MAXCOLM FINANCE LTD v. TONG LO MING AND OTHERS

DCMP 955/2023

[2023] HKDC 845

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 955 OF 2023

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REASONS FOR JUDGMENT

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A. Introduction

1.  This is the plaintiff’s application by Originating Summons dated 1 March 2023, pursuant to Order 83A and Order 88 of the Rules of the District Court, Cap 336H (“Rules”) and Partition Ordinance, Cap 352, for a money judgment against the 1^st and 2^nd defendants, together with an order for possession and an order for sale of the property known as 1^st Floor, No 22 Temple Street, Kowloon (the “Property”), which are co-owned by the 1^st and 3^rd defendants as tenants in common in equal share.

2.  None of the defendants have filed the notice of intention to defend.  I have considered the affidavits of service filed by the plaintiff.  I am satisfied that the present proceedings have been duly served upon the defendants, who have also been duly notified of the hearing and provided with the hearing bundle, submissions (inclusive of a draft order), and the Statement of Costs.   

3.  Notices of these proceedings have also been served on the Director of Lands, the Occupants of the Property and one白武士信貨有限公司, which had attempted to register a loan agreement with the Land Registry against the Property (“Attempted Registration”). The Attempted Registration was withheld by the Land Registry.  As of the hearing, none of these informed parties have indicated any objection.

B. Factual background and the plaintiff’s case

4.  The plaintiff is, and was at all material times, a licensed moneylender.

5.  By a loan agreement dated 22 September 2022 (the “Loan Agreement”), the plaintiff agreed to lend the principal sum of HK$1,200,000 to the 1^st and 2^nd defendants at the interest rate of 21.996% per annum (the “Loan”).

6.  By a legal charge dated 22 September 2022 registered in the Lands Registry under Memorial No 22092600380045 (the “Legal Charge”), the 1^st defendant charged her share/interest of and in the Property to the plaintiff to secure the repayment of the general credit facilities granted to the 1^st and 2^nd defendants (the “General Credit Facilities”) to the extent of HK$1,650,000 together with interest thereon.  The Loan was granted pursuant to the General Credit Facilities.

7.  The 1^st and 3^rd defendants are the co-owners of the Property. They became tenants in common pursuant to a Notice of Severance dated 11 January 2007 registered in the Land Registry under Memorial No 07011802250018.

8.  According to a valuation report dated 14 March 2023, the estimated market value of the Property was HK$3,130,000 and the value for sale under repossession was HK$2,660,000.  As assessed by the Rating and Valuation Department, the rateable value of the Property for the assessment year 2022-2023 was HK$104,400. 

9.  The key terms of the Loan can be summarised as follows:-

Particulars
Amount lent to the 1st and 2nd Defendants	HK$1,200,000.00
Date of the Loan	6 October 2022
Interest rate	21.996% per annum
Terms and duration	12 monthly instalments (HK$21,996.00 for 1st to 11th instalments and HK$1,221,996.00 for the 12th instalment)

10.  The Loan Agreement contains, inter alia, the following provisions:-

(1)  The interest rate applicable pre-judgment and post-judgment shall be 21.996% per annum (Clause 7).

(2)  If the 1^st and 2^nd defendants fail to pay any of the monthly instalments on its due date, whether in respect of principal or interest, the 1^st and 2^nd defendants shall pay interest on that sum at the rate of 21.996% per annum from the date of default until full payment (Clause 8);

(3)  On the 1^st and 2^nd defendants’ failure to pay any outstanding instalments on its due date, and after 7 days of a written demand by the plaintiff, the plaintiff is entitled to institute legal proceedings for the recovery of all amounts outstanding and interest thereon (Clause 9(a)); and

(4)  The 1^st and 2^nd defendants shall indemnify the plaintiff on the litigation expenses on a full indemnity basis (Clause 15).

11.  The Legal Charge provides as follows:-

(1)  All term loans and other moneys, obligations and liabilities thereby secured not otherwise so repayable, shall become repayable on demand, together with interest accrued thereon to the date of repayment in full upon the occurrence of an Event of Default (Clause 5.02);

(2)  The plaintiff is entitled to enter into and take possession of the Property and to sell, assign, call in, collect and convert into money the Property upon the occurrence of any Event of Default (Clause 6.01(a)); and

(3)  The 1^st and 2^nd defendants shall pay or reimburse to the plaintiff on demand all reasonable expenses (including legal expenses on solicitor and own client basis) incurred (Clause 21.01(b)).

12.  According to the plaintiff, the 1^st and 2^nd defendants have been in default of monthly repayments since 6 November 2022, ie the due date of the first instalment.  Demand letters dated 9 January 2023 were sent to the 1^st and 2^nd defendants respectively for the then outstanding instalments.  The 1^st and 2^nd defendants did not respond or react to the said demand letters.  By the demand letters dated 22 February 2023 sent to the 1^st and 2^nd defendants respectively, all amounts outstanding under the Loan Agreement immediately fell due. 

13.  By a letter dated 22 February 2023, the plaintiff gave notice to the 3^rd defendant that unless the outstanding sums under the Loan were paid by the 1^st and 2^nd defendants within 7 days, the plaintiff should apply to the court for an order for sale of the Property.  The plaintiff also invited the 3^rd defendant to substantiate any objections to such application within 7 days.  No response has been received from the 3^rd defendant.   

