Ego Finance Ltd v. Hui Yuen Kwan and Another

DCMP 2127/2023

[2023] HKDC 1201

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2127 OF 2023

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BETWEEN

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J U D G M E N T

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Introduction and procedural background

1.On 12 May 2023, the plaintiff issued an Originating Summons (the “OS”), claiming for: (1)  money judgment against the 1^st defendant; (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 B on 3/F, Hong Lok House, No. 80 Chik Fuk Street, Tai Wai, Shatin, New Territories (the “Property”).

2.The sealed copy of the OS, together with the Affirmation of Kong Man Lok filed on 12 May 2023 (“Kong’s 1^st Affirmation”), were served on 19 May 2023 to the 1^st and 2^nd defendants at the Property[1].  The OS was also posted up at the main entrance of the Property.  No Acknowledgement of Service was filed by the 1^st and 2^nd defendants.

3.The plaintiff then proceeded to file a Notice of Appointment to Hear Originating Summons on 13 June 2023 (“NOA”), and a Notice to Occupants on 7 July 2023 (“NOO”).  The NOA was served on the 1^st and 2^nd defendants by insertion into the letterbox of the Property on 7 July 2023.  The NOO was posted up at the main entrance of the Property also on 7 July 2023.

4.At the call-over hearing on 24 July 2023, plaintiff was represented by counsel Mr Zavier To (“Mr To”), and the 1^st and 2^nd defendants were absent.  I adjourned the matter to 29 August 2023 for substantive hearing.

5.During the call-over hearing, I raised several requisitions with Mr To and directed that they should be answered by supplemental affirmation.  The plaintiff did so on 11 August 2023 when it filed the 2^nd Affirmation of Kong Man Lok (“Kong’s 2^nd Affirmation”).  Another affirmation of Kong Man Lokwas filed on 18 August 2023 (“Kong’s 3^rd Affirmation”), to provide the daily interest rate, with updated calculations of the sum outstanding[2].  Retrospective leave for the plaintiff to file and serve Kong’s 3^rd Affirmation was granted.

6.At the substantive hearing, the plaintiff was again represented by Mr To, whilst the 1^st defendant continued to be absent. The 2^nd defendant attended the hearing, and confirmed that he had received the documents, including Mr To’s written submissions, relating to these proceedings.

7.I am satisfied that the 1^st defendant should have notice of this substantive hearing.  The affidavit of service filed on 18 August 2023[3] showed that notice of the adjourned hearing, my order dated 24 July 2023, and Kong’s 2^nd Affirmation, were all served on the 1^st and 2^nd defendants by insertion of the same into the Property’s letterbox on 11 August 2023.  Notice of the Adjourned Hearing to the Occupants filed on 11 August 2023 was posted at the main entrance of the Property on the same day.

8.The written submissions, list and copies of authorities, and the hearing bundle prepared and lodged to the court by Mr To for the substantive hearing, were served to 1^st and 2^nd defendants on 21 August 2023 by leaving[4].

9.In the circumstances, the substantive hearing was proceeded with in the absence of the 1^st defendant [5].

10.At the substantive hearing, Mr To adopted his written submissions.  He had also produced for my inspection and consideration the required original documents[6], updated land search of the Property[7], surveyor’s valuation report, and a draft order. 

11.I also had the opportunity to explain to the 2^nd defendant the cause for these proceedings, the reason why he was being made a party herein, and the likely orders to be made. I then invited him to express his views.  The 2^nd defendant informed me that he and the 1^st defendant had been boyfriend and girlfriend for over 10 years, but they have not drifted away from each other.  They no longer reside together, and the 1^st defendant would only contact him every now and then.  He did not know the reason why the 1^st defendant was absent from the hearing.

12.As to these proceedings, the 2^nd defendant expressed that he had no objection to the sale of the Property.  He simply wanted to put a closure to the matter.

The plaintiff’s case

13.The plaintiff was at the material times and still is a licenced money lender in Hong Kong.  By a Chinese loan agreement dated 14 June 2022 (the “Subject Loan Agreement”), the plaintiff agreed to lend, and the 1^st defendant agreed to borrow, a sum of HK$920,000.00 (the “Subject Loan”).  Under the Subject Loan Agreement, interest at the rate of 23.4% per annum would be charged on the Subject Loan.  Principal of the Subject Loan and the interest should be repaid by 84 monthly instalments. The first instalment in the sum of HK$23,287.00 was payable on 15 July 2022.  Each of the remaining instalments in the sum of HK$22,354.00 should be paid on or before the 15^th day of each subsequent month until full payment.

