RE WONG LEE THOMAS

HCB 2692/2006

[2021] HKCFI 1317

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2692 OF 2006

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R E A S O N S    F O R    D E C I S I O N

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1.  At the hearing of the Summons issued on 26 September 2012 by the joint and several trustees of the property of Wong Lee Thomas, the bankrupt (“Trustees”), I made a declaration that the Trustees and Madam Tse Ngan Choi (謝銀彩) (“Tse”) have since 23 May 2006 been holding the “Property” (as defined in §2 below) as tenants in common in equal shares, and an order for sale of the Property if Tse (or her nominee) is not able to purchase the Trustees’ 50% interest in the Property within 4 months of the Order. These are the reasons for my decision.

Background

2.  Mr Wong Lee Thomas (“Wong”) presented a petition for his own bankruptcy on 10 April 2006 and was adjudged bankrupt on 23 May 2006.  At that time, Wong and Tse were the joint tenants of a property known as Flat No 1 on 6^th Floor, Tai Sang House (including the planter/planter box appertaining thereto), Block 6, Kin Sang Estate, 3 Leung Wan Street, Tuen Mun, New Territories (“Property”). 

3.  According to the statement of affairs made by Wong on 7 April 2006, at the time of his bankruptcy:

(1) The Property was (and still is) unencumbered.

(2) He was the sole registered owner of a property known as Ground floor, Shop 114, Man Bo Building, 2 Tsing Hoi Circuit, Tuen Mun (“Shop”), which was stated to have a market value of $180,000, and had been mortgaged as security for a loan in the amount of $128,877.   

(3) The amount owed to the unsecured creditors was $404,412.68.

(4) He had assets with an aggregate value of $74,967.05 including his 50% interest in the Property which he valued at $50,000. 

4.  Upon Wong’s bankruptcy, a severance took place whereby the joint tenancy was converted into a tenancy in common by operation of law and his 50% interest in the Property became vested in the Trustees (“Interest”) by virtue of s 58(2) of the Bankruptcy Ordinance (Cap 6) (“BO”) (Re Dennis [1993] Ch 72, at 74F-G, per Nicholls VC; as applied in Re Lau Yuet Tai, HCB 25136/2002, 29 November 2005, at §17, per Kwan J (as she then was)).  

5.  Although Wong was discharged from bankruptcy on 23 May 2010 pursuant to s 30A(1) of the BO, the discharge does not have the effect of re-vesting the Interest in Wong.  Under s 84(1A) of the BO, the Trustees are under a duty to take all reasonable care to realise Wong’s assets at the best price reasonably obtainable in the circumstances, and to distribute the proceeds amongst the creditors if there is a surplus after payment of all expenses associated with the bankruptcy (有關張德華（破產人）的事宜, HCB 4980/2004, 18 August 2009, §§23-26, per Kwan J (as she then was)).    

6.  By letter dated 29 December 2011, the Trustees enquired if Tse would purchase the Interest or agree to a sale of the Property jointly with the Trustees.  In her reply dated 1 January 2012, Tse stated that she did not agree to either course suggested as she was over 60 years old, had no financial means to purchase the Interest and need to reside in the Property. 

7.  On 5 January 2012, the Creditors’ Committee approved the Trustees to retain Messrs Gallant YT Ho & Co to apply for an order for sale of the Property. 

8.  At the callover of the Summons on 18 December 2012, Anthony Chan J gave directions on the further conduct of the Summons. 

9.  In his affirmation dated 28 December 2012 (“Wong 1^st”), Wong opposed the Summons on the following grounds:

(1) owing to his old age and physical condition, he was only able to work for 7-9 days a month, and he had undergone surgery on his eye in November 2012;

(2) Tse used to carry on sewing work at a small shop but the business was not good.  In view of their poor financial state, they had applied for and obtained comprehensive social security assistance (“CSSA”) from the Social Welfare Department;

(3) Tse had been diagnosed with cancer and she underwent surgery on 26 June 2012, followed by chemotherapy and other treatment which would take a year.  He produced the medical certificate of Tse;

(4) although they have 2 daughters, both of them have limited financial means and would not be able to support him or Tse; and

(5) both of them reside in the Property, and they have no other place to live in.

10.  In his 2^nd affidavit filed on behalf of the Trustees on 11 January 2013, Mr Lee Yat Wah Walter[1] stated that the Trustees would like to obtain further information about the matters raised by Wong and Tse including their health condition so as to consider their personal circumstances.  No further step has been taken by the Trustees in respect of the Summons for over 9 years.  During the entire period, Tse and Wong continued to reside in the Property and did not pay any rent or fee in respect of the use of the Interest.

