PINS CREDIT MANAGEMENT CO., LTD v. TSE TAI YIM AND ANOTHER

DCMP 1233/2018

[2020] HKDC 891

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1233 OF 2018

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BETWEEN

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DECISION

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Background

1.  The plaintiff is a money lender.  Under a loan agreement dated 9 November 2016, the plaintiff lent HK$750,000 to the 1^st defendant and another borrower, Li Koi Hop Philip (“Li”) (the “Loan Agreement”).  On 6 March 2018, the plaintiff obtained judgment in default of notice of intention to defend under DCCJ 5395/2017 against both the 1^st defendant and Li for the sum of HK$889,956.16 together with interest.  The sum remains outstanding and due.

2.  The 1^st defendant had charged her interest in Flat D on the 2^nd Floor of Block 1, Manor Centre, No 213 Un Chau Street, Kowloon, Hong Kong (the “Property”) in favour of the plaintiff pursuant to a tripartite legal charge dated 6 February 2015 (the “Legal Charge”), as security for the general credit facilities made available by the plaintiff to the 1^st defendant and Li.

3.  The plaintiff applied by originating summons dated 4 May 2018 (the “Originating Summons”) for an order for sale under section 6 of the Partition Ordinance (Cap 352) (the “Ordinance”). 

4.  The 1^st defendant is the mother of the 2^nd defendant.  The 1^st and 2^nd defendants held the Property as tenants-in-common in equal shares.

5.  Despite having filed a notice of intention to defend dated 18 May 2018, the 2^nd defendant did not appear at the substantive hearing of the Originating Summons.  The 1^st defendant was also absent.  The 1^st and 2^nd defendants also did not file any evidence to contest the Originating Summons. 

6.  At the substantive hearing on 20 December 2019, I was satisfied that the 1^st defendant and the 2^nd defendant had been duly served and had notice of the hearing.  The hearing thus proceeded in their absence.  On 16 January 2020, judgment (the “Judgment”) was handed down and I held that it was fair and just to make an order for sale of the Property under the Partition Ordinance.  I made the following orders (the “Order”):-

(1) The 1^st and 2^nd defendants do deliver up vacant possession of the Property to the plaintiff within 28 days after service of this Order;

(2) Upon the 1^st defendant paying to the plaintiff the sum of HK$889,956.16 together with interest on the sum of HK$750,000.00 at the rate of 26.40% per annum from 24 November 2017 until payment and the costs of the action HK$10,500.00, being the outstanding Judgment Debt in DCCJ 5395/2017 under the Judgment dated 6 March 2018 and costs of these proceedings, the plaintiff do redeliver possession of the Property to the 1^st and 2^nd defendants, and release the 1^st defendant from the security constituted by the Mortgage;

(3) In the event the 1^st defendant failed to make payments adjudged in paragraph (2) above together with costs for these proceedings, the 1^st and 2^nd defendants do deliver vacant possession and title deeds and documents of the Property to the plaintiff. The Property be sold pursuant to section 6 of the Partition Ordinance (Cap 352) at open market value not less than HK$4,500,000.00;

(4) Upon such sale, the 1^st and 2^nd defendants shall do all necessary acts for the transfer of their legal title and beneficial interest in the said Property to the purchaser;

(5) The proceeds of sale of the Property shall be applied in the following manner and order of priority:-

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

(b) in payment for the discharge of all encumbrances having priority to the Legal Charge (including the costs and disbursements for handling such encumbrances);

(c) in payment of all reasonable costs and expenses of the sale (including conveyancing costs up to HK$20,000.00, estate agent commission up to 1% of the sale price);

(d) the remaining net balance be split into two halves:-

1) as for the first half:-

(i) payment to the 2^nd defendant who owns half of the Property with the 1^st defendant; if the 2^nd defendant could not be located, such sum shall be paid into court for the credit of the 2^nd defendant.

2) as for the second half:-

(i) payment to discharge the Legal Charge (memorial number: 15021100200458) in favour of the plaintiff;

(ii) in payment of all plaintiff’s costs of these proceedings, to be summarily assessed and the fee for the valuation report for the Property in the sum of HK$6,000.00; and

(iii) the balance, if any, after deduction of the costs and disbursements for handling the encumbrance affecting the Property; to the 1^st defendant; if the 1^st defendant could not be located, such sum shall be paid into court for the credit of the 1^st defendant.

(6) There be liberty to apply, including for (but without limitation to) directions on the terms and manner of the sale of the Property.

Current application

7.  Subsequent to the grant of the Order, the plaintiff tried to contact the 2^nd defendant but to no avail.  On 13 March 2020, the 2^nd defendant took out a summons to set aside or to stay the execution of the Order. 

