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HCMP005045/2000
HCMP5045/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO.5045 OF 2000
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| IN THE MATTER of the properties known as ALL THOSE 11,688 equal undivided 750,000th parts or shares of and in ABERDEEN INLAND LOT NO. 423 And of and in the messuages erections and buildings thereon now known as "SOUTHMARK (南匯廣場)" No. 11 Yip Hing Street, Wong Chuk Hang, Hong Kong ("the Building") Together with the sole and exclusive right and privilege to hold use occupy and enjoy FIRSTLY ALL THOSE UNITS 1, 2, 3, 5, 6, 21, 22, 23, 25, 26, 27 and 28 on the TWENTY-FIFTH FLOOR of PACIFIC LINK TOWER of the Building and SECONDLY ALL THAT CAR PARKING SPACE (Private Car Park) NO. P113 on the FIRST FLOOR of the Building (collectively "the 1st property") |
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AND
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| IN THE MATTER of the Mortgage dated 29 August 1997 and registered in the Land Registry by Memorial No. 7282867 |
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AND
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| IN THE MATTER of the properties known as ALL THAT one equal undivided 48th part or share of and in SECTION B OF RURAL BUILDING LOT NO. 403 And of and in the messuages erections and buildings thereon now known as "SEA CLIFF MANSIONS" (otherwise known as Nos. 19A, 19B, 19C and 19D Repulse Bay Road) ("the Building") Together with the sole and exclusive right and privilege to hold use occupy and enjoy FIRST ALL THAT APARTMENT on the FIFTH FLOOR of BLOCK B of the Building and is FIFTH FLOOR of BLOCK B of the Building and is now known as the FIFTH FLOOR of NO. 19A REPULSE BAY ROAD (formerly known as Apartment B2 on the Fifth Floor of Block B of Sea Cliff Mansions) AND SECONDLY ALL THOSE CAR PARKING SPACES NOS. 41 and 41A (collectively "the 2nd Property") |
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AND
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| IN THE MATTER of the Mortgage dated 9 January 1998 and registered in the Land Registry by Memorial No. 7403995 |
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AND
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| IN THE MATTER of Order 88 of the Rules of the High Court, Chapter 4 |
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| BETWEEN |
| BANK OF CHINA (HONG KONG) LIMITED (formerly known as THE NATIONAL COMMERCIAL BANK LIMITED HONG KONG BRANCH) |
Plaintiff |
| AND |
| KANISHI (FAR EAST) LIMITED |
1st Defendant |
| GREEN HARBOUR LIMITED |
2nd Defendant |
| AND |
| PO DING COMPANY LIMITED |
Claimant |
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Coram: Hon Ma J in Chambers
Dates of Hearing: 7 December 2001
Date of Judgment: 18 December 2001
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J U D G M E N T
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The present appeal
1. The present appeal raises, principally but not exclusively, the following questions : Can a charging order absolute be granted in respect of property which is subject to a prior interest and if so, ought one be made in the present case? I will later place these questions in their proper context.
2. On 23 February 2001, Master Jones ordered the 1st and 2nd defendants to pay to the plaintiff the following sums together with interest thereon, being the liability of the defendants under two mortgages :-
(a) HK$46,377,286.73;
(b) USD$132,164.27; and
(c) JPY6,264,261.
3. In this appeal, I am concerned only with the position of the plaintiff, the 1st defendant and the claimant Po Ding Company Limited. I will refer to these parties respectively as "the Judgment Creditor", the "Judgment Debtor" and the "the Claimant".
4. On 2 April 2001, the Judgment Creditor obtained from Master Wong a charging order nisi on certain securities being 25 shares with a par value of HK$1.00 ("the Shares") in a private company named Main World Development Limited ("the Company"). These shares were, according to the documents filed by the Company in the Companies Registry, held in the name of the Judgment Debtor.
5. The charging order nisi was in the form required under RHC, Order 50, rule 1(2) and was therefore also a notice to show cause with a return date of 27 April 2001.
6. On 27 April 2001, an Affirmation from Louis Ho Chi Wai dated a day earlier was filed on behalf of the Claimant claiming that it had a prior equitable charge or mortgage on the Shares which had, on 10 April 2001, been converted into a legal charge when the Claimant became the registered legal owner of the same.
7. On 27 April 2001, Master Kwan adjourned the return date of the notice to show cause, giving leave to both the Judgment Creditor and the Claimant to file further affidavit evidence. Neither party did.
