Re Chang Sze Ling

HCB 4104/2004

BANKRUPTCY PROCEEDINGS NO 4104 OF 2004

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D E C I S I O N
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Introduction

1.This is an application by the joint and several trustees in bankruptcy (“the trustees”) of Ms Chang Sze Ling, deceased (“the bankrupt”), for an order for sale of a property registered in the joint names of the bankrupt and her husband, Mr Cheung Wan.  The property is located at Flat 12, 10^th Floor, Pok Tat House (Block 5), Pok Hong Estate, 6 Sha Kok Street, Sha Tin, New Territories.  The application is made pursuant to section 60 of the Bankruptcy Ordinance (Cap. 6) and section 6 of the Partition Ordinance (Cap. 352).

2.The application is opposed by Mr Cheung on two grounds: first, Mr Cheung claims that despite the property was acquired in joint names, he was its sole beneficial owner; secondly, it would occasion great hardship to him for an order for sale to be made.

Background

3.The bankrupt filed a petition for her own bankruptcy on 20 April 2004.  A bankruptcy order was made on 1 June 2004.  She was automatically discharged from bankruptcy after 4 years and subsequently died on 21 December 2008.  A discharge, however, has no effect “on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of [the Bankruptcy] Ordinance for the purposes of carrying out those functions”: see section 32(2) of the Bankruptcy Ordinance (Cap. 6); 有關張德華 (破產人) 的事宜 (In re Cheung Tak Wah, a bankrupt) (unreported, HCB 4980/2004, 18 August 2009), §§26-28. Nor does the death of a bankrupt affect the position for present purposes: see section 103 of the Bankruptcy Ordinance.

4.Accordingly, neither the discharge from bankruptcy nor the death of the bankrupt affects the fact, which has not been disputed by Mr Cheung, that by operation of law, the joint tenancy in the ownership of the property was severed and converted into a tenancy in common, and any beneficial interest the bankrupt had in the property became, and is still, vested in the trustees: see Re Lau Yuet Tai, a debtor (unreported, HCB 25136/2002, 29 November 2005) and section 58 of the Bankruptcy Ordinance (Cap. 6). 

5.The total amount of the proofs of debt lodged in the bankruptcy is approximately $630,000.  A total sum of approximately $118,000 had been contributed by the bankrupt towards her estate out of which $69,700 had been distributed by the trustees to the creditors.

6.The property is situated within an estate developed by the Hong Kong Housing Authority and subject to restriction on alienation including the requirement for payment of a premium to the Housing Authority upon resale in the open market.  As at July 2015, the open market value of the property was $2,950,000 and the secondary market value of the property was $1,650,000.  There is no other asset of the bankrupt which can be realised for distribution to the creditors.

Ownership of property

7.I shall deal first with the issue of the beneficial ownership of the property.  The basic facts are not in dispute.

8.The property was situated within Pok Hong Estate, a public housing estate.  Mr Cheung and the bankrupt were married in 1976 and had a daughter and a son.  They had lived in the property which was rented since around 1985.  Mr Cheung was on record the tenant of the flat.  In 2002 they decided to purchase it under the Tenant Purchase Scheme introduced to enable families living in rented public housing to buy their flats at affordable prices. 

9.The property was purchased on 5 July 2002 at the price of $149,900.  The purchase was done in the joint names of Mr Cheung and the bankrupt.  To finance it, Mr Cheung and the bankrupt, as joint borrowers and mortgagors, obtained a mortgage loan of $100,000 from a bank.  Mr Cheung purchased a cashier’s order for $47,400 using cash from his own bank account for payment towards the price.  I accept that the small remainder of $2,500 was also paid by Mr Cheung with cash originating from his own income or savings in his bank account.

10.The monthly repayment of the mortgage loan amounted to approximately $1,800 each.  I accept Mr Cheung’s evidence that the instalments had been paid out of his own bank account.  The mortgage loan was fully repaid by around July 2007.

11.Having worked in a jewellery shop and a bank before, Mr Cheung has worked as a table tennis coach from 2002.  Between 2002 and 2006 he earned about $6,000 to $7,000 per month.  The bankrupt worked at the Land Registry earning about $12,000 a month before she died. 

