RE TSANG YIN HONG

HCB 4387/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4387 OF 2007

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J U D G M E N T

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Introduction

1.  There is before this court an application by the Trustees of the property of Mr Tsang Yin Hong (“Mr Tsang”) for an order for sale under section 60 of the Bankruptcy Ordinance, Cap 6 (“BO”) and section 6 of the Partition Ordinance, Cap 352 (“PO”), in respect of the property known as Flat 10, 19/F, Tsui Nam House, Low Block, Tsui Ping (North) Estate, No 19 Tsui Ping Road, Kwun Tong, Kowloon (“Property”), together with consequential orders.

2.  The Property is in a public rental housing estate.  Originally, the Respondent, Madam Yiu Mei Yung (“Madam Yiu”) was a registered tenant of the Property[1].  On 14 August 2002, The Property was assigned by the Hong Kong Housing Authority into the joint names of Madam Yiu and Mr Tsang at the consideration of HK$181,800.  The purchase was financed by a mortgage loan of HK$179,300 from HSBC, to be fully repaid by 180 monthly mortgage repayments of approximately HK$1,223 each. 

3.  The saleable floor area of the Property is about 389 sq ft.  At all material times, prior to 2002, Madam Yiu, Mr Tsang’s father and Mr Tsang himself resided in it.  Mr Tsang’s father has since passed away.  Presently only Madam Yiu and Mr Tsang reside in the Property.

4.  The application is opposed by Madam Yiu.

Background

5.  On 17 May 2007, Mr Tsang filed a petition for his own bankruptcy.  On 17 July 2007, he was adjudicated bankrupt.  The principal amount of the proofs of debt so far filed by the unsecured creditors is HK$477,746.41.  Thus far, Mr Tsang has contributed only HK$34,893.70 to his bankruptcy estate account.

6.  According to an updated valuation report dated 19 November 2015 prepared by Allied Surveyors Limited, the value of the Property was as follows:

(1)	Current Open Market Value (on a vacant possession basis)[2]	HK$3,350,000
(2)	Current Secondary Market Value (on a vacant possession basis)[3]	HK$1,900,000

7.  Madam Yiu is 86 years old and is unemployed.  She has been living on old age allowance (from HK$705 per month in 2002 to currently HK$2,400) from the Hong Kong Government, monies given to her from time to time by her elder daughter, and a small saving in a joint US dollar account she keeps with her younger daughter. According to Mr Tsang, Madam Yiu also received from time to time a small amount of money from his elder brother.

8.  Mr Tsang is 56 years old.  He works as a warehouse attendant and earns about HK$12,000 a month.

Deliberation

First Issue

9.  The first issue in this case is whether Mr Tsang has any beneficial interest in the Property and if so how much.

10.  Madam Yiu told this court that, from the very beginning, she alone has been and still is paying for the monthly mortgage instalment with her old age allowance.  Her evidence is corroborated by her HSBC bank account passbook which shows both the monthly credit of old age allowance into the account since 2002 and the monthly debit of the mortgage instalment from it.  The passbook shows that at first, the old age pension of around HK$700 was not enough to cover the mortgage instalment and had to be supplemented by Madam Yiu’s savings in the account.  As time went by, the old age pension went up to over HK$2,000 and thus was more than adequate for the purpose.

11.  Mr Tsang has filed 3 affirmations in these proceedings and testified in court.  He admitted he had paid nothing for the purchase of the Property.  His evidence before this court is consistent with his contemporaneous statements viz List G of his statement of affairs dated 17 May 2007, his statement to the Official Receiver dated 17 September 2007 and his letter dated 17 October 2007 to the Trustees.  In the letter to the Trustees, Mr Tsang reiterated that his mother alone had paid for the purchase of the Property and his title to it was in name only.  These statements/letters were written well before the Trustees’ present application for an Order for Sale which was filed only on 15 June 2012.

12.  Both Madam Yiu and Mr Tsang have been cross-examined on this issue at the hearing.  Their evidence was not shaken in any way.  This court has reminded itself that their testimony in court, as well as Mr Tsang’s aforesaid statements/letters to the Official Receiver and the Trustees, were in a sense self-serving.  Notwithstanding all that, this court finds both Madam Yiu and Mr Tsang truthful witnesses and accepts their testimony.  This court therefore finds as a fact that Madam Yiu alone has paid for the purchase of the Property.  The question is: how does that finding of fact impinge on the apportionment of the beneficial interests of the Property?

13.  When a property is conveyed to two persons as joint tenants without any declaration of trust, the prima facie case is that their legal and beneficial interests in the property are joint and equal, unless and until the contrary is proved – the onus of proof lies upon the party seeking to establish that equity should not follow the law and that both of them had a common intention that their beneficial interests be different from their legal interests and in what way: Stack v Dowden [2007] 2 AC 432.  Baroness Hale of Richmond said at [68] - [69]:

“ 68. The burden will therefore be on the person seeking to show that the parties did intend their beneficial interests to be different from their legal interests, and in what way. This is not a task to be lightly embarked upon….

