YIK LOI YAU v. The personal Representative of the estate of CHAN HIN CHEUNG, deceased

DCMP 937/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 937 OF 2014

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DECISION

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APPLICATION

1. By way of Originating Summons dated 11 April 2014, the plaintiff applies pursuant to section 12A of the Conveyancing and Property Ordinance (Cap 219) (“CPO”) for:-

(1) leave to the plaintiff to pay into court a sum of $2,000 being 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; and

(3) no order as to costs of the proceedings.

2. Mr Tam, the plaintiff’s solicitor, indicates in his written submissions that the plaintiff would like to increase the sum to be paid into court from $2,000 to $8,000. 

Background

3. I shall first set out the background giving rise to the present application below.

4. The plaintiff is the registered owner of the Lot as tenant in common.  By an Assignment dated 9 October 2000 and registered in the North New Territories Land Registry on 2 November 2000, the plaintiff acquired one equal undivided moiety or half part or share of the Lot for $590,000 from Yik Yip Fuk (also known as Yik Yip Fook) (“the Vendor”) who had acquired his share of the Lot by way of succession on 7 April 1961.

5. The interest of the Lot is derived from a Block Government Lease dated 27 June 1909 for a term of 75 years from 1 July 1898 less the last three days which was renewable 24 years in favour of Cheung Wing Cheung (or Cheung Shiu Tsat).  It was deemed to be extended to 30 June 2047 by virtue of section 6 of the New Territories Leases (Extension) Ordinance (Cap 150).

6. By a Memorial dated 13 January 1926 and registered in the Land Registry, the Lot was assigned to Yik Shui Tsueng by way of sale for $450. The Vendor and Yik Ming later acquired the Lot as tenants in common by way of succession on 7 April 1961.

7. After the plaintiff had entered into an Agreement for Sale and Purchase with the Vendor, he was informed by his solicitors that the Lot is subject to a mortgage (“the Mortgage”) stated in the Block Government Lease in favour of Chan Hin Cheung but no consideration has been defined.  Whether the Mortgage was discharged is unknown to the plaintiff.  There is no written instrument to show that it was discharged.

8. The plaintiff had requested the Vendor for a copy of the Mortgage and any document in relation thereto but was informed that there was none.  Neither the Vendor nor his predecessors-in-title had ever received any correspondence, notice or information in whatsoever nature from the mortgagee, Chan Hin Cheung, or the personal representative of his estate, demanding for money or whatsoever in relation to the Mortgage.

9. The plaintiff has made various enquires to locate Chan Hin Cheung, including enquires to the local people and the village management of the Lot.  No one however has ever heard of Chan Hin Cheung or acquainted with him or his descendants.

10. The plaintiff’s solicitors also conducted search in the Probate Registry of High Court on 8 April 2014 for the application of administration or execution of the estate of Chan Hin Cheung since 1900 but could not find any. 

11. In these circumstances, the plaintiff makes the present application.

Applicable legal principles

12. Section 12A of the CPO provides:-

“(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, ‘court’ means the Court of First Instance unless the party to the application submits to the jurisdiction of the District Court”.

13. Lam J (as he then was) in Re Cheung Chi Wang & Another [2002] 1 HKLRD 409 provided the profession with useful guidance of the operation of section 12A of the CPO.

14. An applicant is authorized to commence proceedings by ex parte originating summons: Re Cheung Chi Wang & Another at paragraph 21.

15. The District Court has jurisdiction to deal with the present application: Harvest Development Limited v The Personal Representative of the Estate of Liu Wa Fuk, deceased, DCMP 1367/2006 (unreported, judgment dated 19 September 2007) at paragraph 12 per HH Judge Lok; Fu Sum v Fu San Fat [2008] 5 HKLRD 271 at paragraphs 22-27 per Chung J.

Whether the Mortgage is subsisting

16. I must be pointing to the obvious to state that section 12A of the CPO is applicable only when the land is subject to the encumbrance in question.  If there is evidence to show that the encumbrance has been released or discharged, section 12A of the CPO does not apply. 

17. The applicant submits that the Mortgage is a Chinese customary mortgage under which the mortgagee entered into possession when the mortgage was created. The mortgagee then had the use and occupation of the land in lieu of interest. The mortgagee would remain in possession until redemption: Re Cheung Chi Wang & Another at paragraph 14; Harvest Development Limited v The Personal Representative of the Estate of Liu Wa Fuk, deceased at paragraphs 9 to 10.    

18. If there is evidence to show that possession of the land had been given back to the mortgagor or his successors, a reasonable inference is that the mortgage had been discharged.  In that case, section 12A of the CPO does not apply.

19. On the existing evidence, the Vendor and Yik Ming acquired the Lot by way of succession on 7 April 1961.  The plaintiff acquired one equal undivided moiety or half part or share of the Lot from the Vendor for $590,000. 

