RE CHOY YUK CHUN

HCB 5203/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5203 OF 2008

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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 Choy Yuk Chun (“Madam Choy”) 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 4, 9/F, Block D (Yiu Lun House), Siu Lun Court, No 3 Siu Hing Lane, Tuen Mun, New Territories (“Property”), together with consequential orders.

2. The Property is in a Home Ownership Scheme housing estate.  Its gross floor area is about 710 sq ft, while its saleable area is about 554 sq ft.  On 6 January 2003, the Property was assigned into the joint names of Madam Choy and the Respondent Mr Lai Yun Sum (“Mr Lai”), her husband, for a consideration of HK$680,000.  The purchase of the Property was financed by mortgage loans from Standard Chartered Bank and the Hong Kong Mortgage Corporation Limited.  As at 16 February 2016, the outstanding amount of the mortgage loans was HK$136,682.12.

3. The application is opposed by Mr Lai.

Background

4. On 27 June 2008, Madam Choy filed a petition for her own bankruptcy.  On 5 August 2008, she was adjudicated bankrupt.

5. In her Statement of Affairs dated 24 June 2008 at List A, Madam Choy listed the Property as jointly owned by her and Mr Lai.

6. According to a valuation report prepared by Allied Surveyors Limited, as at 27 May 2015, the value of the Property was as follows:

(1)	Open Market Value (on a vacant possession basis) [1]	HK$4,400,000
(2)	Secondary Market Value (on a vacant possession basis) [2]	HK$2,550,000

7. An update of the valuation given by Allied Surveyors Limited verbally was that, as at 1 February 2016, the open market value of the Property was HK$3,900,000 and the secondary market value was HK$2,450,000.

8. Mr Lai, Madam Choy and their two sons, around 9 and 5 years old, are currently residing at the Property.  Mr Lai is 42 years old.  Madam Choy is 41.

9. Mr Lai told this court that at the time of the hearing, he was unemployed.  His previous job, which lasted until about October 2015, was a bicycle salesman.  He earned about HK$8,800 a month.  He told this court he was actively looking for work.  As for Madam Choy, she has been working as a clerk in a primary school for over 10 years and still is.  Her monthly salary is around HK$15,000.

10. As at the date of the hearing, the unsecured debts admitted by the Trustees was HK$289,051.88, the estimated amount of accrued interest was HK$313,924.03 and the estimated costs and expenses of the bankruptcy was HK$293,434.95.  These three items add up to approximately HK$900,000 as follows:

(a)	Total amount of unsecured provable debts admitted by the Trustees.	HK$289,051.88
(b)	Total estimated amount of interest accrued upon the aforesaid unsecured provable debts.	HK$313,924.03
(c)	Total estimated amount of costs and expenses incurred in this bankruptcy (as at 4 March 2016), including the Trustees’ remuneration and the Official Receiver’s Ad valorem fees.	HK$293,434.95
		HK$896,410.86

11. Prior to this application, the Trustees have offered to Mr Lai options to deal with the Property in a mutually acceptable manner ie either a purchase by Mr Lai of his wife’s half share or a sale of the Property in the market, but without success.  Hence, the present application.

Deliberation

12. 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…”

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

14. Neither Mr Lai nor Madam Choy disputes their equal legal and beneficial interests in the Property as such.  It is true that, in his affirmation in opposition, Mr Lai claimed he had borrowed about HK$300,000 from his mother in order to fund the purchase of the Property.  This is disputed by the Trustees.  However, even if what Mr Lai said is true, that only means Mr Lai’s mother is his creditor, not that his mother had any beneficial interest in the Property.

15. The only question left for the court is whether it can and should make an order for sale of the Property.

16. 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 the BO.

17. 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).

18. Section 2 of the 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.”

19. Section 6 of the 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.”

20. 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].

21. In his affirmation in opposition, Mr Lai raised three points for this court’s consideration.  First, he complained that the application for the sale of the Property should have been made earlier, rather than long after the discharge of Madam Choy as a bankrupt.  As a result of the “late” application, he and his family have lost the chance to start a new life and Madam Choy has also suffered from psychiatric disorder requiring regular medical attention.  Second, the Property is his family residence.  Given the family’s current income, they would not be able to afford a similar home after the sale and their quality of life would be severely affected.  Third, at the time of purchase of the Property, he had borrowed about HK$300,000 from his mother.

