LAM CHOK LAI AND ANOTHER v. THE OFFICIAL RECEIVER AND TRUSTEE IN BANKRUPTCY OF LAM CHOK WAI, A BANKRUPT AND ANOTHER

HCMP 3041/2016 & HCMP 3042/2016
[2021] HKCFI 260

HCMP 3041/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3041 OF 2016

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HCMP 3042/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3042 OF 2016

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(Consolidated by order of Master R Lai dated the 26^th day of April 2017)

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REASONS FOR DECISION

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APPLICATION

1.  By a summons dated 11 January 2021 (the “Summons”), the Plaintiffs in the present proceedings, apply for further directions and/or to vary an order for sale made by this Court on 3 October 2018 (the “2018 Order”), which was subsequently varied by this Court on 10 September 2019 (the “2019 Order”), pursuant to section 6 of the Partition Ordinance, Cap.352 (the “Ordinance”).

THE BACKGROUND

2.  By the 2018 Order, this Court made an order for sale of the subject 3 properties (the “Properties”) at the lowest reserve price, i.e., HK$525.89 million (the “2018 Reserve Price”). In accordance with the 2018 Order, the appointed estate or tender agent, A.G. Wilkinson & Associates, attempted to first offer the Properties for sale by private treaty within 4 months with a minimum of HK$638 million. No sale was concluded.

3.  Then, attempted sale by the 2018 Reserve Price of HK$525.89 million ensued, through private treaty as well as public tender, initially for 6 months which was subsequently extended to 2 November 2019. Again, no sale was concluded and no offer or tender was even received.

4.  The 1^st Plaintiff submitted that he has spent a great deal of effort in searching for potential buyers. He actively asked a number of real estate agents, including Midland, Centaline, and one Mega Pro to look for potential buyers. He was also in constant contact with Centaline’s senior sales director over the matter. He even offered higher commissions to the estate agents to incentivise them. He has also tried his circle of affluent friends and investors. Unfortunately, none of his efforts yielded fruit.

5.  The Plaintiffs also submitted that since the 2018 Order, the economic climate and property market in Hong Kong has worsened significantly. Shop premises and commercial buildings have been badly affected. Worst still, as they are situated at Nathan Road, the Properties are hard hit by the social unrest in 2019-2020 and now the COVID-19 pandemic.

6.  In March 2020, there was an informal and audacious offer to purchase the Properties at HK$217 million. The 1^st Plaintiff rejected the same.

7.  In about October 2020, through Mega Pro, a potential buyer offered HK$252 million for the Properties.

8.  The Official Receiver had indicated that they have no objection to the sale. The 2^nd Defendant did not reply to the Plaintiffs’ letter in good time and the offer lapsed. Subsequently, the 2^nd Defendant objected to the sale at HK$252 million.

9.  The Plaintiffs took out the present application on 11 January 2021 because they receive an offer of HK$280 million for the Properties from an independent third party.

10.  The Plaintiffs have commissioned and produced two recent updated valuation reports both opine that the aggregate value of the Properties is about 50% of the 2018 Reserve Price.

(1)  The valuation report prepared by KPMG states the market value of the Properties at HK$265 million as at 5 December 2020.

(2)  The valuation report prepared by Messrs. Lawson, David & Sung Surveyors states the market value of the Properties as at 18 January 2021 at HK$265.4 million.

11.  Accordingly, the Plaintiffs put forward HK$265 million as the proposed new reserve price (the “Proposed New Reserve Price”). The Official Receiver has no objection. The Official Receiver also informed this Court that all of Lam Chok Wai, i.e., the Bankrupt’s creditors have been fully paid. Therefore, the persons who are truly economically interested in the estate of the Bankrupt (who is deceased) is the executrix and the beneficiaries of his estate, namely, Madam Lam Choi Wai Ying, Lam Wai Lik Eric and Lam Kenneth Wai Kin.

12.  In late December 2020, the Plaintiffs received an offer from Mr Tang Shing Bor to purchase the Properties at HK$280 million (the “Tang Offer”).

13.  Upon the Official Receiver’s inquiry, Messrs. T.K. Tsui & Co have written to the Official Receiver on 20 January 2021 to state that the beneficiaries of the Bankrupt’s estate have no objection to the Plaintiff’s present application.

14.  The same letter from Messrs. T.K. Tsui & Co. also confirmed that the executrix of the Bankrupt’s estate, Madam Lam Choi Wai Ying, in the capacity as a judgment creditor of a charging order absolute granted in FCMC 6670/1994 against the Bankrupt’s share in the Properties, also has no objection to the Plaintiff’s present application.

15.  The only party who objects to the Plaintiffs’ present application is the 2^nd Defendant. She objects to the Plaintiffs’ application on the ground that the offer price is “far too low”. But she has not produced any evidence, by way of expert report or otherwise, to suggest what should be the market price or that she has or could have obtained a better offer.

