GUO SHUQIONG, as the executrix of the estate of KWOK SIN HO, deceased v. WA KWOK aka KWOK WA

DCMP 3442/2023

[2024] HKDC 623

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3442 OF 2023

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REASONS FOR JUDGMENT

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A. INTRODUCTION

1.  By way of an Originating Summons issued by the Plaintiff on 26 July 2023 (“the OS”), the Plaintiff seeks an order for the property known as “Flat J, Ninth Floor of Block 14 of Chevalier Garden” (“the Property”) to be sold pursuant to section 6 of the Partition Ordinance (Cap. 352) (“PO”).

2.  The first hearing of the OS came before me on 16 April 2024.  Despite having been served with these proceedings, the Defendant did not respond to the OS and did not appear at the hearing.  Mr. Zenith Chan, counsel for the Plaintiff, nevertheless invited the court to deal with the OS summarily at the first hearing.  The court has power under Order 28 rule 4(1) of the Rules of the District Court (“RDC”) to dispose of an originating summons summarily if it is satisfied that no triable issues of facts are raised: King Wong Development Ltd v Yat Fat Ltd (unrep, HCMP 658/2013, 9 January 2014) at §§53-62; see also Hong Kong Civil Procedure 2024, Vol  1, §28/4/2.

3.  At the hearing, I was satisfied that there are no triable issues of facts and proceeded to deal with the OS summarily.  At the end of the hearing, I granted the Plaintiff’s application and made the order now appearing at paragraph 29 below.  These are my reasons.

B. FACTUAL BACKGROUND

4.  The Plaintiff and the Defendant are siblings, being the only daughter and only son of the late Mr. Kwok Sin Ho (“the Deceased”), who passed away on 20 August 2021.

5.  The Property is a property under the Home Ownership Scheme.  When the Property was purchased in 1987, the Deceased and the Defendant were registered as joint tenants.

6.  In about 2014, when the Deceased was still alive, the Deceased (with the assistance of legal aid) instituted legal proceedings against the Defendant in HCA 903/2014 (“the High Court Action”), seeking inter alia a declaration that the Deceased was the sole beneficial owner of the Property and that the Defendant held the Property on trust for him.  After a trial in the High Court Action, Bebe Chu J gave judgment for the Deceased on 28 March 2018 and found inter alia that:-

(1)  The Property had been held by the Deceased and the Defendant in joint names on trust as to 89.32% for the Deceased and 10.68% for the Defendant.

(2)  The Defendant should bear 10.68% of the expenses of the rates and government rent of the Property from the date of completion of the Property’s purchase.

7.  In the High Court Action, the court considered that the Deceased was largely the successful party and ordered the Defendant to pay the Deceased’s costs to be taxed if not agreed and that the Deceased’s own costs be taxed in accordance with the Legal Aid Regulations.

8.  Following taxation, the costs payable by the Defendant to the Deceased were assessed at HK$866,452.08, with interest to run at judgment rate from the date of judgment (i.e. 28 March 2018).  The costs order in the High Court Action remains entirely unsatisfied to date.

9.  Since the Deceased was legally aided in the High Court Action, the Director of Legal Aid (“the Director”) is entitled to recover costs. Consequently, the Director has registered (i) a Certificate of Charge against the Deceased’s interest in the Property pursuant to section 18A of the Legal Aid Ordinance (Cap. 91), and (ii) a charging order absolute dated 29 November 2022 against the Defendant’s interest in the Property (“the Charging Order Absolute”).

10.  On 20 August 2021, the Deceased passed away.  Under the Deceased’s will, the Plaintiff was named as the executrix of the Deceased’s estate.  The Plaintiff is also the sole beneficiary thereunder.  A Grant of Probate was eventually issued to the Plaintiff on 23 February 2023.

11.  In her capacity as the executrix of the Deceased’s estate, the Plaintiff took out the OS for an order for sale of the Property on 26 July 2023.

