KONEW CAPITAL INTERNATIONAL LTD v. CHAN WUN TAI AND ANOTHER

DCMP 247/2020

[2022] HKDC 515

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 247 OF 2020

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JUDGMENT

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A.  Introduction

1.  This is an application by the plaintiff, the second mortgagee of a property known as Flat A8 on 18^th Floor and Roof No A8, Yick Cheong Building, No 1046 King’s Road, Hong Kong (“the Property”), for, inter alia, a money judgment, an order for possession and an order for sale of the Property. The 1^st and 2^nd Defendants are the registered owners of the Property.

2.  The plaintiff is a licensed money lender in Hong Kong. By a loan agreement dated 10 July 2019 (“the Loan Agreement”), the 1^st defendant obtained a loan of HK$300,000 from the plaintiff. The said loan is secured by the Second Mortgage.

3.  The plaintiff’s case is that the 1^st defendant has failed to repay the said loan since the 1^st instalment (due on 10 August 2019) and an event of default under the Second Mortgage occurred. Notwithstanding the plaintiff’s repeated requests and demands, the 1^st defendant has failed and/or refused to remedy the breach. The plaintiff therefore commenced these proceedings by way of an originating summons dated 16 January 2020 (“the Originating Summons”).

4.  Neither the 1^st nor the 2^nd Defendants have filed any affirmation evidence in opposition. On the other hand, the 2^nd defendant has lodged an Acknowledgment of Service dated 17 February 2021 indicating that he would not oppose the plaintiff’s present application.

5.  Further, notice of the plaintiff’s application for possession was also given to CMB Wing Lung Bank Limited (formerly known as Wing Lung Bank Limited) (“Wing Lung Bank”), the first mortgagee, as well as Nic Sang Finance Company Limited, mortgagee of the 2^nd defendant’s interest in the Property. None of them has filed any affirmation in opposition, nor appeared in any of the hearings, including the substantive hearing today.

B.  Service

6.  The 1^st and 2^nd Defendants are absent at the hearing today. Having read the affirmations of service, I am satisfied that the 1^st and 2^nd Defendant were informed of these proceedings (including the present hearing) and were served with the relevant documents.

C.  The Loan Agreement

7.  It was provided, inter alia, under the Loan Agreement that:-

(a)  The plaintiff would lend the 1^st defendant a loan of HK$300,000.00 at the interest rate of 26.40% per annum.[1]

(b)  The term of the loan is 72 months.[2]

(c)  The 1^st defendant would repay the plaintiff the loan together with interest thereon at the rate of 26.40% per annum by 72 monthly instalments.[3]

(d)  The 1^st defendant would pay to the plaintiff interest on any outstanding principal amount at the rate of 26.40% per annum until full settlement of the Loan, and that the judgment rate is not adopted.[4]

(e)  If any instalment is overdue, the plaintiff could give notice to 1^st defendant to demand payment. If after 7 days from the date of issuance of the said notice the 1^st defendant still fails and/or refuses to repay all the outstanding monthly payments, the remaining balance of the loan and interest would become immediately due and payable. The plaintiff would be entitled to take legal action against the 1^st defendant for the recovery of the remaining balance of the loan and interest.[5]

(f)  To ensure, inter alia, punctual repayment by the 1^st defendant, the 1^st defendant agreed to have the Property mortgaged to the plaintiff as security.[6]

(g)  Costs of any Court proceedings for the repayment of the loan would be borne by D1 on a fully indemnity basis.[7]

D.  The Second Mortgage

8.  The Second Mortgage provided, inter alia, that:-

(a)  The 1^st defendant covenants to pay on demand all “Obligations” (defined therein, including the loan under the Loan Agreement) to the plaintiff.[8]

(b)  An event of default would occur if, inter alia, the defendant (i) fails to comply with a demand for repayment of the Obligations or any part thereof, (ii) makes default in the payment on the due date and in accordance with the terms and conditions of any term loan account (whether demanded or not), or (iii) does not comply with any of the agreements, covenants or obligations under the Second Mortgage (”the Event of Default”).[9]

