Ever-long Finance Ltd v. Lam Sai Kit and Another

DCMP 2062/2025

[2025] HKDC 1863

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2062 OF 2025

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JUDGMENT

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A.  Introduction

1.By an Originating Summons dated 11 April 2025 (“OS”), the Plaintiff commenced this mortgage action against the Defendants pursuant to Orders 83A and 88 of the Rules of the District Court (Cap 336H) (“RDC”).

2.The 1^st Defendant has not filed his Acknowledgement of Service. The 2^nd Defendant filed her Acknowledgement of Service on 22 May 2025.

3.The Notice of Hearing was served on the Defendants on or about 14 July 2025.

4.On or about 26 September 2025, the Plaintiff and the 2^nd Defendant signed a consent summons setting out the 2^nd Defendant’s consent to the sale of the Property (as defined at §8 below).

5.On or about 20 October 2025, the Plaintiff lodged a draft order (“Draft Order”) and a statement of costs.

6.At the hearing, the Plaintiff was represented by Mr Jackson Chow. The Defendants did not appear.

7.Satisfied with the affirmation of service, despite the non-appearance of the Defendants, I proceeded with the hearing pursuant to Order 28, rule 4(1) of the RDC.

B.  Factual background

8.The Plaintiff is a licensed money lender under the Money Lenders Ordinance (Cap 163) (“MLO”). The present proceedings arose from the 1^st Defendant’s default in repayment of a loan secured by a second mortgage over his half-share interest in the property known as Flat A, 3/F, Yick Fung Building, No 50 South Wall Road, Kowloon, Hong Kong (“Property”).

9.The Property is jointly owned by the 1^st and 2^nd Defendants as tenants in common in equal shares. It is subject to a first mortgage dated 10 April 2015 in favour of Hang Seng Bank Limited (“Hang Seng Bank”).

10.On 16 April 2024, the Plaintiff advanced a loan of HK$500,000 (“Loan”) to the 1^st Defendant pursuant to a written loan agreement (“Loan Agreement”) which was secured by a second mortgage dated 23 March 2023 over the 1^st Defendant’s half-share in the Property (“Second Mortgage”). The Loan Agreement carried an interest rate of 1.35% per month (16.2 % per annum) repayable by 12 monthly instalments.

11.The 1^st Defendant only repaid HK$13,500 under the Loan Agreement, with the last repayment made on 18 June 2024.

12.On 24 September 2024, a bankruptcy order was made against the 1^st Defendant.

13.On 24 March 2025, the Plaintiff issued a demand letter to the 1^st Defendant, stating that pursuant to Clause 12.03 of the Second Mortgage, the Secured Liabilities (which included the Loan and its interest) were immediately due and payable.

14.On 11 April 2025, the Plaintiff commenced these proceedings.

15.On 21 July 2025, the Plaintiff was informed by the Official Receiver’s Office that Wong Ka Chun, Julian and Wong Ka Lam King had been appointed the joint and several trustees of the property of the 1^st Defendant (“Trustees”).

16.Notice of Hearing has been given to Hang Seng Bank, the Trustees and the Director of Lands. Hang Seng Bank did not respond, but the Trustees responded stating that in principle they have no objection to the Plaintiff’s application.

17.On the basis of the uncontested evidence adduced by the Plaintiff, I accept that the Plaintiff has complied with the requirements of the MLO (subject to the discussion in Section D1 below), Order 83A and Order 88 of the RDC.

C.  Preliminary Issue - whether leave from the Bankruptcy Court is required for the present case

18.Before I go into the details of the Plaintiff’s case, I first deal with a preliminary issue.

19.According to section 12(1) of the Bankruptcy Ordinance (Cap 6) (“BO”):

“On the making of a bankruptcy order, the Official Receiver shall thereby become the provisional trustee of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose.”

20.Pursuant to section 2 of the BO, “court” means the Court of First Instance sitting in its bankruptcy jurisdiction.

21.Therefore, according to section 12(1) of the BO, after a bankruptcy order was made against the 1^st Defendant on 24 September 2024, the Plaintiff could not commence these proceedings on 11 April 2025 unless with leave of the Bankruptcy Court.

22.On the other hand, section 12(2) of the BO provides that:

"This section shall not affect the power of any secured creditor to realize or otherwise deal with his security".

23.Consequently, there is a preliminary issue whether this case falls within section 12(2) of the BO such that no leave from Bankruptcy Court is required.

24.In Field Finance Ltd v Seck King Chung [2020] HKDC 514, District Judge Simon Leung held, at [16], that:

"Leave would have been required, had this action been to seek monetary judgment in respect of the debt pursuant to the loan agreement only as that in the aborted DCCJ 362/2019. However, the loan agreement and the second legal charge are from their conception part and parcel of a single secured loan arrangement entered into on the same occasion. In the circumstances, I agreed that section 12(2) of the BO applies to the plaintiff in its present action to enforce its rights as a secured creditor." (Emphasis added)

25.In the present case, the Plaintiff does not only seek a monetary judgment, but the realization of its security contained in the Second Mortgage. The monetary judgment sought is part and parcel of the Plaintiff's realization of security. Applying Field Finance to the present case, I am satisfied that section 12(2) of the BO applies and no leave is required from the Bankruptcy Court.

