SMART TEAM FINANCE LTD v. 范小兰 AND ANOTHER

DCMP 6297/2024

[2025] HKDC 774

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 6297 OF 2024

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  This is the substantive hearing of the Originating Summons issued on 7 November 2024 wherein the Plaintiff sought an order for sale of the property at Flat G on 13/F of Block 6 of Phase II Chelsea Heights, No 1 Shek Pai Tau Path, Tuen Mun, New Territories (“the Property”) pursuant to the Partition Ordinance (Cap 352) (the “PO”).

2.  The 1^st Defendant and the 2^nd Defendant held the Property as tenants in common each holding half share thereof. The 1^st Defendant mortgaged her half share in the Property to the Plaintiff as security for the repayment of the loan as lent to her.

3.  Both Defendants have not entered into appearance to contest the present proceedings.

4.  At the hearing on 10 February 2025, Mr Alvin Tsang, counsel appearing for the Plaintiff, urged this Court to deal with the Plaintiff’s claim summarily in the absence of the Defendants. He submitted a draft Order incorporating the proposed terms for the order of sale.

5.  On the materials before me, I was satisfied that the court documents in relation to this action were duly served on both Defendants, and also on the Director of Lands (as required under section 3(2) of the PO).

6.  I was satisfied that the procedural requirements under Order 83A and Order 88 of the Rules of District Court (Cap 336H) (the “RDC”) have been complied with. In particular, the notice of application for possession of the Property was duly given to its occupants.

7.  The rateable value of the Property does not exceed HK$320,000 and this Court has jurisdiction as conferred under section 35 of the District Court Ordinance (Cap 336) and section 9 of the PO to hear the present Originating Summons.

8.  Both Defendants were duly notified of the hearing. I considered it appropriate to proceed with the hearing in their absence. At the end of the hearing, this Court granted an order for sale of the Property. I reserved my reasons for decision then. Now, they are provided hereinbelow.

Loan Agreement and the Mortgage

9.  Initially, both Defendants were registered as joint tenants of the Property.

10.  By way of a notice of severance issued by the 1^st Defendant dated 17 November 2017 to the 2^nd Defendant, the joint tenancy was severed, and each of them has been holding half share of the Property as tenant in common since then.

11.  By a loan agreement also dated 17 November 2017 entered into between the Plaintiff and the 1^st Defendant, the Plaintiff (as a licensed money lender) lent a sum of HK$2.3 million to the 1^st Defendant at an interest rate of 16% per annum upon the terms and conditions mentioned therein (“the Loan Agreement”).

12.  On the same date, the 1^st Defendant also executed a mortgage of the Property in the Plaintiff’s favour to secure the repayment of the loan to the Plaintiff in accordance with the terms and conditions thereunder (“the Mortgage”).

Monetary judgment under DCCJ 2087 of 2019

13.  In October 2018, the 1^st Defendant began to default in repaying the mortgage loan. This prompted the Plaintiff to take out an action under DCCJ 2087 of 2019 (“the DCCJ Action”) on 26 April 2019 to recover the outstanding indebtedness from the 1st Defendant. On 19 September 2019, default judgment was entered in that action against the 1^st Defendant in the sum of HK$2,344,444.32, together with interest on the principal of HK$2.3 million at judgment rate thereafter and costs (“the Default Judgment”).

14.  On 16 March 2020, the Plaintiff obtained a charging order nisi[1] and then on 20 May 2020[2] the charging order absolute in respect of the 1^st Defendant’s half share in the Property under the DCCJ Action. In this Court’s view, the moves taken by the Plaintiff in relation to obtaining these two orders and their subsequent registration with the Land Registry are unnecessary as the Plaintiff has been the mortgagee of such half share. There is however an implication on costs and I shall return to this point later.

15.  After the Default Judgment was entered, the 1^st Defendant has made some partial payments of the judgment sum. These payments are listed out in the Plaintiff’s solicitors’ demand letter dated 28 June 2024 issued to the 1^st Defendant[3]. Deducting these partial payments, the outstanding judgment debt was accumulated up to HK$3,117,804.79 by then.

16.  Due to the continual default in repaying the judgment debt, the Plaintiff instituted the present action on 7 November 2024 to enforce the security under the Mortgage by applying for an order for sale of the Property. Shen Xiu Lan (“Shen”), the Plaintiff’s director, filed an affirmation dated 27 December 2024 deposing therein the necessary matters in accordance with the requirements laid down in our procedural rules for supporting the Plaintiff’s application under the Originating Summons.

