Ego Finance Ltd v. Cheung Lam Fong and Others

DCMP 3072/2022

[2023] HKDC 948

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3072 OF 2022

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JUDGMENT

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Introduction and procedural background

1.On 16 August 2022, the plaintiff filed an Originating Summons (the “OS”), claiming for: (1) money judgment against the 1^st and 3^rd defendants; (2) an order for possession against the 1^st and 2^nd defendants; and (3) an order for sale pursuant to sections 2, 3 and 6 of the Partition Ordinance, Cap. 352 (“PO”). The orders for possession and sale relate to a property situate at Flat C1, 14/F, Chungking Mansion, Nos. 36-44 Nathan Road, Kowloon (the “Property”).

2.The sealed copies of the OS were served on 26 August 2022 to the 1^st to 3^rd defendants at the Property[1]. In addition, the OS was served on the 1^st defendant at her other last known address[2]. The OS was also posted up at the main entrance of the Property.

3.In spite of the said services, none of the 1^st to 3^rd defendants filed any Acknowledgement of Service.

4.The plaintiff then proceeded to file a Notice of Appointment to Hear Originating Summons (“NOA”), a Notice to Occupants (“NOO”) and an Affirmation of Kong Man Lok (“Kong’s Affirmation”) on 19 October 2022. The NOA and Kong’s Affirmation were served on the 1^st to 3^rd defendants by ordinary post on 20 October 2022, unreturned. The NOA and NOO were also posted up at the main entrance of the Property on 8 December 2022.

5.The 1^st to 3^rd defendants were absent from the call-over hearing before Deputy District Judge C. To on 16 December 2022. The learned deputy judge adjourned the matter for substantive hearing. The substantive hearing took place before me on 12 July 2023.

6.At the substantive hearing, the plaintiff was represented by counsel Mr Tommy T.W. Cheung (“Mr Cheung”), instructed by Messrs Foo and Li (“F&L”). The 1^st and 3^rd defendants appeared in person; the 2^nd defendant was absent. The 3^rd defendant, the son of the 1^st and 2^nd defendants, informed me that his father, the 2^nd defendant, had a stroke, thus elected not to attend the hearing. I was also told that the 2^nd defendant was aware of the present application and hearing.

7.I am satisfied that the 2^nd defendant should have notice of this substantive hearing. The affirmation of service filed on 3 July 2023 showed that Notice of Appointment for the Adjourned Hearing of the Originating Summons filed on 29 June 2023, was served to the 1^st to 3^rd defendants on 30 June 2023 by ordinary post, and the Notice to Occupants (2) filed also on 29 June 2023 was posted at the main entrance of the Property on 30 June 2023. I also observe that a Notice of Hearing setting out the date and time of the substantive hearing was issued by the court on 21 June 2023, and delivered by post to all parties concerned. In the circumstances, the substantive hearing was proceeded with in the absence of the 2^nd defendant[3].

8.The written submissions, list and copies of authorities, statement of costs, and the hearing bundle prepared and lodged to the court by F&L, were served to 1^st to 3^rd defendants on 4 July 2023 by ordinary post to the Property and the 1^st Premises. At the hearing, Mr Cheung had produced for my inspection and consideration the required original documents[4], updated land search of the Property[5], and a draft order.

The plaintiff’s case

9.The plaintiff was at the material times and still is a licenced money lender in Hong Kong. By a Chinese loan agreement dated 7 January 2021 (the “Loan Agreement”), the plaintiff agreed to lend, and the 1^st defendant agreed to borrow, a sum of HK$1,000,000 (the “Loan”). Under the Loan Agreement, interest at the rate of 21.6% per annum would be charged on the Loan. Principal of the Loan and the interest would be repaid by 120 monthly instalments at HK$20,405.00. The first instalment would be payable on or before 6 February 2021; each of the remaining instalments should be paid on or before the 6^th day of each subsequent month until full payment.

10.The Loan Agreement was also signed by the 3^rd defendant as the guarantor of the Loan.

11.To provide security for the Loan, the 1^st defendant executed a legal charge in favour of the plaintiff on even day (the “Legal Charge”), under which the 1^st defendant mortgaged her share in the Property. The Property was and is still owned by the 1^st and 2^nd defendants as joint tenants.

