Re Wing Fung Credit Ltd

DCMP 2483/2022

[2025] HKDC 1268

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2483 OF 2022

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DECISION

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1.Before me is an application by Wing Fung Credit Limited (the “Applicant”) for an order of payment into Court pursuant to Section 62 of the Trustees Ordinance, Cap 29 (the “TO”).

2.The present application is made by way of ex-parte Originating Summons dated and filed 13 June 2022 (the “OS”).

3.Mr Wu Ka Wang of Messrs Tony Kan & Co. (“TKC”) appeared for the Applicant at the hearing of the OS.

RELEVANT BACKGROUND

4.The background to the present application has been set out, substantially, in the 1^st Affirmation of Tse Pui Yu Rita, a partner of TKC. The material factual background can be summarised as follows.

5.On 3 May 2001, Cheng Chun Keung Thomas (now deceased) (the “Deceased”) became the registered owner of the property known as Flat No 7 on 24^th Floor of Block D, Kam Tai Court, 33 Ning Tai Road, Shatin, New Territories, Hong Kong (the “Property”). On the same date, the Deceased executed a legal charge in favour of Hang Seng Finance Limited (“Hang Seng”) over the Property (the “Legal Charge”). The aforementioned Legal Charge is registered in the Land Registry by Memorial No ST1224754.

6.The Applicant is and was, at all material times, a licenced money lender duly licenced under the provisions of the Money Lenders Ordinance, Cap 163.

7.Pursuant to a Loan Agreement dated 21 August 2019 entered into between the Deceased and the Applicant (the “Loan Agreement”) the Deceased borrowed, and the Applicant advanced, a sum of HK$600,000.00.

8.Since 28 May 20220, the Deceased has been in breach of the Loan Agreement by defaulting in the payment of instalments thereunder to the Applicant. Pursuant to the Loan Agreement, the entirety of the debt owed became immediately due and payable by the Deceased to the Applicant upon the event of default in instalment or interest payment.

9.It was subsequently discovered by the Applicant that the Deceased had passed away in the PRC on 15 May 2020.

10.As a result of the default on the Loan Agreement, the Applicant commenced proceedings against the Personal Representative(s) of the Estate of the Deceased (the “PR”) in DCCJ 4490/2020 (the “2020 Action”).

11.Having exhausted all practical means of locating and/or identifying the PR and whether there was anyone willing to be appointed as the PR for the purpose of the 2020 Action, the Applicant obtained the following orders:-

(1)  An order from Master B Mak dated 9 June 2021 appointing the Official Solicitor to represent the estate of the Deceased solely for the purpose of accepting service of the Writ of Summons in the 2020 Action; and

(2)  An order by Master Jocelyn Leung dated 26 July 2021, giving the Applicant leave to proceed with the 2020 Action in the absence of a person representing the estate of the Deceased.

12.On 23 September 2021, Master Isabella Chu entered final judgment in favour of the Applicant in the 2020 Action and ordered the PR to pay the Applicant:-

(1)  the sum of HK$601,311.00 (as to HK$598,311.00 being the amount due but unpaid as at 7 June 2020 and as to HK$3,000 being the legal costs incurred by the Applicant in issuing a demand letter dated 9 June 2020);

(2)  daily interest on the principal sum of HK$585,622.00 at a rate of HK$304.01 per day (ie 19% per annum) from 8 June 2020 until full payment; and

(3)  costs of the 2020 Action on a full indemnity basis, summarily assessed at HK$41,262.67.

(the “2020 Judgment”)

13.On 12 October 2021, Hang Seng exercised its power of sale under the Legal Charge and sold the Property for a consideration of HK$7,480,000.00 (the “Sale”) pursuant to a Memorandum of Agreement for Sale and Purchase with Plan, which was registered with the Land Registry on 9 November 2021.

14.On 23 December 2021, the Applicant obtained a Charging Order Absolute (the “Charging Order”) against the Property in respect of the judgment debt under the 2020 Judgment together with costs of the charging order application on an indemnity basis summarily assessed at HK$7,000. A sealed copy of the Charging Order Absolute was registered with the Land Registry on 24 December 2021.

