RE LIU YI FANG

HCB 5613/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5613 OF 2013

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D E C I S I O N

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1.  This is an application by the joint and several trustees in bankruptcy (“Trustees”) for an order for sale in respect of a property jointly owned by the bankrupt, Mr Liu Yi Fang (“Liu”).

2.  An order for bankruptcy (“Order”) was made against Liu on 5 February 2014.  Mr Liang Yang Keng and Mr Lau Siu Hung were appointed as the Trustees in a general meeting of creditors on 16 June 2014.

3.  Liu and his mother Madam Poon Tong (“Poon”) jointly owned a property known as Flat D on 24^th Floor of Tower 1, Euston Court, No 8 Park Road, Hong Kong (“Property”).

4.  By a summons filed on 31 October 2014 (“Summons”), the Trustees apply for an order for sale of the Property and an order for payment of occupation rent by Poon from the date of the bankruptcy order.

5.  The Summons is opposed by Poon.  In respect of the sale, there are 2 grounds of opposition as follows :

(i) Poon is the sole beneficial owner of the Property;

(ii) The sale of the Property would cause great hardship to her.

The Law

6.  The Trustees make this application pursuant to s 6 of the Partition Ordinance, Cap 352 (“PO”) and s 60 of the Bankruptcy Ordinance, Cap 6 (“BO”).

7.  There is no dispute between the parties on the legal position vis-à-vis the Trustees and the Property and I shall state it briefly as follows.  Upon the making of the Order, 2 things happened to Liu’s assets (including the Property) by operation of law.  Firstly, Liu’s assets became vested in the Official Receiver (“OR”) (s 58(1) of the BO).  Secondly, any property of Liu held in joint tenancy was severed automatically and the severance created a tenancy in common as between the OR on the one hand and Poon (as the other co-owner) on the other (Re Dennis [1993] Ch 72).  Further, on the appointment of the Trustees, Liu’s assets were passed to and became vested in them (s 58(2) of the BO).

8.  I should add that the Trustees, who represent the interest of Liu’s creditors, are duty bound to realise the assets in Liu’s bankruptcy estate to pay his debts (Re So Ming Wai, HCB 172/04, unrep, 9 October 2014, §22). 

9.  In the present situation, which is not uncommon, when there is no agreement by Poon to the sale of the Property, the Trustees have little choice but to apply for an order under s 6 of the PO to enable the Property to be sold. 

10.  Sections 2, 6(1) and 6(2) of the PO provide as follows :

“2. Power to order partition or sale of property in land

Subject to this Ordinance, where any property in land is held by 2 or more persons, whether as joint tenants or as tenants in common, the Court may-

(a) make an order under section 4 for a partition of the property;

(b) make an order under section 6 for a sale of the property; or

(c) refuse to make any order.

6. Sale of land

(1) In any proceedings under this Ordinance, 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 the 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 interested; or

(d) any other circumstances,

the Court may make an order for the sale of the property.

(2)   The Court may exercise its powers under subsection (1), notwithstanding the dissent or disability of any person interested.”

11.  As regards the exercise of the power under the PO, there are 2 authorities which have been widely accepted as stating the applicable principles.  They have been cited in Re Ng Tze Ching, HCB 5883/06, unrep, 29 August 2014 at §§21 and 22 :

“21. In Pun Jong Sau & Ors v Poon Wing Kong & Ors [1977 – 1979] HKC 210, Trainor J reviewed the history of the law pertaining to partition in England and the development of the law in Hong Kong. He came to the view that the primary intention of the Partition Ordinance was to enable an unwilling co-owner to rid himself of the shackles of co-ownership and to have either a physical division of the property into aliquot parts among the co-owners or a division of the proceeds of its sale (see pg 218 E – F).

22. In Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, Recorder Fok, SC (as he then was) summarised the authorities in this area and set out the following propositions as the guiding principles for the exercise of discretion by the court under the partition Ordinance : -

(a) A co-owner has a 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;

(b) 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(s)) 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;

(c) 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.”

12.  I shall return to Re Ng Tze Ching below because there is a conflict between that case and a later judgment in Re Cheung Chan Hong, HCB 4827/07, unrep, 3 September 2014.  Mr Liu, who appeared for the Trustees, is relying upon the former, whilst Ms Li, appearing for Poon, is relying upon the latter.  I do not believe that the determination of the Summons turns upon the difference in approach in these cases.  However, in view of the reliance upon them, it is the duty of this court to deal with the matter. 

