Ho Wai Kwan And Another v Chan Hon Kuen And Another

HCMP 250/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 250 OF 2014

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J U D G M E N T

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1. This is a vendor and purchaser summons.

BACKGROUND

2. The captioned property (“the Property”) has the following conveyancing history:

(1) At all material times before 1994, Cheng Kwok Sum (“Cheng”) and Wong Lai Ha (“Wong”) were the joint tenants of the Property.

(2) On 21 March 1994, the Standard Chartered Bank obtained a charging order nisi in respect of the Property against Cheng. It was made absolute on 15 April 1994.

(3) On 30 March 1995, the orders were discharged.

(4) On 17 April 1998, Cheng passed away.

(5) On 18 February 2005, Wong, as the surviving joint tenant, executed an assignment of the Property to Cheung Chun Wing and Li Wai Hung (“Cheung & Li”).

(6) On 16 June 2005, Cheung & Li executed an assignment of the Property to the plaintiffs.

(7) By the captioned agreement dated 8 November 2013 (“the Agreement”), the plaintiffs agreed to sell and the defendants agreed to buy the Property.

3. What stands in the way of the parties now is the question of whether the charging order against Cheng in 1994 had the effect of severing the joint tenancy between Cheng and Wong so that Wong has since become a 50% tenant in common. If yes, the other 50% interest as tenant in common would remain with the estate of Cheng. The parties agree that that would mean Wong had no good title in the entirety of the Property to pass to Cheung & Li; and likewise, Cheung & Li had no good title to pass to the plaintiffs.

4. The plaintiffs’ stance is that the charging order did not operate to sever the joint tenancy of Cheng and Wong. The defendants take the opposite view. The parties have agreed to bring this issue to the court for determination by way of the present originating proceedings. No issue is taken by the defendants as to whether the requisitions on title have been satisfactorily or sufficiently answered; and defendants do not seek to rescind the deal on this ground[1].

SEVERANCE

5. Subject to argument as to the effect of the charging order, it is common ground that Cheng and Wong were at all material times joint tenants both at law and in equity.

6. A joint tenancy is characterised by the unities of possession, interest, title and time. A joint tenancy would sever, if any one of the unities ceases to exist.

7. Under the Conveyancing and Property Ordinance, Cap 219, a severance at law may be effected by notice or instrument: section 8(1). A severance in equity may be effected by notice or any other method that is effective in equity or that would, but for section 8(1), be effective at law: section 8(2).

8. References in the authorities to the law in this respect always started with Williams v Hensman (1861) 70 ER 862. Of the 3 methods of severance set out in that case[2], the relevant one for the present purpose is:

“…… an act of any one of the persons interested operating upon his own share may create a severance as to that share…… Each one is at liberty to dispose of his own interest such manner as to sever it from the joint fund – losing, of course, at the same time, his own right of survivorship……”

9. The question is whether the charging order in the present case constituted such an act.

CHARGING ORDER

10. Section 20B(3) provides that:

“Subject to the provisions of this Ordinance, a charge imposed by a charging order shall have the like effect and shall be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.”

11. Mr Man, appearing with Mr Ho, for the plaintiffs refers to the local decision of Sino Billion v Lam Chok Wai [2003] 2 HKC 167. There DHCJ Poon (as he then was) summarised the state of the law (at §12). A charging order on an interest in land, unlike a mortgage, does not confer any proprietary right or title in the land. It merely gives the chargee certain rights over the property as security for the loan. An equitable charge is created by appropriating specific property to the discharge of some debt or other obligation without there being any change in ownership either at law or in equity. The chargee has the rights to apply to the court for an order for sale or for the appointment of a receiver, but no right to foreclosure (so as to make the property as own) or take possession.

12. Mr Lam for the defendants refers to English decision of Midland Bank plc v Pike [1988] 2 All ER 434. There the issue before the court was whether the judgment creditor granted with a charging order over one of the joint tenant’s beneficial interest under a statutory trust for sale was a “person interested” within the meaning of section 30 of the Law of Property Acts 1925[3] so as to entitle it to apply to the court for an order. Deputy Judge Edward Nugee QC (at 435f-436e) accepted the submission that an equitable charge (under a charging order) has all the characteristics of a proprietary interest, which operates as an assignment pro tanto of the property charged. This statement was subsequently approved by the majority in Croydon (Unique) Ltd v Wright [2001] Ch 318 (at 328D, per Sir Christopher Staughton; at 338D, per Butler-Sloss LJ).

13. The Midland Bank case was actually considered in the Hong Kong case of Chan Ching Kit Katherine v Lam Sik Shi & Anor, HCMP 2239/2000 (24 June 2002). There Kwan J (as she then was) had to consider if the chargee under a charging order is a “person interested” for the purpose of section 3(1) of the Partition Ordinance, Cap 352 so that she was entitled to apply for partition or order for sale. Hence an issue similar to that in Midland Bank. For the chargee, it was argued that section 3(1) of Cap 352 is in pari materia with section 30(1) of the 1925 Act, and what was said by the court in Midland Bank mentioned above should apply.

14. Kwan J explained the legal position in England as well as the difference between the nature of interest of a joint tenant in England and that in Hong Kong subject to a charging order:

“36. The Partition Acts were repealed in England by the Law of Property Act 1925 when the partition of land held in co-ownership was abolished. By section 34 of the 1925 Act, land held by co-owners is subject to a statutory trust for sale and the interest of each co-owner in the land is automatically converted into an interest in the proceeds of sale in respect of that land. Unlike the position in Hong Kong, until the law was amended by the Charging Orders Act 1979, it was the position in England that the interest of a co-owner could not be charged by the imposition of a charging order under section 35(1) of the Administration of Justice Act 1956, because the interest of a beneficiary under a trust for sale of land did not constitute “land” or an “interest in land” for the purpose of the 1956 Act.

37. It does not seem to me that a proprietary interest in the proceeds of sale of land should be equated with an interest of a proprietary nature in land. I do not think section 30(1) of the 1925 Act could be regarded as in pari materia with section 3(1) of Cap 352. It would not be appropriate to adopt the construction of section 30(1) of the 1925 Act in interpreting section 3(1) of Cap 352.

38. In the present case, it is important to bear in mind the characteristics of an equitable charge in land. This is a form of security whereby property is appropriated for the discharge of a debt or other obligation, “but which does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right to possession. In the event of non-payment of the debt, the creditor’ right of realisation is by judicial process” (see Fisher & Lightwood’s Law of Mortgage, 11^th ed p.25). An equitable chargee in land does not have a right to foreclosure (Tennant v Trenchard (1869) 4 Ch App 537 at 542). Under the Partition Acts until they were repealed in 1925, it was not the law that an equitable charge of a co-owner with no right to possession and foreclosure could apply for partition or sale.”

15. Whilst it was suggested in Midland Bank that a charging order amounted to an assignment pro tanto of proprietary interest in a joint tenant’s beneficial interest in the proceeds of sale under the statutory trust for sale to the chargee (since the Charging Orders Act 1979), Kwan J nevertheless highlighted the difference between the English and the local contexts. In Hong Kong, a co-owner’s beneficial interest is indeed that in the land, which differs from a proprietary interest in the proceeds of sale. On that basis, Her Ladyship found it necessary to reiterate the effect of charging order, which DHCJ Poon consistently said in the subsequent case of Sino Billion.

16. Chan Ching Kit was applied...