HERAEUS LTD v. CHU KENG MING

HCMP 1324/2024

[2025] HKCFI 2125

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1324 OF 2024

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REASONS FOR JUDGMENT

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1.  By originating summons dated 15 February 2024 (“OS”), Heraeus Limited (“P”), as judgment creditor seeks

(1)  an account from Chu Keng Ming (“D”) of what is due to P under charging orders absolute:

The Charging Orders:	The Property Charged Thereunder
Charging Order 1: The charging order absolute dated 20.6.2022 pursuant to the Judgment in HCA 878/2011	House No. 25 Winsor Heights, No.18 Kau To Shan Road, Shatin, New Territories (the “1st Property”); and 1st Floor & Flat Roof, No. 155 Temple Street, Kowloon  (the“2nd Property”)
Charging Order 2 : The charging order absolute dated 20.6.2022 pursuant to the Judgment in HCA 878/2011	Shop 2 on G/F, Kwong Hing Building, Nos 543-553 Canton Road, Kowloon (the “3rd Property”)
Charging Order 3 : The charging order absolute dated 4.9.2023 pursuant to the cost order made in CACV 170/2022	The 1st, 2nd and 3rd Properties (collectively, the “Properties”)
Charging Order 4 : The charging order absolute dated 25.3.2024 pursuant to the taxed costs order made in HCA 878/2011 (collectively, the “ Charging Orders ”)	The Properties

(2)  an order for sale of the 1^st Property.

Relevant background

2.  D and his wife were directors and shareholders of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”).

3.  On 12 November 2002, they provided 2 guarantees to P (the “Guarantees”) in consideration of credit facilities P granted to Sing Kwong. As of 11 May 2021, the unpaid balance of the credit facilities totalled $8,321,486.94: see Heraeus Limited v Chan Yun Mui & Chu Keng Ming [2022] HKCFI 808 (“HCA 878”) at §151.

4.  After obtaining judgment against D (as one of two joint and several debtors) in HCA 878 on 25 March 2022 (“the 1^st Judgment Debt”), P obtained charging orders absolute, namely, Charging Order 1 over the 1^st Property and the 2^nd Property and Charging Order 2 over the 3^rd Property.

5.  On 25 November 2022, D lost his appeal and the costs of the appeal were summarily assessed on 10 February 2023 in the sum of $375,726 (“the 2^nd Judgment Debt”).

6.  On 9 April 2023, P obtained a charging order absolute in respect of the 1^st, 2^nd and 3^rd Properties whereby D’s interest Properties stand charged with the 2^nd Judgment Debt and interest thereon, together with the costs of the charging order application.

7.  On 10 November 2023, P obtained an allocator in respect of the taxed costs in HCA 878 in the sum of $5,089,000.70 (“the 3^rd Judgment Debt”).

8.  On 25 March 2024, P obtained a charging order absolute, namely, Charging Order 4 over the 1^st, 2^nd and 3^rd Properties whereby D’s interest in the Properties stand charged with the 3^rd Judgment Debt interest thereon together with the costs of the charging order application.

9.  At all material times, D is and was the sole registered owner of the 1^st, 2^nd and 3^rd Properties. The 1^st, 2^nd and 3^rd Judgment Debts remain fully unsatisfied.

10.  As at the date of this hearing, the total amount due and owing stance at $22,934,624.14 (“the Total Outstanding Amount”).

Professional valuations

11.  The following table summarises the valuations obtained by the parties:

Property	Valuation produced by the Plaintiff (CS Surveyors Limited (“CS”))	Valuation produced by the Defendant (Centaline Surveyors Limited (“Centaline”))
1st Property	HK$54,900,000 Date of valuation: 30 December 2024	HK$90,000,000 Date of valuation: 22 October 2024
2nd Property	HK$1,800,000 Date of valuation: 30 December 2024	HK$2,000,000 Date of valuation: 12 November 2024
3rd Property	HK$11,000,000 Date of valuation: 30 December 2024	HK$11,000,000 Date of valuation: 12 November 2024

Applicable principles

12.  The relevant principles are set out in the judgment of Linda Chan J in SKK (HK) Co Ltd v Tsui Po Hing [2021] HKCFI 1676 (at §§15-16):

“15. The principles are well established. The enforcement of a charging order by sale of the property charged is governed by Order 88 rule 5A of the Rules of the High Court (Cap 4A), which requires a judgment creditor to commence fresh proceedings by originating summons. The purposes of going through such procedure are threefold:

(1) To enable the Court to judge whether there is sufficient equity in the property for the charge to justify ordering a sale;

(2) To ensure that if possible, the Court will be in possession of sufficient evidence at the first appointment under the originating summons to make an immediate order for sale; and

(3) To ensure that the rights of third party occupiers are protected.

