KONEW CAPITAL INTERNATIONAL LTD v. LAM WING FAI AND ANOTHER

DCMP 4969/2023

[2024] HKDC 1067

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4969 OF 2023

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BETWEEN

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JUDGMENT

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A. INTRODUCTION

1.  This is an application by the plaintiff by Originating Summons filed on 25 October 2023:

(1) against the 1^st defendant for money judgment pursuant to Order 83A of the Rules of the District Court (Cap. 336H) (“RDC”); and

(2) against the 1^st and 2^nd defendants for an order for sale of the mortgaged property known as 1^st Floor, 139E Tong Min Tsuen, Tai Po, New Territories (the “Property”) pursuant to Order 88 of the RDC and sections 2, 3 and 6 of the Partition Ordinance (Cap. 352) (the “PO”).

2.  At the hearing on 6 May 2024, the plaintiff was represented by Ms Ip Ho Shan of Messrs Edward Lau Phoebe Ng Solicitors LLP. The 1^st and 2^nd defendants appeared in person. At that hearing, the 1^st defendant informed the Court that he does not contest the liability or the amount of the plaintiff’s claim. The 2^nd defendant informed the Court that he intends to oppose the plaintiff’s application for an order for sale of the Property. With no opposition from Ms Ip, the 2^nd defendant was granted leave to file and serve an affirmation in opposition, and the plaintiff was granted leave to file and serve an affirmation in reply. Again, with no opposition from Ms Ip, the hearing was adjourned to 31 May 2024 for substantive arguments before this Court.

B. BACKGROUND

3.  The plaintiff is a licensed money lender. The 1^st and 2^nd defendants were at all material times and are the registered owners of the Property as joint tenants.

4.  By a Loan Agreement dated 5 May 2023 (the “Loan Agreement”), the plaintiff agreed to lend the principal sum of $1,150,000 (the “Loan”) to the 1^st defendant at the interest rate of 21.6% per annum to be repaid by 120 installments.

5.  The Loan Agreement provides, inter alia, that the 1^st defendant agrees to use the Property as security for the Loan, and to execute a mortgage or other necessary documents on the Property in favour of the plaintiff to secure repayment of the Loan and interest thereon (Clauses 10 & 11 of the Loan Agreement).

6.  By a Second Mortgage executed by the 1^st defendant in favour of the plaintiff and registered in the Land Registry under Memorial No. 22090601000027 (the “Second Mortgage”), the 1^st defendant mortgaged the Property to the plaintiff as security for repayment for all sums of moneys which might from time to time be or become payable by the 1^st defendant to the plaintiff to the extent of $1,200,000, plus interest and legal costs on a full indemnity basis. This was subject to the first mortgage executed by the 1^st defendant in favour of Bank of China (Hong Kong) Ltd (the “First Mortgage”) dated 14 June 2020 and registered in the Land Registry under Memorial No. 20092801870011 (the “1^st Mortgagee”) (Clauses 3.1 & 3.2 & 21 & Schedule II of the Second Mortgage).

7.  In breach of Clause 4 of the Loan Agreement and the Second Mortgage, the 1^st defendant failed and/or refused to pay to the plaintiff the full or any monthly installments of the Loan on their respective due dates in full since 5 July 2023.

8.  As an event of default has occurred, the plaintiff commenced the present proceedings against the 1^st and 2^nd defendants.

9.  Subsequent to the commencement of the present proceedings, the 1^st defendant applied for an individual voluntary arrangement in HCB 6947/2023 under the Bankruptcy Ordinance (Cap. 6). On 9 February 2024, a bankruptcy order was made against the 1^st defendant.

10.  By an order dated 26 March 2024, Master Dick Ho of the High Court granted leave to the plaintiff to proceed with the proceedings herein against the 1^st defendant notwithstanding that the bankruptcy order had been made against him.

11.  The plaintiff gave notice of these proceedings to the 1^st Mortgagee through letters dated 22 December 2023, 17 January 2024 and 19 February 2024, but has not received any response. Despite being informed of these proceedings, the 1^st Mortgagee has not attended any of the hearings.

