UPLINK FINANCE LTD v. LEE SZE TAI AND OTHERS

DCMP 794/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 794 OF 2016

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REASONS FOR JUDGMENT

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1.  By these proceedings, the Plaintiff, a licensed money lender, sought to enforce a loan to the 1^st Defendant and to realise the security provided by the 1^st and 2^nd Defendant under a second mortgage of the property known as Flat A6, 1^st Floor and Flat Roof, Hong Fai Building, Nos 64/68 Wing Hong Street, Kowloon, Hong Kong (“the Property”). On 7 March 2017, I entered judgment against 1^st Defendant for the outstanding amount. I further ordered that vacant possession of the Property be delivered to the Plaintiff and made an order for sale pursuant to section 6 of the Partition Ordinance (Cap 352). 

2.  I now give my reasons for the said judgment and orders.

Jurisdiction

3.  The Plaintiff’s claim being less than HK$1,000,000 and the ratable value of Property being HK$102,120 at the time when the Originating Summons was taken out, the matter is within the jurisdiction of the District Court.

Procedural matters

4.  On the evidence produced by the Plaintiff, all the Defendants were duly served with the Originating Summons, affirmations in support and the Notice of Appointment. Additionally, the Originating Summons and a Notice to Occupants were posted at the entrance to the Property (as required by O 10, r 4(2) of the RDC).

5.  Copies of the Originating Summons, affirmations in support and Notice of Appointment were also served on the Director of Lands (as required by r 4 of the Partition Rules, Cap 385A).

6.  None of the Defendants had filed an acknowledgement of service. Nor had any of them filed any evidence. Having reviewed the evidence filed on behalf of the Plaintiff, I considered that it would be appropriate to deal with the matter summarily pursuant to O 28, r 4 of the Rules of the District Court, which provides that the court by whom an originating summons is heard may, if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require. Such power of the court to dispose of the matter summarily is explained in Hong Kong Civil Procedure 2017, at para 28/4/1:-

“At the hearing of an originating summons, the action may be disposed of summarily where the court is satisfied that there are no triable issues … if the defendant files no evidence under r.1A(4), or the plaintiff considers that the defendant’s evidence discloses no triable issue, he may seek a summary judgment under r.4(1) ... In accordance with O.28, rr.3 and 4, if the judge/master decides that the matter can be dealt with summarily, then an order disposing of the entire proceeding can be made. This is akin to an application for summary judgment under O.14, but with the difference that the burden is not cast upon the defendant, as in O.14…”

Background

7.  The 1^st and 2^nd Defendants as joint tenants purchased the Property on 10 May 2007 for the price of $660,000. By a tenancy agreement dated 1 February 2013, the Property was let to the 3^rd Defendant for a term of two years. According to the evidence filed on behalf of the Plaintiff, the 3^rd Defendant was still in possession of the Property at the time when the Originating Summons was taken out.

8.  By a loan agreement dated 30 September 2014 between the Plaintiff and the 1^st Defendant (“the Loan Agreement”), the Plaintiff advanced HK$500,000 to the 1^st Defendant, which was repayable by 84 monthly instalments. The annual rate of interest was 27.6%. Payment of the said sum of HK$500,000 to the 1^st Defendant was effected by two cheques. One for HK$248,000 payable to the 1^st Defendant and the other for HK$252,000 payable to a firm of solicitors for the discharge of an earlier second mortgage in favour of United Asia Finance Limited.

9.  The said loan was secured by a second mortgage of the 1^st Defendant’s half interest in the Property (“the Second Mortgage”). By Clause 3 of the Second Mortgage, the 1^st Defendant charged his interest in the Property to the Plaintiff as security for all “Secured Indebtedness”, which was defined as “all sums from time to time advanced by the [Plaintiff] to [the 1^st Defendant] and outstanding … including interest thereon”.

10.  The 1^st Defendant had been in default since 28 February 2015. The total amount due and payable by the 1^st Defendant (including interest) as at the date of the hearing amounted to HK$777,284.76.

11.  The Property is subject to a first legal charge in favour of the Bank of East Asia. By a letter to the bank dated 20 October 2016, the bank was given notice of these proceedings. On 9 February 2017, the bank replied that it did not waive its rights under the first legal charge but did not indicate that it wished to have the conduct of the proposed sale of the Property. For some reasons the bank chose not to disclose how much was due under the first legal charge but according to a letter from PrimeCredit Ltd, the bank’s predecessor-in-title regarding the first legal charge, the amount due and owing by the 1^st Defendant was HK$279,838.17.