(Hong Kong Civil Procedure 2021, §88/5A/2)

16. Mr Lam submits that in deciding whether to exercise its discretion to make an order for sale, the Court will take into account a judgment creditor’s prima facie entitlement to enforce his judgment by a charging order. While the Court has to weigh carefully the competing equities of the parties, there must be good reason to justify why the Court should on the one hand, grant an order in a party’s favour but on the other hand, refuse to enforce that very order (Union Finance Ltd v Leung Wai Ling & anor [2000] 2 HKC 821 at 823G, 824A-B, per Chung J).”

Discussion

13.  There is no dispute over the Total Outstanding Amount.

14.  The dispute is over which of the Properties should be the subject of the order for sale to be made. P seeks an order that the 1^st Property be sold.

15.  D opposes P’s application and proposes to satisfy the Total Outstanding Amount by the sale of the 2^nd and 3^rd Properties and by the sale of D’s other assets, namely, stock securities currently[1] valued at $13,039,400.

16.  P’s valuation of the 1^st Property is $54.9 million. The land search record shows that it is subject to an “all-monies” mortgage in favour of Dah Sing Bank Limited dated 22 October 2019. The outstanding mortgage loan is said to be approximately $32 million[2].

17.  Mr Adrian Lai and Mr Raymond Tsang, counsel for P, submit that the exact amount of the remaining equity is uncertain given D’s failure to produce documents in support of the amount outstanding under mortgage loan although, based on the available evidence, it is likely to be not less than $22.9 million. Taking into account any expenses to be incurred in selling the 1^st Property, the net proceeds should be more or less sufficient to be applied in full satisfaction of the Total Outstanding Amount.

18.  Mr Ray Kwan, counsel for D, opposed P’s application on 4 grounds, namely:

(i)  on P’s valuation, the 1^st Property is not likely to be sufficient to cover the Total Outstanding Debt;

(ii)  sale of the 1^st Property on P’s valuation would cause significant prejudice to D;

(iii)  there are other sufficient assets to satisfy the Total Outstanding Debt; and

(iv)  a sale of the 1^st Property will result in significant hardship to the occupants.

19.  Surprisingly, D’s grounds of opposition make no mention of D’s evidence[3] that he had a “mutual agreement and common intention” that his son Thomas would hold a 20% beneficial interest in the 1^st Property. That allegedly arose as a result of Thomas’s assistance after the Asian financial crisis occurred in (a) successfully negotiating with the vendor to reduce the purchase price from $72.8 million to $45,000,160; (b) securing a mortgage for D from Chiyu Banking Corporation Limited for the purchase of the 1^st Property; and (c) contributing $5 million to the purchase price.

20.  D also obtained leave to serve, inter alia, Thomas’s affirmation dated 15 October 2024[4] which affirmation mirrors D’s evidence out of time.

21.  It is therefore necessary to deal with the assertion of D and Thomas that Thomas has a 20% beneficial interest in the 1^st Property.

22.  P advanced various reasons why the claim to a 20% beneficial interest is to be rejected:

(i)  The proper approach is for Thomas claiming such an interest to apply to be joined as a defendant and to have his claim tried as between himself and P: see Wing Hang Bank Limited v Tsang Sze Yin, unrep., HCMP 1689/1988, 30 December 1999 at pp. 5-6 per Ribeiro J (as he then was). As Thomas is not even a party, D’s claim that Thomas held any beneficial interest should not be entertained.

(ii)  In any event, D’s and Thomas’s assertions are incredible for the various reasons including the following:

(a)  They are bare assertions unsubstantiated by any documentary evidence. Given the amount Thomas had allegedly contributed and its purpose, his explanation that documents could no longer be located because of the long lapse of time of 25 years is less than convincing.

(b)  The fact that the 1^st Property has become a multigenerational home over the period of 25 years is hardly surprising in the context of a Chinese family and given its size[5].

(c)  More telling is the fact that this allegation did not even see the light of day until 15 October 2024. One would have expected such a claim to have been raised at the very least by the time of the hearing for Charging Order 1 in June 2022.