8. On 11 September 2001, after hearing argument from the Judgment Creditor and the Claimant, Master De Souza held in favour of the Claimant and discharged the charging order nisi with costs. It is from that Order that the Judgment Creditor now appeals. The main protagonists before me are the Judgment Creditor and the Claimant. Although the Defendants are represented by Mr Lau, no submissions were made on their behalf.
Background
9. The relevant facts are not really in dispute. The main controversy between the Judgment Creditor and the Claimant lies in the correct legal analysis of the facts and in those questions I have already set out above.
10. The starting point is a letter dated 1 September 2000 from the Claimant to the Judgment Debtor, in which there was confirmed an agreement ("the Loan Agreement") on the Claimant's part to extend a temporary loan of HK$2 million to the Judgment Debtor on the terms and conditions contained in the letter. The relevant term for the purposes of the present appeal is clause 1 dealing with the security for the loan. This states :
"1. As security, you [the Judgment Debtor] will pledge to us [the Claimant] 25 shares of.... [the company] representing 25% of the issued share capital of.... [the company]. Please deliver to us the share certificate together with the form of transfer duly executed." (emphasis added)
11. The 25% of the Shares represented the whole of the Judgment Debtor's interest in the Company. As far as the Claimant was concerned, it was prior to the Loan Agreement already the holder of 45% of the issued share capital in the Company.
12. On 1 September 2001, in compliance with the Loan Agreement, the Judgment Debtor delivered to the Claimant :-
(a) the share certificate for the Shares in the Judgment Debtor's name; and
(b) an Instrument of Transfer signed by the Judgment Debtor as transferor transferring the Shares to the Claimant (who was named as transferee). This document, to which I will further refer below, was undated and unsigned by the Claimant.
13. The Judgment Debtor failed to repay the said loan of $2 million. As a result, the Claimant enforced the security in the Shares by completing the blanks on the Instrument of Transfer (by inserting the date of 1 September 2000 and signing it) and having it stamped on 10 April 2001. The Claimant signed the Instrument of Transfer twice : first simply as transferee, the second under the words :
"We hereby certify that the shares as mentioned overleaf are held by us as security against facilities granted and no purchase or sale in respect of this transaction has been involved."
14. I now turn to the issues that arise from these facts.
The issues
15. The following issues arise for consideration in the present appeal :-
(a) What was the nature of the Claimant's interest in the Shares, whether (as the Judgment Creditor submits) a mere pledgee or (as the Claimant contends) an equitable mortgagee or chargee (Issue 1)?
(b) In any event, even if the nature of the Claimant's interest was that of an equitable mortgagee or chargee, does the Court nevertheless have the jurisdiction to make a charging order in respect of the Shares and if so, in the circumstances of the present case, ought the Court make such an order (Issue 2)?
16. In defining the issues as above, I have reworded those issues as identified by Mr Eugene Fung for the Judgment Creditor. I intend to deal with the issues in the order I have set them out, which was the order in which Mr Michael Yin for the Claimant dealt with the matter. I agree this is the more logical approach in applications such as the present.
17. However, before dealing with these specific issues, I first mention briefly the nature of the Court's jurisdiction in respect of charging orders.
The Court's jurisdiction in respect of charging orders
18. Procedurally, the making of charging orders is of course governed by RHC Order 50. Substantively, however, the starting point is to look at sections 20, 20A and 20B of the High Court Ordinance.
19. The following points are of note in relation to these provisions :
(a) In deciding whether or not to make a charging order (nisi or absolute), the Court is vested with a discretion. The Court is by statute required to take into account "all the circumstances of the case" : section 20(3). The width of this discretion is designed to enable the court to ensure that practical justice is done, balancing on the one hand the right of judgment creditors to enjoy the fruits of money judgments they have obtained by making use of all execution procedures open to them and on the other, the rights or interests (and I use these terms not necessarily in the strict proprietary sense) of other persons in connection with the relevant property. Which way the balance tilts in any given case is a matter of individual judgment in the circumstances : Roberts Petroleum Ltd v. Bernard Kenny Ltd [1983] 2 AC 192, at 212 A-B.
(b) Specifically, however, but in my view in no way cutting down on the width of the discretion, the Court is required to consider the personal circumstances of the debtor and whether any other creditor of the debtor would be likely to be "unduly" prejudiced by the...
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