EGO FINANCE LTD v. POON SAU HAN JOANNA AND ANOTHER

HCMP 1568/2022

[2023] HKCFI 868

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1568 OF 2022

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REASONS FOR JUDGMENT

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INTRODUCTION

1.  At the hearing on 22 March 2023, I granted an order substantially in terms of the reliefs sought by the plaintiff, adopting some of the modifications proposed by the defendants. Here are my reasons.

BACKGROUND

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

3.  The 1^st and 2^nd defendants are the registered owners (as joint tenants) of Flat B on 4^th floor of Block 25, Baguio Villa, No. 555 Victoria Road, Hong Kong and Car Park Space No. 249 on 3^rd Lower Ground Floor, Blocks 25, 26, 27 Baguio Villa, No. 555 Victoria Road, Hong Kong (the “Property”).

4.  By two loan agreements dated 11 November 2015 and two other loan agreements dated 9 March 2016 and 17 June 2016 respectively (the “Loan Agreements”), the plaintiff lent the respective sums of HK$1,000,000, another HK$1,000,000, HK$500,000 and HK$600,000 to the 1^st defendant (the “Loans”).

5.  The said indebtedness is secured against the 1^st defendant’s interest in the Property under a second legal charge dated 11 November 2015 which was registered in the land registry under Memorial No.15111700220027 (the “Legal Charge”).

6.  According to land search record, the Property is also subject to the mortgage of CMB Wing Lung Bank Limited registered by Memorial No.6583366 and three loan agreements in favour of SHK Finance Limited the registration of which are being withheld.

7.  The 1^st defendant has made a number of partial repayments of the Loans and interest thereon (albeit with delay on some occasions), but eventually the 1^st defendant failed to make any further repayment of the Loans and interest after 30 August 2022.

8.  Such delay and default in repayment constitute (i) breaches of the Loan Agreements (particularly clauses 6 and 8) and (ii) events of default under the Legal Charge (particularly clause 5.01(i)-(iii)), which enable the plaintiff to recover the possession of the Property and exercise the right of sale under the Legal Charge (particularly clause 6.01(i) & (iii)).

9.  On 14 October 2022, the plaintiff commenced the present proceedings by way of originating summons, seeking inter alia monetary judgment against the 1^st defendant and an order for the sale of the Property pursuant to sections 2, 3 and 6 of the Partition Ordinance (Cap. 352) and Orders 83A and 88 of the Rules of the High Court (Cap. 4A).

10.  Based on the evidence placed before me, I am satisfied that the court documents in the present proceedings were duly served on the defendants. I am also satisfied that the procedural requirements under Order 88 have been complied with. In particular, the court documents have been served on the Director of Lands who indicated in response (by letter of 17 March 2023) that he has no comment on the application.

11.  The defendants have duly acknowledged service of the originating summons, stating that they intend to contest the proceedings.

12.  Nevertheless, by a counter notice issued on 15 March 2023, the defendants gave notice that whilst they will oppose the orders sought by the plaintiff in the originating summons and as set out in the notice of appointment to hearing the originating summons, they are agreeable to an order in terms of the draft order annexed to their counter notice.

13.  In gist, the defendants do not dispute the monetary judgment sought by the plaintiff. Nevertheless, the defendants seek more time (60 days instead of 30 days) for repayment and liberty to procure the sale of the Property themselves during such 60 days, together with consequential directions arising from the same.

MONETARY JUDGMENT

14.  The plaintiff’s submissions have dealt with the basis for seeking monetary judgment in details. As mentioned, the plaintiff’s case is not disputed and it is clear from the defendants’ counter notice and the defendants’ submissions that they accept that the plaintiff is entitled to a monetary judgment against the 1^st defendant.

15.  In the premise, I am satisfied that the plaintiff is entitled to monetary judgment against the 1^st defendant. In particular, I am satisfied that the plaintiff has in form and in substance complied with the requirements of a moneylender’s action under Order 83A. The plaintiff is entitled to recover the outstanding principal of the Loans and interest.

