K CASH EXPRESS LTD (formerly known as KONEW FINANCIAL EXPRESS LTD) v. CHAN CHING WAI

DCMP 349/2022

[2023] HKDC 1213

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 349 OF 2022

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BETWEEN

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DECISION

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INTRODUCTION

1.  This is the defendant’s appeal against master’s decision.

2.  The defendant acted in person in the proceedings. His lack of experience in litigation resulted in procedural chaos in conducting the appeal of this case. I shall deal with those matters in turn. In any event, the issues at the hearing have been boiled down to:-

(1) When the judgment debtor’s property was a public housing unit purchased from the Housing Authority, whether a charging order imposed against such property would be void under s 17B of the Housing Ordinance (Cap 283) and illegal under s 27A of the same Ordinance; and

(2) Whether the court should grant an order for sale in the present case; and if so, under the order for sale:

(a) whether the court has jurisdiction to order the judgment debtor to deliver vacant possession of the property to the judgment creditor for the purpose of sale, when the judgment creditor was only an equitable chargee under the charging order obtained against the property without having entered into any mortgage or charge agreement with the judgment debtor; and

(b) whether the delivery of vacant possession of the property should be at the commencement of the sale or upon completion of the sale.

BACKGROUND

3.  The plaintiff is a money lender company licensed under the Money Lenders Ordinance (Cap 163).

4.  The defendant is the borrower and the registered owner of a public housing unit at Flat 17, 4^th Floor, Kang Ping House (Block 5), Long Ping Estate, 1 Long Ping Road, Yuen Long, New Territories (“the Property”). He purchased the Property from the Hong Kong Housing Authority on 27 January 2016 at a consideration of HK$327,300 under the Authority’s Tenants Purchase Scheme (“TPS”).

5.  The following facts are not in dispute. On 12 February 2018, the defendant borrowed HK$450,000 from the plaintiff under a written loan agreement (“the 1^st Loan Agreement”), repayable by 36 monthly instalments of HK$19,401 each, including interest payment charged at 31.2% per annum (“the 1^st Loan”).

6.  On 23 October 2018, the defendant borrowed another sum of HK$120,000 from the plaintiff under a second written loan agreement (“the 2^nd Loan Agreement”), repayable by 36 monthly instalments of HK$5,174 each, including interest payment charged at 31.2% per annum (“the 2^nd Loan”).

7.  They are collectively called “the Loan Agreements”.

8.  The Loan Agreements were mere personal loans. No mortgage or charge was being entered against the Property under the Loan Agreements, nor did the plaintiff obtain the title deeds of the Property from the defendant.

9.  Since 12 October 2018 and 23 November 2018, the defendant had defaulted in repayment of the 1^st and 2^nd Loans, respectively.

10.  In July 2019, judgment in default was entered against the defendant by the plaintiff under DCCJ 5961/2018 and DCCJ 241/2019.

11.  In August 2019, the plaintiff obtained a charging order nisi under each of the said actions (DCCJ 5961/2018 and DCCJ 241/2019) and had them registered against the Property in the Land Registry. They were made absolute and registered in October 2019 (“the Charging Orders”).

12.  By Originating Summons dated 21 January 2022 of this action (DCMP 349/2022), the plaintiff applied, by way of enforcement of the Charging Orders, for an order for sale of the Property as the defendant had still failed to repay the judgment debts.

13.  On 26 October 2022, Master Isabella Chu made an order for sale (“the Order for Sale” or “Master Chu’s Order”) that:-

(1) Unless within 28 days after the service of the order the defendant do make payment of the following:-

(a) the sum of HK$802,490.77 (being the aggregate of principal, interest and costs under DCCJ 5961/2018);

(b) the sum of HK$258,445.58 (being the aggregate of principal, interest and costs under DCCJ 241/2019); and

(c) further interest and costs,

the defendant do deliver to the plaintiff vacant possession and title deeds and documents of the Property, and the Property be sold without further reference to the court;

(2) The Property be sold by the plaintiff by public auction or private treaty under the Secondary Market Scheme of the Home Ownership Scheme of the Hong Kong Housing Authority (i.e. without payment of the premium) at the price not less than HK$1,700,000 or in open market (i.e. after payment of any premium payable to the Hong Kong Housing Authority) at the price not less than HK$3,300,000; and

(3) (Together with other terms of the order) the plaintiff’s solicitors shall have the conduct of sale of the Property and shall apply the sale proceeds in the order of distribution upon completion.