15.On 28 December 2021, the Sale was completed, and the Property was assigned by Hang Seng to a new owner. The relevant assignment was registered with the Land Registry on 27 January 2022.

16.Madam Tse has deposed that, at all material times, the Applicant is and was not aware of the Property being subject to any other incumbrance other that the Legal Charge and the Charging Order.[1] At the time of the aforementioned assignment of the Property by Hang Seng to the new owner, the Applicant was next entitled to the residue of the proceeds of sale of the Property after Hang Seng.

17.On 8 April 2022, the solicitors for Hang Seng, delivered to the Applicant under cover of letter:-

(1)  A cheque drawn in favour of TKC on behalf of the Applicant for an amount of HK$3,776,657.46, representing the residue of the proceeds of the Sale after settlement of the relevant indebtedness, costs and expenses of Hang Seng (the “Sale Residue”); and

(2)  A Statement of Account setting out the relevant indebtedness, costs and expenses of Hang Seng.

18.Madam Tse has further deposed that after the settlement of relevant expenses and the outstanding indebtedness owed by the Deceased to the Applicant, there still remains in the hands of the Applicant a surplus of the proceeds from the Sale in the sum of HK$2,872,718.79 (the “Surplus Proceeds”).

19.The Surplus Proceeds (HK$2,872,718.79) has been broken down as being the Sale Residue (HK$3,776,657.46) less the outstanding indebtedness under the Loan Agreement in the amount of HK$819,910.00 and legal costs in the amount of HK$84,028.67.

20.The aforementioned legal costs in the amount of HK$84,028.67 have been particularised as comprising:-

(1)  the costs allowed under the 2020 Judgment, summarily assessed at HK$41,262.67;

(2)  the costs allowed under the Charging Order, summarily assessed at HK$7,000; and

(3)  legal costs incurred by the Applicant after the Charging Order (but not including this application) in the sum of HK$35,766.00 (the “3^rd Set of Costs”)

The Application

21.By the OS, the Applicant applies to pay the Surplus Proceeds into Court pursuant to section 62 of the TO.

22.The court’s approach to applications of this nature has been summarised by Deputy Judge Winnie Tsui (as she then was) in Re K&R International [2021] 2 HKLRD 47 at §40. When considering whether to make an order under section 62 of the TO, the court will consider the matter in two stages:-

(1)  The court would first need to be satisfied that the property which formed the subject matter of the payment in the application was trust property held by the applicant as trustee; and

(2)  If so satisfied, the court would then proceed to consider whether it should exercise its discretion to allow payment in.

Surplus Proceeds held on trust

23.The Applicant submits that the Surplus Proceeds are held by the Applicant as a constructive trustee to be paid, in accordance with Section 54 of the Conveyancing and Property Ordinance, Cap 219 (the “CPO”), to the person(s) who, immediately before the Sale, was entitled to the Property or authorised to give a receipt for the proceeds of sale of the Property. In the present case, that person is the PR.

24.Section 54 of the CPO provides:-

“54. Application of money received

Any money received by a mortgagee or a receiver from the sale or other dealing with the mortgaged land or any security comprised in the mortgage shall be applied according to the following priority –

(a) in discharge of all rent, taxes, rates and other outgoings due and affecting the mortgaged land;

(b) unless the mortgaged land is sold subject to a prior incumbrance, in discharge of that prior incumbrance;

(c) in payment of the receiver’s lawful remuneration, costs, charges and expenses and all lawful costs and expenses properly incurred in the sale or other dealing;

(d) in payment of mortgage money, interest and costs due under the mortgage,and any residue shall be paid to the person who, immediately before the sale or other dealing, was entitled to the mortgaged land or authorised to give receipt for the proceeds of the sale of that land.”

