Maxcolm Finance Ltd v. Pun Lap Shing and Another

HCMP 749/2022

[2024] HKCFI 603

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 749 OF 2022

________________________

BETWEEN

________________________

________________________

REASONS FOR JUDGMENT

________________________

1.   Introduction

1.1This is the Plaintiff’s application by its Amended Originating Summons dated 28 November 2023 under RHC Orders 83A and 88 and sections 2, 3 and 6 of the Partition Ordinance Cap 352 (“PO”):

(1)  against the 1^st Defendant for money judgment; and

(2)  against the 1^st and 2^nd Defendants for an order for delivery of vacant possession and an order for sale of the property known as Flat C on 12^th Floor of Tower 5, Jubilant Place, No 99, Pau Chung Street, Kowloon (“Property”).

1.2The 1^st Defendant is the 2^nd Defendant’s son.  On 21 December 2010, they acquired the property as joint tenants at a consideration of HK$5,700,000.  According to the land search records, at or around the time of the Defendants’ acquisition of the Property, a mortgage (“First Mortgage”)  was obtained from The Hongkong and Shanghai Banking Corporation Limited (“HSBC”).

1.3On 14 February 2020, the 1^st Defendant gave a Notice of Severance to the 2^nd Defendant pursuant to section 8(1)  of the Conveyance and Property Ordinance Cap 219.  The Property has since the Notice of Severance been held by the 1^st and 2^nd Defendants as tenants in common in equal shares.  It appears from the land search records that the Notice of Severance was executed to enable the 1^st Defendant to obtain a second mortgage on his half share of the Property (at that time from Joy Team Finance Limited (“Joy Team”)).

1.4Various second mortgages were obtained and redeemed by the 1^st Defendant (first from Joy Team in February 2020[1] and then from Dragon Rise Finance Limited in June 2020[2]).

1.5Relevant to the present proceedings is that on 30 April 2021, the Plaintiff (as lender)  and the 1^st Defendant (borrower)  entered in a loan agreement (“Loan Agreement”)  for a loan amount of HK$2,900,000 on terms provided therein (“Loan”). Under the terms of the Loan Agreement, the Loan was to be repaid in 12 tranches, the first of which was due on 30 May 2021 (“Repayment Schedule”). 

1.6The Loan is secured by a second mortgage also dated 30 April 2021 (“Second Mortgage”)  in respect of his share and interest in the Property.

1.7The 1^st Defendant failed to honour the Repayment Schedule and was unable to meet even the first payment due on 30 May 2021.  It is the Plaintiff’s case that an event of default has occurred under the Second Mortgage which has remained unremedied despite the Plaintiff’s demands.  The Plaintiff commenced these proceedings on 14 June 2022.

1.8I am satisfied that notice of these proceedings has been given to HSBC, the occupants and the Director of Lands and the requisite documents have been duly served on the Defendants.  No Acknowledgement of Service has been filed by the 1^st Defendant.  Although the 2^nd Defendant did file an Acknowledgement of Service on 28 February 2023, he did not file any evidence in opposition.

2.   Hearing on 7 February 2024

2.1The present application first came before me on 7 February 2024, which was attended by the 1^st Defendant (despite not having filed an Acknowledgement of Service).  I was told by the 1^st Defendant that the 2^nd Defendant was unable to attend the hearing (a medical certificate was produced).  As a result, I adjourned the hearing of the application to 26 February 2024.

