RE LO YAU SHING

HCB 4968/2007

[2018] HKCFI 1574

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4968 OF 2007

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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 Mr Lo Yau Shing (“Bankrupt”) 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 No.08, 29/F, Yee Kui House (Block 1) (including the planters/planter boxes appertaining thereto), Tsing Yi Estate, No.10 Fung Shue Wo Road, Tsing Yi, New Territories (“Property”), together with consequential orders.

2.  The Property is in a public rental housing estate subject to a Tenant Purchase Scheme.  It was assigned by the Hong Kong Housing Authority into the joint names of the Bankrupt and his father, the Respondent (“Lo Senior”) on 13 August 2001.  The purchase price was HK$165,000 and the purchase was financed by a mortgage loan of HK$60,000 from Bank of China (Hong Kong) Limited.  The mortgage loan has since been paid off.

3.  The saleable floor area of the Property is about 339 sq ft.  Presently Lo Senior, his wife and the Bankrupt’s elder brother reside in it.  The Bankrupt’s elder brother normally lives in the PRC.  He now resides in the Property in order to look after Lo Senior and his wife.

4.  The application is opposed by Lo Senior.

Background

5.  On 7 June 2007, the Bankrupt filed a petition for his own bankruptcy.  On 7 August 2007, he was adjudicated bankrupt.  The principal amount of the proofs of debt filed by the 7 unsecured creditors is HK$199,744.08.  The amount of interest calculated up to 31 December 2018 is HK$328,313.83.  Thus far, the Bankrupt has contributed HK$2,946 to his bankruptcy estate account.

6.  The most up‑to‑date valuation report prepared by Allied Surveyors Limited shows that the value of the Property, as at 14 May 2018, was HK$3.7 million in the open market[1], and HK$2.3 million in the secondary market[2].

7.  Lo Senior is 94 years old and his wife is 87 years old. Both are unemployed and live on old age living allowance of about HK$3,400 each person per month from the Hong Kong Government as well as some assistance from their 4 adult children.  Lo Senior suffers from a host of serious medical conditions.  The following is an extract from a medical report dated 18 April 2018 from Dr Yeung Lok Ki, Resident, Department of Medicine and Geriatrics, Princess Margaret Hospital:

“ The above‑named patient has known history of ischemic heart disease with percutaneous coronary intervention in 2001, chronic subdural haematoma with Burr hole drainage in 2002, hypertension, hyperlipidaemia, osteoarthritis of knee, bilateral hearing impairment, bilateral cataract with lens implantation in 2009.

He was admitted to Princess Margaret Hospital (PMH) under the management of the Department of Neurosurgery between 29/12/2017 and 12/1/2018. His clinical diagnosis was left chronic subdural haemorrhage and Burr hole drainage was performed on 2/1/2018. Her [sic] condition was complicated with urinary tract infection and retention of urine and was discharged with urinary catheter in-situ.

Mr Lo was admitted to PMH under the management of the Department of Medicine and Geriatrics on 19/1/2018 due to decreased urine output. Initial blood tests showed elevated urea (15 mmol/L) and creatinine (469 umol/L) levels. His clinical diagnosis was acute renal failure and was given intravenous fluid replacement therapy.

…

Mr Lo need moderate assistance to perform bedside transfer; he could walk with a rollator with the help of one manual assistance for 8 meters; his modified Barthel Index score was 30 over a total of 100, indicating that he required assistance to perform most of his basic activities of daily living.  Mr Lo was discharged from PMH on 9/2/2018.”

8.  Recently on 11 June 2018, Lo Senior was admitted to Princess Margaret Hospital’s Orthopaedics Department for fracture neck of left femur and hemiarthroplasty was performed.  The Bankrupt told this court that Lo Senior has since been discharged and is recovering at home.

9.  The Bankrupt is 55 years old.  He works as a maintenance technician of a commercial building and earns HK$17,500 a month.  He is married with a 20‑year‑old son.  His wife is unemployed while his son is still studying.  The three of them previously lived in the Property as well but as the Property is too small, they have moved out and are now living in public rental housing in Tsing Yi.

Deliberation

10.  When a property is conveyed to two persons 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.

11.  In the present case, there is no issue as to the beneficial interest of the Bankrupt in the Property.  The only question for this court is whether it can and should make an order for sale of the Property.

12.  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); Re Lau Yuet Tai, a Debtor unrep; HCB 25136 of 2002; 29 November 2005; Kwan J (as she then was) at [17].  Further, 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.