Beneficial Ownership

13.  Despite the fact that the Property is jointly owned by Liu and Poon, Poon claims that she is the sole beneficial owner of the Property.  There is no challenge to the proposition that Poon bears the burden to prove her assertion.

14.  In Stack v Dowden [2007] 2 AC 432, it was held by Lady Hale :

“56. Just as the starting point where there is sole legal ownership is sole beneficial ownership, the starting point where there is joint legal ownership is joint beneficial ownership. The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest.” [emphasis added]

15.  Lord Neuberger said in the same judgment :

“109. In the absence of any relevant evidence other than the fact that the property, whether a house or a flat, acquired as a home for the legal co-owners is in joint names, the beneficial ownership will also be joint, so that it is held in equal shares. This can be said to result from the maxims that equity follows the law and equality is equity. On a less technical, and some might say more practical, approach, it can also be justified on the basis that any other solution would be arbitrary or capricious.”

16.  Stack v Dowden was applied in Hong Kong in Re Lau Yuet Ming Daisy, HCB 10078/03, unrep, 21 July 2014, §6.

17.  The owners’ common intention regarding the ownership of their property may change after the acquisition of the property.  In Jones v Kernott [2012] 1 AC 776, Lord Walker discussed the judgment in Stack v Dowden and said :

“14. It was also accepted that the parties’ common intentions might change over time, producing what Lord Hoffmann referred to in the course of argument as an “‘ambulatory’ constructive trust”: Lady Hale, at para 62. An example, given in para 70, was where one party had financed or constructed an extension or major improvement to the property, so that what they had now was different from what they had first acquired. But of course there are other examples. The principal question in this case is whether this is one.” [emphasis added]

Very Great Hardship

18.  I do not believe that there is any hard and fast principle under this heading.  In Re Ng Tze Ching, it was observed in para 32 of the decision that “… Issues of hardship are necessarily facts sensitive”.

Occupation Rent

19.  Only 1 case has been cited by the parties on this topic.  In Re Byford (Deceased) [2004] 1 P&CR 12 159, Collins J (as he then was) said :

“38. Millett J [in Re Pavlou [1993] 1 WLR 1046] re-stated the principles in this way (at 1050):

‘First, a court of equity will order an inquiry and payment of occupation rent, not only in the case where the co-owner in occupation has ousted the other, but in any other case in which it is necessary in order to do equity between the parties that an occupation rent should be paid. The fact that there has not been an ouster or forceful exclusion therefore is far from conclusive.

…

40. What the court is endeavouring to do is broad justice or equity as between co-owners.  As Millett J said in Re Pavlou, the fact that there has not been an ouster or forcible exclusion is not conclusive.  The trustee cannot reside in the property nor can he derive any financial enjoyment from the property while the bankrupt's spouse resides in it, and the bankrupt spouse’s creditors can derive no benefit from it until he exercises his remedies. … ”     [emphasis added]

Ownership of the Property

20.  Poon’s evidence has been set out in 2 affirmations dated respectively 10 December 2014 and 9 March 2015.  Her evidence, together with some of the evidence adduced by the Trustees, may be summarised as follows. 

21.  Poon is a well-educated lady having graduated in a well-known university in the Mainland with a degree in Chemistry.  She came to Hong Kong in 1983 because she found that her career opportunities were limited in the Mainland. 

22.  At the time when the Property was purchased in 1988, Poon was 51 years old, divorced, and had been working as a mandarin teaching consultant since her arrival in Hong Kong.  She had accumulated some wealth through her mandarin teaching job and her investment in the Hong Kong stock market. 

23.  Poon says that the purchase of the Property was for the sole purpose of acquiring a long-term residence for herself in Hong Kong.  The Property was registered in the joint names of her and Liu.  Liu was 26 years old at the time and had also been living in Hong Kong since 1983. However, he had to spend most of his time in Beijing due to the requirement of his job. 

24.  The reason why Liu’s name appeared as one of the purchasers was (a) to facilitate the mortgage application as Liu had a salaried job whilst Poon had no employment contract and (b) for estate duty purpose.  In respect of the latter, I understand it to mean that Poon had the intention of leaving the Property to Liu upon her death.  However, she never intended to provide a gift to Liu at the time of the purchase because she could not afford such a valuable gift.  