69. In law, ‘context’ is everything and the domestic context is very different from the commercial world. Each case will turn on its own facts. Many more factors than financial contributions may be relevant to divining the parties’ true intentions…”

14.  Each case will turn on its own facts.  This much is emphasised not just by Baroness Hale of Richmond in the passage above, but also by Lord Hope of Craighead at [3].  Context is everything.  This much is also emphasised by Baroness Hale of Richmond.

15.  As this court sees it, what Stack v Dowden has decided, which is invaluable guidance to cases of the same or similar factual context, is that in ascertaining the apportionment of the beneficial interests in a jointly-owned property, the court should shift away from the use of the presumption of resulting trust (which essentially mandates an arithmetic calculation of how much, in money’s worth, each joint owner has contributed to the purchase price) as a tool.  But what is the context of Stack v Dowden ?

16.  The factual context of Stack v Dowden and the cases which followed, including Jones v Kernott [2012] 1 AC 776, is that of a “fight” between husband and wife or cohabitees living in a property purchased in their joint names as family home, each party having contributed some, but unequal, shares to the purchase price and one party claiming a larger share of the beneficial interests in the property than the other.  In a joint judgment by Lord Walker of Gestingthorpe and Baroness Hale of Richmond in Jones v Kernott at [25], the Supreme Court Justices made it abundantly clear that the Stack v Dowden approach is only apt to apply in that factual context:

“25. The time has come to make it clear, in line with Stack v Dowden [2007] 2 AC 432 (see also Abbott v Abbott [2008] 1 FLR 1451), that in the case of the purchase of a house or flat in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the deposit (or indeed the rest of the purchase) in unequal shares. The presumption is that the parties intended a joint tenancy both in law and in equity. But that presumption can of course be rebutted by the evidence of a contrary intention, which may more readily be shown where the parties did not share their financial resources.”

17.  The present case is substantially if not completely different from Stack v Dowden and Jones v Kernott.  The relevant parties in the present case viz Madam Yiu and Mr Tsang did not set out in 2002 to purchase the Property as their matrimonial home, so to speak, or pool their financial resources in doing so.  They did not contribute to the purchase price in unequal shares – Mr Tsang did not contribute to the purchase price at all.  Importantly, Madam Yiu and Mr Tsang were and are ad idem as to their intention at the time of the purchase: Madam Yiu alone was to pay for the Property and Mr Tsang’s title was in name only.

18.  In these circumstances, this court seriously doubt whether the Stack v Dowden approach is appropriate in the present case at all.  But it is not necessary to finally decide this question, in the absence of reasoned arguments from both sides.  Assuming there is a presumption that Madam Yiu and Mr Tsang intended a joint tenancy both in law and in equity, and the onus is on Madam Yiu to establish a contrary intention, what exactly is the task of the court? The answer from Baroness Hale of Richmond at [60] of Stack v Dowden is this: the task of the court is

“to ascertain the parties’ shared intention, actual, inferred or imputed, with respect to the property in light of their whole course of conduct in relation to it.” (emphasis added)

19.  On the available evidence before this court, the “whole course of conduct” can be summarised as follows.

20.  Madam Yiu, as a registered tenant of the Property, was eligible to purchase and did purchase it at a substantially discounted price.  Mr Tsang was not so eligible and could not have purchased the Property on his own.  Madam Yiu paid for the purchase of the Property while Mr Tsang did not, despite the fact that he was in employment and had an earned income.  Madam Yiu was financially prudent and was able to pay the monthly mortgage instalment out of her meagre old age allowance and savings.  Mr Tsang was not, which eventually led to his bankruptcy.   Understandably, it is out of normal human affection that Madam Yiu allowed and continues to allow Mr Tsang to live in the Property.  It is also out of normal human affection that Madam Yiu wishes to leave a shelter for Mr Tsang after she passes away.  This was the explanation given by Madam Yiu for adding Mr Tsang’s name as a joint legal owner of the Property at the time of the purchase.  This court accepts the explanation.

21.  What this court does not accept is that normal human affection would have motivated a parent living on old age allowance to make a gift of half of the beneficial interest of the Property to her financially imprudent adult child right at the time of the purchase.  There is no material from which this court could reasonably infer that such was the intention of Madam Yiu at the time of the purchase.  Nor is there material from which this court could reasonably infer such was the understanding of Mr Tsang at that time.

22.  For the reasons given above, this court concludes that Madam Yiu and Mr Tsang did not intend a joint beneficial tenancy of the Property.  In other words, this court is satisfied that Madam Yiu has discharged the burden of showing Mr Tsang had and has no beneficial interest in the Property.  That is sufficient to dismiss the Trustees’ application.

Second Issue

23.  In case this court is found to have come to the wrong conclusion on Mr Tsang’s (lack of) beneficial interest in the Property, it  will go on to consider the next question: assuming Mr Tsang had an equal beneficial interest as Madam Yiu, whether the court can and should make an order for sale of the Property.

24.  Upon the making of a bankruptcy order and the appointment of a trustee in bankruptcy, a bankrupt’s interest in his property is vested in the trustee by operation of law: section 58(2) of BO.

