Konew Capital International Ltd v. Tsang Shar Wing and Another

DCMP 3893/2019

[2021] HKDC 286

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3893 OF 2019

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Coram: His Honour Judge Harold Leong in Court

Date of Hearing: 3 December 2020

Date of Judgment 8 March 2021

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JUDGMENT

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1.This is an application for a money judgment, an order for possession, and an order for sale.

Background

2.The plaintiff (“P”), a licensed money lender in Hong Kong, is a mortgagee of the second mortgage dated 12^th July 2018 (the “Second Mortgage”) and third mortgage dated 20^th December 2018 (the “Third Mortgage”) (collectively, the “Konew Mortgages”) voluntarily granted by 1^st defendant (“D1”) over a property beneficially owned by D1 (and the 2^nd defendant (“D2”)), namely Flat H, 48^th Floor, Tower 2, Ocean Shores, No. 88 O King Road, Tseung Kwan O, Sai Kung, New Territories (the “Property”).

3.In a Loan Agreement dated 14^th March 2019 (the “Loan Agreement”), D1 obtained a loan of HK$1,000,000 from P for the purpose of re-financing of existing loans. The said loan is secured by the Konew Mortgages (which secure altogether HK$1,200,000 plus interests and costs).

4.D1 has failed to repay the said loan (by instalment) and an event of default under the Konew Mortgages occurred. Notwithstanding P’s repeated requests and demands, D1 has failed and/or refused to remedy his breach. P has therefore exercised its power of sale under the Konew Mortgages and commenced these proceedings by way of an originating summons dated 2^nd December 2019 (the “OS”) which was supported by the Affirmation of Wong Kin Keung dated 13^th March 2020 (and filed on 17^th June 2020) (the “Affirmation of Wong Kin Keung”).

5.P is therefore applying for a money judgment, order for possession, and order for sale.

6.D2 appeared in person in the 1^st hearing before this Honourable Court, and has subsequently filed an Affirmation of Wong Hau Yin (黃巧燕的非宗教式誓詞) [Hearing Bundle page 147-1 to 147-2] in opposition (“D2’s Affirmation in Opposition”).

7.The court needs to consider whether all essential elements for money judgment, order for possession, and order for sale are established.

Preliminary matters

8.As a preliminary point, the court is satisfied that P has complied with section 18 of the Money Lenders Ordinance (Cap 163) (“MLO”):

i)  The Loan Agreement is the “note or memorandum” under section 18 of the MLO;

ii)  Section 18(2) of the MLO has also been duly complied with; and

iii)Section 18(1) of the MLO is also duly complied with (i) given that the date of the Loan Agreement coincided with the date of advancement of loan [Hearing Bundle page 102 and page 108] and (ii) the relevant terms of the MLO have been duly listed in the Loan Agreement itself [Hearing Bundle page 103, page 105, and page 107].

9.Further, the interest charged by P (i.e. 42%) does not exceed 48% (not to mention 60%) [Hearing Bundle page 102] and hence the Loan Agreement fully complies with sections 24 and 25 of the MLO.

P’s entitlement to money judgment

10.The OS was duly issued under Order 83A and Order 88 of the Rules of the District Court (Cap 336H).

11.Order 83A provides for the basis of a money lenders action, including an action for money judgment (see page 1 of the OS [Hearing Bundle page 1]). The requirements under Order 83A have all been complied and there was valid service of the relevant documents on D1 and D2.

12.P is therefore entitled to seek a money judgment against D1 in this substantive hearing. The amount was not stated in the OS since the amount has been accruing after the issuance of the OS up until payment. However, the latest figure was provided at the Draft Order annexed to P’s skeleton submissions.

13.P’s claim for a money judgment against D1 is based on D1’s non-payment of the instalments of principal and interest as required by the Loan Agreement.