14.The Subject Loan is secured by a Second Legal Charge dated 4 December 2019 (the “SLC”), and a Further Legal Charge/Mortgage dated 3 September 2021 (the “FLC”).  As the secured indebtedness under SLC was capped at HK$700,000.00, FLC was created to extend the limit to HK$1,800,000.00.  Under both the SLC and FLC, the 1^st defendant mortgaged her share of the Property.  The Property was and is still owned by the 1^st and 2^nd defendants as tenants in common.

15.As one can see, both SLC and FLC pre-dated the Subject Loan Agreement.  The reason being that there were, between the plaintiff and the 1^st defendant, 2 previous loan agreements, and the Subject Loan was taken out to repay the debts owed thereunder.  The first loan agreement is dated 4 December 2019 (“1^st Loan Agreement”), and the second loan agreement is dated 3 September 2021 (“2^nd Loan Agreement”).

16.In breach of the Subject Loan Agreement, SLC and FLC, the 1^st defendant had failed to make punctual repayment on the 2^nd and 4^th to 8^th instalments; she also failed to make full repayment on the 9^th instalment.  Hence, a letter of demand dated 31 March 2023 was issued by the plaintiff’s solicitors, Messrs Pauline Wong & Co. (“PWC”)  to the 1^st defendant, demanding from her full payments of the outstanding principal of the Subject Loan, and interests.  These proceedings are the product of her ignoring such demand. 

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

17.As mentioned, the plaintiff was a licenced money lender at the time when the Subject Loan Agreement was created.  A licence covering the period from 8 September 2021 to 9 September 2022 is exhibited to Kong’s 1^st Affirmation.  The licences for the periods between 8 September 2019 and 9 September 2021 are also exhibited therein, which covered the times when the 1^st Loan Agreement, SLC, 2^nd Loan Agreement and FLC, were created. Section 23 of the MLO is thus satisfied.

18.The first part of the Subject Loan Agreement contains the “note or memorandum” with the terms as required under section 18(2)  of the MLO being set out[8]. Attached to the Subject Loan Agreement are a repayment schedule and a summary of Parts III and IV of the MLO in compliance with section 18(1)(b).

19.The interest rate of 23.4% per annum charged under the Subject Loan Agreement is neither extortionate (exceeds 48% per annum)  nor illegal (exceeds 60% per annum)  under sections 25(3)  and 24(1)  of the MLO respectively.  The claim for simple interest at the same rate on the outstanding principal of the Subject Loan and the interest element of the outstanding instalments[9] are allowed under section 22(1).

20.I have also perused in detail the 1^st Loan Agreement, SLC, 2^nd Loan Agreement and FLC.  Overall, I can find nothing in them that may constitute any violation of the MLO.

21.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 1^st to 3^rd Affirmations in support of the OS.  In these affirmations, apart from setting out the factual background of the case, the terms of the Subject Loan Agreement and the clauses in the SLC and FLC 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.

Money judgment against the 1^st defendant

22.In the absence of any contradictory evidence, I accept that the 1^st defendant has breached the Subject Loan Agreement by her failure to pay punctually and fully the monthly instalments as set out in §16 above.  Such failure would entitle the plaintiff to sue her for the outstanding principal of the Subject Loan and the interest accrued[10].

23.For these reasons, money judgment should be entered in favour of the plaintiff against the 1^st defendant.

24.As to the amount, the plaintiff has provided calculations of the outstanding principal of the Subject Loan and interest up to the date of Kong’s 3^rd Affirmation.  The outstanding principal of the Subject Loan was HK$883,053.07.  The interest accrued on that sum up to 17 August 2023, calculated at the rate of 23.4% per annum, was HK$101,901.90.  And as to the simple interest charged on the interest element of the outstanding instalments, it was claimed up to 31 March 2023 when the letter of demand was issued.  The sum came to HK$2,406.15[11]. The total sum that the 1^st defendant is liable to pay, up to 17 August 2023, is therefore HK$987,361.12 (HK$883,053.07 + HK$101,901.90 + HK$2,406.15).

