MAXCOLM FINANCE LTD v. THE PERSONAL REPRESENTATIVE OF THE ESTATE OF WAN YEE YORK, DECEASED AND ANOTHER

DCMP 177/2023

[2024] HKDC 182

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 177 OF 2023

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JUDGMENT

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Introduction

1.  By Originating Summons dated 11 January 2023 (the “OS”), the plaintiff (“P”) seeks:

(1)  against the 1^st defendant (“D1”) the payment of all money due and owing from D1 to P under the respective covenants contained in a Second Mortgage dated 19 April 2022 and made between D1 as the Borrower of the one part and P as the Lender of the other part and registered in the Land Registry by Memorial No. 22080900970015 (“the Second Mortgage”);

(2)  and against D1 and the 2^nd defendant (“D2”) an order for delivery of vacant possession and an order for sale of the mortgaged property situate at Flat A on 2/F, Sai Wan Court, Nos. 138-140 Sai Wan Ho Street, Hong Kong (the “Property”) pursuant to Order 88 of the Rules of the District Court (“RDC”) and sections 2, 3 and 6 of the Partition Ordinance, Cap. 352 (“PO”).

Service on the defendants

2.  After commencement of these proceedings, P sought consent from the Official Solicitor for the Official Solicitor to be appointed to represent the estate of Wan Yee York, deceased (the “Deceased”), for the limited purpose of acceptance of service of the OS.  P made an application pursuant to RDC Order 15 rule 6A by way of Affirmation of Ma Sau Mei dated 29 May 2023. Pursuant to the Order of Master Maurice Lam dated 12 June 2023, the Official Solicitor has been appointed to represent the estate of the Deceased for the limited purpose of acceptance of service of the OS.  The Official Solicitor was then served with a sealed copy of the said Order dated 12 June 2023 and a sealed copy of the OS on 7 July 2023.

3.  Thereafter, P made a further ex parte application pursuant to RDC Order 15 rule 15 by way of 2^nd Affirmation of Ma Sau Mei dated 25 July 2023.  By the Order of Master Stanley Ho dated 14 August 2023, P was granted leave to, inter alia, (1) proceed with these proceedings against the Deceased in the absence of a person representing the estate of the Deceased, and any judgment or order subsequently made or given in these proceedings shall bind the estate of the Deceased to the same extent as it would have been bound had a personal representative of the Deceased been a party to these proceedings; and (2) service of the Affirmation of Tsang Tak Wah and all further documents and papers in these proceedings on D1 be effected by insertion into the letterbox of the Property.

4.  D2 has filed an Acknowledgment of Service on 27 January 2023 expressing his intention to contest the case.  He filed an affirmation in opposition to P’s application on 15 November 2023.

Background

5.  P is a licensed money lender.  The Deceased and D2 are the registered owners of the Property as tenants-in-common as to two-thirds (2/3) and one-third (1/3) of the shares of the Property respectively.

6.  By the Second Mortgage, the Deceased charged her interest in the Property to P to secure the repayment of the general credit facilities granted by P to the Deceased to the extent of HK$600,000 and interest thereon at such rate as determined by P in accordance with the covenant for payment contained therein.

7.  At all material times, the Property was and still is subject to the First Mortgage dated 23 March 2010 in favour of Bank of Communications Co, Limited (“Bank of Communications”).

8.  The Deceased entered into a loan agreement dated 19 April 2022 (the “Loan Agreement”) with P for a loan in the principal sum of HK$500,000 (the “Loan”). Interest of the loan was 24% per annum, with default interest also charged at the same rate.  The loan was to be repaid by 120 monthly instalments.

9.  The Loan Agreement was evidenced in writing by a Memorandum dated 19 April 2022, which was signed by the Deceased at the time of entering into the Loan Agreement.

Money judgment under Order 83A of RDC

10.  On 19 July 2022, the Deceased was discovered to have passed away at the Property.  The cause of death as stated in the Death Certificate is “carbon monoxide poisoning, intentional self-poisoning by and exposure to other gases and vapours – home”.

11.  As no repayment was made since that date, there has been a default under the Loan Agreement and the Second Mortgage.