C. PROCEDURAL BACKGROUND

12.  As the Defendant has long settled in the United States, the Plaintiff obtained leave to serve a concurrent originating summons (“the Concurrent OS”) out of the jurisdiction on 8 August 2023.  The Concurrent OS was duly issued on 22 August 2023.  On 5 October 2023, the Plaintiff made a Request for Service Abroad of Judicial or Extrajudicial Documents through the High Court. Subsequently, on 4 December 2023, the Plaintiff received a letter from the Office of the Chief Secretary for Administration enclosing a Certificate of Attestation dated 1 November 2023 in which it was stated that the Defendant was personally served with the Concurrent OS at his residential address in the United States.  The Certificate of Attestation also specifically stated that the Defendant had accepted service of the Concurrent OS.

13.  On 15 March 2024, the Plaintiff filed the Notice of Appointment to Hear Originating Summons (“the NOA”) pursuant to which this hearing was fixed.  The NOA was served on the Defendant by airmail on 19 March 2024.

14.  In the circumstances, I am satisfied that the Defendant had been duly served with the proceedings and notice of the present hearing.

15.  In compliance with section 3(2) of PO and rule 4 of the Partition Rules, the Director of Lands was served with the OS on 27 July 2023.  By a letter from the Director of Lands dated 5 October 2023, he indicated that he has no comments on the present application, save and except (i) a reminder that the Property is still subject to alienation restrictions as no premium has been paid, and (ii) there are outstanding rates and government rent to be settled by the owners.  On 19 March 2024, other relevant documents (as stipulated under rule 4 of the Partition Rules), including the NOA, were served on the Director of Lands.

16.  Prior to the issuing of the OS, in light of the charges on the Property of the Director, the Plaintiff has notified the Director of her intention to obtain an order for sale of the Property.  In a letter from the Director dated 17 May 2023, the Director inter alia replied as follows:-

(1)  The amount payable by the Defendant to uplift the Charging Order Absolute (with forecast date of payment of 31 May 2023) is HK$1,242,840.95;

(2)  The amount payable by the Deceased’s estate to uplift the first charge (with forecast date of payment of 31 May 2023) is HK$27,106.67; and

(3)  The Director has no objection to a sale of the Property provided that the amount in (1) and (2) above are fully settled.

17.  As will be referred to below, the reserve price set on the sale of the Property is likely to be sufficient to settle liabilities owed to the Director.  In the circumstances, I am content to treat the Director as having no other substantive comments or objections to the present application.

18.  In the circumstances, I am satisfied that all relevant parties have been served with these proceedings and notice of the present hearing.  As I was so satisfied, I proceeded to deal with the substance of the OS at the hearing.

D. LEGAL PRINCIPLES

19.  The legal principles governing orders for sale under section 6 of PO are trite and were summarized by Au-Yeung J in Cheung Wing Kuen Samuel v Ip Chui Sum [2021] HKCFI 2535, at §§9-12, as follows:-

(1)  Under section 2 of PO, the court may (i) order a partition of the property under section 4, (ii) order a sale of the property under section 6, or (iii) refuse to make any order.

(2)  Under section 6 of PO, where it appears to the court that a partition of the property would not be beneficial to all the persons interested, the court may make an order for the sale of the property, having regards to:-

(a)  The nature of the persons interested or presumptively interested;

(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.

(3)  The principles for exercising such power are that:-

(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.

(4)  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.

20.  When the court decides whether it is practicable to partition a property, the court will also consider the size and design of the property, and determine the application based on common sense without the need for expert evidence: Lam Chun Wai v Chu Suk Har [2016] 1 HKLRD 224 at §28; Uplink Finance Limited v Lee Sze Tai (unrep, DCMP 794/2016, 16 March 2017) at §31.

E. PARTITION OR SALE?

21.  Mr. Chan submitted that it is clearly impracticable to partition the Property.  I agree. 

22.  The Property is a Home Ownership Scheme flat with a saleable area of 45.32 square meters in a multi-storey building.  It appears to me to be impracticable to physically divide the Property.  As the Defendant has only a roughly 10% interest in the Property, a partition of the Property would leave the Defendant a unit of about 4.5 square meters.  It is difficult to imagine that the partitioned flats would be capable of being sold by either of them. Even if the Property may be physically partitioned, I accept Mr. Chan’s submissions that where a property consisted of equal undivided shares with exclusive rights to hold and enjoy a unit in a multi-storey building, it would not be practical to partition the property between the parties: Fung Ping Fai v Wong Fung Chu [2022] HKDC 1203 at §11.

