MONEYSQ LTD v. LIU KIT LING AND ANOTHER

DCMP 3315/2018

[2019] HKDC 860

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3315 OF 2018

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REASONS FOR JUDGMENT

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Introduction

1.  This is the hearing of the application of the plaintiff, by way of an Originating Summons dated 22 November 2018, for:-

(a)  money judgment against the 1^st defendant in relation to the outstanding indebtedness of a loan advanced to the 1^st defendant in the sum of HK$260,000 under the Loan Agreement dated 17 November 2017.  The money judgment application is made under Order 83A of the Rules of District Court.

(b)  By way of enforcing the Mortgage dated 17 November 2017, against Flat B, 1^st Floor, Section B of Lot No 756 in DD 453, Tsuen Wan, New Territories (the “Property”), an order to sell the Property against both the 1^st and the 2^nd defendants.  The enforcement of the Mortgage was made under Order 88 of the Rules of District Court, and the order for sale under Sections 2, 3 and 6 of the Partition Ordinance (Cap 352 of the Laws of Hong Kong). 

2.  The 1^st defendant is the wife of the 2^nd defendant. They are the registered joint owners of the Property.  The Mortgage was in the terms of charging the 1^st defendant’s own interest as a joint tenant of the Property (Clause 3.01(a), and paragraph 1 of the First Schedule).  The charge is a security for the secured indebtedness which is defined as all sums advanced by the plaintiff to the 1st defendant and outstanding from time to time. 

Money judgment application

3.  Interest of the loan was at the rate of 32.4% per annum, with default interest also charged at the same rate.  The loan was repayable by monthly instalment of HK$7,859 in 84 instalments.  The 1^st defendant has defaulted repayment of the loan since the 7^th instalment due on 17 June 2018.  As claimed by the plaintiff, the amount outstanding as of 31 January 2019 was HK$317,953.23.  

4.  The 1^st defendant has not entered appearance in these proceedings, and has not appeared in this hearing.  The money judgment application is therefore uncontested. 

5.  In the supplemental submission of the plaintiff, there was a confirmation that each requirement of Sections 18(1) and 18(2) of the Money Lenders Ordinance (Cap 163 of the Laws of Hong Kong) has been complied with; in relation to the fact that there was no separate note or memorandum, I am mindful that in Celestial (International) Securities & Investment Ltd v William Henry Woo, HCA 9659 of 2000, dated 4 December 2001 at paragraph 29, it was observed that the loan agreement itself can constituted valid memorandum.  I am also satisfied that the requirements in Order 88 of the Rules of District Court have also been complied with. 

Order for sale application – 2^nd defendant’s objections

6.  The 2^nd defendant contested the application for sale of the Property.  By his affirmation dated 21 May 2019, he advanced four grounds of opposition:-

(1)  That he was a joint owner and hence his wife could not mortgage the Property as he has not consented to it;

(2)  That the Property was purchased with his mother’s saving for him to settle his family;

(3)  That he was just a security guard living on tight budget with a son.  He does not have the means to purchase another property;

(4)  That the whole family was saddled with the worry over his wife’s missing.  This was already unbearable. 

7.  I have also heard the 2^nd defendant at the hearing.  I believe that grounds 1 and 2 go to the issue of entitlement of the plaintiff to engage the Partition Ordinance.  Grounds 3 and 4 relate to the issue of whether there was such hardship as to compel discretion be made against an order for sale.

Entitlement of the plaintiff to engage the Partition Ordinance

8.  I have difficulty in understanding why the submissions were repeatedly made for the plaintiff that there was no need to deal with the subject matter of the interest mortgaged.  I have considered Mr Cheung’s submissions made to the effect that Partition Ordinance allows any co-owner to make application, whether joint tenant or a tenant in common.  However, now, we are concerned with a scenario of mortgagee and also Grounds 1 and 2 are effectively contending that the Property which was subject to the joint tenancy could not be mortgaged without all joint tenants’ consent.

9.  It should be trite that the 1^st defendant’s tendering her own interest to be charged amounts to an act to sever the joint tenancy.  At my request, Mr Cheung helpfully referred me to Ma Sum alias Ma Wing Sum v Ma Choi Kee & Ors [1967] HKLR 177 at 195.  I am satisfied that at the time the 1^st defendant entered into the Mortgage charging all her interest as joint tenant, the joint tenancy was severed, and it was only a mortgage of the 1^st defendant’s interest in the Property as tenant in common in equal share.