11.  On 20 November 2020, the Trustees restored the hearing of the Summons.  On 28 April 2021, the Trustees filed the affirmation of Hung Pui Lam Bernice (“Hung 1^st”) together with a summons for leave to adduce the same as evidence in support of the Summons.  I allowed the Trustees to file Hung 1^st.

12.  In Hung 1^st, the Trustees stated that:

(1) as at 9 September 2020, the proofs of debt lodged by the creditors amounted to $544,485.63; and

(2) according to the valuation report of Allied Surveyors Limited, as at 23 April 2021, the open market value of the Property was $3,950,000 (with requisite premium already paid to the Hong Kong Housing Authority to remove the restrictions on alienation (“Premium”)) or $2,100,000 in the secondary market (if Premium has not been paid).   

13.  Wong and Tse both oppose the proposed sale of the Property. 

Applicable principles

14.  The Trustees’ application is made under s 6 of the Partition Ordinance (Cap 352) (“PO”) which provides as follows:

“(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.

(3) (a) Without prejudice to subsection (1), if any person interested in the property applies to the Court to make an order for the sale of the property instead of an order for partition, then, unless the other persons interested undertake to purchase the interest of the party applying for an order for sale, the Court may, if it thinks fit, make an order for the sale of the property.

…

(4) On making an order under subsection (1) or subsection (3), the Court may direct a distribution of the proceeds of the sale and give all other necessary or proper consequential directions.

  … ”

15.  The principles governing the approach of the Court in dealing with an application under s 6 of the PO have been sufficiently stated by Anthony Chan J in Re Ng Tze Ching, HCB 5883/2006, 29 August 2014, at §§21-27, and may be summarised as follows:

(1) The primary intention of the PO is 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 (Pun Jong Sau & Ors v Poon Wing Kong & Ors [1977-1979] HKC 210, per Trainor J, at 218E-F);

(2) 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 (Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, per Recorder Fok SC (as he then was), at §§18(a) and 19);

(3) 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 (Wong Chun Kei, §§18(b) and 19);

(4) 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 (Wong Chun Kei, §§18(c) and 19); and

(5) However, where the co-owner of the property is the spouse of the bankrupt, the spouse can no longer expect to enjoy the property indefinitely.  The voice of the creditors will usually prevail over the voice of the spouse, as there is a public interest in maintaining commercial disciplines (Re Citro (a bankrupt) [1990] 3 All ER 952, per Nourse J (as he then was), at 961h-962a). 

Discussion

16.  Wong and Tse attend the hearing in person.  They oppose the proposed sale of the Property primarily on the same grounds stated in Wong 1^st (as summarised in §9 above).  Tse states that she wants to purchase the Interest but has no financial means to do so.  The possibility of raising a loan or getting her daughters to purchase the Interest with the assistance of a bank loan is canvassed at the hearing.    

17.  Ms Bernice Hung, solicitor for the Trustees, submits that as the Premium has not been paid in respect of the Property, it is appropriate to adopt $2,100,000 as the reserve price (“Reserve Price”) for sale of the Property.  Ms Hung confirms that the Trustees do not seek an order for account or inquiry as to the rent or profits arising out of the use of the Interest by Tse and Wong for 15 years (i.e. from the date the Interest became vested in the Trustees on 23 May 2006 to the date they deliver vacant possession of the Property to the Trustees). 

18.  Wong says that given the relatively modest amount of debts he owed to the creditors at the time he was adjudicated bankrupt, he should have sold the Property or realised the Shop so as to pay off the debts rather than seeking a bankruptcy order.  I do not think these are valid grounds in opposition to the Summons, given that:

(1) it was Wong who sought his own bankruptcy, thereby taking the advantage of not having to repay the debts then owed by him;

(2) Wong has never applied to annul the bankruptcy order in the past 15 years or offered to repay all the debts owed;

(3) there is no evidence to show whether the market value of the Shop stated in the statement of affairs was correct or whether there was any surplus after repaying the amount owed to the lender who held a mortgage over the Shop.  Ms Hung informs the Court that the Shop had been sold in 2007 by the mortgagee and no surplus was paid to the Trustees;

(4) there is also no evidence to show that Wong will be able to raise funds to repay all the debts and the interest accrued thereon.  To the contrary, at the hearing, Wong repeatedly says that he is unemployed and has to rely on CSSA to meet some of his expenses; and

(5) Ms Hung informs the Court that as at the date of the hearing, the total amount owed to the creditors (inclusive of interest accrued thereon), the remuneration of and expenses incurred by the Trustees in administering the estate of Wong and the fees payable to the Official Receiver is around $1.2 million.  In other words, even if Wong wants to seek an annulment of the bankruptcy order now, he would not be able to do so unless he can raise $1.2 million to pay off all the debts and expenses. 

