NEW CENTURY CREDIT SERVICES CO LTD v. LEUNG WAI PUI AND OTHERS

DCMP 2610/2017

[2018] HKDC 1515

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2610 OF 2017

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DECISION

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1.  This is an application of the 2^nd defendant, by summons dated 22 October 2018, to vary the order for sale of a property which was made by me on 11 May 2018. The summons was scheduled for hearing for directions on 23 November 2018; the plaintiff and the 2^nd defendant agreed to proceed with substantive arguments at the direction hearing. The plaintiff also confirmed that it did not need to file affidavit in opposition. After hearing the parties, I hereby dismiss the application on reasons as follows.

Background

2.  The plaintiff is a money lender, and the three defendants are joint owners of a flat in Kowloon.  The 1^st and 2^nd defendants are brothers and the 3^rd defendant is the mother.  The 1^st defendant has charged its interest in the property to the plaintiff to secure a loan.  Upon the 1^st defendant’s default in repayment of loan, the plaintiff obtained a money judgement for HK$577,000.  Upon the plaintiff’s application, on 11 May 2018, I have made an order for sale of the property, based on terms agreed by the plaintiff and the 2^nd defendant.  The details can be found in my decision dated 11 May 2018. 

3.  The application for variation is based on Order 31 Rule 2 of the Rules of District Court and Inherent Jurisdiction.  It concerns the following two aspects and orders of the order for sale:-

(a) the property be sold at open market price at not less than $4 million; and

(b) the expenses of sale and the plaintiff’s costs be paid out of the proceeds of sale before the division of the net proceeds into three shares, with one share to satisfy the judgment debt with balance for the 1^st defendant, and the other two for the 2^nd and 3^rd defendants respectively.

4.  About five months after the order for sale, the 2^nd defendant applied to vary the order to the effect that:-

(a) the minimum price be set at $5.5 million instead of $4 million; and

(b) that the expenses and costs be deducted just from the 1^st defendant’s share rather than equally from the three shares. 

5.  The order for sale contains a provision giving parties liberty to apply in relation to matters governing the terms and manner of sale.  

Application to shift the sale expenses and costs to be borne by chargor 1^st defendant alone

6.  With a view to disposing of the matter, the plaintiff has agreed with the variation sought in (b) above to shift the expenses and costs entirely to the 1^st defendant freeing the 2^nd and 3^rd defendants from such burden.  This is of course a sensible attempt of the plaintiff to resolve some disputes, at probably no expenses of the plaintiff because the 1^st defendant share of proceeds should be well more than enough to satisfy the judgment debt and the costs and expenses.  However, this variation is basically to the 1^st defendant’s detriment in substantive terms and he has not appeared before me.  The summons for variation was only purportedly served on the 1^st defendant by sending to the property in question which the 1^st defendant had long not been residing (paragraph 11 of the 1^st affirmation of the 2^nd defendant) and which, as Ms So informed the court, has since the order for sale become vacant.  Whilst the property may be the last known address of the 1^st defendant, under the circumstances as aforesaid, I am not satisfied that the property is a valid address for service of this summons; there is no more evidence before the court to show that the summons has come to the 1^st defendant notwithstanding he was not residing in the property.  In the context of service of writ, in Lam Yan Fong Flora v Ng Pak Zing, HCA 2289 of 2014 dated 19 September 2018, at paragraphs 30-32, the learned Deputy High Court Judge Kent Yee, dated 19 September 2018, found that a correspondence address of the defendant was not the usual or last known address or a valid address for service where the evidence was clear that the defendant did not resided in that address nor had access to the letter box.  I am aware that the service of summons in this case just need to comply with Order 65 Rule 5(2)(b) of the Rules of District Court.  However, now that the property is definitely vacant, I cannot find that it is a valid address for service on the 1^st defendant. 

7.  I am also mindful that Order 31 Rule 2 is strictly procedural in nature (Ng Kam Kuk v Chan Fung Chun [2018] HKCFI 600 at paragraph 16).  The effect of the variation sought goes beyond procedural matters of effecting sale under Order 31 Rule 2 and beyond terms and manner of sale for which the order for sale has provided for parties’ liberty to apply.  Ms So has not persuaded me that I have jurisdiction to vary the substantive entitlement of parties in the circumstances of this matter.