14.  As of the date of this hearing, the defendant’s outstanding indebtedness owed to the plaintiff amounts to HK$1,240,000.

15.  The defendant did not attend any hearings of the aforementioned proceedings, including the proceedings under DCCJ 5961/2018, DCCJ 241/2019, and the present action of DCMP 349/2022 before Master Chu granted the Order for Sale. He said he had not received any notice of hearing of the proceedings.

THE PROCEDURAL CHAOS

16.  By a Summons dated 3 February 2023, the defendant applied to set aside Master Chu’s Order on the ground that he did not receive the notice of the said hearing. The Summons was initially scheduled for hearing before Master Chu on 10 March 2023. However, as the defendant applied for legal aid, the hearing was refixed to 24 March 2023 in accordance with the requirement of the automatic stay of 42 days (starting from 7 February 2023) prescribed by the Director of Legal Aid under the Legal Aid Ordinance (Cap 91).

17.  On 24 March 2023, Master Anny Chak dismissed the Summons with costs (“Master Chak’s Order”) rejecting the defendant’s reason, when all the documents had been affixed twice at the conspicuous part (the main door) of the Property.

18.  By a Notice of Appeal dated 4 April 2023, the defendant appeals against Master Chak’s Order that “the Master was wrong in refusing to set aside Master Chu’s Order dated 26 October 2022.” His ground of appeal was that the court (Master Chak) had made the decision without waiting for the result of his application for legal aid. As such, he requested that the court should allow him to argue afresh for the setting aside application. In his supporting affirmation dated the same, he added a second reason that the plaintiff should never be allowed to register the Charging Orders in the Land Registry against the Property as the Charging Orders would have violated the Housing Ordinance and the TPS.

19.  The defendant’s Notice of Appeal is scheduled to be heard before me.

20.  First of all, the way the defendant issued the Summons on 3 February 2023 pursuant to O 32 r 6 of the Rules of the District Court (Cap 336H) (“RDC”) was misconceived. O 32 r 6 provides that the court may set aside an order made ex parte. It is concerned with orders made pursuant to ex parte applications (see Hong Kong Civil Procedure 2023, note 32/6/13; and Lau Sin v Wong Mary [2018] 3 HKLRD 202 per DHCJ Paul Lam SC). The defendant confirmed that he was only seeking to challenge Master Chu’s Order but not the judgments in default or the Charging Orders granted in the other proceedings. However, according to O 58 r 1 of the RDC, an appeal from any judgment, order or decision of a master shall lie to a judge in chambers. The Order made by Master Chu was made solely on merits, considering that all the papers were in order and the circumstances warranted an order for sale, as opposed to a judgment in default. That hearing before Master Chu was an inter partes hearing of the Originating Summons, at which the defendant was absent by chance. It was not an ex parte application; thus, O 32 r 6 is inapplicable. Therefore, if the defendant wishes to appeal against Master Chu’s Order, he should file a Notice of Appeal under O 58 r 1, not a Summons under O 32 r 6.

21.  Secondly, the Notice of Appeal dated 4 April 2023 was wrongly taken out. In the Notice, the defendant sought to appeal against Master Chak’s decision in dismissing the defendant’s Summons to set aside Master Chu’s Order. The defendant’s procedural misstep was compounded.

22.  It is not disputed that the defendant’s intention was all along to appeal against Master Chu’s Order, not necessarily against Master Chak’s Order. The plaintiff’s solicitor, Mr Li, acknowledged this and accepted it was evident from the defendant’s affirmations filed in support of the Summons and the Notice of Appeal. Mr Li said that the plaintiff’s skeleton submissions had nevertheless included submissions on the merits of Master Chu’s Order and dealt with all the issues raised by the defendant. However, he added that the defendant’s appeal would be seriously out of time.

23.  Although the defendant did not file a proper Notice of Appeal, there is no objection by the parties that the court should deal with the merits of Master Chu’s Order, which was the subject matter of the defendant’s intended appeal after all these erroneous procedures.

