, he did not have concrete and direct answer. This shows that further evidence is necessary and desirable.

32.  I am of the view that given this factual scenario, without deciding on the substantive issue, the Intended 2^nd Defendant is perfectly entitled to be joined in, adduce expert reports and make submissions on at least four issues, namely, whether the sale should be carried out in the open market without reference to its redevelopment potential, how the sale should be effected, how the reserve price should be set and whether instead of an open sale, there should be a partition of the Property.

33.  It is important that the Court needs to have proper evidence in order to determine what is the best way to effect a sale of the Property and how to fix a realistic reserve price.

34.  Accordingly, it is pre-mature for the Originating Summons to be heard at this stage. 

DISPOSITION

35.  For all the reasons stated above, I make the following orders:

(1)     For the Joinder Summons, order in terms of paragraph 1, paragraph 3 save and except that the Intended 2^nd Defendant has leave to file further affidavit and expert evidence within 42 days herein.

(2)     Costs of the Joinder Summons be in the case of the Originating Summons save and except that the costs of the hearing today is to be paid by the Plaintiff to the Intended 2^nd Defendant, grossly assessed at HK$70,000, forthwith.

(3)     For the Originating Summons, I will the following directions:

(a)      Leave to the Plaintiff to fix a date for the substantive hearing of the Originating Summons with one day reserved in consultation with counsel’s diary;

(b)     The Plaintiff do file and serve reply affidavits and/or expert reports within 42 days after the Intended 2^nd Defendant files and serves its affidavit evidence and/or expert reports.

(c)      The Plaintiff and the Intended 2^nd Defendant do jointly file a joint expert report within 42 days thereafter.

(d)     Experts do attend court for cross-examination failing which their evidence will not be admissible for the hearing of the Originating Summons.

(e)      Costs be in the cause save and except that the costs of and occasioned by the adjournment of this substantive hearing of the Originating Summons be paid by the Intended 2^nd Defendant to the Plaintiff, grossly assessed at HK$30,000, forth.

36.  Finally, it remains for me to thank Mr Cheung for the Plaintiff and Mr Yuen for the Intended 2^nd Defendant for their helpful assistance to this Court.