12.  P’s solicitors conducted a probate search on 16 November 2022 and noticed that Messrs. Deacons on behalf of Standard Chartered Bank (Hong Kong) Limited filed a Caveat (No. HCCA 004759/22) on 1 September 2022.

13.  By a letter dated 17 November 2022, P through its solicitors demanded the payment of the entire balance of the Loan and interest from D1 within 7 days, failing which P shall institute legal proceedings against him/her for recovery of the same and enforcement of the Second Mortgage.  But so far D1 did not make any repayment.

14.  I have considered the documents filed before me and I am satisfied that each requirement of sections 18(1) and 18(2) of the Money Lenders Ordinance, Cap 163 (“MLO”) has been complied with.  The interest rates under the Loan Agreement are also permissible under the MLO.  There can be no question that a default has occurred and P is entitled to a money judgment under RDC Order 83A.

15.  The total amount outstanding as of 18 July 2023 was HK$625,132.16. Interest on the principal sum of HK$496,928.37 accrues at the rate of 24% per annum (with a daily rate HK$326.75) from 19 July 2023 until full repayment. Default interest on the unpaid interest of HK$39,619 accrues at the rate of 24% per annum (with a daily rate of HK$26.05) from 19 July 2023 until full payment.

Vacant possession

16.  The Second Mortgage is in the terms of a legal charge over the Deceased’s interest in the Property as security for the due payment of all moneys payable or which may at any time become payable to P by the Deceased. Since her death, her interest in and share of the Property forms part of her estate.

17.  Clause 7.1 of the Second Mortgage entitles P to enforce the security at any time if the Deceased makes default in the payment on the due date or fails to comply with any obligations under the Second Mortgage or the Loan Agreement.

18.  Pursuant to Clause 8 of the Second Mortgage, when the security has become enforceable, P is entitled to, inter alia, enter upon, take possession or dispose of the Property.

19.  Bank of Communications has been informed of these proceedings but so far P has not received any reply from the bank or its solicitors.  P has no knowledge of the outstanding amount due under the First Mortgage.

20.  D2 has filed an affirmation in opposition.  His reasons are, inter alia,

(1)  he could only deliver vacant possession of the Property to Bank of Communications;

(2)  he could not deliver vacant possession of the Property to P until Bank of Communications provides consent; and

(3)  he should not be responsible for any of the costs of the proceedings.

21.  D2 appears at the hearing on 29 January 2024 and confirms the above reasons as his grounds of opposition.

22.  P submits that the bank’s consent is irrelevant to P’s application to obtain vacation possession and an order for sale of the Property.  Also, it is submitted that the court can still make a possession order even if the first mortgagee may already have taken possession.  The case of Fubon Bank (Hong Kong) Limited v Ng Wai Kong [2021] HKCFI 1558 is cited in support of this submission.  In that case the Hon Au‑Yeung J held:

“10. The ordinary rule at common law is that where the whole of the sum advanced became due, a mortgagee is entitled as of right to an order for possession of the mortgaged premises (unless the mortgage deed provides otherwise). The court has no jurisdiction to decline the order or to adjourn an application for possession, with the exception of an adjournment for a short time to afford to the mortgagor a chance of paying off the mortgage in full, but this should not be done if there is no reasonable prospect of such payment occurring. See Chekiang First Bank Ltd v Ko Hoi Luen & anor [1999] 3 HKLRD 360, at 362G-H, following Birmingham Citizens Permanent Building Society v Caunt [1962] 1 Ch 883, at 912.

11. The court has jurisdiction to make a possession order in favour of a second mortgagee even though a first mortgagee may already have taken possession: Universal Showcards & Display Manufacturing Ltd v Brunt (1984) 128 SJ 581, CA.  However, the order must be made subject to the rights of the first mortgagee, and to the rights of any other person deriving title from the first mortgagee: Berkshire Capital Funding Ltd v Street [1999] 25 EG 191, CA.  See Emmet and Farrand on Title, (19^th ed), §25.142.”