12.  Upon severance of the joint tenancy, on 14 April 2010 the 2^nd Defendant executed a mortgage in favour of Faith Finance Investment Ltd in respect of her half interest in the Property.

13.  By the Originating Summons filed on 9 March 2016, the Plaintiff sought to recover the debt due from the 1^st Defendant, an order for possession of the property and an order for sale under the Partition Ordinance.

Compliance with the Money Lenders Ordinance, Cap 163 (“MLO”)

14.  The Plaintiff being a licensed money lender and the interest chargeable under the Loan Agreement being less than 48% a year and there being no provision for payment of compound interest or prohibition against repayment by instalments, there was no contravention of sections 22 to 25 of the MLO.

15.  Section 18 of the MLO requires the provision of a note or memorandum to the borrower, which should contain all the terms of the loan and the ten matters set out under section 18(2) of the Ordinance. Mr Tsang, counsel for the Plaintiff, pointed out at the hearing that the Loan Agreement did not fully comply with s 18(2) of the MLO in that: -

(1) the address of the Plaintiff was omitted;

(2) the loan amount was expressed in figures, not in words;

(3) the date of the making of the loan was not separately stated;

(4) there was no declaration as to the place of negotiation and completion of the agreement for the loan.

16.  Mr Tsang invited me to exercise the court’s discretion under section 18(3) to enforce the loan and security notwithstanding absence of strict compliance with section 18(2).

17.  The court’s discretion under section 18(3) can only be exercised if the court is satisfied that “in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable”. 

18.  In Emperor Finance Ltd v La Belle Fashion Ltd (2003) 6 HKCFAR 402, the Court of Final Appeal made it clear (at §119) that “In exercising it discretion, the court should examine the breach or breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable.”.

19.  The MLO is not intended to stifle genuine money-lending transactions or to let the money lender lose all the money he has lent out and the security he has because of a failure to comply with all the requirements. The section 18 conditions are imposed to ensure that a borrower is fully aware of and freely agrees to all the terms and conditions of the loan, and in particular know how much money he has borrowed, and what interest he has to pay: Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529.

20.  In Brother’s Company (a firm) v Ah Puk Transportation (a firm) [1986] HKLR 821, at 825, it was held that the factors to be taken into account include: -

(1) the relative status of the parties;

(2) the nature and extent of the default;

(3) the way in which the default arose;

(4) the implications for the borrower;

(5) the attitude of the lender;

(6) the general appearance of the contract throughout.

21.  In respect of the four missing items (see §15 above), Mr Tsang submitted that: -

(1) As for the missing address, the 1^st Defendant actually attended the Plaintiff’s office to sign the Loan Agreement. There could be no misunderstanding as to where the Loan Agreement was made;

(2) As for the loan amount not being expressed in words, given the circumstances of the case, including the fact that two cheques representing the exact loan amount were given to the 1^st Defendant, there could be no misunderstanding as to what the loan amount was;

(3) Although there was no express reference to the date on which the loan was made, given that the two cheques representing the total amount advanced were given to the 1^st Defendant on the same date, ie 30 September 2014, there could be no doubt when the loan was made;

(4) Although the Loan Agreement did not refer to the place of negotiation and completion of the Loan Agreement, there could be no real doubt as to where it was negotiated and completed because the 1^st Defendant personally attended to its negotiation and completion at the Plaintiff’s office.

22.  Mr Tsang further submitted that the 1^st Defendant was no stranger to loans. He was a businessman and applied for the loan for the purposes of providing working capital for his business. He had also applied for loans on other occasions.

23.  The 1^st Defendant had not filed any evidence to state why it would be inequitable to enforce the Loan Agreement and the Second Mortgage. Given that there was nothing but inadvertent omission on the part of the Plaintiff and that the omission did not give rise to any prejudice to the 1^st Defendant, I am satisfied that it would be inequitable not to enforce the Loan Agreement and the Second Mortgage in full.

Partition or order for sale

24.  Section 2 of the Partition Ordinance provides that where any property in land is held by two or more persons, whether as joint tenants or tenants in common, the court may either make an order for partition, order for sale, or refuse to make any order.

25.  It is clear law that a legal chargee/legal mortgage (but not an equitable chargee who has no right to possession and foreclosure) of a partial interest is entitled to apply for an order for sale or partition of the entire land: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224; Guangdong Finance Ltd v Wong Wai Hing DCMP 2370/2014; Law Shu Keung Stephen v Ng Ming DCMP 3032/2014.

26.  Section 44 of the Conveyancing and Property Ordinance provides that:-

“(1) After the commencement of this section, a mortgage of a legal estate, including any second or subsequent mortgage of that legal estate, may be effected at law only by deed expressed to be a legal charge.

