LAW SHU KEUNG STEPHEN t/a EXCEL FINANCE CO v. NG MING AND ANOTHER

DCMP3032/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3032 OF 2014

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J U D G M E N T

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A.　Background

1. The plaintiff in this originating summons is a money lender. The 1^st defendant was a borrower under a loan agreement (“Loan Agreement”)dated 11 September 2007 for a loan in the amount of $170,000 (“Loan”).

2. The 2^nddefendant is the 1^st defendant’s wife, and the guarantor for the Loan under the Loan Agreement.

3. The 3^rddefendant is the 1^st defendant’s daughter, who, together with the 1st defendant are the registered owners as tenants in common in equal shares of a property known as Flat A on the 2^nd Floor of Lai Heung Building (“Property”).

4. By a First Legal Charge (“Legal Charge”) of the same date as the Loan Agreement, the 1^st defendant charged his half share of the Property in favour of the plaintiff.

5. Upon the 1^st defendant’s default in the repayment of the Loan, the plaintiff on 15 April 2014 issued a mortgagee action under DCMP 958/2014 (“Earlier Proceedings”) against the same defendants as in these proceedings.  Relying on Orders 83A and 88 of the Rules of the District Court (“RDC”) and the Partition Ordinance (Cap.352) (“PO”), the plaintiff in the Earlier Proceedings sought a number of reliefs including the repayment of the Loan, the delivery of the vacant possession of the Property and an order for sale under s 6 of the PO.

6. In an application by the plaintiff in the Earlier Proceedings for leave to enter default judgment against the defendants, the court on 17 July 2014 granted a money judgment (“Judgment”) for a sum of $377,711.65 with interest on the outstanding principal sum of $157,752.39 at the rate of 24.96 percent per annum from 11 June 2014 until judgment and thereafter at the judgment rate until payment (“Judgment Sum”)with costs on indemnity basis against the 1^st and the 2^nd defendants. 

7. The court however did not grant any order for the delivery of vacant possession or for the sale of the Property as the plaintiff had prayed for in the Earlier Proceedings.

8. As the plaintiff was unable to obtain an order for possession and sale of the Property in the Earlier Proceedings, the plaintiff on 7 November 2014 issued the present proceedings against the same three defendants, claiming substantially the same relief as that claimed in the Earlier Proceedings for (a) the payment of the Judgment Sum and costs, and (b) the delivery of and the sale of the Property under RDC Order 88 and ss 2, 3 and 6 of the PO.

B.　Hearings of the proceedings

9. Similar to the Earlier Proceedings, none of the defendants filed any acknowledgement of service or evidence (with the exception that the 1^st defendant had later filed an affirmation on 12 February 2016. See paras 36 and 40(2) below).   At the first directions hearing of these proceedings on 30 January 2015, the defendants were absent. A deputy judge adjourned the proceedings for a substantive hearing and gave directions for the filing of evidence in opposition by the defendants.

10. After the first directions hearing on 30 January 2015, there were subsequently five hearings before me: on 16 April, 2 October, 19 November, 15 December of 2015, and on 2 March 2016 (respectively the “1^st”, “2^nd”, “3^rd”, “4^th” and “5^th” hearings). 

11. At the 1^st and 2^nd hearings, the defendants were still absent. I gave various directions on service including directing the service of a Chinese version of the Notice of Appointment on some additional addresses of the 1^st and 2^nd defendants as disclosed in a newly-disclosed mortgage application form of the 1^st defendant and an application for the Loan of the 2^nd defendant as well as the posting up of a Chinese version of a “Notice to Occupants” at a conspicuous place at the Property. In addition, the plaintiff was further directed to serve the proceedings on the Director of Lands as required by s 3(2) of the PO.

12. At the 3^rd hearing, the 1^st defendant attended court for the first time and appeared in person.  The 2^nd and the 3^rd defendants were still absent. In the hearing, the 1^st defendant informed the court that the 2^nd defendant was his wife from his second marriage, and he was presently residing with his 20 year old son and an 18 year old daughter from that marriage, both of whom were working. Neither the 2^nd defendant nor the 3^rd defendant, who was his daughter from his first marriage, lived in the Property, as the former had left him and the latter had moved out some time ago. Since the 1^st defendant had indicated his eagerness to settle the indebtedness with the plaintiff, I adjourned the hearing to enable the parties to attempt to negotiate a settlement.

