KONEW CAPITAL INTERNATIONAL LTD v. LAM KA KEUNG AND ANOTHER

DCMP3812/2024

[2025] HKDC 823

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3812 OF 2024

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BETWEEN

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JUDGMENT

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A. Introduction

1.  By originating summons dated 17 July 2024 (the “O/S”), the plaintiff commenced a mortgage action under O 88 of the Rules of the District Court (Cap 336H) (“RDC”).

2.  At all material times:-

(1) the plaintiff was and is a licensed money lender; and

(2) the 1^st and 2^nd defendants were and are the registered owners of the property known as ALL THOSE 688 equal undivided 881,000^th parts or shares of and in Tseung Kwan O Town Lot No 18 (Flat C, 40^th Floor of Block 4, Well On Garden, No 9 Yuk Nga Lane, Tseung Kwan O, Sai Kung, New Territories) (“Property”) as tenants in common in equal shares.

3.  For present purposes, on 2 December 2016, the plaintiff and the 1^st defendant entered into a loan agreement (“Loan Agreement”), under which the plaintiff advanced a loan of $50,000 to the 1^st defendant (“Loan”) at 36% per annum.

4.  Pursuant to the Loan Agreement, the Loan was to be repaid together with interest by the 1^st defendant in 6 equal monthly instalments of $9,230 each with the final instalment to be paid on 2 June 2017. The Loan was advanced by the plaintiff to the 1^st defendant on the same day as the Loan Agreement.

5.  The Loan is secured by a Second Mortgage previously executed by the 1^st defendant in favour of the plaintiff on 18 May 2016 (“Second Mortgage”), whereby the 1^st defendant charged his interest in the Property to the plaintiff as security on an “all monies” basis up to the maximum amount of $300,000.

6.  The Second Mortgage is subject to an “all monies” mortgage dated 7 November 2011 (“First Mortgage”) in favour of Hang Seng Bank Limited (“First Mortgagee”).

7.  The plaintiff claims that the 1^st Defendant has failed to make full repayment of the Loan. To date, the amount of principal owed under the Loan is $39,043.70.

8.  By a Notice of Appointment to Hear Originating Summons dated 20 March 2025 (the “Notice of Hearing”), the plaintiff seeks (amongst others) orders as follows:

(1) payment of all monies by the 1^st defendant that are due to the plaintiff under the Second Mortgage and the Loan Agreement;

(2) delivery of vacant possession of the Property by the 1^st and 2^nd defendants;

(3) that the Property be sold under the Partition Ordinance (Cap 352) (“PO”) with the sales proceeds to be distributed.

B. Service of proceedings on the defendants

9.  Based on the affirmations of service filed by the plaintiff, I am satisfied that:

(1) the plaintiff has duly served the O/S on the defendants on 19 July 2024 by inserting the O/S through the letter box of the Property, being the usual and last known address of the defendants, pursuant to RDC O 10, r 1(2)(b);

(2) a copy of the O/S was also posted up at a conspicuous place of the entrance of the Property on 19 July 2024;

(3) copies of the affirmation of Tsang Tak Wah filed on 20 March 2025 (“Tsang Affirmation”) in support of the O/S and the Notice of Hearing were served on the 1^st and 2^nd defendants by insertion through the letterbox of the Property on 17 April 2025;

(4) copies of the O/S, the Tsang Affirmation and the Notice of Hearing were served on the Director of Lands on 15 April 2025;

(5) the Notice of Hearing was provided under cover of a letter dated 15 April 2025 to the First Mortgagee; and

(6) a Notice to Occupant was posted at the Property on 17 April 2025.

10.  The 1^st and 2^nd defendants have failed to file any Acknowledgement of Service.

11.  Therefore, I am satisfied that the relevant documents have been served on the defendants and reasonable steps have been taken to notify the defendants of the present hearing. Pursuant to RDC O 28 r 4(1), it is appropriate for the court to proceed to determine the O/S notwithstanding the absence of the defendants.

C. Discussion

C1. Compliance with RDC O 83A & 88 and Money Lenders Ordinance

12.  As the O/S is an action by a moneylender for enforcement of the Second Mortgage which is a security for the Loan, both RDC O 83A and O 88 apply to these proceedings.

13.  In the present case, the requirements under RDC O 83A rr 3-4 and O 88 rr 4-5 have been satisfied:

(1) as noted above, the Notice of Hearing was duly filed and served;

(2) the Tsang Affirmation contains the requisite particulars and information pursuant to RDC O 83A rr 3-4 and O 88 r 5; and

(3) the original Loan Agreement and the Second Mortgage were provided to the court for inspection at the hearing.