14.Under the Loan Agreement, it was provided that:

i)  P would lend D1 a loan of HK$1,000,000.00 at the interest rate of 42.00% per annum (i.e. the “Loan”);

ii)  The term of the Loan is 18 months;

iii)D1 would repay P the Loan together with interest thereon at the rate of 42.00% per annum by 18 monthly instalments;

iv)  D1 would pay to P interest on any outstanding principal amount at the rate of 42.00% per annum until full settlement of the Loan, and that the judgment rate is not adopted;

v)  If any instalment is overdue, P could give notice to D1 to demand payment. If after 7 days from the date of issuance of the said notice D1 still fails and/or refuses to repay all the outstanding monthly payments, the remaining balance of the Loan and interest would become immediately due and payable. P would be entitled to take legal action against D1 for the recovery of the remaining balance of the Loan and interest;

vi)  To ensure, inter alia, punctual repayment by D1, D1 agreed to have the Property mortgaged to P as security; and

vii)  Costs of any Court proceedings for the repayment of the Loan would be borne by D1.

15.The Konew Mortgages were executed in favour of P, which essentially provided that:

i)  D1 would forthwith upon written demand by P make good and discharge to P the secured indebtedness (as defined therein);

ii)  An event of default would occur if, inter alia, (i) D1 makes default in the payment of the secured indebtedness (as defined therein) or any part thereof following demand duly made, (ii) D1 makes default in the payment on the due date and in accordance with the terms and conditions of any term loan (whether demanded or not), or (iii) there is any breach of or omission to observe any of the agreements, covenants or obligations under the Second Mortgage (the “EoD”);

iii)  If any EoD has occurred, P could at any time thereafter without consent on the part of D1 (or of any person but subject always to the rights of the First Mortgagee), inter alia, (i) enter into and upon and take possession of D1’s share in the Property (including via the commencement of legal proceedings), (ii) sell, assign, call in, collect and convert into money D1’s share in the Property, (iii) exercise any powers or rights incidental to the ownership of the Property, (iv) bring any claim, action or proceedings in relation to the Property and (v) do any things necessary or desirable for realising the Property or any part thereof; and

iv)  D1 shall pay or reimburse to P on demand all costs, charges and expenses incurred (including those incurred in the commencement of legal proceedings for the enforcement of the Konew Mortgages).

16.D1 obtained the Loan on 14^th March 2019 but had been in default in paying the full or any monthly instalments in accordance with the LA since the 1st instalment due on 14^th April 2019.

17.By a letter dated 15^th July 2019 from P’s solicitors, P demanded D1 to pay off the outstanding instalment(s) of the Loan together with interest thereon within 7 days, failing which P would commence legal proceedings against D1 for the recovery of the entire balance of the Loan and interest as well as for enforcement of the Konew Mortgages. 

18.A similar demand was repeated by a letter dated 3^rd September 2019 from P’s solicitors. On this occasion, P demanded for repayment of the entire balance of the Loan with interests within 7 days, and indicated clearly its intention to apply for an order for sale of the Property in its entirety if D1 fails and/or refuses to comply with the said demand.

19.Nonetheless, D1 has failed and/or refused to comply with the repeated demands and requests.

20.As such, an EoD has occurred and P is entitled to possession of the Property (at least the share or part beneficially owned by D1).

21.P is also entitled to judgment of the following money sums (at paragraph 22 to 26 of the Affirmation of Wong Kin Keung [Hearing Bundle page 22 to 24]):

i) HK$1,297,296.05, being the aggregate of the outstanding principal, interest and default interest calculated up to 13^th March 2020;

ii) Interest on the sum of HK$1,000,000.00 at the rate of 42.00% per annum (i.e. daily interest of HK$1,147.54) from 14^th March 2020 until payment; and

iii) Further default interest on the sum of HK$32,843.91, being interest element of the outstanding instalment(s) at the rate of 42.00% per annum (daily interest of HK$37.69) from 14^th March 2020 until payment.

22.In these circumstances, the court would enter money judgment against D1 in terms of the Draft Order.

