OFFICIAL RECEIVER, THE TRUSTEE OF THE PROPERTY OF SO MING WAI (A DISCHARGED BANKRUPT ) v. SO MING WAI

HCB 175/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 175 OF 2004

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REASONS FOR DECISION

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I. INTRODUCTION

1. On 21 February 2003, Bank of China (Hong Kong) Limited (“BOC”) obtained an order in HCMP5019/201 inter alia that So Ming Wai (“So”) do pay BOC the sum of $1,094,343.08 together with interest on the sum of $975,190.55 at the date of 15.25% pa from 1 December 2001 to 28 January 2002 and thereafter at judgment rate until payment and costs on party and party basis assessed at $25,000.00.

2. On 24 June 2003, BOC presented a creditor’s statutory demand addressed to So for payment of the aforesaid outstanding debt, and it was served on So by substituted service (newspaper advertisement).

3. On 29 December 2003, BOC issued a bankruptcy petition against So for the aforesaid outstanding debt based on So’s non‑compliance with the aforesaid statutory demand.

4. On 10 March 2004, Master Ho granted a bankruptcy order against So, and the Official Receiver (“OR”) was thereby constituted receiver of So’s estate.

5. In So’s Statement of Affairs dated 19 April 2004, So stated inter alia he was a co-owner of the property at Flat G on 24/F and Car Parking Space No 42 on 3^rd Car Port, Golden Dragon Garden, No 77 Kung Lok Road, Kowloon (“Property”).  In fact, So and So Ming Kei (“So Brother”) were/are the registered tenants-in-common in equal shares of the Property.  They acquired the Property on 17 September 1999.

6. The Property was mortgaged to DBS Bank (Hong Kong) Limited (formerly Overseas Trust Bank Limited) (“DBS”) under a Mortgage dated 17 September 1999 and registered in the Land Registry by Memorial No UB7893156 (“Mortgage”).  In his Statement of Affairs, So claimed that (a) his share of the outstanding indebtedness due to DBS was $636,115.00, (b) the estimate value of the Property was $1,400,000.00, and hence the estimated value of his share of the Property was about $700,000.00, and (c) the excess after deduction of the aforesaid indebtedness due to BOC was about $63,885.00.

7. On 9 November 2004, Registrar C Chan ordered that So’s estate be administered in a summary manner, and the OR shall be the trustee of So’s property.  The first meeting was dispensed with, and there shall be no creditors’ committee, and the OR might do all things which might be done by a trustee with the permission of a creditors’ committee.

8. Upon the making of the bankruptcy order, So’s interest in the Property became vested in the OR pursuant to section 58 of the Bankruptcy Ordinance Cap 6 (“BO”).  Thereafter, the OR and So Brother had been holding the Property as tenants-in-common.

9. On 10 March 2008, So was automatically discharged from bankruptcy.  Such discharge did not cause to be re-vested in So any property which had been vested in the OR.  The OR was still under a duty to collect and realise such property and distribute the proceeds amongst the creditors.

II.  SUMMONS

10. On 14 April 2014, the OR applied by summons under section 60 of the BO, section 6 of the Partition Ordinance Cap 352 (“PO”) and Order 31 of the Rules of the High Court against So and So Brother for the following reliefs (“Summons”):

(a)   a declaration that So and So Brother held the Property as tenants-in-common in equal shares;

(b)   an order that the Property be sold by way of private treaty at a price not less than $5,200,000.00;

(c)   So and So Brother do deliver to the OR vacant possession of the Property together with all title deeds and other documents relating to the title of the Property which are in their possession, custody or power;

(d)   the conduct of the sale be committed to the OR or her appointed agent;

(e)   So Brother do join in the sale and execute any agreement, conveyance or other document necessary to assign the Property to the purchaser(s), failing which the Registrar of the High Court or such other person(s) as he may appoint be authorised to execute such agreement, conveyance or document;

(f)   the proceeds of sale of the Property be applied in the following priority: (i) in discharge of all government rent, rates and other outgoings due and affecting the Property, (ii) in discharge of the Mortgage, (iii) in payment of all legal costs, valuation fees, estate agents’ fees, charges and expenses incurred in connection with the sale, and (iv) the balance be divided equally between So and So brother, 50% interest thereof be paid to So and the other 50% be paid to the So Brother;

(g)   So Brother do provide an account of the rent and profits in respect of the Property received by him, if any;

(h)   costs of the application be paid by So Brother to the OR.

