XCHRX THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD v. HUI LAI KAI AND OTHERS

DCMP 2460/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2460 OF 2000

__________

__________

_______________

JUDGMENT

_______________

1. This is a typical mortgage action in which the Plaintiff mortgagee seeks payment of monies due under a mortgage and delivery of possession in default. As at the date of the Originating Summons, and the date of the supporting affidavit, the amount owing to the Plaintiff exceeded $600,000 but was below $3,000,000. The Defendants are still in possession of the subject property. The issue is whether or not the District Court has jurisdiction to give an order for payment of monies due under a mortgage in excess of the sum of $600,000.

I decided that it has not and transferred the case to the Court of First Instance. I now give my reasons in writing.

What is a Mortgage?

"A mortgage consists of two things, namely a personal contract for payment of a debt and a disposition or charge of the mortgagor's estate or interest as security for the repayment of the debt; in equity the estate or interest so transferred is no more than a pledge or security. Every mortgage implies a debt and a personal obligation by the mortgagor to pay it. If there is a covenant or bond for its payment it is a specialty debt; if not, it is a simple contract debt." Words and Phrases Legally Defined, third edition, Volume 3, page 177, quoting Halsbury's Laws, 4th edition, paragraphs 410-2.

In Quarrel v. Beckford 1 Mad 278, Plumer VC says, "What is a mortgage? Everybody knows, it consists of two things: it is a personal contract for a debt secured by an estate; and, in equity, the estate is no more than a pledge or security for the debt - the debt is the principal; the estate is the accident. Whether the mortgagee is, or is not, in possession of the pledge, his right is precisely the same, with this difference, indeed, that he has never any right in equity to the estate except as a fund to pay him his debt; for every other purpose the estate is the estate of the mortgagor, and when the debt is paid all the mortgagee's right and interest in the estate ceases; he has then the legal estate only and not a beneficial interest in it. If the mortgagee has chosen to take possession and help himself he becomes then a bailiff without salary and is accountable for the profits, which are applicable, in the first instance, to pay the principal and interest of his debt and all other mortgagee allowances; but he is bound to be an accounting party - taking the estate in possession upon the principle and upon the obligation to account with the mortgagor for all the rents he receives. He is bound to keep the account - and to be ready with it, to apply it regularly to pay his principal and interests - and to be ready to surrender up the pledge as soon as it has answered its purpose. All the cases treat the mortgagee, as soon as he is paid, as becoming a mere naked trustee, holding the legal estate for the benefit of the cestui que trust, the mortgagor."

Jurisdiction of the District Court in a Mortgage Action

2. When the mortgagee sues for monies due under the mortgage, he is in fact enforcing the personal contract for payment of a debt. As such, the jurisdiction of the District Court in contract law applies, namely, $600,000: section 32 of the District Court Ordinance, Cap. 336.

3. When seeking to recover possession, section 35 of the District Court Ordinance applies. That section provides that the Court has jurisdiction to hear and determine any action for the recovery of land, where the annual rent, or the rateable value of the land, determined in accordance with the Rating Ordinance (Cap. 116), or the annual value of the land, whichever is the least, does not exceed $240,000. Evidence on the annual rent, rateable or annual value must be adduced.

Does Section 37 of the District Court Ordinance Extend the Jurisdiction of the District Court in Monetary Claims Under a Mortgage?

4. Section 37 entitled "equity jurisdiction" provides that:

"(1) Subject to the maximum limits in amount or value set out in subsection (2), the Court has the jurisdiction of the Court of First Instance to hear and determine ... ...

(c) proceedings for the foreclosure or redemption of a mortgage or for enforcing a charge or lien;

... ...

(2) The maximum limits in amount or value referred to in subsection (1) for -

... ...

(c) in the case of subsection (1)(c), the amount owing under the mortgage, charge or lien;

... ...

are

(ii) $600,000, where the proceedings partly involve or partly relate to land and the part that does not so involve or does not so relate exceeds $600,000 in amount or value;

(iii) $3,000,000, where the proceedings wholly involve or wholly relate to land;

(iv) $3,000,000, where the proceedings partly involve or partly relate to land and the part that does not so involve or does not so relate does not exceed $600,000 in amount or value."

5. This section only deals with the equity jurisdiction of the District Court. It does not cover the jurisdiction of the District Court in monetary claims under a mortgage. In the claim in question, the amount owing under the mortgage does not exceed $3,000,000. However, the reliefs sought are not for "foreclosure or redemption of a mortgage". Nor, in the light of the definition of mortgage in the authorities quoted above, is it one for enforcing the equitable rights under a charge. Section 37(1)(c) is therefore not applicable to the present claim.

Conclusion

6. I am of the view that the District Court has no jurisdiction, whether under s.32 or s.37(1)(c) of the District Court Ordinance to entertain a mortgage action in which the claim for debt due thereunder exceeds the amount of $600,000. The claim is therefore transferred to the Court of First Instance.