16.  Mr Chong for the Plaintiffs submitted that there are strong reasons why the Plaintiffs’ application should be granted. First, the 2018 Order (with the 2018 Reserve Price) failed to achieve its intended purpose, namely, to allow the Plaintiffs to end an unwanted co-ownership by an order of sale. Secondly, the Plaintiffs have adduced concrete evidence that the previous sale efforts have failed. HK$265 million (and HK$280 million at best) is what the Properties can realistically command in the market. Thirdly, to disallow the present application has extraordinary consequences. It means that the parties would remain stuck with the Properties (which cannot be put to any profitable use) for an indeterminate period to the benefit of no one, during which the Properties continue to attract expenses but with no certainty that a higher price could be fetched in the future.

17.  Mr Chong for the Plaintiffs also helpfully drew to the attention of the Court the case of Morning Dew Finance Ltd v Wong Wing Yan [2020] HKCFI 2682 (22 October 2020) where Keith Yeung J., at §§9-10, made further directions to meet the updated or dropped valuation of the property in light of failed attempts to sell in accordance with an order of sale under the Ordinance.

18.  I agree that, as a matter of law, the Court has jurisdiction to give further directions and vary the reserve price either by way of the liberty to apply or on the ground that there are change of circumstances, in order to effect the sale of the Properties.

ANALYSIS

19.  Having carefully considered this application and the parties’ submissions, I am of the view that an order should be made in terms of the Summons (subject to the revisions I am going to address below).  First, I am of the view that the Plaintiffs have duly discharged their burden by convincing the Court that the updated valuation of the Properties at HK$265 or HK$265.4 million demonstrates that the Proposed New Reserve Price is appropriate.  This Court should facilitate the parties to get on with the sale.

20.  Secondly, when considering the proper value of a property, the Court would take into account actual market responses and sometimes prefer them to theoretical professional estimations.  At the end of the day, there must be a willing buyer and a willing seller in order for a price to be agreed.

21.  In Ludsin Overseas Limited v Douglas John Maggs [2014] EWHC 3566, Deputy Judge Baldwin QC at §23 said:

“It seems to me that the best indication of the value of an asset at any particular time is what someone will pay for it after reasonable attempts have been made to sell it. There is now before the court direct evidence of that. The fact that no-one has been prepared to over £2m for Bellmans despite 6 months’ marketing by a well-known and reputable agent is, in my judgment, highly persuasive if not conclusive evidence that Bellmans is not currently worth £2.9m, the price which it would have to achieve if Ludsin’s debt were to be fully secured. That evidence in my view is far more persuasive than the opinion of Mr Green given in February of this year.”

22.  Similarly, in Super Master v Chung Nam, unreported, CACV 117 of 2004, 18 May 2005, Le Pichon JA upheld the judge’s decision below declining to place weight on “theoretical” expert valuations when there were no willing purchasers and the defendant had done “all could reasonably have been expected to do to obtain the best price”. (See §§17-18).

23.  The 2^nd Defendant objected to the sale with the Proposed New Reserve Price. First, it was argued on her behalf that the Proposed New Reserve Price is “far too low”. But as I said earlier, there is no evidence as to what the 2^nd Defendant said should be the market price. Mr Yau for the 2^nd Defendant submitted that the price of commercial properties has hit the rock bottom and with the availability of vaccine, the price of commercial properties will rebound. However, no one has the crystal ball. Property price may rise or fall. No one can predict that. I agree with Mr Chong for the Plaintiffs that the Court is not in a position to speculate how the general property market will rise or drop in the foreseeable future.  As a matter of fact, in the last two years, the market in Hong Kong was affected by social unrest and the outbreak of COVID-19 both of which could not have been anticipated earlier.

24.  Secondly, as there is no appeal against the 2018 Order, it is not open to the 2^nd Defendant to re-argue the correctness of an immediate order for sale. It is well settled that the power of sale under the Ordinance is to “enable the Court to end an unwanted co-ownership” as an alternative to partition when it is impracticable. (See Wong Chun Kei Johnny v Poon Vai Ching [2007] 1 HKLRD 825 at 840, 842 per Recorder Fok SC (as he then was)).

25.  It is not the proper function of the Court to speculate and try its best to secure a better return to the co-owners by delaying the point of ending an unwanted co-ownership. I agree with Mr Chong’s submission that the logical conclusion of the 2^nd Defendant’s argument is that the party resisting an order for sale may oppose it or stay it on the sole basis that the market value of the property (which should otherwise be sold) is rising and can possibly be fetched for a better price in the future. The market can do better but it can also get worse. That would be putting the cart before the horse, the horse being the co-owner’s “basic right to rid himself of the shackles of co-ownership” if he has no other remedy. (See Wong Chun Kei Johnny (supra) at 842).

