CREDIT MALL LTD v. LEUNG PO KUEN AND ANOTHER

DCMP 2256/2023

[2024] HKDC 702

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2256 OF 2023

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REASONS FOR JUDGMENT

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A.  INTRODUCTION

1.  By way of an Originating Summons issued by the Plaintiff on 24 May 2023 (“the OS”), the Plaintiff seeks to enforce a mortgage dated 10 June 2019 (“the Mortgage”).  Specifically, the Plaintiff seeks an order for possession of the mortgaged property known as “Portion C on Upper Ground Floor, Nos. 14-16 Aberdeen Street, Hong Kong” (“the Property”) and for the same to be sold pursuant to section 6 of the Partition Ordinance (Cap. 352) (“PO”).

2.  The first hearing of the OS came before the court on 21 August 2023.  During the first hearing, the court was not satisfied that notice of the OS has been brought to the attention of the 2^nd Defendant. The court adjourned the matter sine dine with liberty to restore to allow the issue of service to be resolved by the Plaintiff.  The matter was restored for hearing on 29 January 2024.  At the adjourned hearing on 29 January 2024, the issue of service was considered again, and the court was satisfied with service on all relevant parties.  The 1^st Defendant attended the adjourned hearing and indicated his wish to file evidence to contest the Plaintiff’s application.  Accordingly, directions was given for the filing of evidence by the 1^st and 2^nd Defendants.  The OS was further adjourned to a date to be fixed for substantive argument.

3.  Despite having been given the opportunity to file evidence in opposition to the OS, the 1^st Defendant did not file any evidence.  The 1^st Defendant did not attend the hearing on 2 May 2024.

4.  At the hearing on 2 May 2024, having heard the Plaintiff’s submissions and the Defendants being absent, I granted the Plaintiff’s application and made the order now appearing at paragraph 26 below.  I will now give my reasons.

B.  FACTUAL BACKGROUND

5.  The Plaintiff is and was at all material times a registered money lender under the Money Lenders Ordinance (Cap. 163).

6.  The 1^st and 2^nd Defendants are and were the registered owners of the Property as tenants in common in equal share.

7.  By a loan agreement dated 10 June 2019 (“the Loan Agreement”), the Plaintiff agreed to advance a loan to the 1^st Defendant and one Leung Man Yin (“the Borrowers”) a sum of HK$1,600,000 for a period of 180 months (“the Loan”).

8.  The Loan Agreement further provides inter alia that:-

(1)  The Loan and interest thereon shall be repaid by 180 monthly instalments;

(2)  A mortgage of the Property shall be given to secure the repayment of the Loan;

(3)  Interest shall be charged at a rate of 38% per annum on the principal sum for the 1^st instalment and at a rate of 20% per annum for the 2^nd to 180^th instalments;

(4)  The Plaintiff shall have a right to demand immediate repayment by the borrowers of the principal and interest and to enforce the mortgage (including to take possession and sale of the Property) if an event of default occurs.  An event of default included inter alia the non-payment when due of the Loan, any interest, fees or any other amounts, and any default, breach, non-compliance or non-observance of any provisions of the Loan Agreement;

(5)  The borrowers and/or the mortgagor shall reimburse the Plaintiff on full indemnity basis all legal costs and all out of pocket expenses incurred by the Plaintiff in connection with the enforcement of any terms of the Loan Agreement; and

(6)  All outstanding amount, whether due before or after judgment, shall be calculated and charged at the agreed interest rate of the Loan.

9.  The Mortgage was thus executed on 10 June 2019 as security for the Loan under the Loan Agreement.  The Mortgage contains inter alia the following relevant terms:-

(1)  The failure of the mortgagor and/or borrowers under the Loan Agreement to pay the mortgagee in accordance with the terms of the Loan Agreement is an event of default;

(2)  Upon an event of default occurring, the mortgagee shall have the right to take possession of the Property and to sale the Property; and

(3)  The mortgagor shall fully indemnify the mortgagee for the amount incurred for enforcement of any terms of the Mortgage.

10.  The Borrowers have subsequently failed to repay the Loan.  By a judgment of the court dated 23 February 2021 in DCCJ 5380/2020 (“the Judgment”), it was adjudged that the Borrowers do jointly and severally pay the Plaintiff a liquidated sum of HK$1,716,106.67 together with interest on the sum of HK$1,579,372 at the rate of 20% per annum from 16 December 2020 until payment.

11.  After obtaining the Judgment, the 1^st Defendant was subsequently adjudged bankrupt on 9 February 2021.  Since obtaining the Judgment, the Borrowers did not make any payments to the Plaintiff.  Leave was granted by the Bankruptcy Court to commence the present OS on 21 April 2023.

