SILVER WEALTH CAPTIAL INVESTMENT LTD v. LAI WAI CHEUN AND ANOTHER

HCMP 512/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 512 OF 2013

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J U D G M E N T

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INTRODUCTION

1. I have before me an application by the plaintiff by way of an amended originating summons filed on 20 January 2014 seeking an order for the sale of the property known as ALL THOSE 2 equal undivided 7^th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as KOWLOON INLAND LOT NO.8133 AND of and in the messuage erection and building thereon known as No 301 Shanghai Street TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT the Ground Floor of the said No 301 Shanghai Street (“the Property”) under s6 of the Partition Ordinance, Cap 352 (“the Ordinance”).

2. Although there is, in the amended originating summons, an alternative claim for an order for the partition of the Property under s4 of the Ordinance, it is common ground that it is impracticable to partition the Property in the circumstances of the present case.  Accordingly, the question that I have to decide is whether to make an order for the sale of the Property, or allow the status quo of co-ownership amongst the parties to continue.

BACKGROUND FACTS

3. The plaintiff, the 1^st defendant and the 2^nd defendant are tenants-in-common, holding 40%, 40% and 20% respectively, of the Property.

4. The 1^st defendant and Mr Lai Wai Hai (the plaintiff’s predecessor in title) are brothers, and the 1^st defendant is the father of the 2^nd defendant.

5. The Property is a ground floor shop of a 6-storey building originally built and owned by the late Mr Lai Nam, the father of the 1^st defendant and Mr Lai Wai Hai.  Mr Lai Nam passed away in 1974 and bequeathed the Property to Mr Lai Wai Hai, the 1^st defendant and the 2^nd defendants as tenants in common in the ratio of 40%, 40% and 20% respectively.  The Property was vested in Mr Lai Wai Hai, the 1^st defendant and the 2^nd defendants as such tenants in common by way of an assent dated 18 June 1979.

6. The 1^st defendant is currently the sole proprietor of “Wing Cheong Shing”, which is an old and traditional drapery shop engaged in the business of tailoring Chinese traditional clothing for men and women, and selling drapery for industrial, domestic and decorative uses.  Besides, it also fabricates costumes for the film making industry, and for deceased persons for funeral purposes.

7. Wing Cheong Shing was originally co-founded by Mr Lai Nam in 1935.  He started to operate the business of Wing Cheong Shing from the Property in 1965.  According to the 2^nd defendant, between 1965 and 1971, Mr Lai Nam appointed the 2^nd defendant, Mr Lai Wai Hai and one Cheung Chung as “registered partners” of Wing Chong Shing, while Mr Lai Nam remained as Wing Cheong Shing’s consultant and advisor.  The said Cheung Chung retired in 1971.  After the death of Mr Lai Nam in 1974, the 1^st defendant and Mr Lai Wai Hai continued to carry on the business of Wing Cheong Shing in partnership until 1980.

8. In 1980, Mr Lai Wai Hai sold his interest in Wing Cheong Shing to the 1^st defendant, and retired from the partnership.  In view of the fact that Mr Lai Wai Hai was still a co-owner of the Property, the 1^st defendant paid “rent” to Mr Lai Wai Hai for continuing to use the Property for the purpose of carrying on the business of Wing Cheong Shing.

9. In evidence before me is an informal written tenancy agreement dated 17 September 1994 entered into between Mr Lai Wai Hai “as 40% owner of the Property” and Wing Cheong Shing as “tenant”, whereby it was agreed that Wing Cheong Shing should paid “rent” in the amount of HK$7,500 per month to Mr Lai Wai Hai starting from October 1994 for the use of 40% of the Property.  Apparently, Wing Cheong Shing paid such rent to Mr Lai Wai Hai until July 2012.

10. In around May 2011, disagreement arose between Mr Lai Wai Hai and the 1^st defendant regarding the amount of the rent to be paid by Wing Cheong Shing.  The parties’ respective solicitors were engaged to resolve the rental issue, but no agreement was reached.

11. On 8 May 2012, Mr Lai Wai Hai entered into a written agreement to sell his 40% interest in the Property to the plaintiff for the consideration of HK$3,600,000.  The sale and purchase was completed by an assignment dated 12 June 2012.

12. Shortly afterwards, on 31 July 2012, the plaintiff (through its former solicitors, W S Lo & Yeung) served a notice to quit on the 1^st defendant (trading as Wing Cheong Shing) and asked for delivery up of vacant possession of the Property on 31 August 2012.

13. For the purpose of this judgment, it is not necessary to set out the course of the subsequent correspondence exchanged between the plaintiff and the 1^st defendant’s respectively solicitors, save to mention that by a letter dated 21 January 2013, the plaintiff (through it current solicitors, Rowland Chow, Chan & Co) threatened to make an application for an order for the sale of the Property under the Ordinance unless the parties could agree on a sale of the Property.  No agreement was reached.  The plaintiff commenced the present proceedings on 15 March 2013.

