Easy One Finance Ltd v. Lee Kam Mui and Another

DCMP 3558/2018

[2020] HKDC 192

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3558 OF 2018

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REASONS FOR JUDGMENT

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Introduction

1.This was the hearing of an originating summons taken out by the plaintiff Easy One Finance Limited (“EOFL”) on 19 December 2018.  EOFL is a money lender under the Money Lenders Ordinance, Cap 163 and was claiming against the 1^st defendant Lee Kam Mui (“Lee”) and the 2^nd defendant Kwong Chung Wing (“Kwong”) for various reliefs including money judgment, possession of property, order for partition or sale of property pursuant to the Partition Ordinance, Cap 352, (“the PO”).

2.After hearing the solicitors for EOFL on 21 June 2019, I granted the reliefs sought.  I said that I would give my reasons for judgment at a later stage.  This I do now.

Background

3.Lee and Kwong are joint tenants of a property situated at Flat 1, 4/F, Block B, Ho Shun Yee Building, No 9 Fung Yau Street, East Yuen Long, New Territories (“the Property”).

4.By a loan agreement dated 11 December 2017 (“the Loan Agreement”), Kwong borrowed HK$700,000 from EOFL (“the Loan”) which was to be repaid by 12 instalments.

5.Kwong executed a Legal Charge dated 15 December 2017 (“the Legal Charge”) in favour of EOFL by which his interest in the Property was charged as security.

6.Kwong paid the 1^st to 7^th instalments under the Loan Agreement but defaulted in paying the 8^th instalment which was due on 15 August 2018. 

7.On 5 October 2018, EOFL issued a demand letter to Kwong requesting for payment of all the outstanding principal and interest under the Loan Agreement. 

8.Due to Kwong’s failure to comply with EOFL’s demand, EOFL commenced these proceedings by issuing the Originating Summons on 19 December 2018.

9.At the call over hearing before me on 11 April 2019, Lee and Kwong were absent.  I adjourned the matter to 21 June 2019 for a hearing in open court and directed solicitors for EOFL to file further written submissions.

10.At the substantive hearing, Lee and Kwong were still absent.

The issues

11.The issues that I have to address are these:-

(a)  Whether money judgment should be entered against Kwong?

(b)  Whether there should be an order for partition or an order for sale under the PO?

Money judgment

12.The material terms of the Loan Agreement are as follows:-

(a)  Clause (l) and Clause (m) of the First Schedule of the Loan Agreement provide that the rate of interest on the Loan and the overdue interest rate shall be 15.579% per annum;

(b)  Clause 2 and Clause (k) of the First Schedule of the Loan Agreement provide that the first monthly interest instalment of HK$19,217 shall be made on a day one month from the date of advance of the Loan: the subsequent interest instalments in the sum of HK$8,167 shall be due and payable on the numerically corresponding day as the first instalment in each succeeding month.  The Loan shall be due and repayable on the twelve month from the date of advance of the Loan.

(c)  Clause 4 of the Loan Agreement provides inter alia that if default is made in the payment of any sum payable to EOFL (whether in respect of principal or interest) on the date such payment falls due to deemed to fall due, Kwong shall pay to EOFL overdue interest at the rate of 15.579% upon such sum from the date of default until actual payment, both before and after judgment as the case may be.

(d)  Clause 11.1 of the Loan Agreement provides inter alia that in default of payment of any of the monthly instalments or any part thereof or any other sums payable hereunder, the Loan together with all accrued interest and other charges and expenses incurred shall become immediately due and payable.

(e)  Clause 17 of the Loan Agreement provides inter alia that Kwong shall be liable to fully indemnify EOFL for all costs and expenses reasonably incurred by EOFL in the recovery of all sum due and unpaid by Kwong.

13.At the hearing before me, Ms Yeung, for EOFL, took me through the repayment schedule attached to the Loan Agreement and the repayment history.  She explained to me the calculation of interest.  After settlement of the 7^th instalment, the outstanding principal and outstanding interest stood at HK$685,085.99 and HK$9,927.22 respectively.  The interest on the outstanding principal from 6 August 2018, which is the actual repayment date of the 7^th instalment, to 19 December 2018, which is the date of issuance of the Originating Summons, stood at HK$35,737.09.