12.Mr Cheung explained that the property was purchased in joint names because the solicitor who acted for him and the bankrupt advised them that with a joint tenancy, when either of them died, the property would wholly belong to the other without the need to take any further step.

13.The couple had their own separate bank accounts and no joint bank account.  At the material times, every month Mr Cheung would pay what was left of his income, after paying the mortgage repayment instalment, to the bankrupt and it was left to her to defray the household expenses.

14.A proper analysis of the facts suggests, in my view, that the property was owned beneficially jointly by Mr Cheung and the bankrupt prior to her bankruptcy.

15.The fact that the down payment and the monthly mortgage repayments were paid with money from Mr Cheung’s account does not mean that he became the sole beneficial owner of the property.

16.It is true that in a case outside the family context, a resulting trust may be presumed to arise in favour of the person from whom the funds for the purchase of the property have originated.  It has been said, however, that in the case of the purchase of a property in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the purchase price in unequal shares. The presumption instead is that the parties intended a joint tenancy both in law and in equity: Jones v Kernott [2012] 1 AC 776 at §25 per Lord Walker and Baroness Hale.  Assuming this represents the law of Hong Kong (but without deciding the point, given the very limited citation of authorities[1] and legal argument before me), since the property in this case was purchased in joint names, the presumption would be that Mr Cheung and the bankrupt intended joint beneficial ownership.

17.Even if the presumption of resulting trust applied, it would in this case be rebutted by the presumption of advancement in favour of the bankrupt as the wife, and the result would be the same.

18.But there is in my opinion no need to rely on presumptions.  If one looks at the reality of the situation, it seems to me the intention of the couple was reasonably clear.  To say that Mr Cheung solely contributed to the purchase price for the acquisition of the property is to look only at one side of the family finances.  One must instead look at the entire picture.  What the evidence shows is that the bankrupt had also contributed towards the family expenses and outgoings out of her income, both before and after the purchase of the property.  While the couple had maintained their own separate bank accounts, there was a pooling together of income to meet the financial needs of the family.

19.When the property was purchased, it was no doubt purchased by the couple together as a family home.  The precise arrangement as to who paid the general expenses and who paid the down payment and subsequent mortgage repayment instalments for the family home is less significant than the personal and economic commitment to a joint enterprise such as is a marriage and family.  The arrangement in this case is not dissimilar to the scenario postulated by Fox LJ in Burns v Burns [1984] Ch 317, 330 (quoted by Cheung JA in Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at §7.21):

“There remains the question of housekeeping and domestic duties. So far as housekeeping expenses are concerned, I do not doubt that (the house being bought in the man’s name) if the woman goes out to work in order to provide money for the family expenses, as a result of which she spends her earnings on the housekeeping and the man is thus able to pay the mortgage instalments and other expenses out of his earnings, it can be inferred that there was a common intention that the woman should have an interest in the house — since she will have made an indirect financial contribution to the mortgage instalments …”

20.In the present case, Mr Cheung has not shown that he was solely responsible for the household expenses.  Instead, he paid money to the wife monthly as a contribution in addition to her own income which she spent in part on family expenses.

21.Moreover, the fact that there was a legal charge in the couple’s joint names means that the wife was expected to be potentially liable for the purchase price.  By clause 4 of the deed, she charged the property to the bank as one of the joint beneficial owners.  By her contribution to the family, she mitigated the burden of Mr Cheung to provide for the family, and enabled him to pay for the mortgage repayment instalments. This constituted an indirect contribution to the property on the part of the bankrupt, and was consistent with the couple’s intention to commit to a joint enterprise.

22.The fact that the property was put in joint names is itself a significant factor in a husband and wife case.  If despite joint registered ownership there was an agreement or common understanding that the property was not to be owned beneficially jointly and equally, one would expect some express indication to that effect at the time.  There was none in this case.  Instead, as far as the bankrupt was concerned, in the statement of affairs dated 18 March 2004 and signed by her, the property was listed as an asset that was “co-owned and co-borrowed” by her and her husband.