23.  D2 told the court that Bank of Communications has instituted proceedings for the recovery of the Property, but it has not taken possession of the Property.  As held in Fubon Bank cited above, P is entitled to an order for possession regardless of whether Bank of Communications has taken possession of the Property.  As there is no reasonable prospect that D1 will pay off the outstanding indebtedness under the Loan Agreement in full, I am unable to see why the court should decline to make an order for possession.

24.  Having considered all the documents before me, I am satisfied that the requirements under RDC Order 88 have been complied with and P is entitled to enforce the Second Mortgage and obtain vacant possession of the Property, subject to the rights of Bank of Communications.

Order for sale

25.  Section 2 of the PO provides that where any property in land is held by two or more persons, whether as joint tenants or tenants in common, the court may either make an order for partition, order for sale or refuse to make any order.

26.  Under section 3(1) of the PO, any “person interested” in the property may institute proceedings for an order for sale.

27.  It is well established that a legal chargee of a partial interest is considered a “person interested” within the meaning of section 3(1) of the PO: Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 per HH Judge Li at §§22-23; Uplink Finance Ltd v Lee Sze Tai & Ors (unreported, DCMP 794/2016, 16 March 2017) per DDJ Cheung at §25.

28.  Since P is a legal chargee of the Deceased’s 2/3 share of the Property, P is entitled to apply for an order for sale under the PO.

29.  The next issue that needs to be considered is whether discretion should be exercised to order partition or sale.

30.  When the court decides whether it is practical to partition a property, it will consider the size and design of the property, and make a judgment based on common sense without expert evidence: Law Chun Wai (supra) at §§28, 31; Uplink Finance Ltd (supra) at §31.

31.  When it is impractical to make an order for partition, the court should make an order for sale unless it is satisfied that all the co‑owners would be better served by the refusal of the order and that making an order would result in very great hardship to one co‑owner: Re Lau Hiu Tuen (unreported, HCB 8430/2006, 20 August 2016) per G Lam J (as he then was) at §23-24; Re Cheng Kin Ching (unreported, HCB 47/2009, 8 May 2017) per Ng J at §28.

32.  In this case, P is a money lender and it is impractical for the Property to be partitioned for it to be shared by P and D2.  The Property is a residential flat of about 290 sq ft with a single entrance.  It would neither be practical nor beneficial to the owners if a partition order were to be made.

33.  It should be noted that D2 did not say in his affirmation or in court that the sale of the Property would cause him great hardship.

34.  It is well established that whether an order for sale is beneficial to all the co‑owners is not determined by the dissent of the opposing co‑owners or the assertion by them that it is not beneficial.  It has to be determined by the court objectively: Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at §§18-19.  There is no objective evidence before me that suggests that sale of the Property would not be beneficial to the co-owners.

35.  Moreover, the interests of the defendants would be adequately safeguarded as the proposed sale would be conducted by P’s solicitors who are officers of the court, and there would be a reserved price which is based on the valuation of a professional surveyor.

36.  On the other hand, unless the Property is sold, P’s interest would be seriously undermined as there is no other realistic remedy for P to recover the debts owed by D1.

37.  As regards the Property’s market value, the valuation report filed by P suggests that a 30% reduction should be applied to the market value because of the cause of death of the Deceased at the Property.  The valuer explains that the magnitude of the discount on a so-called “haunted house” (兇宅) depends on a number of factors, including but not limited to the number of victims, recency of the incident, location of the victim’s body, gruesomeness of the incident and media coverage.  Based on a number of reference cases, the valuer considers that a discount of 30% is reasonable.  I accept such evidence from the valuer.

38.  Having considered all the relevant materials and circumstances of this case, it is in my view appropriate to make an order for sale, but such an order is subject to the rights of Bank of Communications.

Costs

39.  P seeks, and I allow, costs against D1 on a full indemnity basis under Clause 21 of the Second Mortgage, summarily assessed at HK$95,000.

40.  There be no order as to costs of these proceedings against D2.

Disposition

41.  P’s application is allowed.  Subject to the amendments made at the hearing, I make an order in terms of the draft order submitted to me.

42.  At the hearing, I have told D2 that my reasoned judgment would be prepared in English, but he can make a request to my clerk to arrange an interpreter so that the judgment can be interpreted to Punti for him when it is handed down.