Ego Finance Ltd v. Cham Kin Man

DCMP 3389/2017

[2018] HKDC 741

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3389 OF 2017

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DECISION

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Introduction

1.This is an application of the plaintiff by way of an Originating Summons dated 6 December 2017 to seek, inter alia, an Order for Sale of the defendant’s property known as all those 48 equal undivided 279026^th parts or shares of and in all those pieces or parcels of ground registered in the Land Registry as Sha Tin Town Lot No 506 (Flat 09 on 20/F of Cypress House (Block 3) (including the planters/planter boxes appertaining thereto), Kwong Yuen Estate, No 68 Siu Lek Yuen Road, Shatin, New Territories) (“the Property”) to enforce two Charging Orders Absolute:-

(a)   A Charging Order Absolute dated 26 June 2013 pursuant to a judgment dated 23 April 2013 in DCCJ  3/2013; and

(b)   A Charging Order Absolute dated 15 October 2014 pursuant to a judgment dated 25 March 2014 in DCCJ  4506/2011

(collectively “the Charging Orders”).

2.At the time of the making of the Charging Orders, the defendant and his mother Madam Mui Sui Sim (“Madam Mui”) were the joint tenants of the Property. Each of the Charging Orders provides that “the interest of the defendant Cham Kin Man in the asset specified in the schedule hereto stand charged with the payment of” the judgment debt together with interest and costs, etc.  The respective schedules to the Charging Orders specify the whole Property without mentioning the defendant’s interest as a joint tenant.

3.According to the land search records as at 31 May 2018:-

(a)   apart from the Charging Orders, the following encumbrances are registered against the defendant’s interest in the Property:-

(i)   Charging Order Nisi dated 8 November 2012 and Charging Order Absolute dated 14 December 2012 in DCCJ 3417/2012 in favour of Citibank (Hong Kong) Ltd;

(ii)   Charging Order Nisi dated 19 November 2012 and Charging Order Absolute dated 20 December 2012 in DCCJ 3001/2012 in favour of Rise Honest International Ltd;

(iii)   A Chinese Order dated 16 April 2013 in DCCJ 3001/2012 in favour of Rise Honest International Ltd;

(iv)   Charging Order Nisi dated 2 December 2014 and Charging Order Absolute dated 2 January 2015 in DCCJ 3001/2012 in favour of Rise Honest International Ltd; and

(b)   the following encumbrances are registered against the interest of both the defendant and Madam Mui:-

(i)   Memorandum of Charge dated 23 July 2013 by Chevalier Property Management Ltd for outstanding management fees;

(ii)   Charging Order Nisi dated 2 March 2016 and Charging Order Absolute dated 13 June 2016 in DCMP 713/2016 in favour of Secretary for Justice for arrears of rates and government rent.

4.Madam Mui passed away on 5 April 2017 and her Death Certificate dated 23 November 2017 was registered on 27 November 2017.

5.Relying on the Valuation Report dated 2 January 2018 prepared by Citiland Surveyors Ltd, the plaintiff contends that there should be sufficient net equity in the Property to settle the debts due under the Charging Orders (which is in excess of $430,000.00 in total) after deduction of estimated costs and expenses for the sale and moneys due to prior encumbrancers. 

6.By the defendant’s “Defence” filed on 22 January 2018 and his affidavit filed on 26 March 2018, he explains his difficulties in the past years, his futile efforts in trying to resolve his financial problems, and expresses his grave concern that the Property may be sold for less than its true market value by the plaintiff; he does not dispute his liabilities owed to the plaintiff under the Charging Orders.  His Legal Aid application filed in February 2018 was refused in April 2018.

7.The plaintiff is seeking an order for sale for the Property as a whole. The issues before the court are:-

(a)   Whether the joint tenancy between the defendant and Madam Mui was severed by virtue of the Charging Orders (or previous charging orders) against the defendant’s interest alone; and

(b)   If not, whether the Charging Orders now cover the defendant’s interest in the whole of the Property subject to prior encumbrances.