8.  It was revealed for the first time under the 2^nd defendant’s supporting affirmation filed on 13 March 2020, that the 1^st defendant had in fact passed away on 13 November 2019, prior to the date of the hearing.  Neither the plaintiff nor the court had notice of this fact at the time of the hearing on 20 December 2019.

9.  The plaintiff subsequently took out a summons dated 23 July 2020 for an order that:-

(1) the 2^nd defendant be appointed to represent the estate for the purpose of the present proceedings; alternatively, the present action be continued in the absence of a person representing the estate of the 1^st defendant.

(2) paragraph 3 of the Order be varied to cover circumstances where the title deeds are not available to the plaintiff, the Property be sold at open market value not less than HK$3,110,000.

Legal principles

10.  A tenant-in-common’s interest will pass onto his/her estate on their death[1].

11.  Upon the death of the 1^st defendant, who is intestate, section 10 of the Probate and Administration Ordinance (Cap 10) (the “PAO”) applies:-

“Where any person dies, whether in Hong Kong or elsewhere, leaving estate in Hong Kong in respect of which he dies intestate, such estate shall vest in the Official Administrator who may, if he thinks fit, receive and take possession of the same until administration is granted in respect thereof.”

12.  In the case of the death of one of several defendants, if the defendants are jointly and severally liable and where the cause of action survives, the action may, on the death of a defendant, be continued against the survivors, or against the representative of the deceased and the survivors[2].

13.  Order 15 rule 7(2), (3) of the Rules of the High Court provides:-

“(2) Where at any stage of the proceedings in any cause or matter the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may, if it thinks necessary in order to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, order that other person to be made a party to the cause or matter and the proceedings to be carried on as if he had been substituted for the first mentioned party.

…

(3) An order may be made under this rule for a person to be made a party to a cause or matter notwithstanding that he is already a party to it … on the same side but in a different capacity; but ---

…

(b) if he is already a party on the same side but in another capacity, the order may contain a direction that he shall cease to be a party in that other capacity.”

Analysis

14.  It cannot be denied that upon the death of the 1^st defendant, her interest had changed.  Upon the death of the 1^st defendant, who is intestate, her estate shall vest in the Official Administrator according to section 10 of the PAO.

15.  Thus, at the time when the Judgment was handed down, the 1^st defendant no longer had title to the Property.  A reconstitution of the action is thus necessary upon the passing of the 1^st defendant.  This is accepted by Ms Yeung, appearing for the plaintiff.

16.  An order under Order 15 rule 7 essentially provides the procedure for reconstituting an action, where this is necessary and possible, in the event of certain changes affecting a party or the interest or liability of a party[3].

17.  Upon the passing of the 1^st defendant, a reconstitution of the action is necessary.  It must then follow that no further action ought to have been taken until the action was reconstituted.  Accordingly, the Judgment and Order granted by the court without realizing the 1^st defendant had already passed away should not have been entered and granted and the Judgment was irregular.

18.  I am thus of the view that the Judgment and Order ought to be set aside for irregularity.

Form of order under Order 15 rule 7

19.  As the Property was held by the 1^st defendant and the 2^nd defendant as tenants-in-common, the 1^st defendant’s interest in the Property would pass onto her estate upon her death.  In those circumstances the court should grant a carry-on order appointing someone to represent the 1^st defendant’s estate.

20.  As the plaintiff would require an order that binds both tenants-in-common, (the 1^st defendant’s estate and the 2^nd defendant) I do not think it is appropriate to ask the 2^nd defendant to cease being a party under Order 15 rule 7 (3)(b) of the Rules of the High Court.

21.  The 2^nd defendant informed the court that no grant of probate has been made.  “Where no grant of probate or administration has been made, the order should be for the appointment of a person to represent the estate of the deceased for the purpose of the proceedings and that the proceedings be carried on against the person so appointed.[4]”

22.  Thus, in the present case an order to carry on the proceedings should appoint a person to represent the estate of the 1^st defendant.

23.  The plaintiff has asked that the 2^nd defendant be appointed. The 2^nd defendant also indicated that she has no objection to being appointed.  The 1^st defendant died intestate.  Although there might be potential conflict of interest between the estate and the 2^nd defendant, this conflict is academic as the 1^st defendant has no other issue and the 2^nd defendant is the sole beneficiary to the 1^st defendant’s estate.

Conclusion

24.  I will allow the Judgment and Order to be set aside.  A carry on order would be granted to appoint the 2^nd defendant to represent the estate of the 1^st defendant.