C. DISCUSSION

C1. The plaintiff’s application for money judgment against the 1^st defendant

12.  As the 1^st defendant has informed the Court that he does not contest the liability or the amount of the plaintiff’s claim, the plaintiff is entitled to money judgment against the 1^st defendant as claimed.

13.  In this context, I have also considered the terms of the Loan Agreement and am satisfied that the plaintiff has duly complied with s. 18 of the Money Lenders Ordinance (Cap. 163). I am also satisfied that the Originating Summons was duly issued under Order 83A r 3 and Order 88 r 5(6) of the RDC.

14.  I shall proceed to address the plaintiff’s application for an order for sale of the Property.

C.2 The plaintiff’s application for an order for sale of the Property against the 1^st and 2^nd defendants

15.  The 1^st defendant did not file any affirmation in opposition to the plaintiff’s application for an order for sale of the Property. In his Affirmation in Opposition filed on 13 May 2024, the 2^nd defendant raised three grounds in opposition to the plaintiff’s application for an order for sale of the Property, namely:

(1) First, he alleged that the Property was purchased by him in 2002 for self-use, that the entire purchase price of the Property was paid by him and that the 1^st defendant was only the nominee for “family trust” (“家庭信託”) (“Ground 1”);

(2) Second, he alleged that 1^st defendant borrowed money from the plaintiff without his knowledge, and that he did not give his consent beforehand (“Ground 2”); and

(3) Third, he alleged that he was 70 years old, that the Property was his only residence, and that he had no place to live if the Property is sold (“Ground 3”).

16.  I will address each of these grounds in term.

Ground 1

17.  While the 2^nd defendant used the term “家庭信託” (“family trust”) in his Affirmation in Opposition, by alleging that the entire purchase price of the Property was paid by him, the 2^nd defendant is, in fact, alleging that the 1^st defendant holds his share of the Property on resulting trust for him.

18.  Due to the following reasons, I am in the view that the 2^nd defendant’s assertion of a resulting trust is untenable and, moreover, provides him with no assistance.

19.  First:-

(1) Pursuant to the Assignment dated 14 June 2002 and registered in the Land Registry under Memorial No. 688261, the Property was assigned to the 1^st and 2^nd defendants as joint tenants. In the Assignment, the 1^st and 2^nd defendants confirmed that the purchase price of $800,000 was jointly paid by the “purchaser”, meaning the 1^st and 2^nd defendants together.

(2) In the premises, the 1^st and 2^nd defendants are estopped from denying that the purchase price of $800,000 was paid by them together. In Tsang Chun v Po Kwai [1932] AC 715, Lord Blanesburgh said:-

“But not only on this ground does his case disappear. It fails also because of estoppel. To their Lordships it seems clear that by his registration of the memorial of his deed of assignment the respondent is estopped as against the appellant, who took his registered mortgage in reliance on that memorial, from denying its correctness in any essential particular. The memorial is a complete statement of the deed of assignment, including therein a statement as to receipt of the purchase price. Its correctness, as required by the Ordinance, is duly attested. Its registration is, in terms of the Ordinance, a means whereby the title to this immovable property may be easily traced and ascertained. ”

Tsang Chun was applied in Hong Kong. See Fast Forward Ltd v Magicsound Co Ltd & Anor [1990] 2 HKC 494 at 510D-E per Liu J (as he then was).

20.  In this context, I accept the plaintiff’s evidence that, based on the record in the Land Registry not showing any resulting trust of the 1^st defendant’s share in the Property in favour of the 2^nd defendant, they extended the Loan of $1,100,000 to the 1^st defendant.