13. At the 4^th hearing, the 1^st defendant made an appearance as before. In that hearing, I granted the plaintiff’s application by summons to discontinue the proceedings against the 2^nd defendant, leaving the 1^st and the 3^rd defendants as the only remaining defendants in these proceedings.  The 1^st defendant informed the court that the plaintiff had rejected his proposal for settlement and asked the court to adjourn the proceedings to enable him to engage a lawyer to contest the proceedings.  Since the 1^st defendant had never filed any evidence as previously directed, I therefore gave the 1^st defendant more time to file evidence in opposition.  In view of the relationship of the 1^st and the 3^rd defendants, being father and daughter, I considered that the service of the notice of the adjourned hearing on the Property, being her last known address, would likely come to her attention as I was inclined to believe that the 1^st defendant has the means to contact the 3^rd defendant and inform her of the proceedings. Thus, despite what the 1^st defendant had stated at the 3^rd hearing, I considered that the service of my order on the 3^rd defendant by ordinary post to the Property would have likely come to her attention.  Additionally, the posting up of the order on a conspicuous place at the Property in my view would also give sufficient notice to the residents of the Property.

14. At the 5^th hearing, the 1^st defendant, despite having personally attended the 3^rd and 4^th hearings and having been personally informed of the hearing date of the 5^th hearing, was absent. The 3^rd defendant remained absent. Having been satisfied with the service of the order on the parties, I proceeded with the hearing of the plaintiff’s application in their absence.

C.　Eligibility to make the application

15. The Property in these proceedings is held by the 1^st and 3^rd defendants as tenants-in-common.  According to s 2 of the PO[1], a court is empowered to make an order for partition or for sale in respect of a property held as tenants in common. Further, it has also been held in the often-cited authority of Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 that the statutory powers under the PO are separate and distinct. Thus, when faced with an application under the PO, a court is empowered to :  (a) order a partition; (b) order a sale; or (c) refuse to make any order: see Wong Chun Kei [2007]1 HKLRD 825 at 837 E-H.

16. Having found that the court has jurisdiction to make an order for partition or sale in respect of the Property in these proceedings, I should next consider whether the plaintiff can satisfy the requirement of s 3(1) of the PO[2] as a “person interested “in the Property in instituting these  proceedings for an order for sale.  

17. Miss Cheng, solicitor for the plaintiff, in her written submissions dated 10 April 2015 referred to two authorities in respect of the position of an equitable chargee: Chan Ching Kit Katherine v Lam Sik Shi & Anor, HCMP 2239/ 2000, unreported, 24 June 2002 and Fortis Bank Asia HK v Yu Kam Hoi Herman & Anor, HCMP134/2002, unreported, 4 March 2004. In these cases, the courts have determined that an equitable chargee of a co-owner is not qualified as a “person interested” in a property under s 3(1) of the PO.  This is because, Miss Cheng further submits, “an equitable chargee of a co-owner” does not have “any right to possession or foreclosure” and has been held as being non-eligible to apply for an order for sale of an entire property under the PO: Chan Ching Kit Katherine perKwan J at para 44; Fortis Bank Asia HK per Reyes J at para 76.

18. Based on these authorities, I consider that the position of the plaintiff in these proceedings, as a legal chargee, is quite different to the position of an equitable chargee, because an equitable chargee does not enjoy any right to possession or foreclosure. The plaintiff, on other hand, is entitled to those rights denied to an equitable chargee. The plaintiff, as the legal chargee of the half interest of the Property held by the 1^st defendant, can sue for possession and foreclosure. I am therefore satisfied that the plaintiff is within the category of eligible applicant: Chan Ching Kit Katherine at para 25.

19. In the circumstances, as a holder of the secured judgment debt, which is being charged against the half interest of the Property, the plaintiff is entitled to enforce the Judgment by making the application for sale of the Property in order to satisfy the Judgment debt.  However, since the plaintiff has included the untaxed costs in the Judgment when applying in this originating summons to enforce the Judgment by way of a payment of the Judgment debt, the Judgment is therefore unliquidated and cannot be enforced. To circumvent this problem, Miss Cheng, at the 5^th hearing, confirmed with the court that the plaintiff would waive the untaxed costs awarded in the Judgment in this application. Consequently, the Judgment is now a liquidated debt as the Judgment Sum (comprising of the outstanding principal sum and awarded interests, see para 6 above) is liquidated.

