KONEW CAPITAL INTERNATIONAL LTD v. LAU KWAN PAK AND ANOTHER

DCMP 5862/2023

[2024] HKDC 624

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 5862 OF 2023

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J U D G M E N T

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1.  This is an application by the plaintiff by originating summons filed on 18 December 2023 to enter judgment against the 1^st and 2^nd defendants (collectively the “defendants”)  pursuant to Order 83A, rule 4 and Order 88, rule 4 of the Rules of the District Court (Cap 336H)  (“RDC”).

A.   Background

2.  The plaintiff is a licensed money lender.  The 1^st and 2^nd defendants were and are the registered owners of the property situated at Unit A, 18^th Floor, The Astro, No. 310 Un Chau Street, Kowloon, Hong Kong (“Property”)  as tenants in common, holding 70% and 30% interest therein respectively.

3.  On 17 November 2022, the plaintiff and the 1^st defendant entered into a loan agreement (“Loan Agreement”), under which the plaintiff agreed to lend a sum of $200,000 (“Loan”)  to the 1^st defendant, to be repaid by the 1^st defendant in 36 monthly instalments at the interest rate of 36% per annum.  The Loan was advanced by the plaintiff to the 1^st defendant on the same day.

4.  On 17 November 2022, the plaintiff and the 1^st defendant also executed the Second Mortgage (“Second Mortgage”), under which the 1^st defendant charged to the plaintiff all of his estate, right, title, benefit and interest in the Property to secure the repayment of the Loan plus interest and costs, subject to the prior mortgage dated 17 January 2020 (“First Mortgage”)  executed by the 1^st defendant in favour of Industrial and Commercial Bank of China (Asia)  Limited (“First Mortgagee”).

5.  According to the plaintiff’s case, the 1^st defendant defaulted in repaying the monthly instalments of the Loan to the plaintiff since 17 July 2023.  Despite a written demand by the plaintiff’s solicitors dated 3 November 2023, the 1^st defendant failed and still fails to repay the outstanding sums under the Loan Agreement to the plaintiff.

B.  Service of proceedings on the defendants

6.  The plaintiff filed the originating summons on 18 December 2023 and duly served the same on the defendants on 19 December 2023 by inserting the originating summons through the letter box of the Property, being the usual and last known address of the defendants, pursuant to Order 10, rule 1(2)(b)  of the RDC.  A copy of the originating summons was also posted up at a conspicuous space of the entrance of the Property on 19 December 2023.

7.  On 5 January 2024, the 1^st defendant filed an acknowledgement of service of the originating summons, in which he stated that he does not intend to contest these proceedings.

8.  The 2^nd defendant has failed to give any notice of intention to defend within time or at all.

9.  On 18 March 2024, the plaintiff filed (1)  the notice of appointment to hear the originating summons and (2)  the notice to occupant.  On 25 March 2024, the same were served on the defendants by ordinary post.

10.  I am satisfied that the originating summons, the plaintiff’s supporting affirmations, the notice of appointment to hear the originating summons, and the notice to occupant were duly served on the defendants.[1] I therefore proceeded with this hearing in the defendants’ absence pursuant to RDC Order 28, rule 4(1)  and Order 83A, rule 4(4).

C.  Discussion

C1.  Money judgment

11.  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 money lender’s agreement for repayment of money have been complied with.

12.  As the effective interest rate of the Loan Agreement does not exceed 48%, this is not a case for the transaction to be reopened under section 25 of the MLO: Celebrity Special Situations Fund I, L.P. v China Linkage International Limited [2018] HKCFI 259, §§24-26, per DHCJ Le Pichon.

13.  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 17 July 2023.  Thus, pursuant to Clause 8 of the Loan Agreement, the entire outstanding sum is due and payable by the 1^st defendant under the Loan Agreement.

14.  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, including the production of the original Loan Agreement for the court’s inspection at the hearing.

15.  For the above reasons, I consider that this is an appropriate case for money judgment to be entered in favour of the plaintiff against the 1^st defendant in terms of §1 of the draft order.

