TALENT HUB CAPITAL LTD v. CHUNG KWING YAM AND ANOTHER

DCMP 4867/2023

[2024] HKDC 1178

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4867 OF 2023

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DECISION

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Introduction

1.  This is the substantive hearing of the Plaintiff's Originating Summons issued on 18 October 2023 (which was subsequently amended on 6 May 2024) seeking monetary judgment for the outstanding amounts due in relation to a loan previously lent to the 1st and 2nd Defendants, and an order for sale of a property, in which the 1st Defendant having half share therein (as mortgaged to the Plaintiff to secure the repayment of the loan and interest) pursuant to the Partition Ordinance (Cap 352) ("PO").

2.  The 1st Defendant (acting in person), and the 3rd Defendant (as represented by Messrs Yu Hung & Co) both filed Acknowledgment of Service indicating that they would not contest the present proceedings.  Nor did they take any step thereafter to dispute the Plaintiff's claims.

3.  On 5 December 2023, the 2nd Defendant was declared bankrupt, and by way of a notice of discontinuance filed and served on 2 April 2024, the Plaintiff discontinued this action against the 2nd Defendant since then.

4.  Based on the documents placed before me, I am satisfied that the court documents in relation to this action were duly served on the 1st and 3rd Defendants, and also on the Director of Lands (as required under section 3(2) of PO).

5.  I am also satisfied that the procedural requirements under Order 83A and Order 88 of the Rules of District Court (Cap 336H) have been complied with.  In particular, the notice of application for possession of the Property was duly given to its occupants.  The first mortgagee of the Property, namely, Bank of China (Hong Kong) Ltd, was also duly informed of the present proceedings and the Plaintiff's application for reliefs sought under the Amended Originating Summons.  The first mortgagee bank has not filed any affirmation in opposition, and does not appear in the substantive hearing today.

6.  I am also satisfied that both the 1st and 3rd Defendants were duly notified of today's hearing.  Mr Lau Lai Tak of Messrs. Yu Hung & Co represented the 3rd Defendant today, and indicated to the Court that the 3rd Defendant's stance remains the same and she also agreed to the proposed reliefs sought in the Amended Originating Summons.

7.  The 1st Defendant was late and only showed up in the middle of the hearing.  He nonetheless indicated to the Court that he would not object to the Plaintiff's proposed reliefs, save that he asked for more time to repay his outstanding indebtedness to the Plaintiff, but without proffering any proper cause to seek for such indulgence.  Such request even if made by formal application cannot be accepted by this Court.  For, I really do not see there is any good reason for this Court to delay entering monetary judgment against the 1st Defendant any longer if it can be properly established by the Plaintiff.  Nor would it be appropriate for this Court to stay the enforcement of the monetary judgment (if entered) for any period of time.

8.  For completeness, the rateable value of the subject property does not exceed HK$320,000, and this Court has jurisdiction as conferred under section 35 of the District Court Ordinance (Cap 336) and section 9 of PO to hear the present action with respect to the reliefs sought in relation to such property.

Loan Agreement and Second Mortgage

9.  Initially, the 1st Defendant and the 3rd Defendants were registered owners (as joint tenants) of the property situated at Flat No 2, 16th Floor, Block A, Amoy Gardens Phase 1, No.77 Ngau Tau Kok Road, Kowloon ("the Property").

10.  By way of a notice of severance issued by the 3rd Defendant dated 8 September 2010, the joint tenancy was severed, and each of the 1st and 3rd Defendants has been holding half share of the Property as tenants-in-common since then.

11.  By way of a loan agreement dated 21 December 2022, the Plaintiff (a licensed money lender) lent to the 1st and 2nd Defendants a sum of HK$1.2 million at an interest rate of 24% per annum upon the terms and conditions mentioned therein ("the Loan Agreement").

12.  By a Second Mortgage also dated 21 December 2022, the 1st Defendant (as mortgagor) and the 1st and 2nd Defendants (as borrowers) executed a mortgage of the Property to secure the repayment of the loan and interest thereon to the Plaintiff ("the 2nd Mortgage").

13.  On 21 September 2023, the 1st and 2nd Defendants failed to repay the 9th monthly instalment, and thereafter have been in default of the subsequent instalments also.