Costs

25.  There is no dispute between the parties that costs of the plaintiff’s summons dated 23 July 2020 (except for the costs involved in paragraph 2 of the said summons) should be in the cause.  In relation to paragraph 2 of the said summons, the issue of costs is reserved. I gave leave for the 2^nd defendant to put in evidence to rebut the plaintiff’s allegation that they had tried to contact the 2^nd defendant in relation to the title deeds but to no avail.

26.  As to the costs of the 2^nd defendant’s summons dated 13 March 2020, I am of the view that the fair costs order should be for the 1^st and 2^nd defendant to pay half of the costs of and occasioned by the entering of the said judgment and of its setting aside, including the costs of this application for the following reasons:-

(1) The plaintiff needs to pursue the action against both the 1^st defendant and the 2^nd defendant.  Ms Yeung accepts that the plaintiff bears the responsibility of ensuring that all parties were properly constituted.  As such, the plaintiff was partly at fault for not having ascertained that the parties were correctly constituted when they proceeded with the application in December 2019.  Ms Yeung tried to argue that they should not be responsible for the costs as the death certificate was not available, and they would not have been able to find out that the 1^st defendant had passed away even if they had tried.  However, a form 11, certificate of order authorizing cremation of the 1^st defendant’s body was issued on 14 November 2019 by the Coroner, after which the body of the 1^st defendant could be buried.  There is no evidence to suggest that the plaintiff had carried out a search and no result was forthcoming.  The fact is that the plaintiff had not in fact carried out any search with the Births and Deaths Registry.  I reject that the plaintiff’s argument that they bear no responsibility for the costs involved to set aside the Judgment.

(2) The 2^nd defendant is also at fault for not informing the plaintiff and the court promptly upon the death of the 1^st defendant.  The excuse given was that the 2^nd defendant was too devastated and pre-occupied with the death of the 1^st defendant at the time and failed to inform the court or the 1^st defendant promptly.  The 2^nd defendant accepts that she bears some responsibility for the costs involved in setting aside the Judgment.

(3) In the circumstances I find it fair that the plaintiff should bear half of the costs involved in the setting aside of the Judgment, whereas the 1^st and 2^nd defendants together should be responsible for the other half of the relevant costs.

Order

27.  I will make an order as follows:-

In relation to the 2^nd defendant’s summons dated 13 March 2020:-

(1) The judgment dated 16 January 2020 and the orders therein be set aside;

(2) Costs of and occasioned by the entering of the said judgment and of its setting aside, including the costs of this application be borne by the plaintiff as to 50% and the other 50% to be borne by the 1^st defendant and the 2^nd defendant jointly and severally, to be taxed if not agreed.

In relation to the plaintiff’s summons dated 23 July 2020:-

(1) Cheung Fung Ling be appointed to represent the estate of Tse Tai Yim, deceased for the purpose of carrying on these proceedings;

(2) the action be carried on between the plaintiff, Cheung Fung Ling representing the estate of Tse Tai Yim, deceased, and the 2^nd defendant;

(3) Paragraph 2 of the summons is dismissed. The costs in relation to paragraph 2 of the summons be reserved;

(4) In relation to the issue of costs of paragraph 2 of the summons, the 2^nd defendant do have leave to file and serve an affirmation to respond to paragraph 18 of the 4^th affirmation of Lam To Man within 14 days hereof. The plaintiff do have leave to file and serve an affirmation in reply (if any) within 14 days thereafter;

(5) Other than costs incurred in relation to paragraph 2 of the summons, costs of this application be in the cause.

Other directions

28.  The plaintiff do have leave to list the application for substantive arguments with 2 hours reserved.

Ms R Yeung, of Cheung & Choy, for the plaintiff

The 1^st defendant is not represented and absent

The 2^nd defendant is not represented

DCMP 1233/2018

[2019] HKDC 1728

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1233 OF 2018

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JUDGMENT

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APPLICATION

1.  This is the plaintiff’s application by originating summons dated 4 May 2018 (the “Originating Summons”) for an order for sale under section 6 of the Partition Ordinance (Cap 352) (the “Ordinance”). 

BACKGROUND

2.  The plaintiff is a money lender.  Under a loan agreement dated 9 November 2016, the plaintiff lent HK$750,000 to the 1^st defendant and another borrower, Li Koi Hop Philip (“Li”) (the “Loan Agreement”).  On 6 March 2018, the plaintiff obtained judgment in default of notice of intention to defend under DCCJ 5395/2017 against both the 1^st defendant and Li for the sum of HK$889,956.16 together with interest.  The sum remains outstanding and due.

