Ego Finance Ltd v. Cheung Lam Fong and Others

DCMP 3073/2022

[2023] HKDC 1287

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3073 OF 2022

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JUDGMENT

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1.By an Originating Summons dated 16 August 2022, the plaintiff seeks a money judgment and an application for an order for possession and an order for sale.

Background of the case

2.The plaintiff is a money lender licensed under the Money Lenders Ordinance (Cap 163) in Hong Kong.

3.The 1^st and 2^nd defendants are the registered owners and occupiers of a residential flat at Flat C4 on the 15^th Floor, Chungking Mansion, 36-44 Nathan Road, Kowloon (“the Property”). They each hold an equal half share in the Property as tenants in common. They have been holding the Property as such since their purchase of the Property by way of mortgage in December 2006. The 1^st defendant is the wife of the 2^nd defendant.

4.The mortgage on the Property was discharged in January 2021. Since then, the Property has been free of any encumbrances.

5.By a Loan Agreement dated 12 April 2021, the 1^st defendant obtained a loan of HK$1,000,000 from the plaintiff, repayable in 120 instalments of HK$22,042 per month, including interest at 24% per annum (“the Loan Agreement”). The 3^rd defendant was the guarantor under the Loan Agreement.

6.The said loan was secured by a Legal Charge of the same date against the 1^st defendant’s half share of interest in the Property for a secured amount of up to HK$2,000,000 in favour of the plaintiff (“the Legal Charge”).

7.The 2^nd defendant was not a party to the Loan Agreement or the Legal Charge.

8.Since April 2022, the 1^st defendant has defaulted in the repayment of the Loan Agreement.

9.Despite repeated requests and demands made by the plaintiff, the 1^st defendant has still failed to repay the loan. As of the date of this hearing, the outstanding amount due to the plaintiff is HK$1,105,753.08.

Services

10.According to the plaintiff’s Affirmation of Service dated 19 June 2023, the requirement of the service of the Notice of Appointment for the Adjourned Hearing of the Originating Summons and the posting up of that notice and the Notice to Occupants were all complied with. I am satisfied that all the defendants were duly served.

11.The defendants were not present at this hearing. One Mr Samson, a Nigerian passport holder, purportedly appeared on behalf of the 2^nd defendant. Mr Samson said he was a friend of the 2^nd defendant’s son. He submitted a letter written and signed by the 2^nd defendant (“the 2^nd defendant’s Letter”) stating that the 2^nd defendant had suffered a stroke and it was inconvenient for him to attend the hearing. Upon inquiry, he explained that the 2^nd defendant’s stroke occurred several years ago, but the 2^nd defendant was able to travel to the bank accompanied by him. Since no medical evidence was presented to the court by the 2^nd defendant, I refused to allow the representation. However, I would accept the 2^nd defendant’s Letter and consider the submissions he made in that letter regarding the plaintiff’s application for an order for sale.

12.The hearing proceeded in the absence of the defendants.

13.The plaintiff is represented by counsel Mr Tommy Cheung and would rely on the Affirmation of Kong Man Lok (the manager of the plaintiff’s Legal Department) filed on 3 November 2022 as supporting evidence.

Monetary judgment (O 83A and O 88)

14.The plaintiff seeks a monetary judgment against the 1^st and 3^rd defendants pursuant to the Loan Agreement and the Legal Charge under the O 83A money lender’s action and the O 88 mortgage action of the Rules of the District Court.

15.O 83A rr 1 & 2 refer directly to the Money Lenders Ordinance. I am satisfied that the requirements under the Money Lenders Ordinance have been complied with:-

(1)  The plaintiff was duly licensed and registered under s 7 at the time of the making of the Loan Agreement, and such licence was renewed and remained valid at the commencement of this action;

(2)  The plaintiff has given a note or memorandum of the Loan Agreement to the 1^st and 3^rd defendants, both of whom signed and acknowledged receipt of the same, under s 18; and

(3)  The interest of 24% per annum charged by the plaintiff for 10 years is not excessive under ss 24 and 25.

16.O 83A r 4 provides that, in a money lender’s action, judgment on failure to give notice of intention to defendant shall not be entered except with the leave of the court. A Certificate of No Acknowledgment of Service of the Defendants was filed by the plaintiff on 13 December 2022. The original of the Loan Agreement and the Legal Charge were produced for the court’s inspection at the hearing. I am satisfied that O 83A r 4 has been complied with, and I grant leave to the plaintiff to enter judgment.

17.O 88 r 1(a) provides that, in a mortgage action, a mortgagee may seek payment of moneys secured by the mortgage. As the plaintiff brought this action relying on the existence of the Legal Charge, I am satisfied that the plaintiff is also entitled to seek a monetary judgment against the 1^st defendant under O 88.

18.I accept Mr Cheung’s submissions that the 1^st defendant’s failure to repay was in breach of Clauses 1, 2, 7 and 12 of the Loan Agreement and Clauses 2.01 and 5 of the Legal Charge.

19.As for the 3^rd defendant, I also accept Mr Cheung’s submissions that, under Clause 14 of the Loan Agreement, the 3^rd defendant has assumed the primary (not secondary) obligation to repay the loan as a surety.

20.I would therefore enter money judgment against the 1^st and 3^rd defendants in the sum of HK$1,105,753.08 with interest and costs.

Order for possession (O 88)

21.The plaintiff relies on O 88 r 1(d) to seek delivery of possession against the 1^st defendant, who is the chargor in possession under the Legal Charge, and the 2^nd defendant, who is one of the occupants in possession of the Property.

22.I am satisfied that the requirements of O 88 rr 4 and 5 as to service and proof of evidence for an order for possession have been complied with.

