Official Receiver, The Trustee of the Property of Leung Man Yuen v. Leung Man Yuen and Another

HCB 582/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 582 OF 1996

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D E C I S I O N

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1.This is an application by the Official Receiver in her capacity as the trustee (“the trustee”) of the property of Mr Leung Man Yuen (a discharged bankrupt), the 1^st respondent herein, for (1) a declaration that the trustee and Madam Lai Fung Yee, the 2^nd respondent herein, hold the property known as Flat 7, 3/F, Block A, Siu Lun Court, 3 Siu Hing Lane, Tuen Mun, New Territories (“the Property”) as tenants in common in equal shares; and (2) an order that the Property be sold pursuant to the Partition Ordinance (Cap 352).

2.A bankruptcy petition was presented against the 1^st respondent, Mr Leung, on 31 October 1996.  That a receiving order was made on 15 January 1997 was a sign of the antiquity of this matter, since it was a step necessary only in the old bankruptcy procedure prior to the amendments to the Bankruptcy Ordinance that took effect in 1998.  Mr Leung was adjudicated bankrupt by order on 10 April 1997.  7 proofs of debt have been lodged with the trustee claiming a total of HK$796,853.04, before taking into account bankruptcy interest which runs at judgment rate or any rate otherwise applicable, whichever is higher (see s 71(3) of the Bankruptcy Ordinance (Cap 6)), from the commencement of bankruptcy.  Only a sum of HK$2,296.83 has so far been realised for the estate.  Mr Leung has made no contribution to the estate.  No dividend has been declared or distributed to the creditors.  Under the provisions available in the new bankruptcy regime, Mr Leung was automatically discharged from bankruptcy after 4 years, on 10 April 2001.  The present summons was filed by the trustee on 15 October 2014.

3.Following Mr Leung’s bankruptcy, it is clear as a matter of law that:

(1)   Upon the making of a bankruptcy order, because there is by statute (s 58(1) of the Bankruptcy Ordinance) a vesting of the property of the bankrupt in the Official Receiver, there is an alienation (albeit involuntary) of the bankrupt’s property, with the result that, there being no longer any unity of title, the joint tenancy was severed by operation of law and converted into a tenancy in common: Megarry and Wade, The Law of Real Property (8^th ed), §13-046; Re Chow Yuet Lam, trading as Wah Mei Weaving Factory [2000] 1 HKC 404; Morgan v Marquis (1853) 9 Ex 145; In re Dennis [1993] Ch 72.

(2)   By virtue of s 58(1), the undivided share of the bankrupt under the tenancy in common in respect of the co-owned property became vested initially in the Official Receiver, then in the provisional trustee in bankruptcy (if any) and subsequently in the trustee in bankruptcy upon their appointment (if a person other than the Official Receiver is appointed as such): see s 58(1), (1A) & (2) of the Bankruptcy Ordinance.[1]

(3)   The trustee in bankruptcy has various powers to deal with any property so vested, including selling it.

(4)   The discharge of the bankrupt releases him from all bankruptcy debts, but, as provided in s 32(2):

“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 this Ordinance for the purposes of carrying out those functions.”

Further, a discharged bankrupt must, notwithstanding the discharge:

“ (a) continue to give such information respecting his affairs; and

(b) attend on the trustee at such times, and do such other things,

as the trustee requires for the purpose of completing the administration of the estate.”

(5)   In particular, any property of the bankrupt vested in the trustee by reason of the bankruptcy does not re-vest in the bankrupt upon discharge: see Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255 at §§20-23; 有關張德華的事宜 (Re Cheung Tak Wah) (unrep, HCB 4980/2004, 18 August 2009) at §24, per Kwan J; see also Lim Lye Hiang v Official Assignee [2012] 1 SLR 228.  In this respect the effect of discharge is to be contrasted with the position following the annulment of bankruptcy upon which, by virtue of s 33(4) of the Bankruptcy Ordinance, the bankrupt’s estate hitherto vested in the trustee becomes vested in such person as the court may appoint or, in default of such appointment, reverts to the bankrupt.