14.As at the date of the issuance of the Originating Summons on 19 December 2018, Kwong was indebted to EOFL for a total sum of HK$730,750.30:-

(a)	Outstanding Principal	HK$685,085.99
(b)	Interest on Outstanding Principal from 6 August 2018 to 19 December 2018 (HK$685,085.99 x 14% pa x 136/365)	HK$35,737.09
(c)	Outstanding Interest	HK$9,927.22
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		HK$730,750.30

15.Even though EOFL was entitled to charge an interest rate of 15.579% per annum on the Loan and overdue interest of 15.579% under the Loan Agreement, EOFL in fact was only charging an interest rate of 14% per annum.

16.The basis for the interest rate of 15.579% was due to the fact that the 1^st instalment of HK$19,217 under the repayment schedule included a sum of HK$11,050 which was used to cover the legal costs and valuation fee incurred by EOFL.  As a result, the interest rate came to be 15.579%:-

(HK$11,050 + HK$8,167 x 12 instalments)/HK$700,000 x 100% = 15.579%

17.EOFL accepts that the payment of HK$11,050 to cover the legal costs and valuation fee might contravene section 27 of the Money Lenders Ordinance which provides that costs, charges and expenses incidental to negotiations for or granting of a loan shall not be recoverable from the lender.  Therefore, EOFL is willing to apply the sum of HK$11,050 to reduce the outstanding principal instead.  When the outstanding principal is reduced, the accrued interest for the next instalment will also be reduced.

18.If one takes out HK$11,050 from the repayment schedule attached to the Loan Agreement, EOFL is charging HK$8,167 as monthly interest for a period of 12 months.  The interest rate charged by EOFL should only be 14% per annum:-

(HK$8,167 x 12 instalments)/HK$700,000 x 100% = 14%

19.The interest rate of 14% per annum charged by EOFL under the Loan Agreement does not exceed the 60% ceiling imposed by section 24 of the Money Lenders Ordinance.  And I accept the calculation of outstanding principal and outstanding interest presented to me by Ms Yeung.

20.Being satisfied that Kwong is justly indebted to EOFL, I enter judgment against Kwong for:-

(a)  the sum of HK$730,750.30;

(b)  contractual interest accrued on the principal sum of HK$685,085.99 at the rate of 14% per annum from 19 December 2018 until payment in full; and

(c)  interest at judgment rate accrued on the sum of HK$45,664.31 from date of judgment until payment in full.

Partition Ordinance (Cap 352)

21.Section 2 of the PO provides that where any property in land is held by 2 or more persons as joint tenants or tenants in common, the court may make an order for partition under section 4 or an order for sale under section 6.

22.Clause 6.01(i) of the Legal Charge states that where Kwong is in default, it shall be lawful for EOFL to enter into and upon and take possession of Kwong’s interest in the Property and for that purpose to take any legal proceedings and thenceforth to hold, possess and enjoy the Property and to receive the rents and profits thereof without any lawful interruption or disturbance by Kwong or any other person.

23.Clause 6.01(iii) of the Legal Charge states that where Kwong is in default, whether or not EOFL shall have made entry or taken possession, it shall be lawful for EOFL to sell, assign, call in, collect and convert into money Kwong’s interest in the Property or any interest therein free from the Legal Charge and any other estates interest and rights to which the Legal Charge has priority, with full power to sell the same either together or in parcels and either by public auction or tender or private contract.

24.EOFL as a legal chargee has acquired an interest in possession when Kwong is in default.  With this interest in possession, EOFL qualifies as an “interested person” under section 3 of the PO and is entitled to apply for an order for partition or an order for sale: Uplink Finance Limited v Lee Sze Tai & Others DCMP 794/2016; Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224.

The legal principles

25.Section 6 of the 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 interested; or

(d)  any other circumstances,

(e)  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.When determining whether an order for partition under section 4 or an order for sale under section 6 should be made under the PO, I find His Honour Judge Andrew Li’s comments in Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 instructive.  At paragraphs 26 to 30, the learned judge said this:-

“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).

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.

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, [2006] HKEC 777) (28 April 2006), per Deputy High Court Judge To (as he then was); Poon Yuet Chun v Tse So Kwun (unrep., HCMP 5662/2001, 29 April 2002), per Maria Yuen J (as she then was).

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 (unrep., HCMP 2239/2000, [2002] HKEC 804) (24 June 2002), per Susan Kwan J (as she then was); Drinkwater v Ratcliffe (1875) LR 20 Eq 528).