24.  At the hearing, I granted leave for the defendant to file a new Notice of Appeal against Master Chu’s Order dated 26 October 2022 and ordered that such Notice be served on the plaintiff within 5 days. In my view, vacating the hearing and requiring the defendant to start the appeal process all over again would place the defendant back to square one and would have been a waste of the court’s valuable time. As to the plaintiff’s concern regarding whether the new Notice of Appeal would then be filed out of time, it should be noted that leave granted by the court during the hearing would have the necessary effect of allowing the Notice to be filed out of time. The court considered that the defendant’s delay was not serious, taking into account the 42-day stay due to the application for legal aid and the defendant’s mistaken Summons procedure for the appeal. Further, in a de novo hearing, the court would have to consider the hardship raised by the defendant when deciding whether or not to grant an order for sale.

25.  The hearing proceeded as if the proper Notice of Appeal had been filed. Subsequently, the defendant filed a new Notice of Appeal immediately after the hearing on 6 June 2023.

APPLICABLE LEGAL PRINCIPLES

26.  It is well established that an appeal from a master to a judge under O 58 r 1 is dealt with by way of an actual re-hearing of the application which led to the order under appeal, and the judge would treat the matter as though it came before him for the first time (Hong Kong Civil Procedures 2023, note 58/1/2). Fresh points may be raised before the judge which were not raised or taken before the master (note 58/1/5).

27.  Under O 50 r 9A and O 88 r 5A, charging orders are enforceable by an order for sale of the property charged.

28.  Section 52AB(3) of the District Court Ordinance (Cap 336) provides that a charge imposed by a charging order has the same effect and is enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand.

29.  The court has discretion over whether to make a charging order absolute or to enforce a charging order by sale. However, the discretion must be exercised judicially. A judgment creditor is prima facie entitled to enforce his judgment by a charging order unless the debtor establishes some good reason to the contrary. When a judgment creditor applies for an order for sale of a property subject to a charging order, the competing equities of the parties will be carefully weighed. At the end, there must be a good reason to justify why the court should on the one hand grant an order in a party’s favour but on the other refuse to enforce that very order (Union Finance Ltd v Leung Wai Ling & Anor [2000] 2 HKC 821 per Chung J).

30.  O 31 r 1 provides that, where the court orders that land should be sold, the court may order any party bound by the order and in possession of the land to deliver up such possession. Rule 2 provides that the court may give such directions as it thinks fit for the purpose of effecting the sale.

APPEAL AGAINST MASTER CHU’S DECISION

Issue (1): The Housing Ordinance

31.  The defendant submitted that the Charging Orders obtained by the plaintiff were in breach of the TPS because, as the Property was a public housing unit, any transfer of interest or any charge in the Property without first paying a premium to the Housing Authority was prohibited by s 17B and s 27A of the Housing Ordinance. He submitted that the imposition of the Charging Orders was contrary to the original intent of those sections under the Ordinance and the TPS.

32.  To put it in context, the defendant complains that the Order for Sale granted by Master Chu should never have been made as it was based on the Charging Orders, which contravened the restrictions in the Housing Ordinance.

33.  I am afraid that I must disagree with the defendant’s submissions. In my view, the defendant has misconceived the nature of a charging order obtained by a judgment creditor and a charge or mortgage created by the judgment debtor.

34.  Section 17B reads as follows:-

“17B. Void alienations, etc.

(1) Where—

(a) (i) land in an estate is sold under section 17A; or

     (ii) land in respect of which the Authority is authorized to nominate purchasers is sold and the person selling the land acts without the written permission of the Authority; and

(b) the person to whom the land is sold purports to mortgage or otherwise charge the land or to assign or otherwise alienate it; and

(c) that person acts in breach of—

(i) any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to the land; or

(ii) in the case of such a mortgage or other charge, any term authorized under paragraph 4(a) of the Schedule as regards the mortgage or other charge;

the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void.

…”

35.  Section 27A provides that:-

“27A. Unlawful alienations, etc.

Where—

(a) a person whether as lender, borrower or otherwise purports to create a mortgage of or otherwise charge land or to assign or otherwise alienate land or to enter into an agreement which relates to land; and

(b) the purported mortgage or other charge or the purported assignment or other alienation or the purported agreement is void by virtue of section 17B,

the person commits an offence and is liable to a fine of $500,000 and to imprisonment for 1 year.”

