K Cash Ltd (Formerly Known As Maxcolm Credit Ltd) v. Tsang Lik Fei

DCMP 4913/2024

[2025] HKDC 1262

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 4913 OF 2024

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JUDGMENT

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Introduction

1.This is the substantive hearing for the Originating Summons dated 28 August 2024 (the “OS”) to enforce a Charging Order Absolute dated 30 October 2013 obtained against a non-party, Yiu Kin Wah (“Yiu”), in the subject property, at Flat A, 28th Floor, Block 2, Cheerful Garden, No 23 Siu Sai Wan Road, Hong Kong ("the Property") by way of an order for sale.

Background

2.As to the background of this case, the following facts are largely undisputed.

3.Under another earlier action of DCCJ 2851 of 2013, the Plaintiff obtained a judgment dated 17 September 2013 against Yiu for payment of (1) HK$122,465.04, (2) interest on HK$120,000 at the rate of 39.60% p.a. from 3 August 2013 until payment, (3) costs of the judgment in the sum of HK$8,000, and HK$5,000 as costs of the Charging Order proceedings  (collectively hereinafter referred to as the “Judgment Debt”).

4.On 3 October 2013, the Plaintiff obtained a Charging Order Nisi imposing on the Judgment Debt against the Property.  The Charging Order Absolute was granted on 30 October 2013.

5.The Plaintiff’s Charging Order Absolute on the Property was one amongst four and ranked second in time:

(1)  Charging Order Nisi dated 15 July 2013 in favour of Good Fortune Credit Limited (“Good Fortune”) was made absolute on 7 August 2013 (“Good Fortunte’s Charging Order”);

(2)  as said, Charging Order Nisi dated 3 October 2013 in favour of the Plaintiff was made absolute on 30 October 2013 (“P's Charging Order”);

(3)  Charging Order Nisi dated 7 October 2013 in favour of Hui Mei Ching (t/a Diamond Dragon Finance Company) was made absolute on 1 November 2013;

(4)  Charging Order Nisi dated 10 February 2014 in favour of Dah Sing Bank Ltd was made absolute on 25 March 2014.

6.On 29 September 2014, a bankruptcy petition was presented against Yiu, who was subsequently adjudged bankrupt on 11 November 2014.

7.On 1 November 2016, basing on its Charging Order, Good Fortune obtained an Order for Sale of the Property under HCMP 286 of 2016 (“the Order for Sale”)[1].

8.On 30 October 2017, the Property was assigned to Liu Ka Shing Clement (“Liu”) at the consideration of HK$6 million pursuant to the Order for Sale.

9.On 26 June 2018, the Plaintiff re-registered P’s Charging Order for the first time.

10.On 11 November 2018, Yiu was discharged from bankruptcy.

11.On 19 May 2023, the Plaintiff re-registered P’s Charging Order for the second time.

12.On 25 April 2023, Liu assigned the Property to the Defendant at the consideration of HK$7.12 million, who purchased the same with the help of a mortgage loan from BoC.

13.Against the above background, the Plaintiff took out the present proceedings.

Analysis

14.This Court has carefully considered submissions from both parties and their evidence.  With respect, the Plaintiff’s present application is totally misconceived.

15.To begin with, what was charged against was Yiu’s beneficial interest in the Property under P's Charging Order.  After the Property was sold to Liu under the Order for Sale back in 2017, Yiu's interest was converted into sale proceeds.  In Winland Finance Ltd v Gain Hero Finance Ltd (2022) 25 HKCFAR 17, Cheung CJ in the course of expounding the legal nature of a charging order, had the following to say at para 38:-

“38. Moving on, when a charged property is sold pursuant to an order for sale, the property is of course converted into the proceeds of sale...”

16.Since then, there would be no more beneficial interest of Yiu being retained in the Property for P’s Charging Order to impose against.

17.According to the Order for Sale, the Plaintiff would only be entitled to the balance of net sale proceeds (if there was still any left over) after Good Fortunate had applied the sale proceeds to pay off the costs and expenses, and the judgment sums as owed by Yiu to it in the order of priority as laid down under paragraph 6 of the Order for Sale.