25.From 18 August 2023 onward to the date of full payment, interest at the contractual rate (23.4% per annum)  should continue to apply, pursuant to clause 21 of the Subject Loan Agreement[12]. The daily interest payable on the outstanding principal (HK$883,053.07)  is HK$566.12.

Order for possession

26.The said failure of repayment by the 1^st defendant constituted an event of default under clause 5.01 of the SLC.  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].

27.As the Property is for residential purpose, the usual time of 28 days from the date of service of the court’s order on 1^st defendant would be allowed for her to provide vacant possession of the Property to the plaintiff.

28.I see from the land search record that Dah Sing Bank Limited (“DSB”)  has a mortgage registered on 5 June 2009 against the Property.  PWC has diligently written to DSB to inform them of these proceedings.  Despite so informed, in their letter dated 26 June 2023, DSB had not indicated their stance as to the present proceedings.

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

Sale of the Property

30.The 2^nd defendant is neither a party to the Subject Loan Agreement nor the SLC and FLC.  He is made a party to these proceedings because of his co-ownership of the Property, which the plaintiff now seeks to sell, so that the proceeds from it could be used to satisfy the outstanding debts.

31.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].

32.In light of my findings above that the 1^st defendant has failed in her punctual and full repayment of the monthly instalments, and the plaintiff is consequentially entitled 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.

33.The remaining question is thus whether the court should exercise its discretion under the PO.  The principles relevant to the exercise of such discretion has been summarised by Mr Recorder Fok SC (as Fok PJ then was)  in the case of Wong Chun Kei v Poon Vai Ching[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)

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

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

36.The Property is a residential unit in a multi-storey building with saleable size of 415 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.

37.Even assuming that the physical partition of the Property is possible, partitioning of the Property into 2 units of 207.5 square feet each could greatly devalue the Property, and prejudice the 2^nd defendant’s financial interests.

38.In light of the above, I find partition of the Property to be impracticable.  Since the 1^st and 2^nd defendants have not filed any evidence to the contrary, or adduced any grounds of “very great hardship”[19], I also find that 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.

39.In addition, given the 1^st defendant’s cold-shouldering the demand 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.  The amount outstanding would continue to escalate in light of the daily interest to be charged, so that, with more passing of time, it could become questionable whether the half-value of the Property could still fully cover the plaintiff’s loss and damage.

40.Finally, DSB’s interest would not be adversely affected by the sale of the Property; its priority is well protected as one could see from the order to be given below.

41.In summary, I find that it is neither practicable nor beneficial to 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

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

(1)  Retrospective leave be granted for the plaintiff to file and serve Kong’s 3^rd Affirmation.

(2)  The 1^st defendant do pay the plaintiff the following secured by the SLC and FLC:-

(a)  the sum of HK$987,361.12;

(b)  interest on the sum of HK$883,053.07 at the rate of 23.4% per annum (i.e. daily interest of HK$566.12)  from 18 August 2023 until payment; and

(c)  costs of these proceedings as referred to paragraph (9)  below;

(3)  Unless the 1^st defendant do make payment of the sums as referred to in paragraph (2)  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;

(4)  Subject to delivery of vacant possession by the 1^st and 2^nd defendants as stated in paragraph (3)  above, the Property be sold by the plaintiff by public auction or private treaty in open market at the price not less than HK$3,470,000.00 (value for sale under repossession);

(5)  The conduct of the sale of the Property shall be committed to the plaintiff’s solicitors PWC;

(6)  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)  Ms Wong Tsip Yue Pauline, a partner of PWC, 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.

(7)  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 incumbrances affecting the Property  having priority to the SLC and FLC;

(c)  in payment of the costs and expenses in connection with  the sale of the Property (including conveyancing costs up to HK$18,000.00 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 SLC and FLC; 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;

(8)  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 SLC and FLC, 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 SLC and FLC 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;

(9)  The 1^st defendant do pay the costs of these proceedings to the plaintiff on a full indemnity basis[20] summarily assessed at HK$80,448.00;

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

(11)  There be liberty to apply.

43.I thank Mr To for his assistance.

Mr Zavier To, instructed by Pauline Wong & Co., solicitors for the plaintiff

The 1^st defendant not represented and did not appear

The 2^nd defendant appeared in person