25.According to section 2 of the CPO, ‘mortgage’ is defined as a “security over land for securing money or money’s worth”. It has been held that the definition of ‘mortgage’ under the CPO is wide enough to cover an equitable charge, which a charging order is.[2]

26.In Kwok Lam Kuk & Anor v The Personal Representative of Yip Wai Ming, Kavin, deceased,[3] Deputy District Judge Simon Ho distilled the following legal propositions in relation to the equitable nature of the mortgagee sale’s surplus proceeds:-

(1)  Upon the mortgagee’s exercise of its power of sale of the mortgaged property in the Hong Kong regime, as opposed to the position in England where a statutory trust was created over the sale proceeds,[4] a constructive trust would nonetheless be imposed on the surplus proceeds once the money falls into the hands of the mortgagee (despite the absence of an express trust created in the mortgage instrument, nor under statute);

(2)  As such, the mortgagee would be liable under an equitable duty to account to the mortgagor such money, being a liquidated sum owing in equity from the mortgagee to the mortgagor and hence also qualifying as an “equitable debt”.

27.I agree with the analysis and judgment of Deputy District Judge Simon Ho in Kwok Lam Kuk & Anor v The Personal Representative of Yip Wai Ming, Kavin, deceased,[5] and I accept that the Surplus Proceeds (subject to this Court’s approval as to its quantum) are, prima facie, held by the Applicant as a constructive trustee to be paid, in accordance with Section 54 of the CPO, to the PR.

Should the discretion to allow payment in be exercised

28.As to whether the discretion to allow payment in should be exercised, the court would usually consider:-

(1)  Whether an applicant can demonstrate by proper evidence that it had taken all reasonable steps to try and identify and locate the beneficiaries, notify them and take necessary steps to return the assets to them. What is reasonable must depend on the circumstances of each case;[6]

(2)  The implications of a payment in order, both from the perspective of the untraceable beneficiaries and from that of the court.[7] In other words, a question of proportionality, in that it should be considered whether a payment into court of a minor sum would be disproportionate to the costs of getting the money out and of the court to administer the same; and

(3)  whether there are any other viable alternative solutions other than a payment in order.[8]

29.In relation to this second stage, the Applicant submits that the discretion should be exercised because:-

(1)  The Applicant has taken all reasonable steps to identify and locate any beneficiaries of the trust;

(2)  The Surplus Proceeds represent a significant sum for which there appears to be only one potential claimant, i.e., the estate of the Deceased; and

(3)  There are no other viable alternative solutions other than a payment in order.

Applicant’s inability to locate and/or identify the PR.

30.From the time of the 2020 Action, the Applicant has endeavoured, without success, to locate and identify the PR.

31.This inability, as well as the efforts of the Applicant, were taken into account by the Masters that granted the orders appointing the Official Solicitor to represent the estate of the Deceased solely for the purpose of accepting service of the Writ of Summons in the 2020 Action and granting leave to the Applicant to proceed with the 2020 Action in the absence of a person representing the estate of the Deceased.

32.I note that the Applicant had, on 24 November 2020, published an advertisement in Chinese in the Hong Kong Commercial Daily.

33.The Applicant has also conducted probate searches with the Probate Registry against the name of the Deceased. Mr Wu has submitted to the Court an updated probate search, dated 19 May 2025, which shows that no grant of probate of Letters of Administration has yet been issued in relation to the Deceased/Deceased’s estate.

34.I accept that the Applicant has taken all reasonable steps to identify and locate the PR and/or any beneficiaries of the trust and have been unsuccessful in so doing.

Proportionality

35.Given that I have found that the Applicant has taken sufficiently reasonable steps to identify and locate the PR and/or any beneficiaries of the trust, this Court must now consider whether a payment in order is proportionate in the circumstances.

36.The Applicant submits that proportionality favours an order for payment in, as the sum in question is relatively substantial (some HK$2.8 odd million) and it would not be unduly disproportionate for any eventual PR to incur the costs of applying to have such sums paid out of court.

37.I agree with this submission and find that the Surplus Proceeds is a sum of money of sufficient significance so as to justify:-

(1)  the potential costs that any eventual PR may need to pay for payment out of such funds; and

(2)  the costs of court administering such funds.