P’s entitlement to an order for possession

23.Order 88 provides for the basis of a claim in possession (see paragraph 2 of the OS [Hearing Bundle page 3]):

24.This court finds that the requirements under Order 88 have all been complied with. The Affirmation of Wong Kin Keung [Hearing Bundle page 11 to 32] has provided details required by Order 88 rule 5(3) namely:

i)  The amount of the advance;

ii)  The amount of the periodic payments required to be made;

iii)  The amount of any interest or instalments in arrear at the date of the OS and at the date of the affidavit; and

iv)  The amount remaining due under the Konew Mortgages.

25.In compliance with Order 88 r5(2), true copies of the Konew Mortgages are exhibited as Exhibit WKK-2 [Hearing Bundle page 41-63] and Exhibit WKK-3 [Hearing Bundle page 64-86], and the original versions of the same have also been provided to the Court for examination at the hearing.

26.In compliance with Order 88 r5(4), the court is satisfied that the Property remains to be in the use, possession and control of D1 and D2 as at the date of the Affirmation of Wong Kin Keung. 

27.Finally, as set out above, P has effected valid service of the relevant documents on D1 and D2. Notice of P’s application for possession was also given to Hang Seng Bank, the first mortgagee.

28.In these circumstances, the Court finds that P is entitled to an order for possession of the Property.

P’s entitlement to an order for sale

Legal principles

29.According to sections 2, 3, 5 and 6 of the Partition Ordinance (Cap 352) (“PO”), a tenant in common has the locus standi to apply for an order for sale:

“Section 2: Power to order partition or sale of property in land

Subject to this Ordinance, where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may—

(a) make an order under section 4 for a partition of the property;

(b) make an order under section 6 for a sale of the property; or

(c)  refuse to make any order.”

“Section 3 Institution of proceedings and parties thereto

Where any property in land is held in the manner referred to in section 2, any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale ...”

“Section 5 Court may apportion rights and obligations and create easements

(1) The Court may, at any time after it has made an order under section 4 for the partition of the property, on the application of any person interested or of its own motion, make an order under this section, which order may —

(a) apportion or adjust between the several parcels into which the property is partitioned any rights, obligations or liabilities in force in respect of the property;

(b) create, as between the several parcels into which the property is partitioned, or any of them, any easement, together with rights and obligations attaching thereto,

and any order under this section shall have effect as if all necessary dispositions or agreements had been duly made for that purpose by all persons concerned …”

“Section 6: Sale of land

(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,

the Court may make an order for the sale of the property.”

30.There is authority suggesting that a legal chargee/mortgagee of a partial interest is entitled to apply for an order for sale or partition of the entire land: see Uplink Finance Ltd v Lee Sze Tai and Others (supra), paragraph 25. The underlying reason is that, upon an event of default, such chargee/mortgagee would be entitled to possession of the property, making itself a person interested within the meaning of the PO: see Law Chun Wai v Chu Suk Har (supra), paragraph 22 to 23.

31.The court has considered the following cases regarding its exercise of discretion under the PO.

32.In Wong Chun Kei v Poon Vai Chung [2007] 1 HKLRD 825, Mr Recorder Fok SC (as he then was) succinctly summarised the principles at paragraph 18 to 19 as follows:

“18. These passages from the cases cited above were relied upon by Mr. Fung SC to support the following propositions, namely:

(a) A co-owner has a basic right to rid himself of the shackles of co-ownership and ask for an order for partition or sale.

(b) When it is impracticable to make an order for partition, the court should make an order for sale unless it is persuaded (the burden being on the opposing co-owner(s)) that such an order will not be beneficial to all the co-owners.

(c) 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.

19. Subject to adding the qualifications, “if he has no other remedy,” before the words “ask for an order for partition or sale” in proposition (1), and “or that it will result in very great hardship to one co-owner” to the end of proposition (2), I am satisfied that these propositions fairly and accurately state the law as regards the court’s jurisdiction when faced with an application for partition or sale under the Ordinance and I shall proceed in this judgment to apply those propositions in resolving the plaintiffs’ application.”