10.  The plaintiff’s rights under the Mortgage was in relation to this equal half share by way of tenancy in common.  Hence, whether the 2^nd defendant consented or not is not relevant.  Grounds 1 and 2 of the 2^nd defendant’s objection should be dismissed.

11.  Mr Cheung repeatedly submitted to me that section 2 of the Partition Ordinance allows any co-owner to apply for order for sale.  It was submitted that the following provisions meant that there was no need to deal with whether there was a severance in this case:-

“Section 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 ….”

12.  I have some difficulty to agree with Mr Cheung on this.  I believe that section 2 in its terms only prescribed the status of property co-ownership, that allows application to be made.  Section 3 should be most pertinent to the question who can apply.  It is “any person interested” that can apply:-

“Section 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.”

13.  Following on from my finding that the joint tenancy was severed upon the entering of the Mortgage, the plaintiff’s interest under the Mortgage should be examined to find out whether it comes within “any person interested” under the terms of Section 3 of the Partition Ordinance.

14.  Only after dealing with the nature of the interest that the 1^st defendant was charging can consideration be made as to the nature of the interest of the plaintiff holds and whether it qualifies as “person interested”.

15.  I am assisted by Mr Cheung’s submission that Clauses 5 and 6 of the Mortgage provides that non-payment by the 1^st defendant is an event of default, and upon such event, the plaintiff has a list of rights akin to those belonging to an owner of the Property, including the right to sell, assign, call in, collect and convert into money the Property, to enter into and take possession of the Property, and to exercise any powers or rights incidental to the ownership of the Property.

16.  I find that upon the 1^st defendant’s default of repayment of the 7^th instalment, the plaintiff’s rights include rights in possession of the Property (or of the half share under tenant in common) and hence the plaintiff qualifies as “person interested” under Section 3. In Fortis Bank Asia HK v Yu Kam Hoi & Anor, HCMP 134 of 2002, dated 4 March 2004, at para 56, it was held that such language be read restrictively to an interest in possession.  This analysis has already been adopted before by His Honor Judge Andrew Li in Law Chun Wai v Chu Suk Har, [2016] 1 HKLRD 224, dated 20 November 2015 at 228 paras 22 and 23.

17.  In this Mortgage, there was provision to the effect that the secured indebtedness to which the charge under the Mortgage secures be subject to a cap of HK$500,000 (Clause 1.01(k) and Clause 2.02).[1]  I do not think that this monetary cap affects the above analysis of the nature of the plaintiff’s interest and the entitlement of the plaintiff.

Whether discretion should be exercised to order partition or sale

18.  The governing principle over how discretion should be exercised on application for order for sale can be found in Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at paragraphs 16-19.  When it was impracticable to make an order for partition, the court should make an order for sale unless it was persuaded that sale would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner.

19.  The principle was applied in the context of money lender vis a vis remaining original co-owner concerning a small Hong Kong domestic flat in Law Chun Wai (supra).  In paragraphs 31-34, His Honour Judge Andrew Li saliently observed, among other things, that common sense dictated that partition in such context was impracticable, and I find such observations made in a similar context as this matter very relevant.  The learned Judge also observed that the original co-owner would not be financially worse off upon sale:-

“The present application

31. The Property in these proceedings is a residential flat in a multi-storey building. It is 367 saleable square feet in size. Expert opinion has not been sought on whether it is physically possible to partition the flat. However, common sense will tell us that since any purchaser could not be expected to be willing to share a flat with the 2^nd defendant, if the property is to be partitioned, an extra entrance has to be made at the corridor for separate entries to the two partitioned flats (183.5 square feet each), if it was indeed possible. In my judgment, given the size of the Property and the doubted feasibility of constructing a separate entrance, it is impracticable to partition the property.

32. I agree with Ms Ma that the main concern of whether a sale is beneficial is the interests of the 2^nd defendant, who had nothing to do with the loan. While he would not be worse off pecuniary by the sale as he is still entitled to half of the value of the Property, the Court has to objectively consider if there would be any hardship if a sale is ordered. Since both the defendants were absent, there is no evidence placed before the Court on this matter. It is unclear whether the 2^nd defendant still lives in the Property, whether he has other property(ies), and whether there would be any difficulty for him to secure alternative accommodation. By giving up his right to defend in this matter, and after proof of service has been shown to the Court, in my view, the 2^nd defendant cannot now be heard to say that an injustice has been done to him.