C.  PROCEDURAL BACKGROUND

12.  The OS was commenced on 24 May 2023.  On the evidence adduced by the Plaintiff, I am satisfied that the 1^st Defendant has been properly served with notice of the OS and the present hearing.

13.  The issue of service on the 2^nd Defendant was considered by Deputy District Judge Carol Wong at the hearing on 29 January 2024, where the court was satisfied with proper service.  I too am satisfied that the 2^nd Defendant was properly served at the 2^nd Defendant’s usual or last known address in the absence of any evidence suggesting that notice of the same would not have come to the 2^nd Defendant’s attention:  Hou Tsun Tat v Wong Wai Chung (unrep., DCPI 96/2015, 31 October 2017) at §§19-20; Full Gold Development Limited v Wong Tsing [2023] HKDC 423, at §§38-45.  I am also satisfied that notice of this hearing has been served on the 2^nd Defendant.

14.  The OS was affixed at the entrance of the Property on 25 May 2023 as required by Order 10 rule 4(2) of the Rules of the District Court.  The notice of the present hearing was also affixed at the entrance of the Property on 7 March 2024.

15.  The Plaintiff has also served these proceedings on the Director of Lands as required by rule 4 of the Partition Rules.

16.  In the circumstances, I am satisfied that all relevant parties have been served with these proceedings and notice of the present hearing.  Having regard to the nature of the application, I also found it expedient to proceed with the matter in the absence of the 1^st and 2^nd Defendants in accordance with Order 32 rule 5 (which is applicable for hearing of the OS pursuant to Order 28 rule 1) of the Rules of the District Court.

17.  I am also satisfied that the requirements under Order 88 rule 4(3), namely that the affirmation must contain a notice informing the Defendants that the Plaintiff intends to apply for an order for possession at the hearing, and Order 88 rule 5, requiring various information to be stated in the affirmation, were satisfied.

D.  LEGAL PRINCIPLES

18.  The legal principles governing orders for sale under section 6 of PO are trite. They were referred to by Au-Yeung J in Cheung Wing Kuen Samuel v Ip Chui Sum [2021] HKCFI 2535, at §§9-12, as follows:-

(1)  Under section 2 of PO, the court may (i) order a partition of the property under section 4, (ii) order a sale of the property under section 6, or (iii) refuse to make any order;

(2)  Under section 6 of PO, where it appears to the court that a partition of the property would not be beneficial to all the persons interested, the court may make an order for the sale of the property, having regards to:-

(a)  The nature of the persons interested or presumptively interested;

(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.

(3)  The principles for exercising such power are that:-

(a)  A co-owner has a 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;

(b)  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(s)) 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;

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

(4)  An order for sale would not be refused unless all the co-owners would be benefitted by its refusal or, in other words 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.

19.  When the court decides whether it is practicable to partition a property, the court will also consider the size and design of the property, and determine the application based on common sense without the need for expert evidence:  Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 at §28; Uplink Finance Limited v Lee Sze Tai (unrep., DCMP 794/2016, 16 March 2017) at §31.

E.  PARTITION OR SALE?

20.  It is trite that the Plaintiff, being a mortgagee under the Mortgage with a right to possession, is entitled to apply for an order for partition or sale.  A legal chargee/legal mortgagee (but not an equitable chargee who has no right to possession or foreclosure) of a partial interest is entitle to apply for an order for sale or partition: Maxcolm Finance Limited v Cheng Chi Man [2019] HKCFI 2928, at §§30-32; Uplink Finance Limited v Lee Sze Tai (unrep., DCMP 794/2016, 16 March 2017), at §25.

21.  The Property in this case is 1 of 5 subdivided office units on the upper floor in a mutli-storey building.  The Property has a saleable area of only about 226 square feet.  I accept the Plaintiff’s submissions that given the size and nature of the Property, it would be impractical or not beneficial to the owners to make an order for its partition.

F.  ORDER FOR SALE

22.  The burden of persuading the court that an order for sale will not be beneficial to all the co-owners or that it will result in very great hardship to one co-owner rests squarely with the opposing co-owner.  The Defendants have not adduced any evidence in opposing the OS.  On the evidence now before the Court, there is simply no evidence demonstrating why an order for sale should not be made.

23.  According to a valuation report dated 26 June 2023 adduced by the Plaintiff, the estimated market value of the Property at the time of the valuation report was around HK$1,800,000 (with original title deeds) or HK$1,260,000 (without original title deeds).  The Plaintiff proposed to set the reserve price for a sale accordingly.  There is no evidence to contradict the Plaintiff’s valuation evidence, and thus I accept that setting a reserve price according to the Plaintiff’s valuation evidence is appropriate in the circumstances.

