ZERO FINANCE HONG KONG LTD v. LAI MIN AND ANOTHER

DCMP 1148/2022

[2023] HKDC 757

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1148 OF 2022

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JUDGMENT

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A. Introduction

1.  This is the application by the plaintiff (“P”), a licensed money lender under the Money Lenders Ordinance (Cap 163) (“MLO”), for, inter alia, a money judgment, together with an order for possession and an order for sale of the property known as Flat A, 23^rd floor, Tower 9 Greenfield Garden（翠怡花園）(“Property”). The 1^st and 2^nd defendants (“D1” and “D2” respectively, collectively “Ds”) are the registered owners of the Property. According to a surveyors’ report dated 7 July 2022, the Property’s value for sale under repossession was in the order of HK$5,200,000.

2.  P as the lender and D1 as the borrower entered into a written loan agreement titled “The Loan Agreement and Memorandum of Agreement (Property Loan)” dated 12 March 2021 (“Loan Agreement”) for the principal sum of HK$2,500,000 (“Loan”). The loan was secured by a mortgage dated 27 March 2020 executed by D1 (“Mortgage”).

3.  On 31 March 2020, the Mortgage was registered in the Land Registry by Memorial No 20033101870094.

4.  On 2 August 2021, Konew Capital International Limited (“Konew”) registered a Second Mortgage against D1’s half share of and in the Property.

5.  Since 12 December 2021, D1 has failed and/or refused to make any repayment of the Loan. P therefore commenced the present proceedings on 14 April 2022.

6.  On 23 June 2022, D1, as debtor, petitioned for her own bankruptcy. On 20 September 2022, a bankruptcy order was made against D1 and the Official Receiver has become the provisional trustee of the estate of D1. On 8 December 2022, Mr Fred Lee and Ms Chow Wai Lan Christine were appointed joint and several trustees of the property of D1 (“Trustees”).

7.  On 24 November 2022, upon the joint application of P and the Official Receiver, High Court Master D To made an Order in HCB 3415/2022 (D1’s bankruptcy proceedings), granting leave to P to proceed with the present case subject to, inter alia, the following conditions:-

(a)  No judgment or order obtained by [P] in DCMP No 1148 of 2022 (other than judgment or order for sale of the Property) shall be enforced against [D1] without leave of the court; and

(b)  [P] shall not apply for any order for costs personally against the Official Receiver or the trustee in bankruptcy in these proceedings.

8.  Ds had not filed any Acknowledgement of Service or any affirmation in opposition. Ds and the Trustees were absent at the hearing. Satisfied with the affirmation of service, I allowed the hearing to proceed.

B. The Loan Agreement

9.  The Loan Agreement provides, inter alia, that:-

(1)  P would lend D1 a loan of HK$2,500,000 at the interest rate of 13% per annum.

(2)  D1’s interest of and in the Property is to be charged as security by way of a mortgage in favour of P, to secure payment of all the sums payable under the Loan Agreement.

(3)  If default is made in the payment upon the due date of any sum payable to P under the Loan Agreement, whether in respect of principal or interest, P shall be entitled to charge default interest rate of 13% per annum.

(4)  D1 should indemnity and keep indemnified P in full against all reasonable costs and expenses (including but not limited to legal costs on a full indemnity basis) incurred or to be incurred by it in connection with the enforcement of, or the preservation of any rights under the Loan Agreement.

C. The Mortgage

10.  The Mortgage provides, inter alia, that:-

(1)  D1 covenants with P that D1 will pay the “Secured Indebtedness” (defined therein, including the Loan) in the manner and at the times herein provided for payment thereof.

(2)  It shall be an event of default if, inter alia, D1 fails to pay any principal, interest or any other sum payable under the Mortgage on the date on which the same is due and payable.

(3)  Upon the occurrence of any event of default, P may by notice in writing to D1 declare that the Loan and all interest and other sums payable under the Mortgage and/or the Secured Indebtedness have become immediately due and payable, whereupon the same shall become immediately due and payable.

(4)  If the Secured Indebtedness has not been paid or paid in full pursuant to the terms of the Mortgage, the security thereby constituted and the Mortgage shall become enforceable as against D1.

(5)  At any time after the security thereby constituted has become enforceable, it shall be lawful for the Plaintiff and any person appointed by it without any consent on the part of D1 or of any person to, inter alia, do any of the followings:-

(a)  enter upon and take possession of the Property or any part thereof and for that purpose to take any legal proceedings, hold and enjoy the Property or any part thereof and take the income and profits thereof;

(b)  exercise any powers or rights incidental to the ownership of the Property or any part thereof;

(c)  do all things necessary or desirable for realising the Property or any part thereof;

(d)  sell, assign, call in, collect and convert into money the Property or any part thereof or any interest therein free from the Mortgage and any other estates, interests and rights to which the Mortgage has priority and sell the Property or any part thereof or any interest therein either together or in parcels and either by public auction or public tender or by private contract or by private tender or a combination thereof.

