PINS CREDIT MANAGEMENT CO., LTD v. TSE TAI YIM AND ANOTHER

DCMP 1233/2018

[2019] HKDC 1728

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1233 OF 2018

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JUDGMENT

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APPLICATION

1.  This is the plaintiff’s application by originating summons dated 4 May 2018 (the “Originating Summons”) for an order for sale under section 6 of the Partition Ordinance (Cap 352) (the “Ordinance”). 

BACKGROUND

2.  The plaintiff is a money lender.  Under a loan agreement dated 9 November 2016, the plaintiff lent HK$750,000 to the 1^st defendant and another borrower, Li Koi Hop Philip (“Li”) (the “Loan Agreement”).  On 6 March 2018, the plaintiff obtained judgment in default of notice of intention to defend under DCCJ 5395/2017 against both the 1^st defendant and Li for the sum of HK$889,956.16 together with interest.  The sum remains outstanding and due.

3.  The 1^st defendant had charged her interest in Flat D on the 2^nd Floor of Block 1, Manor Centre, no. 213 Un Chau Street, Kowloon, Hong Kong (the “Property”) in favour of the plaintiff pursuant to a tripartite legal charge dated 6 February 2015 (the “Legal Charge”), as security for the general credit facilities made available by the plaintiff to the 1^st defendant and Li.

4.  The 1^st defendant is the mother of the 2^nd defendant.  The 1^st and 2^nd defendants are the registered owners of the Property as joint tenants.

5.  Despite having filed a notice of intention to defend dated 18 May 2018, the 2^nd defendant did not appear at the substantive hearing of the Originating Summons.  The 1^st defendant was also absent.  The 1^st and 2^nd defendants also did not file any evidence to contest the Originating Summons. 

6.  When the Originating Summons was first heard before HH Judge Kent Yee on 28 June 2018, the court was concerned whether the 1^st defendant was mentally capable of handling these proceedings, as she was previously represented by the Official Solicitor as her guardian ad litem in her matrimonial proceedings in 2000.  The 2^nd defendant has also written to the court alleging that the 1^st defendant is mentally unfit.  The plaintiff thus liaised with the Official Solicitors to enquire if they would accept service of these proceedings on behalf of the 1^st defendant. By letter dated 24 June 2019, the Official Solicitors indicated that they have obtained medical opinion and confirmed that the 1^st defendant is mentally fit to handle these proceedings.  Consequently, the Official Solicitors are not prepared to act on her behalf.

7.  The court is satisfied that the 1^st defendant and the 2^nd defendant had been duly served and had notice of the hearing.  The hearing thus proceeded in their absence. 

Right to vacant possession

8.  An event of default under clause 7 of the Legal Charge was triggered by reason of the 1^st defendant and Li’s failure to repay on demand. The security then became enforceable under clause 8 of the Legal Charge.  Under clause 8.05, the plaintiff shall have the power to: “enter into and upon and take possession of the Property or any part thereof and to hold, possess and enjoy the same …” and to “sell by public auction or private contract or otherwise dispose of or deal with all or any part of the Property…”

9.  The plaintiff thus says that it had acquired the 1^st defendant’s interest through the debt owed by the 1^st defendant under the loan agreement, as well as the Legal Charge, and is thus entitled to apply under the Ordinance for sale of the entire Property.

Analysis

10.  The plaintiff has a right to possession under clause 8.05 of the Legal Charge.  The plaintiff is a person interested in the Property under s. 3(1) of the Ordinance.  I agree that since the 1^st defendant and Li defaulted in repayment, the plaintiff had acquired an interest in possession and is thus eligible to apply for an order for sale under the Ordinance[1].

Appropriate for Partition or Sale?

11.  HH Judge Li had set out in the case of Law Chun Wai v Chu Suk Har[2] the legal principles on how the court should exercise a power of sale under section 6 of the Ordinance:-

“26. Generally, in determining whether a sale is more beneficial than a partition, the court considers only the pecuniary results, disregarding matters of sentiment, and has regard to the interest of all parties interested as a whole; but it can and will order a sale where, in its discretion, it thinks fit, unless the parties opposing a sale undertake to purchase the shares of those desiring sale.” (Halsbury’s Laws of Hong Kong, 2^nd edition, Volume 35, para 230.826) [emphasis added].

27. In Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, the Court held that:-

“(1) when it was impracticable to make an order for partition, the court should make an order for sale unless it was persuaded, the burden being on the opposing co-owner, that such an order would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner; and

(2) 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.” [emphasis added]

28. In considering whether it is impracticable to make an order for partition, the Court would consider the size and design of the property: See Chan Shee Yuen v Chan Shu Fong, unrep, HCA 93/2002 (Deputy High Court Judge To (as he then was); 28 April 2006), Poon Yuet Chun v Tse So Kwun, unrep, HCMP 5662/2001 (Yuen J (as she then was); 29 April 2002).