ORDER FOR POSSESSION

16.  The 1^st defendant’s delay and default in repayment constituted an event of default under clause 5.01(i)-(iii) of the Legal Charge. Pursuant to clause 6.01(i) and (iii) of the Legal Charge, the plaintiff is entitled to seek possession of the Property and exercise the power of sale.

17.  I am satisfied that the requirements of Order 88 have been complied with.

18.  By reason of the default of the 1^st defendant, the plaintiff is entitled to an order for possession of the Property.

PLAINTIFF’S LOCUS TO SEEK ORDER FOR SALE

19.  Section 3(1) of the Partition Ordinance (Cap. 352) provides that:-

“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.”

20.  It is trite law that a joint tenant’s act of tendering his or her share in the property to be mortgaged amounts to a severance of the joint tenancy, thereby creating a mortgage or legal charge over such co-owner’s interest in the property as tenant in common in equal share: see e.g. MoneySQ Ltd v Liu Kit Ling & Anor [2019] HKDC 860 at para 9 (per Deputy District Judge Kate Li); and more recently Hong Kong Finance (Personal Loan) Ltd v Cheung Sook Ying Cyrilla & Anor [2023] HKDC 272 at para 4 (per Deputy District Judge Alan Kwong). In the premises, the 1^st defendant’s act in entering into the Loan Agreements and the Legal Charge constituted severance of the joint tenancy, so that the Legal Charge was created over the 1^st defendant’s interest as tenant in common having an equal (or half) share in the Property.

21.  There is also a line of cases where the court held that a mortgagee who is entitled to possession of the subject property is a “person interested” for the purposes of section 3(1) of the Partition Ordinance (Cap. 352) and thus entitled to apply for partition or sale of the property: see Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224, paras 21-23 (per His Honour Judge Andrew Li); Moneysq Ltd v Liu Kit Ling and another [2019] HKDC 860, para 16 (per Deputy District Judge Kate Li); Maxcolm Finance Ltd v Cheng Chi Man and another [2019] HKCFI 2928, paras 21-32 (per the Honourable Madam Justice B Chu); Field Finance Ltd v Seck King Chung & Anor [2020] HKDC 514, para 27 (per His Honour Judge Leung); Konew Capital International Ltd v Chan Wun Tai [2022] HKDC 515, para 22 (per Deputy District Judge Kenneth Lee); Konew Capital International Ltd v Lee Chi Man & Anor [2022] HKDC 699, para 17 (per Deputy District Judge Vincent Lung); Hong Kong Finance (Personal Loan) Ltd v Cheung Sook Ying Cyrilla & Anor [2023] HKDC 272 at para 16 (per Deputy District Judge Alan Kwong).

22.  As the 1^st defendant had defaulted in repayment, the plaintiff as mortgagee became a person holding an interest in the Property under section 3 of the Partition Ordinance and has locus to seek an order for sale under the Partition Ordinance.

COMMON GROUND ON ORDER FOR SALE

23.  It is common ground between the plaintiff and both defendants that there should be an order for sale of the Property (although there is a dispute as to the terms of such sale).

24.  Strictly speaking, given that the 1^st defendant was in default of repayment and the plaintiff is entitled to seek possession of the Property and exercise the power of sale as a result, the court should primarily focus on the position and interest of the plaintiff in relation to half share of the Property (albeit as mortgagee / chargee) and the 2^nd defendant in relation to the remaining half share of the Property. In other words, even if the 1^st defendant opposes an order of sale, that is unlikely to be a weighty consideration given that the 1^st defendant remains in default and the plaintiff is entitled as of right to exercise the power of sale. The only real obstacle to the plaintiff doing so without a court order is that the Property is held by the 1^st and 2^nd defendants in equal shares, hence necessitating an application for either partition or sale of the Property. In this regard, it must be borne in mind that the 2^nd defendant is an innocent party and hence the court should properly take into account the view and interest of the 2^nd defendant.

