RE HO LAI PING

HCB 4143/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 4143 OF 2009

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J U D G M E N T

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1.  This bankruptcy petition was presented by The Hong Kong and Shanghai Banking Corporation Limited against Madam Ho Lai Ping (“the debtor”) on 23 March 2009, based on the statutory demand issued on 24 September 2008.

2.  There is no issue regarding the service of the statutory demand and the petition.  An order for substituted service of the petition was made by a Master on 8 May 2009 and that order was complied with.

3.  The statutory demand sought payment of the balance outstanding of the judgment debt, after giving credit to the sale of a property mortgaged by the debtor to the petitioner by a mortgage dated 5 November 1997 to secure the liabilities owing to the petitioner.  The particulars are as follows.

4.  The petitioner brought a mortgage action against the debtor in HCMP No. 6359 of 1998 on 25 November 1998.

5.  By an order made by a Master in the said proceedings on 11 May 1999, the debtor was ordered to pay the petitioner $3,934,243.24 secured by the mortgage with interest at specified rates up to the date of judgment on 11 May 1999 and thereafter at judgment rate until payment and costs of the proceedings on an indemnity basis (“the Money Judgment”).

6.  In exercise of the power under the mortgage, the petitioner sold the mortgaged property at Flat B, 7/F, Block 4 and car-parking space No. 30 on Level 1 of Podium, Dragon Inn Court, No. 9 Tsing Ha Lane, Tuen Mun, New Territories in April 2001 at $1.84 million.  After deducting costs and expenses, the petitioner applied the net balance for partial satisfaction of the Money Judgment leaving outstanding a sum of $3,594,818.01 as at the date of the statutory demand.  The said sum was demanded in the statutory demand.

7.  The debtor filed one affirmation in opposition and the petitioner filed an affirmation in reply.

8.  It does not appear to me that is anything raised in the debtor’s affirmation that could be regarded as a valid challenge to the Money Judgment.  

9.  In the affirmation in opposition, the debtor stated that she disputes the amount of the petition debt regarding the interest charged on three amounts as set out in the statement of account attached to the statutory demand and the reasonableness of three items being amounts deducted from the net proceeds of sale to arrive at the net balance purchase price.  These disputes are not covered in the submissions made by the debtor’s solicitor.  Having regard to the evidence filed by the petitioner, I do not consider these disputes on the amount of indebtedness are of any substance.

10.  The main ground of opposition advanced by the debtor would appear to be in the nature of a cross claim for damages, arising out of the alleged breach of duty of the petitioner as the mortgagee exercising the power of sale to obtain the true market value of the mortgaged property.  The debtor would need to satisfy the court this cross claim is genuine and valid, and it is of an amount that would equal to if not exceed the amount claimed in the statutory demand.

11.  Firstly, there is an allegation that the petitioner was negligent in refusing to allow the debtor to accept an offer to sell the mortgaged property in August 1998 at $3 million.

12.  According to the debtor, in August 1998 she was able to find a prospective purchaser willing to offer $3 million for the mortgaged property.  She contacted one Mr Ho of the petitioner’s branch office at King’s Road, North Point, to seek permission to sell at that price, as she understood the price offered was insufficient to pay off fully the outstanding principal amount of the loan.  She alleged that Mr Ho refused to give permission to sell at about $3 million as there was a considerable shortfall, unless she was to pay the shortfall upfront and Mr Ho recommended it would be better to wait and look for a higher selling price.  As the debtor was unable to pay the shortfall upfront, she had no alternative but to decline the purchase offer.

13.  It was submitted by Mr Au on her behalf if Mr Ho had consented to the sale at $3 million, the outstanding debt under the mortgage would have been substantially reduced.

14.  I hold there is no valid cross claim against the petitioner arising out of this complaint, even if the facts alleged are assumed in her favour.  The debtor had no legal right to request or insist on release of the mortgaged property for sale in the absence of full repayment of the debt secured.  It is well established that a mortgagee is entitled to exercise his power of sale for his own purpose whenever he chooses to do so.

15.  Next, it was contended that the petitioner was in breach of duty in delaying to sell the mortgaged property for over two years.