14.  Despite the Plaintiff's solicitors' two letters dated 3 October 2023 served upon the 1st and 2nd Defendants respectively, demanding repayment of the entire outstanding principal and interest, both 1st and 2nd Defendants have still failed to do so.

15.  In the light of the aforesaid and on the evidence before me, I find that all the outstanding amounts under the Loan Agreement as secured by the Second Mortgage became immediately due and payable by the 1st and 2nd Defendants upon the demands being made upon them.  See : Clause 13 of the Loan Agreement, and clauses 2.01 and 5.01(a) of the Second Mortgage.

Monetary judgment

16.  The Plaintiff has adduced two affirmations of Madam Law Ka Lee dated 31 January 2024 and 18 June 2024 respectively, exhibiting the necessary supporting documents to substantiate their application for reliefs sought under the Amended Originating Summons.  As said, no affirmation in opposition was filed by any Defendant.

17.  On the evidence before me, I am satisfied that the Plaintiff has duly proved that the outstanding loan and interest as due and payable by the 1st Defendant is in the total sum of HK$1,178,904 (calculated up to 21 August 2023), and that interest shall accrue on such outstanding sum at an annual rate of 24% per annum (or at a daily rate of HK$775.17 per day) from 21 August 2023 until payment.

Post judgment interest at contractual rate

18.  Mr Alvin Tsang, counsel for the Plaintiff, drew my attention to clause 14(2) of the Loan Agreement which the Plaintiff relies on to claim contractual interest rate of 24% per annum even after judgment was entered against the 1st Defendant.  The relevant parts of the said clause 14 provides thus:-

"14.  Overdue Interest

(1)  If default is made in the payment upon the due date of any sum payable to the Lender under this Agreement, whether in respect of principal or interest, the Lender shall be entitled to overdue interest at contractual rate stipulated under this Agreement on that sum from the date of default until the sum is paid.

(2)  All outstanding amounts, whether are due before or after Judgment, shall be calculated and charged at contractual interest rate." (emphasis supplied)

19.  In my view, the overdue interest clause as quoted above, upon its reasonable construction against the Loan Agreement as a whole, does amount to an agreed freestanding term which will not be merged into judgment but will allow the Plaintiff to continue to charge interest on all the outstanding amounts at the contractual rate post judgment.  Hence, the post judgment interest rate in this case should also be at contractual rate, ie at 24% per annum, instead of the judgment rate.  See : Honip Credit Ltd v Asia China Tea Export Co Ltd (unrep, HCMP 399 of 2016, 2 June 2016), at para 21; Freeway Finance Co Ltd v Tam Chuen On Raymond [2010] 4 HKC 448, at paras 9 to 16.

Memorandum under section 18 of MLO

20.  Subject to a caveat to be discussed below, I am also satisfied that the statutory requirements on the memorandum in relation to the Loan Agreement as provided for under section 18 of MLO are duly complied with.  Moreover, the interest charged (ie 24% per annum) does not exceed 48% per annum, let alone 60% per annum, as mentioned in sections 24 and 25 of MLO.

21.  This Court accept Madam Law's explanation deposed in her 2nd affirmation saying that it was due to inadvertence that the Second Mortgage omitted to provide that the charge over the 1st Defendant's interest in the Property was subject to a maximum limit of HK$2 million, but which is expressly provided for in the Loan Agreement (and also mentioned in the memorandum).

22.  On the evidence before me, I am satisfied that this is indeed a sheer omission. I also accept Mr Tsang's submission that with respect to the permissible extent of enforcement of the security, the Loan Agreement and the Second Mortgage could be construed as a single composite agreement (noting especially that both instruments were signed on the same date) (see : Bank of China (Hong Kong) Limited v Fung Chi Kan (2002) 5 HKCFAR 515, per Chan PJ at paras 7 to 10, and per Lord Cooke NPJ at paras 69 to 70.  Viewed thus, it is not really necessary to engage the Court's exercise of discretion under s 18(3) here (as prayed for in Madam Law's 2nd affirmation).  However, even if section 18(3) really needs to be engaged for whatever reason, it would plainly be equitable in the circumstances for this Court to exercise its discretion (and I would also do so in such case) to order the security under the Second Mortgage be enforceable to a maximum secured amount of HK$2 million only.