14.  Having perused the Loan Agreement, I am satisfied that the requirements under section 18(1) and (2) of the Money Lenders Ordinance (Cap 163) (“MLO”) concerning the form of a moneylender’s agreement for repayment of money have been complied with. As the effective interest rate of the Loan Agreement is only 36% per annum, the transaction is not subject to reopening under section 25 of the MLO.

C2. Money judgment

15.  In his written submissions, Mr Cheung, counsel for the plaintiff, confirms that the plaintiff relies upon the Second Mortgage instead of the Loan Agreement as the basis of its claim[1]. Pursuant to Clause 2 of the Second Mortgage, the 1^st defendant covenants with the plaintiff that he would forthwith upon demand by the plaintiff pay, make good and discharge the “Secured Indebtedness”, which is defined to include all amounts which are owed by the 1^st defendant to the plaintiff from time to time.

16.  I am satisfied on the basis of the Tsang Affirmation and the exhibits thereto that the 1^st defendant has failed to fully repay the Loan (which forms part of the Secured Indebtedness under the Second Mortgage) despite a written demand from the plaintiff. The principal of the Loan due and owing by the 1^st defendant is $39,043.70.

17.  Next, I shall consider the issue of interest.

18.  Under s 49(1) of the District Court Ordinance (Cap 336), the court has a discretion to award simple interest, at the rate the court thinks fit in a judgment for a debt or damages, on the debt or damages or on a payment made before judgment, for the period between the date when the cause of action arose and the date of judgment.

19.  In the present case, the 1^st defendant has defaulted under the Loan Agreement by 2 June 2017. There is no explanation from the plaintiff for the substantial delay in commencing the present proceedings.

20.  In the circumstances and taking a broad-brush approach, I am minded to award only 6 years of pre-judgment interest at the contractual rate of 36% per annum as follows:-

$39,043.70 (principal) x 6 years x 36% per annum

= $84,334.39

21.  For completeness, I would add that it is also questionable whether the plaintiff’s claim for interest beyond 6 years may be time barred under s 19(5) of the Limitation Ordinance (Cap 347). However, as the issue has not been raised by the defendants[2] and I have not had the benefit of full argument, I shall refrain from expressing any view on this issue.

C3. Possession of the Property

22.  As considered above, I am satisfied that the 1^st defendant has defaulted under the Second Mortgage. Under Clause 5.01 of the Second Mortgage, an event of default occurs if (amongst others): (i) the 1^st defendant defaults in the payment of the Secured Indebtedness or any part thereof following demand duly made; or (ii) the 1^st defendant defaults on the due date and in accordance with the terms and conditions relating thereto of any principal or interest or other moneys outstanding and payable by the 1^st defendant; or (iii) there shall be any breach or omission to observe any agreements, covenants or obligations in the Second Mortgage.

23.  Under Clause 6.01 of the Second Mortgage, upon the occurrence of an Event of Default, the plaintiff as mortgagee may enter into and take possession of the Property and to (amongst others) exercise any powers or rights incidental to the ownership of the Property.

24.  Hence, the plaintiff is entitled to enter into and take possession of the Property in case of the 1^st defendant’s failure to comply with a demand for repayment of the Loan, subject always to the rights of the First Mortgagee under the First Mortgage.

25.  As I have mentioned above, the First Mortgagee was notified of this hearing. The court may make a possession order in favour of a second mortgagee notwithstanding the existence of a first mortgage as long as the order is made subject to the rights of the first mortgagee, and to the rights of any other person deriving title from the first mortgagee: Fubon Bank (Hong Kong) Limited v Ng Wai Kong [2021] HKCFI 1558, §11, per Au-Yeung J.

26.  Accordingly, it is appropriate for the court to make an order of possession of the Property against the defendants such that the plaintiff would be allowed to obtain vacant possession of the Property for the purpose of sale subject to the rights of the First Mortgagee (which is dealt with in the next section).

C4. Order for sale of the Property

27.  The relevant principles are well established and were helpfully summarised by Deputy District Judge Kay Seto in Konew Capital International Limited v Lau Kwan Pak & Another [2024] HKDC 624 at §§21 to 26:

(1) Section 2 of the 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;

(2) 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;

(3) An interested person includes a mortgagee of a partial interest for the purposes of section 3(1) of the PO, and is thus entitled to apply for an order for sale of the property;

(4) 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 persons interested or presumptively interested, (c) the absence or disability of some of the persons, or (d) any other circumstances;

(5) 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;

(6) 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;

(7) 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;

(8) An order for sale would not be refused unless all the co-owners would be benefitted 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.