33.The above principles were applied by DHCJ Kent Yee in Tsang Wai Fan v Hui Siu Kwong HCMP 1505/2014 (unreported, 26 January 2016) (at paragraph 22) and very recently by DHCJ Keith Yeung SC (as he then was) in Chan Sing Fu v Chan Hoi Shing and Others HCMP 1713/2017 (unreported, 17 September 2018) (at paragraph 10 to 11).

Considerations

34.First, this Court is interested in whether P, being a second mortgagee over a half interest in the Property, is a “person interested” within the meaning of the PO. The answer is yes.

35.In Fortis Bank Asia HK v Yu Kam Hoi & Another HCMP 134/2002 (unreported, 4 March 2004), Reyes J held at paragraph 56 that the words “any person interested in such property” in section 3(1) of the PO must be read restrictively as confined to persons holding an interest in possession.

36.In Fisher and Lightwood’s Law of Mortgage (13th ed), the learned editors stated at paragraph 29.2 that a “second or subsequent mortgagee is similarly entitled to possession, except as against prior mortgagees”. As such, a second or subsequent mortgage can also be a “person interested” within the meaning of the PO.

37.Although P is only entitled to possession of half of the interests of the Property, and has lower priority than the mortgage held by Hang Seng Bank, P is still a “person interested” for the following reasons:

i)  Hang Seng Bank has indicated no intention to apply for any order of possession. It has chosen not to participate in the present proceedings; and

ii)  By reason of D1’s default in repayment, an event of default of the Konew Mortgages was triggered, and that gave P numerous rights over the Property (akin to a legal and beneficial owner) as per §6.01 of the Konew Mortgages.  The rights P has are akin to the rights of a tenant in common. Given the trite law that a tenant in common is a “person interested”, P is also a “person interested” within the meaning of the PO.

38.Second, the basis of P’s applications has been made beyond doubt to D1, D2 and Hang Seng Bank by Affirmation of Wong Kin Keung. D2’s Affirmation in Opposition has raised no valid legal defences to P’s claims. D2 stated that the Property was the main residence of herself and her two daughters. During the hearing, D2 further explained that her eldest daughter was now in university but the younger one, aged 12, required a helper to look after.

39.Whilst the court understands such difficulties, there is no evidence before the court that shows that there are special or unusual circumstances which may amount to “very great hardship” under the law. As such, the evidence before the court is not sufficient to defeat a mortgagee’s property rights and entitlement to apply for a sale under the PO.

40.Incidentally, D2 also questioned why the plaintiff would still loan to D1 given his bad track record. However, the court agrees with Mr. Cheung, counsel for the plaintiff, that this was a commercial decision and not a legal matter for the court to deal with.

41.Third, the discretionary factors are also in favour of the grant of an order for sale.

42.There is no evidence from D1 or D2 (nor Hang Seng Bank) suggesting that it is possible or desirable to physically partition the Property into two halves.

43.Since the Property is a residential unit in a multi-storey building with a saleable area of around 515 sq ft, it would be impracticable or not beneficial to the owners to make an order for its partition. Even if it is possible, doing so will no doubt greatly devalue the Property, and prejudice D2’s financial interests.

44.There is no evidence from D1 or D2 (nor Hang Seng Bank) suggesting that an order for sale would cause great hardship to one or some of them. As already canvassed above, D2’s Affirmation in Opposition has not demonstrated any valid legal defence, not to mention a defence of severe hardship.

45.There is no sign that D1 would or at least intends to defend P’s applications.

46.The first mortgagee, Hang Seng Bank, also had not made any objections as at the date hereof. Importantly, so long as the sale proceeds are applied towards the discharge of the first mortgage in favour of Hang Seng Bank, there could not be any conceivable injustice and/or prejudice on the part of Hang Seng Bank.

47.Given D1’s behaviour, P would not be able to recover (or recover fully) the outstanding sums without the Court’s order. P would clearly suffer prejudice by the late repayment of the outstanding sums, bearing in mind that the amount of loss and damage on P’s part will escalate and it is unclear whether later the value of the Property can fully cover P’s loss and damage.

48.In addition, since a reserve price at the market value would be set up by P, some surplus would be left for D1 and D2 after a sale of the Property.