30.  In Ip Sau Shu v Sham Lai Hing [2003] 4 HKC 528, [2002-03] CPR 655, per Deputy High Court Judge Jeremy Poon (as he then was); a two bedroom flat of about 600 sq ft 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 property in question

27.The Property secured by the Legal Charge in the present case is situated in a 19-storey residential building.  According to valuation report dated 2 January 2019 (“the Valuation Report”) which was compiled by Prudential Surveyors (Hong Kong) Limited, it has a gross floor area of 379 sq ft and a saleable area of 266 sq ft.  The registered floor plan depicts a living/dining area, 2 bedrooms, a bathroom and a kitchen.

Order for partition or order for sale

28.I come to a view similar to that of His Honour Judge Andrew Li in Law Chun Wai v Chu Suk Har, that it would not be reasonable to expect a potential purchaser to share the Property with Lee.  If the Property is to be partitioned into 2 units (each with a saleable area of 133 sq ft), an extra entrance will have to be installed.  It is entirely unclear whether such a step is physically and legally possible.  Given the size of the Property and the uncertainty, I believe it would be impracticable to order partition of the Property.

29.Having come to the view that partition would not be practicable, I proceed to consider whether an order for sale is beneficial to Lee when she is not a party to the Loan Agreement or the Legal Charge.  On this aspect, I believe that Lee’s financial interest is safeguarded because she will still be entitled to half of the value of the Property. 

30.According to EOFL’s evidence, Lee is the mother of Kwong.  Both Lee and Kwong were absent at the call over hearing on 11 April 2019.  Nevertheless, I gave them an opportunity to file an affirmation in opposition and directed EOFL to serve my order on them.  Both of them did not file any evidence and were still absent at the substantive hearing.  The situation remains that there is no evidence from Lee that the sale of the Property will not be beneficial to her or will cause her great hardship. According to EOFL, Lee and Kwong lived at the Property.  But there is no information as to whether Lee still lives at the Property, whether she has any other properties and whether she can find alternative accommodation.  She has not discharged the burden of proof which is squarely on her.

Order

31.After balancing the needs of EOFL and Lee objectively, I come to the conclusion that an order for sale under section 6 of the PO would be more feasible.

32.Based on the Valuation Report, the market value of the Property should be HK$4,000,000 while the value for sale under repossession should be HK$3,300,000.

33.Therefore, I order as follows:-

(1)  Payment of all monies that are due to the plaintiff from the 2^nd defendant under and by virtue of the Loan Agreement, secured by the Legal Charge, for (i) the sum of HK$730,750.30; (ii) contractual interest accrued on the principal sum of HK$685,085.99 at the rate of 14% per annum from 19 December 2018 until payment in full; and (iii) interest at judgment rate accrued on the sum of HK$45,664.31 from date of order until payment in full;

(2)  Unless within 28 days of the service of order, the 2^nd defendant do make payments adjudged in paragraph (1) 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 and the Property be sold pursuant to section 6 of the Partition Ordinance, Cap 352, at open market value not less than HK$4,000,000 or at value for sale under repossession not less than HK$3,300,000;

(3)  The conduct of sale be given to the plaintiff’s solicitors;

(4)  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 affecting the Property (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$25,000, 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)  in payment to the 1^st defendant, who owns half of the Property with the 2^nd defendant as joint tenants. If the 1^st defendant could not be located, such sum to be paid into court for the credit of the 1^st defendant.

2.  as for the second half,

(i) in payment of all plaintiff’s costs of these proceedings on an indemnity basis summarily assessed at HK$98,505 and the fee for the Valuation Report for the Property in the sum of HK$5,000;

(ii) in payment of the outstanding sum adjudged under paragraph (1) herein; and

(iii) the balance, if any, after deduction of the costs and disbursements for handling the encumbrances affecting the Property and ranking immediately behind the Legal Charge, or if there is no subsequent encumbrance, to the 2^nd defendant.  If the 2^nd defendant could not be located, such residue (if any) shall be paid into court for the credit of the 2^nd defendant;

(5)  Upon such sale, the plaintiff be authorized to do all acts necessary for the vesting of the Property in the purchaser(s) thereof;

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

Ms R Yeung, of Cheung & Choy, for the plaintiff

The 1^st and 2^nd defendants were not represented and did not appear