KONEW CAPITAL INTERNATIONAL LTD v. CHOY WAI LIM WILLIAM AND ANOTHER

DCMP 824/2020

[2021] HKDC 384

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 824 OF 2020

---------------------------

---------------------------

BETWEEN

---------------------------

---------------------------------------

REASONS FOR DECISION

---------------------------------------

INTRODUCTION

1.  By an originating summons dated 18 March 2020 (“OS”), pursuant to Order 83A & Order 88 of the Rules of the District Court (“RDC”), the plaintiff applied for money judgment, together with possession and sale orders of the property known as Flat D, 3^rd Floor, Tower 6, Ocean Shores, 88 O King Road, Tsueng Kwan O, Sai Kung, New Territories (“Property”), being the security for a mortgage loan granted by the plaintiff to the 1^st defendant.

2.  At the hearing on 9 February 2021, the 1^st and 2^nd defendants were absent.  On the day before the hearing, the Court received a letter by fax dated 5 February 2021 purportedly written by the 1^st defendant alleging that both he and his wife, ie the 2^nd defendant herein, had been stranded in Australia due to the pandemic and was not able to return to Hong Kong to attend the hearing.  Further, they alleged in the letter that they were not able to obtain legal service as they were not able to remit money to instruct lawyers.  However, the evidence produced by them in the letter suggests that they had only tried to instruct lawyers to represent them sometime in January 2021 and the reply message from the solicitors asking the 1^st and 2^nd defendants to remit money on account was allegedly received by them in the afternoon of 2 February 2021 only, ie 7 days before the hearing. 

3.  Having satisfied that there was proper service of the OS;  subsequent notice of hearings (including the hearing before me on 9 February 2021) and the hearing bundle and submissions on the 1^st and 2^nd defendants on various dates, I decided to proceed with the hearing based on the reasons that: (i) the defendants had had plenty of notice of the OS and the hearing and yet had not taken any steps to instruct lawyers or attempted to return to Hong Kong in person to attend the hearing earlier; (ii) the defendants only sent the Court a letter by fax at the last minute before the hearing hoping that the Court would adjourn the case; and (iii) the hearing for the OS is a “milestone date” and it should not be moved without any “exceptional circumstances” and delay in instructing lawyer is not amongst them: (see Order 25, r 3 of RDC).

4.  After reading the written submissions and hearing the oral submissions of the plaintiff’s counsel, I made an order in terms of the OS with some minor amendments: -

“1. The 1^st Defendant do pay the Plaintiff the sum of HK$2,251,469.53 secured by a Second Mortgage dated 22 June 2019 and registered in the Land Registry by Memorial No. 19071201170120 ("the Second Mortgage") together with interest on the sum of HK$1,746,391.00 at the rate of 33.60% per annum with a daily rate of HK$1,607.64 and default interest on the sum of HK$186,164.00 at the rate of 33.60% per annum with a daily rate of HK$171.37 both from 7^th May 2020 to the date of payment in full;

2. The 1^st and 2^nd Defendants do within 42 days after the service of this order on them deliver to the Plaintiff possession of the property known as ALL THAT one equal undivided moiety or half part or share of and in ALL THAT 144 equal undivided 1,117,926^th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as TSEUNG KWAN O TOWN LOT NO. 55 And of and in the messuages erections and buildings thereon now known as "OCEAN SHORES (維景灣畔)”, Tseung Kwan O, Sai Kung, New Territories, Hong Kong ("the Development") TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT FLAT D on the THIRD FLOOR of Tower 6 of the Development (“the Property”);

3. The Property be sold either by public auction or private treaty with a reserved price at HK$10,500,000.00;

4. The Plaintiff's Solicitors, Messrs. V. Hau & Chow, be appointed to conduct the sale;

5. The money raised by such sale of the Property be applied upon completion in the following manner and 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 affecting the Property having priority to the Second Mortgage, if any, including costs for discharge of such encumbrances;

(c) in payment of all the costs and expenses incurred by the Plaintiff in taking enforcement proceedings for recovery of possession of the Property (where necessary);

(d) in payment of all auctioneers' remuneration and/or estate agent's commissions, charges and expenses properly incurred in the sale or other dealing of the Property not exceeding 1% of the selling price of the Property;

(e) in payment of all the conveyancing costs, charges and other expenses not exceeding HK$16,000.00 excluding disbursements properly incurred in the sale of the Property;

(f) in payment of the Plaintiff's costs of these proceedings on a full indemnity basis;

(g) 50% 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, after deduction of the costs and disbursements for handling the same, be paid to the next incumbrancer of the encumbrance affecting the 1^st Defendant's interest/share in the Property and ranking immediately after the Second Mortgage; or if there is no such next incumbrancer, to the 1^st Defendant; and

(iii) if the 1^st Defendant cannot be located after reasonable 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.

(h) the other 50% 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 the 2^nd Defendant's interest/share in the Property after deduction of the costs and disbursements for handling the same, or if there is no such next incumbrancer, be paid to the 2^nd Defendant; and

(ii) if the 2^nd Defendant cannot be located after reasonable 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.

6. The 1^st and 2^nd Defendants do take all necessary steps for the transfer of their legal title and beneficial interest in the Property to the purchaser thereof, and in default of their so doing, Mr. Hau Wing Shing Vincent, Partner of Messrs. V. Hau & Chow, Solicitors for the Plaintiff, be appointed pursuant to section 38A of the District Court Ordinance, Cap 336 to execute the necessary agreement for sale and purchase, conveyance and/or assignment on behalf of the 1^st and/or 2^nd Defendant(s) to give effect to the Order herein;

7. The 1^st Defendant do pay the Plaintiff’s costs on a full indemnity basis pursuant to Clause 21 of the Second Mortgage and Clause 14 of the Loan Agreement, including the costs of the Originating Summons and the hearing today, with certificate for Counsel, such costs to be taxed if not agreed.”