23.  In the present case, I am satisfied that an order for partition would not be beneficial to all the persons interested.

F. ORDER FOR SALE

24.  The burden of persuading the court that an order for sale will not be beneficial to all the co-owners or that it will result in very great hardship to one co-owner rests squarely with the opposing co-owner.  As the Defendant has not raised any objection to the OS, there is simply no evidence demonstrating why an order for sale should not be made.

25.  On the evidence adduced by the Plaintiff, the estimated value of the Property is around HK$2,467,140 as at February 2024 if sold in the Home Ownership Scheme secondary market (i.e. without the need to pay a premium to the Housing Authority).  In light of this valuation, the Plaintiff suggested to impose a reserve price of HK$1,800,000 for sale of the Property in the Home Ownership Scheme secondary market.  According to the Plaintiff, this figure translates to about HK$2,969,807 if sold in the open market (i.e. with a premium payable to the Housing Authority) and hence a reserved price of HK$3,000,000 should be set for any sale in the open market.  This roughly represents a 25% discount from the market value of the Property.  Mr. Chan submitted that this discount aims to maximize the chances of a successful sale by private treaty without the need to incur further expenses in either (i) seeking further directions to set a lower reserve price if the Property could not be sold at the market price or (ii) putting the Property up for auction. 

26.  Mr. Chan further submitted that the Plaintiff has an 89.32% interest in the Property and it is in the interest of the Plaintiff in trying to fetch the highest possible price for the Property.  The setting of a lower reserve price clearly does not mean that the Plaintiff will not fetch the best possible price for the sale.  In accepting the submissions of Mr. Chan to set a lower reserve price, I also take into account the fact that even if the Property is sold at the reserve price, it would still be sufficient to discharge the parties’ liabilities to the Director.

27.  The Plaintiff also seeks an order that if the Property could not be sold by private treaty that it be put up for auction.  The reserve price set for any such auction is proposed at HK$2,500,000.  Mr. Chan submitted that if the Property could not be sold by private treaty in the open market at a price of HK$3,000,000, it is justified to set a still lower reserve price for an auction.  This I also accept.

28.  For the forgoing reasons, I am satisfied that it would be appropriate to make an order for the sale of the Property.

G. CONCLUSION

29.  Having accepted that an order for sale should be made and after discussing with Mr. Chan the appropriate terms of the order to be made, I granted the following orders at the hearing:-

(1)  The Property be sold pursuant to section 6 of the Partition Ordinance (Cap. 352) in the manner as set out below.

(2)  The conduct of the sale of the Property shall be committed to the Plaintiff’s solicitors, Messrs. To, Lam & Co (“TLC”).

(3)  TLC shall attempt to sell the Property by private treaty in the first instance as follows:-

3.1  The Property shall be placed on the Home Ownership Scheme secondary market forthwith for sale by private treaty at such price and on such terms as the Plaintiff thinks fit, subject to a reserve price of HK$1,800,000.

3.2  Concurrent with paragraph 3.1 above, the Property shall be placed on the open market for sale by private treaty at such price and on such terms as the Plaintiff thinks fit, subject to a reserve price of HK$3,000,000 (such price including payment of the Home Ownership Scheme premium).

3.3  On receipt of an offer for purchase of the Property, the Plaintiff shall be authorized to accept the offer on the Defendant’s behalf forthwith as long as the purchase price is equivalent to or in excess of the applicable reserve price as aforesaid.

3.4  The commission or other fees payable by the vendor to the real estate agent (if any) shall not exceed 1% of the final sale price.

(4)  If the Property cannot be sold in the manner as stated in the preceding paragraph, TLC shall attempt to sell the Property by public auction on the open market as follows:-

4.1  The Property shall be put up for public auction with a reserve price of HK$2,500,000.

4.2  The fees of the auction shall not exceed 1.5% of the final sale price.

4.3  In the event the reserve price is not met at the first auction, the parties are at liberty to apply to the court for further directions on a new reserve price.