P’s entitlement to an order for indemnity costs

49.The Court note that entitlement to indemnity costs are provided by §17.01(ii) of the Konew Mortgages and Clause 13 of the Loan Agreement.

50.In this connection, it is trite that contractual agreement to pay costs on indemnity basis would be enforced by the Court: Kowloon Development Finance Ltd v Pendex Industries Ltd [2012] 5 HKLRD 11, paragraph 48 to 51.

Conclusion

51.In the premises, the Court would give the following orders:-

(1)  The 1^st defendant do pay the plaintiff the following secured by a Second Mortgage dated 12 July 2018 (“the Second Mortgage”) and a Third Mortgage dated 20 December 2018 (“the Third Mortgage”):

a)  the sum of HK$1,297,296.065;

b)  interest on the sum of HK$1,000,000.00 at the rate of 42% per annum (i.e. daily interest of HK$1,147.54) from 14 March 2020 until payment;

c)  default interest on the sum of HK$32,843.91 being the interest element of outstanding instalment(s) at the rate of 42% per annum (i.e. daily interest of HK$37.69) from 14 March 2020 until payment; and

d)  costs of these proceedings as referred to paragraph (8) below;

(2)  Unless the 1^st defendant do make payment of the sums as referred to in paragraph (1) above within 28 days after the service of this Order, the 1^st and 2^nd defendants do deliver to the plaintiff vacant possession and title deeds and documents in their possession (if any) of the Property;

(3)  Subject to delivery of vacant possession by the 1^st and 2^nd defendant as stated in paragraph (2) above, the Property be sold by the plaintiff by public auction or private treaty in open market at the price not less than HK$7,230,000.00 (value for sale under repossession);

(4)  The conduct of the sale of the Property shall be committed to the plaintiff’s solicitors Messrs. Au Yeung, Lo & Chung;

(5)  Upon such sale, the 2^nd defendant shall do all acts and things necessary for the transfer of the legal title and beneficial interest in the Property to the purchaser, failing which Mr. Chung Man Wing, a partner of Messrs. Au Yeung, Lo & Chung, solicitors for the plaintiff be appointed under section 38A of the District Court Ordinance (Cap 336) to execute the necessary conveyance or assignment to give effect to this Order;

(6)  The proceeds of the sale of the Property shall be paid to the plaintiff’s solicitors and be applied upon completion in the following order of priority:

a)  In discharge of all government rent, taxes, rates and other outgoings due and affecting the property;

b)  In discharge of all encumbrances affecting the Property having priority to the Second Mortgage and the Third Mortgage, if any;

c)  In payment of the costs and expenses in connection with the sale of the Property;

d)  50% of the remaining proceeds relating to the 1^st defendant’s interest in the Property be applied as follows:

i) in payment of the plaintiff’s costs of these proceedings;

ii) in discharge of the Second Mortgage and the Third Mortgage;

iii) the balance (if any) be paid to the next encumbrancer, or if there is no such next encumbrancer, to the 1^st defendant;

e)  the other 50% of the remaining proceeds relating to the 2^nd defendant’s interest in the Property be applied as follows:

i)  in discharge of all encumbrances affecting such 2^nd defendant’s interest in the Property;

ii)  the balance, if any, be paid to the 2^nd defendant;

(7)     Upon the 1^st defendant paying to the plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the plaintiff by the Second Mortgage and the Third Mortgage, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) do redeliver to the 1^st and 2^nd defendants possession and title deeds and documents of the Property and release to the 1^st defendant and the security constituted by the Second Mortgage and the Third Mortgage as the 1^st defendant may agree or the court may direct but without prejudice to the validity of any contract made prior to or without notice of such redemption and payment;

(8)  The 1^st defendant do pay the costs of these proceedings to the plaintiff on a full indemnity basis summarily assessed at HK$87,000.00; and

(9)  There be liberty to apply.

Mr. Tommy Cheung, instructed by M/s Au Yeung, Lo & Chung, for the plaintiff

The 1^st defendant appears in person

The 2^nd defendant appears in person