C2.  Vacant possession of the Property

16.  Pursuant to Clauses 7.1 and 11.1 of the Second Mortgage, 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.

17.  According to the 2^nd affirmation of Tsang Tak Wah, by a letter dated 10 January 2024, the plaintiff’s solicitors informed the First Mortgagee of these proceedings.  On 7 March 2024, Messrs P.C. Woo & Co., solicitors for the First Mortgagee, informed the plaintiff’s solicitors that the First Mortgagee had obtained a monetary judgment and an order for possession of the Property against the defendants on 22 February 2024 in HCMP 2285/2023, although a copy of the judgment was not made available to the plaintiff or its solicitors.

18.  It is well established that the court has jurisdiction to make a possession order in favour of a second mortgagee even though the first mortgagee may have already taken possession, provided that the order must be made subject to the rights of the first mortgagee, and to the rights of any other person deriving title from the first mortgagee (“Proviso”): Fubon Bank (Hong Kong)  Limited v Ng Wai Kong [2021] HKCFI 1558, §11, per Au Yeung J.

19.  In the present case, 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, including the production of the original Second Mortgage for the court’s inspection at the hearing.

20.  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 in terms of §2 of the draft order as amended by including the Proviso, such that the plaintiff would be allowed to obtain vacant possession of the Property subject to the rights of the First Mortgagee and to the rights of any other person deriving title therefrom.

C3.  Order for sale of the Property

21.  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.

22.  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.

23.  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 of 2002 (4 March 2004), §56, per Reyes J.  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 an order for sale of the property: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224, §§22-23, per HH Judge Andrew Li (applied by the Court of First Instance in Ego Finance Limited v Poon Sau Han Joanna and Anor [2023] HKCFI 868, §21, per DHCJ Jenkin Suen SC; Maxcolm Finance Limited v Pun Lap Shing and Anor [2024] HKCFI 603, §6.2, per DHCJ Jonathan Wong).

24.  Since the plaintiff is a mortgagee of the 1^st defendant’s 70% share of the Property, the plaintiff is entitled to apply for an order for sale under the PO.

25.  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.

26.  In Re Lau Hiu Tuen, HCB 8430 of 2006 (20 August 2015), §§20-24, G Lam J (as he then was)  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 be benefited 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.

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

28.  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, subject to the Proviso, for the following reasons:

(1)  The Property is a residential unit in a multi-storey building with a saleable area of 172 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 and the First Mortgagee.

(2)  None of the defendants have 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 dated 29 January 2024.  The plaintiff agrees that the sale of the Property would be conducted on a fair and reasonable basis, as set out in detail at §§3-7 of the draft order.

29.  I would therefore make an order in terms of §§3-7 of the draft order as amended to include the Proviso and the reserve price set by reference to the plaintiff’s valuation report.

D.  Disposition

30.  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 First Mortgagee and the 2^nd defendant.  I shall therefore make an order in terms of the draft order as amended.

31.  The plaintiff seeks costs against the 1^st defendant on a full indemnity basis and against the 2^nd defendant on a party and party basis.

32.  By virtue of Clause 15 of the Loan Agreement and Clause 21 of the Second Mortgage, I would allow the plaintiff’s claim for costs against the 1^st defendant on an indemnity basis, to be taxed if not agreed.

33.  As for the 2^nd defendant, she is not a party to any of the agreements and has not contested these proceedings.  I shall make no order as to costs against the 2^nd defendant: Konew Capital International Limited v Wong Chiu King and Anor [2024] HKDC 135, §30.

34.  Last but not least, I note that the plaintiff’s solicitors only lodged the hearing bundle and their skeleton submissions on the day before the hearing.  The late lodgement of the hearing bundle and skeleton submissions inevitably disrupts the court’s preparation for the hearing.  Practitioners are reminded that they should lodge their hearing bundle and skeleton submissions in good time, especially in cases where a party intends to seek substantive relief from the court at the hearing.