No viable alternative

38.The Applicant submits that, save for continuing to hold and/or administer the Surplus Proceeds, a payment in order is the only viable option. There is no other viable alternative solution.

39.I accept this submission and find that there is sufficient justification for the use of the court resources, both judicial and administrative, in the present case.

40.Subject to this Court’s approval as to the quantum of the sum to be paid into Court, a payment in order is, in the premises, justified.

Notice of lodgment

41.Order 92, rule 4 of the Rule of the District Court, Cap 336H (“RDC”) provides that:-

“4. Notice of lodgment (O. 92, r.4)

Any person who has lodged money or securities in court in accordance with rule 2 must forthwith send notice of the lodgment to ever person appearing from the affidavit on which the lodgment was made to be entitled to, or to have an interest in, the money or securities lodged.”

42.Owing to the fact that the Applicant has been unable to locate or identify the PR or any person who has an interest in the Surplus Proceeds, the Applicant has applied for an order for substituted service of the notice of lodgment.

43.I am persuaded by the submissions of the Applicant and am satisfied that an order for substituted service of the notice of lodgment would be an appropriate order in the circumstances of this case.

Quantum of the amount to be paid into court

44.In the course of the hearing, I conveyed to Mr Wu concerns that I had over the 3^rd Set of Costs, which I have referred to in paragraph 20(3) above, and whether there may be any overlap with the costs order granted in the charging order proceedings.

45.After some discussion with Mr Wu, he fairly conceded that Item C1 “Attendance on Client (TSE)” in the sum of HK$8,450.00,[9] likely related to the charging order proceedings.

46.Consequently, Mr Wu agreed that the sum of HK$8,450.00 should be removed from the 3^rd Set of Costs and added to the Surplus Proceeds to be paid into Court. The amount to be paid into Court and which make up the totality of the sum held on trust by the Applicant for the PR, is therefore HK$2,872,718.79 + HK$8,450.00 = HK$2,881,168.79.

47.Subject to the sum of HK$8,450.00 being added to the Surplus Proceeds to be paid into Court, I am satisfied on this issue of quantum.

Assessment of Costs of the Application

48.Order 62, rule 31 of the RDC provides:-

“31. Costs payable to a trustee out of trust funds, etc. (O. 62, r. 31)

(1) This rule applies to every taxation of the costs which a person who is or has been a party to any proceedings in the capacity of trustee or personal representative is entitled to be paid out of any fund which he holds in that capacity.

(2) On any taxation to which this rule applies, no costs shall be disallowed except in so far as those costs or any part of their amount should not, in accordance with the duty of a trustee or personal representative as such, have been incurred or paid, and should for that reason be borne by him personally.”

49.Mr Wu has submitted the Applicant’s 2^nd Updated Skeleton Bill of Costs in relation to the present application.

50.Bearing in mind the provisions of Order 62, rule 31 of the RDC, I am satisfied that the costs set out thereunder were incurred in accordance with the Applicant’s duty as a trustee.

51.Accordingly, I summarily assess the Applicant’s costs of this application, on a trustee basis, at HK$82,201.00

Order

52.In the premises, I make the following order:-

(1)  The Application do have leave to pay into Court the sum of HK$2,881,168.79 (the “Trust Funds”) under Section 62 of the Trustee Ordinance, Cap 29, after first deducting the costs referred to in (3) below;

(2)  The Applicant do within 14 days of lodgment of the Trust Funds, advertise in a Chinese language daily newspaper a notification of said lodgment whereupon the Applicant shall be deemed to have complied with O 92, r 4 of the Rules of the District Court, Cap 336H; and

(3)  The Applicant’s costs of this application, summarily assessed on a trustee basis at HK$82,201.00, be paid out of the Trust Funds before lodgment.

53.I thank Mr Wu for his able assistance in this matter.

Mr Wu Ka Wang of Tony Kan & Co., for the Applicant