YES CAPITAL LTD v. CHUI SAU CHI AND ANOTHER

DCMP 5375/2023

[2024] HKDC 695

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 5375 OF 2023

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REASONS FOR JUDGMENT

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A.  Introduction

1.  By originating summons dated 22 December 2023 (the “O/S”), the plaintiff, commenced a mortgage action under O 88 of the Rules of the District Court (Cap 336H) (“RDC”). At the hearing which took place on 30 April 2024, I ordered substantive reliefs be granted in favour of the plaintiff in terms of the proposed draft order as amended. Here are my reasons.

2.  At all material times:-

(1)  the plaintiff was and is a licensed money lender; and

(2)  the 1^st and 2^nd defendants were and are the registered owners of the property known as Flat C on 3^rd Floor, Chi Fung Court, Nos. 218-220 Yee Kuk Street, Kowloon (“Property”) as tenants in common, holding 1/3 and 2/3 interest therein respectively.

3.  On 29 March 2016, the plaintiff and the 1^st defendant entered into a loan agreement (“Loan Agreement”), under which the plaintiff advanced a loan of $400,000 to the 1^st defendant (“Loan”) at 24% per annum.

4.  Pursuant to the Loan Agreement, the interest was to be repaid by the 1^st defendant in 18 equal monthly instalments at $8,000 each with the principal to be repaid on 29 September 2017. The Loan was advanced by the plaintiff to the 1^st defendant on the same day as the Loan Agreement.

5.  The Loan is secured by a Second Mortgage executed by the 1^st defendant in favour of the plaintiff on the same date as the Loan Agreement (“Second Mortgage”), whereby the 1^st defendant charged his interest in the Property to the plaintiff as security on an “all monies” basis.

6.  The Second Mortgage is subject to a First Mortgage (“First Mortgage”) in favour of Dao Heng Bank Limited (now DBS Bank (Hong Kong) Limited) (“First Mortgagee”). The 1^st Defendant’s 1/3 interest in the Property is also subject to a Third Mortgage (“Third Mortgage”) in favour of Smart Credit Advisors Limited (“Third Mortgagee”).

7.  The 1^st Defendant failed to make any repayment of the Loan. By order dated 1 August 2017 in DCMP3572/2016, the 1^st Defendant was ordered to pay to the plaintiff HK$512,831.29, being the total of the outstanding principal and accrued interest owed as at the date of the said order, with further interest to accrue from 2 August 2017 on the outstanding principal sum of HK$400,000 at the contractual rate of 24% per annum until the date of full payment.

8.  By a Notice of Hearing dated 3 April 2024 (the “Notice of Hearing”), the plaintiff seeks (amongst others) orders that:

(1)  the defendants do give vacant possession of the Property;

(2)  the Property be sold under the Partition Ordinance (Cap 352) (“PO”) with the sales proceeds to be distributed.

B.  Service of proceedings on the defendants

9.  Based on the affirmation of Chan Suk Yin Sally filed by the plaintiff, I am satisfied that:

(1)  the plaintiff has duly served the O/S on the defendants on 29 December 2023 by inserting the O/S through the letter box of the Property, being the usual and last known address of the defendants, pursuant to RDC O 10, r 1(2)(b);

(2)  a copy of the O/S was also posted up at a conspicuous space of the entrance of the Property on 29 December 2023; and

(3)  copies of the affirmation of Poon Ka Wing Steve (“Poon Affirmation”) made in support of the O/S were served on the 1^st and 2^nd defendants by ordinary post on 14 February 2024.

10.  The 1^st and 2^nd defendants have failed to file any Acknowledgement of Service.

11.  The plaintiff also filed the Notice of Hearing and the notice to occupant on 3 April 2024. Based on the affirmation of Tang Kin Man, the same were served on the defendants by ordinary post. Notice of the hearing was also given to the First Mortgagee, the Third Mortgagee and the Director of Lands.

12.  According to the 2^nd affirmation of Tang Kin Man, the plaintiff’s written submissions, the hearing bundles and the plaintiff’s proposed draft order have been served on the defendants.

13.  Therefore, I am satisfied that the relevant documents have been served on the defendants and reasonable steps have been taken to notify the defendants of the present hearing. Pursuant to RDC O 28 r 4(1), it is appropriate for the Court to proceed with the O/S notwithstanding the absence of the defendants.

C.  Discussion

C1.  Compliance with RDC O 83A & 88

14.  As the O/S is an action by a moneylender for enforcement of the Second Mortgage which is a security for the Loan, both RDC O 83A and O 88 apply to these proceedings.