The First Issue: whether the joint tenancy between the defendant and Madam Mui was severed by various charging orders against the defendant’s interest alone

8.S 52AB(3) of the District Court Ordinance, Cap 336 of the Laws of Hong Kong, provides that a charge imposed by a charging order has the same effect and is enforceable in the same courts and in the same manner as an equitable charge created by the judgment debtor by writing under his hand.

9.Counsel for the plaintiff refers me to the recent case of Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 where Lam V-P observed that there were conflicting local authorities in respect of the question whether the making of a charging order would have the effect of equitable severance, but decided to leave the issue open for debate on another occasion since the Court of Appeal ruled that a third party had successfully established her beneficial interest in the property concerned. The two conflicting local authorities on this issue are: Ho Wai Kwan v Chan Hon Kuen [2015] 1 HKLRD 901 and Malahon Credit Co Ltd v Siu Chun Wah Alice[1988] 1 HKLR 196.

10.In Ho Wai Kwan, a charging order was made against the interest of one of the joint tenants C who later managed to discharge the same before passing away 3 years later. The surviving joint tenant W sold the property as the sole owner, and after a couple of sale transactions, issue was raised by subsequent purchasers as to whether W had good title in the whole property to assign to his successors in title.

11.After conducting detailed analysis of extensive authorities in different jurisdictions and due consideration of commentaries and text books on well-established legal principles governing joint tenancies, DHCJ Simon Leung made the following observations and findings in the Court of First Instance:-

(a)   A joint tenancy is characterized by the unities of possession, interest, title and time; a joint tenancy would sever if any one of the unities ceases to exist.

(b)   Under s 8(1) of the Conveyancing and Property Ordinance (Cap 219, Laws of Hong Kong), a joint tenancy of an estate or interest in land may be severed at law only by a notice served by a joint tenant on the other joint tenants, or by an instrument. Under s 8(2), a severance in equity may be effected by notice or any other method that is effective in equity or that would, but for s 8(1), be effective at law.

(c)   An act of severance must have a final or irrevocable character in precluding the joint tenant from claiming by survivorship any interest in the subject matter of the joint tenancy.

(d)   A charging order, with the same effect as an equitable charge, entails no passing or conveyance, and thus no disposition or alienation, of any interest of proprietary nature to the chargee; the interest so created has the effect of an encumbrance restricting the joint owner’s ability to deal with his share but did not sever the joint tenancy.

(e)   The nature of interest of a joint tenant subject to a charging order in Hong Kong differs from that in England; in Hong Kong a charging order does not convey interest of a proprietary nature in the joint tenant’s beneficial interest in land.  In the event of non-payment of the debt, the creditor’s right of realization is by judicial process.

12.Apparently there are two factual differences between Ho Wai Kwan and the present case, namely:-

(a)   In Ho Wai Kwan, the charging order absolute was made against the joint tenant who died first while in the present case, the defendant is the surviving joint tenant;

(b)   In Ho Wai Kwan, the charging order absolute was discharged prior to the death of the joint tenant C while in the present case, Madam Mui passed away while various charging orders are still in force against the defendant or both of them.

13.Counsel for the plaintiff submits that the factual differences are immaterial; if a charging order by nature does not have the effect of severing a joint tenancy, it does not alter the situation that upon Madam Mui’s death, her interest simply passed to the defendant by his right of survivorship.  Ho Wai Kwan should be interpreted to the effect that neither a charging order nor its discharge would affect the proprietary interests of the joint tenants. To interpret otherwise would imply that the order for discharge somehow could temper with the proprietary interests of the joint tenants though the charging order itself could not.  There is no legal basis for such contention.

14.On the other hand, Fuad JA made an observation in the Court of Appeal in Malahon Credit to the effect that a charging order absolute could have the effect of severing a joint tenancy.  The key issues of Malahon Credit were on the beneficial ownership of a property jointly purchased by a man N and his mistress S, and whether S was entitled to the benefit of the equity of exoneration on the facts of the case.  It was established that the joint owners of the subject property intended right from the beginning that S would share the beneficial interest in the flat jointly with N, and it was held, inter alia, that while they were joint tenants at law (with benefit of survivorship), in equity they were to be regarded as having equal shares as tenants in common.  Then Fuad JA added that if this was not the true position and they were joint tenants in equity, then when the charging order absolute was made against N’s interest, there was a severance and they became tenants in common. (at p 202G).