(5)  The estate of the Deceased and the Defendant shall bear 89.32% and 10.68% respectively of the fees and disbursements incidental to the sale of the Property (“Sale Expenses”) whether by private treaty or public auction. In the event a party fails to pay the Sale Expenses, the other party may elect to pay the other party’s share of the Sale Expenses in the first instance, subject to the right to recover the same from the other party out of the proceeds of the sale upon the division of the same in accordance with paragraph 6 below.

(6)  The purchase price of the Property (including any deposits and part payments) shall be paid by the purchaser to TLC in the first instance.  TLC shall, upon receipt of the purchase price in full, apply the proceeds of the sale in the following order and priority:-

6.1  First, in the discharge of any outstanding government rent, taxes, rates and/or other outgoings due and outstanding affecting the Property.

6.2  Second, in payment of (i) the estate agent’s commission, (ii) conveyancing legal costs (limited to a maximum amount of HK$25,000) and disbursements, and (iii) all other reasonable expenses payable or incurred in connection with the sale.

6.3  Third, in the event the Property is sold on the open market and a premium is payable under the Home Ownership Scheme for the removal of alienation restrictions, the premium that is paid by the purchaser to TLC (if any) shall be paid to the Housing Authority.

6.4  Fourth, an amount corresponding to the entitlement of the Director of Legal Aid under the Charging Order Absolute dated 29 November 2022 and Certificate of Charge dated 11 April 2018 be paid to the Director of Legal Aid directly out of the purchase monies to be paid by the purchaser to TLC in respect of the purchase.

6.5  Fifth, the net proceeds be divided between the Plaintiff and the Defendant in the ratio of 89.32% for the Plaintiff (“P’s Share”) and 10.68% for the Defendant (“D’s Share”) subject to the following adjustments:-

(i)    The total amount paid out of the sale proceeds to discharge the Charging Order Absolute dated 29 November 2022 over the Defendant’s interest be deducted from D’s Shares and added to P’s Share.

(ii)   A sum totaling HK$100,000, being the total amount of costs payable by the Defendant to the Plaintiff pursuant to paragraph 9 below be deducted from D’s Shares and added to P’s Share.

(iii)  In the event a party’s share of the Sale Expenses is borne by the other party in the first instance pursuant to paragraph 5 above, the paying party shall be entitled to recover the same, with the amount of such Sale Expenses being deducted from the share of net proceeds payable to the non-paying party and added to the share of net proceeds payable to the paying party.

6.6  Sixth, subject to the discharge of the Director of Legal Aid’s Charging Order Absolute dated 29 November 2022 and Certificate of Charge dated 11 April 2018, the net proceeds be paid to the Plaintiff and the Defendant respectively (including as adjusted under paragraph 6.5 above).

(7)  In relation to the execution of the necessary documents to effect the sale of the Property:-

7.1  The Plaintiff and Defendant shall, within 14 days of the posting of any written request by TLC, sign and execute such agreement(s), conveyance(s), assignment(s), and all other necessary document(s) (if any, including but not limited to the application for the removal of the Home Ownership Scheme alienation restrictions) to effect the sale of the Property, and to indicate their agreement to do so in writing within the aforesaid 14-day period.

7.2  In the event that the Plaintiff and/or the Defendant fails to do so, [named in the sealed order], partner of TLC, is authorized pursuant to section 38A of the District Court Ordinance (Cap. 336) to sign and execute such necessary agreement(s), conveyance(s), assignment(s), and all other necessary document(s) on behalf of the Plaintiff and/or the Defendant, as the case may be, to given effect to this Order and to convey the Property and all interest therein to the purchaser.

(8)  There be liberty to apply for further directions, if necessary, as to the manner of the sale of the Property and generally.

(9)  The costs of the OS be awarded to the Plaintiff with certificate for counsel, summarily assessed by this Court at HK$100,000.

30.  Lastly, I thank Mr. Chan for his able assistance.