8.  I therefore cannot grant the order to shift the costs and expense to be borne by the 1^st defendant alone. 

Application for increasing minimum price on ground of increase of market value

9.  As to the application to increase the minimum price subject to which the sale is to be made from $4 million to $5.5 million, I have no hesitation to dismiss it on the following grounds. 

10.  First, the sole ground relied on by the 2^nd defendant is that there was an increase of market price of the property after the making of the order for sale in May 2018.  The 2^nd defendant adduced a valuation report containing the valuer’s opinion that the market value as of October 2018 was $5.5 million.  However, in my view, this is evidence of market value as of October 2018, and not evidence of increase of market price.  The valuer has not opined on the market trend or comparing the price as with the state in May 2018.  The values before May 2018 that the 2^nd defendant relied on to suggest increase was done by another valuer, and adduced by the plaintiff.  The difference can be a matter of different valuers having different views.  Furthermore, the price that the 2^nd defendant relies on now is the market price, and the price of $4 million that was used in the order for sale was based on “repossession” basis.  The parties accepted that value on repossession basis is necessarily lower than the value on market value basis as the repossession basis means it is under a forced sale without a wait for the best timing and best price.  Fundamentally, there is no evidence of increase of market price before me.  There is no proper basis to make a comparison that would show that since May 2018 to October 2018 there was price increase of the property.  The application for variation cannot even start to get off ground. 

11.  Even if one accepts that there is an increase of market price since the order for sale, that cannot be a valid reason to vary the minimum price, because otherwise, one can argue that the order has to be varied from time to time in accordance with the market fluctuation from time to time.

12.  Secondly, the terms of the order already have safeguards built into the order in the sense that the sale is to be at open market value, and that the price of $4 million was clearly stated to be just the minimum price; it is not an order mandating that the property needs be sold only at $4 million.  In addition, there was, as confirmed by Ms So for the 2^nd defendant, no evidence or no allegation of the plaintiff’s irregularities in the sale process; the plaintiff’s efforts to put the property to sale has not even started.  There is really no evidence before me to suggest that the existing order is unsatisfactory in any way, and so requiring additional safeguards.  (Both parties accepts that in law, the plaintiff is under a duty to the chargor, ie the 1^st defendant, to sell at market price.  However as the applicant here, the 2^nd defendant, is a co-owner of the chargor, the operation of the duty in law as such has no direct bearing.)

13.  In addition to the above two reasons for my rejection of the application, I also am mindful of one other thing that happened after the making of the order for sale.  The 2^nd defendant now reported loss of title deeds of the property. He has in fact asserted in his first affirmation dated 3 February 2018 that the title deeds were all along in his possession.  The loss of title deeds is something that to me was quite unusual given his earlier avowal of possessing them all the times.  Ms So accepted that the loss of title deeds has a discounting effect on the price. It was nevertheless submitted that even after the discount, the surge of the market price led to a much higher market price than $4 million.  Both sides have not adduced evidence on the discounting effect but such is not needed given the fundamental problems that the application already has. 

14.  Ms So also relied on Order 31 Rule 2(1) which provides for the court’s power to “subsequently direct for the best price that can be obtained”.  But directions for ‘best price’ is not what she is seeking; the summons is plainly for replacing minimum price from $4 million to $5.5 million.  The reliance of Order 31 Rule 2(1) is not helpful.

Conclusion

15.  The minimum price setting was by way of an agreement when the order was made, and there is no sound basis of it, in this case, being varied in accordance with market situation from time to time, not to mention that the evidence on the market price change before me is not satisfactory.

16.  The application is wholly unmeritorious; I understand that the 2^nd defendant, as the legally aided party, is determined to proceed.  I believe that further unmeritorious applications of this kind by the 2^nd defendant should be discouraged. 

17.  I therefore dismiss the 2^nd defendant’s summons; costs of the application be paid by the 2^nd defendant to the plaintiff, to be taxed if not agreed; the 2^nd defendant’s own costs be taxed in accordance with the Legal Aid Regulations.  

18.  I thank Ms So and Ms Yeung for their assistance to the court.