29. While the Courts would pay regard to the difficulty of a co-owner in seeking alternative accommodation: (Chow Doi Kwai v Chan Cho Yuk [2000] 2 HKLRD 235), a co-owner’s sentimental attachment to the property is irrelevant: (Chan Ching Kit v Lam Sik Shi & Anor,unrep, HCMP 2239/2000 (Kwan J (as she then was); 24 June 2002), Drinkwater v Ratcliffe(1875) LR 20 Eq 528).

30. In Ip Sau Shu v Sham Lai Hing, unrep, HCMP 3452/1999, (Deputy High Court Judge Poon (as he then was); 31 March 2003), a two bedroom flat of about 600 square feet in size was determined to be owned by the plaintiff and the defendant as tenants in common in equal shares.  The partition of the property was not suggested to be physically possible.  The Court held that even if partition was possible, because the parties had been in a personal relationship which had ended, it would be meaningless to do so.  The plaintiff had no savings and no assets other than the property.  Since the plaintiff had no way of realizing the value of his half share in the flat unless there was a sale, the Court ordered the sale of the property.”

The Present Property

12.  The Property is a 292 square foot (net) residential flat in a multi-storey building with only one entrance to the flat.  From the layout plan, it can be seen that it is impossible to add another entrance to the Property.  Given the size and the impossibility of adding another entrance, it is impracticable to partition the Property.

13.  The open market value of the Property as at 8 July 2019 is HK$4,500,000. The amount of outstanding debt as at 25 September is around HK$1,264,450.68. Thus, if the Property is sold, the 2^nd defendant will get back the half share value of the Property at approximately HK$2,250,000.  The 1^st defendant will get back about HK$700,000, after her indebtedness has been set off.

14.  There is no evidence filed in relation to any hardship that the 1^st and 2^nd defendants may suffer.  The court is thus in no position to infer that a sale of the Property will create any hardship.  Whilst the Court had received letters from both the 2^nd defendant and the 1^st defendant’s husband suggesting that the 1^st defendant was misled into entering into the Loan Agreement and the Legal Charge, none of these were done by way of affirmation and no specifics had been given.  Further, if there were any conviction in their allegations, they should have defended the underlying action or applied to set aside the judgment under DCCJ 5395/2017.  As I am satisfied that the 1^st and 2^nd defendants had been given a chance to file evidence but had chosen not to do so, they have given up their right to defend and I am of the view that the plaintiff’s right to obtain relief should no longer be delayed or denied.

Conclusion

15.  I agree that in the present circumstances, it is fair and just to make an order for sale of the Property under section 6(1) of the Ordinance. 

16.  The plaintiff is further entitled to claim costs on an indemnity basis pursuant to clause 10.01(b) of the Legal Charge.

17.  I will make an order as follows:-

(1) The 1^st and 2^nd defendants do deliver up vacant possession of the Property to the plaintiff within 28 days after service of this Order;

(2) Upon the 1^st defendant paying to the plaintiff the sum of HK$889,956.16 together with interest on the sum of HK$750,000.00 at the rate of 26.40% per annum from 24 November 2017 until payment and the costs of the action HK$10,500.00, being the outstanding Judgment Debt in DCCJ 5395/2017 under the Judgment dated 6 March 2018 (“Outstanding Judgment Debt”) and costs of these proceedings, the plaintiff do redeliver possession of the Property to the 1^st and 2^nd defendants, and release the 1^st defendant from the security constituted by the Mortgage;

(3) In the event the 1^st defendant failed to make payments adjudged in paragraph (2) above together with costs for these proceedings, the 1^st and 2^nd defendants do deliver vacant possession and title deeds and documents of the Property to the plaintiff.  The Property be sold pursuant to section 6 of the Partition Ordinance (Cap 352) at open market value not less than HK$4,500,000.00;

(4) Upon such sale, the 1^st and 2^nd defendants shall do all necessary acts for the transfer of their legal title and beneficial interest in the said Property to the purchaser;

(5) The proceeds of sale of the Property shall be applied in the following manner and order of priority:-

(a) in discharge of all rent, taxes, rates and other outgoings due and affecting the Property;

(b) in payment for the discharge of all encumbrances having priority to the Legal Charge (including the costs and disbursements for handling such encumbrances);

(c) in payment of all reasonable costs and expenses of the sale (including conveyancing costs up to HK$20,000.00, estate agent commission up to 1% of the sale price);

(d) the remaining net balance be split into two halves:

(1) as for the first half:

(i) payment to the 2^nd defendant who owns half of the Property with the 1^st defendant as Joint Tenants; if the 2^nd defendant could not be located, such sum shall be paid into court for the credit of the 2^nd defendant.

(2) as for the second half:

(i) payment to discharge the Legal Charge (memorial number: 15021100200458) in favour of the plaintiff;

(ii) in payment of all plaintiff’s costs of these proceedings, to be summarily assessed and the fee for the valuation report for the Property in the sum of HK$6,000.00; and

(iii) the balance, if any, after deduction of the costs and disbursements for handling the encumbrance affecting the Property; to the 1^st defendant; if the 1^st defendant could not be located, such sum shall be paid into court for the credit of the 1^st defendant.

(6) There be liberty to apply, including for (but without limitation to) directions on the terms and manner of the sale of the Property.