20. Further, the Mortgage was created on 27 June 1906, which was more than 107 years old.  The Vendor’s predecessors-in-title had never received any correspondence, notice or information demanding for money in relation to the Mortgage.

21. The plaintiff is aware of the matters above.

22. The plaintiff on the other hand submits that given the passage of time and the change of the registered owners in the chain of title, it would be very difficult, if not impossible, for the plaintiff to ascertain now whether the Mortgage was actually discharged. 

23. The plaintiff also submits that there is no document registered in the Land Registry or the Lands Office in respect of the management, administration, enforcement or discharge of the Mortgage or any part or interest thereof by Chan Hin Cheung.  (This of course might be due to the very nature of Chinese customary mortgage.)  It is unknown as to whether the operation of the Mortgage was any different from other Chinese customary mortgages.

24. Bearing in mind that section 12A is applicable if there is a doubt as to whether the encumbrance exists, the provision means to provide a conveyancer faced with a stale mortgage registered against the property with a useful and less costly course (see Re Cheung Chi Wang & Another at paragraphs 9 and 21) and that the only party who will be prejudiced is the applicant in the event that the Mortgage had already been discharged (as he will be required to make a payment into court), I shall continue to proceed as if the Mortgage is still subsisting.

The applicable criteria 

25. The power under section 12A of the CPO is predicated upon one of the following being established:

(1) The encumbrancer is out of the jurisdiction;

(2) The encumbrancer cannot be found;

(3) The encumbrancer is unknown; or

(4) It is uncertain who the encumbrancer is.

26. The plaintiff seeks to rely on (2) to (4) above in the present application.  

27. It is clear that there is no question that the identity of the mortgagee is known to the plaintiff.  The plaintiff has identified Chan Hin Cheung as the mortgagee.  The Lot is stated in the Block Government Lease to be subject to Chan Hin Cheung.  It is therefore not up to the plaintiff to claim that the mortgagee cannot be identified or is unknown.

28. Before it can be shown that the encumbrancer cannot be found, an applicant must take reasonable steps to locate him.  Evidence as to the steps taken by the applicant in this regard must generally be placed before the court.

29. I am satisfied that the plaintiff has made efforts to locate Chan Hin Cheung by making enquiries with the villagers and the village management as well as by searching on the grant of probate or letters of administration in the High Court.

Calculation of the amount to be paid into court

30. The plaintiff proposes to make payment into court by adopting the calculation based on a notional interest rate of 20% per annum in Man Chi Kan v Man Tsak Lun [2003] 2 HKLRD 489.  

31. The principal sum and the terms of the Mortgage were unknown to the plaintiff.  He only knows that the amount of consideration for the sale of the Lot in 1926 was $450.  He assumes that the principal sum of the Mortgage (created in 1906) would not exceed $450 and submits that the proposed sum of $8,000 should be sufficient to discharge the Mortgage.

One-stage approach?

32. Section 12A(2) of the CPO contemplates that the power of the court to make declaration to free the land from the encumbrance would be exercised only after the money has been paid into court.  Hence the first stage is to obtain direction or approval of the court regarding payment into court under section 12A(1) of the CPO.  Then, after money is paid into court pursuant to that direction, the court will consider the exercise of its discretion under section 12A(2) at a second hearing.  Lastly, the matter would come back to the court at the third stage when the encumbrancer or any person entitled to the money applies to the court for payment: Re Cheung Chi Wang & Another at paragraphs 10 and 13.

33. Chung J in Fu Sum v Fu San Fat said at paragraph 14 that practicality or efficiency (however much one thinks that is desirable) cannot be a sufficient reason for the court to go against what has been prescribed by the CPO or to ignore it.

34. I shall follow the approach adopted by Deputy High Court Judge L Chan (as he then was) in Re Light Time Investments Limited, HCMP 326/2010 (unreported, judgment dated 25 March 2010).  It would not create any risk of injustice to the plaintiff on the one hand and would provide a practical solution by which this matter may be dealt with in a cost-effective manner on the other.

35. I accordingly order as follows:-

(1) Leave be granted to the plaintiff to pay into court a sum of $8,000 being the principal and interest due under the Mortgage within 14 days;

(2) Within 7 days after the payment into court above, the plaintiff do advertise in Oriental Daily or Apple Daily a notice of this Order and the payment into court made pursuant thereto and stating that any person interested in the Mortgage and/or the payment into court may apply within 14 days to be joined as a party;

(3) The plaintiff may after the lapse of no less than 21 days from the publication of the advertisement above make a paper application pursuant to section 12A(2) of the CPO for a declaration that the Lot be freed from the Mortgage; and

(4) No order as to the costs of the proceedings.