23.  In the premises, the Plaintiff is entitled to the monetary judgment against the 1st Defendant as claimed.

Order for possession and sale

24.  In the light of the aforesaid, I find that the aforesaid defaults of the 1st and 2nd Defendants in repaying the monthly instalment repayments do constitute events of default as defined under the Loan Agreement and the 2nd Mortgage.  This would entitle the Plaintiff to take possession of and sell the 1st Defendant's half share in the Property : see clauses 2 and 6 of the Second Mortgage.

25.  Sections 2 and 3(1) of the Partition Ordinance (Cap 352) ("PO") provide that:-

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

(c)  refuse to make any order." (emphasis supplied)

Section 3(1)

"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.” (emphasis supplied)

26.  In my judgment, the Plaintiff, being the legal mortgagee having the right to sue for possession and foreclosure in respect of the 1st Defendant's half share in the Property according to the 2nd Mortgage (as triggered by the present events of default) would be qualified as a "person interested in the Property" under section 3(1) of PO and therefore having locus standi to apply for order for sale under the ordinance.  See : Success Road Finance Ltd v Mak Kon Sang and Another (01/04/1999, CACV68/1999) per Godfrey JA, Fan Kiu v Li Kwan Wan [2020] 1 HKLRD 659, per DHCJ William Wong SC at para 43.

27.  In light of the evidence before this Court, I am of the view that I do have the power and should exercise my discretion to make an order for sale of the entire Property for the following reasons:-

(1)  According to the valuation report obtained by the Plaintiff, the Property is a residential unit in a multi-storey building (which was completed in 1981) with a saleable area of about 390 square feet only. Realistically speaking, it would appear to be impracticable to partition the Property into two halves physically.  There is no evidence coming from the 1st and 3rd Defendants, nor the first mortgagee bank, to suggest the otherwise;

(2)  Even if the physical partition in such manner mentioned in (1) above were possible (which is not the case here), to do so would apparently devalue the Property substantially and/or necessitate disproportionate renovation costs, and this would likewise not be beneficial to all the persons interested, speaking in financial terms;

(3)  Prima facie, the 1st and 3rd Defendants have been fully aware of the present proceedings, and yet there is no evidence that they have ever objected to the proposed sale as being against their interests, let alone an order of sale, if made, would cause great hardship to any of them.  At this hearing, neither the 1st Defendant, nor Mr. Lau on the 3rd Defendant's behalf make any submission of such kind to this Court;

(4)  Unless the Property is sold, in the light of the history of 1st Defendant's uncooperative attitude, it is unlikely that the Plaintiff will be able to recover any part of the indebtedness from the 1st Defendant (and the 2nd Defendant already became bankrupt after the commencement of this action), and hence it would effectively be left with no remedy;

(5)  Upon the making of the order for sale, the interests of the defendants would be subject to proper safeguards that the proposed sale be conducted by the Plaintiff's solicitors who are officers of the court, and there will also be a reserve price set by this Court by making reference to an independent expert surveyor's valuation report regarding the recent value for sale of the Property under repossession.

See : Wong Chun Kei Johnny v Poon Vai Ching[2007] 1 HKLRD 825, para 19.

28.  Having considered all the circumstances, I would make an order for sale of the Property in favour of the Plaintiff subject to the further directions for effecting such sale at set out in paragraph 31 below.

Costs

29.  On the question of costs, since clause 18.01 of the Second Mortgage provides that the 1st Defendant as the borrower shall fully indemnify the Plaintiff's all reasonable expenses (including legal expenses on solicitor and own client basis) in suing for any sum due under the mortgage, and in enforcing the subject security.  In these circumstances, I also see it just to exercise my discretion to order the 1st Defendant to pay costs of these proceedings to the Plaintiff on solicitors and own client basis.  This Court summarily assess the costs involved at HK$110,000, payable by the 1st Defendant forthwith.  As for the reserved costs for the first hearing on 7 March 2024, there be no order as to costs between the Plaintiff and the 1st Defendant.

30.  The Plaintiff does not seek any costs against the 3rd Defendant.  As agreed between the Plaintiff and the 3rd Defendant, there be no order of costs of this action, save the costs orders previously made, and the reserved costs order for the first hearing on 7 March 2024, which is agreed at HK700 as between the Plaintiff and the 3rd Defendant, payable by the Plaintiff within the next 14 days.

