HANG FUNG FINANCE LTD v. GREAT YIELD INVESTMENT LTD AND ANOTHER

HCMP 4837/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4837 OF 2002

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J U D G M E N T

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1.  This is an appeal from an order by Master Yu refusing to stay a possession order dated 26 October 2003 and a writ of fieri facias.  The facts, which are uncomplicated, concern a village house at Tuen Mun.  The Plaintiff, a finance company, lent the Defendants a sum of $5.4 million under a legal charge dated 16 June 2002.  The loan was to be repaid within one year and the Defendants were required to pay monthly interest on it at an agreed rate on 14^th day of each month.  After the creation of the legal charge property prices became depressed and the Defendants went into arrears on the interest payments.  As a result, the Plaintiff was able to obtain a possession order on 26 October 2003.  Notwithstanding that order the parties were able to agree that the order would not be proceeded with provided the arrears of interest were paid off and subsequent interest charges were paid timeously.  Initially, the Defendants were able to comply with that agreement but they have subsequently defaulted hence the Plaintiff’s wish to proceed and take possession and to proceed with their writ of fieri facias.

2.  Mr Wong, who appears for the Defendants, accepts that both are in a parlous financial state and it is right to say that further finance was raised by them on this property in the form of a second charge to another mortgagee.

3.  This property has never been used as a home by Mr Lam, the 2^nd Defendant.  It has been a purely speculative investment which unfortunately for him has gone wrong.  I should draw attention to some particular features of the property.  Although it is a standard village house comprising three floors each of 700 square feet, it has attached to it a 30,000 square foot garden with many attractive trees planted in it as well as a swimming pool and a decorative fountain.  All of this can be seen from photographs attached to a valuation report on the property prepared by A G Wilkinson and Associates on the Plaintiff’s behalf.  The garden is not part of the property.  It belongs to the Government and is leased by the Defendants from the Government.  The building itself also has a balustraded terrace which abuts into the garden as well as a substantial glass conservatory.  It would appear that these accoutrements are illegal structures but nobody seems so far to have ordered their demolition.

4.  The 2^nd Defendant accepts that the property must be sold.  There is no alternative but he wishes to do so in his own way and on his terms — hence the application to the Master for a stay and, following the Master’s refusal, this appeal.  The point comes about in this way.  The house itself is valued at $8.4 million by Wilkinson’s, no account having been taken of the garden which would not form part of the sale.  The 2^nd Defendant says that he has found a Mr Chan who is willing to pay $7 million for the house (up from $5.4 million being his initial offer) and perhaps surprisingly $3.5 million for the trees in the garden and presumably this Mr Chan will then re-negotiate the lease of the garden with the Government.  This would give the 2^nd Defendant $10.5 million out of which to pay off both mortgages, the first to this Plaintiff and the balance to the second mortgagee, with perhaps a little over for himself.  I know not.  In order to do this he needs time which is why he has made this application.  If he fails, the Plaintiff will take possession and sell the property at as close to $8.4 million as it is able to and the garden will go no doubt revert to the Government unless the 2^nd Defendant continues to pay the rent on it.  If I refuse a stay, the Defendant will get nothing and probably go into liquidation as to the 1^st Defendant and bankrupt in the case of the 2^nd Defendant, Mr Lam.

5.  Mr Tsang for the Plaintiff says that the Defendants have already been shown much indulgence since October 2003 and the proposal which is based on Mr Chan paying $7 million for the property is well below Wilkinson’s valuation.  It considers itself as under a duty to sell at the best price reasonably obtainable particularly having regard to the presence of a second mortgagee.  It declines to accede to the Defendants’ proposals for a stay even for a period of three months.  In any event, the proposal concerning Mr Chan appears to be nebulous in the extreme.  There is no correspondence or other tangible evidence as to his interest to purchase at $7 million for the house and $3.5 million for the trees in the garden.  Mr Tsang says this is just a further delaying measure and these defaulting Defendants should not allowed to stand in the Plaintiff’s way.

6.  I have a broad discretion under O. 45 r. 11 and 47 r. 1 of the rules of the High Court to grant a stay so as to avoid an injustice.  I am aware of the considerations which appear in the note to the rules under the two Orders [see Hong Kong Civil Procedure 2006, pages 707 and 719-720].

7.  I am afraid that I find it quite impossible in these circumstances to hold up the Plaintiff.  This is an old possession order, much indulgence has already been shown and the Defendants’ proposals are nebulous, there is no evidence to support them, and in any event, the proposed selling price for the house at $7 million is well below Wilkinson’s assessment.  I have no doubt that the Master was right to refuse a stay with the result that the appeal must stand dismissed with costs.