KONEW CAPITAL INTERNATIONAL LTD v. LIU LEE CHUN AND ANOTHER

DCMP 39/2024

[2024] HKDC 2122

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 39 OF 2024

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REASONS FOR JUDGMENT

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1.  This is an application by the plaintiff by originating summons filed on 3 January 2024 for a money judgment against the 1^st defendant, and for an order for sale against the defendants of Unit F on 24/F, Block 2 (Kwei Cheong Court), Fortune Plaza, No.4 On Chee Road, Tai Po (“the Property”), pursuant to Order 83A, rule 4 and Order 88, rule 4 of the Rules of the District Court (Cap.336H) (“RDC”).

2.  After considering the evidence put before me, and having heard the plaintiff and the 1^st defendant, I gave Judgment at the hearing in terms of the draft order submitted by the plaintiff as amended. I indicated that I should hand down the reasons for my Judgment.

3.  These are the reasons for my Judgment.

Background

4.  The plaintiff is a licensed money lender. The 1^st defendant and the 2^nd defendant own the Property as tenants in common in equal shares.

5.  On 22 March 2021, the plaintiff and the 1^st defendant entered into a loan agreement (“the Loan Agreement”), by which the plaintiff agreed to lend a sum of HK$2,013,081.00 (“the Loan”) to the 1^st defendant for a term of 120 months, at the interest rate of 19.20% per annum. The Loan was intended to, and did discharge on 22 March 2021, 2 former loans that the plaintiff advanced to the plaintiff on 9 December 2020 and 22 December 2020, respectively for HK$1,500,000.00 and HK$463,254.00.

6.  On 9 December 2020, the plaintiff and the 1^st defendant executed a mortgage (“the Mortgage”), by which the 1^st defendant charged to the plaintiff all of her estate, right, title, benefit and interest in the Property to secure the repayment of her indebtedness (up to HK$1,500,000.00, plus interest and costs accrued) to the plaintiff.

7.  On 22 December 2020, the plaintiff and the 1^st defendant further executed another mortgage (“the Second Mortgage”), by which the 1^st defendant charged to the plaintiff all of her estate, right, title, benefit and interest in the Property to secure the repayment of her indebtedness (up to HK$500,000.00, plus interest and costs accrued) to the plaintiff.

8.  The Mortgage and the Second Mortgage were executed at the same time as the plaintiff and the 1^st defendant entered into the respective agreements for the 2 former loans.

9.  According to the plaintiff’s case, the 1^st defendant defaulted in repaying the monthly instalments of the Loan to the plaintiff since 22 February 2023. Despite a written demand by the plaintiff’s solicitors dated 30 October 2023, the outstanding amount of the Loan and the interest accrued remained unpaid. As at the issue of the originating summons, the outstanding principal and accrued interest came to HK$2,322,838.75.

Procedural history

10.  The plaintiff filed the originating summons on 3 January 2024 and duly served the same on the defendants.

11.  The defendants filed their Acknowledgement of Service of the originating summons respectively on 23 January 2024 and 24 January 2024.

12.  The hearing of the originating summons was adjourned with directions given on the filing of evidence. The 1^st defendant was since then granted extensions to file and serve her affirmation in opposition. However, in default of the Unless Order of Master Ross Li dated 20 May 2024, she did not file her affirmation in opposition by 11 June 2024, or indeed at any time thereafter. Instead, the 1^st defendant sought to file and serve a Defence on 26 July 2024, in which she raised a dispute as to the sum now demanded by the plaintiff, and opposed to the Property being repossessed.

13.  I am satisfied that the defendants were duly informed that they had to file affidavit evidence should they wish to oppose to the plaintiff’s application at the hearing before me. I agree with the plaintiff that the Defence was filed without leave and should be ignored.

14.  The 2^nd defendant was absent at the hearing. I am satisfied that he had due notice of the hearing before me, and the hearing should proceed in his absence.

15.  At the hearing, the 1^st defendant informed me that she was in the process of obtaining sufficient finance to repay the plaintiff. The plaintiff indicated that it would proceed with its application for judgment, to which the 1^st defendant did not object.

Money judgment

16.  Having reviewed the Loan Agreement, I am satisfied that the statutory requirements under section 18(1) and (2) of the Money Lenders Ordinance (Cap.163) (“MLO”) as to the form of a moneylender’s agreement for repayment of money have been complied with.

17.  As the effective interest rate of the Loan Agreement does not exceed 48%, this is not a case for the transactions to be reopened under section 25 of the MLO: Celerity Special Situations Fund I, L.P. v China Linkage International Limited [2018] HKCFI 259 (Deputy Judge Le Pichon; 7 February 2018) at §§24-26.

18.  Based on the affirmation evidence filed by the plaintiff, I am satisfied that the 1^st defendant has defaulted in repayment of the Loan since 22 February 2023. Thus, pursuant to Clause 8(a) of the Loan Agreement, the plaintiff can institute legal proceedings against the 1^st defendant for the recovery of the entire outstanding sum 7 days after a written demand is served by the plaintiff on the 1^st defendant.