36.  The legislative intent of ss 17B and 27A was fully canvassed by the Court of Final Appeal in Cheuk Shu Yin v Yip So Wan (2012) 15 HKCFAR 344: The primary purpose of the Home Ownership Scheme (HOS) is to provide qualified purchasers with a permanent home at a substantially discounted price; and hence the HOS contained restrictions on alienation or parting with possession, which were intended to prevent the purchasers from realising an immediate profit by selling or letting of the flats. Section 17B of the Housing Ordinance contains restrictions on “alienation” for a five-year period and provides that any alienation of the property during that period should be void; and this also constitutes a serious criminal offence under s 27A.

37.  At para 6, Chan PJ said:-

“The purchase price at which an owner acquires a HOS flat is fixed at a discount of the market price or at cost without including the value of the land. The restrictions in the Schedule (which form part of the terms and conditions of the sale) and ss 17B and 27A are intended to prevent the owner from taking advantage of this discount and making a quick profit by any unauthorized re-sale or transfer or parting with possession of the flat after acquisition. …”

38.  Since the Charging Orders have nothing to do with taking advantage of the discount or making a quick profit after acquisition by the owner, I do not agree with the defendant that the Charging Orders granted by the court are inconsistent with the original intent of the sections of the Housing Ordinance and the HOS or the TPS (where the plaintiff accepts that the sections cover TPS properties).

39.  More importantly, at para 8, Chan PJ said:-

“In order to fall within the Schedule and ss 17B and 27A, the alienation in question must be a transfer or divesting by the owner of his or her rights and interests in the flat and this supports the argument that a positive act by the owner is required.”

40.  It is important to note that the Charging Orders made against the Property were not an act by the owner (the defendant) but rather an order of the court. There was no alienation by transferring or divesting any rights or interests in the Property by the owner. In my judgment, therefore, the Charging Orders made by the Court do not constitute any alienation forbidden by ss 17 B and 27A.

41.  The defendant then argued in the alternative that the Loan Agreements were, in substance, a charge on the Property and, as such, those agreements should have been void under the same sections of the Ordinance.

42.  The defendant contended that he had been assured by the plaintiff, at the time of the signing of the Loan Agreements, that no mortgage or charge would be required, nor was he required to deposit the title deeds of the Property with the plaintiff. He said that as he was a discharged bankrupt and had no proof of income, the Property was the only asset on which the plaintiff relied in making the Loans to him and he was only required to produce the title deeds (to prove his ownership) before he could receive the money. Therefore, he said, the Property was notionally under a charge to the plaintiff. And he said it was malpractice on the part of the plaintiff that he was misled into believing that they would not come after the Property in the event of default in repayment.

43.  The defendant has confirmed that he would not challenge the judgments and the Charging Orders made in the other proceedings.

44.  I find that the defendant’s argument does not have much substance. First, the defendant has no doubt that he had to repay the loans, and that any default in repayment would jeopardize his asset or expose him to another round of bankruptcy proceedings, which would end with a forced sale of the Property as well.

45.  Further, in my view, it would be self-contradictory for the defendant to say there was a notional charge when he had admitted that he had never signed any mortgage or charge under the Loan Agreements. There would be no basis, either in law or in fact, for the defendant to suggest any charge being created over the Property under the Loan Agreements, and thereby fall within the restrictions in the Ordinance. The defendant had simply ignored the fact that the Loan Agreements remained unsecured personal loan, and that the plaintiff was subject to the risk that the defendant could sell the Property without their knowledge.

46.  If the Property is found to be an available asset that can be attached to satisfy the judgment debts, there would be nothing unlawful about the plaintiff obtaining the Charging Orders and then by way of enforcement obtaining the Order for Sale, to which the plaintiff was fully entitled. It seems illogical for the defendant to say that he had been misled into believing otherwise, when he accepted that he would have to repay the loans somehow.

47.  Mr Li has submitted an authority to assist. In Konew Financial Limited v Wong Kai Ming (No 2) [2001] 4 HKC 218 at 223H-224A, HH Judge Lok (as he then was) said:-

“In setting out the reasons for refusing to exercise the discretion in favour of the Plaintiff, the learned Registrar pointed out that if the court were to grant monetary judgments against the Defendants, the Plaintiff might eventually be able to obtain charging orders against the properties. In such circumstances, the Plaintiff would be able to obtain full registered securities which it would otherwise not be entitled to. With respect to the learned Registrar, I do not accept that this is a valid consideration. The charge purportedly to be created by the deposition of title deeds and the charging order resulting from the non-payment of monetary judgment are two separate matters. If the learned Registrar’s observation is correct, it would not be possible for any plaintiff who is a money lender to obtain charging order against a property subject to the Home Ownership Scheme. This simply cannot be right.”