C. Monetary Judgment and Order for Possession

14.  I have considered the Originating Summons and the affirmation in support filed by Mr Wong Kin Keung, the head of legal department of the plaintiff.  I have also inspected the original of the Loan Agreement and the Legal Charge at the hearing. 

15.  Although the present proceedings were commenced by the Originating Summons as opposed to a Writ of Summons, I am satisfied that all requirements under Order 83A of the Rules were duly complied with in substance.  Likewise, all requirements under Order 88 of the Rules have been complied with.

16.  As mentioned above, the 1^st and 2^nd defendants have not filed the notice of intention to defend.  On the plaintiff’s evidence, the 1^st and 2^nd defendants have never responded to the demand letters. 

17.  According to the plaintiff, a memorandum which was signed by both the 1^st and 2^nd defendants and sets out all details required under section 18(1) & (2) of the Money Lenders Ordinance, Cap 163 (“Memorandum”), was provided to the 1^st and 2^nd defendants at the time of entering the Loan Agreement.  Also, a copy of the Summary of Provisions of the Ordinance in the prescribed form was also provided to the 1^st and 2^nd defendants, whose signatures appeared on the same, together with the Memorandum.  There is no evidence to the contrary and I therefore accept the plaintiff’s evidence.   

18.  In addition to the principal of HK$1,200,000.00 and monthly interest in the amount of HK$21,966.00 since the drawdown on 6 October 2022, the plaintiff claims interest upon the four monthly interest instalments, namely the instalments payable on 6 November 2022, 6 December 2022, 6 January 2023 and 6 February 2023 respectively, that were in arrears before the demand letters dated 22 February 2023.  The interest rate on the interest in arrears was, under clause 8 of the Loan Agreement, also 21.966%. The outstanding principal and interest of the Loan in the plaintiff’s case can be summarised as follows:-

Principal outstanding	HK$1,200,000.00
Daily interest accruing on the principal outstanding since 6 October 2022	HK$723.16
Daily default interest accruing on each of the 4 instalments for interest since their respective due dates before the demand letters on 22 February 2023, namely 7 November 2022, 7 December 2022, 7 January 2023 and 7 February 2023.	HK$53.02

19.  I am satisfied that the provision for interest upon interest in arrears under clause 8 of the Loan Agreement falls within the permissible scope under the proviso of section 22(1) of the Money Lenders Ordinance, Cap 163:-

“Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.”

20.  In the circumstances, I am satisfied that the plaintiff has established its claim for (i) a monetary judgment against the 1^st and 2^nd defendants for the outstanding principal and interest under the Loan Agreement, as well as (ii) an order for possession of the Property.

D. Order for Sale under the Partition Ordinance, Cap 352

21.  Section 3 of the Partition Ordinance, Cap 352, provides that any person interested in property held in the manner referred to in section 2 (namely property in land being held by 2 or more persons whether as joint tenants or as tenants in common) may institute proceedings in the Court under the said Ordinance by way of an action for partition or sale.

22.  A mortgagee being entitled to take possession of the property after the occurrence of an event of default is a person interested in the property for the purpose of the Partition Ordinance, Cap 352. (Maxcolm Finance Limited v Cheng Chi Man [2019] HKCFI 2928, at paragraphs 28-32; Field Finance Limited v Seck King Chung and Another [2020] HKDC 514, at paragraph 27).  The plaintiff falls into such category of persons interested in the Property.

23.  The plaintiff’s evidence is that given the nature of the Property, it would not be practicable or beneficial to the 3^rd defendant to physically partition the Property, and therefore an order for sale pursuant to section 6(1) of the Partition Ordinance, Cap 352, is warranted under such circumstances.  In light of the absence of the 1^st and 3^rd defendants, I see no reason to reject the plaintiff’s evidence.  As such, I am satisfied that an order under section 6(1) for the sale of the Property should be granted.   

24.  The solicitors for the plaintiff have proposed a set of orders/directions to effect the sale of the Property which are mostly in line with the usual orders.  I accept such proposed orders subject to the amendment that the 1^st and 3^rd defendants should be given 42 days to deliver the vacant possession of the Property. 

E. The other potential incumbrancer

25.  As mentioned in paragraph 3 above, 白武士信貨有限公司has attempted to register a loan agreement with the Land Registry, which has withheld such attempted registration. 

26.  According to the land search records, the date of the said loan agreement was 15 September 2022.  The date of the Legal Charge was 22 September 2022.  However, the Legal Charge was registered on 26 September 2022, whilst the Attempted Registration only took place on 17 November 2022. 

27.  Even if the Land Registry eventually allows the Attempted Registration, 白武士信貨有限公司could not take benefit of the relation back under section 5 of the Land Registration Ordinance, Cap 128 as the Attempted Registration was more than one month after the execution of the said loan agreement.  Therefore, encumbrance to the title of the Property created by the said loan agreement (if any) would lose priority to that of the Legal Charge in any event.   

28.  Therefore, the Attempted Registration would not have any impact on the order for sale to be granted. 

F. Conclusion

29.  For the above reasons, I make an order in the terms of the Draft Order attached to the written submissions of the plaintiff’s solicitors with the amendment set out in paragraph 24 above.

30.  Insofar as costs is concerned, I make an order that the 1^st and 2^nd defendants do pay the plaintiff’s costs of this action on solicitor and own client basis, summarily assessed at HK$78,000.