25.  Poon says that she alone paid for the Property which cost HK$1,151,500.  The down payment, balance of the purchase price (minus the mortgage loan), stamp duty and expenses and the mortgage repayments (HK$7,417 per month) were all paid by her.  At the time of acquisition, Liu was at the early stage of his working life and had limited financial means.  His monthly salary was about HK$12,000. 

26.  As to relevant documents in relation to the purchase, due to the lapse of time, Poon is unable to produce her past bank statements or any records to prove her earnings at the material times and the payments for the Property, including the mortgage repayments.  Efforts made by her solicitors to obtain documents from the mortgagee bank and the solicitors who handled the conveyancing of the Property on her behalf have not been fruitful.  

27.  In July 1989, Poon made early repayments to discharge the mortgage.  She managed to do so by reason of a new business generated through her Mainland network.  From about December 1988, Poon helped her Mainland friends and their enterprises to manage exchange rate risk by exchanging the funds remitted by them to Hong Kong into USD.  Later, she would use the USD to pay for the purchases made by the Mainland parties.  Fees were paid to her for handling these transactions.  Whilst the funds were in her custody, she was permitted to use them for her own investments in the stock market.  A company, Chania Enterprises Co Ltd (“Chania”) was acquired for the purpose of this business.

28.  From the company record of Chania, it can be seen that Poon and Liu were appointed directors of Chania with effect from 5 December 1988.  They had the same address and the former was stated to be a teacher and the latter a manager.  The shares of Chania were owned by Poon and Liu equally[1]. However, Poon says that the shares in Liu’s name were held by him as her nominee. 

29.  Poon says that she set up another company, Full Link Holdings Inc (“FLH”), in about 1991 to 1992 to take advantage of various business opportunities and her Mainland network.  Initially, the main business of FLH was the import and trading of mechanical and electrical equipment.  In about 1997, FLH launched its first Mainland real estate project.  A number of other companies were also set up by Poon during 1991 to 1996.  There were altogether 8 of them, excluding Chania.  Two of the 8 companies, Full Link Enterprises Ltd (“FLE”) and Maho Ltd (“Maho”), are of interest and they will be mentioned again below. 

30.  It is convenient here to mention the Trustees’ evidence about Liu’s involvement with the Full Link group of companies. According to the website information of the Full Link Group[2], he is the CEO of the “Hong Kong Full Link Group” (it appears that there are various Mainland companies within the Full Link Group) and he founded the “Full Link Company” in 1992.  It is common ground that there is no evidence that Liu holds any shares in any of the companies in that Group.  However, due to the interposition of FLH, which is a BVI company, the matter is simply not transparent. 

31.  In 1999, Maho, a company jointly owned by Poon and Liu purchased another property – Flat D, 28/F, Bk 32 South Horizons, No 32 Yi Nam Rd, Hong Kong (“SH Flat”). 

32.  In 2000, a flat next to the Property (Flat 24E) was purchased by Chania.  According to Poon, the partition wall between the 2 properties was subsequently demolished so that the 2 flats were made into 1 unit.

33.  Coming back to the mortgage over the Property. There were in fact 3 mortgages altogether.  The 1^st mortgage was apparently taken out to fund the acquisition of the Property (see paras 24 and 25 above).  The 2^nd mortgage was dated February 1989, and the record stated that it was to secure general credit facilities.  Both the 1^st and 2^nd mortgages were discharged together in July 1989. 

34.  The 3^rd mortgage was dated January 1996.  It was taken out by Poon and Liu to secure a bank loan to FLE, and was discharged in 2001.  At all material times, both Poon and Liu were directors of that company.   

35.  Poon is 77 years old now and has been residing at the Property for over 25 years.

36.  Poon also relies on Liu’s claim that she has sole beneficial ownership over the Property.  By his Statement of Affairs dated 29 April 2014, Liu had informed the Trustees of such beneficial interest.  The assertion was repeated in an affidavit of his solicitor, Henry Wan Hok Wai, dated 13^th June 2114.

Analysis

37.  I am unconvinced about the merits of Poon’s case.  To begin with, I believe that she has understated the earning capacity of Liu at the time of acquisition of the Property.  It appears from the website information (see para 30 above) that Liu started his career in 1984 after obtaining his Physics degree the previous year.  In 1986, he started working for a very substantial American company, described as the world’s largest machine room equipment manufacturing and marketing company.  With a monthly salary of HK$12,000 in 1988, Liu would have no difficulty contributing to the purchase of the Property at least in respect of the monthly mortgage repayments. 