19.  The plaintiff has complied with the requirements prescribed in RDC Order 83A, rule 4(2) and (3) in its claim for money judgment against the 1^st defendant.

20.  I consider that this is an appropriate case for a money judgment to be entered in favour of the plaintiff against the 1^st defendant. In the draft Order, the plaintiff invites this Court to grant a money judgment of HK$2,307,744.94 as the sum secured by the Mortgage and the Second Mortgage, and another money judgment of HK$15,093.81 as the sum not so secured. I agree with the plaintiff’s calculations.

Vacant possession of the Property

21.  Pursuant to Clause 6.01 of the Mortgage and Clause 8.2 of the Second Mortgage, the plaintiff is entitled to enter into and take possession of the Property on the 1^st defendant’s failure to comply with a demand for repayment of the Loan.

22.  I am satisfied that the plaintiff has complied with the requirements in RDC Order 88, rules 4 and 5 in its claim of possession of the Property against the defendants. In the light of the evidence filed before me, I consider that this is an appropriate case for an order of possession of the Property to be made in favour of the plaintiff against the defendants.

Order for sale of the Property

23.  Section 2 of the Partition Ordinance (Cap.352) (“PO”) provides that, where any property in land is held by two or more persons, whether as joint tenants or as tenants in common, the court may make an order for partition of the property under section 4 of the PO, an order for sale of the property under section 6 of the PO, or refuse to make any order.

24.  Section 3(1) of the PO provides that any person interested in such property may institute proceedings under the PO for an order for sale.

25.  It is well established that an interested person is confined to a person holding an interest in possession: Fortis Bank Asia HK v Yu Kam Hoi and Anor HCMP 134/2002 (Reyes J; 4 March 2004) at §56. A mortgagee of a partial interest is considered an interested person for the purposes of section 3(1) of the PO, and is thus entitled to apply for partition or sale of the property: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 at §§22-23, applied by the Court of First Instance in Ego Finance Limited v Poon Sau Han Joanna and Anor [2023] HKCFI 868 (Deputy Judge Jenkin Suen, SC; 28 March 2023) at §21; Maxcolm Finance Limited v Pun Lap Shing and Anor [2024] HKCFI 603 (Deputy Judge Jonathan Wong; 1 March 2024) at §6.2.

26.  Since the plaintiff is a mortgagee of the 1^st defendant’s share of the Property, it is entitled to apply for an order for sale under the PO.

27.  Section 6(1) of the PO empowers the court to make an order for the sale of the property where it appears to the court that a partition of the property would not be beneficial to all the persons interested by reason of (a) the nature of land to which the proceedings relate, (b) the number of the persons interested or presumptively interested, (c) the absence or disability of some of the persons, or (d) any other circumstances.

28.  In Re Lau Hiu Tuen, HCB 8430/2006 (G Lam J; 20 August 2015) at §§20-24, the court summarised the relevant principles as follows:-

(1)  A co-owner has the basic right to rid himself of the shackles of co-ownership, and if he has no other remedy, ask for an order for partition or sale.

(2)  When it is impracticable to make an order for partition, the court should make an order for sale unless it is persuaded (the burden being on the opposing co-owner) that such an order will not be beneficial to all the co-owners, or that it will result in very great hardship to one co-owner.

(3)  Whether an order for sale is beneficial to all co-owners is not determined by the dissent of the opposing co-owner, or the assertion of them that it is not beneficial. It is to be determined objectively.

(4)  An order for sale would not be refused unless all the co-owners would benefit by its refusal, or an order for sale would be detrimental to all the co-owners, or unless it will result in very great hardship to one co-owner.

29.  The plaintiff’s case is that, given the nature of the Property, it would not be practicable or beneficial to physically partition the same, and therefore an order for sale under section 6(1) of the PO is warranted.

30.  In all the circumstances of this case, I consider that it would be just and reasonable for an order for the sale of the Property to be made for the following reasons:-

(1)  The Property is a residential unit in a multi-storey building with a saleable area of 339 square feet. If the Property were to be partitioned, it would likely devalue the Property substantially, which would in turn prejudice the financial interests of the plaintiff.

(2)  None of the defendants has filed any evidence suggesting that an order for sale would not be beneficial or would cause great hardship to one or both of them.

(3)  The reserve price is set by reference to a valuation report of Midland Surveyors Limited dated 31 January 2024. I accept the reserve price is fair and reasonable.

Disposition

31.  At the hearing, I ordered the 1^st defendant to pay the plaintiff’s costs in this action on solicitor own client basis (as agreed by the 1^st defendant under Clause 18.01 of the Mortgage[1]). I summarily assessed the plaintiff’s costs at HK$115,000.00. There shall be no order as to costs between the plaintiff and the 2^nd defendant.

32.  I am satisfied that the terms of the draft order, as amended, are in line with the usual orders made in proceedings of the present nature and contain sufficient provisions to safeguard the interests of the 2^nd defendant. Hence, I made an order in terms of the draft order as amended.

33.  The defendants, if they so wish, may make an appointment with my clerk to have my reasons for Judgment interpreted to them.

34.  I thank Mr Choi for his assistance.