HKSAR v. HK Sources Finance Ltd
Read the full judgment text of HCMA 20/2015 on BabelCite. This High Court CFI judgment was delivered on 12 May 2015.
1. The appellant is a finance company and was charged with the offence of entering into as lender an agreement which related to land and which was void by virtue of section 17B [1] of the Housing Ordinance [2] . The appellant pleaded not guilty and, after trial, was convicted by a special magistrate (hereinafter referred to as “the magistrate”) sitting at the Eastern Magistracy. It appeals against the conviction.
Cited by 1 case · Cites 5 cases
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[English Translation – 英譯本] HCMA 20/2015 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MAGISTRACY APPEAL NO 20 OF 2015 (ON APPEAL FROM KCS 18357 OF 2014) -------------------
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JUDGMENT 1.The appellant is a finance company and was charged with the offence of entering into as lender an agreement which related to land and which was void by virtue of section 17B[1] of the Housing Ordinance[2]. The appellant pleaded not guilty and, after trial, was convicted by a special magistrate (hereinafter referred to as “the magistrate”) sitting at the Eastern Magistracy. It appeals against the conviction. Facts 2.There was no dispute about the basic facts of this case, which were outlined and produced as evidence in accordance with section 65C of the Criminal Procedure Ordinance[3]. The main points were as follows:
Findings made by the magistrate 3.The magistrate made the following findings:
4.Accordingly, the magistrate found the appellant guilty. Ground of appeal 5.At the appeal hearing, the appellant was represented by Mr David Ma of counsel[8], who put forward the following ground of appeal.
Relevant provisions in the Ordinance 6.The present case mainly concern two provisions in the Housing Ordinance, which are set out below:
Discussion and consideration 7.At the appeal hearing, Mr Lui, Acting Senior Public Prosecutor, who represented the respondent, stated that the basis of prosecution in the present case was that the agreement in question contained an agreement which charged the land, and that therefore it was an agreement related to land. 8.Mr Ma said that this was what the appellant understood to be the prosecution case at the trial and during the appeal. 9.On this basis, my consideration would first focus on whether the agreement in question was one which charged the land. 10.Mr Ma, based on the following reasons, argued that the agreement was not one which charged the land:
11.I have the following observations on the above arguments. The first argument 12.Although paragraph 8.01 of the agreement was under the heading ‘Settlement of Other Incumbrances’, I do not agree that the event of default referred to therein had nothing to do with the loan involved in this case. Paragraph 8.01, phrased in the following way, provided that if certain things happened or if an event of default referred to by the appellant occurred, that would trigger the exercise of the relevant powers:
13.I consider that “If any Event of Default shall have occurred” definitely referred to any event of default relevant to the present case. 14.As to what events of default were covered under the agreement, they were listed in paragraph 7 ‘Events of Default’ of the agreement, and they included the borrower’s failure of making repayment and the making of a bankruptcy petition against the borrower[12]. These events had nothing to do with the first mortgage but were directly related to the agreement involved in this case. Mr Ma submitted that paragraph 7 comprised certain default events directed against the first mortgage, such as those mentioned in paragraph 7(b) and (k). Even though paragraph 7 of the agreement might comprise default events directed against the first mortgage, it does not follow that paragraph 8.01 of the agreement did not cover default events directed against the agreement involved in this case. 15.In my view, there were two situations or default events the arising or occurrence of which would trigger the exercise of the relevant powers:
The use of the word ‘or’ clearly evinces the intention that the relevant powers could be exercised if either one of the two situations arose. Therefore, I find that the ambit of paragraph 8.01 was not restricted to events of default related to the first mortgage, but encompassed events of default related to this agreement. The second argument 16.Paragraph 8.01 conferred only a discretion on the appellant. Given the use of the word ‘may’[15] in the agreement, I agree with this view. However, this kind of wording can be found in quite many agreements. It is a common phenomenon that a money lender would like to give himself some flexibility when dealing with any breach of agreement or any default. 17.Mr Ma also accepted that there was no actual difference, at least in the present case, between the discretion he referred to and the rights which could be found in contracts generally. 18.The main point of Mr Ma’s submission was that as long as the appellant did not exercise the powers to cause the title deeds to be delivered to it, no mortgage would be created, nor would any charge be created. 19.Mr Ma cited Wise Wave Investments Ltd v TKF Services Ltd[16] to support his argument that an instrument which merely imposed an obligation to give a charge in future would not create an equitable charge by itself. 20.Wise Wave Investments originated from the buying and selling of a landed property. The vendor owed a substantial amount of management fees and caused the purchaser to become concerned, so the purchaser asked the vendor to pay off the outstanding management fees or to provide sufficient security before completion. The vendor refused and, after the lapse of the completion time, regarded the sale and purchase agreement as having been terminated and forfeited the deposits paid. The purchaser sought a decree of specific performance to complete the transaction. 21.One of the issues in that case was whether the non-payment of the management fees by itself gave rise to a charge over the property as a result of the operation of the following provision in the deed of mutual covenant of the building:
22.I think that the background, nature, facts and issues of that case cannot be mentioned in the same breath with those of this case. That being so, the support it can give to Mr Ma’s argument is limited. 23.Firstly, the decision in that case was to a considerable extent influenced by the two requirements laid down in section 5(1)(a) of the Conveyancing and Property Ordinance[17] that a charge must be created by an instrument in writing and that the instrument must be signed; whereas these considerations did not feature in the present case. 24.Secondly, in order to determine the effect of any contractual term, to interpret any provision involved in a dispute and to find out the contractual intent, the specific circumstances of each particular case must be looked into. 25.Thirdly, the present case is about section 27A of the Housing Ordinance, but that case did not concern the Housing Ordinance. 26.Mr Ma further submitted that the agreement was only a loan agreement, and that the existence of paragraph 8.01 would not change the fact that the nature of the agreement was a loan agreement. 27.I do not agree with this argument. As far as section 27A of the Housing Ordinance is concerned, once there is an agreement which relates to land, then notwithstanding that it is only one of the terms of an agreement, so long as it is void by virtue of section 17B, it falls within the ambit of section 27A. 28.Paragraph 8.01 provided for the repayment of the loan granted under the first mortgage, the redemption of the title deeds and the delivery of the title deeds to the lender for custody. The effect of this provision was such that the status and protection held and enjoyed by the appellant were equivalent to those held and enjoyed by the lender of the first mortgage. This provision was to burden the land with a charge. 29.Mr Ma did not dispute this point but he stressed that before the occurrence of any event of default, or if the appellant did not exercise its right, or without the delivery of the title deeds to the appellant, the charge would not come into being. 30.Mr Lui, for the respondent, cited Pine Enterprises Ltd v Cyber Strategy Ltd & Another[18] and submitted that the agreement in the present case had created a charge on the land. 31.In that case, Deputy High Court Judge To (as he then was) made the following comments:
32.Mr Ma did not challenge the views expressed by Atkin LJ in Natural Provincial and Union Bank of England; indeed he also cited that case to support his argument. 33.However, Mr Ma pressed the point that the agreement in the present case did not create an existing or present right, while Mr Lui submitted that the relevant right was brought into existence by virtue of the agreement. 34.I consider that in the present case the intention of the parties at the time of entering into the agreement could not be clearer. It was intended that when one of the situations stated in paragraph 15 hereof arose, the appellant was entitled to exercise the powers conferred by paragraph 8.01 of the agreement. 35.However, had the appellant contravened the provision in the Ordinance anyway notwithstanding, as submitted by Mr Ma, that there was no occurrence of any event of default, or the appellant chose not to exercise the powers given to him by the agreement, or the title deeds were not delivered to the appellant? Or instead, is it the case that the arrangement in question did not give rise to a present right as described by Atkin LJ in National Provincial and Union Bank of England, so no charge had been created over the land? In my judgment, the right was already in existence, because once an event of default occurred, the appellant could exercise the powerswithout any need for further discussion or agreement. Moreover, Ms Yip was contractually bound to effect the delivery of the title deeds to the appellant. By such arrangement the appellant acquired a proprietary interest in the flat. The last sentence of paragraph 8.01 of the agreement reads:
36.For the above reasons, I find that the agreement created a charge over the land. 37.Furthermore, I consider that at the time of the enactment of section 27A, what was regarded as important was the intention of the parties to an agreement. This can be shown, in particular, by the characters used in the provision‘看來是…將土地押記… (purports to … charge land)’. 38.My view is that the expression 看來 was used purposely. The wording in the English version of this provision is ‘purports to create’. Generally, the word ‘purport’ means to profess or claim to be something or to have done something. In the Shorter Oxford English Dictionary the definition of this word is ‘that which is intended to be done or effected by something’. 39.In construing Section 27A of the Housing Ordinance, regard must be had to the legislative intent of the relevant provisions. In CHEUK SHU YIN v YIP SO WAN & Another[19] Chan PJ pointed out that sections 17B and 27A of the Housing Ordinance had to be construed in the context of the Home Ownership Scheme. Chan PJ emphasized that the price at which the Housing Authority sold a HOS flat was a discounted price, which was lower than the market price and did not include the value of the land. The requirements and restrictions in the Ordinance were intended to prevent a person who bought a HOS flat from taking advantage of the discount and making a profit by any unpermitted act. To create a mortgage or a charge over a flat without the permission of the Housing Authority is exactly an act which is to be prevented. 40.Section 19 of the Interpretation and General Clauses Ordinance[20] provides that:
41.To put it simply, I find that under the agreement the land was charged, this agreement or at least this part of the agreement was an agreement which related to land, and that this agreement was void by reason that it did not comply with the requirement in section 17B. The third argument 42.This argument concerns the magistrate’s finding about the contractual intent of the parties. 43.Mr Ma’s criticisms of the magistrate can be found in paragraph 10(3) hereof. 44.As for point (i), for the foregoing reasons, I find that the appellant had an existing or present right, not merely a future right, because once an event of default mentioned in the agreement occurred, the appellant was entitled to exercise the right immediately. 45.As regards point (ii), segregation of the property would have been a strong indication of the existence of a charge, but as Deputy Judge To observed in Pine Enterprise Limited, the absence of any segregation of the property would not necessarily negate the existence of a charge. It depends on what can be inferred from all the circumstances. 46.Turning now to point (iii), I agree that the magistrate gave too much weight to this factor and that he overlooked the fact that Ms Yip had provided a guarantor. 47.A magistracy appeal is conducted by way of rehearing[21]. I am entitled to make my findings according to the evidence that was before the magistrate. 48.In order to make the finding that the parties had the intention to create a charge (when the specified conditions were fulfilled), such a finding must be the only reasonable inference which can be drawn from the evidence as a whole. 49.Mr Ma submitted that the agreement touched on the subject property, but that it was just one piece of information supplied to the appellant for it to consider whether it would grant the loan. I can hardly agree with this. 50.It is beyond question that the purpose of paragraphs 8.01 and 8.02[22] of the agreement must have been to enable the appellant to exercise the right to redeem the flat from the first mortgagee bank and to keep the title deeds in its custody, as if it had become the holder of the first mortgage, in cases where Ms Yip failed to repay the debt to the appellant[23], she was confronted with the prospect of being made bankrupt[24], or her guarantor was unable to fulfil his duty[25]. If such had not been their intention, these two paragraphs would not have been included in the agreement at all. 51.Although neither one of the two parties gave evidence, I find that to charge the land was definitely the intention of both parties to the agreement. This is the only reasonable inference that can be drawn from the evidence as a whole. Conclusion 52.I hold that both parties intended to charge the land and that the agreement was one which related to land. Because the charge was created without the written permission of the Authority, it was void. Although this particular agreement was only a part of the whole ‘Loan Agreement’[26], and other parts of the agreement were still valid despite the part in question being rendered void by virtue of section 17B of the Ordinance [27], I endorse the magistrate’s view that if the term in the agreement by which the charge was created was void by virtue of section 17B, the appellant contravened section 27A of the Ordinance. 53.For the above reasons, I dismiss the appeal and uphold the conviction.
Mr David Ma, instructed by Messrs So, Ho & Co, for the Appellant Mr Pierre Lui, Acting Senior Public Prosecutor, of the Department of Justice, for the HKSAR Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. P. Y. Lo,Barrister-at-law. [1] Contrary to section 27A of the Housing Ordinance. [2] Cap 283, Laws of Hong Kong. [3] Cap 221, Laws of Hong Kong. [4] See New Grant No. 2988 and the deed of assignment; certified copies of them were prosecution exhibits P5 and P6. [5] The certified copy of the Letter of Nomination was prosecution exhibit P7. [6] The certified copy was prosecution exhibit P9. [7] Paragraph 8.01 of the agreement. [8] At the trial the appellant was represented by two counsel, Mr David Ma and Mr Wilson Lau. [9] Land in respect of which the Authority is authorized to nominate purchasers. [10] Emphasis added to highlight its importance. [11] Emphasis added to highlight its importance. [12] Paragraphs 7(a) and (b) of the agreement. [13] See paragraph 12 of this judgment. [14] The first word I underlined. [15] See the second word underlined in paragraph 12 of this judgment. [16] [2007] 4 HKLRD 762. [17] Cap 219, Laws of Hong Kong. [18] HCA 1221/2006. [19] FACV 9/2011. [20] Cap 1, Laws of Hong Kong. [21] See the holdings of the Court of Final Appeal in Chou Shih Bin v HKSAR (2005) 8 HKCFAR 70. [22] “All principal sums interests costs charges and expenses paid or incurred by the Lender in redeeming or procuring the transfer of any such security and in procuring any entries to be made in the Land Registry shall be paid by the Borrower to the Lender on demand with interest from the date or respective dates of the same having been paid at the interest rate set out in the First Schedule hereto until payment and the terms of this Agreement shall apply to the Redemption Monies as if it forms part of the Land.” [23] See paragraph 7(a) of the agreement. [24] See paragraph 7(b) of the agreement. [25] See paragraph 7(c) of the agreement. [26] The original text of the agreement is in English and is entitled “This Loan Agreement”. [27] See paragraph 11 of the agreement. |
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