CONCLUSION

33. In my view, while the interest charged by the plaintiff under the loan was very high, they are still within the legal limit allowed under the MLO. Further, the evidence suggests that 1^st defendant had entered into the Loan Agreement out of her own volition and not under any duress or misrepresentation. She had even executed the Legal Charge on the Property at the same time of signing the Loan Agreement.

34. While I agree that the 2^nd defendant’s welfare should not be overlooked, the burden is on the opposing co-owner to demonstrate to the Court that such an order for sale would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner. I accept the plaintiff’s submission that it is fair and just to order an order for sale of the Property under section 6(1) of the PO when the defendants are absent, and when the nature of the Property makes it impracticable to partition.” (emphases added)

20.  In the same vein, as the plaintiff here is a money lender, and a company, I think that it is self evidently impracticable for the Property to be partitioned for it to be shared by the plaintiff and the 2^nd defendant. The Property in this case is of about 350 sq ft.  It is a residential property and hence, partition must be inappropriate. 

21.  To the extent that Grounds 3 and 4 advanced by the 2^nd defendant suggested that the 2^nd defendant would be unable to resettle himself and the family in another flat after sale, I am not persuaded because, among other things, there was no evidence adduced on the financial situation of the 2^nd defendant.  I am unable to find that there was such great hardship to the 2^nd defendant as to persuade me not to order sale.  Objectively, he is not going to be financially worse off.  The other suggestions as to the missing of the 1^st defendant and the intended purpose of the purchase being for the 2^nd defendant to reside are without direct relevance to the issue of hardship.

22.  I have heard submissions by the plaintiff of the reserve price, and have reviewed the valuation report prepared by Mr Kenneth Cheung of Citiland Surveyors Limited dated 18 January 2019.  There is nothing to doubt its opinion of the repossession value of the Property at HK$2.29 million and so the reserve price is so set to facilitate the orderly sale process.

Conclusion

23.  I have made the money judgment against the 1^st defendant and the order for sale against both defendants on 20 June 2019 in terms of my written draft as handed down during the hearing and which I have explained to the 2^nd defendant in person.  The order is as follows:-

(1)  The 1^st defendant do pay the plaintiff the following sums (the “Judgment”):-

(a) the sum of HK$317,953.23;

(b) interest on the sum of HK$254,287.33 at the rate of 32.40% per annum (ie daily interest of HK$225.72) from 1 February 2019 until payment; and

(c) default interest on the sum of HK$34,101 being the interest element of outstanding instalment(s) at the rate at the rate of 32.40% per annum (ie daily interest of HK$30.27) from 1 February 2019 until payment.

(2)  Unless the 1^st defendant do make payment of the Judgment sum as referred to in paragraph 1 hereinabove within 3 months of 20 June 2019, the 1^st and 2^nd defendants do deliver to the plaintiff vacant possession of Flat B, 1^st Floor, Section B of Lot No 756 in DD 453, Tsuen Wan, New Territories (the “Property”) and title deeds and documents in their possession (if any) of the Property, immediately after expiration of the 3 months;

(3)  The Property be sold by the plaintiff by public auction or private treaty in open market at the price not less than HK$2,290,000;

(4)  The conduct of the sale of the Property shall be committed to the plaintiff’s Solicitors Messrs Au Yeung, Lo & Chung;

(5)  The proceeds of the sale of the Property shall be paid to the plaintiff’s Solicitors and be applied upon completion in the following order of priority:-

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

(b) in payment of the costs and expenses in connection with the sale of the Property;

(c) 50% of the remaining proceeds relating to the 1^st defendant’s interest in the Property be applied as follows:-

(i) in discharge of the Mortgage dated 17 November 2017 by payment of the secured indebtedness subject to the cap of HK$500,000;

(ii) the balance, if any, to the 1^st defendant;

the other 50% of the remaining proceeds relating to the 2^nd defendant’s interest in the Property be paid to the 2^nd defendant;

(6)  The 1^st defendant do pay the costs of these proceedings, on full indemnity basis, to the plaintiff which is summarily assessed by the Court at HK$50,000[2]; and

(7)  There be liberty to apply.

24.  I direct that the plaintiff do draw up this order in Chinese.  Court interpreter will attend handing down of this judgment for interpreting it into Punti to the defendants if any of them needs.

25.  It remains for me to thank Mr Cheung for his assistance.