20. For these reasons, I respectfully accept Miss Cheng’s submission that the plaintiff, as a secured debtor with a liquidated debt, has a footing to apply for the relief of an order for sale.

D.　Applicable principles

21. The law as regards the court’s jurisdiction when faced with an application for sale under the PO, according to the established principles propounded by Recorder Joseph Fok SC (as he then was) in Wong Chun Kei [2007] 1 HKLRD 825 at 842A-D, can be stated as follows.

(1) 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.

(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(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.

(3) 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.

22. With these principles in mind, I shall next consider the facts of this case in determining the plaintiff’s application.

E.　Does the plaintiff have other remedies

23. The plaintiff albeit not a registered co-owner of the Property is, as I have analyzed above,  the “person interested” within the meaning of s 3 of the PO, and has the right to apply for an order for sale. The plaintiff should therefore be regarded as having a right to rid himself of the “shackles of co-ownership” by asking for an order for partition or sale if he has no other remedy.

24. As a secured creditor, the plaintiff, but for the “shackles of the co-ownership” involving the innocent 3^rd defendant, would have been entitled to obtain possession and seek an order for sale of the Property under Order 88 of the RDC without any need to resort to the more cumbersome procedures provided in the PO.

25. Whilst conceding that the plaintiff may be able to enforce the Judgment by the filing of bankruptcy petitions against the 1^st and 2^nd defendants, Miss Cheng states in her written submissions that it would be economically unviable as bankruptcy petitions would be much more time-consuming and costly.

26. Regarding Miss Cheng’s suggested remedy of invoking the bankruptcy jurisdiction as a means to enforce the Judgment Sum, I do not consider it viable, at least vis-à-vis against the 1^st defendant. This is because pursuant to s6 (2) (b) of the Bankruptcy Ordinance, a debt on which a bankruptcy petition is based must ordinarily be unsecured.  In only two instances may a secured debt form the basis of a bankruptcy petition: first, where the secured creditor is prepared to give up his security, in the event of a bankruptcy order being made for the benefit of all the bankrupt’s creditors; and secondly, where the amount of the debt is greater than the value of the security, in which case the partially secured creditor may rely on the unsecured part of the debt to found bankruptcy proceedings: s6B (1)[3], Bankruptcy Ordinance.

27. None of these two conditions seem to be present in this case.

28. There is no suggestion that the plaintiff would give up his security to form the basis of a bankruptcy petition. Also evidently clear is that the value of the half share of the Property is far greater than the amount of the Judgment Sum (see para 43 below). In the consequence, I consider it highly unrealistic for the plaintiff to resort to the bankruptcy remedy.

29. Even assuming that a bankruptcy petition against the 1^st defendant were viable, I agree with Miss Cheng’s submission that under the bankruptcy regime, there is a high likelihood that the Property would still be sold by the Receiver or trustee in bankruptcy who (pursuant to s59 of the Bankruptcy Ordinance) would be vested with the 1^st defendant’s half share in the Property if a bankruptcy order were made against the 1^st defendant. The trustee in bankruptcy would owe a duty to the creditors and is required to discharge his duty of collecting and realizing the 1^st defendant’s assets including the Property in the administration of the 1^st defendant’s estate. On the evidence to be discussed in the paragraph below, it would appear that the 1^st defendant’s half interest in the Property is the 1^st defendant’s only significant asset from which the trustee can obtain a realization to repay the 1^st defendant’s outstanding debts owed to the plaintiff (and other creditors’, if any). Thus, it is likely that the trustee would be under a duty to apply to court for an order for sale of the Property under the PO[4]. 

30. I have received no evidence from the 1^st defendant as to his means and assets. The only evidence that I have is in the form of some mortgage and loan application forms dated 5 September 2007 respectively completed by the 1^st and the 2^nd defendants. I do not consider the information as disclosed in these documents showing the applicant’s monthly earnings of $7,800 as a security guard or the 2^nd defendant’s earnings to be relevant as it is extremely out of date.  Based on these documents however, I am able to infer that the 1^st defendant has very modest means and it is likely that the half interest of the Property is the 1^st defendant’s only and most valuable asset.

31. Since the 2^nd defendant has since ceased to be a party to these proceedings (see para 13 above), and further that there is virtually no information regarding her assets and liabilities, I do not consider that it serves any useful purpose to consider the viability of the bankruptcy petition against the 2^nd defendant.

32. For these reasons, I am satisfied that there is no other feasible remedy for the plaintiff to pursue other than an application for partition or sale under the PO.

