THEONE CREDIT LTD (formerly known as THE ONE PROPERTY CREDIT EXPRESS LTD) v. LEUNG CHI WING

DCMP 1422 /2017

[2018] HKDC 368

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1422 OF 2017

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REASONS FOR JUDGMENT

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Introduction

1.  By an Originating Summons dated 18 May 2017 (“the OS”), the Plaintiff sought to enforce, by an order for sale, the Charging Order Absolute registered against a flat in Glorious Garden (富健花園) (“D’s Flat”) co-owned by the Defendant and one Madam Leung.

2.  Madam Leung had been adjudged bankrupt and her interest in D’s Flat had been severed and vested in her trustees in bankruptcy (“the Trustees”): see Re Leung Pui Pui Maggie (a bankrupt) [2017] 1 HKLRD 83 at 88 para 19 & 20 per Peter Ng J.

3.  The Trustees had been made aware of [B/122] the OS and did not oppose it [B/123].

4.  The Defendant, however, opposed the OS and filed an affirmation dated 10 October 2017 (“D’s Affirmation”) [A/49] for that purpose.  The main ground of opposition in D’s Affirmation could be described as a “humanitarian” consideration.

5.  On 9 March 2018, at the substantive hearing of the OS, I made an order in terms of the draft order submitted by Mr Clement Au, Counsel for the Plaintiff, as amended by me, ordering the sale of D’s Flat with costs to be paid by the Defendant to the Plaintiff, to be taxed if not agreed, with Certificate for Counsel (“the Judgment”) and indicated I would be handing down my reasons for the Judgment in writing, which I hereby do.

Background Facts

6.  The Defendant acted as a guarantor for his son, as a result of which he became indebted to the Plaintiff [A/50].  Final judgment was entered against the Defendant on 16 April 2015, and the judgment sum was HKD 315,545.21 plus interests “at the rate of 36% per annum from 28 February 2015 to the date of full payment” plus costs assessed at HKD 9,200.00 [B/94 & 95].

7.  A Charging Order Absolute was granted by this Court on 24July 2015 [B/102] and duly registered against D’s Flat [B/73].  The Defendant failed to pay the Plaintiff.

8.  The Defendant alleged that subsequent to the date of the Charging Order Absolute, he had an accident on 30 October 2015 and that had been made the subject of a claim (DCEC 2623 / 2016) [B/147].

9.  The Defendant further said he had retained lawyers for an intended common law claim for the same accident (“the Intended Claim”) [A/52].  D’s Affirmation did not provide further details on the Intended Claim and no legal document in relation to the Intended Claim had been exhibited.

10.  The Defendant considered his financial hardship to be “temporary” [A/53] and asked that the OS be dismissed [A/54].  He alleged selling D’s Flat would render him “homeless” [A/53].

Submissions of the Plaintiff

11.  Mr Clement Au, Counsel for the Plaintiff, submitted that an order for sale should be made in respect of D’s Flat.

12.  Mr Au submitted my starting point should be Union Finance Ltd v Leung Wai Ling [2000] 2 HKC 821 at 823-G, where Chung J said: -

“There is no doubt that the court has a discretion over whether to… enforce a charging order by sale. However, this discretion must be exercised judicially. It has been said in a number of cases that a judgment creditor is prima facie entitled to enforce his judgment by a charging order unless the debtor establishes some good reason to the contrary...”

13.  Following from that, Mr Au said none of the matters raised in D’s Affirmation qualified as “good reason to the contrary” for this purpose – so I should grant an order for sale in the normal manner.