3.  The 1^st defendant had charged her interest in Flat D on the 2^nd Floor of Block 1, Manor Centre, no. 213 Un Chau Street, Kowloon, Hong Kong (the “Property”) in favour of the plaintiff pursuant to a tripartite legal charge dated 6 February 2015 (the “Legal Charge”), as security for the general credit facilities made available by the plaintiff to the 1^st defendant and Li.

4.  The 1^st defendant is the mother of the 2^nd defendant.  The 1^st and 2^nd defendants are the registered owners of the Property as joint tenants.

5.  Despite having filed a notice of intention to defend dated 18 May 2018, the 2^nd defendant did not appear at the substantive hearing of the Originating Summons.  The 1^st defendant was also absent.  The 1^st and 2^nd defendants also did not file any evidence to contest the Originating Summons. 

6.  When the Originating Summons was first heard before HH Judge Kent Yee on 28 June 2018, the court was concerned whether the 1^st defendant was mentally capable of handling these proceedings, as she was previously represented by the Official Solicitor as her guardian ad litem in her matrimonial proceedings in 2000.  The 2^nd defendant has also written to the court alleging that the 1^st defendant is mentally unfit.  The plaintiff thus liaised with the Official Solicitors to enquire if they would accept service of these proceedings on behalf of the 1^st defendant. By letter dated 24 June 2019, the Official Solicitors indicated that they have obtained medical opinion and confirmed that the 1^st defendant is mentally fit to handle these proceedings.  Consequently, the Official Solicitors are not prepared to act on her behalf.

7.  The court is satisfied that the 1^st defendant and the 2^nd defendant had been duly served and had notice of the hearing.  The hearing thus proceeded in their absence. 

Right to vacant possession

8.  An event of default under clause 7 of the Legal Charge was triggered by reason of the 1^st defendant and Li’s failure to repay on demand. The security then became enforceable under clause 8 of the Legal Charge.  Under clause 8.05, the plaintiff shall have the power to: “enter into and upon and take possession of the Property or any part thereof and to hold, possess and enjoy the same …” and to “sell by public auction or private contract or otherwise dispose of or deal with all or any part of the Property…”

9.  The plaintiff thus says that it had acquired the 1^st defendant’s interest through the debt owed by the 1^st defendant under the loan agreement, as well as the Legal Charge, and is thus entitled to apply under the Ordinance for sale of the entire Property.

Analysis

10.  The plaintiff has a right to possession under clause 8.05 of the Legal Charge.  The plaintiff is a person interested in the Property under s. 3(1) of the Ordinance.  I agree that since the 1^st defendant and Li defaulted in repayment, the plaintiff had acquired an interest in possession and is thus eligible to apply for an order for sale under the Ordinance[1].

Appropriate for Partition or Sale?

11.  HH Judge Li had set out in the case of Law Chun Wai v Chu Suk Har[2] the legal principles on how the court should exercise a power of sale under section 6 of the Ordinance:-

“26. Generally, in determining whether a sale is more beneficial than a partition, the court considers only the pecuniary results, disregarding matters of sentiment, and has regard to the interest of all parties interested as a whole; but it can and will order a sale where, in its discretion, it thinks fit, unless the parties opposing a sale undertake to purchase the shares of those desiring sale.” (Halsbury’s Laws of Hong Kong, 2^nd edition, Volume 35, para 230.826) [emphasis added].

27. In Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, the Court held that:-

“(1) when it was impracticable to make an order for partition, the court should make an order for sale unless it was persuaded, the burden being on the opposing co-owner, that such an order would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner; and

(2) 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.” [emphasis added]

28. In considering whether it is impracticable to make an order for partition, the Court would consider the size and design of the property: See Chan Shee Yuen v Chan Shu Fong, unrep, HCA 93/2002 (Deputy High Court Judge To (as he then was); 28 April 2006), Poon Yuet Chun v Tse So Kwun, unrep, HCMP 5662/2001 (Yuen J (as she then was); 29 April 2002).

29. While the Courts would pay regard to the difficulty of a co-owner in seeking alternative accommodation: (Chow Doi Kwai v Chan Cho Yuk [2000] 2 HKLRD 235), a co-owner’s sentimental attachment to the property is irrelevant: (Chan Ching Kit v Lam Sik Shi & Anor,unrep, HCMP 2239/2000 (Kwan J (as she then was); 24 June 2002), Drinkwater v Ratcliffe(1875) LR 20 Eq 528).