21.  Second, the plaintiff is a bona fide purchaser[1] of a legal estate[2] for value without notice of the 2^nd defendant’s alleged beneficial interest in the 1^st defendant’s share in the Property and is therefore entitled in priority both in equity and in law: see Snell on Equity, 24^th ed, §4-018; Si Tou Choi Kam v Wealth Credit Limited [2018] HKCA 250 at §17 per Cheung CJHC (as the Chief Justice then was); The Bank of East Asia Limited v Chan Wing Hung & Anor [2018] HKDC 271 at §§44 & 49 per Master David Chan; New Century Credit Services Co, Ltd v Leung Wai Pui & Ors [2018] HKDC 504 at §15 per DDJ Kate Li.

Ground 2

22.  Since the plaintiff is a bona fide purchaser of a legal estate for value without notice and is entitled to priority both in equity and in law, the knowledge or consent of the 2^nd defendant regarding the 1^st defendant’s loan from the plaintiff is irrelevant to the Court’s consideration as to whether an order for sale of the Property should be granted.

Ground 3

23.  Under s.2 of the PO, where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may make an order for partition or sale of the property, or refuse to make any order at all.

24.  S.3(1) of the PO provides that, “any person interested in such property may institute proceedings in Court under this Ordinance by way of an action for partition or sale”.

25.  A legal chargee/mortgagee of a partial interest is entitled to apply for an order for partition or sale of the entire land. The underlying reason is that, upon an event of default, such chargee/mortgagee would be entitled to possession of the property, making itself a person interested within the meaning of s.3(1) of the PO: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 at §23 per HH Judge Andrew Li; Konew Capital International Limited v Tsang Shar Wing & Another, DCMP 3893/2019 (unrep, 8/3/2021) at §30 per HH Judge Harold Leung.

26.  The relevant principles on the Court’s exercise of discretion under s.2 of PO were succinctly summarized by Mr Recorder Fok SC (as Fok PJ then was) in Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at §18:

“18. …

(a) A co-owner has a basic right to rid himself of the shackles of co-ownership and ask for an order for partition or sale.

(b) 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 (s)) that such an order will not be beneficial to all the co-owners.

(c) whether an order for sale is beneficial to all co-owners is not determined by the dissent of the opposing co-owners or the assertion by them that it is not beneficial. It has to be determined by the Court objectively”

27.  While the relevant principles as stated by the learned Recorder related to the right of a co-owner to apply for an order for partition or sale of a co-owned property, these principles have consistently been applied to applications for an order for partition or sale of a co-owned property by a trustee in bankruptcy of a co-owner (see: Re Cheung Chan Hong (a bankrupt) [2015] 2 HKLRD 1; Re Leung Pui Pui Maggie (a bankrupt) [2017] 1 HKLRD 83) and a legal chargee/mortgagee of a partial interest (see: Konew Capital International Ltd v Lai Siu Fun & Ors, DCMP 1143/2016 (unrep, 24/3/2017) at §50 per HH Judge MK Liu; Konew Capital International Ltd v Wong Li Hoi & Ors [2022] HKDC 883 at §16 per DDJ Kenneth Lee).

28.  Further, the Court should also consider whether an order for sale will cause very great hardship to one co-owner. Hardship, for the present purpose, includes pecuniary as well as practical detriment: Re Leung Pui Pui Maggie (a bankrupt) (supra) at §23 per Peter Ng J.

29.  Applying the above principles to the present case, it is in my judgment appropriate to make an order for sale of the Property for the following reasons.

30.  First, the Property is a 700 sq. ft. domestic flat in a 3-storey New Territories village house. Partition of the Property is impracticable and would not be beneficial to the co-owners of the Property, i.e. the 1^st defendant and the 2^nd defendant.

31.  Second, the 2^nd defendant has failed to demonstrate great hardship would result if an order for sale of the Property were made:

(1) The 2^nd defendant never disclosed his income or assets;

(2) Sale proceeds of the Property, after settling all government rent, taxes, rates and other expenses, discharging any outstanding amounts due to the 1^st Mortgagee, settling all legitimate remuneration, legal fees, charges and expenses properly incurred in the sale of the Property, and then paying the plaintiff’s costs and disbursement incurred in these proceedings, shall be apportioned into two equal shares. In other words, the 2^nd defendant would have ½ of the remaining sale proceeds; and

(3) Such ½ of the remaining sale proceeds shall be sufficient for the 2^nd defendant to rent an accommodation for a long period of time; and therefore, the 2^nd defendant would not be homeless.

