THE JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF THE BANKRUPT v. LEUNG YUET MEI

HCB 2842/2023

[2024] HKCFI 3373

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2842 OF 2023

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BETWEEN

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DECISION

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Introduction

1.  Mr Tsang Wai Kwan (“the Bankrupt”) was adjudged bankrupt on his self-petition on 27 June 2023 and the Applicants were appointed as the joint and several trustees of the property of the Bankrupt on 22 September 2023.

2.  The Applicants took out a summons dated 20 September 2024 (“the Summons”) for, among other things, an order for sale of a property known as Room J, 18/F, Block 12, Saddle Ridge Garden, Shatin, New Territories, Hong Kong (“the Property”).

3.  At present, the Property is registered in the joint names of the Bankrupt and his wife Madam Leung.

4.  The investigation of the Applicants shows that the interest of the Bankrupt in the Property is the only significant asset of the Bankrupt. Hence, the Applicants make this application to realize the Bankrupt’s interest in the Property for the benefit of his creditors.

5.  The Summons is supported by the 1^st Affidavit of Li Kin Long Kenny dated 20 September 2024. Mr Kenny Li is one of the Applicants.

6.  At the call-over hearing of the Summons on 24 October 2024, Madam Leung was absent. This court gave directions to the parties for filing of evidence and indicated that the Summons would be determined on papers upon close of evidence. By a letter dated 20 November 2024, Messrs. Ronald Tong & Co., solicitors for the Applicants, informed this court that Madam Leung had failed to file any evidence in opposition and the Summons should be ready for paper disposal.

7.  The upshot is that the Summons is unopposed and this court has only received the evidence of the Applicants.

Factual background

8.  The Bankrupt and Madam Leung became the registered owners of the Property as joint tenants on 2 September 1993. The Property was assigned to the Bankrupt and Madam Leung under the Home Ownership Scheme operated by the Hong Kong Housing Authority.

9.  The Property has been the matrimonial home of the Bankrupt and Madam Leung. They reside at the Property with their adult children who are in gainful employment and they support the Bankrupt and Madam Leung financially.

10.  The Bankrupt and Madam Leung as borrowers entered into a loan agreement dated 28 March 2022 (“the Loan Agreement”) with Ocean Allied Finance Limited (“Ocean Allied”) as lender for a sum of HK$1,300,000 (“the Loan”).

11.  Subsequently, the Bankrupt and Madam Leung defaulted payment pursuant to the Loan Agreement. Ocean Allied brought an action in the District Court under DCCJ 1434 of 2023 against the Bankrupt and Madam Leung (“the District Court Action”) to recover the Loan and outstanding interest thereon.

12.  Before the conclusion of the District Court Action, the Bankrupt filed a petition for his own bankruptcy. Ocean Allied could obtain judgment against Madam Leung only on 25 July 2023. The judgment remains unsatisfied and the amount of the outstanding judgment debt owed by Madam Leung stood at HK$1,892,663.27 as at 21 October 2024.

13.  Ocean Allied obtained a charging order nisi on 13 November 2023 in the District Court Action against Madam Leung’s beneficial interest in the Property. The charging order nisi was made absolute at the hearing on 28 December 2023. Madam Leung did not attend that hearing.

14.  On the other hand, the total indebtedness of the Bankrupt as revealed by the proofs of debts filed with the Applicants is HK$1,819,084. Thus far, the Bankrupt has made no contribution to the bankruptcy estate.

15.  The Bankrupt currently works as a part-time cargo van driver making approximately HK$10,000 per month.

16.  In view of the Bankrupt’s earning capacity and his total indebtedness, the Applicants are of the view that without an order for sale of the Property, the creditors of the Bankrupt will remain substantially unpaid.

17.  The Applicants have sought professional valuation of the Property by way of a valuation report of Kroll (HK) Limited dated 19 September 2024. The estimated market value of the Property assessed on a vacant possession basis is HK$4,400,000 (open market value subject to the payment of premium to the Hong Kong Housing Authority) and HK$2,400,000 (Secondary Market Value).

18.  On the other hand, the estimated value for sale under repossession of the Property assessed on a vacant possession basis is HK$2,860,000 (open market value subject to the payment of premium to the Hong Kong Housing Authority) and HK$1,560,000 (Secondary Market Value).

19.  Upon the making of the bankruptcy order, under section 58(2) of the Bankruptcy Ordinance, Cap. 6, the beneficial interest of the Bankrupt in the Property, as with all other properties of the Bankrupt, has been vested in the Applicants.