28.  Having considered the materials before me, I find that it is appropriate to make an order for sale:-

(1) The Property is a residential unit in a multi-storey building with a saleable area of about 502 square feet. Physical partitioning of the Property is impracticable and would likely have a negative effect on the value of the Property;

(2) None of the defendants, the First Mortgagee and the Director of Lands has indicated any opposition;

(3) The reserve price of $4,680,000 is set by reference to a valuation report of a qualified surveyor having regard to comparable sale transactions;

(4) The First Mortgagee will have priority to the distribution of the sales proceeds, after discharge of all rent, taxes, rates and other outgoings due affecting the Property;

(5) In respect of the 1^st defendant’s share, the residual sum (if any) after application of the proceeds towards the costs of sale, the First Mortgage and the Second Mortgage shall be paid to the 1^st defendant;

(6) The interest of the 2^nd defendant (as the other co-owner) is protected by her entitlement to the pro rata share of the sales proceeds.

D. Costs

29.  In respect of the plaintiff’s costs against the 1^st defendant:-

(1) There is no reason why costs should not follow the event.

(2) In light of Clause 17.01 of the Second Mortgage which provides that the 1^st defendant shall pay the plaintiff’s legal expenses incurred in enforcing the Second Mortgage on an indemnity basis, I award to the plaintiff its costs up to the date of this hearing and with certificate for counsel against the 1^st defendant on an indemnity basis, such costs are summarily assessed at $80,000.

30.  I make no order as to costs in respect of the 2^nd defendant given that she is made a defendant in these proceedings due to her being a co-owner of the Property and that she has not appeared in these proceedings.

E. Disposition

31.  In light of the above, I make the following order which is based on the plaintiff’s proposed draft orders with amendments:-

(1) The 1^st defendant do pay the plaintiff the following secured by a Second Mortgage dated 18 May 2016 (“the Second Mortgage”): -

(a) the principal sum of HK$39,043.70;

(b) pre-judgment interest in the sum of HK$84,334.39; and

(c) interest on the sum of HK$39,043.70 at the rate of 36.00% per annum (ie daily interest of HK$38.51) from the date of the judgment until payment.

(2) Unless the 1^st defendant do make payment of the sums as referred to in paragraph (1) hereinabove within 28 days after service of this Order, the 1^st and 2^nd defendants do deliver to the plaintiff vacant possession and title deeds and documents in their possession (if any) of the property known as ALL THOSE 688 equal undivided 881,000^th parts or shares of and in Tseung Kwan O Town Lot No 18 (Flat C on 40^th Floor of Block 4, Well On Garden, No. 9 Yuk Nga Lane, Tseung Kwan O, Sai Kung, New Territories) (“the Property”);

(3) The property be sold by the plaintiff by public auction or private treaty in open market at the price not less than HK$4,680,000.00 (value for sale under repossession);

(4) The conduct of the sale of the property shall be committed to the plaintiff’s Solicitors Messrs Au Yeung, Lo & Chung;

(5) Upon such sale, the 2^nd defendant shall do all acts and things necessary for the transfer of the legal title and beneficial interest in the Property to the purchaser, failing which Mr Chung Man Wing, a partner of Messrs Au Yeung, Lo & Chung, Solicitors for the Plaintiff be appointed under s 38A of the District Court Ordinance, Cap 336 to execute the necessary conveyance or assignment to give effect to this Order;

(6) The proceeds of the sale of the Property shall be paid to the plaintiff’s solicitors and be applied upon completion in the following order of priority: -

(a) in discharge of all government rent, taxes, rates and other outgoings due and affecting the Property;

(b) in discharge of all encumbrances affecting the Property having priority to the Second Mortgage, if any;

(c) in payment of the costs and expenses in connection with execution of this Order and sale of the Property;

(d) 50% of the remaining proceeds relating to the 1^st defendant’s interest in the Property be applied as follows :-

(i) in payment of all sums secured under the Second Mortgage (including the plaintiff’s costs of these proceedings) provided that the total sum shall not exceed HK$300,000;

(ii) the balance (if any) be paid to the next encumbrancer; or if there is no such next encumbrancer, to the 1^st defendant;

(e) the other 50% of the remaining proceeds relating to the 2^nd defendant’s interest in the Property be applied as follows :-

(i) in discharge of all encumbrances affecting such 2^nd defendant’s interest in the Property, if any;

(ii) the balance, if any, be paid to the 2^nd Defendant;

(7) Upon the 1^st defendant paying to the plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the plaintiff by the Second Mortgage, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to the 1^st and 2^nd defendants possession and title deeds and documents of the Property and release to the 1^st defendant the security constituted by the Second Mortgage as the 1^st defendant may agree or the Court may direct but without prejudice to the validity of any contract made prior to or without notice of such redemption and payment;

(8) The 1^st defendant do pay the plaintiff’s costs of these proceedings on an indemnity basis summarily assessed at HK$80,000;

(9) There be no order as to costs against the 2^nd defendant;

(10) The plaintiff’s solicitors do draw up, file and serve sealed copies of this Order on the defendants; and

(11) There be liberty to apply.

32.  It remains for me to thank Mr Cheung for his helpful assistance.