14.  Mr Au elaborated on the above as follows: -

(1) Final judgment was entered against the Defendant as early as on 16 April 2015 – the Defendant had been evading his responsibilities by delaying tactics;

(2) The “settlement offer” made by the Defendant was wholly unacceptable to the Plaintiff and rightly so – a periodic repayment of HKD 4,000 per month (as offered by the Defendant) would not even cover the monthly interests of HKD 9,122.62 per month;

(3) The Defendant’s indebtedness as of 9 March 2018 was in the sum of HKD 675,265.67 whereas D’s Flat was not worth much so there was no “over-security” issue in our present case at all; and

(4) It was the Defendant’s own sworn evidence that his financial hardship was “only temporary” [A/53] and that temporary financial hardship (even if true) would be relieved by the proceeds of sale – on the Plaintiff’s calculation the Defendant should be able to pocket a net sum of at least HKD 500,000 from the sale.

Submissions of the Defendant

15.  Mr Kenneth Lam, Solicitor for the Defendant, submitted that the OS should be dismissed.

16.  Mr Lam accepted the law to be as set out in Union Finance (above), but also drew my attention to (1) So Yuk Ping v Tam Sum Shing (DCMP 2760 / 2013, DDJ Winnie Tsui, 12November 2014); (2) Chan Miu Cheung v Prague Enterprises Ltd [2012] 3 HKLRD 414 at 421 para 39 per Yuen J; (3) Robinson v Bailey [1942] Ch 268 at 271 per GavinSimonds J; and (4) Oldham, Li & Nie, Solicitors v Wong Lin Chooi (DCCJ 5076 / 2004, DDJ K Lo, 13February 2006) and submitted there was “over-security” in our case, and that that would make it wrong for me to exercise my discretion in favour of sale.

17.  Mr Lam referred me to D’s Affirmation [A/53]and said an order for sale would render the Defendant and his 10-year old son “homeless”.

18.  Mr Lam further referred to the fact that the Defendant’s settlement offer had been rejected and submitted that the Plaintiff’s conduct was “totally unreasonable”.  Mr Lam suggested the Defendant was “sincere” in attempting to repay his debt and that as such, the Plaintiff’s conduct in prosecuting the OS was “unjust and unfair”.

19.  Lastly, Mr Lam suggested that the Plaintiff had a share capital of HKD 1,000,000 and there would thus be no injustice or unfairness in allowing the Defendant to repay his debt by installments.

My View

20.  On the issue as to whether I should grant an order for sale, I agreed with the submissions of Mr Clement Au, Counsel for the Plaintiff and disagreed with the submissions of Mr Kenneth Lam, Solicitor for the Defendant.

21.  Firstly, I agreed the Defendant had, for whatever reason of his own, been evading his responsibilities to pay the Plaintiff by delaying tactics.  Had the Defendant paid his debt in time, there would be no court judgment against him and the sum he had to pay would be smaller.  It was because he had been evading his duties to pay since early 2015 that interests continued to accrue, to his own disadvantage.

22.  I considered paragraphs 5 to 10 of D’s Affirmation [A/50 & 51].  In my judgment, none of the matters deposed to could credibly explain why the Defendant did not pay the Plaintiff in full in 2015, or indeed at any time.

23.  In fact, the letter reproduced by the Plaintiff at [B/128] suggested that as of June 2017, the Defendant still had a banking relationship with HSBC.

One can also see from the land search records [B/71] that as of May 2017, D’s Flat was still charged to HSBC and HSBC had priority over the Plaintiff.  One can assume, in the absence of affidavit evidence suggesting otherwise, that the Defendant could have obtained new funds from HSBC (or other banks in Hong Kong) at an interest rate substantially lower than 36% per annum, used the new funds to repay the Plaintiff in full, and stopped the 36% per annum interest from running.  That he did not do and there was no evidence suggesting he could not have done so, or otherwise found a way to pay off the Plaintiff in full at an early stage.

24.  The point was not so much about what the Defendant should have done.  The point was the Defendant created his own predicament by refusing to pay the Plaintiff in full at an early stage.  If it was the Defendant who created his own predicament (and in my judgment it was), an order for sale should not be considered unjust, unfair or unreasonable to the Defendant.