18.But, in this case, there is no balance of net proceeds left to pay over to the Plaintiff, as can be seen by Messrs David YW Man & Co’s letter to the Plaintiff's solicitors dated 8 November 2017 enclosing the statement of account explaining how the sale proceeds was applied[2]. It is noted that although the sale price at the time was HK$6 million, but the premium payment paid to Hong Kong Housing Authority amounted to about HK$2.9 million[3], and the judgment sum together with the accrued interest was over HK$3.4 million.

19.In my judgment, pursuant to the Order for Sale, the title of the Property would be conveyed first to Liu and eventually to the Defendant, through the chains of title, free from encumbrances of not only Good Fortune’s Charging Order, but also all the other three charging orders as registered with the Land Registry that followed suit, including P’s Charging Order, on the evidence before me.

20.Paragraph 5 of the Order for Sale, which deals with the conveyance of title, provides that:-

“5. upon such sale, the Defendant shall do all acts necessary for the transfer of legal title and beneficial interest in the Property to the purchaser, failing which Mr David Y. W. Man, partner of Messis David Y. W. Man & Co., Solicitors for the Plaintiff be appointed under section 25A of the High Court Ordinance, Cap 4 to execute the necessary conveyance or assignment to give effect to this Order”

21.After such judicial sale, all these charging orders (as mentioned above) in my view would become ineffective to attach as charges on the title of the Property of its new owner under the circumstances as discussed above.  For, the legal role and effect of the charging order (which is having the same effect and enforceable as an equitable charge created by the judgment debtor by writing under his hand[4]) would come to an end, after the relevant judicial sale has taken place albeit that it was initiated by a prior chargee (ie Good Fortune in this case).

22.This is because the court after due consideration of the circumstances before it, has already exercised its equitable jurisdiction earlier by making the necessary directions as to how the net sale proceeds ought to be applied in accordance with the priority of the encumbrances both before and after Good Fortune’s Charging Order, and such direction has in fact acknowledged and given due effect to the proprietary interest of P’s Charing Order as it deserved under the Order for Sale. 

23.In this connection, paragraph 6(v)[5] of the Order for Sale provides that the balance of the net sale proceeds (if any) would be paid to “the Chargee of the encumbrance affecting the Property and ranking immediately behind the Charging Order Absolute [ie referring to the Plaintiff in this case], or if there is no such subsequent chargee, to the trustee in Bankruptcy of the Defendant [ie referring to Yiu]”.

24.Viewed thus, it can be readily seen that the main fallacy of the Plaintiff's contention lies in that it has conveniently ignored the fact that Good Fortune has already invocated the Court’s equitable jurisdiction to enforce its security by way of the judicial sale, and the Plaintiff’s proprietary interest under its charging order ranked in a lower priority has in fact been properly taken care of in the Order for Sale.

25.For of the sake of argument, assuming Good Fortune did not apply for an order for sale, but the Plaintiff had done so instead at the time, the Plaintiff’s priority would remain to be behind Good Fortune under s 3(1) of the Land Registration Ordinance (Cap 128).  In that case, the sale proceeds obtained by the Plaintiff would still be applied by discharging the premium payment to the Hong Kong Housing Authority, and paying off the judgment sums as owed by Yiu to Good Fortune (given its Charging Order having a higher priority than the Plaintiff), and the Plaintiff would still get nothing after the realisation of the security under that judicial sale.  Viewed thus, the Plaintiff’s current contention that P’s Charging Order can still bite is totally in defiance of logic and common sense, for the status of the Plaintiff’s security would not somehow become better just because it was Good Fortune who applied for the judicial sale instead, rather than the Plaintiff itself applying for an order for sale at the time. 

26.Just for completeness sake, where there are more than one charge on the same property (as in the present case), there is no question of various chargees sharing the loss, each chargee takes their full claim in order of priority.  I think an analogy can be fairly drawn by comparing mutatis mutandis with the case where the property was sold subject to various mortgages.