11. On the same day, the OR filed the affidavit of Leung Kai Cheung (“Leung”), an insolvency officer in the employ of the OR’s Office, in support of the Summons.

12. On 30 May 2014, Anthony Chan J adjourned the Summons to a date to be fixed not before 30 July 2014 with costs reserved to enable So and So Brother to negotiate with the OR for a sale of So’s share of the Property.

13. On 19 June 2014, Master M Wong granted leave for DBS to proceed with DCMP1072/2014 against So for an order to deliver up vacant possession of the Property and for payment of all moneys with costs due to the applicant under the Mortgage subject to certain conditions.

14. The Summons was restored before Anthony Chan J on 29 August 2014.  There was little progress over the proposed sale of So’s share of the Property, and the learned judge granted directions for the filing of affirmation evidence by So and So Brother in opposition and by the OR in reply, and further adjourned the Summons for argument on a date to be fixed.

15. The adjourned hearing for argument in respect of the Summons came before me on 9 October 2014 (“Hearing”).  So and So Brother appeared in person, but they did not file any affidavit in opposition.

III.  OR’S AFFIDAVIT EVIDENCE

16. Leung in his affidavit provided the following information:

(a)   The OR as the trustee in bankruptcy in respect of the property of So is a person interested in the Property for the purpose of section 3 of the PO and is eligible to apply for an order for sale of the Property.

(b)   To date, one proof of debt has been lodged with the OR claiming a sum of $537,048.05.  Bank balance in the sum of $12,371.06 has been realised for the bankruptcy estate.  So made no contribution to the estate, and no dividend has been declared or distributed.

(c)   According to the repayment schedule provided by So Brother in January 2005, the outstanding mortgage loan as at 17 October 2004 was $1,210,954.83.

(d)   According to the valuation by the Commissioner of Rating and Valuation, the market value of the Property as at 7 January 2014 was $5,200,000.00.  Should the Property be sold at a price not less than $5,200,000.00 and the proceeds applied towards satisfaction of the outstanding mortgage loan under the Mortgage, there would still be surplus proceeds available to be shared between the OR and So Brother.

(e)   On 21 December 2012 and 2 January 2013, Leung wrote to So and So Brother to enquire whether they would acquire the OR’s interest in the Property and, if not, whether So Brother would sell the Property with the OR.  So Brother called Leung on 2 January 2013 and indicated he intended to purchase the OR’s share.  Leung asked him to put forward a written offer, but up to mid-April 2014 Leung did not receive any offer from him.  A reminder to So Brother did not elicit any response.

(f)   Leung believed that the Summons was necessary for the OR to put an end to the co-ownership and realise the Property for the benefit of the creditors.

IV.  DISCUSSION

17. Prior to So’s bankruptcy, So and So Brother as tenants‑in‑common of the Property were eligible persons to make application under section 3(1) of the PO by way of an action for partition or sale of the Property.

18. Upon the making of the bankruptcy order, So’s interest in the Property became vested in the OR as trustee under section 59 of the BO, and hence the OR and So Brother became tenants-in-common in respect of the Property.  Consequently, the OR enjoys the same eligibility to apply for an order for partition or sale of the Property under the PO.  The power to make an order for sale of the Property is derived from sections 2 and 6 of the PO.