25.  For completeness, even putting aside the common position of the parties, I am satisfied that an order for sale ought to be made. The Property comprises a residential flat and a car parking space in a multi-storey building. I accept that it is impracticable to divide the Property (whether the flat or the car parking space) into two halves. Moreover, neither the 1^st nor the 2^nd defendant has tendered any reason by affidavit as to why an order for sale under the Partition Ordinance should not be granted (to the contrary it is clear from the counter notice that they do not oppose an order for sale); why it is not impracticable to physically partition the Property into two halves; why a sale of the Property would not be beneficial to all the parties or that significant hardship would be caused to the 2^nd defendant.

26.  In any event, the 2^nd defendant shall be entitled to half of the proceeds of sale.

27.  Accordingly, I am satisfied that an order for sale ought to be made and I so order.

RESERVED PRICE

28.  A valuation report of the Property has been obtained, and was issued by Roma Appraisals Limited. The market value of the Property is estimated at HK$16,000,000 and the value for sale under Repossession in the current market is in the sum of HK$12,800,000.

29.  Initially, the plaintiff proposed selling the Property by private treaty in open market at the price not less than HK$16,000,000 within 6 months, failing which the Property be sold by the plaintiff by public auction and/or private treaty with a reserved price not less than HK$12,800,000. Nevertheless, during the hearing, the plaintiff and the defendants have agreed to lower the minimum price during the 6 months period to HK$13,800,000. This is because the defendants seek to be afforded an opportunity to sell the Property themselves with such minimum price (having regard to prevailing market and negotiations), and ultimately such lower figure of HK$13,800,000 was agreed between the parties at the hearing as a minimum which should be applicable both to the defendants’ attempted sale and the first stage of attempted sale by the plaintiff.

30.  As it transpires, the main argument in the hearing is on the terms of the order for sale, which I will address below.

TERMS OF ORDER FOR SALE

31.  The defendants largely agree with the plaintiff’s proposed order, save for the following:

(1)  The defendants ask for more time (60 days, as opposed to 30 days proposed by the plaintiff) for making payment of the sum due by the 1^st defendant, because the defendants intend to effect a sale of the Property on their own;

(2)  The defendants consider it to the benefit of both sides for the defendants to be given an opportunity to procure and effect the sale of the Property on their own before they are due to deliver vacant possession of the Property to the plaintiff, as this would save the costs of both sides and would cause little prejudice to the plaintiff;

(3)  If the defendants manage to procure a sale of the Property, it would be reasonable for any contemplated sale by the plaintiff to be stayed such that the sale by the defendants could be properly effected;

(4)  The defendants consider it to be in the interest of both parties to be given the flexibility to agree on any other price at which the sale may be effected so that the prevailing market situation in the future can be properly taken into account by way of the parties’ agreement;

(5)  The plaintiff’s proposed orders include an order that the defendants “do all things as may be necessary to procure the sale of the Property with vacant possession”. As the sale of the Property is not defined, the defendants consider such formulation to be too wide and prejudicial to them;

(6)  The defendants propose qualifying the order on expenses with the word “reasonable” in light of the terms of Clause 17.01(ii) of the Legal Charge which provides that the 1^st defendant is responsible for “all reasonable expenses (including legal expenses on an indemnity basis)”, and further propose that the costs of these proceedings should be taxed on a party and party basis as a result.

32.  I will deal with the above points in turn.

33.  First, under the plaintiff’s proposed order, unless the 1^st defendant do make payment of the Judgment sums within 30 days from the date of the order, the remaining part of the order (including delivery of vacant possession of the Property to the plaintiff and directions for sale of the Property to be conducted by the plaintiff) shall operate.