38.  Further, there is no evidence at all of Poon’s income or savings in 1988.  The fact that she would have been unable to obtain a mortgage on her own is certainly not supportive of her case.  Whilst I accept that it would be very difficult to obtain records going back to 1988, it is nevertheless surprising that none has been produced.  There is no explanation from Poon why she has not kept any of the relevant records. 

39.  Furthermore, taking a most favourable view for her benefit, the evidence suggests that Poon and her son were working as a team in the development of their business and in the acquisition of properties. This is borne out by the fact that Chania is jointly owned.  All the properties are jointly owned (both the SH Property and Flat 24E are held by jointly owned companies).  In all likelihood, Liu also has a significant stake in the Full Link Group.  It should be noted that FLH started its business in mechanical and electrical equipment, which was an area in which Liu had been working.  Given the age and experience of the mother and son, an objective appraisal of the facts suggests that the latter was, more like than not, taking a leading role in the business.       

40.  There are other indications that Poon’s case is not a credible one.  Firstly, she failed to mention the 2^nd and 3^rd mortgages.  They were clearly taken out to fund the budding business.  There is no explanation as to the source of the redemption funds.  Secondly, despite having received 4 letters from the Trustees inviting her to sell the Property or to purchase the half share belonging to Liu’s estate, Poon failed to respond by asserting that the Property belongs to her entirely. 

41.  In the premises, I reject Poon’s case that the entire beneficial interest in the Property belongs to her.  There is no reason to doubt that the beneficial ownership is the same as the legal ownership.

Very great hardship 

42.  Poon’s evidence is that, in addition to her old age, she is suffering from diabetes mellitus and hypertension (described by her as “high risk”).  It has also been said that Poon needs to see a psychiatrist but there appears to be no medical record of such treatment.  Her condition has deteriorated following her son’s on-going litigations from 2012 and his bankruptcy in 2014.

43.  Due to the removal of the partition wall between Flat 24E and the Property, in the event of a sale of the Property reinstatement work would be necessary.  It is said that such reinstatement work, the temporary relocation and the storage of her furniture and belongings during the work would bring about a great deal of physical labour and hardship to Poon.

44.  The SH Flat is presently occupied by Poon’s ex-husband and his own family and will not be available for her use.

45.  Compared with the run-of-the-mill applications of this type, Poon is quite fortunate in that she is in a comfortable financial position and will not have any major difficulty in finding alternative accommodation if the Property is sold.  Ms Li, quite rightly, is not pressing this part of her case. 

46.  On behalf of the Trustees, Mr Liu has rightly pointed out that, firstly, Poon has been invited to purchase the other 50% interest in the Property.  There is no suggestion that she does not have the means to do so.  The offer still stands.  Secondly, the Property was valued at HK$13.3 million in October 2014.  The proceeds of sale to which Poon would be entitled would allow her considerable flexibility on where she would like to be relocated if that be her choice. 

47.  In the premises, I have no difficulty concluding that the facts of this case are far from demonstrating very great hardship.

Occupation rent 

48.  Mr Liu submits that after the bankruptcy of Liu, Poon continues to reside in the Property.  The Trustees have been unable to derive any financial benefit from the Property whilst Poon is residing therein.  In the circumstances, to do justice between the Trustees and Poon, it is proper to order Poon to pay half of the market rental of the Property to the Trustees as occupation rent from the date of the bankruptcy until the date of sale of the Property.  Mr Liu relies on Re Byford (Deceased), supra.

49.  According to a valuation report adduced by the Trustees, as at 5 February 2014 the market rental of the Property was HK$31,000 per month.  There is no challenge to this evidence.

50.  Based on this evidence, Mr Liu submits that the occupation rent should be HK$31,000 ÷ 2 = HK$15,500 per month.

51.  I have been referred by Ms Li to Snell’s Equity, 33^rd edn, rubrics 20-084 and 20-085 (footnotes omitted) :

“Equitable accounting is fact sensitive and depends, to a significant extent, on the common intentions of the parties. To the extent rules have developed, these are ‘(non-binding) guidelines or rules of convenience aimed at achieving justice between the co-owners’. The courts will sometimes achieve practical justice and avoid a wasteful enquiry by, for example, setting off occupation rent with credit for mortgage payments the continuing occupier pays. The main accounting items are considered below.