27.In Megarry & Wade on The Law of Real Property, 10^th ed, para 25-001 (an authority cited by Mr Jeffrey Li, counsel appearing for the Defendant) states thus:-

“Where there is more than one mortgage on the same property, it is sometimes necessary to determine the priority of the mortgages; for example, if the property is sold by one mortgagee and there is not enough money to satisfy all mortgages. There is no question of the various mortgagees sharing the loss. Each mortgagee takes their full claim in order of priority, because it is for a later mortgagee to check the viability of the security before taking a mortgage....” (emphasis supplied)

28.Mr Tommy Cheung, counsel appearing for the Plaintiff, refers this Court to Choi Kar Yin v Wong Siu Hung HCMP 1728 of 2006 (unrep, 13 March 2007), per DHCJ To (at paras 42 to 46) trying to persuade this Court to consider the matter otherwise.  With respect, Mr Cheung’s reliance on Choi Kar Yin is misplaced.  In that case, the learned Deputy Judge was determining a vendor and purchaser summons. 

29.A salient feature in that case is that it would appear to that court on the materials as placed before it that there was a reasonable risk or doubt that the charging orders in question had yet been discharged before the deadline for answering the relevant requisition on title arisen from the charging order issue.  (See: Paragraphs 37, 39, 40 and 46 of that judgment)

30.Further, it cannot be discerned from that judgment as to how the order for sale in that case would handle the matter of application of the sale proceeds, in particular, whether there was any provision made for addressing the subsequent encumbrancers’ interests to such effect as in the present case. Not to mention that the learned Deputy Judge would not have the benefit of hearing the legal debate on those issues arisen out of the clauses for application of sale proceeds as canvassed in this hearing.  In these circumstances, I find that Choi Kar Yin is materially distinguishable. I do not see that authority has laid down any general principle of law that would prevent this Court from coming to the above legal conclusions.

31.In Choi Kar Yin, the parties’argument seems to have focused on whether section 53(1)(b) of the Conveyancing and Property Ordinance (Cap 219) is applicable.  It is in such context that the learned Deputy Judge observed that the judgment creditor enforcing the charging order by way of the order for sale in that case is not a mortgagee excising its power of sale.  And so, that statutory provision was not engaged.  But in this case, this court’s above reasoning does not need to touch upon section 53(1)(b) at all, but rather basing on the application of rudimentary equitable principles and specific terms of the subject Order for Sale which has already provided clear direction to address the Plaintiff's interest under its Charging Order after the judicial sale.

32.The other three authorities as cited by Mr Cheung are touching on the legal nature and effects of charging orders generally, and I have fully considered them and do not think they can advance the Plaintiff's position any farther.

33.In light of the aforesaid, the Plaintiff’s application to seek for an order for sale of the Property under this action is wholly devoid of merits. For, Yiu no longer retains any interest in the Property for P’s Charging Order to attach.  Nor the Property under the Defendant's current ownership was subject to P’s Charging Order as a prior encumbrance as contended by the Plaintiff.  Therefore, there is in truth no factual nor legal base for the Plaintiff to apply for an order for sale. 

34.Due to the above reasons, the Originating Summons can already be disposed of.

35.That notwithstanding, since Mr Cheung seems to have suggested that the Plaintiff can still bite on the Property despite Yiu’s intervening bankruptcy, this Court sees it appropriate to express its views on those submissions for completeness sake.

36.Without prejudice to this Court's above reasoning, as a matter of law, after the Property was assigned to Liu, with the outstanding Judgment Debt remains unpaid in the aforesaid circumstances, the Plaintiff's position would be relegated to an unsecured creditor of Yiu, the unsecured Judgment Debt became bankruptcy debt as defined under section 2 of the Bankruptcy Ordinance (Cap 6).  When Yiu became discharged from bankruptcy in 2018, all the bankruptcy debt (including the Judgment Debt) would be released by virtue of section 32(2) of the Bankruptcy Ordinance.  From this perspective, there is in fact no longer any actionable Judgment Debt in existence for the Plaintiff to base its application for an order for sale either. 

37.Due to the above reasons, it is ordered that judgment be entered in favour of the Defendant, the Originating Summons is dismissed with costs of this action to the Defendant, with certificate for counsel. 

[Discussion on Costs]

38.Taking into account counsel's submissions on costs, on broad brush basis, this Court summarily assessed the costs at HK$180,000.