19. In Re Ng Tze Ching, bankrupt HCB5883/2006, Anthony Chan J (unreported, 29 August 2014) cited Re Citro (a bankrupt) [1990] 3 All ER 952 in which the majority held that:

“Where a spouse who has a beneficial interest in a matrimonial home has become bankrupt under debts which cannot be paid without the realization of that interest, the voice of the creditors will usually prevail over the voice of the other spouse and a sale of the property ordered within a short period. The voice of the other spouse will only prevail in exceptional circumstances.” (see p 961h) [emphasis added]

“What then are exceptional circumstances? As the cases show, it is not uncommon for a wife with young children to be faced with eviction in circumstances where the realization of her beneficial interest will not produce enough to buy a comparable home in the same neighbourhood, or indeed elsewhere; and if she has to move elsewhere, there may be problems over schooling and so forth. Such circumstances, while engendering a natural sympathy in all who hear of them, cannot be described as exceptional. They are the melancholy consequences of debt and improvidence with which every civilized society has been familiar.” (pp 961j-962a)

20. In Re Ng Tze Ching, bankrupt, the learned judge agreed with the approach in Re Citro (a bankrupt), which he said reflected three things: (a) in the event of bankruptcy, the interest of the bankrupt spouse in the jointly owned property no longer belongs to him, and by the same token, the “innocent” spouse can no longer expect to enjoy that property indefinitely, (b) the interest of the bankrupt spouse should normally be realised to pay off his outstanding debts, and (c) there is a public interest in maintaining commercial disciplines.

21. In my view, the above principles are not only applicable to bankrupt and “innocent” spouses, but also to bankrupt and “innocent” family members.

22. I agree with Ms Chan, who appeared at the Hearing for the OR, that the trustee in bankruptcy (who represents the interests of the creditors) owes a duty to the creditors to realize the assets of So’s bankruptcy estate.  There is no evidence to suggest that a partition of the Property is physically impossible.

23. Whilst the court will not make an order for sale if the interests of all parties will be better served by their continuing to remain as co-owners, or where the order would result in very great hardship to one co-owner (see Ip Sau Shu v Sham Lai Hing [2003] HKC 528 as applied in the bankruptcy context in Re Ng Tze Ching, bankrupt), there is no evidence of such concerns before me.

24. Both So and So Brother have informed the court that they have been liaising with solicitors and making efforts to seek property valuation with a view for the So family to make an offer to purchase the OR’s share of the Property, and they still need further time. However, both the OR and the court have already granted generous indulgence to So and So Brother for such purpose.

25. On the basis of the aforesaid principles, I am persuaded that the interests of all the parties would not be better served by their continuing to remain as co-owners.  Only a small sum has been realised to date and So has not made any contribution at all; the creditors’ interests plainly lie in realisation of the Property and recouping at least part of their losses from the sale proceeds.  There is no evidence of any hardship let alone grave hardship sufficient to outweigh the creditors’ interests, and no evidence of exceptional circumstances for the voice of solvent co-owner to prevail.  In my view, it is eminently appropriate to order a sale of the Property.

26. I have therefore at the Hearing granted an order in terms of the draft order submitted by Ms Chan ie the reliefs set out in paragraph 10(a)-(f) above together with liberty to apply save that (a) for the relief in paragraph 10(c) above 56 days have been given for So and So Brother to deliver vacant possession of the Property together with the relevant title documents, (b) for the relief in paragraph 10(f)(iv) above, the half share of the balance of the sale proceeds is to be paid to So Brother after deduction therefrom the costs of this application. No order is made in respect of the relief sought in paragraph 10(g) above.

27. On the matter of costs, there is no reason why costs should not follow event, especially when opportunity has been given to So and So Brother to consider their position.  At the Hearing, I have ordered So Brother to pay costs of the Summons including all costs reserved (if any) to the OR summarily assessed at $33,495.

28. My clerk will also inform So and So Brother if either or both of them so require a court translator will be arranged to verbally translate these Reasons for Decision into the punti language for him/them at the High Court Building at a mutually convenient date and time.