13.  Notwithstanding the Bankrupt was automatically discharged on 7 August 2011 pursuant to Section 30A of BO, the discharge does not have the effect of re‑vesting in the Bankrupt any property that is duly vested in the Applicants: Official Receiver, the Trustee of the Property of Leung Man Yuen (a Discharged Bankrupt) v Leung Man Yuen and Lai Fung Yee unrep; HCB 582 of 1996; 20 September 2016; G Lam J at [3].

14.  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.”

15.  Section 6 of 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.”

16.  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].

17.  The Trustees urge 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 co‑owner (frequently the spouse) and a sale of the property will be ordered within a short period of time.  The Re Citro approach was followed in Hong Kong, for instance, in Re Ng Tze Ching unrep; HCB 5883 of 2006; 29 August 2014; Anthony Chan J.

18.  In Re Cheung Chan Hong [2015] 2 HKLRD 1at [20]‑[30], 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.

19.  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.

20.  Subsequently, in Re Lau Hiu Tuen unrep; HCB 8430 of 2006, 20 August 2015, G Lam J, after summarising the recent divergence of judicial opinion on this issue at [23], proposed the following approach:

“ 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.”

21.  In this court’s view, the approach taken by Recorder Joseph Fok SC in Wong Chun Kei v Poon Vai Ching was adequately summarised in Re Cheung Chan Hong at [31]‑[32]:

“ 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, eg 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.

32. As Recorder Joseph Fok SC pointed out in Wong Chun Kei v Poon Vai Ching supra, 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 hard and fast rule that the wishes of a co‑owner who opts for an order for sale under the PO must necessarily or usually prevail over the wishes of another co‑owner who opposes it.  The matter can only be decided 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].”

22.  Accordingly, this court shall decide the present application “on the basis of all the objective facts of the case, balancing the interest of” the Trustees (representing the interest of creditors) against Lo Senior.

23.  On the Trustees’ calculation, the Bankrupt’s total indebtedness as at 21 June 2018 (assuming final dividend will be declared on 31 December 2018) is approximately HK$822,079.35 consisting of:

(1) Unsecured debts: HK$199,744.08

(2) Total amount of interest[3]: HK$328,313.83 (estimate)

(3) Costs and expenses of bankruptcy: HK$294,021.44 (estimate)

24.  If an order for sale is granted and the Property is sold in the secondary market at HK$2.3 million, the estimated net sale proceeds will be around HK$2.261 million, after deducting estate agents’ fees/commission and conveyancing costs.

25.  Half of the net sale proceeds ie around HK$1,130,500 will be payable to the bankruptcy estate while the other half will be payable to Lo Senior.  The HK$1,130,500 available to the bankruptcy estate will cover the Bankrupt’s total indebtedness as aforesaid and there will be a small surplus of about HK$300,000 payable to the Bankrupt pursuant to section 74 of BO.

26.  Lo Senior’s half share of the net sale proceeds is HK$1,130,500, but this amount will be reduced to around HK$877,759 should this court grant an order for sale and accede to the Trustees’ intended application that the costs of the present sale application (estimated to be HK$252,741) should be borne by Lo Senior.

27.  Based on these estimates, the Trustees submit that an order for sale is beneficial to all parties viz (i) the bankruptcy estate (as all the unsecured creditors’ claims can be fully satisfied), (ii) Lo Senior, and (iii) the Bankrupt himself (with a surplus of around HK$300,000 payable back to him) and thus constitutes a “win‑win‑win” situation.

28.  This court cannot and does not agree with the Trustees.

29.  On the evidence before this court, his half share of the Property is Lo Senior’s only significant asset.  It is also the place of residence for him and his wife for years.  Lo Senior was previously an odd job worker in a textile factory but has stopped working for over 30 years.  His wife previously worked in a garment factory manufacturing jeans and has similarly stopped working for a long time.  Their present income of HK$3,400 per month can only be described as “meagre”. 

30.  As evident from the medical report quoted above, Lo Senior suffers from a variety of serious medical conditions so much so that “he required assistance to perform most of his basic activities of daily living”.  His wife is unable to provide the assistance he needs.  This is because, quite apart from her old age, according to the Bankrupt, she also suffers from ill‑health herself including dementia and needs to be taken care of.