(a) Occupation rent. Whereas the common law took the position that one co-owner would not be liable to pay rent to another absent ouster or some form of agreement, the approach of the Court of Chancery was more flexible. The position adopted in modern cases is that rent may be charged against an occupying co-owner where this is necessary to do broad justice between the parties. It is still the position that a co-owner cannot, by leaving voluntarily, make the other liable for rent. But apart from cases where a co-owner is able to occupy but has chosen not to, an occupation rent will usually be charged, subject to any contrary common intention or arrangement between the parties. In the case of broken cohabiting relationships, the question may therefore depend on whether the claiming party left voluntarily and whether they would be welcome back.

In Stack v Downden Baroness Hale indicated that the power to charge an occupation rent is now governed exclusively by ss 12 to 15 of the Trusts of Land and Appointment of Trustees Act 1996.  While the results may often be the same, they may differ in some cases because the statute mandates consideration of additional factors such as the welfare of minors and the interests of secured creditors.  It is clear that the displacement of equitable accounting in this context is not exhaustive and that the remedy continues to operate where the Trusts of Land and Appointment of Trustees Act does not apply.  The extent of the displacement is a matter of some difficulty and there are serious arguments that equitable accounting continues to be relevant regime, amongst other things, where retrospective adjustments are to be made following a sale.”

52.  According to both counsel, there is no precedent in Hong Kong where occupation rent was awarded in a bankruptcy case. 

53.  A claim for occupation rent was declined by the court recently in Re Leung Wang Fai, HCB 15328/03, unrep, 17 March 2014.  It was a case involving an 82 year old co-owner (mother of the bankrupt) who had to look after her 85 year old husband who was suffering from ill health.

54.  Whilst it is common ground that the court has the power to order the payment of occupation rent in order to do broad justice between the parties, what are the principles which guide the court in exercising this power in the present context?  Doing the best I can, and bearing in mind the authorities cited to this court, matters of first principles and sound common sense, I believe that the court should be guided by the following :

(i) The severance of a jointly owned property and the vesting of the bankrupt’s share in that property in the trustee in bankruptcy take place as a matter of law.  Undoubtedly, in the majority of cases, such occurrence would come as an unwanted surprise to the “innocent” co-owner;

(ii) In cases where the bankrupt party continues to reside in the property, it is difficult to see why the payment of occupation rent by the other co-owner would be just;

(iii) Where the bankrupt has not been residing in the property or has moved out of the same, the court must bear in mind that the innocent co-owner has done nothing (assuming that to be so) to stop the bankrupt or the trustee from enjoying the property.  Prima facie, it would not be just to order the payment of occupation rent in the absence of other consideration; 

(iv) Where the trustee has asserted his right over the property, eg, by inviting the innocent co-owner to purchase the interest in the property belonging to the bankrupt’s estate or to agree the sale thereof, that would be a relevant consideration for ordering occupation rent after allowing a reasonable period of time for the innocent co-owner to consider the matter and for the sale to take place; 

(v) However, in the run-of-the-mill cases, where the property is a small one occupied by the bankrupt’s family, the proposition that the innocent co-owner should pay half of the rental for that property whilst it continued to be used by him/her and the family is somewhat unrealistic in the sense that (a) one cannot physically divide half of the property as belonging to the bankrupt’s estate and (b) it would be impractical to rent out the undivided half of the property.  This should be borne in mind by the court, especially when it comes to assessing the occupation rent; 

(vi) Where there is an exercise of equitable accounting, like the case of Re Byford (Deceased) where Mrs Byford sought and obtained an account of interest payments, it may be appropriate to take into account the issue of occupation rent in that exercise so as to achieve an overall fairness;

(vii) Finally, given the task of doing equity between the parties, the court may take into account matters of hardship (it should be a lower threshold than that applied for determination on the sale of a property under s 6 of the PO) to the innocent co-owner or the family members who may be affected, eg, a move from the family home would seriously disrupt the schooling of a young child.

55.  Turning to this case, I shall err on the side of excessive leniency to Poon and decline to make an order in favour of the Trustees for the following reasons.  Although the invitation to Poon to purchase the other 50% interest in the Property was made some 10 months ago, given the circumstances of this case, it would have been reasonable to allow her 1 month to consider the matter.  On the assumption that the sale would have required 1 month to effect, the issue is therefore boiled down to 8 months of occupation rent.