F.　Is it impracticable to make an order for partition

33. The plaintiff is only seeking an order for sale under s 6 of the PO[5]. On behalf of the plaintiff, Miss Cheng, relying on the established principles discussed in Wong Chun Kei (see para 21 above), submits that once the plaintiff has established its entitlement to bring an action for partition or sale, the court should generally grant an order for sale unless the court is satisfied that an order for sale would not be beneficial to the co-owners. The burden being on the co-owners, the 1^st and 3^rd defendants, to show the lack of benefit.

34. It would also be impractical, Miss Cheng further adds, given the nature of the Property, being a residential unit on a multi-storey building, for the court to partition the Property. 

35. Insofar as the position of the co-owners is concerned, Miss Cheng points out that the evidence of the 1^st defendant and the 3^rd defendant is either insufficient or lacking. 

36. The evidence of the 1^st defendant is wholly insufficient, Miss Cheng submits, as his affirmation in opposition is totally devoid of any relevant materials.  In his only affirmation filed on 12 February 2016 to oppose the application, the 1st defendant, apart from making a brief reference to his offer to settle the outstanding indebtedness by installments, did not put forward any reasons in opposing the plaintiff’s application for sale. 

37. As for the 3^rd defendant, Miss Cheng stated that she has failed to participate in the proceedings altogether. When the plaintiff’s solicitors wrote on 9 October 2014 to the 3^rd defendant to find out whether she would make any proposal or undertake to purchase the other half interests of Property under s 6(3) of the PO, there was no response to this inquiry.  Hence, Miss Cheng suggests that the 3^rd defendant would unlikely undertake to make such a purchase.

38. It is further submitted that an order for sale would instead likely be beneficial to the 1^st defendant because the equity of the 1^st defendant’s half share of the Property is far greater than the amount of the Judgment debt.  Based on the valuation of the Property she agreed at $2.96 million, Miss Cheng stated that the plaintiff would be able to use the 1^st defendant’s half share of $1.48 million to discharge the Judgment Sum, which is approximately $390,000. One of the immediate benefits of a sale would be the stopping of the continuous accruing of interest on the Judgment.

39. Before the court should consider whether an order for sale should be made, it needs first to be persuaded, as required by s 6 of the PO, that an order for partition is not beneficial to “all the persons interested” by reason of (a) the nature of the Property; (b) the number of the persons interested or presumptively interested; and (c) the absence or disability of some of the persons interested; and (d) any other circumstances.

40. For the following reasons, I consider that it is neither practical nor beneficial to all the persons interested to partition the Property.

(1) According to the valuation report of CS Surveyors (“Report”) dated 19 April 2015; the Property is one of the five domestic units on a multi-storey building with a total area of 449 sq. ft. The nature of a tenement is such that it is impossible to partition the Property into two separate free-standing units.

(2) The 1^st and 3^rd defendants, the co-owners of the Properties have failed to provide any grounds for opposing the plaintiff’s application for an order for sale. The 3^rd defendant, as Miss Cheng has correctly submitted, has completely failed to participate in the proceedings after having been served with the proceedings or responded to the inquiries by the plaintiff’s solicitors regarding the purchase of the plaintiff’s interest. As for the 1^st defendant, even though he attended the 3^rd and 4^th hearings in person, and filed an affirmation in opposition on 12 February 2016, he failed to state any grounds for opposing the application. In that brief affirmation, all that the 1^st defendant did was alluding to a letter he had previously sent to the court before stating that he opposed the application for the reason of the plaintiff’s refusal to allow him pay the outstanding indebtedness by instalments.  Although the 1^st defendant did not specify which letter he referred to, I believe he must have referred to his only letter to this court dated 9 January 2016. Yet, I do not think this letter assists him as all that the 1^st defendant stated was again a reference to the plaintiff’s alleged refusal to let him settle the outstanding indebtedness by instalments.

(3) According to the information received from the 1^st defendant (see para 12 above), it would appear that all the persons in occupation of the Property are of full age and without any disability.

G.　Whether an order for sale is beneficial to all the co-owners

41. According to the principles elucidated from Wong Chun Kei, the court will not refuse the grant of an order for sale unless such an order would be detrimental to all the co-owners, or unless it will result in very great hardship to one co-owner.