(c)  If any Event of Default has occurred, the plaintiff could at any time thereafter without consent on the part of the first defendant and without first appointing a receiver (but subject always to the rights of the first mortgagee), inter alia, (i) enter into and take possession of the 1^st defendant’s share in the Property (including via the commencement of legal proceedings), (ii) dispose of (including sell, assign, etc) the Property or any part or parts thereof, (iii) exercise any powers or rights incidental to the ownership of the Property, (iv) bring any claim, action or proceedings in relation to the Property and (v) do any things necessary or desirable for realising the Property or any part thereof.[10]

(d)  The 1^st defendant shall pay or reimburse to the plaintiff all reasonable costs and expenses (including legal fees) reasonably incurred by the plaintiff in the administration of, or in preserving, exercising, protecting or enforcing any rights under the Second Mortgage or in relation to the Property on a full and unlimited indemnity basis.[11]

E.  Default

9.  The 1^st defendant had been in default in paying the full or any monthly instalments in accordance with the Loan Agreement since the 1^st instalment due on 10 August 2019.[12]

10.  By 2 letters dated 6 November 2019 and 3 December 2019 from the plaintiff’s solicitors, the plaintiff demanded the 1^st defendant to pay off the outstanding instalment(s) of the loan together with interest thereon within 7 days, failing which the plaintiff would commence legal proceedings against the 1^st defendant for the recovery of the entire balance of the loan and interest as well as for enforcement of the Second Mortgage by applying for an order for sale of the Property in its entirety.

11.  Nonetheless, the 1^st defendant has failed and/or refused to comply with the plaintiff’s said demands and requests.

12.  The plaintiff now claims the followings sums:-

(a)  HK$380,749.05, being the aggregate of the outstanding principal, interest and default interest calculated up to 22 June 2020;

(b)  Interest on the sum of HK$300,000.00 at the rate of 26.40% per annum (i.e. daily interest of HK$216.39) from 23 June 2020 until payment; and

(c)  Further default interest on the sum of HK$26,165.00, being interest element of the outstanding instalment(s) at the rate of 26.40% per annum (i.e. daily interest of HK$18.87) from 23 June 2020 until payment.

F.  Money judgment

13.  I am satisfied that the plaintiff has duly complied with section 18 of the Money Lenders Ordinance (Cap 163) (“MLO”):-

(a)  The Loan Agreement is the “note or memorandum” under section 18(1) of the MLO.

(b)  Section 18(2) of the MLO has been duly complied with:-

-  The name and address of the money lender, i.e. the plaintiff, as required by section 18(2)(a) of the MLO, are provided at the Preamble of the Loan Agreement.

-  The name and address of the borrower, i.e. D1, as required by section 18(2)(b) of the MLO, are provided also at the Preamble of the Loan Agreement.

-  There is no surety and hence section 18(2)(c) of the MLO does not apply.

-  The amount of the principal of the loan in both words and figures, as required by section 18(2)(d) of the MLO, is provided at Clause 2 of the Loan Agreement.

-  The date of the making of the agreement, as required by section 18(2)(e) of the MLO, is provided at the top of the Loan Agreement.

-  The date of the making of the loan, as required by section 18(2)(f) of the MLO, is stated at Clause 2 of the Loan Agreement.

-  The terms of repayment of the loan, as required by section 18(2)(g) of the MLO, is stated at, inter alia, Clauses 3 to 7 of the Loan Agreement.

-  The form of security for the loan, as required by section 18(2)(h) of the MLO, is stated at Clause 11 of the Loan Agreement.

-  The rate of interest charged on the loan expressed as a rate per cent per annum, as required by section 18(2)(i) of the MLO, is stated at Clause 2 of the Loan Agreement.

-  The declaration as to the place of negotiation and completion of the agreement for the loan, as required by section 18(2)(j) of the MLO, is also duly set out at Clause 16 of the Loan Agreement.

14.  Further, the interest charged by P (i.e. 26.4%) does not exceed 48% (not to mention 60%) and hence the Loan Agreement fully complies with sections 24 and 25 of the MLO.

15.  I am also satisfied that the Originating Summons was duly issued under Order 83A r3 and Order 88 r5(6) of the Rules of the District Court (Cap 336H).