14. The plaintiff has produced a valuation report prepared by LandElite Surveyors Limited dated 31 January 2013 giving a market value of HK$22,000,000 for the Property on a vacant possession basis. On the other hand, the defendants’ valuation report, prepared by Centaline Surveyors Limited dated 10 November 2014, gave an open market value of the Property of HK$27,600,000 on a vacant possession basis.

APPLICABLE PRINCIPLES

15. S2 of the Ordinance states as follows:-

“ 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.”

16. S4(1) of the Ordinance provides that:-

“ In any proceedings instituted under this Ordinance the Court may, subject to subsection (2), make an order for the partition of property in land in any of the following ways-

(a) into parcels held by single owners in severalty;

(b) into parcels held by 2 or more owners as joint tenants;

(c) into parcels held by 2 or more owners as tenants in common,

  and may partition the property in all those ways or in any combination of them and give all necessary or proper consequential directions.”

17. Lastly, s6(1) of the Ordinance provides as follows:-

“ 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.”

18. In Pun Jong Sau v Poon Wing Kong [1980] HKLR 662, Trainor J, having reviewed the history of the Ordinance and the previous law on partition, explained the purpose of the Ordinance in the following passages at pages 668-669:

“ The primary intention [of the Ordinance] was to enable an unwilling co-owner to rid himself of the shackles of co-ownership and to have either a physical division of the property into aliquot parts among the co-owners or a division of the proceeds of its sale. It was foreseen that there would be occasions when it would be impossible equitably and sensibly to divide the property into aliquot parts and the Court was empowered to avoid making the order for partition which theretofore it would have been compelled to make …

In my opinion it was the intention of the Legislature when enacting the Ordinance to avoid, if possible, leaving the Court impotent when an unwilling co-owner sought to have the co-ownership brought to an end. To avoid such impotency and appreciating that there might be instances where partition would produce bizarre results it relieved the Court of the obligation that theretofore existed of making an order for partition and permitted a sale in lieu of partition. It also appreciated that there might be cases where the best solution was to leave things as they are and so it enabled the Court to decline to make any order.”

19. As for the circumstances in which the court would make no order for partition or sale, the following was stated by Briggs J in Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd [1973-1976] HKC 335 at 337H-I:-

“ I think that a court would only make no order, neither an order for partition nor an order of sale, when the interests of all the parties would be better served by their continuing to remain co-owners, or where the facts show that to make such an order would result in very great hardship to one co-owner.”

20. Drawing upon these and other authorities, Mr Recorder Joseph Fok SC  (as he then was) in Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, at paragraphs 18 and 19, adopted the following propositions advanced by counsel, with some modifications, as fairly and accurately stating the law:-

(1)  A co-owner has a basic right to rid himself of the shackles of co-ownership and, if he has no other remedy, ask for an order for partition or sale.

(2)  When 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(s)) 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.

(3)  Whether an order for sale is beneficial to all the co-owners is not determined by the dissent of the opposing co-owners or the assertion by them that it is not beneficial.  It has to be determined by the court objectively.

21. The above propositions were applied by the court in Liu Chung Hang and Others v Liu Chung Leung Alfred, HCMP 1255/2007 (Mr Recorder B Yu SC, 19 December 2007), and Re Inland Lot No 476 (Ground Floor, 4 Sharp Street East, Hong Kong), HCMP 1273/2009 (Bharwaney J, 12 March 2010).

22. As earlier mentioned, it is common ground that that it is impracticable to partition the Property in the present case.  Accordingly, the parties’ focus has been on whether a sale of the Property should be ordered under s6(1) of the Ordinance.  There are, in my view, two main issues for consideration, namely:-

(1)  whether the plaintiff has any other remedy to rid itself of the shackles of co-ownership; and

(2)  whether an order for sale will result in very great hardship to the defendants.

23. In what follows, I shall first deal with the issue of hardship to the defendants before turning to consider the issue of any other remedy available to the plaintiff.

AN ORDER FOR SALE WILL RESULT IN VERY GREAT HARDSHIP TO 1^ST DEFENDANT

24. Mr Bruce Lau (for the defendants) submits that an order for the sale of the Property will result in very great hardship to the 1^st defendant, and relies on the following matters in support of his submission:-

(1)  The 1^st defendant is now over 80 years old.  He has devoted his entire life running the business of Wing Cheong Shing from the Property for over 50 years, and relied on the income produced from that business to support his family.  Many of his employees have likewise spent their entire lives working for Wing Cheong Shing to raise and support their families.

(2)  Although there used to be many similar drapery shops at Shanghai Street in the past, Wing Cheong Shing is now the only shop of its kind remaining there.

(3)  In view of the origin of Wing Cheong Shing and the Property which can both be traced back to his father, the history of Wing Cheong Shing which has been operating from the Property for over 50 years, his long association with Wing Cheong Shing carrying many memorable moments of his life and of his family, as well as his close friendship and bonding with the employees and customers of Wing Cheong Shing and the neighbours, the 1^st defendant has developed a very strong and unique emotional attachment to Wing Cheong Shing.