42. As stated in Section F above, both co-owners, the 1^st and 3^rd defendants, have neither participated in these proceedings, nor made any valid objections to the plaintiff’s application.  If any other persons interested in the Property, such as the 1^st defendant’s children or the 2^nd defendant, had wished to raise objections to the application on account of hardship, they have had plenty of opportunity to do so as the application and the relevant notices have been posted on conspicuous parts of the Property. There is no evidence of hardship on the part of either the co-owners (the 1^st and 3^rd defendants) or the occupants of the Property that I need to consider.

43. On the other hand, on the evidence that is placed before me, I’m inclined to the view that the selling of the Property would be particularly beneficial to the 1^st defendant.  Upon the sale of the Property - which according to the Report is valued at $2.8 million on a forced sale basis as at 28 April 2015 but the value of which was accepted by Miss Cheng to be at $2.96 million instead - the plaintiff would be able to apply the half of the sale proceeds representing the 1^st defendant’s share to discharge the Judgment Sum which as of the date of the 5^th hearing was about $390,000.  This would have the immediate advantage of stopping interest from accruing on the Judgment Sum.

44. For the above reasons, I accede to the plaintiff’s application by granting an order for sale.

H.　Conclusion

H.1　Granting an order for sale

45. In conclusion, I make an order that the Property be sold pursuant to s 6 of the PO.

H.2　Costs

46. Since this application has been occasioned by the default of the 1^st defendant having defaulted on the repayment of the Loan, I consider that the costs of this application should be solely borne by the 1^st defendant. Thus I grant an order nisi that the costs of the application including all costs reserved be paid by the 1^st defendant.  As for the basis of the costs, I decline to award costs on indemnity basis as I am of the view that these proceedings are being made under a separate action by virtue of the PO rather than by way of the mortgagee action in the Earlier Proceedings in which the plaintiff was awarded indemnity costs (presumably in accordance with clause 14.01 of the Legal Charge).  I direct these costs to be summarily assessed in the manner below.

47. In the statement of costs for the summary assessment, a total sum of $135,950 is stated to be the plaintiff’s costs of these proceedings.  On a nisi basis, I assess the costs to be at $55,700, which is arrived at by assessing the hourly rates of the two fee earners on District Court scale respectively to be at $2,600 and $1,280, allowing $3,000, $17,520, $32,033 and $3,150 respectively for Items B (manual work), C (communications), D (professional work) and F (disbursements).

I.　Order

48. I make the following orders:

(1) An order that the Property be sold pursuant to s6 of the PO;

(2) An order that the 1^st and 3^rd defendants do all things as may be necessary to procure the sale of the Property with vacant possession;

(3) An order that the 1^st and 3^rd defendants do within 70 days of the service of this order deliver up vacant possession of the Property to the plaintiff;

(4) An order that upon the 1^st defendant paying to the plaintiff the Judgment Sum and the costs of these proceedings assessed at $55,700, the plaintiff do redeliver to the 1^st and 3^rd defendants possession of the Property and release to the 1st defendant the security constituted by the Legal Charge;

(5) An order that in the event of the 1^st defendant failing to pay the Judgment Sum and the costs of these proceedings assessed at $55,700, and  upon the plaintiff obtaining vacant possession of the Property, the Property be sold by private treaty or by public auction with a reserve price of not less than HK$2,960,000.00;

(6) An order that the conduct of the sale be given to the plaintiff’s solicitors;

(7) An order that the plaintiff upon the sale of the Property do pay into Court for the credit of the 3^rd defendant half of the net proceeds of sale after deduction of 50% of the costs and expenses incurred in the sale of the Property;

(8) An order that the plaintiff do give notice to the subsequent chargee of this Order and pay into court for the credit of the 1^st defendant the balance of the remaining half of the proceeds of sale after:-

(i) discharge all rent, taxes, rates and other outgoings due and affecting the Property;

(ii) discharging all prior encumbrances;

(iii) paying 50% of the costs and expenses incurred in the sale of the Property; and

(iv) paying the Judgment Sum and the  costs of these proceedings assessed at $55,700;

(9) A costs order nisi that the 1^st defendant do pay the plaintiff’s costs of these proceedings assessed at $55,700. This costs order nisi is to become absolute unless an application is made to vary it within 14 days of the handing down of this judgment; and

(10) There be liberty to apply including without limitation for directions on the terms and manner of the sale the Property.

49. Lastly, should the 1^st and the 3^rd defendants require this judgment to be interpreted to them in the Chinese language; they should contact my clerk for the arrangement of the interpretation of this judgment by a court interpreter.