(6)  All moneys received by P arising from any sale or other disposition under the powers in the Mortgage shall be held in trust and applied according to the order provided in clause 15.

D. The Outstanding Loan

11.  P now claims a total sum of HK$2,581,810.63 as at 4 March 2022, being the outstanding loan in the sum of HK$2,481,662.62 plus interest thereon with further interest accruing at HK$893.46 per day thereafter.

E. Money Judgment

12.  I am satisfied that P has complied with the provisions in the Money Lenders Ordinance (Cap 163) (“MLO”).

(a)  Regarding s 18 of MLO:-

(i)  The Loan Agreement is the “note or memorandum” under section 18(1) of the MLO.

(ii)  Schedule 2 and Schedule 3 provided the name and address of P as required by section 18(2)(a) of the MLO.

(iii)  Schedule 5 provided the name and address of D1 as required by section 18(2)(b) of the MLO.

(iv)  There is no surety and hence section 18(2)(c) of the MLO does not apply.

(v)  The amount of the principal of the loan in both words and figures, as required by section 18(2)(d) of the MLO, is provided at Schedule 7 of the Loan Agreement.

(vi)  The date of the making of the agreement, as required by section 18(2)(e) of the MLO, is provided at Schedule 1 of the Loan Agreement.

(vii)  The date of the making of the loan, as required by section 18(2)(f) of the MLO, is stated at Schedule 8 of the Loan Agreement.

(viii)  The terms of repayment of the loan, as required by section 18(2)(g) of the MLO, is stated at, inter alia, Schedule 9 and the Repayment Schedule of the Loan Agreement.

(ix)  The form of security for the loan, as required by section 18(2)(h) of the MLO, is stated at Schedule 11 and Clause 25 of the Loan Agreement.

(x)  The rate of interest charged on the loan expressed as a rate per cent per annum, as required by section 18(2)(i) of the MLO, is stated at Clause 5 and Schedule 10 of the Loan Agreement.

(xi)  The declaration as to the place of negotiation and completion of the agreement for the loan, as required by section 18(2)(j) of the MLO, is also duly set out at Clauses 19, 32 and Schedule 3 of the Loan Agreement.

(b)  Regarding section 22 of MLO, no provision in the Loan Agreement or the Mortgage provides for the payment of compound interest, prohibiting the repayment of the loan by instalments and the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement.

(c)  Regarding section 23 of MLO, P is and was a money lender with proper licence.

(d)  Regarding sections 24 and 25 of MLO, the interest charged by P was 13% per annum.

(e)  Regarding section 27 of MLO, no provision in the Loan Agreement or the Mortgage provides for the payment by D1 to P of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan.

13.  I am also satisfied that the Originating Summons was duly issued under Order 83A r3 and Order 88 r5(6) of the Rules of the District Court (Cap 336H).

14.  In the circumstances, the plaintiff is entitled to the money judgment against D1 as claimed.

F. Order for possession

15.  I am also satisfied that the requirements under Order 88 have all been complied with, namely:-

(1)  In compliance with Order 88 r5(2), true copy of the Mortgage was exhibited in the supporting affirmation filed on behalf of P, and the original of the same was provided to the court for examination at the hearing.

(2)  The required particulars were provided pursuant to Order 88 r5(2).

(3)  In compliance with Order 88 r5(4), P confirmed that to the best of P’s knowledge, D1 being the mortgagor of the Property was in possession and control of the Property.

16.  In these circumstances, P is entitled to an order for possession of the Property.

G. Order for sale

17.  Section 3(1) of the Partition Ordinance (Cap 352) (“PO”) provides as follows:

“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.”

18.  P, as a legal mortgagee, has acquired an interest in respect of the half share of the Property through the debt owed by D1 under the Loan Agreement and the Mortgage. P is therefore entitled to apply under the Partition Ordinance for sale of the entire Property.[1]

19.  In an application for an order for sale under the Partition Ordinance, the following propositions would be adopted by the court[2]:-

(a)  A co-owner has a 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;

(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 or that it would result in very great hardship to one co-owner; and

(c)  Whether an order for sale is beneficial to all the 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.

