KONEW CAPITAL INTERNATIONAL LTD v. LEE CHI MAN AND ANOTHER

DCMP 3712/2020

[2022] HKDC 699

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3712 OF 2020

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REASONS FOR DECISION

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1.  This is a mortgagee action brought by the plaintiff for a money judgment and an order for sale of the property situated at Unit 04 on 13^th Floor, Southorn Garden, No 2 O’ Brien Road, Hong Kong (the “Property”).

2.  Upon hearing submissions from the plaintiff’s solicitors, I made an order in terms of the draft order provided to me with minor amendments. I indicated that I would give written reasons for my decision in due course. These are the reasons.

Background

3.  The plaintiff was at all material times and is a licensed money lender.

4.  The 1^st and 2^nd defendants are the registered owners of the Property as joint tenants.

5.  On 18 October 2019, the plaintiff and the 1^st defendant entered into a loan agreement (the “Prior Loan Agreement”) whereby the plaintiff lent a sum of HK$1,100,000.00 (“the Prior Loan”) to the 1^st defendant. The Prior Loan was secured by a Second Mortgage dated 18 October 2019 over the 1^st defendant’s share and interest in the Property (the “Second Mortgage”). At that time, Hang Seng Bank (“HSB”) had a subsisting first mortgage over the Property.

6.  I pause to note here that the “Obligations” to be secured under the Second Mortgage were defined as “all principal, interest and other amounts from time to time owing by the [1^st Defendant] to the [Plaintiff] on any current and/or other account and all other liabilities whatsoever of the [1^st Defendant] to the [Plaintiff] whether present, future, actual and/or contingent”.

7.  On 21 February 2020, the plaintiff and the 1^st defendant entered into another loan agreement (the “Loan Agreement”) whereby the plaintiff lent a sum of HK$1,185,000.00 (the “Loan”) to the 1^st defendant. The Loan carries interest at 26.40% per annum and it has to be repaid by 180 monthly instalments.

8.  It is the plaintiff’s case that while the Prior Loan Agreement has been fully settled by the 1^st defendant, the latter has defaulted on his repayments on the Loan Agreement since the 7^th instalment that was due on 15 September 2020 (bar a repayment in December 2020 after the issuance of the Originating Summons herein which has been given full credit). Demands were made by the plaintiff’s solicitors but to no avail. This action was therefore commenced by the plaintiff to enforce the Loan Agreement and the Second Mortgage.

9.  There are 2 points to note at this stage:-

(1)  First, I am satisfied that the definition of “Obligations” under the Second Mortgage is wide enough to cover the 1^st defendant’s indebtedness under the Loan Agreement (which came after the execution of the Second Mortgage). The definition expressly caters for “future” debts between the plaintiff and the 1^st defendant that might arise after the execution of the Second Mortgage. It is in my view incorrect to restrict the Second Mortgage to only cover the 1^st defendant’s indebtedness towards the plaintiff under the Prior Loan Agreement;

(2)  Since the plaintiff applies for an order for sale of the Property and the 2^nd defendant is a co-owner, it is entirely appropriate for the plaintiff to join the 2^nd defendant in this action.

Service

10.  The 1^st and 2^nd defendants are absent at the hearing today. Indeed they have not acknowledged service throughout. Having read the affirmation of service, I am satisfied that the 1^st and 2^nd defendants were properly informed of these proceedings (including the present hearing) and were duly served with the relevant documents.

11.  The plaintiff has also notified HSB of these proceedings but it has received no response. In any case I am satisfied that HSB’s interests are adequately protected, since under the terms of the Order that I made at the hearing, the sale proceeds of the Property will be applied towards the discharge of HSB’s mortgage in priority to the Second Mortgage.

Money Judgment

12.  I am satisfied that the Loan Agreement complies with the requirements set out in s 18 of the Money Lenders Ordinance (the “MLO”, Cap 163).

13.  Further, the interest charged by the plaintiff (26.40% per annum) does not exceed the rates stipulated under ss 24 and 25 of the MLO.

14.  With the 1^st defendant not filing any evidence in opposition, I am satisfied that a money judgment should be entered against the 1^st defendant as claimed.

Order for possession and sale

15.  Clause 7.1 of the Second Mortgage stipulates that non-payment of loan instalments by the 1^st defendant is an event of default, which entitles the plaintiff to declare all the secured indebtedness to be immediately enforceable. Under Clauses 8.2 and 10, the plaintiff is then entitled to enter into, take possession and to dispose of the Property. This is also consistent with the position under the general law.

16.  I am also satisfied that the requirements under Order 88 have been complied with.

17.  I am therefore of the view that the plaintiff is entitled to possession of the Property. This qualifies the plaintiff as a “person interested” for the purpose of s 3(1) of the Partition Ordinance (the “PO”, Cap 336): Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 at §§21-23; Konew Capital International Ltd v Chan Wun Tai [2022] HKDC 515, DCMP 247/2020, 25.5.2022 at §22 and the cases cited therein.

18.  As to the considerations relevant to the court’s exercise of discretion under the PO and in particular s 6 thereunder, I remind myself of the principles set out by Mr Recorder Fok SC (as he then was) in Wong Chun Kei Johnny v Poon Vai Ching [2007] 1 HKLRD 825 at §§18-19; see also Law Chun Wai (supra) at §§24-30.

19.  I would also add that the 1^st defendant’s act of tendering his own share to be mortgaged amounts to a severance of the joint tenancy: Ma Sum alias Ma Wing Sum v Ma Choi Kee [1967] HKLR 177 at 195.

20.  Bearing these principles in mind, on the objective evidence available, I am of the strong view that an order for sale should be granted, for the following reasons.

21.  First, the Property (591 sq ft) is a domestic unit in a multi-storey building, and it is not realistically achievable for it to be sub-divided into 2 units.

22.  Further, under the Order I made, the Property is to be sold by way of private treaty or public auction with a reserve price that is supported by expert valuation evidence. The pecuniary interests of the 1^st and 2^nd defendants will not be prejudiced. On the other hand, without an order for sale, the plaintiff’s interest as a mortgagee in possession will be seriously undermined. There is no other realistic remedy for the plaintiff to recover the debts owed by the 1^st defendant other than by way of a sale of the Property.

23.  I also take into account the fact that the 1^st and 2^nd defendants have not put forward any evidence that they will suffer any hardship if an order for sale is made.

The terms of the Order

24.  I am fully cognisant of the fact that the 2^nd defendant has nothing to do with the 1^st defendant’s indebtedness towards the plaintiff. Accordingly, in the Order I made, the sale proceeds of the Property will be split into half (after deduction of relevant expenses), and the relevant indebtedness under the Loan Agreement will only be deducted against the 1^st defendant’s half share.

25.  Further, I ordered the 1^st defendant to pay costs of this action to the plaintiff on an indemnity basis, pursuant to Clause 14 of the Loan Agreement and Clause 21 of the Second Mortgage: Bank of China (Hong Kong) Ltd v Twin Profit Ltd [2011] 3 HKC 59 at §§6-7. I summarily assessed those costs at HK$51,560.00 and this is to be deducted from the 1^st defendant’s half share of the sale proceeds. I made no order as to costs as between the plaintiff and the 2^nd defendant.