56.  I would not have simply adopted Mr Liu’s formula of 50% of the market rent as the occupation rent for the reasons alluded to in para 54(v) above.  A discount should be made to reflect the reality of the situation.  I believe that this should be a rough and ready assessment by the court.  Otherwise, it can turn into an expensive inquiry with conflicting expert evidence.  Such an exercise may not be consistent with doing broad justice.  All in all, the amount of money at stake is not very substantial. 

57.  Finally, Poon’s personal circumstances and the attachment which she has with the Property by reason of residing there for nearly 30 years deserve the consideration of the court. 

58.  For these reasons, the application for occupation rent is declined.

Re Ng Tze Chung and Re Cheung Chan Hong

59.  These decisions were separated by 4 days.  The difference in principle between the 2 authorities concerns the approach to be taken by the court in an application by a trustee in bankruptcy for the sale of a property used to be jointly owned by the bankrupt.

60.  In Re Ng Tze Ching, after referring to Wong Chun Kei (see para 11 above), the court went on to hold as follows :

“23. With respect, it must be remembered that Wong Chun Kei was a case where the co-owners of a 3-storey building consisting of 12 flats were in disagreement over the sale of the same.  The court would in those circumstances be in a position to determine objectively whether a sale would be beneficial to all the owners.

24. The present application presents a rather different picture.  In an application for sale by the trustees in bankruptcy, quite often an ‘innocent’ spouse will stand to lose the benefit of the family home.  I am unable to envisage a situation where the sale would, objectively, be beneficial to all co-owners in such cases.  In my view, the ‘beneficial to all’ element is not applicable to an application of the present type. 

25. I have also been referred by Ms Kwok to the English Court of Appeal authority of Re Citro (a bankrupt) [1990] 3 All ER 952, which was a decision in the context of bankruptcy.  It was held by majority that :-

‘Where a spouse who has a beneficial interest in a matrimonial home has become bankrupt under debts which cannot be paid without the realization of that interest, the voice of the creditors will usually prevail over the voice of the other spouse and a sale of the property ordered within a short period. The voice of the other spouse will only prevail in exceptional circumstances.’ (see pg 961h) [emphasis added]

…

‘What then are exceptional circumstances? As the cases show, it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realization of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood, or indeed elsewhere; and if she has to move elsewhere, there may be problems over schooling and so forth. Such circumstances, while engendering a natural sympathy in all who hear of them, cannot be described as exceptional. They are the melancholy consequences of debt and improvidence with which every civilized society has been familiar.’ (pg 961j-962a)

26. For obvious reason, Re Citro was not referred to in Wong Chun Kei.  In a case of the present type, there are opposing interests of the “innocent” spouse and the creditors.  I believe that the approach in Re Citro reflects 3 things.  Firstly, in the event of bankruptcy, the interest of the bankrupt spouse in the jointly owned property no longer belongs to him.  By the same token, the ‘innocent’ spouse can no longer expect to enjoy that property indefinitely.  Secondly, the interest of the bankrupt spouse should normally be realised to pay off his outstanding debts.  Thirdly, there is a public interest in maintaining commercial disciplines.

27. With respect, I agree with the approach of Re Citro.”

61.  In Re Cheung Chan Hong, the court also considered Re Citro and was unable to agree with the approach of that authority.  It was stated in §21 :

“… Re Citro was decided under the Law of Property Act 1925 which has no equivalent in Hong Kong and the reasoning of Nourse LJ cannot be adopted cart blanche when the court is considering an application under section 6 PO for an order for sale.”

62.  The court then examined with admirable care the statutory context which underpinned the English authority.  In particular, the court referred to the judgment of Bingham LJ in the same case in §28 (footnote omitted):

“… I should for my part have inclined to think that a test of exceptional circumstances was, in the absence of statutory guidance, more stringent than was warranted (as, in a quite different context, the House of Lords held in Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597, 622G), but I have to acknowledge that in enacting section 336(5) of the Insolvency Act 1986 Parliament appears to have expressly approved it …

…

‘… As I read [Hoffmann J’s] judgment, he treated In re Holliday as entitling or obliging him simply to balance the interests of the creditors against those of the wife, the creditors’ prima facie entitlement to their money being simply one element in the scales – and not a particularly weighty one at that.  I would willingly adopt this approach if I felt free to do so.  It is in my view conducive to justice in the broadest sense and it reflects the preference which the law increasingly gives to personal over property interests. …’”

63.  Paras 30 to 32 set out the decision in Cheung Chan Hong on the proper approach :

“Unlike Bingham LJ in Re Citro, this court is free from the fetters of the authorities decided under the Law of Property Act 1925 as well as section 336(5) Insolvency Act 1986 which compel the court to give primacy to the interests of the bankrupt’s creditors save in ‘exceptional circumstances’. If so, this court will gladly adopt the approach of Hoffmann J (as he then was) in re Citro and the analysis of Buckley LJ in Re Holliday in preference to that of Nourse LJ.