19.  Therefore, the only realistic option available to Tse would be to purchase the Interest from the Trustees at 50% of the Reserve Price. 

20.  The only question is whether an opportunity should be given to Tse to pursue this option and, if so, how much time should be given to her.  I consider that it is appropriate to give one last opportunity to Tse to see if she can purchase the Interest and that 4-month is an appropriate period for this purpose, taking into account the following matters:

(1) the Property is unencumbered and therefore can be used as security for borrowing a loan to finance the purchase. So one cannot exclude the possibility that Tse may be able to obtain such loan within a few months;

(2) in as early as December 2011, Tse had already been told in clear term that she could purchase the Interest; and

(3) Tse and Wong already have had the benefit of using the Interest in the past 15 years without having to pay any rent or fee to the Trustees.  This is on any view a very substantial benefit enjoyed by Tse and Wong, and it would be unfair to the creditors to allow them to continue to enjoy such benefit without any time limit.

21.  In my view, subject to giving the one last opportunity to Tse to purchase the Interest at 50% of the Reserve Price within the next 4 months, it is an appropriate case to make an order for sale of the Property for the following reasons.

22.  First, the Trustees as co-owner of the Property have the right to ask for an order for partition or sale of the Property so as to rid themselves of the shackles of co-ownership. 

23.  Second, the Property is a small residential unit, it is impractical, if not impossible, to partition the Property.

24.  Third, Tse has not articulated, let alone established, any cogent reason to satisfy the Court that an order for sale will not be beneficial to all the co-owners or that it will result in great hardship to her. 

(1) As discussed above, this is an exceptional case where the Trustees have already gone a long way to accommodate the personal circumstances of Tse and Wong by deferring the application for an order for sale for over 9 years.

(2) The interest of the creditors cannot be ignored or overridden by the hardship which will inevitably be suffered by Tse in having to move out of her family home.

(3) It must be remembered that after sale of the Property, Tse is entitled to receiver her 50% share of the net sale proceeds, which she can use to rent an alternative flat as her residence if she wishes to do so.

Disposition

25.  I therefore make an order in the following terms:

(1) the Property be sold with vacant possession in such manner as the Trustees see fit save that the selling price of the Property must not be less than (a) HK$2,100,000 (on the basis that the Premium has not been paid to the Hong Kong Housing Authority and will be borne by the purchaser) or (b) HK$3,950,000 (on the basis that the Premium will be paid by the Trustees (on behalf of themselves and Tse) to the Hong Kong Housing Authority (“Market Price”));

(2) The conduct of the sale be given to the Trustees’ solicitors, Messrs Gallant;

(3) Wong and Tse shall, within 7 days of the Trustees’ written demand, deliver up vacant possession of the Property together with all title deeds and relevant documents of the Property to the Trustees;

(4) Tse shall, within 3 days of the Trustees’ written demand, sign and execute all documents as may be required by the Trustees for the purpose of selling and conveying the Property to the purchaser(s) and do all such things as may be necessary for the purpose of selling the Property with vacant possession;

(5) The Trustees are to be at liberty to apply for directions on the signing and execution of all necessary documents required for the sale and conveyance of the Property in the event that Tse refuses to comply with the order in paragraphs (3) or (4) hereof;

(6) The sale proceeds of the Property be applied in the following priority:

(a) to pay the Premium and other amount payable to the Hong Kong Housing Authority, if the Property is sold at the Market Price;

(b) to defray the costs and expenses incurred in the sale of the Property including all estate agents’ fees/commission, taxes, rates, management fees, government rent and other utility charges and outgoings due from or affecting the Property and all legal costs and disbursements relating to preparation and execution of the relevant documents for effecting such sale and conveyance of the Property to the purchaser(s);

(c) the net sale proceeds, after paying all the sums in sub-paragraphs (a) and (b) above, shall be paid to the Trustees and Tse as to 50% each; and

(7) Unless otherwise ordered by the Court or with the consent of the Trustees and Tse, there be an interim stay of execution of paragraphs (1) to (6) of this Order for a period of 4 months (that is, until 4 September 2021) during which Tse is at liberty to purchase the Trustees’ 50% interest in the Property by paying a sum of HK$1,050,000 (being 50% of the Reserve Price) to the Trustees. 

26.  I ordered the costs of the Summons be paid out of the estate of Wong. It is understandable for Tse to want to be heard on what she considers to be an important application, and it will be too onerous a burden to order Tse to bear the costs of the application.