(4)  The 1^st defendant believes that, should the Property be sold, he has no time, energy, motivation or money (notwithstanding the 40% of the sale proceeds that he will stand to receive) to move Wing Cheong Shing to another place for business, having regard to the relocation expenses required for opening a new shop, the loss of character and heritage of Wing Cheong Shing if it is moved to a new place, the loss of customers, and the emotional pain that he will suffer arising from the cessation of business of Wing Cheong Shing at the Property.

(5)  The 1^st defendant and has been residing on the first floor of No 301 Shanghai Street, ie the premises immediately above the Property, for many years.  Quite apart from the convenience of being able to work at a place which is readily accessible from his home (a not insignificant consideration for a person in his 80s), the Property can in substance be regarded as an extension of the 1^st defendant’s home.  If the 1^st defendant has to open a new shop for Wing Cheong Shing to continue its business and travel everyday to the new shop to work, he will lose all his logistical support and care away from home, as well as his neighbours and customers.

25. On the other hand, Mr Raymond Lau (for the plaintiff) points out that:-

(1)  the Property is a shop and not the 1^st defendant’s residence;

(2)  the plaintiff does not currently enjoy any rental income and has been deprived of any use of the Property; and

(3)  the 1^st defendant has not produced evidence of his financial position or that of Wing Cheong Shing, and the suggestion that he cannot afford to relocate Wing Cheong Shing to a new place is not backed up by evidence.

26. As for (1), I accept that it is less likely that a co-owner would develop a strong emotional attachment to commercial premises as opposed to residential premises.  However, this is a matter of fact, and not a matter of principle: see Re Inland Lot No 476 (Ground Floor, 4 Sharp Street East, Hong Kong), at paragraph 12 per Bharwaney J.

27. As for (2), there is evidence that the 1^st defendant’s solicitors requested the plaintiff’s solicitors for information regarding the plaintiff’s bank account so that the 1^st defendant could paid rent (including arrears of rent) to the plaintiff, but there was no response to this request.  I accept that the amount of HK$7,500 per month is unlikely to represent 40% of the current market rent of the Property, and I further accept that the 1^st defendant may be liable to pay a proper occupation rent to the plaintiff for being deprived of the use of the Property.  As mentioned in their respective affirmations and as confirmed by their counsel in court, the defendants are prepared to pay 40% of the prevailing market rent of the Property to the plaintiff.  On the other hand, Mr Raymond Lau has informed the court that his client is not prepared to accept 40% of the market rent of the Property in return for permitting the 1^st defendant to continue to occupy the Property, but would insist on an order for the sale of the Property.  While the plaintiff is, as a matter of principle, entitled to take this stance, the defendants’ offer would go some way towards addressing the plaintiff’s complaint here.  I shall come back to this matter at the end of this judgment.

28. As for (3), regardless of whether the 1^st defendant is financially capable of relocating Wing Cheong Shing to another place for business, I consider that, as a matter of practical reality, the 1^st defendant cannot reasonably be expected to do so for the other reasons mentioned above.

29. In all, having regard to the matters mentioned in paragraph 24 above which I accept, I am of the view that a sale of the Property will result in very great hardship to the 1^st defendant. Thus, notwithstanding the fact that the plaintiff is currently deprived of the use of the Property, I am not minded to order a sale of the Property on the special circumstances of the present case.

ALTERNATIVE REMEDY

30. It may be thought, at first sight, that in view of the fact that the co-ownership in the present case relates to a single shop with a relatively small floor area (ie a saleable area of about 521 square feet together with a yard of about 44 square feet) which makes it impracticable for it to be physically partitioned into two smaller shops, it would be difficult for the plaintiff to sell its undivided interests in the Property to any third party to realize its investment.

31. Nevertheless, this is precisely what happened when Mr Lai Wai Hai sold his undivided interests in the Property to the plaintiff.  When I raised with Mr Raymond Lau whether there was any connection between Mr Lai Wai Hai and the plaintiff, Mr Raymond Lau informed me that there is no such evidence and I ought to proceed on the basis that Mr Lai Wai Hai and the plaintiff were independent parties.

32. On the evidence before me, it would appear therefore that there is a market for the sale and purchase of undivided interests in a small single shop in an old district in Hong Kong.  It is not suggested that the plaintiff has taken any steps to look for, but failed to find, any buyer for its undivided interests in the Property.  I am not satisfied that the plaintiff has no other remedy to rid itself of the shackles of co-ownership.  On this ground as well, I would decline to make an order for the sale of the Property.

CONCLUSION

33. I dismiss the plaintiff’s amended originating summons with costs to the defendants, to be taxed if not agreed.

34. I should add that this judgment does not preclude the plaintiff from re-applying for an order for sale should there be any material change of circumstances.  For example, if, for any reason, the 1^st defendant personally (not his son or successor or assignee) decides not to, or is unable to, continue to carry on the business of Wing Cheong Shing at the Property, or the 1^st defendant refuses to pay a proper occupation rent for his use of the Property to the exclusion of the plaintiff, it may be that a fresh application would be justifiable.  There could be other situations arising which may justify a fresh application by the plaintiff for an order for the sale of the Property.  Obviously, any such future application will have to be considered in light of the evidence and arguments before the court.

35. Lastly, it remains for me to thank counsel for their assistance rendered to the court.