34.  Mr Chan argued that the plaintiff should be entitled to exercise its rights of possession and sale of the Property without delay, and the present hearing is not an occasion for the defendants to “mitigate” or bargain for more time; nor is it a question as to which proposal put forth by the parties is more reasonable. Therefore, Mr Chan said there is no basis for the Court to afford a more generous timetable for the 1^st defendant to make payment of the Judgment sums if the plaintiff is unwilling to accommodate the same.

35.  In my view, Mr Chan’s submissions are correct so far as the 1^st defendant is concerned. It is true that the 1^st defendant remains in default and the plaintiff, as a secured creditor, is contractually entitled to enforce its security by taking possession of the Property and exercising the right of sale, and hence it is primarily up to the plaintiff whether it would allow more time for the 1^st defendant to make payment before taking possession and proceeding with the sale of the Property.

36.  However, this ignores the position of the 2^nd defendant who is an innocent party in these proceedings. The 2^nd defendant has not borrowed any money from the plaintiff, and no contractual relationship exists between the plaintiff and the 2^nd defendant. Putting it to the highest, the plaintiff is seeking an order for sale qua a party interested in half share of the Property, whilst the 2^nd defendant is counter-proposing terms of the order for sale qua a party interested in the remaining half share of the Property. In principle, even though both the plaintiff and the 2^nd defendant agree to an order for sale, it does not necessarily follow that the plaintiff (as opposed to the 2^nd defendant) should have the conduct of such sale, or that the plaintiff should dictate the terms of such order for sale.

37.  In this regard, the length of the time allowed for the 1^st defendant to make payment of the Judgment sums is of significance here because the defendants seek an order that they be at liberty to procure a sale of the Property within such time. In my view, if the 2^nd defendant as an innocent party wishes to be afforded a reasonable opportunity to sell the Property himself (together with the 1^st defendant), this is a matter which the court should duly take into account. Therefore, the time allowed cannot be unreasonably short if the defendants are to be afforded a meaningful opportunity to sell the Property themselves.

38.  Mr Chan further argued that, given the fact that the proceedings herein had been commenced for some time since October 2022, there are sufficient time for the defendants to attempt a sale of the Property. Nevertheless, this ignores the fact that it may be difficult for the defendants to secure a sale of the Property when prospective purchasers are made aware of the present proceedings. It could well be different if the defendants are given the liberty to pursue a sale of the Property by express terms of a court order.

39.  In the circumstances, I acceded to the defendants’ proposal to have 60 days instead of 30 days, such that they would have more time to procure a sale of the Property themselves.

40.  Second, it follows from the above that, if the 2^nd defendant so wishes and absent any countervailing factor or material prejudice to the plaintiff (which is however not suggested by the plaintiff), there is no reason why the court should not accommodate the defendants’ proposal to be given an opportunity to procure and effect the sale of the Property on their own before they are due to deliver vacant possession of the Property to the plaintiff. Although the plaintiff disagreed and has not incorporated the defendants’ proposal in the final draft order put forth by the plaintiff, Mr Chan has not elaborated in his oral submissions as to why the defendants should not be given such opportunity, save by contending that the time period should be 30 days instead of 60 days (which I rejected above). Accordingly, I also acceded to the defendants’ proposal in this regard.

41.  Third, I agree with the defendants that, if they manage to procure a sale of the Property during the 60 days period, the orders for any contemplated sale by the plaintiff should be stayed such that the sale by the defendants could be properly effected. I also agree that there should be a stay once the defendants enter into a sale and purchase agreement with a purchaser within such 60 days period, as further time would inevitably be required before the completion of the sale and purchase of the Property can take place (which obviously would go beyond the 60 days period). For completeness, apart from staying any completed sale by the plaintiff, the order for the defendants to deliver vacant possession of the Property to the plaintiff should also be stayed, so that the Defendants can proceed to complete the sale and purchase of the Property by delivering vacant possession of the Property to the purchaser.