23.Mr Cheung said they was advised by their solicitors that, by having a joint tenancy, should one of them predecease the other, the other would without more be entitled to the entire property.  This seems to me to be entirely consistent with an intention on the part of the couple to be joint tenants not only legally but also beneficially, and inconsistent with an intention that the bankrupt was to hold her legal title on trust absolutely for Mr Cheung.  If the latter were the intention, then in the event that the husband predeceased the wife, the wife could not honestly claim to be beneficially entitled to the entire property simply by virtue of the right of survivorship.

24.For these reasons I find that upon the purchase of the property and prior to the bankruptcy, Mr Cheung and the bankrupt were legal and beneficial joint tenants of the property.  As a result of the bankruptcy, the joint tenancy was severed and the trustees and Mr Cheung are now beneficial tenants in common of the property in equal shares.

Partition Ordinance

25.Section 6 of the Partition Ordinance (Cap. 352) empowers the court to order the sale of co-owned property despite the dissent of any person interested.  In a case such as the present I think it appropriate to proceed on the approach I adopted in Re Lau Hiu Tuen, bankrupt (unreported, HCB 8430/2006, 20 August 2015) at §24, which is that, generally, 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.

26.The question here is whether Mr Cheung has demonstrated that he would suffer very great hardship if the order for sale was made.

27.Mr Cheung is now about 64 years old.  He has a diabetic condition and needs to take daily medication but no injection, though that has not so far prevented him from having an active life.  He has been earning $8,000 to $9,000 per month as a table tennis coach working on an intermittent basis.  However, he is nearing retirement from that job and might not be able to rely on it for the same regular income.  He has about $200,000 to $300,000 in savings.

28.He lives with his son who was born in 1984 and is working in a garment manufacturer.  Mr Cheung also lives with his daughter in the property.  The daughter is married but currently lives with her father rather than her husband.  She is employed with the Leisure and Cultural Services Department.  She had put in an application for rented public housing about 2 to 3 years ago.

29.The financial condition and ability of Mr Cheung’s children to support him has not been disclosed.  He admitted that his daughter gives him “pocket money” of around $2,000 – $3,000 (not a fixed amount) per month, while his son gives him money sometimes, in sums not exceeding $2,000.  Upon the sale of the property, on the valuation evidence available, Mr Cheung would obtain around $800,000. 

30.On these facts I am unable to conclude that very great hardship would be occasioned to Mr Cheung or his family by an order for sale.  While the court has every sympathy for Mr Cheung and his two children who may have to leave their home of many years, the facts of this case are in my view not comparable to those in Re Leung Wang Fai, bankrupt (unreported, HCB 15328/2003, 17 March 2014) in which Mimmie Chan J declined to order a sale of the co-owned property because of great hardship to the co-owner.  There the property was put in the joint names of a mother and her son despite that the son had made no financial contribution towards the acquisition, because the mother wanted to make provision for him.  The son went bankrupt and the trustees applied for the sale of the family home.  The parents were aged 82 and 85 at the time of the hearing and the father quite ill (see §25).  In these circumstances, the judge concluded that: “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 co-owner].” 

31.If a way can be found to raise funds on the property or on Mr Cheung’s interest in it to pay off the bankruptcy debts then so much the better.  But in the absence of that, it seems to me in the present case that the unfortunate but ordinary consequence of bankruptcy has to take its course, namely, that generally the bankrupt’s assets have to be realised to repay the creditors. 

32.There will therefore be order for sale in terms of paragraphs 1 to 8 of the draft order submitted by the trustees, except that the period in which Mr Cheung has to deliver up vacant possession of the property will be enlarged to 90 days.  There will be liberty to apply.

33.There will be a costs order nisi that there be no order as to costs as between the trustees and Mr. Cheung, and that the trustees’ own costs be paid out of the bankruptcy estate.

Attendance of the Official Receiver was excused

The respondent Mr. Cheung Wan appeared in person

Mr J Shek, of M/s Gallant YT Ho & Co, for the Joint and Several Trustees of the property of the Bankrupt