Memorandum under section 18 of MLO

17.  Subject to a caveat to be discussed below, I was satisfied that the statutory requirements on the memorandum in relation to the Loan Agreement and the security under the Mortgage as provided under section 18 of the Money Lenders Ordinance (Cap 163) (the “MLO”) are duly complied with.

18.  Shen explained in an earlier affirmation of 14 June 2019 filed under the DCCJ Action that, due to clerical error, the address for the place of completion of the loan was wrongly stated in the memorandum in question, and the correct address should be at the same place where the loan was negotiated, viz the Plaintiff’s place of business. Apparently, the learned Master had already considered this technical non-compliance of s.18(2)(j) before he was satisfied that the Default Judgment could be entered against the 1^st Defendant (being the sole defendant under the DCCJ Action). Nothing turns on that matter in this action. Insofar as might be necessary, this Court would consider it equitable and exercise its discretion as conferred under section 18(3) of the MLO to allow the Plaintiff to enforce the security under the Mortgage.

Order for possession and sale

19.  On the materials before me, I was satisfied that the aforesaid defaults of the 1^st Defendant in the loan repayments do fall under the events of default as defined under the Mortgage, so as to entitle the Plaintiff to take possession of and sell the 1^st Defendant’s half share in the Property for enforcing the security.

20.  Sections 2 and 3(1) of the PO provide that:-

“Section 2

2. Power to order partition or sale of property in land

Subject to this Ordinance, where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may—

(a) make an order under section 4 for a partition of the property;

(b) make an order under section 6 for a sale of the property; or

(c) refuse to make any order.

Section 3(1)

3. Institution of proceedings and parties thereto

(1) 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.” (emphasis supplied)

21.  In my judgment, the Plaintiff, being the legal mortgagee having the right to sue for possession and foreclosure in respect of the 1^st Defendant’s half share in the Property according to the Mortgage as triggered by the events of default provided thereunder is qualified as a “person interested in the Property” under section 3(1) of PO and therefore having the locus standi to apply for an order for sale under the ordinance. See : Success Road Finance Ltd v Mak Kon Sang and Another (01/04/1999, CACV68/1999) per Godfrey JA, Fan Kiu v Li Kwan Wan [2020] 1 HKLRD 659, per DHCJ William Wong SC at para 43.

22.  Given the circumstances before me, I think this Court do have the power and ought to exercise its discretion to make an order for sale of the entire Property under the PO for the following reasons:-

(1) According to an updated valuation report of 14 January 2025 obtained by the Plaintiff[4], the Property is a residential unit in a multi-storey building (which was completed in 2000) with only a saleable area of about 522 sq ft. It would appear to be impracticable to partition the Property into two halves physically. There is no evidence coming from the Defendants’ side to suggest the otherwise;

(2) Even if the physical partition in such manner mentioned in (1) above were possible (which I do not think it is the case here), to do so would apparently devalue the Property substantially and/or necessitate disproportionate renovation costs, and this would likewise not be beneficial to all the persons interested, speaking in financial terms;

(3) Prima facie, the Defendants were fully aware of the present proceedings, and there is no evidence that they have ever objected to the proposed sale as being against their interests, let alone an order for sale, if made, would cause great hardship to any of them;

(4) The circumstances of this case tend to show that unless the Property is sold, it seems unlikely that the Plaintiff can recover the current outstanding indebtedness from the 1^st Defendant, and hence it would effectively be left with no remedy;

(5) Upon making the present order for sale, the interests of the Defendants would be subject to proper safeguards that the proposed sale shall be conducted by the Plaintiff’s solicitors who are officers of the court, and there was also a reserve price set by this Court by making reference to an independent expert surveyor’s valuation regarding the recent market value for sale of the Property under repossession (as at 14 January 2025).

23.  It was after carefully considering the circumstances of this case that I made an order for sale of the Property in the Plaintiff’s favour, and that the conduct of the sale be committed to the Plaintiff’s solicitors, subject to a set of directions for facilitating and effecting the sale contained in the revised proposed draft order submitted by Mr Tsang at the hearing, and as amended by this Court (“the Order”).

