RE CHAN WAI LIN

HCB 10527/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 10527 OF 2006

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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 Madam Chan Wai Lin (“Madam Chan”) 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 3, 10/F, Toa Yuen House (Block 15), Chuk Yuen (North) Estate, No 8 Wing Chuk Street, Kowloon (“Property”), together with consequential orders.

2.  The Property is in a public rental housing estate. Its saleable area is about 443 sq ft.  Originally, the Respondent, Mr Tang But Man (“Mr Tang”) was a registered tenant of the Property. Madam Chan is his wife.  On 28 April 2000, the Property was assigned by the Hong Kong Housing Authority into the joint names of Mr Tang and Madam Chan for a consideration of HK$229,000.  The purchase was financed by a mortgage loan from Hang Seng Finance Limited.

3.  The application is opposed by Mr Tang.

Background

4.  On 6 February 2007, Madam Chan was adjudicated bankrupt upon her self petition.

5.  In her Statement of Affairs dated 20 December 2006 at List A, Madam Chan listed the Property as jointly owned by her and Mr Tang.

6.  The Property is encumbered by a legal charge in favour of Hang Seng Finance Limited.  According to information provided by the Trustees, as at 9 July 2014, the outstanding mortgage loan was a mere HK$18,488.75.

7.  According to an updated oral valuation obtained by the Trustees from Allied Surveyors Limited on 25 November 2015, the value of the Property is as follows:

(1)	Open Market Value (on a vacant possession basis)[1]	HK$3,450,000
(2)	Secondary Market Value (on a vacant possession basis)[2] - no premium required	HK$1,850,000

8.  Madam Chan, Mr Tang and their daughter are now living in the Property.  Both Madam Chan and Mr Tang are 53 years old.  Their daughter is 12 years old.

9.  Madam Chan is a cleaning worker.  Her monthly salary is about HK$11,000.  Mr Tang is a casual delivery worker and earns approximately HK$8,000 to HK$9,000 a month.  Mr Tang used to have a hair saloon business.  Madam Chan told this court that the bankruptcy debts incurred by her (which were cash advances from credit card companies) were used to help save Mr Tang’s hair salon business.  Obviously, that did not succeed but it showed how desperate Madam Chan was at the time — this court asked and Madam Chan said she knew the sort of interest rate charged by credit card companies for such advances but had no viable option.

10.  Madam Chan has three unsecured creditors: Hang Seng Bank, Standard Chartered Bank and HSBC.  The total amount of provable debts admitted by the Trustees is HK$142,227.46.  The total estimated amount of interest accrued, as at 7 January 2016, was HK$215,597.73.  Interest is still accruing.  The Trustees told this court Madam Chan has made no contribution to the bankruptcy estate.

11.  Madam Chan said in her affirmation in opposition that she was willing to pay off her debts and had already accumulated about HK$280,000 in her bank account for that purpose.  Mr Tang also said he had been trying to raise money to pay off (the principal sum of) the bankruptcy debts. However, they could not afford to pay off everything in one go.  In this context, “everything” means not just the principal sum of Madam Chan’s bankruptcy debts, but also interest accrued and accruing, costs and expenses of the bankruptcy and costs of the present application.

12.  No agreement was reached between the Trustees, Mr Tang and Madam Chan concerning repayment by stages, which could have averted the present application.

Deliberation

13.  When a property is conveyed to husband and wife (or co-habitees) 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] :

“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…”

14.  See also Jones v Kernott [2012] 1 AC 776 at [17] – [19] & [25].

15.  Neither Madam Chan nor Mr Tang disputes their equal legal and beneficial interests in the Property as such.  Mr Tang did testify in court that it was his mother who funded the purchase of the Property.  But he also said when Madam Chan became bankrupt, both Madam Chan and him continued to pay off the monthly mortgage instalments.  Mr Tang gave no details as to how much his mother contributed to the purchase of the Property, the circumstances under which she did so or the intention of all parties involved concerning whether his mother would have any beneficial interest in the Property at all, and if yes how much.  Nor is there proof of the contribution made by Mr Tang’s mother, save his own assertion.

16.  Further, since Mr Tang’s testimony was that both Madam Chan and him continued to pay off the monthly mortgage instalments after her bankruptcy, it can reasonably be inferred both of them contributed to the payment of monthly mortgage instalments prior to Madam Chan’s bankruptcy.

17.  In these circumstances, this court has no difficulty in concluding that Mr Tang and Madam Chan were, prior to her bankruptcy, joint legal and beneficial owners of the Property.

18.  The next question is whether the court can and should make an order for sale of the Property.

19.  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.

20.  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).

21.   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.”

Section 6 of PO provides that:

“(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.”

22.  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].

23.  In the present case, Mr Tang pleaded with this court the hardship that he and his family would suffer should an order for sale of the Property be made.  He also urged this court to bear in mind the “procrastination” of the Trustees. This “procrastination” led to the accumulation of interest, which by now has exceeded the principal sum of the bankruptcy debt, as well as costs and expenses of bankruptcy.

24.  The Trustees, on the other hand, urged 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 would usually prevail over the voice of the other spouse and a sale of the property would be ordered within a short period of time.

25.  In Re Cheung Chan Hong [2015] 2 HKLRD 1at [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.  Specifically, at [31], this court said:

“31. 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, e.g. the mother in Re Leung Wang Fai supra, or otherwise who resides in the property and will necessarily face eviction should an order for sale of the property be made.”

