Hang Seng Bank Ltd v. Mee Cheong Investment Co Ltd

Case No.HCMP 83/1968

Court

High Court CFI

Date13 Feb 1970

Judge—

Case Document

100%Judiciary

HCMP000083/1968

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

MISCELLANEOUS PROCEEDINGS NO. 83 OF 1968.

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BETWEEN:
	Hang Seng Bank Limited	Plaintiff
	and
	Mee Cheong Investment Company Limited	Defendant

Coram: Briggs, J. in Chambers (Written Judgment read in Court.)

Date of Judgment: 13 February 1970

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JUDGMENT

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1. This summons raises a matter of considerable interest and I have therefore decided to give judgment in open court.

2. At the material time the defendants owned two properties known as Kowloon Inland Lot Numbers 8683 and 8392, which are Numbers 141, 143 and 145 Portland Street, Kowloon. These properties were mortgaged to the plaintiffs, a Bank, on 17th February, 1964 for $400,000. The rate of interest was $11,50 per $1,000 per month. And by the mortgage the defendants covenanted to repay the principal and interest to the plaintiffs on 4th December 1964.

3. The defendants wished to redevelop the two sites and in order to do so again mortgaged them to the plaintiffs. This mortgage recites the previous mortgage. The principal sum was a further $500,000 and it was lent at the same rate of interest. The principal was to be paid in instalments, the times for which was governed by the progress of the building which was to be erected on the sites. The date of the second mortgage, or "building further charge" as it was called, is the 17th of July 1964 and the defendants covenanted to repay the principal and interest on 16th July 1966.

4. In October 1964, in pursuance of their policy to redevelop the sites, the defendants obtained orders excluding the existing buildings on the sites from the provisions of the Landlord and Tenant Ordinance. They obtained vacant possession and paid out $188,958 as compensation to the persons who had to vacate the premises. The defendants employed the Nam Sang Building Construction Company Ltd. to erect a multi-storeyed building and by October 1967 this was almost complete. It is still unfinished but the building could be completed now at the cost of about $120,000.

5. Since February 6th 1966 the defendants have paid no interest on the principal sums. And no part of the principal debts has been repaid. On 18th May 1968 the plaintiffs obtained an order for foreclosure and accounts were taken of what was due to the plaintiffs. It was found that as at 14th April 1969 there was due to the plaintiffs the sum of $1,241,895,40.

6. As no part of this sum was paid the plaintiffs obtained a foreclosure order absolute on 19th April 1969.

7. At that date the Nam Sang Building Construction Company was in occupation of the site, though building operations had long ceased. When the plaintiffs attempted to obtain vacant possession under the terms of the foreclosure order absolute, this Company resisted and eventually the plaintiffs issued a writ of possession and were put into possession by the Bailiffs on 30th December 1969.

8. In September 1968 the plaintiffs applied to the Crown for an extension of time under the Exclusion Order. This was granted on 12th December 1968. This extension expired on 30th September 1969. It will be necessary to renew this again and also to apply to the Crown for extension of the period of time under the Conditions of Regrant.

9. In November 1969 the plaintiffs entered into a building contract with the Wing Sang Construction Company to complete the building which is on the sites at a cost of $114,105,30.

10. By this summons which is dated 5th January 1970 the defendants ask the court to re-open the foreclosure order absolute for a period of seven days so that they may redeem the mortgaged properties upon the condition that they repay the principal and interest owing to the plaintiffs together with their costs and other disbursements.

11. It is agreed that if the defendants succeed in this application the sum payable by the defendants will be $1,410,972.06. This includes the principal mortgage debts, interest thereon up to February 1970, certain disbursements such as stamp duty, costs, and a sum to represent damages payable to the Wing Sang Construction Company for loss of profits. It will be remembered that the principal mortgage debts were only $900,000.

12. It is clear from the authorities that in the words of Coote, in Coote on Mortgages (9th Edition at page 1083) - "even after a decree of foreclosure absolute, and although the mortgagee has been in possession for many years, the court will under special circumstances, open the decree"

13. The matter is within the discretion of the court and the terms on which that discretion is to be exercised depend on the circumstances of each case.