24.  Among other things, the Defendants are ordered to deliver up vacant possession of the Property to the Plaintiff together with the title deeds and documents within 28 days after the service of the Order upon them. After the sale of the Property, the sale proceeds shall be applied in the sequence of priorities of payments as laid down in the Order, and the remaining net proceeds be split into two equal halves : one half shall belong to the 1^st Defendant (“D1’s half share”) and the other half the 2^nd Defendant (“D2’s half share”). D1’s half share shall be applied for the purpose of discharging the Mortgage, viz basically for settling the outstanding indebtedness due under the Default Judgment, and the costs of the present proceedings, and if there is still any balance left over, it shall be returned to the 1^st Defendant. Whereas, D2’s half share shall be paid to the 2^nd Defendant directly.

25.  I also directed the Plaintiffs’ solicitors to draw up, file and serve a copy of the Order upon both the Defendants within 10 days from the last hearing, so as to inform the Defendants promptly of the aforesaid order and directions made by this Court.

Appointment of trustee under PO, s.7

26.  This Court appointed Mr To King Yan Adam, a partner of the Plaintiff’s solicitors firm, as a trustee pursuant to section 7(1) of the PO for receiving the proceeds of sale of the Property, as one of the terms of directions for the order for sale.

27.  In Mayluck Investment Ltd v Lee Yih Ping & Others [1996] 3 HKC 245, Le Pichon J (as she then was) also in the context of making an order for sale under the PO held that the plaintiff’s solicitors being appointed as trustee under s 7 of the statute stands in a fiduciary position who is fully accountable to all the parties interested. The relevant parts of her Ladyship’s judgment at paras 14, 15 and 16(5) are quoted as follows:

“14. So far as consequential directions are concerned, there is general agreement save as to the proposal that the Plaintiff’s solicitors be appointed trustee under s.7 of the Partition Ordinance. Counsel for the 1^st Defendant, on instructions, submitted that a firm not connected with the parties ought to be appointed instead.

15. The objection appears to be based on a misunderstanding of the role of a solicitor appointed trustee under s.7 of the Partition Ordinance. As trustee, that solicitor is in a fiduciary position and is fully accountable to all the parties interested. I accept the submission of the Plaintiff and the 2^nd and 5^th Defendants that it is wholly unnecessary to appoint a different firm. That would only increase costs and achieve nothing else.

16. I will order as follows :

...

(5) The Plaintiff's solicitors be appointed trustee under s.7 of the Partition Ordinance;...” (emphasis supplied)

28.  In my view, the appointment of Mr To as a trustee under the subject statutory mechanism can facilitate the subsequent return of D2’s half share of the net sale proceeds (after deducting the various payments in accordance with the sequence of priorities laid down in this Court’s directions) to the 2^nd Defendant, and any balance of D1’s half share to the 1^st Defendant if there still remains any left over. Should real difficulties crop up in future for Mr To (despite his reasonable endeavour) to locate or contact any of the Defendants (or any of them is otherwise unresponsive) for returning his or her entitled share of the net sale proceeds, he as a trustee so appointed may invoke section 62 of the Trustee Ordinance (Cap 29) to apply for payment of such monies into court after satisfying the Court that the circumstances as faced by him indeed so warrant and that the relevant procedural requirements under Order 92 of the RDC are also complied with. See also : Hong Kong Civil Procedure 2025, vol 1, para 92/2/1.

Costs

29.  The Plaintiff claimed costs against the 1^st Defendant on indemnity basis pursuant to clause 10 of the Mortgage. I think that the Plaintiff is so entitled, and ordered the 1^st Defendant to pay the costs of these proceedings to the Plaintiff on indemnity basis with certificate for counsel, summarily assessed at HK$80,000. On the other hand, the Plaintiff sought no costs against the 2^nd Defendant, and as such, there was no costs order made as between them.

30.  That notwithstanding, in my judgment, the contractual entitlement of a mortgagee to claim costs on indemnity basis to enforce the mortgage does not cover unnecessary costs it incurred.

31.  In Fisher and Lightwood’s Law of Mortgage (15^th ed), para 55.23 states that:

“Unnecessary or unsuccessful proceedings

55.23 It is the duty of the mortgagee so to pursue his remedy as not to incur unnecessary costs. Hence, he must bear the cost of proceedings so far are mistaken or useless and the court may except from the general costs the costs of a particular issue on which the mortgagee has failed, although the remainder of the claim was justified...” (emphasis supplied)

32.  Owing to this reason, this Court was only prepared to make an order for sale (including the aforesaid costs order) subject to an undertaking proffered by the Plaintiff that it shall not deduct the costs of the charging order nisi and charging order absolute made under the DCCJ Action from the sale proceeds arising from the future sale of the Property.

33.  Lastly, it remains for me to thank Mr Tsang for his helpful assistance.