16.  In the circumstances, the plaintiff is entitled to the money judgment against the 1^st defendant as claimed.

G.  Order for possession

17.  I am satisfied that the requirements under Order 88 have all been complied with, namely:-

(a)  In compliance with Order 88 r5(2), true copy of the Second Mortgage is exhibited in the supporting affirmation filed on behalf of the plaintiff, and the original of the same was provided to the court for examination at the hearing.

(b)  In compliance with Order 88 r5(2), the following particulars were provided:-

-  The amount of the advance;

-  The amount of the periodic payments required to be made;

-  The amount of any interest or instalments in arrear as at the date of the Originating Summons and as at the date of the affidavit; and

-  The amount remaining due under the Second Mortgage.

(c)  In compliance with Order 88 r5(4), the plaintiff confirmed that to the best of its knowledge, information and belief, the Property remained to be in the use, possession and control of the 1^st and 2^nd Defendants and there was no record or information of the Property having been let out or there being any other person in possession/control/occupation of the Property.

18.  In these circumstances, the plaintiff is entitled to an order for possession of the Property.

H.  Order for sale

19.  As the plaintiff is the second mortgagee in relation to only a partial interest in the Property, it sought to rely on section 3(1) of the Partition Ordinance (Cap 352) (“PO”), and submitted that it has the locus standi to apply for an order for sale.

20.  Section 3(1) provides as follows:-

“Section 3 Institution of proceedings and parties thereto

(1) Where any property in land is held in the manner referred to in section 2, any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale.”

21.  The question is whether the plaintiff falls within section 3(1) of the PO.

22.  I think the answer is yes. There is authority suggesting that a legal chargee/mortgagee of a partial interest is entitled to apply for an order for sale or partition of the entire land. The underlying reason is that, upon an event of default, such chargee/mortgagee would be entitled to possession of the property, making itself a person interested within the meaning of the PO: Konew Capital International Limited v Tsang Shar Wing & Another DCMP 3893/2019 (unreported, 8.3.2021) at §30; See also Maxcolm Finance Limited v Cheng Chi Man (unreported, 3.12.2019) at §§21 to 32.

23.  As to the considerations relevant to the court’s exercise of discretion under the PO, Mr Recorder Fok SC (as His Lordship then was) succinctly summarised the principles in Wong Chun Kei v Poon Vai Chung [2007] 1 HKLRD 825 at §§18-19 as follows:-

“18. These passages from the cases cited above were relied upon by Mr. Fung SC to support the following propositions, namely:

(a) A co-owner has a basic right to rid himself of the shackles of co-ownership and ask for an order for partition or sale.

(b) 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.

(c) 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.

19. Subject to adding the qualifications, “if he has no other remedy,” before the words “ask for an order for partition or sale” in proposition (1), and “or that it will result in very great hardship to one co-owner” to the end of proposition (2), I am satisfied that these propositions fairly and accurately state the law as regards the court’s jurisdiction when faced with an application for partition or sale under the Ordinance and I shall proceed in this judgment to apply those propositions in resolving the plaintiffs’ application.”

24.  I agree with Mr Cheung that the discretionary factors in the present case are in favour of the grant of an order for sale, for the following reasons:-

(a)  There is no evidence from the 1^st or 2^nd Defendants (or Wing Lung Bank or Nic Sang Finance Company Limited) suggesting that it is possible or desirable to physically partition the Property into two halves.

(b)  Since the Property is a residential unit in a multi-storey building with a saleable area of around 180 sq ft, it would be impracticable or not beneficial to the owners to make an order for its partition. Even if it is possible, doing so will no doubt greatly devalue the Property, and prejudice the defendant’s financial interests.

(c)  There is no evidence from the 1^st or 2^nd Defendants (or Wing Lung Bank or Nic Sang Finance Company Limited) suggesting that an order for sale would cause great hardship to one or some of them.

(d)  Importantly, so long as the sale proceeds are applied towards the discharge of the first mortgage in favour of Wing Lung Bank, there could not be any conceivable injustice and/or prejudice on the part of Wing Lung Bank or Nic Sang Finance Company Limited.

