Law Chun Wai t/a Fu Tat Finance Co v. Chu Suk Har and Another

DCMP 1359/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1359 OF 2015

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

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

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

DECISION

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

INTRODUCTION

The Loan Agreement

1.The application before this Court is made by the plaintiff for an order for the sale of a property situated at Flat H, 10^th Floor, Metro Mansion, 251-261 Shaukiwan Road, Shaukiwan, Hong Kong (“the Property”).  The Property was registered in the joint names of the 1^st and 2^nd defendants as tenants in common in equal shares.

2.At the hearing on 1 September 2015, the case was adjourned and the plaintiff was directed to file submissions on the question of: whether it is fair and just to order the sale of the Property rather than to merely partition it.

3.At the hearing on 25 September 2015, the plaintiff, through its counsel Ms Belinda Ma, submits that it is fair and just for this Court to order the sale of the Property.

4.Both defendants did not enter any appearance in the present proceedings nor had they turned up at both of the above hearings.

BACKGROUND

5.The plaintiff is a money lender licensed under the Money Lenders Ordinance, Cap 163 (“the MLO”) to lend money, subject to the rules specified therein.

6.By a loan agreement dated 9 November 2006 (“the Loan Agreement”) entered into between the plaintiff as lender and the 1^st defendant as borrower, a sum of HK$450,000 was loaned to the 1^st defendant for a term of one year from 9 November 2006 to 9 November 2007.

7.Under clause 4(a) of the Loan Agreement, the plaintiff was entitled to charge and the 1^st defendant was liable to pay, interest at the rate of 48.3% per annum.

8.The loan had to be repaid by the 1^st defendant as a whole (without any deduction) on or before 9 November 2007.

9.The interest of the loan in the sum of HK$18,113 per month would be paid by the 1^st defendant on the 9^th day of each month commencing from 9 December 2006 to 9 November 2007.

10.As provided under clause 4(b) and paragraph (h) of the First Schedule of the Loan Agreement, the 1^st defendant shall be liable to pay interest on any the sum at the rate of 48.3% per annum from the date of the default until the sum is paid in full.

11.Pursuant to the terms of the Loan Agreement, an actual sum of HK$450,000 was lent to the 1^st defendant on 9 November 2006.

12.In consideration of the plaintiff in agreeing to lend the said sum to the 1^st defendant under the Loan Agreement, the 1^st defendant executed a legal charge on 9 November 2006 whereby the 1^st defendant’s half share in the Property was charged in favour of the plaintiff as security for “all sums of moneys obligations and liabilities whether past present or future actual or contingent owed by the 1^st defendant to the plaintiff” (“the Legal Charge”).

13.The Legal Charge was registered in the Land Registry by Memorial No.06120802190042.

14.The 1^st defendant has failed to make any repayment of the loan at all to the plaintiff from the date she borrowed the money from the plaintiff.

15.According to the plaintiff’s calculations, the 1^st defendant was liable to pay to the plaintiff a total sum of HK$2,333,700 as of 9 July 2015, being the loan in the sum of HK$450,000 plus interest thereon in the total sum of HK$1,883,700 accrued from 9 November 2006 to 9 July 2015.  The plaintiff further claims that he is entitled to charge further interest on the loan at the rate of 48.3% per annum from 20 June 2015 until payment thereof.

16.On 21 April 2015, in accordance with clause 6.01(vi) of the Loan Agreement, the plaintiff’s solicitors wrote to the 1^st defendant notifying her that the plaintiff intended to enforce the Legal Charge against her by selling the Property.  The 1^st defendant was asked to consent to the sale.  On the same day, the plaintiff’s solicitors wrote to the 2^nd defendant and informed him of the 1^st defendant’s default in payment and their intention to enforce the Legal Charge.  The 1^st and 2^nd defendants had never responded to the plaintiff or his solicitors. 

17.Under clause 20.01 of the Legal Charge, the 1^st defendant declared that the Property was occupied by her alone and the whole of the Property was and is in the sole physical possession and control of her.

18.Since the plaintiff has acquired an interest in respect of the half share of the Property through the debt owed by the 1^st defendant under the Loan Agreement, as well as the Legal Charge, he claims that he is entitled to apply under the Partition Ordinance, Cap 352 (“the PO”) for partition or sale of the entire Property.

19.The plaintiff submits that due to the inherent nature of the development, partition of the Property would be plainly inappropriate.  Hence, the plaintiff is asking this Court to make an order for sale.  