31.  If an order for sale is granted, the practical certainty is that Lo Senior and his wife can only resort to the meagre social welfare payouts from the Government and the HK$1,130,500, alternatively HK$877,759 left from the sale to cover their future costs of accommodation and living expenses.  In view of their age and means, this court is certain that Lo Senior and his wife would not be able to purchase alternative accommodation since they would not be able to obtain mortgage finance.  The Bankrupt told this court that Lo Senior would not be eligible for public rental housing again as he had already purchased a flat in a public housing estate ie the Property.  This was not challenged by the Trustees in cross‑examination.

32.  The choices faced by Lo Senior and his wife will be to rent a modest room as residence, move into a subsidised home for the elderly run by charities (if one can be found) or hope for a big rise in social welfare payouts from the Government, which is unlikely. 

33.  Balancing the interests of the Trustees (representing the voice of the creditors) and the interests of Lo Senior, this court is firmly of the view that the only just result, objectively speaking, is to refuse to order the sale of the Property.

34.  Even if this court is found to be wrong to continue the Cheung Chan Hong approach, and that very great hardship is required to be shown in order to resist an order for sale, this court is also of the firm view that the making of an order for sale in the present case will cause very great hardship to Lo Senior and his wife.  Lo Senior and his wife have already lived a modest life so far.  This court finds it extremely harsh on them and is of the firm view that it would constitute very great hardship if this court were to make an order for sale which will have the effect of causing their living conditions to further deteriorate.  In the words of Mimmie Chan J in Re Leung Wang Fai, Bankrupt unrep; HCB 15328 of 2003; 17 March 2014 at [28]:

“ … To require an elderly and ailing couple to move out of their already modest home of over 20 years would, in my view, create very grave hardship to [the respondent]. The alternative of their moving into a home for the aged would appear to be harsh in this case and would constitute a real detriment to them.”

35.  For the same reasons, even if exceptional circumstances are required to be shown in the present case in order to resist an order for sale, this court is also of the firm view that Lo Senior’s personal circumstances are such as to constitute exceptional circumstances.

36.  In Re Bremner [1999] BPIR 185, Jonathan Sumption QC, sitting as a deputy judge of the High Court (as he then was), said at 187H‑188B:

“ It follows … that I must now determine: (1) whether the needs of Mrs Bremner amount to exceptional circumstances within subs (5), and (2) if they do, whether they outweigh the interests of creditors to an extent sufficient to justify an order delaying the sale. In my judgment, the circumstances are exceptional. The test is whether the problems which would result from an eviction are within the broad range of problems, necessarily distressing, which can be expected to arise from the process of bankruptcy and the resultant realisation of the bankrupt’s assets, or whether they lie wholly outside that range. I regard the age of Mr and Mrs Bremner and the terminal illness of Mr Bremner as circumstances lying outside the ordinary range of problems associated with a bankruptcy.” (emphasis added)

37.  In Everitt v Budhram & another [2010] Ch 170 at [55], Henderson J summarized the English case law on this topic as follows:

“ 55. The existing case law establishes that the kinds of circumstances which may properly be regarded by the court as exceptional in this context include medical or mental conditions of a co‑owner of property, the co‑owner in question being the co‑owner other than the relevant bankrupt. This was expressly recognised by Lawrence Collins J in Dean v Stout [2006] 1 FLR 725, para 7 where he said: ‘typically the exceptional circumstances in the modern cases relate to the personal circumstances of one of the joint owners, such as a medical or mental condition.’ He went on to say, at para 8: ‘the categories of exceptional circumstances are not to be categorised or defined and the court makes a value judgment after looking at all the circumstances.’ However, the circumstances must be in the true sense exceptional and outside what Nourse LJ referred to at p 157 as the usual ‘melancholy consequences of debt and improvidence’: see In Re Citro (Domenico) (A Bankrupt) [1991] Ch 142, 159‑160.”
(emphasis added)

38.  Making a value judgment after looking at all the circumstances, and applying the approach of Jonathan Sumption QC in Re Bremner,this court regards the personal circumstances of Lo Senior, including his age and medical conditions as well as those of his wife, as circumstances lying outside the ordinary range of problems associated with a bankruptcy and thus are “exceptional”.

39.  For all these reasons, this court is satisfied that it should not exercise its discretion to grant an order for sale.

Disposition and costs order nisi

40.  The Trustees’ application is hereby dismissed.

41.  There shall be an order nisi that each party shall bear its own costs.