D.  The Plaintiff’s case

26.On the evidence before me, I am satisfied that:

(1)  On 16 April 2024, the Plaintiff advanced HK$500,000 to the 1^st Defendant pursuant to the Loan Agreement which was secured by the Second Mortgage.

(2)  The 1^st Defendant only repaid HK$13,500, with the last repayment made on 18 June 2024.

(3)  The 1^st Defendant failed to repay the next instalment on 16 July 2024, and a bankruptcy order was made against him on 24 September 2024, both of which constituted an event of default under Clause 12.01 of the Second Mortgage.

(4)  The Plaintiff issued a demand letter to the 1^st Defendant on 24 March 2025, stating that pursuant to Clause 12.03 of the Second Mortgage, the Secured Liabilities (which included the Loan and its interest) were immediately due and payable.

(5)  Pursuant to Clauses 13.01 and 13.02, the Plaintiff was entitled to enter upon and take possession of the Property.

27.There are, however, several other issues in the Plaintiff’s case, as shown in the evidence, which I will now address.

D1.  Whether the Loan Agreement is unenforceable because of non-compliance with the requirement of memorandum under the MLO

28.The Plaintiff accepts that no memorandum was signed by the 1^st Defendant for the Loan Agreement as required by section 18(1) of the MLO. As a result, the Loan Agreement is prima facie unenforceable. However, the Plaintiff submits that the court should exercise its discretion under section 18(3) of the MLO to enforce the Loan Agreement despite the non-compliance.

29.I have been referred to the legal principles as stated by the Court of Final Appeal in Emperor Finance Ltd v La Belle Fashions Ltd (2003) 6 HKCFAR 402 and Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529. I have also been referred to the case Fast Billion Holdings Ltd v Sun Pui Yuk [2019] 1 HKLRD 906.

30.In the present case, I am satisfied that the non-compliance with the memorandum requirement in the present case is not serious. A Chinese version of the Loan Agreement was provided to the 1^st Defendant. All material terms, including interest rate, repayment schedule, and charges were explained to the 1^st Defendant at the time of signing. The instalments were fixed and regular. There is no suggestion or evidence of prejudice or confusion on the part of 1^st Defendant. In all circumstances it would be inequitable not to enforce the Loan Agreement. I therefore order that the Loan Agreement is enforceable despite the non-compliance.

D2.    Whether the Plaintiff is a person interested in the Property under section 3 of the Partition Ordinance

31.Another issue is whether the Plaintiff is a person interested in the Property under section 3 of the Partition Ordinance (Cap 352) (“PO”) such that it may ask the court for partition or sale of the Property.

32.In Fortis Bank Asia HK v Yu Kam Hoi Herman (unreported, HCMP 134/2002, [2004] HKEC 297), it was held by Reyes J, at §56, that an interested person is confined to persons holding an interest in possession.

33.This includes a legal charge of tenant in common (see Law Chun Wai v Chu Suk Har [2016] 1 HKLRD 224, at §23, per HH Judge Andrew Li) and a second or subsequent mortgagee of a legal estate (see Fubon Bank (Hong Kong) Limited v Ng Wai Kong [2021] HKCFI 1558, at §11, per Hon Au Yeung J; Field Finance Ltd v Seck King Chung [2020] HKDC 514, at §28, per HH Judge Leung).

34.In the present case:

(1)  The Plaintiff is a second mortgagee of the Property under the Second Mortgage; and

(2)  Further, pursuant to Clauses 13.01 and 13.02 of the Second Mortgage, the Plaintiff has been entitled to enter upon and take possession of the Property since 24 March 2025.

35.As a result, I am satisfied that the Plaintiff is an interested person under section 3 of the PO and has the locus standi to apply for an order for sale of the Property.

D3.    Whether sale of the Property should be ordered

36.Section 6(1) of the PO empowers the court to make an order for the sale of the property 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 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, or (d) any other circumstances.

37.In Re Lau Hiu Tuen (HCB 8430 of 2006, 20 August 2015), at §§20-24, G Lam J (as he then was) summarised the relevant principles as follows:

(1)  A co-owner has the 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)  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.

(3)  Whether an order for sale is beneficial to all co-owners is not determined by the dissent of the opposing co-owner, or the assertion of them that it is not beneficial.  It is to be determined objectively.

(4)  An order for sale would not be refused unless all the co-owners would be benefited by its refusal, or an order for sale would be detrimental to all the co-owners, or unless it will result in very great hardship to one co-owner.

38.Applying Re Lau Hiu Tuen to the present case, I am satisfied that an order for sale of the Property should be made.

(1)  The Property is a residential unit in a multi-storey building with a saleable area of only 173 square feet. The partitioning of the Property is therefore not practicable.