(d)  D never saw fit to raise this issue at the various hearings to show cause for Charging Orders 1, 3 and 4. To do so now is inexplicable and bears the hallmarks of a trumped-up claim.

(e)  In any event, living as he does with D in the 1^st Property, Thomas was content to stand by and see the proceedings concerning the Charging Orders being resisted by D. “Standing by” is regarded as a form of estoppel by conduct: see Lo Ka Sui v HSBC International Trustee Limited & Ors [2023] HKCA 983 at §65. By standing by and not intervening when there was ample opportunity to do so, Thomas is bound by the Charging Orders.

23.  D made no submissions in response. I reject D’s claims that Thomas has a 20% beneficial interest in the 1^st to Property.

24.  I now turn to consider the four grounds of D’s opposition.

25.  Ground (i) is partly based on a literal reading of § 11 of P’s skeleton without recognising that the date of the hearing therein mentioned (21.3.2025) is a typographical error for 21.5.25. There was no hearing listed for 21.3.25.

26.  The point made in §12 of D’s skeleton concerning interest accruing on the Total Outstanding Debt between 21 March 2025 and 21 May 2025 (being an element rendering the available equity in the 1^st Property insufficient to fully satisfy the Total Outstanding Debt) is thus a red herring.

27.  At the hearing, when the Court inquired about the information specified in RHC Order 88, rule 5A (2)(e)[6], Mr Lai handed up a draft order which (in brief) provides, inter alia, for (a) the sale of the 1^st Property with vacant possession by public auction or private treaty with a reserve price of $54.9 million in the open market; (b) the conveyancing procedure of the sale; (c) D’s delivery of vacant possession within 30 days; (d) the application of the proceeds of sale including, inter alia, payment of the estate agent’s commission not exceeding 2% of the proceeds of sale; (e) in the event of the proceeds being insufficient to satisfy in full the Indebtedness secured by the Charging Orders, liberty to apply for consequential directions; and (f) payment by D to P the costs of the OS, to be taxed on an indemnity basis if not agreed.

28.  Mr Kwan’s objection is to the reserve price, said to be too low. He suggested that the reserve price be at $90 million. In other words, the Court was invited to adopt D’s valuation instead because of flaws in P’s valuation which are considered under Ground (ii) below.

29.  He submitted that there is bound to be a shortfall if the sale is at the reserve price of $54.9 million: the 2% for the payment of the estate agent’s commission alone amounts to at least $1 million. Further, as the completion of any sale is likely to be a few months away, interest will continue to accrue between the date of the hearing and completion on the Total Outstanding Amount. The balance after the discharge of the prior encumbrance would be $22.9 million, an amount that is hardly sufficient to repay the Total Outstanding Indebtedness before factoring in the agent’s commission and interest mentioned above.

30.  Following upon that reasoning, he submitted that D’s proposal (see Ground (iii) below) would offer a neater solution.

31.  Ground (ii) seeks to highlight what D considers are flaws in CS’s valuation of the 1^st Property such that it does not reflect its true market value. Essentially, D argues that the 1^st Property is worth considerably more because, inter alia, CS’s valuation was based on 2 prior transactions within the same development[7] when those houses are materially smaller than the 1^st Property in terms of saleable area, rooftop, garage and yard. In particular, CS’s valuation failed to recognise the value of the extensive basement area of over 4000 sq ft.

32.  It is unclear how flaws (assuming there be any) in P’s valuation could be a ground for opposing P’s application. The thrust of D’s objection appears to be that if P succeeds in obtaining an order for sale of the 1^st Property, it will be sold at a knockdown price, thereby causing significant prejudice to D.

33.  That submission overlooks the duties imposed on a mortgagee exercising its power of sale over the mortgaged property. P does not have carte blanche to sell the 1^st Property at whatever price it chooses. Rather, P is duty bound in good faith to take all reasonable steps to achieve the best price possible: see Fisher & Lightwood’s Law of Mortgage 15^th Edn at §30.24.

34.  So far as the Centaline valuation of $90 million is concerned, its reliability is highly questionable. The 6^th paragraph of the valuation letter dated 22 October 2024 from Centaline reads:

“We have valued the property by direct comparison approach with reference to comparable sales transactions available in the relevant market.”

Inexplicably, no sales transactions are identified and none can be found in the valuation letter.