25.  The current situation created by the Defendant was different from the previous situation (also concerning D’s Flat) in Re Leung Pui Pui Maggie (a bankrupt) [2017] 1 HKLRD 83, where it was the Trustees who asked for an order for sale of D’s Flat and the application was refused by Peter Ng J.  There, the Learned Judge was faced with the effect of an order for sale on an innocent co-owner.  Here, I was faced with an owner who created his own predicament by refusing to pay his own creditor in full.  Further, D’s Affirmation was made on 10 October 2017, and its contents were not before the Learned Judge in Re Leung Pui Pui Maggie.

26.  At the substantive hearing on 9 March 2018, when I suggested to Mr Lam for the Defendant that it could be against the Defendant’s own interests for this matter to be dragged on for the simple reason that the longer the delay, the larger the amount of interests payable by the Defendant, and the smaller the amount of money the Defendant could keep, Mr Lam agreed that that could be one way of looking at the situation.  In my judgment, it was in the Defendant’s own best interests that D’s Flat should be sold as soon as possible so that at the very least the 36% per annum interests could cease to accrue.

27.  Secondly, I agreed it was perfectly proper for the Plaintiff to have rejected the Defendant’s unrealistic “settlement offer”.  If the Plaintiff were to accept a periodic payment of HKD 4,000 per month when the interests payable would be HKD 9,122.62 per month, the “settlement” would have the effect of increasing the quantum of the debt over time, and the Plaintiff would never be able to recover the principal.  It was reasonable for the Plaintiff to have rejected the Defendant’s proposal in the manner as it did.

28.  Thirdly, I agreed there was no “over-security” issue in our present case at all.  The Defendant’s indebtedness as of 9 March 2018 was in the sum of HKD 675,265.67 and the Defendant’s interests in D’s Flat was, according to Mr Lam for the Defendant, worth HKD 2,750,000.00.  Assuming these figures to be accurate, the indebtedness was about 25% of the value of the security.  In my judgement, this did not amount to “over-security” for the purposes of this area of law.

29.  In Robinson v Bailey, for example, when Simonds J referred to the creditor’s attempt to “lock up so disproportionate an amount of his property to satisfy so small a debt”, he was referring to a ratio of around 0.4% (if one used the “per quarter” figure) to 1.7% (if one used the “per year” figure).  Similarly, in Oldham, Li & Nie, Solicitors v Wong Lin Chooi, when DDJ K Lo referred to “relatively small”, she was referring to a ratio of around 5.2%.

30.  The ratio of 25% in our present case came nowhere near the kind of ratio previously found to be disproportionate.

31.  Fourthly, I agreed it was the Defendant’s own sworn evidence that his hardship was “only temporary” [A/53] and that temporary hardship (even if true) would be relieved by the proceeds of sale.

32.  Indeed, according to Mr Lam for the Defendant (at para 18 of his skeleton submissions), the Defendant recently received HKD 340,000 by way of settlement sums from DCEC 2623 / 2016, and the Defendant commenced the Intended Claim being deposed to in D’s Affirmation on 26 February 2018, claiming HKD 999,465 in common law damages.  These sums were or would be over and above the HKD 500,000 net proceeds of sale the Defendant would be receiving.

33.  In my judgment, a person who had received or would be receiving so much cash could not credibly claim “hardship”.

34.  Indeed, on the evidence placed before me, I was far from satisfied the Defendant or any of his family members would become “homeless” by an order for sale.  I was aware of the general property prices (purchase and rental) and the availability of public or subsidized housing in Hong Kong.  There were a lot of people in Hong Kong who lived in rented units because they could not afford to buy those units.  It was a common and normal phenomenon.  In my judgment, having to rent instead of buy should not be regarded as “hardship”.

35.  Finally, in my judgment, the share capital or scale of operation of the Plaintiff was wholly irrelevant.  Irrespective of the size of its share capital or the scale of its operations, the Plaintiff would still be fully entitled to say it would only accept full payment by a lump sum and reject offers to settle a debt by installments. In fact, irrespective of the size of its share capital or the scale of its operations, the Plaintiff would still be fully entitled to reject offers which would have the effect of asking the Plaintiff to “wait”.