20.  I agree with Mr Vincent Chan, counsel for the plaintiff, that it is fair and just to grant an order for sale of the Property under section 6(1) of the Partition Ordinance in this case:-

(1)  Generally, in determining whether a sale is more beneficial than a partition, the court considers only the pecuniary results, disregarding matters of sentiment, and has regard to the interest of all parties interested as a whole; but it can and will order a sale where, in its discretion, it thinks fit, unless the parties opposing a sale undertake to purchase the shares of those desiring sale.[3]

(2)  In considering whether it is impracticable to make an order for partition, the court would consider the size and design of the property[4]. The Property is a self-contained domestic unit in a multi-storey building with a gross floor area of around 576 square feet, it is not practical to partition the Property and to do so will not be to the best interest of the owners of the Property. Even if it is possible, doing so may devalue the Property, and prejudice the defendant’s financial interests.

(3)  Further, there is no evidence from D1 or D2 suggesting that it is possible or desirable to physically partition the Property into two halves.

(4)  Since 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, by giving up his right to adduce evidence in this matter, D2 cannot complain about any hardship or that an injustice has been done to him.

(5)  On a side note, an order for sale would be particularly beneficial to D1. Upon sale of the Property, P would be able to apply the half of the sale proceeds representing D1’s share to discharge the debts owed to P. This would have the immediate advantage of stopping interest from further accruing.

(6)  Given the D1’s uncooperative attitude, P would not be able to recover (or recover fully) the outstanding sums without the court’s order. P would clearly suffer prejudice due to the late repayment of the outstanding sums, bearing in mind that the amount of loss and damage on P’s part will escalate if this matter is delayed further. It is possible that the sale proceeds from the Property may not be able to fully cover P’s loss and damage.

(7)  A reserve price would be set up by P by reference to property valuation expert’s opinion (ie HK$5,200,000 being the value for sale under repossession), the sale of the Property would be conducted on a fair and reasonable basis.

H. Costs

21.  By reason of clause 14 of the Loan Agreement, P is entitled to indemnity costs against D1 on a full indemnity basis.

I. Conclusion

22.  I therefore make the following orders:-

(1)  The plaintiff do recover against the 1^st defendant the sum of HK$2,581,810.63 together with interest on HK$2,481,662.62 at the rate of 13% per annum from 5 March 2022 (HK$893.46 per day) until full payment (“Judgment Sum”);

(2)  Unless the 1^st defendant do within 28 days after service of this Order make full payment of the Judgment Sum, the 1^st and 2^nd defendants do deliver to the plaintiff vacant possession and title deeds and documents in their possession (if any) of the Property;

(3)  Subject to delivery of vacant possession by the 1^st and 2^nd defendants as stated in paragraph (2) hereinabove, the Property be sold by the plaintiff by public auction or public tender or private contract or private tender with a reserve price of not less than HK$5,200,000;

(4)  The conduct of the sale of the Property shall be committed to plaintiff’s Solicitors, Messrs. Lo Wong & Tsui;

(5)  Any partner of Messrs Lo Wong & Tsui shall be given the authority, pursuant to sections 48 and 51 of the Trustees Ordinance, Cap 29 and section 38A of the District Court Ordinance, Cap 336, to execute the necessary agreement and/or assignment in connection with the sale on behalf of the defendants as the vendor, if the latter default in complying with the written demand to do so within 7 days;

(6)  The proceeds of sale of the Property be distributed in the following manner:-

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

(b)  to pay all reasonable costs and expenses including the legal costs and disbursements in relation to the sale of the Property.

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

(i)  to discharge the Mortgage, the Judgment Sum and the costs of these proceedings under paragraph 9 below payable to the plaintiff by the 1^st defendant.

(ii)  the balance (if any) be paid to the next encumbrancer, Konew Capital International Limited.

(iii)  the surplus of the proceeds, if any, be paid to the joint and several Trustees of the property of the 1^st defendant.

(d)  50% of the balance of the proceeds relating to the 2^nd defendant’s interest in the Property be applied:-

(i)  to discharge all encumbrances affecting such 2^nd defendant’s interest in the Property, if any;

(ii)  the balance, if any, be paid to the 2^nd defendant or be paid into court should the plaintiff be unable to locate the 2^nd defendant upon reasonable efforts been made;

(7)  Upon the 1^st defendant paying to the plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the plaintiff by the Mortgage, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to the 1^st and 2^nd defendants possession and title deeds and documents of the Property and release to the 1^st defendant the security constituted by the Mortgage as the 1^st defendant may agree or the court may direct but without prejudice to the validity of any contract made prior to or without notice of such redemption and payment.

(8)  There be liberty to apply.

23.  I also make an order nisi that the 1^st defendant do pay the plaintiff’s costs of these proceedings on a full indemnity basis to be taxed if not agreed with certificate for counsel.

24.  I thank Mr Chan for his assistance.