25.  Further, upon the making of a bankruptcy order, any property of the bankrupt held in joint tenancy is severed automatically and the severance creates a tenancy-in-common as between the trustee on the one hand and the other co-owner on the other: Re Dennis [1993] Ch 72, 74 (per Sir Donald Nicholls V‑C as he then was).

26.  Section 2 of PO provides:

“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.”

27.  Section 6 of PO provides:

“(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.”

28.  In Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at [16] – [19], Recorder Joseph Fok SC (as he then was) held that in proceedings under the PO, where it is impracticable to make an order for partition, the court should make an order for sale unless it is persuaded, the burden being on the opposing co-owner, that such an order will not be beneficial to all the co‑owners or that it will result in very great hardship to one co‑owner.  Hardship, for the present purpose, includes pecuniary as well as practical detriment.  Whether an order for sale is or is not beneficial to all the co‑owners is to be determined by the court objectively, balancing the interest of the one against the other: Wong Chun Kei v Poon Vai Ching at [106] – [108]; Re Cheung Chan Hong [2015] 2 HKLRD 1 at [13].

29.  As usual, the Trustees urge this court to adopt the approach by Nourse LJ in Re Citro (A Bankrupt) [1991] Ch 142, 157, that, save in exceptional circumstances, the voice of the creditors will usually prevail over the voice of the other co-owner (usually the spouse) and a sale of the property will be ordered within a short period of time.  The Re Citro approach was adopted in Hong Kong in Re Ng Tze Ching, unrep. HCB 5883/2006, 29 August 2014; Re Liu Yi Fang [2015] 3 HKLRD 668.

30.  In Re Cheung Chan Hong at [20] – [35], this court explained why the Re Citro approach is inappropriate in the legal and social context of Hong Kong and that the authorities decided under the PO do not compel this court to take up the Re Citro approach.

31.  In the admirable judgment of Re Liu Yi Fang, Anthony Chan J, disagreeing with Re Cheung Chan Hong, held that the Re Citro approach should be adopted as the proper approach in Hong Kong to an application by a trustee in bankruptcy for an order for sale of a co-owned property.

32.  Subsequently, in Re Lau Hiu Tuen unrep., HCB8430 of 2006, 20 August 2015, Godfrey Lam J, after summarising the recent divergence of judicial opinion on this issue at [23], proposed the following approach :

“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.”

33.  In the present case, it is not necessary for this court to resolve the recent divergence of judicial opinion.  This is because even if one adopts the approach in Re Liu Yi Fang or Re Lau Hiu Tuen, Madam Yiu’s personal circumtances are truly exceptional and this court is of the firm view that an order for sale will cause very great hardship to her.

34.  On the Trustees’ calculation, Mr Tsang’s total indebtedness was about HK$1.327 million consisting of:

(1)	Unsecured proved debts:	HK$477,746
(2)	Total amount of interest[4]:	HK$606,596 (estimate)
(3)	Costs and expenses of
	Tsang’s Bankruptcy:	HK$242,851 (estimate)

35.  If an order for sale is granted and the Property is sold in the secondary market, the estimated gross sale proceeds will be around HK$1.85 million.  After deducting estate agents’ fees/commission, conveyancing costs, the net sale proceeds will be around HK$1.82 million.

36.  Half of the net sale proceeds ie around HK$910,000 will be payable to Madam Yiu while the other half will be payable to the bankruptcy estate.

37.  The net amount payable to Madam Yiu can be further reduced to around HK$774,000, should the Trustees apply for costs of and occasioned by this application from her and this court accedes to that application.

38.  The net amount available to the bankruptcy estate can only cover part of the bankruptcy expenses, provable debts and statutory interest.

39.  On the evidence before this court, the Property is Madam Yiu’s only significant asset.  It is also her only place of residence for decades.  In view of her age, it is impossible for her to find any meaningful employment.  If an order for sale is granted, the practical certainty is that she will continue to depend on the meagre social welfare payouts from the Hong Kong Government and the HK$910,000 alternatively HK$774,000 left from the sale to cover her future costs of accommodation and living expenses.  In view of her age and her lack of employment, it is also practically certain that Madam Yiu would not be able to purchase alternative accommodation since she would not be able to obtain mortgage finance.  Mr Tsang will not be able to help either.  The choices faced by Madam Yiu will be to rent a modest room as residence, move into a subsidised home for the elderly run by charities (if she can find one) or hope for more social welfare payouts from the Hong Kong Government.  Having already lived a modest life thus far, it seems to this court extremely harsh on Madam Yiu and would constitute very great hardship to her if she is forced to live out her twilight years in that way.

40.  In these circumstances, this court is satisfied exceptional circumstances do exist in the present case and there will be great hardship to Madam Yiu if the Property is ordered to be sold.

Disposition and costs order nisi

41.  The Trustees’ application is accordingly dismissed.

42.  There shall be an order nisi that each party shall bear its own costs.

[1] Mr Tsang was not.

[2] Subject to payment of premium to the Housing Authority – no calculation has been provided by the Trustees.

[3] No premium required.

[4] calculated up to 31 December 2016