36.  All things considered, it was fair, just and reasonable that an order for sale be granted to the Plaintiff.  In my judgment, there was no “good reason to the contrary”.  I granted the order accordingly.

Costs

37.  The Plaintiff was the successful party.  The Defendant resisted the OS but failed. The Defendant’s offer of settlement was unrealistic and rightly rejected. There was no reason why costs should not follow the event.  I ordered the Defendant to pay costs to the Plaintiff accordingly.

38.  As to Certificate for Counsel, it was resisted by Mr Lam, who was a Solicitor.  In my judgment, it was entirely reasonable, necessary and proper for the Plaintiff to engage Counsel.  There were points of law involved.  I found Counsel’s involvement in this matter of assistance.  I certified the engagement of Mr Au for the Plaintiff as reasonable, necessary and proper accordingly.

39.  A minor issue arose as to how this Court should deal with the costs of the call-over hearing before Master David Chan on 17 October 2017, which had been reserved.

40.  The point made by Mr Lam for the Defendant was that a full week before the call-over hearing, on receiving D’s Affirmation, the Plaintiff should have realized the call-over hearing would have to be adjourned.  Mr Lam wrote to the Defendant on 12 October 2017 (some 5 days before the call-over hearing) [B/188], proposing the vacation of the call-over hearing and adjourning it “to a later date”.  That vacation proposal was never accepted by the Plaintiff, and there was no counter-proposal from the Plaintiff.

41.  When the matter came to be heard by Master David Chan, the need for the matter to be adjourned was correctly pointed out by the Learned Master.  The Learned Master eventually correctly adjourned the matter.  The whole call-over hearing could have been vacated by consent with all directions agreed, as proposed by Mr Lam, in which case some costs could have been saved, though the actual quantum of such costs would be small, as the call-over hearing was very short, and Counsel was never briefed for it.

42.  On this minor issue, I agreed with Mr Lam for the Defendant.  All litigants and their legal representatives had a general duty to “act sensibly” in litigation.  That had been emphasized in, by way of examples, (1) the Judgment of the Court of Appeal, dated 31 August 2017, in Asgain Co Ltd v Cheng Ka Yan [2017] 4 HKLRD 779; (2) the Judgment of Mr Registrar Lung, dated 29 August 2017, in Glory Sky Finance Limited v Chen Jianhua & Fan Hongwei (HCMP 2482 / 2014); (3) the Letter from Mr Registrar Lung to the Chairman of the Bar dated 4 September 2017; and (4) the Bar Circular No. 168/17 dated 3 October 2017, all of which predated Mr Lam’s letter to the Plaintiff dated 12 October 2017 in this matter.

43.  I agreed with Mr Lam for the Defendant that the Plaintiff clearly should have consented to the vacation of the call-over hearing and adjourning it “to a later date” in order to save time and costs.  Even if the precise terms of the draft Consent Summons had to be further discussed and/or worked on, the Plaintiff should have at least made a counter proposal on those precise terms.

44.  In my judgment, bearing in mind the aforesaid general duty to “act sensibly”, the Plaintiff should never have ignored Mr Lam’s proposal regarding the vacation of the call-over hearing in the manner as it did.

45.  It was for the above reason that I craved out an exception from my costs order so that while the general costs for the whole action should be paid by the Defendant to the Plaintiff, to be taxed if not agreed, with Certificate for Counsel, the reserved costs of the call-over hearing before Master David Chan on 17 October 2017 should be paid by the Plaintiff to the Defendant, to be taxed if not agreed.

Final Remark

46.  I thank Mr Clement Au, Counsel for the Plaintiff, and Mr Kenneth Lam, Solicitor for the Defendant, for their able assistance.