35.  In those circumstances, I do not accept that it is unreasonable to adopt the valuation given by P’s valuer of $54.9 million as the reserve price for the sale of the 1^st Property. The market will determine the proper price for the 1^st Property. It may fetch more than reserve price in which event the proceeds may be sufficient to discharge the costs of the sale, any additional interest and what is owed to the Bank and P.

36.  Ground (iii) is D’s proposal for the sale of the 2^nd and 3^rd Properties (which on P’s valuation total $12.8 million and on D’s valuation, $13 million) as well as D’s stock securities said to be currently valued at $13,039,400 which D is willing to liquidate to satisfy P’s claim. This alternative was said to avoid the risk of any shortfall and would not occasion the disruption to D and his family that would inevitably follow on a sale of the 1^st Property.

37.  The evidence of the value of the stock securities consists of a single statement issued by Emperor Securities showing the position as at 30 September 2024 (the “Statement”). There is no up-to-date statement showing the current value of the stock securities.

38.  D’s current willingness to liquidate his stock portfolio jars with the fact that he has not seen fit to repay Charging Order 1 obtained almost 3 years ago on 20 June 2022, much less any part of the 1^st Judgment Debt which arose 14 years ago.

39.  P submits that if D genuinely intends to liquidate his portfolio to repay his debts, it defies logic that he did not do so earlier. Instead, he did nothing and allowed substantial interest to be incurred. This shows that D is a person who does not even honour his legal obligations.

40.  At the hearing, P provided the Court with recent correspondence commencing 15 May 2025 exchanged between P’s solicitors and D’s solicitors:

(i)  upon receipt of D’s skeleton submissions dated 13 May 2025 proposing the alternative approach (namely the sale of the 2^nd and 3^rd Properties and an order directing D to realise his stock securities), P’s solicitors requested D’s solicitors to provide a draft consent summons setting out D’s proposal for P’s consideration by 5 pm on 16 May 2025;

(ii)  on 16 May 2025 D’s solicitors sent a draft consent summons to P’s solicitors but which contains no workable mechanism[8];

(iii)  on 19 May 2025, P’s solicitors sent D’s solicitors their draft consent summons in the form of a Tomlin order[9]. The Schedule itself runs to 11 pages. Part I is headed “Defendant’s Indebtedness Owed to the Plaintiff” and is divided into 4 sections which essentially sets out the history of the Judgment Debts and Charging Orders. Part II is headed “Terms of Settlement” and is divided into 4 sections. Section (A) deals with the sale of the 2^nd and 3^rd Properties, the reserve price of each has been left blank to be filled in by D, the date of delivery of vacant possession is also left blank. Section (B) concerns the sale of D’s shares. Section (C) deals with the application of the sale proceeds. Section (D) concerns other matters providing for liberty to apply.

41.  It is clear that P’s solicitors essentially carried out the work that D’s solicitors failed to do with a view to agreeing a consent summons that gives effect to D’s alternative proposal, which would dispense with this hearing.

42.  D did not even reply to the draft consent summons sent on 19 May 2025. This demonstrates to the Court that D’s proposal is not meant to be taken seriously.

43.  In light of the foregoing, Ground (iv) which states that a sale of the 1^st Property would result in significant hardship to the occupants can be dealt with swiftly.

44.  So far as D is concerned, a sale is unlikely to cause immense hardship on him, albeit with some inconvenience. It does not necessarily render him homeless as he is not without means with which to rent accommodation or, indeed, to purchase a property.

45.  In the absence of any evidence as to Thomas’s own financial resources, there is no reason to believe that in order for sale of 1^st Property would cause significant hardship on him and his family.

Disposition

46.  I have no hesitation in concluding that P is entitled to an order for sale of the 1^st Property. D’s conduct (discerned from the recent correspondence described in §40 above) is reprehensible. Clearly, his alternative proposal was neither genuine nor serious.

47.  Accordingly, I make an order for sale of the 1^st Property in terms of the draft Order submitted.

48.  The draft Order includes a provision for the payment of indemnity costs since under the Guarantees, D shall pay P’s costs on full indemnity basis in recovering monies due and owing to P from Sing Kwong: see Heraeus at §§13 (j) (m), and 154.

49.  Mr Lai requested that the costs of the OS be summarily assessed and provided P’s statement of costs to the Court and to D. I granted D leave to file his list of objections (not exceeding 2 pages) within 7 days of the Order herein.

50.  Summary assessment will be conducted in Chambers.