48.  I agree with the learned Judge that the Charging Orders resulting from the non-payment of monetary judgment is a separate matter, and that the court can grant a charging order against a property subject to the Home Ownership Scheme. However, I would refrain from going further into the question of whether any other arrangements would in effect give some kind of security, which amounted to “alienation”, to the finance company by-passing the provision of s 17B — the question which particularly left open by the learned judge for future discussion. That is not an issue in this case. What is certain is that there was no arrangement of any sort whatsoever in respect of the Property in the present case.

49.  In fact, HH Judge Lok’s view on the separation of mortgage agreements had been endorsed by Hon Chu J (as she then was) in Bank of China (HK) Ltd v Personal Representative of Fu Kit Keung [2009] 5 HKLRD 713 and in Yip Lau Yan, Vinton v Tsang Wing Lam (HCA 10957/1995, unreported, 9 December 2010), where the court held that “section 17B would not nullify agreements for the advancement and repayment of loans.”

50.  Suffice it to say that these authorities do support my findings in holding that the Charging Orders per se are not forbidden by s 17B or s 27A of the Ordinance.

51.  To conclude, I do not find the defendant has any merit on this ground of objection.

Issue (2): Order for Sale and vacant possession of the Property

52.  It will be convenient for me to first deal with the issue of possession as I found that there was an order for possession embedded in the Order for Sale (Issue 2(a)).

53.  The defendant said that the Property was the only place where he and his elderly parents (aged over 70) could stay. He said that it would cause him extreme hardship if the court were to allow the plaintiff to take immediate possession of the Property under the Order for Sale. He said if the court was not minded to set aside the Order for Sale, he and his family should at least be allowed to remain in the Property until the Property could be sold and until the time of completion of the sale, not at the commencement of the sale.

54.  The question concerning the delivery of vacant possession arose during the hearing when the defendant asked for more time to enable him to make a private sale or to negotiate with the plaintiff to make monthly instalments. He explained that his income was adversely affected by the Covid pandemic and therefore he defaulted in repayments. When he was able to resume repayments, the plaintiff demanded full repayment not accepting instalments. He said that by doing so, the plaintiff was seeking to put him in an impossible position, with an ulterior motive to target the Property.

55.  I would say that the court initially shared the defendant’s concern as to whether the court had jurisdiction to order delivery of vacant possession prior to the completion of the sale of the Property in the present case, knowing that the plaintiff was a mere equitable chargee and the sale by public auction or private sale would take several months to complete. In the end, however, I found that the court has jurisdiction but I would not exercise my discretion in favour of the defendant. My reasons are as follows.

56.  Firstly, the reason why I said the court initially shared the defendant’s concern was because the plaintiff, as an equitable chargee, had no right to possession of the Property in the first place. It distinguished this case from other authorities where the plaintiffs were either mortgagees or equitable chargees by deed.

57.  See Cousins The Law of Mortgages (4^th Ed, 2017), at para 27-08:-

“An equitable chargee, which includes a judgment creditor who has obtained a charging order, has no right to take possession [Garfitt v Allen (1887) 37 ChD 48]. Further, an equitable chargee cannot foreclose, as he has no express or implied agreement to create a legal mortgage over the property in his favour. His primary remedies are to apply to the court for an order for sale or for the appointment of a receiver.”

58.  Therefore, the plaintiff, as a judgment creditor, has no right to take possession of the Property even if he has obtained a charging order against the Property. That is to say, as an equitable chargee, the plaintiff has no right to take possession or to foreclose the Property. Its primary remedy is to apply to the court for an order for sale or for the appointment of a receiver.

59.  The court’s power to make a charging order absolute is discretionary under s 52A(1) of the District Court Ordinance (Cap 336), which requires the court to consider all the circumstances of the case (s 52A(3)). Since the defendant in the present case is not challenging the validity of the making of the Charging Orders (even though it was of note that the defendant was absent in those hearings), the Charging Orders remained proper and valid.