2.2The application was adjourned also for another purpose.  I referred the Plaintiff to the case of Ego Finance Ltd v Poon Sau Han Joanna & Anor [2023] HKCFI 868.  At Ego §§31-47, DHCJ Suen SC said that the court has to bear in mind the position of a party such as the 2^nd Defendant, namely an “innocent party”.  In particular, the learned Deputy Judge remarked as follows:

“ [34] Mr Chan argued that the plaintiff should be entitled to exercise its rights of possession and sale of the Property without delay, and the present hearing is not an occasion for the defendants to “mitigate” or bargain for more time; nor is it a question as to which proposal put forth by the parties is more reasonable…

…

[36] However, this ignores the position of the 2^nd defendant who is an innocent party in these proceedings. The 2^nd defendant has not borrowed any money from the plaintiff, and no contractual relationship exists between the plaintiff and the 2^nd defendant. Putting it to the highest, the plaintiff is seeking an order for sale qua a party interested in half share of the Property, whilst the 2^nd defendant is counter-proposing terms of the order for sale qua a party interested in the remaining half share of the Property. In principle, even though both the plaintiff and the 2^nd defendant agree to an order for sale, it does not necessarily follow that the plaintiff (as opposed to the 2^nd defendant)  should have the conduct of such sale, or that the plaintiff should dictate the terms of such order for sale.

…

[40] … it follows from the above that, if the 2^nd defendant so wishes and absent any countervailing factor or material prejudice to the plaintiff (which is however not suggested by the plaintiff), there is no reason why the court should not accommodate the defendants’ proposal to be given an opportunity to procure and effect the sale of the Property on their own before they are due to deliver vacant possession of the Property to the plaintiff …”

2.3It seems to me that the factors set out at Ego were already identified by DHCJ K Wong in these proceedings.  On 20 October 2022 (even before the 2^nd Defendant filed his Acknowledgement of Service)  the Plaintiff was ordered (1)  to endeavour, inter alia, to discuss with the 2^nd Defendant on his position with regard to the sale of the Property proposed by the Plaintiff, the manner and mode of proposed sale and the time for the 2^nd Defendant to deliver his possession of the Property and (2)  to file an affidavit within 28 days in respect of the steps taken by the Plaintiff and the result of such discussion.

2.4Unfortunately, the Plaintiff was unable to carry out any meaningful discussion with the 2^nd Defendant.

2.5In addition to the 2^nd Defendant’s inability to attend the hearing due to his medical conditions, it was hoped that during the adjournment, meaningful discussion could be carried out between the Plaintiff and the Defendants, especially the 2^nd Defendant.

3.   Hearing on 26 February 2024

3.1Both Defendants attended the hearing on 26 February 2024.  The 1^st Defendant, consistent with his decision not to file an Acknowledgement of Service, largely did not oppose the orders set out in the draft order annexed to the Plaintiff’s Skeleton lodged on 22 February 2024 (“Draft Order”).

3.2The only aspect which was discussed was to extend the time within which the 1^st Defendant is to comply with the monetary judgment from 28 days (proposed by the Plaintiff)  to 180 days (proposed by the Defendants), failing which the Defendants are to deliver vacant possession of the Property.

3.3Eventually, the parties were able to agree on the terms of the Draft Order as amended.  I therefore granted judgment in terms of the Draft Order as amended at the hearing.  As stated at Hong Kong Civil Procedure 2024 Note 28/8/1, even where, as here, the 1^st Defendant has failed to acknowledge service, the burden remains on the Plaintiff to satisfy the court that it is entitled to judgment. 

3.4These are my reasons.

4.   Monetary judgment

4.1The Plaintiff is and was at all material times, a licensed moneylender. 

4.2I have considered the Amended Originating Summons and the evidence in support.  I had also inspected the original of the Loan Agreement and the Second Mortgage at the hearing on 26 February 2024.

4.3The requirements of sections 18(1)  and (2)  of the Money Lenders Ordinance Cap 163 (“MLO”)  and RHC Order 83A have been complied with.  The interest rate under the Loan Agreement is permissible under the MLO.  In so far as the Loan Agreement makes provision for interest upon interest in arrears, it falls within the permissible scope of the proviso of section 22(1)  of the MLO.

