EGO FINANCE LTD v. JU LUI AND OTHERS

DCMP 1714/2020

[2020] HKDC 909

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1714 OF 2020

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REASONS FOR JUDGMENT

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1.  In this action, the plaintiff sought to recover from the 1^st defendant for outstanding loan, which was secured by a legal charge in respect of his interest in the property in question. The plaintiff also sought to enforce the security and, for that, joined the 2^nd and the 3^rd defendants as parties to its application for an order for sale of the property. None of the defendants appeared. This court summarily determined the application and gave the orders sought at the end of the hearing. As indicated, I now give my reasons.

Background

2.  The plaintiff was at the material times and still is a licensed money lender.

3.  The 3 defendants are the registered joint tenants of the property, namely Flat E, 26/F, Block 3, Elegance Gardens, Nos 4-8 King Fung Path, Tuen Mun, New Territories, Hong Kong (the “Property”).  As far as the plaintiff understands, the 1^st defendant is the son of the other two defendants who, as far as it knows, reside at the Property.

4.  By a loan agreement dated 24 June 2015 (“the Loan Agreement”), the 1^st defendant borrowed and the plaintiff lent a sum of HK$860,000 on the security of a legal charge in respect of the plaintiff’s interest in the Property to the plaintiff (up to a maximum of HK$1.75 million)[1] (the “Legal Charge”).

5.  The Loan Agreement contained the following essential terms:-

(1)  The interest rate was 27.6% per annum.

(2)  The loan was repayable by 120 monthly instalments of HK$21,171 each, which was payable on or before the 24^th day of each month commencing on 24 July 2015.

(3)  In default of punctual repayment, the whole sum of the outstanding principal and interest would become immediately due.  In that event, the plaintiff may recover all outstanding sums including default interest and administration fee (clause 2).

(4)  All the repayments would be apportioned between the settlement in the order of the accumulated default interest, accrued interest and last the principal (clause 3).

(5)  In default of repayments, the plaintiff might foreclose the Property and sell the same for repayment of the debt and interest (clause 6).

(6)  In case the 1^st defendant was declared bankrupt, the plaintiff would be entitled to terminate the Loan Agreement and that all outstanding principal and interest will become due (clause 11).

(7)  Default interest shall be payable by the 1^st defendant on any delay in repayment, which would be charged at the rate of 27.60% per annum from the date of default to the date of full payment (clause 16).

6.  The 1^st defendant has made irregular and partial repayments during the period between 24 July 2015 and 25 January 2016.  He defaulted altogether thereafter.

7.  On 29 March 2016, the 1^st defendant was adjudged bankrupt by order made pursuant to his own application (HCB 760/2016).

8.  As such, the 1^st defendant was for various reasons in breach of the Loan Agreement and committed events of default under the Legal Charge, which would entitle the plaintiff to recover the outstanding loan and interest as well as to enforce the security under the Legal Charge.

9.  On 20 May 2020, the plaintiff obtained leave in HCB 760/2016 to commence action against the 1^st defendant to enforce the secured loan.

10.  On 10 June 2020, the plaintiff commenced the present proceedings, seeking monetary judgment against the 1^st defendant and an order for sale against all the defendants pursuant to the Partition Ordinance, Cap 352 (“PO”).

11.  The evidence shows that the court documents and notice of this hearing have been served on the 1^st defendant c/o trustees in bankruptcy of his property, namely, Wong Ka Shek and Wong Ka Lam King, as well as the 2^nd and the 3^rd defendants at the address of the Property, being their address last known to the plaintiff.  Notice to Occupants has also been served on the 2^nd and the 3^rd defendants.

12.  As mentioned, none of the defendants has entered appearance.

13.  Upon service of the relevant documents on the Director of Lands, the Director indicated no objection to the present proceedings.

14.  I saw no reason why the plaintiff should not be allowed to proceed.

Summary disposal

15.  O28, r4(1) of the Rules of the District Court, Cap 336H (“RDC”) provides for the summary determination of originating proceedings:-

“The Court by whom an originating summons is heard may, if liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require, but where the Court makes an order under this paragraph against a defendant who does not appear at the hearing, the order may be varied or revoked by a subsequent order of the Court on such terms as it thinks just.”

Statutory compliance

16.  I accepted the uncontested evidence in respect of the plaintiff’s compliance with the statutory requirements under sections 18, 22, 23, 24, 25 and 27 of the Money Lenders Ordinance, Cap 163 as well as O83A and O88 of the RDC, which were set out in counsel’s written submission.  Land search also reveals that prior to the execution of the Legal Charge in the present case, the 1^st defendant had previous experience of executing legal charges in respect of his interest in the Property in favour of different parties in 2013 and 2014.

The plaintiff’s contractual right

17.  As mentioned, the 1^st defendant defaulted after his last repayment made on 25 January 2016.

18.  In accordance with the contractually agreed order of apportionment of repayment mentioned above, the balance of outstanding principal and interest by then (25 January 2016) was HK$879,671.88[2]. Up to the date of the affirmation in support of these proceedings (4 June 2020), the total interest accrued to HK$1,022,491.48, thus the total sum of HK$1,902,163.36.  Further until the date of this hearing, at the effective daily interest rate of HK$640.69, interest in the further sum of HK$81,367.63 has accrued.  Hence the total outstanding principal plus interest in the sum of HK$1,983,530.99.  This was the amount of judgment sought by the plaintiff.