12.In breach of the Loan Agreement and the Legal Charge, the 1^st defendant had since 6 April 2022 (i.e., the 15^th instalment) failed to pay any monthly instalment. As a consequence, F&L issued on behalf of the plaintiff letters dated 4 August 2022 to the 1^st to 3^rd defendants, demanding full payments of the outstanding principal of the Loan and interests from the 1^st and 3^rd defendants. These demands had fallen on deaf ears, and their inaction gave life to these proceedings.

O.83A, O.88, and the Money Lender Ordinance (the “MLO”)

13.As mentioned, the plaintiff was a licenced money lender at the time when the Loan Agreement was created. A licence covering the period from 8 September 2020 to 9 September 2021 is exhibited by Kong’s Affirmation. Section 23 of the MLO is thus satisfied.

14.The first part of the Loan Agreement contains the “note or memorandum” with the terms as required under section 18(2) of the MLO, including the 3^rd defendant’s (as surety) name and address, being set out. Attached to the Loan Agreement are a repayment schedule and a summary of Parts III and IV of the MLO in compliance with section 18(1)(b).

15.The interest rate of 21.6% per annum charged under the Loan Agreement is neither extortionate (exceeds 48% per annum) nor illegal (exceeds 60% per annum) under old sections 25(3) and 24(1) of the MLO respectively[6]. The claim for simple interest at the same rate on the outstanding principal of the Loan and the interest element of the outstanding instalments[7] are allowed under section 22(1).

16.I have also perused the Legal Charge in detail. Overall, I can find nothing in the Loan Agreement and the Legal Charge that may constitute any violation of the MLO.

17.Turning to the present proceedings, the plaintiff’s claim is a mixture of O.83A and O.88 of the Rules of the District Court (“RDC”), hence the procedural requirements under both orders must be satisfied. In this regard, the plaintiff has filed Kong’s Affirmation in support of the OS. In it, apart from setting out the factual background of the case, the terms of the Loan Agreement and the clauses in the Legal Charge which the plaintiff seeks to rely on, and calculations of the outstanding principal and interest, the particulars and documents required to be exhibited under both O.83A, r.4 and O.88, r.5 of the RDC are provided. There is nothing for me to pick on.

The defendants’ case

18.At the hearing, the 3^rd defendant spoke on behalf of the 1^st defendant with the latter’s agreement. In short, they agree to the orders sought by the plaintiff in the present proceedings. The only request was that they wanted some time to repay the debts owed to the plaintiff, so that the Property need not be sold. The 3^rd defendant explained that he had 4 other properties in Chungking Mansion, which have been repossessed by their mortgagee. One of them were already sold, and the other 2 might be sold on 12 July 2023. He is confident that there would be surplus from the proceeds of sale of the 4 properties after the debts owed to the mortgagee were settled; such surplus could then be used to repay the outstanding principal and interest owed to the plaintiff in our case.

19.In the absence of any defence to the plaintiff’s claim, and for the reasons provided below, there is nothing to dissuade me from granting the orders that the plaintiff sought. Although the 3^rd defendant did not expressly request for it, I am not convinced that the hearing should be adjourned based on what the 3^rd defendant said. There is no certainty that his 2 properties could be sold on 12 July 2023; there is no information as to how much they would be sold; even if they were sold by 12 July 2023, obviously the full purchase prices would not be paid until the completion dates; and there is no information as to the amount of surplus, if any, that would be left from the proceeds of sale, after application of the same in satisfaction of the debts owed to the mortgagee of those properties.

20.Mr Cheung added that the plaintiff is agreeable to extend the time for the 1^st and 2^nd defendants to give vacant possession of the Property from the usual 28 days to 60 days from the service of the order to be granted. This fortified my view that there should be no adjournment of this hearing.

21.In spite of the 1^st and 3^rd defendants’ expressed agreement to the orders sought by the plaintiff, they were not acting on behalf of the 2^nd defendant. The stance taken by the 2^nd defendant relating to the plaintiff’s application is unknown. For prudent sake, this Judgment will be handed down to the parties.