4.It follows that in spite of Mr Leung’s discharge from bankruptcy, any interest he had in the Property which had become vested in the trustee on 10 April 1997 remains so vested.

5.The Property is a flat in a Home Ownership Scheme estate developed and built by the Hong Kong Housing Authority (“HKHA”).  It was purchased in Mr Leung’s and Madam Lai’s joint names in 1991 at the price of HK$521,800.  The Property can be sold either in the open market or in a secondary market consisting of persons nominated by HKHA or certified by HKHA as eligible buyers.  If it is sold in the open market, the vendors have to pay HKHA a premium assessed by the Director of Housing.  The open market value and secondary market value of the Property were estimated to be HK$3.5 million and HK$2.47 million respectively as at March 2015, and HK$3.9 million and HK$2.78 million respectively as at November 2015. 

6.By this application, the trustee seeks to put an end to the co‑ownership and realise the Property for the benefit of Mr Leung’s creditors.  The application is made under the Partition Ordinance.  S 2 of that Ordinance 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.”

7.S 3(1) provides

“Where any property in land is held in the manner referred to in section 2, any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale.”

It follows from §§3 and 4 above that despite the discharge of Mr Leung from bankruptcy in 2001, the trustee is a person interested in the Property for the purposes of s 3.

8.S 4 provides for the power of the court to make an order for the partition of property in land in different ways.  S 6 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.

(3) (a) Without prejudice to subsection (1), if any person interested in the property applies to the Court to make an order for the sale of the property instead of an order for partition, then, unless the other persons interested undertake to purchase the interest of the party applying for an order for sale, the Court may, if it thinks fit, make an order for the sale of the property.

(b) If an undertaking is given by the other persons interested, the Court may order a valuation of the interest of the person applying for an order for sale in such manner as it thinks fit.

……”

The respondents’ position

9.Mr Leung has not filed any evidence in these proceedings although he has attended the hearings.  The 2^nd respondent, Madam Lai, who is the former wife of Mr Leung, has lived in the Property since acquiring it and now resides there with her son and daughter-in-law.  She opposes the trustee’s application on 3 grounds, which may be summarised as follows:

(1)   that the acquisition of the Property in 1991 was funded entirely by her and that she was and is the sole beneficial owner of the Property;

(2)   that there was an agreement reached in 2000 between the trustee and Madam Lai for the latter to purchase the interest of Mr Leung in the Property which had vested in the trustee for the sum of HK$191,000; and

(3)   that after 2000, the trustee had failed to take any action in relation to the sale of the Property or of the trustee’s interest in it for over 12 years until 2012.

I shall deal with these matters in turn below.

Beneficial ownership of the Property

10.Mr Leung and Madam Lai were married in 1973.  They had a son and a daughter born in 1977 and 1980 respectively.  Prior to the purchase of the Property they had lived in a public housing estate in Tuen Mun.

11.By a sale and purchase agreement dated 18 November 1991, the couple agreed to purchase the Property from HKHA at the price of HK$521,800 pursuant to the Home Ownership Scheme.  The sum of HK$26,100 being the deposit and part payment of the purchase price was paid to HKHA at the time of the agreement.  The payment was made by a cashier’s order of Bank of East Asia (“the Bank”) dated 18 November 1991. 

12.Under the agreement, the balance of the purchase price in the sum of HK$495,700 was to be paid by the purchasers to the HKHA within 21 days.  The payment which was made consisted of two sums, ie a bank loan of HK$300,000 and a cashier’s order of the Bank dated 7 December 1991 for HK$195,700. The bank loan was initially secured by an equitable mortgage dated 9 December 1991 whereby Mr Leung and Madam Lai, as beneficial owners, mortgaged their interest under the agreement and in the Property to the Bank as security for the loan which was directly paid to HKHA on their behalves. 

13.By an assignment dated 13 January 1993, the Property was assigned by HKHA to Mr Leung and Madam Lai as joint tenants.  On the same date, Mr Leung and Madam Lai executed a legal charge in favour of the Bank by which they, again as beneficial owners, charged the Property as security for the loan of HK$300,000 already advanced. 