20.  Further, by operation of law, the joint tenancy in respect of the Property has been severed due to the bankruptcy and by the severance, there is a tenancy-in-common as between the Applicants as trustees on the one hand and the other co-owner, namely, Madam Leung, on the other.

Applicable legal principles

21.  The present application is made pursuant to section 6 of the Partition Ordinance, Cap. 352 (“the PO”). Under the said provision, the court has the discretion to make an order for the sale of a property where it appears that a partition of the property would not be beneficial to all the persons interested on specified grounds.

22.  In Re Lau Hiu Tuen, bankrupt [2015] HKCFI 1464, G Lam J (as G Lam JA then was) made a review of some relevant authorities concerning how the discretion under section 6 of the PO should be exercised. The learned judge further noted that there was a recent divergence of judicial opinion in this jurisdiction in this regard. The following paragraphs (§§20-24) are apposite and illuminating:

“20. As for the approach to an application for an order for sale under the Partition Ordinance, in Wong Chun Kei Johnny v Poon Vai Ching [2007] 1 HKLRD 825 at §§16-19, Recorder Fok SC (as Fok PJ then was) set out the applicable principles summarised from the cases as follows:

“(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.”

21. What is meant by the phrase “such an order will not be beneficial to all the co-owners” in (b) above seems to me to be that the order will be beneficial to some only of the co-owners, not that the order will be beneficial to none of the co-owners. Accordingly, an order for sale would not be refused unless all the co-owners would be benefitted by its refusal or, in other words, 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. See also Beautiglory Investment Ltd v Tang Moon Sum & others, HCMP 531/1989, 10 December 2003, at §32.

22. The same approach was stated earlier in Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd & Ors [1973-1976] HKC 335 at 337H-I, where Briggs CJ said:

“It was suggested that this was not a case for the court to make an order for sale under section 6 of the Ordinance: but that the proper course for the court to take was to make no order under section 2(c) of the Ordinance.

I do not agree. I agree with Mr. Litton’s interpretation of section 2(c) of the Ordinance. 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.”

23. On behalf of the trustees, Mr Justen Li, who gave much assistance to the court, referred to certain passages in the English authorities of Re Citro (A Bankrupt) [1991] Ch 142 and Re Bremner [1999] BPIR 185 which might be read as suggesting that the difficulties arising from the eviction of the bankrupt’s family from their home are ordinarily not to be regarded as sufficient reason to prevail over the creditors’ interests in seeing the family home sold and the proceeds of sale distributed. In Re Cheung Chan Hong (a bankrupt) [2015] 2 HKLRD 1, however, Ng J declined to adopt the approach in Re Citro and held that there is no requirement for exceptional circumstances in order to resist an application for sale in the kind of cases under discussion. Since then, in Re Liu Yi Fang, HCB 5613/2013, 30 June 2015, Anthony Chan J has, disagreeing with Re Cheung Chan Hong, held that Re Citro should be adopted as laying down the proper approach in Hong Kong to an application by a trustee in bankruptcy for an order for sale of a co-owned property.

24. In the absence of argument it would not be appropriate for me to deal in any depth with this recent divergence of judicial opinion. I propose to proceed on the basis of the authorities decided under the Partition Ordinance which establish the principle that the court will make an order for sale on the application of a co-owner unless it is satisfied that all the co-owners would be better served by the refusal of the order or that making an order would result in very great hardship to one co-owner.”

23.  Ms Lee, for the Applicants, helpfully draws my attention to the decision of the Court of Appeal in Shanghai Commercial Bank Limited v Lee Yau Tak & Chan Wan Ying [2023] HKCA 450. There, Chow JA also acknowledged the two conflicting lines of first instance authorities and, as with G Lam J (as he then was) in Re Lau Hiu Tuen, Chow JA did not find it necessary and appropriate to resolve this divergence of judicial opinion in the absence of argument. The learned judge had this to say at §32(3),

“In respect of in §31(3) above, on the footing that the 1^st and 2^nd Defendants are both beneficial owners of the Property, it is by no means clear that the Trustees’ wish to sell the Property under the Partition Ordinance would necessarily prevail over the objection of the 2^nd Defendant. There are two conflicting lines of first instance authorities which may require further consideration by the Court of Appeal in due course, but it is not necessary for this issue to be determined in the present case which concerns a mortgagee’s application for an order for possession and not an application for sale under the Partition Ordinance, and certainly not summarily without full argument (see Re Cheung Chan Hong (a bankrupt) [2015] 2 HKLRD 1 and Re Lo Yau Shing (a bankrupt) [2018] 3 HKLRD 540, both decisions of Ng J on one side, and Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668, a decision of Anthony Chan J on the other; see also Re Lau Hiu Tuen [2015] HKEC 1718, a decision of Godfrey Lam J (as he then was) who declined to resolve this divergence of judicial opinion in the absence of argument).”