5.  I said I would provide the reasons for my decision in due course.  Here are the reasons.

BACKGROUND

6.  By a Loan Agreement dated 5 July 2019 (“Loan Agreement”) and a Second Mortgage registered in the Lands Registry under memorial No 19071201170120 (“Second Mortgage”), the plaintiff agreed to lend the principal sum of HK$1,800,000 (“Mortgage Loan”) to the 1^st defendant at the interest rate of 33.60% per annum.

7.  By a valuation report dated 24 April 2020, the estimated market value of the Property is at HK$12,400,000.

8.  The 1^st defendant breached the Loan Agreement by defaulting payments after making only the 1^st repayment on 25 July 2019.  No further repayment was ever made thereafter.  By reason of the 1^st defendant’s default in repaying the Mortgaged Loan since 20 August 2019, the plaintiff says that the plaintiff’s application should succeed, especially given the fact that the 1^st and 2^nd defendants have not tendered any evidence in opposition.

The parties

9.  The plaintiff is a licensed money lender who lent to the 1^st defendant the Mortgage Loan in the sum of HK$1,800,000 on 5 July 2019 at the rate of 33.60% per annum.

10.  The 1^st defendant is the debtor under the Mortgage Loan.  The 1^st and 2^nd defendants are tenants-in-common of the mortgaged Property.  Both the 1^st and 2^nd defendants are unrepresented, and served their respective acknowledgement of service on 16 April 2020. 

11.  There is no doubt that the 1^st and 2^nd defendants have been duly served of the OS as shown in the various affirmations of service.

12.  By the 1^st defendant’s defence dated 14 April 2020, it appears that the 1^st defendant does not dispute liability to repay the principal in this case.  The 1^st defendant asserts in his defence that he should not be liable to pay interest by reason that he was away from Hong Kong.

13.  Notice of these proceedings have also been served on various interested parties, including: (1) Director of Lands; (2) occupants of the Property; (3) the 1^st Mortgagee; and (4) Welend Limited, an “encumbrancer” of the Property. As at the date of the hearing, no objection had been received from those informed parties.

The Loan Agreement

14.  The salient particulars of the Mortgage Loan are summarized as follows:-

Particulars
Amount lent to the 1st defendant	HK$1,800,000
Date of the loan	5 July 2019
Interest rate	33.6% per annum
Terms and duration	24 monthly instalments (HK$77,996 for 1st installment and HK$104,009 thereafter)
Amount repaid on 25 July 2019	HK$77,996
Principal outstanding	HK$1,746,391
Daily interest accruing on the principal outstanding	HK$1,607.64
Daily default interest accruing interest applicable on the interest element of the arrears of installment	HK$171.37

15.  The Loan Agreement provides the following:-

(a)     The interest rate applicable post-judgment shall be 33.60% per annum (Clause 6);

(b)     If the 1^st defendant defaults in paying any of the monthly instalments on its due date, the contractual interest rate of 33.60% per annum will be applicable to the principal and interest from date of default until full payment (Clause 7); and

(c)      The 1^st defendant shall indemnity the plaintiff on the litigation expenses on a full indemnity basis (Clause 14).

16.  The Second Mortgage provides as follows:-

(a)     The security becomes immediately enforceable if the 1^st defendant defaults in repayment (Clause 7.1);

(b)     The plaintiff is entitled to take possession of the Property upon the same becoming enforceable (Clause 8); and

(c)      The 1^st defendant is liable to pay the plaintiff’s legal costs and expenses reasonably incurred (Clause 21).

17.  As it does not appear to be in dispute that the 1^st defendant has been in default of repayment, I find the 1^st and 2^nd defendants have no defence to the plaintiff’s claim.  In my judgment, the plaintiff is entitled to the money judgment, together with the sale and possession orders.

DISCUSSION

Legal principles involved

18.  Given the terms of the Loan Agreement and the Second Mortgage, the plaintiff submits and I accept that that an order for sale ought to be made under Section 6 of the Partition Ordinance. This is the case especially given that it is impracticable to divide the Property in halves.  The 2^nd defendant’s interest is protected as the 2^nd defendant will be entitled to her half of the sale proceeds.

19.  In this regard, Mr Chan relies on the recent decision by The Hon B Chu J in Maxcolm Finance Ltd v Cheng Chi Man & Another [2019] HKCFI 2928 which he says is directly on point and of assistance to the Court.  I find the facts of that case is highly similar to our present case where B Chu J granted the money judgment, possession order and sale order as sought by the plaintiff on the 2^nd Mortgage: (see §§24 to 40 of the Reasons for Decision).  I do not see any reason why I should not follow that decision.  

The plaintiff’s application

20.  In the present case, neither the 1^st defendant nor the 2^nd defendant has tendered any valid reason as to why judgment for the full principal and interest should not be repaid.  There is also a complete lack of reasons as to why possession and sale orders should not be granted, given the 1^st and 2^nd defendants have not challenged the validity of the Loan Agreement and the Second Mortgage.

21.  Notice of the present application has been given to the 1^st Mortgagee (ie BEA Bank).  By letter dated 17 December 2019, BEA Bank has indicated that they would not waive priority and that they do not believe the plaintiff should apply for a possession order. Yet, besides issuing the said letter, the 1^st Mortgagee has taken no action to join these proceedings.

CONCLUSION

22.  Based on the above reasons, I find that a possession order ought to be granted to the plaintiff in order to facilitate the sale of the Property. Hence, I made the order in the terms as I did at the end of the hearing on 9 February 2021.