23.However, in the exercise of my discretion, I would refuse to grant an order for possession on the grounds that the plaintiff does not have the right to possession of the whole of the Property. If the court were to grant an order for possession in favour of the plaintiff in respect of its half share in the Property, it would cause very great hardship and inconvenience to the current occupants, namely the 1^st and 2^nd defendants, as the Property is their dwelling house.

24.Mr Cheung rightly accepts that the plaintiff has already had the right to possession, in respect of the half share of the interest in the Property, derived from the contract, ie the Legal Charge, upon the occurrence of the event of default. He reckons that it may not be necessary for the plaintiff to obtain an order for possession, since the plaintiff did not intend to join occupation with the 1^st and 2^nd defendants.

25.Therefore, I would decline the plaintiff’s request for an order for possession as set forth in the Originating Summons.

Order for Sale (O 88 and the Partition Ordinance)

26.As a legal chargee, the plaintiff is entitled to apply for an order for sale of the Property pursuant to O 88 r 1(b).

27.However, since the plaintiff is only entitled to half of the interest in the Property as a tenant in common in relation to the 1^st defendant’s interest secured by the Legal Charge, the plaintiff has to invoke the Partition Ordinance (Cap 352) for an order for partition or sale.

28.The Partition Ordinance provides as follows:-

“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.

3. Institution of proceedings and parties thereto

(1) 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.

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.”

29.The locus standi of a legal chargee/mortgagee of a partial interest to apply for an order for partition or sale under the Partition Ordinance was clearly explained by His Honour Judge Harold Leong in Konew Capital International Limited v Tsang Shar Wing [2021] HKDC 286, at para 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 (Uplink Finance Ltd v Lee Sze Tai and Others, DCMP 794/2016, unreported, 16 March 2017). 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 Partition Ordinance (Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224).”

30.Accordingly, I find that the plaintiff in the present case is a “person interested” in the Property under s 3(1) of the Partition Ordinance and had locus to bring proceedings under the said Ordinance.

31.In addition, the guiding principles for such proceedings had been set out by Mr Recorder Fok SC (as he then was) in Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, at paras 18-19:-

(1)  A co-owner has a basic right to rid himself of the shackles of co-ownership and, if he has no other remedy, ask for an order for partition or sale;

(2)  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 or that it will result in very great hardship to one co-owner; and

(3)  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.

32.Counsel for the plaintiff submitted that, since the Property is a unit within a multi-storey building, any partition of the unit would not be possible. He submitted that it would be appropriate for the court to make an order for sale.

33.According to the 2^nd defendant’s Letter submitted at the beginning of the hearing, the 2^nd defendant does not object in principle to an order for sale of the Property. He said that his wife (the 1^st defendant) had taken out the loan without his knowledge. He agreed that the consequence of any default would be the sale of the Property to repay the outstanding loan. However, he asked for more time to deal with the situation and asked the court not to allow the auction of the Property to take place before September 2023.

34.It seems to me that the 2^nd defendant’s position is that if he cannot raise the available funds to repay the loan before September, it would be beneficial to him and to the 1^st defendant if the loan could be repaid as soon as possible through the sale of the Property.

35.In these circumstances, I would make an order for sale in terms of the Draft Order submitted by the plaintiff, as amended.

36.I would also make an order for delivery of vacant possession as part of the necessary arrangement for the order for sale. See my recent Decision in K Cash Express Ltd (formerly known as Konew Financial Express Ltd) v Chan Ching Wai [2023] HKDC 1213 at para 66.

Costs on an indemnity basis

37.I accept Mr Cheung’s submission that the plaintiff is entitled to indemnity costs for these proceedings pursuant to Clause 12 of the Loan Agreement and Clause 21.01(a) of the Legal Charge.

38.However, while the plaintiff has indicated that it will not seek costs against the 2^nd defendant, I note that the Statement of Costs submitted by the plaintiff includes costs incurred for the 2^nd defendant. I would therefore make certain deductions accordingly in the summary assessment of costs, bearing in mind that the overall basis is still indemnity in favour of the plaintiff.

Conclusion

39.I make an order that:-

(1)  The 1^st and 3^rd defendants do pay the plaintiff the following sums secured by a Legal Charge dated 12 April 2021 and registered in the Land Registry by Memorial No. 21041502270126 (“the Legal Charge”):-

(a)  the sum of HK$1,105,753.08;

(b)  interest on the sum of HK$953,719.52 at the rate of 24% per annum (ie daily interest of HK$627.10) from 27 October 2022 until payment;

(c)  default interest on the sum of HK$77,675.00 being the interest element of the outstanding instalments at the rate of 24% per annum (ie daily interest of HK$51.07) from 27 October 2022 until payment; and

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

(2)  Unless within 28 days after service of this Order, the 1^st and/or 3^rd defendant do make payment of the sums as referred to in paragraph (1) above, 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 known as ALL THAT 1/920^th parts or shares of and in The Remaining Portion of Kowloon Inland Lot No. 6817 (Flat C4 on the 15^th Floor, Chungking Mansion, Nos 36-44 Nathan Road, Kowloon) (“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 subject to a reserve price of not less than HK$3,400,000.00 (value for sale under repossession);

(4)  The conduct of the sale of the Property be committed to the plaintiff’s solicitors Messrs. Foo and Li;

(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), failing which the 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 sale 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 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 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 and 3^rd defendants do pay to the plaintiff within 14 days costs of these proceedings (including the costs of the hearing on 15 December 2022) with certificate for counsel on a full indemnity basis, summarily assessed at HK$80,000.00;

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

(10)  There be liberty to apply.

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

The 1^st, 2^nd and 3^rd defendants were not represented and did not appear