24.  In the present case, I have heard nothing from Madam Leung. It is inappropriate for me to form any definitive view on the divergence of judicial opinion relating to the exercise of the discretion under section 6 of the PO. I would adopt the approach of G Lam J in Re Lau Hiu Tuen and should make an order for sale unless I am persuaded that both the Applicants and Madam Leung would be better served by the refusal of the order or that making an order would result in very great hardship to one co-owner.

Discussion

25.  The starting point is that a partition of the Property is not feasible. It is a property bought under the Home Ownership Scheme and apparently not amenable to partition. A sale under the PO is a reasonable option.

26.  Madam Leung has not said a word about this application. Nor she claimed any detriment or hardship in the event of a sale of the Property. I note that the Charging Order absolute was granted in the absence of any opposition of Madam Leung.

27.  In the circumstances, I see no reason why I should refuse to make an order for sale of the Property so that the creditors of the Bankrupt can have a chance to recover something from the estate of the Bankrupt.

Conclusion and Orders

28.  I shall make an order in the following terms:

1. A declaration that the Applicants of the first part and Madam Leung of the second part hold the Property as tenants in common in equal shares;

2. The Property be sold pursuant to section 6 of the PO;

3. The conduct of the sale be given to the Applicants;

4. The Property be sold with vacant possession, by public auction or private treaty, at such price and on such terms as the Applicants think fit with a reserve price of HK$1,560,000 in the secondary market (without payment of the premium to the Hong Kong Housing Authority) or HK$2,860,000 in the open market (on the assumption that the premium for removal of alienation restriction has been fully paid) (collectively, the “Reserve Price”) in open market;

5. On receipt of an offer for purchase of the Property, the Applicants be authorised to accept the offer on behalf of the Respondent forthwith as long as it is equivalent to, or in excess of the Reserve Price;

6. The conveyancing procedure of the sale of the Property be committed to Messrs Ronald Tong & Co of Room 501, 5/F, Sun Hung Kai Centre, 30 Harbour Road, Hong Kong (the “Conveyancing Solicitors”);

7. Madam Leung do within 90 days of this decision deliver up vacant possession of the Property to the Applicants provided that Madam Leung shall permit prospective purchasers to inspect the Property on reasonable prior notice given by the Applicants or an estate agent not less than 24 hours;

8. Madam Leung do join in the sale and conveyance of the Property and do all things as may be necessary to procure the sale of the Property with vacant possession including but not limited to procuring delivery to the Conveyancing Solicitors of all title deeds and documents relating to the Property in her possession, if any;

9. Madam Leung do, within 7 days of any request by the Applicants or their agents, cause all necessary documents and instruments required to convey title of the Property to the purchaser(s) to be properly signed or executed, failing which Ms Lee Wun Chee, partner of Messrs Ronald Tong & Co is hereby appointed pursuant to Section 25A of the High Court Ordinance (Cap. 4) and/or Section 8 of the PO and/or Section 51 of the Trustee Ordinance (Cap. 29), to execute the necessary agreement, conveyance, assignment, and all other necessary documents (if any) to give effect to the order to be made and to convey title of the Property to the purchaser(s);

10. The proceeds of sale of the Property be applied in the following order of priority:-

10.1. in the discharge of government rent, taxes, rates and/or other outgoings due and outstanding and affecting the Property;

10.2. in payment of the estate agent's commission not exceeding 2% of the proceeds of sale of the Property, auctioneer’s costs, conveyancing costs, legal costs and disbursements, and all other reasonable expenses payable or incurred for the purposes of or in connection with the sale;

10.3. in payment of the net proceeds of sale to the Applicants and Madam Leung to be divided equally; as to the half payable to Madam Leung, the charging order in favour of Ocean Allied is to be discharged if such charge has not been so discharged by appropriating the payments towards satisfaction of the interest in full first and then towards the satisfaction of the principal, before the balance of the net proceeds is to be paid to Madam Leung; and

11. There be liberty to apply including without limitation for directions on the terms and manner of the sale of the Property in the absence of agreement between the Applicants and Madam Leung;

29.  I also make an order nisi that the Applicants’ costs of this application be paid out of the bankruptcy estate.

30.  Lastly, I thank Ms Lee for her clear and helpful submissions.