G.  COSTS

24.  The Plaintiff seeks costs of the OS from the 1^st Defendant on a full indemnity basis.  I am satisfied that the Plaintiff is so entitled pursuant to clause 10 of the Mortgage and clause 6 of the Loan Agreement, both providing for enforcement costs to be paid on full indemnity basis:  Konew Capital International Limited v Tsang Shar Wing [2021] HKDC 286, at §§49-50.

25.  Ms Yeung, appearing for the Plaintiff, also confirmed that the Plaintiff is not seeking costs against the 2^nd Defendant.

H.  CONCLUSION

26.  For the forgoing reasons, I am satisfied that it would be appropriate to make an order for the sale of the Property.  After a discussion with Ms Yeung the appropriate terms of the order to be made, I granted the following order at the hearing:-

(1)  Unless the 1^st Defendant do within 28 days hereof make payment to the Plaintiff of (a) the sum of HK$1716,106.67 together with interest on the sum of HK$1,579,372 at the rate of 20% per annum from 16 December 2020 until payment, and (b) costs of HK$12,000 adjudged on 23 February 2021 under DCCJ 5380/2020 (collectively “the Judgment Debt”), 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;

(2)  Upon the 1^st Defendant paying to the Plaintiff the Judgment Debt and the costs of these proceedings, the Plaintiff do redeliver vacant possession and title deeds and documents of the Property to the 1^st and 2^nd Defendants, and release the 1^st Defendant from the security constituted by the Mortgage;

(3)  Subject to the delivery of vacant possession by the 1^st and 2^nd Defendants as stated in paragraph (1) above, the Property be sold pursuant to section 6 of the Partition Ordinance (Cap. 352) in the manner as set out below;

(4)  The conduct of the sale of the Property shall be committed to the Plaintiff’s solicitors, Messrs Cheung & Choy (“CC”);

(5)  The Plaintiff shall attempt to sell the Property by private treaty or public auction in the open market on such terms as the Plaintiff thinks fit, subject to a reserve price of HK$1,800,000 (if sold with the original title deeds) or HK$1,260,000 (if the Plaintiff is unable to obtain the original title deeds from the 1^st and/or 2^nd Defendants);

(6)  In relation to such sale as referred to herein, the 1^st and 2^nd Defendants 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. Choy Man, a partner of CC, be authorized pursuant to section 38A of the District Court Ordinance (Cap. 336) to sign and execute such necessary agreement(s), conveyance(s), assignment(s), and all other necessary document(s) on behalf of the 1^st and/or 2^nd Defendants (as the case may be) to give effect to this Order and to convey the Property and all interest therein to the purchaser;

(7)  The purchase price of the Property (including any deposits and part payments) shall be paid by the purchaser to CC in the first instance.  CC shall, upon receipt of the purchase price in full, apply the proceeds of the sale in the following order and priority:-

(a)  In discharge of any outstanding government rent, taxes, rates and/or other outgoings due and outstanding affecting the Property;

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

(c)  In payment of reasonable costs and expenses of the sale, including:-

(i)    estate agent commission not exceeding 1% of the purchase price;

(ii)   conveyancing legal costs not exceeding HK$25,000, and

(iii)  all other reasonable expenses payable or incurred in connection with the sale;

(d)  As to 50% of the remaining proceeds relating to the 1^st Defendant’s interest in the Property:-

(i)    In payment to discharge the Mortgage registered in memorial no. 19062100370118 in favour of the Plaitiff;

(ii)   In payment of the Plaintiff’s costs in this action in the sum of HK$100,000, being the total amount of costs payable by the 1^st Defendant to the Plaintiff pursuant to paragraph 9 below; and

(iii)  The balance, if any, be paid to the next encumbrancer, or if there is no such next encumbrancer, to the trustee-in-bankruptcy of the 1^st Defendant.

(e)  As to other 50% of the remaining proceeds relating to the 2^nd Defendant’s interest in the Property:-

(i)    It be paid to the 2^nd Defendant; and

(ii)   If the 2^nd Defendant could not be located, to be paid into Court for the credit of the 2^nd Defendant.

(8)  There be liberty to apply for further directions, if necessary, as to the manner of the sale of the Property and generally;

(9)  The costs of the OS be paid by the 1^st Defendant to the Plaintiff, summarily assessed at HK$100,000.  There be no order as to costs as between the Plaintiff and the 2^nd Defendant.

27.  I thank Ms. Yeung for her helpful assistance.