60.  See Hong Kong Civil Procedure 2023, note 50/9A/17:-

“A charging order on the property or assets of the debtor is one of the modes of enforcement of a judgment or order for the payment of money to the creditor. It is, however, not a direct mode of enforcement in the sense that the creditor can immediately proceed to recover the fruits of his judgment, but is rather an indirect mode of enforcement in the sense that it provides the creditor with security, in whole or in part, over the property of the debtor. It makes the creditor a secured creditor, who having obtained his charging order must proceed, as may be necessary according to the nature of the property charged, to enforce his charge in order to obtain the actual proceeds of his charge to satisfy his judgment, in whole or in part. Subject to the provisions of the High Court Ordinance, a charge imposed by a charging order will have effect and will be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand. A charging order on an interest in land, unlike a mortgage, does not confer any proprietary right or title in the land. The judgment creditor must proceed to apply for an order for sale.”

61.  As the case has progressed to the stage of order for sale after the plaintiff had successfully obtained the Charging Orders and became a secured creditor, the consideration for the court would shift to focus on whether the Charging Orders would be rendered ineffective if the court refused to grant order for sale or the defendant delays handing over vacant possession to the plaintiff.

62.  Therefore, despite the new hardship point raised by the defendant, I do not consider that this court would be in any different position than it was before Master Chu that an Order for Sale was appropriate and delivery of vacant possession under the Order for Sale was necessary.

63.  Further, there is a distinction between the charging order obtained in the execution of the judgment and an order for sale in enforcement of the charging order under the judicial process. While an equitable chargee (under an equitable charge) does not have a right to possession out of court, the same equitable chargee may obtain possession of the property under an order for sale.

64.  The situation can be best explained by referring to an Australian judgment. In Hycenko v VHY Enterprises Pty Ltd [2020] VSC 834, Associate Justice Derham in the Supreme Court of Victoria, Ashburton has succinctly set out the law, at para 48, that:

“An equitable charge does not give rise to a right to immediate possession of the charged property. A charge can be enforced only by application to a court for an order for the judicial sale of the charged property, or the appointment of a receiver, not by the chargee taking unilateral action out of court. Garfitt v Allen has long stood as authority for the proposition that an equitable charge was not entitled to possession without a court order. That, in my view, does not detract from the powers of the Court, including the powers under Order 55 of the Rules [O 31 of the RDC in Hong Kong], to order possession or access to the Properties in favour of an appropriate person having the conduct of the sale.” (Emphasis added)

65.  RDC O 31 r 1 provides:

“Where in any cause or matter relating to any land it appears necessary or expedient for the purposes of the cause or matter that the land or any part thereof should be sold, the Court may order that land or part to be sold, and any party bound by the order and in possession of that land or part, or in receipt of the rents and profits thereof, may be compelled to deliver up such possession or receipt to the purchaser or to such other person as the Court may direct.

In this Order land (土地) includes any interest in, or right over, land.” (Emphasis added)

66.  Accordingly, I find that, whilst the plaintiff being an equitable chargee does not have a right to immediate possession of the Property out of court, the court has jurisdiction to order possession or access to the Property in favour of the plaintiff under the judicial sale (i.e. an order for sale) of the Property.

67.  I now come to the question of whether the court should order the defendant to deliver vacant possession of the Property to the plaintiff at the commencement of the sale or to allow the defendant to remain in possession until the sale is completed (Issue 2(b)).

68.  The defendant submitted that he had two elderly parents living together with him in the Property, and it would be a hardship for him if they were all asked to leave before the sale of the Property. He said that he had made every effort to negotiate an instalment plan or re-financing with the plaintiff.

69.  The plaintiff opposed the postponement of delivering vacant possession. Mr Li submitted that, if the plaintiff was not granted vacant possession of the Property, it would be difficult for any potential purchasers to inspect the Property and hence the transaction price would be significantly reduced. Nevertheless, he accepted that it was within the discretion of the court as to when the defendant should deliver vacant possession.

70.  In my view, it is indeed very common for a property to be sold without first having vacated the property beforehand (e.g. selling with a tenancy agreement, with tenants in occupation, to a purchaser seeking rental income) or for vacant possession to be delivered upon completion of the sale (where the owner/vendor has been in occupation).

71.  However, there is a noticeable difference in the defendant’s situation in that the defendant did not want the Property to be sold by the finance company (the plaintiff), and there is a risk that he may ultimately refuse to deliver vacant possession to the purchaser, thereby causing the finance company in breach of contract.