16.  It was alleged by the debtor she ceased to continue payment of mortgage instalments in October or December 1998 and moved out of the mortgaged property at about the same time.  She claimed to have surrendered possession to the petitioner by giving the keys to Mr Ho.  It was alleged that the mortgaged property had been available for sale by the petitioner since the end of 1998.  The sale was made only in April 2001.

17.  It was submitted on the debtor’s behalf had the power of sale been exercised promptly in 1998, or even in February 2000, the price that the petitioner would be able to fetch would have been higher and the outstanding debt under the mortgage could have been substantially reduced.

18.  The petitioner disputed vacant possession was recovered at the end of 1998.  The debtor has adduced no evidence in writing to support her contention that vacant possession was delivered in the manner she alleged.  I find on the evidence it is unlikely vacant possession was recovered at that time.  A mortgage action was brought by the petitioner in November 1998, and judgment was obtained in May 1999.  It is apparent from the letter of the petitioner’s solicitors to the Bailiff’s Office dated 24 February 2000 that vacant possession was recovered through the bailiff only on 17 February 2000.

19.  As for the delay in selling the mortgaged property from February 2000 to April 2001, I reject the contention the mere fact of delay would support a case of breach of duty to take reasonable care to obtain the true market value of the mortgaged property.  As mentioned earlier, the mortgagee is at liberty to exercise his power of sale whenever he chooses, even though it may not be propitious for the mortgagor.  The second complaint fails.

20.  The third complaint is that the mortgaged property was sold by the petitioner at a gross undervalue.

21.  In support of this contention, the petitioner pointed to following matters:

(1)     The mortgaged property was sold by the petitioner under an assignment dated 19 April 2001 for $1.84 million.  The purchasers who bought from the petitioner sold the property on 25 May 2001 for $2.09 million, fetching an increase in value of $250,000 in merely 36 days from 19 April , at a price 13.59% higher;

(2)     The debtor obtained sale transactions regarding two units in the same housing estate during late 2000 to mid 2001.  The 1^st property was at Flat A, 7/F, Block 4 and this was sold for $2.63 million on 3 October 2000.  The other property was at Flat B, 12/F and portion of roof, Block 1.  This was sold for $2.745 million on 7 May 2001.  The 1^st property is right next to the mortgaged property, it is of the same size and was sold at 30% more than the sale price of the mortgaged property obtained by the petitioner.  The 2^nd property is of the same size but with a portion of the roof.  It was sold just 18 days after the petitioner’s assignment, at 33% higher than the petitioner’s sale price.

22.  The petitioner had of course taken the precaution of obtaining valuation reports before the sale by public auction was conducted on 19 March 2001.  The two valuation reports were produced.  Chesterton Petty gave an estimated restricted realisation price at $1.8 million and an open market value of $2.25 million.  Memfus Wong Surveyors Limited assessed the forced sale value at $1.84 million and an open market value at $2.3 million.

23.  The sale price fetched by the petitioner at the public auction was within the range of the forced sale value assessed by the valuers.  In exercising the power of sale, the petitioner was at liberty to do so by public auction or by private contract.  There is no expert evidence adduced by the debtor to contradict the forced sale value estimated by the petitioner’s valuers.

24.  It does not appear to me there is any serious cross claim of substance on the alleged failure to obtain the true market value.  Further, there is nothing in the evidence or in the submissions of Mr Au to indicate that the cross claim is of an amount that is equal to or would exceed the sum claimed in the statutory demand of $3.5 million.

25.  Lastly, Mr Au submitted that the petitioning debt is not a liquidated sum and this petition could not be presented under section 6(2)(b) of the Bankruptcy Ordinance, Cap. 6.  This argument is misconceived.  The petitioning debt being the balance outstanding of the Money Judgment is undoubtedly a liquidated sum.  The fact that the debtor may bring a cross claim that could reduce her liability to the petitioner does not alter the nature of the amount claimed in the statutory demand which formed the basis of this petition. 

26.  I reject all the grounds of opposition raised by the debtor.

27.  I make a bankruptcy order against the debtor.  The petitioner’s costs including the costs reserved are to be paid out of the bankrupt’s estate.