30. In Ip Sau Shu v Sham Lai Hing, unrep, HCMP 3452/1999, (Deputy High Court Judge Poon (as he then was); 31 March 2003), a two bedroom flat of about 600 square feet in size was determined to be owned by the plaintiff and the defendant as tenants in common in equal shares.  The partition of the property was not suggested to be physically possible.  The Court held that even if partition was possible, because the parties had been in a personal relationship which had ended, it would be meaningless to do so.  The plaintiff had no savings and no assets other than the property.  Since the plaintiff had no way of realizing the value of his half share in the flat unless there was a sale, the Court ordered the sale of the property.”

The Present Property

12.  The Property is a 292 square foot (net) residential flat in a multi-storey building with only one entrance to the flat.  From the layout plan, it can be seen that it is impossible to add another entrance to the Property.  Given the size and the impossibility of adding another entrance, it is impracticable to partition the Property.

13.  The open market value of the Property as at 8 July 2019 is HK$4,500,000. The amount of outstanding debt as at 25 September is around HK$1,264,450.68. Thus, if the Property is sold, the 2^nd defendant will get back the half share value of the Property at approximately HK$2,250,000.  The 1^st defendant will get back about HK$700,000, after her indebtedness has been set off.

14.  There is no evidence filed in relation to any hardship that the 1^st and 2^nd defendants may suffer.  The court is thus in no position to infer that a sale of the Property will create any hardship.  Whilst the Court had received letters from both the 2^nd defendant and the 1^st defendant’s husband suggesting that the 1^st defendant was misled into entering into the Loan Agreement and the Legal Charge, none of these were done by way of affirmation and no specifics had been given.  Further, if there were any conviction in their allegations, they should have defended the underlying action or applied to set aside the judgment under DCCJ 5395/2017.  As I am satisfied that the 1^st and 2^nd defendants had been given a chance to file evidence but had chosen not to do so, they have given up their right to defend and I am of the view that the plaintiff’s right to obtain relief should no longer be delayed or denied.

Conclusion

15.  I agree that in the present circumstances, it is fair and just to make an order for sale of the Property under section 6(1) of the Ordinance. 

16.  The plaintiff is further entitled to claim costs on an indemnity basis pursuant to clause 10.01(b) of the Legal Charge.

17.  I will make an order as follows:-

(1) The 1^st and 2^nd defendants do deliver up vacant possession of the Property to the plaintiff within 28 days after service of this Order;

(2) Upon the 1^st defendant paying to the plaintiff the sum of HK$889,956.16 together with interest on the sum of HK$750,000.00 at the rate of 26.40% per annum from 24 November 2017 until payment and the costs of the action HK$10,500.00, being the outstanding Judgment Debt in DCCJ 5395/2017 under the Judgment dated 6 March 2018 (“Outstanding Judgment Debt”) and costs of these proceedings, the plaintiff do redeliver possession of the Property to the 1^st and 2^nd defendants, and release the 1^st defendant from the security constituted by the Mortgage;

(3) In the event the 1^st defendant failed to make payments adjudged in paragraph (2) above together with costs for these proceedings, the 1^st and 2^nd defendants do deliver vacant possession and title deeds and documents of the Property to the plaintiff.  The Property be sold pursuant to section 6 of the Partition Ordinance (Cap 352) at open market value not less than HK$4,500,000.00;

(4) Upon such sale, the 1^st and 2^nd defendants shall do all necessary acts for the transfer of their legal title and beneficial interest in the said Property to the purchaser;

(5) The proceeds of sale of the Property shall be applied in the following manner and order of priority:-

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

(b) in payment for the discharge of all encumbrances having priority to the Legal Charge (including the costs and disbursements for handling such encumbrances);

(c) in payment of all reasonable costs and expenses of the sale (including conveyancing costs up to HK$20,000.00, estate agent commission up to 1% of the sale price);

(d) the remaining net balance be split into two halves:

(1) as for the first half:

(i) payment to the 2^nd defendant who owns half of the Property with the 1^st defendant as Joint Tenants; if the 2^nd defendant could not be located, such sum shall be paid into court for the credit of the 2^nd defendant.

(2) as for the second half:

(i) payment to discharge the Legal Charge (memorial number: 15021100200458) in favour of the plaintiff;

(ii) in payment of all plaintiff’s costs of these proceedings, to be summarily assessed and the fee for the valuation report for the Property in the sum of HK$6,000.00; and

(iii) the balance, if any, after deduction of the costs and disbursements for handling the encumbrance affecting the Property; to the 1^st defendant; if the 1^st defendant could not be located, such sum shall be paid into court for the credit of the 1^st defendant.

(6) There be liberty to apply, including for (but without limitation to) directions on the terms and manner of the sale of the Property.