YIP YUK CHEE JUSPINE v. EASY FORTUNE PROPERTY LIMITED AND OTHERS

HCMP 460/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 460 OF 2014

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J U D G M E N T

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1. The 1^st Defendant obtained judgment against the 3^rd Defendant under two loan agreements in the amount of $2 million and $500,000 respectively.

2. Pursuant to the loan agreements, the 3^rd Defendant has mortgaged his property (“the Property”) to the 1^st Defendant as security.  Subsequently, the 1^st Defendant obtained a charging order against the Property and thereafter the Property was sold by auction and the 1^st Defendant assigned the Property to the purchaser in exercise of his right as the mortgagee.  The date of the assignment was on 16 December 2013.

3. The Property was sold at the price of $3.8 million, which was apparently more than the sum owed by the 3^rd Defendant to the 1^st Defendant, including interest.

4. The Plaintiff was an equitable mortgagee in respect of the Property under a home made loan agreement with the 3^rd Defendant.  Under this loan agreement, the Plaintiff lent $1,570,000 to the 3^rd Defendant and the Property was mortgaged to the Plaintiff as security.  This was made subsequent to the 1^st Defendant’s mortgage.

5. After the Property was sold by the 1^st Defendant, the Plaintiff was made aware of the sale of the Property.  Through her solicitors, the Plaintiff wrote to the solicitors of the 1^st Defendant demanding payment of the residue of the proceeds.  Having received no positive reply from the 1^st Defendant, the Plaintiff took out the present action against the 1^st Defendant.  The solicitors for the 1^st Defendant were also named as the 2^nd Defendant.

6. The issue before me today boils down to the amount of the residue only as apparently no one is claiming any interest against the proceeds, apart from the Plaintiff.

7. Pursuant to my order, the 1^st Defendant has given a statement of account of the proceeds and according to the 1^st Defendant, only $179,200 is left.

8. The Plaintiff took exception to four particular items in the statement of account.  Firstly, the 1^st Defendant charged a total of $744,000 as interest payable by the 3^rd Defendant. The interest was calculated on the basis that the 1^st Defendant was entitled to charge interest in advance, even after judgment was obtained against the 3^rd Defendant for the two loans.

9. The Property was assigned to the purchaser on 16 December 2013, but interest was charged thereafter until 14 January 2014.  It is the position of the 1^st Defendant that they are entitled to charge such interest as interest was accrued in advance for that amount on 15 December 2013, in accordance with the terms of the loan agreements.

10. I do not agree that the 1^st Defendant can charge interest after judgment, where the judgment debt has already been satisfied.  It is true that, in accordance with the provisions of the loan agreements, the 1^st Defendant is entitled to charge interest after judgment at the stipulated rate notwithstanding the prescribed judgment rate. However, the agreements do not go so far as to allow the 1^st Defendant to charge interest after judgment for a period where there is no outstanding payments. In my judgment, the calculation by Mr Yeung, solicitor for the Plaintiff, is an accurate account of the 1^st Defendant’s entitlement of interest and the correct sum of interest to be paid out from the proceeds should be $671,671.24 instead.

11. The second disputed item is the payment of charges by debt collection agent engaged by the 1^st Defendant.  The total amount is to the extent of $223,200.  Two invoices had been exhibited by the 1^st Defendant, one of which is in the amount of $180,000 and the other, $43,200.  Payments were already made by cheques according to the invoices.

12. Mr Yeung submitted that those charges should not be genuine as firstly, there is no particulars given as to what the collector has done and secondly, the 1^st Defendant has indicated at the callover hearing before Deputy High Court Judge Linda Chan SC that the surplus was over $300,000.

13. Mr Yeung also submitted that it was totally unnecessary to employ a debt collector as the 1^st Defendant was fully secured and the time from the default of payment to obtaining of judgment was just two months.

14. It might be too bold to suggest that the employment of a debt collector is a complete sham, but it is quite strange that no particulars can be given by the 1^st Defendant, even on the hearing today, as to what had actually been done by the debt collector.

15. The charge of debt collector is a disproportionately large amount on its face, especially in view of the relatively low amount of the debt involved.  It amounts to nearly 10 per cent of the loans, and the payments of the debt in the end, was not a result of the efforts of the debt collector. 

16. In my view, it is incumbent upon the 1^st Defendant to justify the reasonableness of these charges and I do not agree with Mr Wong, counsel for the 1^st and 2^nd Defendant, that it is entirely the burden of the Plaintiff to show that the charges were unreasonable.  For, in the present case, only the 1^st Defendant can provide the particulars of the works performed by the debt collectors and without which, this court is unable to assess whether the amount charged was reasonable or not.

17. In my view, given the circumstances, I do not think the amount of $223,200 is reasonably incurred and it should not be payable from the proceeds of sale of the Property.

18. The third item is the $8,000 charged by the 1^st Defendant’s solicitors in dealing with other potential creditors, having issued charging orders against the 3^rd Defendant’s Property.  I would not say the amount was unreasonably incurred.

19. The last item in dispute is the amount of $15,000 being provisionally charged by the 1^st Defendant’s solicitors for the work on distribution of the proceeds.  Mr Wong confirmed that what it meant was actually the costs incurred by the 1^st Defendant in relation to the present action, which forms part of the costs incidental to the collection of the debt owed by the 3^rd Defendant to the 1^st Defendant and the 3^rd Defendant is therefore liable to indemnify the 1^st Defendant in accordance with the loan agreements. 

20. I do not agree with Mr Wong. If it is in the end ordered that the 1^st Defendant is to bear the costs of this action, it would be very unfair to the Plaintiff that those costs are to be paid out from the proceeds, as it would only mean that the Plaintiff will receive less in the end.  In the premises, therefore, I order that the amount of, in total, $489,728.76 is to be paid out from the proceeds to the Plaintiff by the 1^st Defendant within 14 days.

21. I see no basis to name the solicitors for the 1^st Defendant as a Defendant and the Plaintiff’s action against the 2^nd Defendant is dismissed.

22. Now, in relation to costs, costs should follow the event and costs of the Plaintiff in this action be borne by the 1^st Defendant and costs of the 2^nd Defendant be borne by the Plaintiff.

23. The last hearing is necessitated only because of the Plaintiff’s not naming also the 3^rd Defendant as a party.  And in any event, there should be at least one callover hearing and one substantive hearing for argument of the actual amount of the residue.  Therefore, save that the costs of the previous hearing be borne by each party, the costs of this action of the Plaintiff shall be borne by the 1^st Defendant. 

24. For the sake of clarity, the scale of costs will be in the High Court scale.