In my judgment, in any application for the sale of co-owned property under section 6 of PO, the trustees in bankruptcy (representing the voice of the creditors) is in no better position than the bankrupt himself prior to his bankruptcy. As a co-owner, neither the bankrupt (prior to his bankruptcy) nor his trustee in bankruptcy has any superior right over the other co-owner in dictating whether the property should or should not be sold. This is so whether the other co-owner is the spouse or another family member of the bankrupt, eg the mother in Re Leung Wan Fai supra, or otherwise who resides in the property and will necessarily face eviction should an order for sale of the property be made.

As Recorder Joseph Fok SC pointed out in Wong Chun Kei v Poon Vai Ching supra, the court should not make an order for sale if, viewed objectively, 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.  This court does not read Recorder Joseph Fok SC’s judgment as laying down any hard and fast rule that the wishes of a co-owner who opts for an order for sale under the PO must necessarily or usually prevail over the wishes of another co-owner who opposes it.  The matter can only be decided on the basis of all the objective facts of the case, balancing the interest of the one against the other: Wong Chun Kei v Poon Vai Ching at [106] – [108].”

64.  It is readily apparent that the court took the view that it had an unfettered discretion in an application by a trustee in bankruptcy for the sale of a co-owned property under s 6 of the PO. 

65.  With great respect, I decline to adopt the same approach.  However, it must be acknowledged that the court in Re Ng Tze Ching did not consider the statutory context of Re Citro.  On the other hand, Mr Liu submits that the 3 points identified in para 26 of Re Ng Tze Ching are in accordance with common and commercial sense. 

66.  Re Ng Tze Ching was applied in Re So Ming Wai, HCB 175/04, unrep, 14 October 2014.  However, it appears that Re Cheung Chan Hong was not referred to the court in that case.

67.  I do not read Wong Chun Kei in the same manner as the learned Judge did in Re Cheung Chan Hong.  In para 16 of that judgment, Recorder Fok SC referred to the authority of Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd v Ors [1973-1976] HKC 335 :

“16. As to the circumstances in which the court will exercise its power under s 2(c) of the Partition Ordinance to refuse to make an order for partition or sale, the test is that set out in the judgment of Briggs CJ, sitting at first instance, in Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd & Others [1973 – 1976] HKC 335 at p 337 H – I:

I think that a court would only make no order, neither an order for partition nor an order of sale, when the interests of all the parties would be better served by their continuing to remain co-owners, or where the facts show that to make such an order would result in very great hardship to one co-owner.”

68.  In paras 17 to 19, the learned Recorder referred to the subsequent endorsements of Fook Sun Enterprises in other cases, the proper formulation of the principles (see para 22 of Re Ng Tze Ching in para 11 above) and concluded as follows :

“… I am satisfied that these propositions fairly and accurately state the law as regards the court’s jurisdiction when faced with an application for partition or sale under the Ordinance and I shall proceed in this judgment to apply those propositions in resolving the plaintiffs’ application.”

69.  The principles stated in Wong Chun Kei are now regarded as well-established.  I refer to another recent authority in this area, Re Lau Yuet Ming Daisy, HCB 10078/03, unrep, 21 July 2014, §§11 and 12 :

“11. It is trite that the court will make an order for sale on the application of a co-owner unless it is satisfied 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: Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd & Ors [1973 – 1976] HKC 335 at 337 H – I; Wong Chun Kei Johnny v Poon Vai Chin [2007] 1 HKLRD 825 at §§16 – 19.

12. In this context, Mr Ma pleads with the court that it would be very hard on him and Madam Lau if an order was made for the sale of the property.  I have every sympathy for Mr Ma, but being evicted from one’s home is, I am afraid, in the words of Nourse LJ in In re Citro (Demenico) (A Bankrupt) [1991] Ch 142 at 157D, simply one of the ‘melancholy consequences of debt and improvidence with which every civilized society has been familiar’. …”

70.  I prefer not to characterise the trustee’s right, or the right of the creditors, in the present context as one superior to that of the innocent co-owner.  I believe that the approach of Re Ng Tze Ching is consonant with our bankruptcy law, in particular the conversion of any joint tenancy into a tenancy in common and the trustee’s duty to realise the bankrupt’s estate to repay the creditors, and the POas explained in Wong Chun Kei. 