(2)  The 2^nd Defendant consents to the sale, and no objection is raised by the 1^st Defendant.

39.Further, I am satisfied that the terms of the Draft Order are appropriate.

(1)  The reserve price of HK$1,450,000 is set by reference to a valuation report of a qualified surveyor, Mr Terence K H Wan of Century 21 Surveyors dated 2 April 2025.

(2)  The first mortgagee, namely Hang Seng Bank, will have priority to the distribution of the sales proceeds, after discharge of all rent, taxes, rates and other outgoings due affecting the Property.

(3)  The interest of the 2^nd Defendant is protected by her entitlement to the pro rata share of the sales proceeds.

(4)  In respect of the 1^st Defendant’s share, the residual sum (if any) after application of the proceeds towards the costs of sale and the Second Mortgage, will be paid to the Trustees of the 1^st Defendant.

40.I am also satisfied that the Plaintiff is entitled to costs against the 1^st Defendant on an indemnity basis pursuant to Clause 22 of the Second Mortgage, which I summarily assess to be HK$85,000.

E.  Disposition

41.For the reasons above, I accede to the Plaintiff’s application and grant the following orders:

(1)  The Plaintiff do recover from the 1^st Defendant HK$570,449.20 (as at 29 April 2025) secured by the Second Mortgage dated 23 March 2023 and registered in the Land Registry by Memorial No. 23032901250049 together with interest on the sum of HK$500,000.00 at the rate of 16.20% per annum from 30 April 2025 until full payment (“Judgment Sum”);

(2)  In default of the 1^st Defendant’s payment of the Judgment Sum within 28 days after service of this Order on him, the 1^st and 2^nd Defendants do deliver to the Plaintiff vacant possession of the Property and the Plaintiff be at liberty to sell the Property under the PO by private treaty in open market at the price of not less than HK$1,550,000.00 or by public auction with a reserve price of not less than HK$1,550,000.00;

(3)  In the event the Plaintiff is unable to sell the Property at the minimum / reserve price of HK$1,550,000.00 within 3 months from the date on which vacant possession of the Property is delivered by the 1^st and 2^nd Defendants, the Plaintiff be at liberty to sell the Property under the PO by private treaty in open market at the price of not less than HK$1,450,000.00 or by public auction with a reserve price of not less than HK$1,450,000.00;

(4)  The conduct of the sale be committed to the Plaintiff’s solicitors, Messrs Chan & Ho (“the Plaintiff’s Solicitors”) and the Plaintiff’s Solicitors be authorized to receive the purchase price (including all deposits) for the Property on behalf of the vendors of the Property and to distribute the sale proceeds as set out below;

(5)  The parties be permitted to bid at the public auction and to purchase the Property;

(6)  The 1^st and 2^nd Defendants do sign and execute all necessary documents and instruments needed to convey the title of the Property to the purchaser(s) and to implement the order for sale within 3 days of receipt of written demand from the Plaintiff’s Solicitors;

(7)  In default of compliance with §(6) above, pursuant to section 38A of the District Court Ordinance, Mr Ho Chuen King Charles, partner of the Plaintiff’s Solicitors, be appointed to do all things and sign and execute all necessary documents and instruments as vendor to implement the sale of the Property to the purchaser(s) and to convey the title of the Property to the purchaser(s);

(8)  The purchase price of the Property (including all deposits) be received by the Plaintiff’s Solicitors and applied by the Plaintiff’s Solicitors in the following order of priority:

(a)  In discharge of all rent, taxes, rates and other outgoings due affecting the Property;

(b)  In discharge of the Mortgage dated 10 April 2015 in favour of Hang Seng Bank Limited and registered in the Land Registry by Memorial No. 15050602410120;

(c)  The remaining balance of the sale proceeds be split to two equal halves: one half of the sale proceeds belonging to the 1^st Defendant (the “1^st Defendant’s Share”) and the other half of the sale proceeds belonging to the 2^nd Defendant (the “2^nd Defendant’s Share”);

(d)  The 2^nd Defendant’s Share be paid to the 2^nd Defendant;

(e)  The 1^st Defendant’s Share be applied in discharge of:

(i)    All lawful costs and expenses properly incurred in the sale and conveyancing of the Property (the total amount for such estate agent’s commission and/or auctioneer’s fees not exceeding 2% of the total sale price of the Property);

(ii)   The Judgment Sum and costs of this action;

(iii)  Then, the balance of the 1^st Defendant’s Share remaining (if any) be paid to Wong Ka Chun, Julian and Wong Ka Lam King, the joint and several trustees of the property of the 1^st Defendant.

(9)  Costs of this action be paid by the 1^st Defendant to the Plaintiff on an indemnity basis, which is summarised assessed to be HK$85,000.

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

(11)  Liberty to apply.

42.I also make a direction that notice of this judgment shall be served by the Plaintiff on the Trustees and Hang Seng Bank pursuant to Order 44, Rule 2 of the RDC.

43.It remains for me to thank Mr Chow for his assistance to the court.