Money judgment against the 1^st and 3^rd defendants

22.In the absence of any contradictory evidence, I accept that the 1^st defendant has breached the Loan Agreement by her failure to pay any monthly instalments since 6 April 2022. Such failure would entitle the plaintiff to sue her for the outstanding principal of the Loan and the interest accrued[8].

23.And as a guarantor, the 3^rd defendant is bounded by and has agreed to perform the Loan Agreement. Where the 1^st defendant has defaulted in any payment to the plaintiff, the 3^rd defendant is, jointly with the 1^st defendant, and severally by herself, liable to pay to the plaintiff all of the outstanding balance and/or amount payable under the Loan Agreement to the plaintiff[9].

24.For these reasons, money judgment should be entered in favour of the plaintiff against the 1^st and 3^rd defendants.

25.As to the amount, the plaintiff has provided calculations of the outstanding principal of the Loan and interest up to the date of Kong’s Affirmation. The outstanding principal of the Loan is HK$940,645.42. The interest accrued on the outstanding principal up to 17 October 2022, calculated at the rate of 21.6% per annum, amounted to HK$141,632.52[10]. And as to the simple interest charged on the interest element of the outstanding instalments (HK$98,826.37), a sum of HK$14,511.83 is owed[11]. The total sum that the 1^st and 3^rd defendants are liable to pay, up to 17 October 2022, is therefore HK$1,096,789.77 (HK$940,645.42 + HK$141,632.52 + HK$14,511.83).

26.From 18 October 2022 onward to the date of full payment, interest at the contractual rate (21.6% per annum) should continue to apply, pursuant to clause 15 of the Loan Agreement[12]. The daily interest payable on the outstanding principal (HK$940,645.42) and on the interest element of outstanding instalments (HK$98,826.37) are HK$556.66 and HK$58.48 respectively.

Order for possession

27.The said failure of repayment by the 1^st defendant constituted an event of default under clause 5.01 of the Legal Charge. Where such an event of default has occurred, the plaintiff is entitled to seek immediate repayment of all outstanding principal and interest[13]. It could also seek possession of the Property, and thereafter opt for the sale of the same[14].

28.For the reasons provided in the above, order for possession should be granted.

Sale of the Property

29.The 2^nd defendant is neither a party to the Loan Agreement nor the Legal Charge. He is made a party to these proceedings because of his co-ownership of the Property with the 1^st defendant, which the plaintiff now seeks to sell so that proceeds from it could be used to satisfy the subject debts.

30.According to sections 2, 3 and 6 of PO, a “person interested” has the locus standi to apply for an order for sale, whether the property in question is held by 2 or more persons as joint tenants or tenants in common. In the event of default by the mortgagor under a legal charge or mortgage, a legal chargee or mortgagee of a partial interest is held to be entitled to apply for an order for sale or partition of the entire land[15].

31.In light of my findings above that the 1^st defendant has failed in her repayment of the monthly instalments, and therefore enabling the plaintiff to exercise the power to take possession of the Property, the plaintiff qualifies as a “person interested” under the said provisions of PO. In short, the plaintiff has the locus standi to apply for a sale of the Property.

32.There remains the question of whether the court should exercise its discretion to order for a sale of the Property. The principles relevant to the exercise of such discretion has been summarised by Mr Recorder Fok SC (as his Lordship then was) in the case of Wong Chun Kei v Poon Vai Chung[16]:-

“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.” (emphasis added)

33.The above principles have been applied in numerous cases since then.[17]

34.I agree with Mr Cheung that the discretion should be exercised in favour of the grant of an order for sale, for the reasons provided below.

35.The Property is a residential unit in a multi-storey building with saleable size of 734 square feet[18]. There is nothing to suggest that the Property could be physically partitioned into 2 separate flats; such partition would also entail creating 2 entrances for the 2 sub-units, feasibility of which is questionable. Moreover, such partitioning could potentially be in breach of the Deed of Mutual Covenant and/or in violation with the relevant building regulations.