14. In Campbell v. Holyland⁽¹⁾ Jessel M.R. used these words:-

"	The question in dispute is really whether a mortgagor can be allowed to redeem after an order of foreclosure absolute, and I think, on looking at the authorities, that no Chancellor or Vice-Chancellor has ever laid down that any special circumstances are essential to enable a mortgagor to redeem in such a case.
	Now what is the principle? The principle in a Court of Equity has always been that, though a mortgage is in form an absolute conveyance when the condition is broken, in equity it is always security; and it must be remembered that the doctrine arose at the time when mortgages were made in the form of conditional conveyance, the condition being that if the money was not paid at the day, the estate should become the estate of the mortgagee; that was the contract between the parties; yet Courts of Equity interfered with actual contract to this extent, by saying there was a paramount intention that the estate should be security, and that the mortgage money should be debt; and they gave relief in the shape of redemption on that principle. Of course that would lead, and did lead, to this inconvenience, that even when the mortgagor was not willing to redeem, the mortgagee could not sell or deal with the estate as his own, and to remedy that inconvenience the practice of bringing a foreclosure suit was adopted, by which a mortgagee was entitled to call on the mortgagor to redeem within a certain time, under penalty of losing the right of redemption. In that foreclosure suit the Court made various orders - interim orders fixing a time for payment of the money - and at last there came the final order which was called foreclosure absolute, that is, in form, that the mortgagor should not be allowed to redeem at all; but it was form only, just as the original deed was form only; for the Courts of Equity soon decided that, notwithstanding the form of that order, they would after that order allow the mortgagor to redeem. That is, although the order of foreclosure absolute appeared to be a final order of the Court, it was not so, but the mortgagee still remained liable to be treated as mortgagee and the mortgagor still retained a claim to be treated as mortgagor, subject to the discretion of the Court. Therefore everybody who took an order for foreclosure absolute knew that there was still a discretion in the Court to allow the mortgagor to redeem.
	Under what circumstances that discretion should be exercised is quite another matter. The mortgagee had a right to deal with an estate acquired under foreclosure absolute the day after he acquired it; but he knew perfectly well that there might be circumstances to entitle the mortgagor to redeem, and everybody buying the estate from a mortgagee who merely acquired a title under such an order was considered to have the same knowledge, namely, that the estate might be taken away from him by the exercise, not of a capricious discretion, but of a judicial discretion by the Court of Equity which had made the order."

15. The judgment goes on to discuss on what terms the judicial discretion is to be exercised. Jessel M.R. lists 3 matters which must be taken into consideration. These are:-

	(1)	the mortgagor must act promptly: and whether he does or not is a matter of fact for decision in each case depending upon the nature of the property, the amount of the sum involved; and the possibility that the redemption was rendered impossible by reason of some accidental happening;
	(2)	the nature of the property as regards value. For example, if a valuable estate had been mortgaged for a sum, much less than its value, the mortgagor who sought to redeem such a mortgage would be treated more leniently than in a case where the mortgage debt is commensurate with the value of the estate;
	(3)	the nature of the property which may be of a peculiar value to the mortgagor, for example, a family estate.

16. In an earlier case, patch v. Ward⁽²⁾ Sir John Rolt L.J. drew a distinction between the grant of an enlargement of time for redeeming a mortgage before the date of redemption and after an order for foreclosure has been made absolute. At page 212 he says this:-

"but I think it will be found that there is a clear distinction between the two classes of cases, - that slight circumstances will induce the Court to enlarge the time before the day arrives, but that after the order for foreclosure has been made absolute, it must be shewn that the person who seeks to set it aside or to have it disregarded fully intended and was prepared to pay the money on the day; but was estopped by some accident from complying with the exigencies of the order."