26.  As Recorder Joseph Fok SC pointed out in Wong Chun Kei v Poon Vai Ching, 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 presumption, let alone a hard and fast rule, that the wishes of a co‑owner who opts for an order for sale under the PO (or his trustees in bankruptcy) must necessarily or usually prevail over the wishes of another co‑owner who opposes it. While the burden of proof lies on the opposing co-owner, the matter must still be decided by this court 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].

27.  In an admirable judgment in Re Liu Yi Fang [2015] 3 HKLRD 668, 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.

28.  Subsequently, in Re Lau Hiu Tuen unrep, HCB 8430 of 2006, 20 August 2015, at [23], Godfrey Lam J summarised the recent divergence in judicial opinion of this issue:

“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.”

29.  At [24], the learned Judge further opined:

“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.”

30.  This court took the view at the time of Re Cheung Chan Hong and still maintains the view now that the authorities decided under the PO do not compel the court to adopt the Re Citro approach in a bankruptcy context.  The words “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” in Wong Chun Kei v Poon Vai Ching  show that while showing “very great hardship” (the burden of proof being on the opposing co‑owner) can tilt the balance against granting an order for sale, it is not a necessary requirement. In Wong Chun Kei v Poon Vai Ching, the court, after looking at the matter objectively and balancing the interest of one against the other, concluded that the just result was to decline to order the sale of the property.

31.  The question whether the Re Citro approach should be applied in Hong Kong in the bankruptcy context clearly warrants more detailed consideration by and guidance from the higher courts so that the recent divergence in judicial opinion can be resolved. 

32.  Fortunately, in the present case, the question does not really arise. This is because, even taking the more benevolent approach to Mr Tang ie the Re Cheung Chan Hong approach, and after giving due weight to his personal and family circumstances, this court is of the view that an order for sale should be made.  The reasons are these.

33.  It is true that, on the evidence, the Property is the only significant asset of Mr Tang. It is also the only place of residence for him and his family. However, Mr Tang is only in his early 50s and is in employment, albeit with a modest and perhaps fluctuating monthly income of HK$8,000‑9,000.  Madam Chan herself is also in her early 50s and in employment.  Luckily for her family, she has a relatively stable monthly income of HK$11,000.  The combined household income of HK$20,000, though still modest, should be sufficient to cover the most basic living expenses of a family of three.

34.  Assuming the Property is sold in the secondary market on a vacant possession basis, the Trustees estimate that the net sale proceeds, after deducting estate agent’s commission, conveyancing costs and the outstanding mortgage loan, would be in the region of HK$1.79 million.  Mr Tang’s half share of the net sale proceeds would be in the region of HK$900,000.  As for the bankruptcy estate, after paying off the unsecured provable debts, the estimated interest accrued and accruing, the estimated costs and expenses of bankruptcy and the legal costs of this application, a sum of HK$276,000 would remain.  This sum would be payable back to Madam Chan. Hence, the combined total payable to Mr Tang and Madam Chan after the sale would be in the region of HK$1.17 million.

35.  In these circumstances, while the prospect of Mr Tang, Madam Chan and their daughter having to vacate their family home will be very unwelcome and stressful, this court is not satisfied that in itself is sufficient to justify a refusal of an order for sale.

36.  After the sale, Madam Chan’s debts will be paid off in full. The combined net sums due to Mr Tang and Madam Chan, plus Madam Chan’s savings of over HK$200,000 in her bank account, should be sufficient to enable them to rent for a relatively long period of time alternatively to make a substantial down payment for the purchase of alternative accommodation, perhaps as modest as their present residence, perhaps even less, perhaps in the same location, perhaps further north in the New Territories. This outcome is of course far from ideal from their point of view.  But this court cannot just look at the matter from their point of view. This court must bear in mind that Madam Chan has creditors who remain unpaid. Indeed, according to Madam Chan, she incurred the debts in trying to salvage Mr Tang’s hair saloon business, but in vain. This court must also bear in mind that Madam Chan has made no contribution to her bankruptcy estate.  Without the sale of the Property, it is unclear where the Trustees can find the funds to pay off the creditors or cover the costs and expenses of bankruptcy.

37.  After the sale, Mr Tang and Madam Chan will no doubt have to keep working, and work even harder, in the foreseeable future.  That however is the stark reality of living in Hong Kong faced by almost everyone, save for the very lucky few who have inherited wealth or have achieved success in business early in life. But again luckily for Mr Tang, Madam Chan and their daughter, after the sale, they would still have enough resources to afford alternative accommodation and  their recurrent living expenses.

38.  To conclude, looking at the matter objectively and balancing the interests of the Trustees (representing the creditors) and the interests of Mr Tang, this court is of the view that there should be an order for sale in the present case.

Disposition and costs order nisi

39.  This court hereby grants an Order in terms of paragraphs 1 to 8 and 11 of the draft submitted by the Trustees save that

(1)  under paragraph 2, the words “28 days” be replaced by “90 days”;

(2)  under paragraph 5, add the words “in the absence of agreement between the parties” at the beginning;

(3)  para 8(b) shall be deleted and replaced by the following:

“after deducting the sums in paragraph 8(a) above from the sale proceeds, the net sale proceeds of the Property be divided between the Applicants and the Respondent, 50% of which shall as soon as practicable be paid to the Respondent, and the remaining balance shall form part of the bankruptcy estate;”

40.  There shall be an order nisi that each party shall bear its own costs of and occasioned by this application.  The Trustees’ costs of this application shall be paid out of the bankruptcy estate, summarily assessed at HK$100,000.