36.Even assuming that the physical partition of the Property is possible, partitioning of the Property into 2 units of 367 square feet each could greatly devalue the Property, therefore prejudicing the 2^nd defendant’s financial interests. The 1^st and 2^nd defendants have not filed any evidence to the contrary, not to mention advancing any grounds of “very great hardship”. Conversely, an order for sale of the Property is beneficial to all the co-owners: (1) the 1^st defendant’s share of the net sale proceeds could be utilised to satisfy her outstanding debts to the plaintiff; and (2) the 2^nd defendant will be entitled to half of the sale proceeds so he should not be financially worse off than before.

37.In addition, given the 1^st and 3^rd defendants’ ignorance of the demands for repayment, it is likely that the plaintiff would not be able to recover, or fully recover, the outstanding sums without an order for sale of the Property. The plaintiff would suffer prejudice by any further delay of repayment. Meanwhile, the amount outstanding would continue to escalate in light of the daily interest to be charged, so that, with continued passing of time, it could become questionable whether the half-value of the Property could still fully cover the plaintiff’s loss and damage.

38.I therefore find that it is neither practicable nor beneficial to all parties, especially the 1^st and 2^nd defendants, to make an order for partition. I am of the view that an order for sale of the Property should be granted.

Conclusion

39.For the reasons stated, I would give the following orders:-

(1)  The 1^st and 3^rd defendants do pay the plaintiff the following sums secured by the Legal Charge:

(a)  the sum of HK$1,096,789.77;

(b)  interest on the sum of HK$940,645.42 at the rate of 21.6% per annum (i.e. daily interest of HK$556.66) from 18 October 2022 until payment;

(c)  default interest on the sum of HK$98,826.37 being the interest element of outstanding instalments at the rate of 21.6% per annum (i.e. daily interest of HK$58.48) from 18 October 2022 until payment; and

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

(2)  Unless the 1^st defendant and/or the 3^rd defendant do make payment of the sums as referred to in paragraph (1) above within 60 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 defendants 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$3,660,000.00 (value for sale under repossession).

(4)  The conduct of the sale of the Property shall be committed to the plaintiff’s solicitors F&L.

(5)  Upon such sale, the 1^st and 2^nd defendants shall do all acts and things necessary for the transfer of the legal title and beneficial interest in the Property to the purchaser(s) and/or carrying such sale of the Property into effect, failing which the solicitors for the plaintiff be authorised to do all acts necessary for the vesting of the Property in the purchaser(s) thereof and/or carrying such sale of the Property into effect including but not limited to:

(a)  making enquiries with prior incumbrancer(s) on the money payable upon redemption of such prior incumbrance(s);

(b)  requesting and obtaining the title deeds and documents of the Property from the prior incumbrancer(s); and

(c)  Mr Li Fung Cheung John, a partner of F&L, 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 Legal Charge, if any;

(c)  in payment of the costs and expenses in connection with the sale of the Property (including conveyancing costs up to HK$20,000.00 but excluding disbursements and the estate agent’s commission or auctioneer’s remuneration not exceeding 1% of the selling price);

(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 Legal Charge; and

(iii)  the balance (if any) be paid to the next incumbrancer, 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 incumbrances affecting the 2^nd defendant’s interest in the Property; and

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

(f)  if either of the 1^st and 2^nd Defendants cannot be located after reasonable enquiry, any balance of sale proceeds payable to either or both of them (if any), shall be lodged into Court to stand credit to this action until further order of the Court.

(7)  Upon the 1^st defendant and/or the 3^rd defendant paying to the plaintiff the money hereby ordered to be paid and all other moneys (if any) secured to the plaintiff by the Legal Charge, 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 Legal Charge 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 and/or 3^rd defendant do pay the costs of these proceedings, together with certificate for counsel, to the plaintiff on a full indemnity basis[19] , summarily assessed at HK$79,321.05.

(9)  There be no order as to costs between the plaintiff and the 2^nd defendant.

(10)  There be liberty to apply.

40.I thank Mr Cheung for his assistance.

Mr Tommy Cheung, instructed by Foo and Li, solicitors for the plaintiff

The 1^st and 3^rd defendants being unrepresented and present

The 2^nd defendant being unrepresented and absent