26.  Thirdly, Mr Yau for the 2^nd Defendant submitted that the 2^nd Defendant should not be denied of the right to put in her expert report within 3 months and as a necessary consequence, the present hearing should be adjourned. I disagree. First, the 2^nd Defendant could have obtained an expert report if she wishes at least from the date when the Summons was served on the 2^nd Defendant, if not earlier, when the Plaintiffs have made known their intention to seek a variation of the 2018 Reserve Price. Secondly, I am of the view that it will not take the 2^nd Defendant three months to get an expert report. Thirdly, the 2^nd Defendant only contacted the Official Receiver on the Friday before the present hearing to see if she could engage the expert previously engaged by the Official Receiver.

27.  Mr Chong for the Plaintiffs referred this Court to the case of Riseway Investments Limited v Wong Kwok Gee, HCMP 603 of 1994, unreported, 2 February 1996 where the court rejected a co-owner’s request to defer a sale ordered under the Ordinance. Findlay J. at §9 said:

“The original summons in this matter was issued on 10 March 1994. There has been a long delay to this stage. This is a commercial matter, and in these matters delays are costly. It is time the matter was brought to an end. I cannot think of any reason that might be reasonably acceptable to the plaintiff, by far the majority owner of the property, why I should compel it to wait any longer. The property market in Hong Kong is not always stable. If I order the sale to be delayed for 6 months, and, in the meantime, the market slumps, the plaintiff would be rightly indignant that I interfered. I do not think the defendant has said anything that would justify me in exercising my discretion in his favour in the prejudice of the plaintiff.”

28.  In Chan Ching Kit Katherine v Lam Sik Shi, HCMP 239 of 2000, unreported, 24 June 2002, Kwan J (as she then was) at §46 said:

“46. The 1^st and 2^nd Defendants have each put forward a number of economic reasons why a sale of the Property should not be ordered, some of them are in common. Firstly, a forced sale would fetch a lower price of about HK$3 million less, according to the valuation reports of the plaintiff’s surveyor. Secondly, to order a sale when the lease of the existing tenant has not yet expired would fetch a lower price as compared to a sale with vacant possession. Thirdly, the property market is depressed at the moment and this is not an opportune time to sell. It does not appear to me that any of these reasons are sufficient to outweigh the consideration that the plaintiff should not be deprived of the fruit of litigation in that she has obtained a charging order to enforce a judgment debt.” (Emphasis added.)

29.  Further, I agree with Mr Chong for the Plaintiffs that the 2^nd Defendant had ample opportunity to obtain a valuation report and she chose not to. In a letter dated 24 November 2020 from the 2^nd Defendant’s solicitors, the 2^nd Defendant was well aware of the need to obtain a valuation report. A letter from the Official Receiver dated 19 November 2020 also stated the potential need to return to court for directions.

30.  Mr Chong for the Plaintiffs also submitted that throughout these proceedings the 2^nd Defendant had never taken the trouble to obtain a valuation report to put forward an appropriate price. There is no evidence that the 2^nd Defendant will actually obtain a valuation report for the purpose of this present application, let alone it will take three months for a valuation report to be prepared.

31.  Finally, I agree with Mr Chong that any further adjournment will cause prejudice to the Plaintiffs. I agree that there is a real risk that once the present potential buyer is gone (i.e. the Tang Offer), a buyer of substance is not easy to come by for an en bloc site. This is evident by the fact that the previous attempts to sell by private treaty, then by public auction, still further by the 1^st Plaintiff, were all without success over a period of two years.

32.  This Court also notes that while the Properties could not be put to profitable use such as renting them out, it is indisputable that they continue to generate high maintenance costs.

33.  Mr Chong for the Plaintiffs also drew this Court’s attention to the fact that in adopting her stance, the 2^nd Defendant, qua trustee, will be acting against the express wishes of at least two of the beneficiaries.

DISPOSITION

34.  For all reasons stated above, I make an order in terms of the Summons save and except:

(1)  The time for completion of the sale pursuant to the Tang Offer be extended for one week;

(2)  The 2^nd Defendant be at liberty to file an expert report, if so advised, within 7 days from the date hereof;

(3)  Prior to the sale of the Properties pursuant to the Tang Offer, the Plaintiffs are obliged to put the Properties in the open market for sale, whether by way of public auction or private treaty;

(4)  The commission for estate agents is fixed at 1% to be shared by the Plaintiffs and the Defendants. The Plaintiffs are at liberty to pay more commission to estate agents at their own costs;

(5)  The method and ratio of distribution of the sale proceeds do follow the terms and conditions as set out in the 2018 Order;

(6)  Liberty to apply.

35.  As far as costs is concerned:

(1)  The Official Receiver is entitled to have its costs to be paid from the proceeds of the sale of the Properties;

(2)  The costs of the application is to be paid out of the proceeds of the sale of the Properties;

(3)  The 2^nd Defendant is to pay the costs of and occasioned by the hearing of the Summons to the Plaintiffs, on a party to party basis, to be taxed if not agreed. The 2^nd Defendant objected to the Summons and I do not see there are good reasons to depart from the general rule that costs should follow the event.

36.  Finally, it remains for this Court to thank Mr Chong and Mr Fan for the Plaintiffs, Mr Hui for the Official Receiver and Mr Yau for the 2^nd Defendant for their helpful assistance.