42.  Fourth, I accept Mr Yau’s submissions that the order should cater for more flexibility by allowing the parties to agree on any other price at which the sale may be effected so that the prevailing market situation in the future can be properly taken into account by way of the parties’ agreement in writing. This would save time and costs for the parties to apply to the court for variation of the court order, as long as the price is agreed by all parties. For completeness, whilst there may be other interested party (for instance CMB Wing Lung Bank Limited), they have not sought to intervene or make submissions in these proceedings. In the absence of such intervention (or objection), I consider it reasonable to afford such flexibility to the parties to these proceedings.

43.  Fifth, I agree that the plaintiff’s proposed order for the defendants to “do all things as may be necessary to procure the sale of the Property with vacant possession” is too wide. This is particularly the case where the court has acceded to the defendants’ proposal to be given an opportunity to procure and effect the sale of the Property on their own before they are due to deliver vacant possession of the Property to the plaintiff. During the initial 60 days period, the defendants are given the opportunity to effect a sale and there is no reason why they should be mandated to procure a sale. It would in any event be in the defendants’ interest to procure a sale (without any mandatory order to such effect), as they would have incentive to secure a sale (and indeed fetch a higher price to the extent possible), given that the defendants would be entitled to any surplus in the sale proceeds after paying off all expenses and liabilities, whereas the plaintiff is only interested in recovery of the Loans and the interest thereon (as opposed to any surplus). Moreover, as submitted by Mr Yau, given that interest would continue to accrue, it is in the defendants’ interest to secure a sale of the Property as quickly as practicable.

44.  Insofar as the defendants fail to secure a sale and it is plaintiff’s turn to attempt a sale of the Property, I do not think that it is correct to impose an obligation on the defendants to “procure” the sale of the Property given that the plaintiff should have conduct of such sale. Rather, I think it is more appropriate to impose an order that the defendants should do all things as may be necessary to “facilitate” the sale of the Property with vacant possession, i.e. the defendants have an obligation to cooperate with the plaintiff.

45.  Sixth, I do not agree with the defendants’ contention that the costs of these proceedings should be taxed on a party to party basis. Although Clause 17.01(ii) of the Legal Charge refers to “all reasonable expenses”, this does not detract from the fact that it also expressly refers to legal expenses “on an indemnity basis”. In my view, the more specific provision on payment of legal expenses on an indemnity basis should prevail over the generic provision on all reasonable expenses. Alternatively, it may be said that it is contractually agreed between the plaintiff and the 1^st defendant that it is reasonable for the plaintiff to recoup legal expenses against the 1^st defendant on an indemnity basis.

46.  Therefore, the plaintiff should be entitled to costs against the 1^st defendant on an indemnity basis. As regards other expenses, I consider it sufficient for the plaintiff’s draft order to provide expressly that such expenses (including, inter alia, legal costs) should be properly incurred, without adding the word “reasonable” to avoid unnecessary confusion.

47.  Apart from the above, I have also made other (relatively minor) modifications of the draft order put forth by the parties, which I need not repeat here.

COSTS

48.  The plaintiff seeks costs of this application against the defendants at the sum of HK$88,268. As mentioned, I take the view that such costs should be summarily assessed on an indemnity basis. Nevertheless, it is clear from the above that I take the view that most of the proposed modifications of the draft order put forth by the defendants should have been agreed to by the plaintiff. Had the plaintiff done so, it would have saved some costs. I also take into account the offer made by the defendants on a “without prejudice save as to costs” basis, which are furnished to me after I have made a ruling on the terms of the order at the date of the hearing. Having considered these factors and taking a broad-brushed approach, I ordered the 1^st defendant to pay the costs of these proceedings to the plaintiff on an indemnity basis, summarily assessed at the sum of HK$50,000.

49.  It remains for this Court to thank Mr Chan for the plaintiff and Mr Yau for the defendants for their submissions and assistance rendered to the court.