Global International Credit Ltd v. Li Hui Ling and Another

HCA 684/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 684 OF 2012

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JUDGMENT

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1.This is an application by Hang Hing Finance Limited (“HH”) by summons dated 17 April 2013 to join as a defendant under O15 r.6 (2)(b) of the Rules of the High Court. As will become apparent, it was necessary to review the court’s record in one of the cases relied on by the applicant. Accordingly, at the conclusion of the hearing, judgment was reserved which I now give.

Background facts

2.The 1^st defendant is the registered owner of a property in Shatin.

3.On 3 October 2011, she executed a 1^st mortgage in favour of the Bank of China (Hong Kong) Ltd (“BOC”) (“the 1^st mortgage”).

4.On the same day, she executed a 2^nd mortgage in favour of Global International Credit Limited (“the plaintiff”) in return for an advance of $5,800,000 under a loan agreement of even date. The 2^nd defendant guaranteed the loan.

5.On 8 January 2012 the 1^st defendant executed a 3^rd legal charge in favour of a finance company not involved in this application.

6.On 17 February 2012, the 1st defendant executed a legal charge (“the 4th legal charge”) in favour of HH who advanced to her $1.7 million under a loan agreement.

7.When the 1^st defendant defaulted in making repayment, the plaintiff commenced this action on 27 April 2012 against the defendants for repayment of principal and interest due under the 2nd mortgage and for possession.

8.By an order dated 17 July 2012, Master Levy granted the plaintiff an order of possession subject to the rights of BOC and entered judgment in favour of the plaintiff in the sum of $6,492,618 with interest (“the Levy order”).

9.Upon being advised by the plaintiff of the Levy order, BOC intimated its intention to commence its own proceedings for possession and, on 16 October 2012, obtained an order for possession and an order for repayment of $13,398,645.75 with interest.

10.On 15 November 2012 the plaintiff recovered possession of the property but under the terms of the Levy order, its possession was subject to BOC’s rights and BOC requested that vacant possession be delivered to it.

11.BOC and the plaintiff eventually settled their differences and it was agreed that the plaintiff would redeem the 1^st mortgage from BOC on behalf of the 1^st and/or 2^nd defendant(s). On 7 February 2013, the plaintiff paid BOC the sum of $13,910,726.52 comprising the redemption money as well as all costs incurred and disbursements.

12.The property remains unsold. According to Mr Chan SC, counsel for the plaintiff, 4 public auctions have so far been held but has not resulted in any sale.

Joinder?

13.The dispute that has arisen between HH and the plaintiff is as to the application of the net proceeds of sale as and when the property is sold after repayment of the 2^nd mortgage (i.e. the amount ordered to be repaid to the plaintiff under the Levy order). The issue is whether subrogation applies i.e. whether the plaintiff has priority in respect of the redemption monies paid to BOC.

14.Ms Yiu counsel for HH submitted that HH is a relevant party as it has a legitimate legal or financial interest in the outcome of “the proceedings”. HH takes issue with the plaintiff’s entitlement to subrogation.

15.This action was commenced in April 2012. Apart from a possession order, the relief sought included an order for the “payment of all monies secured by the Mortgage and Second Legal Charge …” The “Mortgage” is defined in paragraph 2 of the statement of claim by reference to the “Second Mortgage” made between the 1^st defendant and the plaintiff.

16.The Levy order granted relief under both heads. It was a final order and effectively disposed of the action. There is no outstanding issue.

17.The ‘live’ issue that currently exists arises out of events that occurred months after the Levy order. The first mortgage was not redeemed until almost 7 months after the Levy order. Up until that point, there could have been no live issue between HH and the plaintiff and certainly not in this action.

18.Ms Yiu cited the decision of Ma J (as he then was) in Wing Mou Construction Co. Ltd v Cosmic Insurance Corporation Ltd and Mansion Holdings Ltd, HCCT 40/2001, unreported, 20 June 2002 at §15 (1) for the proposition that

“the object of both O.15 r. 6(2)(b) and O.16 r. 4(4) is to ensure that all relevant matters in dispute in the action can be effectively adjudicated upon by the court and that all relevant parties are before it …” (emphasis added)

19.There is no issue as to the correctness of the principles adumbrated in Wing Mou. But the question is whether the priority issue was an issue “in dispute in the action”. It is clear from the chronology that it was not: it had not yet arisen and the action having long been disposed of by the Levy order, the court is now functus officio so far as that action is concerned.

20.Ms Yiu submitted that there is no substantive difference between the present case and Kingsway Finance Limited v Wang Qingyi and Wing Wu Finance Limited, unreported, HCA 360/2012, 24 July 2013 where the question of priority between mortgagees and thus the distribution of the net proceeds of sale of the mortgaged property was very much one of the issues the court had to determine.

21.It is not entirely clear from the judgment of DHCJ Saunders how or when that issue became an issue in that case. §2(k) mentioned applications by Kingsway (in HCA 360) and Wing Wui (in HCMP No. 146/2012). By happenstance, Ms Yiu was counsel in that case but, understandably, she could only tell the court what she could recall.

22.I have since had the opportunity of reviewing the record (including the master’s notes) in both matters which I summarize below.

23.Wing Wui took out an originating summons in January 2012 seeking a money judgment and, in default of payment, possession of the property. On 8 May 2012, Master Lo who was informed of Kingsway’s interest in the property under HCA 360 refused to grant the order sought in the absence of service on Kingsway or without Kingsway’s consent. The master adjourned the matter to 22 May 2012.

24.The writ in HCA 360 was issued in March 2012. At the hearing of Kingsway’s summons under O. 83A and O. 88 on 22 May 2012, Master J. Wong, not being aware of HCMP 146/2012, made the usual money judgment, possession and costs order. Then upon being informed by Kingsway’s solicitor that HCMP 146 dealt with the same defendant and property, he heard HCMP 146 which was also before him on the same day, Master Wong made an order setting aside the earlier order made that day in HCA 360 and gave directions for the filing of further evidence for the purpose of resolving the dispute as to whether Kingsway or Wing Wui should be given the order of possession and the sale of the property. The priority issue emerged from the evidence filed.

25.It is apparent that the priority issue in Kingsway arose before any final order was made in HCA 360, much less entered and sealed. Kingsway is not an authority that it is appropriate to resuscitate an action that has concluded and adding a party to that action to decide a matter that was not an issue in the concluded action.

26.It was urged upon this court that the action should be resuscitated so that the subrogation/priority issue could be decided in the action. It was said that it would be cost-effective and result in procedural economy. For my part, I do not consider it procedurally sound to do so.

27.It remains open to the applicant to commence proceedings to have its dispute with the plaintiff on the question of subrogation and priority determined and I do not see that it would result in additional time and costs of any significance.

Conclusion

28.For those reasons, the application for joinder is dismissed. I would also make an order nisi of costs in favour of the plaintiff to be taxed if not agreed, with certificate for counsel.

Mr Chan Chi Hung SC & Mr Derek JY Chan, instructed by Tung, Ng Tse & Heung, for the plaintiff

The 1^st defendant was not represented and did not appear

The 2^nd defendant was not represented and did not appear

Ms Elise Yiu, instructed by Tang, Wong & Cheung, for the applicant