72.  In Cheltenham & Gloucester Plc v Booker (1996) 73 P & CR 412, the English Court of Appeal had considered the question of whether the court should exercise its powers to allow the mortgagor to remain in possession where the property is to be sold by the mortgagee.

73.  The background of that case is that the owners of the property (the defendants) asked the court to suspend the execution of a warrant for possession until the completion of the sale by the mortgagee bank on the grounds that they were still seeking to sell the property, had offered to pay some instalments pending sale, and relied on the fact that they had three children who were in occupation of the property, the eldest of whom was shortly to be sitting GCSE examinations. There had been six previous applications made by the defendants who successfully postponed the execution of the warrant.

74.  Millett LJ considered the question was of general importance. At 415-416, he said:-

“In a case where the court has no jurisdiction under the 1970 and 1973 Acts to defer the order for possession, the position is as stated by Russell J. [in Brimingham Citizens’ Permanent Building Society v Caunt [1962] Ch 883] and Sir John Pennycuick [in Royal Trust Company of Canada v Markham [1975] 1 WLR 1416]. There is a residual jurisdiction [at common law] in the court, but a strictly limited one, to postpone the giving of possession to the mortgagee for a short period in order to enable the property to be sold by the mortgagor.

If so, it appears to me in principle difficult to deny the existence, at least in theory, of a similar jurisdiction to defer the giving of possession for a short time in order to enable the property to be sold by the mortgagee. If the court is satisfied:

(a) that possession will not be required by the mortgagee pending completion of the sale but only by the purchasers on completion;

(b) that the presence of the mortgagor pending completion will enhance, or at least not depress, the sale price;

(c) that the mortgagor will so co-operate in the sale by showing prospective purchasers around the property and so forth; and

(d) that he will give possession to the purchaser on completion, it seems to me that there is no reason in principle why the court should accede to a mortgagee's insistence that immediate possession prior to the sale should be given to him.

However, while the jurisdiction exists, experience shows that these conditions are seldom likely to be satisfied. Accordingly, in my judgment, the jurisdiction should be sparingly exercised, and then exercised only with great caution. If the conditions which I have mentioned exist, the court is likely to entrust the conduct of the sale to the mortgagor. There is an inherent illogicality in entrusting conduct of the sale to the mortgagee and yet leaving the mortgagor in possession pending completion unless the mortgagee has agreed to this course. The obtaining of possession with a view to giving it to the purchaser is part of the necessary arrangements for sale. In my opinion the party having conduct of the sale ought normally to have the right to decide when it is desirable for him to obtain possession from those in occupation in order to enable the sale to be effectively carried through.” (Emphasis added)

75.  After considering the facts of the case which showed “repeated attempts by the defendants to avoid execution with no real prospect of doing so, and no object other than to postpone the evil day”, and the fact that the defendant had repeatedly failed to make the monthly repayments, the English Court of Appeal allowed the appeal and set aside the lower court’s order, and directed that the warrant for execution should be issued without delay. Millett LJ commented that the lower courts should not be encouraged to make similar orders more commonly in the future, in postponing the mortgagee to obtain possession.

76.  I note that Cheltenham was a case about a mortgagee having its right to the execution of the warrant for possession, but the rationale for the exercise of discretion in refusing to allow the property owner to defer the delivery of possession is equally applicable to an equitable chargee having possession pursuant to an order for sale.

77.  I therefore consider that this court has jurisdiction to postpone the delivery of vacant possession to the Plaintiff, but, in exercise of my discretion, I would not do so. I agree with what Millett LJ said: “The jurisdiction should be sparingly exercised, and then exercised only with great caution” and “the obtaining of possession is part of the necessary arrangements for sale.”

78.  The delay in repayment in the present case has been more than four years since the default in November 2018 and, at the very least, more than three years since the Charging Orders became absolute in October 2019. Such a delay is unacceptable. Up to the present moment, the defendant has still not been able to provide a solution to the problem.

79.  I am not convinced that I should defer the delivery of vacant possession until the completion of the sale. However, in exercise of my discretion, I am prepared to allow the defendant a further 42 days (after service of this order) to vacate the Property.