17. The case of Jones v. Creswicke⁽³⁾ is an illustration of the working of the principle to which Sir John Rolt refers. In that case the money was available but the mortgagor was unable to redeem on the exact date owing to an accident. He fell sick but told his wife to go up to London to pay the debt. The coach was full. She took a later coach but arrived too late to pay the money in time. An extension of time was granted, i.e. the foreclosure absolute was re-opened to enable the property to be redeemed. It is noticeable that in that case the mortgagor stated that he could raise the necessary amount at once.

18. Counsel drew my attention to various cases digested in Volume 35 of the English and Empire Digest. I have read the original reports of two of them and they are not helpful. As I do not think I can pay much attention to the very short accounts given in this work. The digest does not give the reason for the decisions and though such a work is of use for searching for the authorities for a specific point of law, it is of very little value when quoted as an authority for a point of law in Court unless the original report of the case is forthcoming. The reports of the cases referred to with the exception of the two cases I mentioned above are not available in Hong Kong.

19. The defendants base their case on four grounds:-

	(1)	that the circumstances of 1967 in Hong Kong were exceptional;
	(2)	that the defendants were not aware of the various steps taken by the plaintiffs to foreclose;
	(3)	that the value of the property is very much in excess of the mortgage debt; and
	(4)	that the defendants are in a position to pay off all the moneys due under the mortgages and costs etc.

20. The mortgages are dated 1964. In 1966 the property market in Hong Kong fell heavily. In 1967 there were extensive riots which again hit the property market severely.

21. I will say at once that I do not think that the exercise of the discretion of the court can depend upon the riots in 1967. Riots are common all over S.E. Asia. And I do not see why a calamity common to all should be set up unilaterally by one party.

22. However, the fact that there were riots is important in another connexion. For that fact influenced the conduct of the defendants in this affair. In 1967 there were three directors of the Company living in Hong Kong. In July of that year two of them including the affirmant Lo Hoi Ming fled to Taiwan because of the riots. The third director retired from the Company in April 1968. The Company of course had a registered place of business in Hong Kong. Incredible as it may seem the directors abandoned the Company: the lease of the registered office was given up: the Nam Sang Building Construction Company was left in possession of the uncompleted building on the sites. No communication was given to the plaintiffs of the astonishing conduct. And so the matter stood until these proceedings were commenced. The plaintiffs served various legal processes upon the registered office of the Company which were unacknowledged. The Company did not enter an appearance in the proceedings for foreclosure at all.

23. I am in considerable doubt whether I can accept Lo Hoi Ming's affirmation that he did not know of the steps which the plaintiffs took to foreclose the mortgage.

24. Though no directors were in Hong Kong in 1967 and 1969 annual returns were filed for the Company with the Registrar. Lo Hoi Ming was a director of the Nam Sang Construction Company who were in occupation of the mortgaged property. Another director of that Company was his brother, Lo Yuk Ming. Lo Yuk Ming was certainly aware that the plaintiffs were taking over the building in May 1968. It is easy enough to communicate with Taiwan. And in a matter of such importance both to the defendants and to the Nam Sang Company one would have thought that one brother would contact the other. The explanation given in the affirmation of Lo Yuk Ming of the failure to communicate is in my view very unconvincing.

25. The true position may very well be that the value of the property had fallen well below the sums owed to the plaintiffs by way of principal and interest until very recently, and that the defendants did not have the wherewithal to redeem.

26. Be that as it may Mr. Cheung for the defendants has accepted the fact that if the defendants were unaware of all the steps taken by the plaintiffs in the foreclosure proceedings, it was their own fault and they must be deemed to have had knowledge of all such steps.

27. This includes knowledge of the foreclosure order absolute made in May 1969. This summons was taken out in January 1970. Is the period of nearly 9 months unreasonable delay in the circumstances of this case? In my view it is. The property market is very variable, and the plaintiffs have taken certain steps as owners of the properties. The properties consist of land and buildings and the cases show that in such a case a mortgagor must act promptly. In this case, the defendants have, in my view, acted too late.