19.  As to interest from judgment, Clause 20 of the Loan Agreement expressly provided for contractual interest at the rate of 27.60% per annum.  There is no reason why the agreed contractual rate should not be given effect to from judgment until full payment[3].

20.  On the basis of the materials before this court, I gave judgment against the 1^st defendant for the outstanding debt with interest at the contractual rate until full payment.

Order for sale

21.  Section 2 of the PO provides:-

“Subject to this Ordinance, where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may—

(a) make an order under section 4 for a partition of the property;

(b) make an order under section 6 for a sale of the property; or

(c) refuse to make any order.”

Section 3(1) provides:

“Where any property in land is held in the manner referred to in section 2, any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale.”

22.  It is trite that a legal mortgagee of a co-owner who can sue for possession and foreclosure of the mortgaged property is an interested person entitled to apply for partition (or sale) of the property[4].

23.  The 3 defendants are joint tenants of the Property.  It is trite that attempt by a joint tenant to charge his interest in a co-owned property amounts to an act of severance of the joint tenancy.  As mentioned, the 1^st defendant had previously executed legal charges in respect of his interest in the Property.  Further, by the creation of the Legal Charge, the three co-owners of the Property became tenants in common in presumably equal shares[5]. None of the defendants has come forward to put forward any contrary case of their shares of the beneficial interests in the Property.

24.  The Legal Charge afforded the plaintiff with the contractual right to enter into, take possession of, sell and assign the Property in the event of default:-

“6.01 If any Event of Default shall have occurred then it shall be lawful for the Lender at any time thereafter without any consent on the part of the Borrower or of any person to:

(a) enter into and upon and take possession of the Property and for that purpose to take any legal proceedings and thenceforth to hold, possess and enjoy the Property and to receive the rents and profits thereof without any lawful interruption or disturbance by the Borrower or any other person;

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(c) whether or not the Lender shall have made such entry or taken possession as aforesaid, sell, assign, call in, collect and convert into money the Property … with full power to sell the Property … either by public auction or tender or private contract … and with full power to compromise and effect compositions, and for the purposes aforesaid or any of them to execute and do all such assurances and things as the Lender shall think fit

 PROVIDED HOWEVER that where the Event of Default relates to the payment of any moneys payable hereunder no such sale, calling-in, collection or conversion into money shall be put into effect until the Lender shall have previously served on the Borrower (or any one of the Borrower where the Borrower comprises more than one person) a notice requiring payment of the Secured Indebtedness and default has been made in payment thereof for a period of one calendar month after such service”

25.  The default in payment and the act of bankruptcy by the 1^st defendant[6] constituted events of default under the Legal Charge, which entitled the plaintiff to exercise its contractual right of enforcing the security by foreclosure.

26.  The plaintiff has locus to invoke the court’s jurisdiction under sections 2 and 6 of the PO.

Whether an order for sale should be made

27.  Section 6 of the PO provides

“(1) In any proceedings under this Ordinance, 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 the 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 interested; or

(d) any other circumstances,

the Court may make an order for the sale of the property.”

28.  The Property is a typical multi-storey residential building unit governed by a deed of mutual covenants that regulates, amongst others, the physical being of each part of the building.  Partition of the Property is impractical, if not legally impossible.

29.  The court has to assess objectively whether or not sale of the property in question will be beneficial to the interested parties[7]. However, where partition is impracticable, sale of the property is prima facie the only way for a co-owner to extricate himself from the co-ownership. In view of section 6(2) of the PO (above), this situation poses a strong case for the court to make an order for sale, unless the opposing interested person persuades the court that sale of the property would not be beneficial to all the parties or that significant hardship would be caused to the other co-owner[8].

30.  Prima facie, sale of the Property will bring to each of the defendants their respective shares of the proceeds.  According to the valuation evidence adduced by the plaintiff, the Property is valued in the open market at the price of HK$4.52 million.  The Property is not subject to prior encumbrance at the moment.  The share of the 1^st defendant will serve its purpose as security for his repayment of the loan, and thus his judgment debt, up to the maximum of HK$1.75 million, while the 2^nd and the 3^rd defendants would expect to receive together about HK$3 million out of a successful sale.  Not entering appearance, the defendants had no contention or evidence of hardship in other non-monetary terms before this court.

31.  I therefore made the order for sale in terms of the draft order as amended in court.

Costs

32.  The plaintiff shall have the costs of these proceedings.  Clause 13 of the Loan Agreement provides that the 1^st defendant shall bear all reasonable costs incurred by plaintiff and the incidental expenses in relation to the recovery of the outstanding sums under the Loan Agreement, including legal costs on indemnity basis.  Costs of these proceedings were summarily assessed at the sum of HK$90,000, which is payable by the 1^st defendant.  This shall come out of the 1^st defendant’s share of the proceeds of sale in accordance with the order.  No order as to costs was made between the plaintiff and the 2^nd and the 3^rd defendants.