(e)  Given the 1^st defendant’s uncooperative attitude, the plaintiff would not be able to recover (or recover fully) the outstanding sums without the court’s order. The plaintiff would clearly suffer prejudice due to the late repayment of the outstanding sums, bearing in mind that the amount of loss and damage on the plaintiff’s part will escalate if this matter is delayed further and it is unclear whether the sale proceeds from the Property can fully cover the plaintiff’s loss and damage (as sale proceeds are to be applied towards discharge of the first mortgage first as a matter of priority).

(f)  Since a reserve price at the market value would be set up by the plaintiff, the sale of the Property would be conducted on a fair and reasonable basis.

I.  Costs

25.  I also accept Mr Cheung’s submissions that the plaintiff is entitled to indemnity costs against the 1^st defendant as provided in Clause 14 of the Loan Agreement and Clause 21(a) of the Second Mortgage. The amount is summarily assessed at HK$132,047. The plaintiff is not claiming any costs against the 2^nd defendant.

J.  Conclusion

26.  In the premises, I order as follows:-

(1)  The 1^st defendant do pay the plaintiff the following secured by a Second Mortgage dated 28 June 2019 (“the Second Mortgage”): - a. the sum of HK$380,749.05; b. interest on the sum of HK$300,000.00 at the rate of 26.40% per annum (i.e. daily interest of HK$216.39) from 23 June 2020 until payment; c. default interest on the sum of HK$26,165.00 being the interest element of outstanding instalment(s) at the rate at the rate of 26.40% per annum (i.e. daily interest of HK$18.87) from 23 June 2020 until payment; and d. costs of these proceedings as referred to in paragraph (8) hereinbelow;

(2)  Unless the 1^st defendant do make payment of the sums as referred to in paragraph (1) hereinabove within 28 days after service of this Order, the 1st and 2^nd defendants do deliver to the plaintiff vacant possession and title deeds and documents in their possession (if any) of the Property;

(3)  Subject to delivery of vacant possession by the 1^st and 2^nd Defendants as stated in paragraph (2) hereinabove, the Property be sold by the plaintiff by public auction or private treaty in open market at the price not less than HK$1,990,000.00 (value for sale under repossession);

(4)  The conduct of the sale of the Property shall be committed to the plaintiff’s Solicitors Messrs Au Yeung, Lo & Chung;

(5)  Upon such sale, the 2^nd defendant shall do all acts and things necessary for the transfer of the legal title and beneficial interest in the Property to the purchaser, failing which Mr Chung Man Wing, a partner of Messrs Au Yeung, Lo & Chung, Solicitors for the plaintiff be appointed under s 38A of the District Court Ordinance, Cap 336. to execute the necessary conveyance or assignment to give effect to this Order;

(6)  The proceeds of the sale of the Property shall be paid to the plaintiff’s Solicitors and be applied upon completion in the following order of priority:- a. in discharge of all government rent, taxes, rates and other outgoings due and affecting the Property; b. in discharge of all encumbrances affecting the Property having priority to the Second Mortgage, if any; c. in payment of the costs and expenses in connection with the sale of the Property; d. in payment of the plaintiff’s costs of these proceedings; e. 50% of the remaining proceeds relating to the 1^st defendant’s interest in the Property be applied as follows :- i. in discharge of the Second Mortgage; ii. the balance (if any) be paid to the next encumbrancer; or if there is no such next encumbrancer, to the 1^st defendant; f. the other 50% of the remaining proceeds relating to the 2^nd defendant’s interest in the Property be applied as follows:- i. in discharge of all encumbrances affecting such 2^nd defendant’s interest in the Property, if any; ii. the balance, if any, be paid to the 2^nd defendant;

(7)  Upon the 1^st defendant paying to the plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the plaintiff by the Second Mortgage, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to the 1^st and 2^nd Defendants possession and title deeds and documents of the Property and release to the 1^st defendant the security constituted by the Second Mortgage as the 1^st defendant may agree or the Court may direct but without prejudice to the validity of any contract made prior to or without notice of such redemption and payment;

(8)  The 1^st and 2^nd Defendants do pay the costs of these proceedings to the plaintiff on a full indemnity basis summarily assessed at HK$132,047; and

(9)  There be liberty to apply.

27.  I thank Mr Cheung for his assistance.