15.I agree with counsel that the observation of Fuad JA as to the effect of a charging order absolute was made obiter after he had already ruled that N and S were tenants in common in equity.  As such, there was no analysis in the judgment on how such observation was reached and the legal basis for the same. DHCJ Simon Leung did consider and distinguish Malahon Credit in his judgment in Ho Wai Kwan and treat such comment as obiter.

16.Given the judgment in Malahon Credit is 30 years old and was distinguished in Ho Wai Kwan, I accept counsel’s submission that this court should follow Ho Wai Kwan, and find that the charging orders against the interest of the defendant alone in the Property did not sever the joint tenancy between him and Madam Mui, and the defendant became entitled to the entirety of the beneficial interest in the Property by virtue of his right of survivorship on the passing of Madam Mui.

The Second Issue: whether the plaintiff can rely on the Charging Orders to apply for an order for sale for the whole of the Property

17.Counsel for the plaintiff submits that though the defendant was one of the joint tenants when the Charging Orders were made, he was in fact the co-owner of the entire interest of the Property since a joint tenancy is a co-ownership where all the co-owners own the entire estate, but they own nothing individually: Land Law in Hong Kong (4^th ed) at 5.18, citing Hammersmith and Fulham LBC v Monk [1992] 1 AC 478 at 492B and Re Ruston (a bankrupt) [1972] Ch 197 at 203A.

18.The decision in Ho Wai Kwan is based on the principle that a charging order does not convey any specific interest of a proprietary nature in a joint tenant’s interest in land.  A charging order merely gives the chargee certain rights over the property as security for the judgment debt concerned such that the chargee can apply to court for an order for sale.

19.In both of the Charging Orders, it was ordered that “the interest of the defendant Cham Kin Man in the asset specified in the schedule hereto stand charged with the payment of” the judgment debts etc, and the schedule specified the description of the whole Property.  The wording of the Charging Orders is wide enough to cover the situation where the defendant has acquired the full interest in the Property before the plaintiff applies for an order for sale.

20.In Primecredit Ltd v Yeung Chun Pang Barry and another (unreported, HCMP 2103/2015, first instance judgment dated 9 December 2016), a property was jointly owned by Y and his father.  A charging order absolute was made against Y’s interest in the property and thereafter his father passed away whereupon Y became the sole owner of the property.  The plaintiff Primecredit Ltd applied for an order for sale under the charging order absolute for the whole property.  After rejecting the 2^nd defendant W’s claim that she was a beneficial owner of the property, Anthony Chan J in the Court of First Instance made an order for sale of the property which was then solely owned by Y.  On appeal (reported in [2017] 4 HKLRD 327) the decision was reversed on finding of facts that W was in fact a beneficial owner of the property, though the Court of Appeal did not disturb Anthony Chan J’s finding that an order for sale could be made in the first place.

21.I am satisfied that the Charging Orders cover the interest of the defendant in the Property as he now owns, and the plaintiff is in the position to apply for an order for sale for the whole Property.

22.The question remains how the priority of the respective claims of Chevalier Property Management Ltd under its Memorandum of Charge dated 23 July 2013 and Secretary for Justice under the Charging Order Absolute dated 13 June 2016 would be affected when they are against the interests of both the defendant and Madam Mui.

23.Halsbury’s Laws of England (5^th ed) Vol 87 says (at para 207) that:-

“…… An encumbrance by a joint tenant, such as a rent charge or profit à prendre, which did not pass an interest in the land itself but could be satisfied out of the grantor’s share of the rents and profits, was not binding on the surviving joint tenant.”

24.Halsbury’s Laws of Hong Kong (2^nd ed) Vol 35 says (at para 230.808) that:-

“The unity of title is destroyed when one joint tenant assigns or mortgages his share to a third person. However, it is doubtful whether charging of the land will have the same effect, since the charge is merely a hypothecation and does not involve any assignment of the legal estate ….… An encumbrance created by a joint tenant, such as a rentcharge or profit à prendre, which does not pass an interest in the land itself but could be satisfied out of the grantor’s share of the rents and profits, is not binding on the surviving joint tenant.”