80.  As for the conduction of sale, I note Mr Li’s submissions that, according to the Valuation Report, the premium to be paid to the Housing Authority would be approximately HK$3,060,000. Therefore, the sale of the Property in the open market would not be sensible as the estimated market value of HK$3,900,000 (or the repossession sale value of HK$3,330,000) less the premium of HK$3,060,000 premium would not be sufficient to cover the outstanding indebtedness of HK$1,240,000 million. He said that, even if it were sold under the Secondary Market Scheme without paying the premium, the estimated market value of HK$1,900,000 (or the repossession sale value of HK$1,700,000) would be on the verge of not being able to cover the debt.

81.  Therefore in my decision, if the value of the secured property is likely to be insufficient to cover the amount owed, I consider it appropriate for the plaintiff to have the conduct of sale.

82.  As to the application for the order for sale, the plaintiff’s affirmation in support of the Originating Summons has complied with the requirements under O 88 r 5A.

83.  In weighing the competing equities of the parties, I am inclined to give considerable weight to the serious delay in repayment and the plaintiff’s right to recover the judgment debts. Although the defendant would suffer hardship if he was deprived of the Property, it is indisputable that he borrowed and used the monies. And the Property is the defendant’s only available asset. Therefore, there is no alternative but to put the Property up for sale. Even up to the date of the hearing, the defendant has not provided the court with any evidence as to how much he could repay the plaintiff. I am not persuaded why the Charging Orders should not be enforced. Also, the longer the delay, the less advantageous it would be to the defendant because of the high interest rate to which the plaintiff was entitled under the Loan Agreements. In my judgment, an order for sale of the Property would be appropriate.

84.  Having considered all the relevant facts in the present case, I am of the view that an order for sale should be made in favour of the plaintiff. I find that the Order made by Master Chu on 26 October 2022 and all the terms contained therein are proper and valid and should therefore stand, save that I would allow the defendant a further 42 days (after the service of this order) to deliver vacant possession of the Property.

85.  In such circumstances, the Appeal against Master Chu’s Order must be dismissed.

APPEAL AGAINST MASTER CHAK’S DECISION

86.  The ground of appeal provided in the Notice of Appeal dated 4 April 2023 was that the Master was wrong in dismissing the defendant’s Summons dated 3 February 2023 without awaiting the outcome of the defendant’s legal aid application.

87.  The hearing date of the Summons was rescheduled from 10 March 2023 to 24 March 2023 to accommodate the 42-day stay resulting from the defendant’s application for legal aid. The automatic stay expired on 21 March 2023. There can be no complaint about the hearing date of 24 March 2023 unless such stay has been extended by an order of the court (s 15(7) of the Legal Aid Ordinance). In any event, the defendant’s application was eventually refused by the Director of Legal Aid.

88.  As I have explained above, I do not need to repeat (the defendant accepted) that the Summons leading to the hearing before Master Chak and the Notice of Appeal against Master Chak’s Order were wrongly issued.

89.  In such circumstances, the defendant’s appeal against Master Chak’s decision is dismissed.

CONCLUSION

90.  For the above reasons, I dismiss the defendant’s appeals with costs.

91.  This is the Order I make:-

(1) The Notice of Appeal dated 4 April 2023 be dismissed;

(2) The Notice of Appeal dated 6 June 2023 be dismissed;

(3) The time limit stipulated in paragraph 1 of the Order made by Master Isabella Chu dated 26 October 2022 for delivery of vacant possession and title deeds and documents of the Property by the defendant to the plaintiff be extended until 42 days after the service of this Order;

(4) The order for stay of proceedings made at the hearing on 6 June 2023 pending for decision be lifted and discontinued;

(5) Costs order nisi that costs of the appeal by way of Notice of Appeal dated 4 April 2023 be paid by the defendant to the plaintiff forthwith, and to be taxed if not agreed;

(6) Costs order nisi that costs of the appeal by way of Notice of Appeal dated 6 June 2023 be paid by the defendant to the plaintiff forthwith, and to be taxed if not agreed; and

(7) The costs orders nisi made in this Order to become absolute unless an application is made to vary them within 14 days hereof.

92.  I should record here that the time spent on the Notice of Appeal dated 4 April 2023 accounted for only 10% of the time of the hearing before me, and most of the costs in the preparation of the said appeal should have been subsumed into the Notice of Appeal dated 6 June 2023 (the substantive appeal).

93.  A court interpreter has been arranged by my clerk to attend the handing down of this Decision for translating the same into Chinese for the defendant.