4.4Despite the Plaintiff’s demand letters dated 6 June 2022, the 1^st Defendant has still failed to repay the outstanding balance of the Loan and all accrued interest. I am therefore satisfied that the Plaintiff has established its claim for a money judgment against the 1^st Defendant based on the 1^st Defendant’s failure to comply with the Repayment Schedule (as quantified in the Draft Order as amended).

5.   Vacant possession

5.1As stated earlier, I had inspected the original of the Second Mortgage at the hearing on 26 February 2024.  I am satisfied that the requirements of RHC Order 88 have been complied with.

5.2It is plain that an event of default has occurred, and under the terms of the Second Mortgage, the Plaintiff is entitled to, inter alia, take possession of at least the 1^st Defendant’s share of the Property.

5.3As set out in the subsequent section, I am of the view that it is impractical for the Property to be partitioned and that no undue hardship will be caused to the 2^nd Defendant by an order for sale.  In any event, the Draft Order was, with his agreement, amended on the Defendants’ initiative to cater for a longer period before the 2^nd Defendant had to deliver vacant possession.  I agree with the Plaintiff that an order should be made for the 2^nd Defendant to deliver vacant possession of his share of the Property to effect and facilitate a sale of the Property.

5.4The terms of the Second Mortgage are subject to the rights of HSBC under the First Mortgage.  As mentioned earlier, HSBC has been notified of these proceedings but they have not appeared at any of the hearings of the present application.

6.   Order for sale

6.1Section 2 of the PO provides that where any property in land is held by two or more persons, whether as joint tenants or tenants in common, the court may either make an order for partition, order for sale or refuse to make any order.

6.2It is well established that a legal charge of a partial interest is considered a "person interested" within the meaning of section 3(1)  of the PO: Law Chun Wai t/a Fu Tat Finance Co v Chu Suk Har & Anor [2016] 1 HKLRD 224 per HH Judge Li at §§22-23.  Since the Plaintiff is a legal charge of the 1^st Defendant’ share of the Property, the Plaintiff is entitled to apply for an order for sale under the PO.

6.3The Plaintiff's evidence is that given the nature of the Property, it would not be practicable or beneficial to physically partition the Property, and therefore an order for sale pursuant to section 6(1)  of the PO, is warranted.  I agree and take note of the following factors:

(1)  The Property is a residential unit in a multi-story building with a saleable area of 839 ft².  According to the Deed of Mutual Covenant, it appears to be impermissible for the Property to be partitioned.  Even were it possible, doing so will likely substantially devalue the Property, which in turn will prejudice the 2^nd Defendant’s financial interest.

(2)  There is no evidence from the 2^nd Defendant suggesting that an order for sale would cause great hardship to one or both of them.  The 2^nd Defendant, in particular, only asked for more time before vacant possession would be delivered and he accepted that the proceeds generated in the event of sale would enable him to secure alternative accommodation.

(3)  The reserve price is set by reference to a valuation report and the sale of the Property would be conducted on a fair and reasonable basis.

6.4For the above reasons, I am of the view that an order for sale should be made.

7.   Costs

7.1I agree with the Plaintiff that it is contractually entitled to costs on an indemnity basis against the 1^st Defendant[3]. No objection was raised by the 1^st Defendant to the Statement of Costs lodged by the Plaintiff.

8.   Conclusion

8.1I am satisfied that the Draft Order as amended are broadly in line with the usual orders made in proceedings of the present nature.  In particular, I am satisfied that sufficient provisions are contained therein to safeguard the interests of HSBC and the 2^nd Defendant.

8.2For the above reasons, I granted judgment in terms of the Draft Order as amended at the hearing on 26 February 2024. As indicated to the Defendants at the hearing on 26 February 2024, if required, the Defendants may arrange with my clerk for an oral interpretation of these reasons by an interpreter at a mutually convenient time in the court’s premises.

Ms Flora Lam, instructed by Foo & Li, for the Plaintiff

The 1^st and 2^nd Defendants, acting in person