(2)        Under a mortgage effected by a legal charge, the mortgagor and the mortgagee shall, subject to this Ordinance, have the same protection, powers and remedies (including but not limited to those relating to foreclosure and the equity of redemption but excluding the power of mortgagee to enter into possession before any default by the mortgagor) as if the mortgage had been effected by way of assignment of the legal estate before the commencement of this section.”

27.  The Second Mortgage, which expressly provided that “[t]he Second Charge herein contained shall be a Second Legal Charge in so far as the Property is a legal estate”, was effected by deed. The Plaintiff being a legal chargee of an interest in the Property is entitled to apply for an order for sale under the Partition Ordinance.

Should an order for sale be made?

28.  Section 6 of the Partition Ordinance provides that in any proceedings under the Ordinance, the court may 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:-

“(1) the nature of the land to which the proceedings relate;

(2) the number of the persons interested or presumptively interested;

(3) the absence or disability of some of the persons interested; or

(4) any other circumstances.”

29.  In Re Lau Hiu Tuen HCB 8430/2006 (unreported, 20 August 2015), Hon G Lam J summarised the 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.”

30.  The courts have consistently adopted the same approach in determining whether an order for sale should be made. See, for example, Yeung Yiu Fai v Tam Yun King DCMP 1280/2015.

31.  When the court decides whether it is practical to partition a property, the court will consider the size and design of the property, and make a judgment based on common sense without expert evidence: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224, at §28 and 31; Chan Shee Yuen v Chan Shu Fong HCA 93/2002, at §21.

32.  In this case, the Property is a residential unit in a multi-storey building with a saleable area of around 280 ft², I am of the view that it would be impractical or not beneficial to the owners to make an order for its partition. In the absence of evidence from the defendants that an order for sale would cause great hardship to one or some of them, I am satisfied that an order for sale ought to be granted.

33.  According to the evidence of the Plaintiff, the estimated value of the Property is HK$3,240,000. The estimated conveyancing costs, estate agent commission and stamp duties are $15,000, $32,400 (1% of the estimated value) and HK$69,000 respectively.

Orders

34.  Having accepted that it would be appropriate to make an order for sale of the Property, I made the following orders after hearing the Plaintiff on 7 March 2017:-

(1) Judgment be entered in favour of the Plaintiff against the 1^st Defendant for HK$777,284.76, being the amount due under the Loan Agreement dated 30 September 2014 and secured by the Second Mortgage dated the same date. There be interest on the principal sum of HK$491,727.00 at the rate of HK$371.82 per day from 7th March 2017 to the date hereof, and thereafter at judgment rate until full payment (the “Judgment Sum”);

(2) The 1^st, 2^nd and 3^rd Defendants do deliver up vacant possession of the Property to the Plaintiff within 28 days after service of this Order;

(3) Upon the 1^st Defendant paying to the Plaintiff the Judgment Sum and the costs of these proceedings, the Plaintiff do redeliver possession of the Property to the 1^st and 2^nd Defendants, and release the 1^st Defendant from the security constituted by the Second Mortgage;

(4) In the event of the 1^st Defendant failing to pay the Plaintiff the Judgment Sum and the costs of these proceedings, and upon the Plaintiff obtaining vacant possession of the Property, the Property be sold pursuant to section 6 of the Partition Ordinance (Cap 352);

(5) The conduct of the sale be given to the Plaintiff’s solicitors;

(6) The sale proceeds of the Property shall be applied by the Plaintiff’s solicitors in the following manner and priority:

6.1. Payment of reasonable costs and expenses of the sale (including conveyancing costs up to HK$15,000, estate agent commission up to 1% of the sale price);

6.2. Payment for the discharge of any liabilities due to the Government (including stamp duties);

6.3. Payment to discharge the First Legal Charge in favour of the Bank of East Asia;

6.4. The remaining net balance to be split into two halves.

(a) As for the first half:

(i) Payment to discharge the Second Mortgage in favour of the Plaintiff;

(ii) Payment of the residue (if any) into court for the credit of the 1^st Defendant.

(b) As for the second half:

(i) Payment to discharge the mortgage in favour of Faith Finance Investment Ltd.;

(ii) Payment of the residue (if any) into court for the credit of the 2^nd Defendant.

(7) The 1^st Defendant do pay the Plaintiff costs of this action, to be taxed on an indemnity basis if not agreed;

(8) The 2^nd Defendant and 3^rd Defendant do pay the Plaintiff’s costs of this action to be taxed on a party and party basis if not agreed.

35.  I thank Mr Tsang for his assistance. There be certificate for his attending the hearing on 7 March 2017.