Disposition and Order

31.  Due to the above reasons, I give judgment for the Plaintiff in the following terms:-

(1)  The 1st Defendant do pay forthwith to the Plaintiff the sum of HK$1,178,904 and interest thereon at the contractual rate of 24% per annum (or at a daily rate of HK$775.17 per day) from 21 August 2023 until full payment;

(2)  An order for sale of all that piece or parcel of ground registered in the Land Registry as ALL THOSE 20 equal undivided 43,700th parts or shares of and in ALL THOSE pieces or parcels of ground registered in the Land Registry as SUBSECTION 1 OF SECTION D OF NEW KOWLOON INLAND LOT NO.53, SECTION A OF SUBSECTION 2 OF SECTION D OF NEW KOWLOON INLAND LOT NO.53, SECTION E OF NEW KOWLOON INLAND LOT NO.53 and SUBSECTION 1 OF SECTION F OF NEW KOWLOON INLAND LOT NO 53 And of and in the messuages erections and buildings thereon now known as "AMOY GARDENS PHASE I" (淘大花園一期) ("the Building") TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT FLAT NO 2 on the SIXTEENTH FLOOR of BLOCK "A" of the Building ("the Property") by way of private treaty or public auction at a price no less than HK$3,600,000;

(3)  The order for sale as mentioned in (2) above shall be further subject to the following directions:-

(a)  Unless the 1st Defendant do pay up the sums as mentioned in (1) above within 28 days after the service of this Order, the 1st and 3rd Defendants do deliver to the Plaintiff vacant possession of the Property, together with its title deeds and documents in their possession (if any);

(b)  The conduct of the sale of the Property shall be committed to the Plaintiff's solicitors herein, Messrs K B Chau & Co;

(c)  The 1st and 3rd Defendants shall do all acts and things necessary for the sale of the Property to the purchaser(s) and cause all documents and instruments as necessary to implement the sale of the Property and convey its title to the purchaser(s) to be properly signed or executed within 7 days of the written request made by the Plaintiff's solicitors;

(d)  In the event that either or both of the 1st and 3rd Defendants neglect or refuse to sign or execute the documents and instruments as referred to in (c) above,  Mr To King Yan Adam, a partner of the Plaintiff's solicitors, shall be appointed to sign and execute all documents and instruments (in place of the defaulting defendant(s)) as necessary to implement the sale of the Property and convey its title to the purchaser(s), pursuant to section 38A of the District Court Ordinance (Cap 336);

(e)  The proceeds of sale of the Property shall be paid to the Plaintiff's solicitors and be applied upon completion in the following orders of priority:-

(i)    first, in discharge of all taxes, rates, government rent, and other outgoings due and affecting the Premises, if any;

(ii)   second, in discharge of the Mortgage in favour of Bank of China (Hong Kong) Ltd, and other encumbrances affecting the Property having priority to the Second Mortgage, if any;

(iii)  third, in payment of the reasonable costs, charges and expenses as necessarily incurred in the sale of the Property (including conveyancing legal fees, estate agent's commission and auctioneer's fee, if any);

(iv)  fourth, the net proceeds of sale to be split into two equal halves : one half shall belong to the 1st Defendant ("D1's half share"), and the other half shall belong to the 3rd Defendant ("D3's half share");

(v)   D3's half share shall be paid to the 3rd Defendant;

(vi)  D1's half share shall be paid to the Plaintiff in payment for the sums adjudged to be due to the Plaintiff herein, including the Plaintiff's costs of these proceedings, in discharge of the Second Mortgage (provided that in any event, the total amount to be applied and paid out of D1's Half Share shall not exceed the maximum amount of HK$2,000,000); and the balance (if any) be paid to the next encumbrancer, or if there is no such next encumbrancer, to the 1st Defendant.

(4)  Save for the costs orders previously made, the costs of these proceedings be paid by the 1st Defendant to the Plaintiff on solicitors and own client basis, with certificate for counsel, summarily assessed at HK$110,000;

(5)  In relation to the reserved costs order made at the hearing on 7 March 2024, there be no order as to costs as between the Plaintiff and the 1st Defendant; and as between the Plaintiff and the 3rd Defendant, the Plaintiff shall pay an agreed costs of HK$700 to the 3rd Defendant within the next 14 days;

(6)  There be liberty to apply;

(7)  The Plaintiff's solicitors shall draw up file and serve this Order within the next 7 days.