28. On important consideration in the exercise of the discretion of the court in reopening a foreclosure absolute is, as we have seen, where the value of the property is in excess of the mortgage debt. This is the case here today. In May 1969 the two sites were valued at $650,000. But I am told that the value today is about $2,100,000. It is not denied that the defendants wish to redeem in order to reap the advantage of this very large increase in value. I think that the cases clearly show that the correct date to take when deciding upon the relative value of the property and mortgage debt is the date of the order of the foreclosure absolute. (See the judgment of Sir John Rolt in Patch v. Ward⁽²⁾ set out above.) There is no evidence that at date, April 19, 1969, that the property was worth more than the sums advanced and owed by the plaintiffs. Nor is there any evidence to satisfy the test propounded by Jessel, M.R. in Campbell v. Holyland⁽¹⁾ that the defendants were able and willing to pay the amount at the time of the order for the foreclosure absolute.

29. For the defendants Mr. Cheung has argued that the date to take is the date of the application to reopen the foreclosure, namely today's date. I do not see how that can be so.

30. Suppose there had been an order of foreclosure absolute not opposed in any way by the mortgagor: and further suppose that about eight or more months go by during which the party foreclosing does not handle the property but the property doubles in value: can the mortgagor ask for the foreclosure order absolute to be reopened so that he may redeem. In my view prima facie he cannot. Nor do I think that the court should exercise its discretion in a mortgagor s favour simply because the value of the property has greatly risen. And I do not think it would beequitable to allow him to do so.

31. In the present case the defendants ran away from their obligations in 1967 when the property market was bad against them. The plaintiffs were left with an unproductive security and there was the risk that any foreclosure proceedings would not produce a sum sufficient to pay off the mortgages and interest. From the evidence before me it is unrealistic to suppose that the plaintiffs could have satisfied a judgment debt for any balance owing at that time. Nor in fact have the defendants suggested that they could have done so.

32. I do not see why the plaintiffs should not reap the benefit of the rise in the value of the property which is of course their property. They have been without interest for a long time and it is only by a happy accident that the value of the property has been enhanced.

33. In volume 27 of the Canadian Abridgment at page 1126 there is a short report of the case of Hazel v. Wilkes⁽⁴⁾. This is a digested report and perhaps of no more than passing interest. But it does show that this point has been taken in the courts before. The facts are different from those now before me and the delay on the part of the mortgagor was the deciding factor.

34. The relevant part of the report reads as follows:-

"About twenty years after foreclosure, the mortgagor brought action to set aside the judgment and to redeem. The land was vacant unimproved land, having only a speculative value until, some time before these proceedings, its value was increased by the proximity of a growing town. For many years after the foreclosure the property could not have been sold for enough to pay the mortgage indebtedness. Held, in view of the mortgagor's great delay in seeking to redeem, his action must be dismissed. The changed conditions of the land and the fact that until recently the mortgagor had not the financial ability to redeem, did not furnish any reason why the Court should exercise its judicial discretion and allow the mortgagor to redeem and to reap the unexpected profit instead of the mortgagee, who for so many years had had to forgo his interest and also protect the unproductive property."

35. I can deal very shortly with the final point. The defendants have told the court that they will be in a position to pay the whole amount of the mortgages, the interest thereon and costs and certain other sums. The total is $1,410,972.60. There was no affidavit before me concerning this very large sum. And I think that something more definite is wanted when the defendants are asking for a discretionary relief of this nature. Nothing was paid into court. The defendants were in fact saying that they were negotiating to procure such a sum, not that they possessed such monies.

36. For the above reasons I do not think that this is a case where the court should exercise its discretion in the defendants favour.

37. The summons must be dismissed with costs. Certificate for two counsel.

	( G. G. Briggs )
	Puisne Judge

Representation:

Bernacchi, Q.C. & Zimmern (C.Y. Kwan & Co.) for Plaintiff

O. V. Cheung Q.C. & Arculli (John Ip & Co.) for Respondent

(1)1876 7 Ch. Div. 167.

(2) 1867 3 Ch. App. 203

(3) 1839 9 Sim. 304

(4) (1910) 16 Ontario Weekly Notes