See: Konew Capital International Ltd v Lai Siu Fun & Ors, DCMP 1143/2016 (unrep, 24/3/2017) at §55 per HH Judge MK Liu; Konew Capital International Ltd v Yu Ping Chung & Anor [2018] HKDC 111 at §19 per DDJ J Chow in which the Courts made an order for sale in circumstances similar to those in the present case.

D. ORDER

32.  In the premises, I order as follows:-

(1) The 1^st defendant do pay the plaintiff the sum of $1,393,696.07 being the outstanding principal and interest due and owing by the 1^st defendant as at 17 May 2024 together with daily interest of $713.53 from 18 May 2024 until payment;

(2) Subject to the rights and powers of the prior encumbrancer(s), the 1^st and 2^nd defendants do within 28 days after service upon them of this Order deliver to the plaintiff vacant possession and title deeds and documents in their possession (if any) of the Property;

(3) The Property be sold by the plaintiff either by public auction or private treaty in open market with a reserved price at $3,740,000.00;

(4) The plaintiff’s solicitors, Messrs Edward Lau Phoebe Ng Solicitors LLP, be appointed to conduct the sale;

(5) Each of the 1^st and 2^nd defendants shall do such acts and things including executing any documents necessary to give effect to this Order;

(6) Should any of the 1^st or 2^nd defendants neglect or refuse to execute document in respect of the Property within 7 days of the service of this Order on them, or should any of them cannot after reasonable inquiry be found, Ms Ip Ho Shan, a solicitor of Messrs Edward Lau Phoebe Ng Solicitors LLP, be authorized to execute any and all such document(s) in place of the 1^st and 2^nd defendants pursuant to Section 38A of the District Court Ordinance (Cap. 336), and such execution shall for all intent and purposes be valid and effective as if the same was performed by the 1^st and 2^nd defendants themselves;

(7) Proceeds of sale of the Property shall be paid to the plaintiff’s solicitors and be applied in the following manner and order of priority:-

(a) in discharge of all government rent, taxes, rates and other outgoings due and affecting the Property, if any;

(b) in discharge of all encumbrances having priority to the Second Mortgage (including all of the costs and disbursements for discharging such encumbrances);

(c) in payment of all reasonable costs and expenses of the sale, including commission of estate agent not exceeding 1% of the transaction price as well as the legal costs, charges and disbursements not exceeding $25,000.00 for such sale;

(d) 1/2 of the remaining proceeds relating to the 1^st defendant's interest/share in the Property be applied in the following manner and priority:-

(i) in discharge of the Second Mortgage;

(ii) the balance, if any, be paid to the next incumbrancer, if any, ranking immediately after the Second Mortgage; or if there is no such next incumbrancer, to the Joint and Several Trustee-in­Bankruptcy of the Property of the 1^st defendant, a bankrupt.

(e) the other 1/2 of the remaining proceeds relating to the 2^nd defendant’s interest/share in the Property be applied in the following manner and priority:-

(i) in discharge of all incumbrances affecting such 2^nd defendant’s interest in the Property if any, including costs and disbursements for discharge of such encumbrances;

(ii) the balance, if any, be paid to the 2^nd defendant; and

(iii) if the 2^nd defendant cannot be located after reasonably enquiry, such balance, if any, after deduction of the costs and disbursements for handling the same, be lodged in Court to stand credit to this action until further order of the Court.

(8) Upon such sale, the plaintiff be authorised to do all acts necessary for the vesting of the Property in the purchaser(s) thereof;

(9) There be liberty to apply; and

(10) The 1^st and 2^nd defendants do pay the plaintiff costs of this action (including costs of the adjournment) summarily assessed at $100,000.

33.  Last but not least, I thank Ms Ip for her able assistance.