71.  It should not be overlooked that when the court is dealing with an application under the PO, regard must be paid to the purpose of that Ordinance (see para 21 of Re Ng Tze Ching cited in para 11 above).

72.  I agree with Mr Liu that the points identified in para 26 of Re Ng Tze Ching are consonant with common and commercial sense.

73.  If one is to consider whether the law should give preference to personal over property interest, it should not be overlooked that some unpaid creditors may also face the prospects of losing the home for his/her family. 

74.  If the exercise is one of unfettered discretion to be determined after consideration of all relevant factors, this is liable to turn an application of the present type into a considerably more complex and expensive litigation.  For instance, the court may be asked to consider the conduct of the innocent spouse so far as contributing to the bankruptcy (see the provisions of s 336(4) of the Insolvency Act 1986 (“IA”) referred to in para 17 of Re Cheung Chan Hong). 

75.  If one is to have regard to the respective rights of the parties, what is the right which an innocent spouse has to counter-balance that of the trustee to have the co-owned property sold?  It is difficult to see what right there can be. 

76.  I have referred above to the case of an innocent spouse because cases involving the same, especially when there are children, may be seen to be most deserving of sympathy. 

77.  Finally, my understanding of Re Citro is as follows :

(a) This was a case where the trustees in bankruptcy applied for the sale of the bankrupts’ half shares of their matrimonial homes under s 30 of the Law of Property Act 1925 (“LPA”)[3] (It may be seen that those provisions have the same effect as s 6 of PO);

(b) Nourse LJ carried out an extensive review of the bankruptcy case law relating to matrimonial homes subsequent to Jones v Challenger [1961] 1 QB 176[4], and found that, with the exception of In re Holliday [1981] Ch 405, it had consistently been held that the interests of the husband’s creditors usually prevail over the interests of the wife and children (see p 147D-E);

(c) Hence, the statements of law cited in para 25 of Re Ng Tze Ching (see para 60 above);

(d) Nourse LJ also referred to the dicta of Buckley LJ in In re Holliday (see para 29 of Re Cheung Chan Hong). Buckley LJ was referring to the wife’s right to resist an application for sale under s 30 of the LAP where the “secondary purpose” behind a joint acquisition (use as a matrimonial home) had not come to an end, ie, the principles stated in Jones v Challenger (see paras 24 and 25 of Re Cheung Chan Hong);

(e) Nourse LJ held as follows (p 158G to 159A) :

“In the husband and wife cases exemplified by Jones v Challenger [1961] 1 Q B 176 it is held that neither spouse has a right to demand a sale of the property while the purpose of its enjoyment as a matrimonial home still exists. In order to be so enjoyed it must be occupied by the spouses jointly. As a matter of property law, the basis of their joint occupation is their joint ownership of the beneficial interest in the home. Although the vesting of one of their interests in a trustee for creditors does not in itself destroy the secondary purpose of the trust, the basis for their joint occupation has gone. It must, I think, be implicit in the principle of Jones v Challenger that the secondary purpose can only exist while the spouses are not only joint occupiers of the home but joint owners of it as well.”

(f) It should be noted that whilst s 336 of the IA was in existence, it did not apply to that case.  However, Nourse LJ noted that it did not change the law prior to its enactment (p 159F-G);

(g) Bingham LJ agreed with the judgment of Nourse LJ;

(h) In the dicta of Bingham LJ cited in para 28 of Re Cheung Chan Hong, whilst expressing reservation whether the test of “exceptional circumstances” was more stringent than warranted in the absence of statutory guidance (such guidance was found in s 336(5) of the IA), the learned Lord Justice acknowledged that the principle clearly emerged from the long line of authorities was as stated by Nourse LJ and that it should be followed.

Conclusions

78.  In the premises, I grant the application sought in the Summons.  The parties should endeavour to agree the terms of the order to be made (there may be complications arising from the demolition of the partition wall : see para 32 above), failing which a joint letter should be written to the court identifying the disagreements of the parties.  The matter may then be dealt with on papers if the court sees fit.  I make an order nisi that the costs of this application be paid by Poon to be taxed if not agreed.

79.  Last but not least, I am grateful to counsel for their assistance in these matters.