C2.  Vacant possession of the Property

15.  Pursuant to Clauses 13.01 and 13.02 of the Second Mortgage, if the Loan was not repaid in full on the Repayment Date of the Loan (ie 29 September 2017), the plaintiff (as mortgagee) may enforce the Second Mortgage by (amongst others) entering into and taking possession of the Property.

16.  The 1^st defendant has defaulted under the Loan Agreement in the circumstances set out in §§3-7 above.

17.  Hence, the plaintiff is entitled to enter into and take possession of the Property in case of the 1^st defendant’s failure to comply with a demand for repayment of the Loan, subject always to the rights of the First Mortgagee under the First Mortgage.

18.  As I have mentioned in §11 above, the First Mortgagee was notified of this hearing. The court may make a possession order in favour of a second mortgagee notwithstanding the existence of a first mortgage as long as the order is made subject to the rights of the first mortgagee, and to the rights of any other person deriving title from the first mortgagee: Fubon Bank (Hong Kong) Limited v Ng Wai Kong [2021] HKCFI 1558, §11, per Au Yeung J.

19.  In the present case, the requirements under RDC O 83A rr 3-4 and O 88 rr 4-5 have been satisfied:

(1)  As noted above, the Notice of Hearing has been duly filed and served;

(2)  The Poon Affirmation contains the requisite particulars and information pursuant to RDC O 83A rr 3-4 and O.88 r 5;

(3)  The original Loan Agreement and the Second Mortgage were provided to the court for inspection at the hearing.

20.  Accordingly, it is appropriate for the court to make an order of possession of the Property against the defendants in terms of §1 of the draft order, such that the plaintiff would be allowed to obtain vacant possession of the Property for the purpose of sale subject to the rights of the First Mortgagee (which is dealt with in Section C3 below).

C3.  Order for sale of the Property

21.  The relevant principles (which are well established) were helpfully summarised by Deputy District Judge Kay Seto in Konew Capital International Limited v Lau Kwan Pak [2024] HKDC 624 at §§21 to 23, 25-26:

(1)  Section 2 of the PO provides that, where any property in land is held by two or more persons, whether as joint tenants or as tenants in common, the court may make an order for partition of the property under section 4 of the PO, an order for sale of the property under section 6 of the PO, or refuse to make any order;

(2)  Section 3(1) of the PO provides that any person interested in such property may institute proceedings under the PO for an order for sale;

(3)  An interested person is confined to a person holding an interest in possession which includes a mortgagee of a partial interest is considered an interested person for the purposes of section 3(1) of the PO, and is thus entitled to apply for an order for sale of the property;

(4)  Section 6(1) of the PO empowers the court to 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 (a) the nature of land to which the proceedings relate, (b) the number of the persons interested or presumptively interested, (c) the absence or disability of some of the persons, or (d) any other circumstances;

(5)  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;

(6)  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;

(7)  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;

(8)  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.

22.  Having considered the materials before me, I find that it is appropriate for an order for sale to be made in terms of §§2-7 of the draft order:

(1)  The Property is a residential unit in a multi-storey building with a saleable area of only 146 square feet. The partitioning of the Property is simply not practicable and would in any event not be in the interest of the parties;

(2)  None of the defendants have indicated any opposition to an order for sale;

(3)  The reserve price of $1,450,000 is set by reference to a valuation report of a qualified surveyor, Mr. Terence K.H. Kwan;

(4)  The First Mortgagee will have priority to the distribution of the sales proceeds, after discharge of all rent, taxes, rates and other outgoings due affecting the Property;

(5)  In respect of the 1^st defendant’s share, the residual sum (if any) after application of the proceeds towards the costs of sale and the Second Mortgage shall be paid to the Third Mortgagee. The remaining balance (if any) will be paid to the 1^st defendant;

(6)  The interest of the 2^nd defendant (as the other co-owner) is protected by her entitlement to the pro rata share of the sales proceeds.

D.  Conclusion

23.  In light of the above, I make an order in terms of the draft order as amended.

24.  Having considered Clause 4.10 of the Loan Agreement and Clause 22(iii) of the Second Mortgage, I award to the plaintiff its costs of the O/S (including this hearing and with certificate for counsel) against the 1^st defendant on an indemnity basis, to be taxed if not agreed.

25.  As set out in the draft order, I make no order as to costs against the 2^nd defendant.