In other words, the right of survivorship is preferred to encumbrances (“jus accrescendi praefertur oneribus”).

25.Whilst such interpretation may sound unfair to the joint tenant who passed away first, the Court of Appeal in Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 had impliedly acknowledged this when it directed that in the interests of justice, notice should be given to all co-owners (in particular, joint tenants) upon the making of an order to show cause as they fell within “any other interested person” under O 50 r 2(2).  The other joint owners may serve notice to sever the joint tenancy in order to protect their interests.

26.The effect of the Memorandum of Charge dated 23 July 2013 would depend on the Deed of Mutual Covenant dated 2 April 2001 which binds all owners and encumbrancers of the Property.  It is perhaps academic to rule on this issue because when the Property is sold, the management fees due under such Memorandum of Charge and the rates and government rent due under the Charging Order Absolute will have to be settled before any judgment debt is paid.

Whether an Order for Sale should be granted

27.Counsel for the plaintiff submits that:-

(a)   The plaintiff has duly complied with O 88 r 5A of the Rules of the District Court (Cap 336H, Laws of Hong Kong).

(b)   The defendant is not disputing his liabilities under the Charging Orders for the judgments entered by consent.

(c)   There is sufficient equity in the Property for prior encumbrances as well as the judgment debts due under the Charging Orders.

(d)   The judgment debts due to the plaintiff have been outstanding for years and are now in excess of $430,000 in total with interest accruing.

(e)   The defendant is in occupation of the Property which is his only valuable asset with an assessed open market value of HK$3,830,000 (subject to payment of premium to the Housing Authority) that can be used to settle his debts.

28.The defendant submits by affidavits and in person that:-

(a)   He is not disputing his liabilities under the Charging Orders and he wants to sell the Property to pay off his debts.  He estimates that the total amount due to other encumbrancers is about $400,000.

(b)   In 2012, he obtained consent from the Housing Authority to re-mortgage the Property to the extent of $550,000, but was unable to secure a bank to grant such loan within the time limit set by the Housing Authority.

(c)   As Madam Mui turned frail and senile in recent years, he was pre-occupied with looking after his mother and making ends meet.  After Madam Mui passed away towards the end of 2017, he pulled himself together and tried to sort out his financial problems.

(d)   In January 2018, he found a potential buyer who was eligible to buy the Property in the Tenants Purchase Scheme Secondary Market (ie without payment of premium) offering HK$2,000,000; unfortunately, the title deeds were retained by the defendant’s former estate agent who alleged that the defendant owed him money and refused to release the title deeds to the potential buyer, so the deal fell through.  He has reported the matter twice to the police but they refuse to take action as they are of the view that it is a civil dispute. 

(e)   On 7 February 2018, he applied for Legal Aid to commence action against the agent and is waiting for the result of such application.

(f)   The defendant is gravely concerned that if the Property is to be sold by the plaintiff, the latter would only look after its own interest and sell the Property for less than its true market value.

(g)   He is prepared to declare bankrupt such that the Property will be sold by the Official Receiver who will distribute the proceeds among his creditors.

29.While I appreciate the defendant’s effort in trying to sell the Property himself, I am concerned that it will take a long time for him to sort out his disputes with his former estate agent, and he will have to clear all the encumbrances registered against the Property before he can pass a good title to the purchaser.  The defendant has not made any realistic offer to settle his debts, and interests are accruing on all the judgment debts, some at substantial contractual rates.  The plaintiff has not received any objection from any of the encumbrancers regarding the proposed order for sale.

30.Enforcement of a charging order by way of sale is an equitable remedy and therefore discretionary.  The balance is between a debtor being deprived of his property and a creditor being deprived of his remedy.  Having considered all the relevant factors and circumstances, I am prepared to grant an Order for Sale to the plaintiff.  I will now hear the parties’ submissions on the time allowed for payment before delivery of possession, the manner of sale, the reserved price to be set, other incidental directions, and costs of the proceedings.

Mr. Victor Lui, Deannie Yew and Associates, for the plaintiff

The defendant in person, present