22. 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 will usually prevail over the voice of the other 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 inter alia Re Ng Tze Ching, unreported, HCB 5883/2006, 29 August 2014 and Re Liu Yi Fang [2015] 3 HKLRD 668.

23. 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.

24. In an admirable judgment in Re Liu Yi Fang, supra, Anthony Chan J, disagreeing with Re Cheung Chan Hong, held that the Re Citro approach 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.

25. Subsequently, in Re Lau Hiu Tuen unreported, HCB 8430/2006, Godfrey Lam J, 20 August 2015, at [23], the learned Judge 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.”

26. 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.” (emphasis added)

27. The question whether the Re Citro approach should be applied in Hong Kong clearly warrants more detailed consideration by and guidance from the higher courts so that the recent divergence in judicial opinion can be resolved sooner rather than later.  In the present case, the question luckily does not really call for an adjudication.  This is because whether one takes the stricter approach of Re Liu Yi Fang or the more benevolent approach of Re Cheung Chan Hong, after giving due weight to Mr Lai’s personal and family circumstances, this court is of the view that an order for sale should be made.  The reasons are these.

28. On the Trustees’ calculation, if the Property is sold in the secondary market at the estimated price of HK$2.45 million, the net sale proceeds will be around HK$2,272,817[3]. Hence, the amount available for distribution to Mr Lai and the bankruptcy estate will be around HK$1,136,408 each (subject to the payment of the Trustees’ legal costs and disbursements of this application).  The amount available to the bankruptcy estate will be more than sufficient to cover all the provable debts, statutory interest and bankruptcy expenses, leaving an estimated surplus of slightly over HK$200,000, as at 4 March 2016. Madam Choy is entitled to this surplus under section 74 of the BO.

29. Ms Wong, for the Trustees, submits that this creates a win‑win situation for the creditors, whose debts and interest will be fully satisfied, Mr Lai, who stands to receive a relatively substantial sum of cash, and Madam Choy herself, whose debts will be fully repaid and who will also receive a small surplus.

30. There is force in Ms Wong’s submission.

31. Both Mr Lai and Madam Choy are only in their early 40s and likely have another twenty years of working life.  Madam Choy is in relatively stable employment with a “livable” monthly salary of HK$15,000, albeit it can hardly be regarded as high‑paid.  While Mr Lai was temporarily unemployed, given the current state of the job market, it should not be too difficult for him to find alternative employment. Even if he earns only minimum wage, his monthly income can reach HK$10,000 at least.  Provided both of them have the willingness to work, the combined household income can reach HK$25,000 without excessive difficulty.

32. If the Property is sold in the secondary market on a vacant possession basis, the combined total payable back to Mr Lai and Madam Choy will be in the region of HK$1.37 million.  This amount should be sufficient to enable them to rent for a relatively long period of time alternatively make the down payment for the purchase of alternative accommodation, perhaps smaller than their present residence, perhaps the same size, depending on the location.  This outcome is far from ideal from their point of view.  But this court cannot just see things from their point of view.  This court must bear in mind that Madam Choy has creditors who remain unpaid.  This court must also bear in mind that thus far, Madam Choy has contributed less than HK$30,000 to her bankruptcy estate account.  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.

33. No matter which of the three approaches is ultimately preferred by the higher courts, the burden is still on Mr Lai to satisfy the court that either (i) his circumstances are exceptional, (ii) there will be great hardship if the Property is sold, or (iii) an order for sale will not be beneficial to all co‑owners balancing the interest of one against the other.  In the view of this court, the facts of this case do not amount to exceptional circumstances.  Nor is this court satisfied that there will be great hardship.  Lastly, looking at the matter objectively, balancing the interests of the Trustees (representing the creditors) and the interests of Mr Lai, this court is not satisfied that an order for sale will not be beneficial to all co‑owners of the Property.

34. In these circumstances, this court must grant the Trustee’s application.

Disposition and costs order nisi

35. This court hereby grants an Order in terms of paragraphs 1 to 7 of the revised draft submitted by the Trustees subsequent to the hearing, save that under paragraph 7, the words “40 days” be replaced by “90 days”.

36. Paragraph 8 of the said revised draft shall be deleted and replaced by the following:

“ 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.”

37. There shall be general liberty to apply.

38. 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.

39. Lastly, I thank Ms Wong for her helpful assistance.