DISCUSSION

Whether the plaintiff is a person interested in the property?

20.Under section 2 of the PO, where any property in land is held by 2 or more persons, whether as joint tenants or tenants in common, the Court may make an order for partition or sale of the property, or refuse to make any order at all.

21.Section 3(1) of the PO provides that, “any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale”.

22.It has been held that an interested person is confined to persons holding an interest in possession: See Fortis Bank Asia HK v Yu Kam Hoi & Anor unrep, HCMP 134/2002 (Reyes J; 4 March 2004) at para 56.

23.I agree with Ms Ma’s submission that the plaintiff has a right to possession in the event of default under the Legal Charge dated 9 November 2006, namely, clause 6.01(ii) in this case.  An event of default includes the 1^st defendant making default in payment of the loan (clause 5.01(i)).  In Ashe v National Westminster Bank plc [2008] 1 WLR 710, the mortgagee acquired an immediate right to possession from the day of the mortgage under the legal charge relating to that mortgage.  The Court of Appeal held later in the judgment that an interest in possession was assured to the mortgagee at the inception of the mortgage as a result of that legal charge.  It therefore follows that an interest in possession was conferred upon the mortgagee under the legal charge, the timing of which would depend on the provision of the legal charge.  Hence, in my judgment, since the day the 1^st defendant defaulted in payment, the plaintiff has acquired an interest in possession pursuant to clause 6.01(ii) and is eligible to apply for an order for sale or partition under PO.

Partition or sale?

24.The Court may make an order for partition of property under section 4 of PO.

25.Section 6 of PO provides as follows:-

“(1) In any proceedings under this Ordinance, where it appears to the Court that a partition of the property would not be beneficial to all the persons interested by reason of-

(a) the nature of the land to which the proceedings relate;

(b) the number of the persons interested or presumptively interested;

(c) the absence or disability of some of the persons interest; or

(d) any other circumstances,.

the court may make an order for the sale of the property.

(2) The Court may exercise its powers under subsection (1), notwithstanding the dissent or disability of any person interested.”

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 application

31.The Property in these proceedings is a residential flat in a multi-storey building.  It is 367 saleable square feet in size.  Expert opinion has not been sought on whether it is physically possible to partition the flat.  However, common sense will tell us that since any purchaser could not be expected to be willing to share a flat with the 2^nd defendant, if the property is to be partitioned, an extra entrance has to be made at the corridor for separate entries to the two partitioned flats (183.5 square feet each), if it was indeed possible.  In my judgment, given the size of the Property and the doubted feasibility of constructing a separate entrance, it is impracticable to partition the property.

32.I agree with Ms Ma that the main concern of whether a sale is beneficial is the interests of the 2^nd defendant, who had nothing to do with the loan. While he would not be worse off pecuniary by the sale as he is still entitled to half of the value of the Property, the Court has to objectively consider if there would be any hardship if a sale is ordered.  Since both the defendants were absent, there is no evidence placed before the Court on this matter.  It is unclear whether the 2^nd defendant still lives in the Property, whether he has other property(ies), and whether there would be any difficulty for him to secure alternative accommodation.  By giving up his right to defend in this matter, and after proof of service has been shown to the Court, in my view, the 2^nd defendant cannot now be heard to say that an injustice has been done to him.  

CONCLUSION

33.In my view, while the interest charged by the plaintiff under the loan was very high, they are still within the legal limit allowed under the MLO.  Further, the evidence suggests that 1^st defendant had entered into the Loan Agreement out of her own volition and not under any duress or misrepresentation.  She had even executed the Legal Charge on the Property at the same time of signing the Loan Agreement.

34.While I agree that the 2^nd defendant’s welfare should not be overlooked, the burden is on the opposing co-owner to demonstrate to the Court that such an order for sale would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner.  I accept the plaintiff’s submission that it is fair and just to order an order for sale of the Property under section 6(1) of the PO when the defendants are absent, and when the nature of the Property makes it impracticable to partition.

35.I so make such an order according to the terms of the originating summons.

36.I also will make an order of costs against the 1^st defendant for the summons, such costs to be paid on a party and party basis, to be taxed if not agreed.

37.I would like to thank Ms Ma for her very helpful assistance in this case.

Ms Belinda Ma, instructed by David YW Man & Co, for the plaintiff

The defendants were not represented and did not appear