14.The evidence on the source of the sum of HK$221,800 paid by the purchasers (ie HK$26,100 + HK$195,700) is not altogether consistent. Following the trustee’s letter of 31 March 1998 to Mr Leung enquiring about his interest in the Property, Madam Lai made a statutory declaration on 6 May 1998 stating that in December 1991, she gave HK$150,000 to Mr Leung for down payment for the purchase of the Property.  In another declaration dated 11 September 1998, she stated she was certain that she paid HK$150,000 but could not recall the source of the remaining HK$71,800 which, she said, could be deemed to be her husband’s contribution.  In his letter dated 4 June 1998 and his statutory declaration dated 11 September 1998, Mr Leung stated that he was responsible for paying a sum of HK$20,772.50 being the legal fees and stamp duty for the purchase of the Property and the sum of HK$30,000 towards the down payment.

15.Records of Madam Lai’s savings account with the Bank, which have since been retrieved and produced by Madam Lai in these proceedings, show that her account was the immediate source of the money for the purchase of both cashier’s orders totalling HK$221,800.  There were, however, various deposits into her account prior to the purchase of the cashier’s orders, though none was in the exact sum of HK$30,000.  With the help of these documents, Madam Lai says in these proceedings that the entire sum of HK$221,800 originated from her. 

16.The fact that Madam Lai’s account was the immediate source of funds for the two cashier’s orders is not conclusive since the couple might have pooled their resources to purchase the Property.  I think the parties’ recollection in 1998 is likely to have been more accurate than Madam Lai’s “recollection” now, which seems to me more in the nature of a reconstruction based on the bank documents.  I think it more likely than not that Mr Leung funded the legal fees and stamp duty in the sum of HK$20,772.50 and contributed approximately HK$30,000 specifically towards the purchase and that Madam Lai funded the rest of the initial payment of HK$221,800 in 1991 towards the purchase of the Property.

17.Starting from January 1992, the mortgage loan including the interest thereon was gradually repaid by equal monthly instalments in the fixed sum of HK$3,042.90 until 2006.  Copies of the passbooks of Madam Lai’s savings account show, and I find, that these instalments were paid directly out of her account.

18.In the early days Madam Lai herself worked on woollen garment at home and also traded in stocks to earn an income.  It is not in dispute that in the 1990s, up to 1996, Mr Leung paid HK$5,000 a month to Madam Lai as his contribution towards the family expenses.  He went into financial difficulty in 1996 and reduced his monthly payment to Madam Lai to HK$3,000.  In around 1996, their son, who had grown up by then, began to work and help support the family.  It is likely that Mr Leung’s contribution stopped altogether shortly after 1996 as he became bankrupt and his relationship with Madam Lai broke down.  In June 2002, Mr Leung and Madam Lai formally obtained a decree dissolving their marriage on the basis of 2 years’ separation.  The children stayed with Madam Lai.  They did not receive any lump sum or periodic maintenance payments from Mr Leung. 

19.Although Madam Lai’s bank accounts funded by far the greater part of the initial capital outlay for the purchase of the Property, and also funded the monthly instalment payments, I accept the submissions of Mr M K Liu, who appeared for the trustee, that in a case where a matrimonial home has been purchased in the joint names of the husband and wife, as in the present case, the proper approach in ascertaining the beneficial ownership of the property is that set out by Lord Walker and Baroness Hale in the UK Supreme Court’s decision in Jones v Kernott [2012] 1 AC 776 at §51, quoted by Cheung JA with apparent approval in Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at §5.16 (albeit Mo Ying was a case where the property was purchased and registered in the sole name of the husband).  The same approach was adopted by Au-Yeung J in Chen Lily v Yip Tsun Wah Alvan (unrep, HCA 1695/2013, 7 December 2015) at §§18-21, a joint names case.  See also Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668 at §§13-17 per Anthony Chan J, citing Stack v Dowden [2007] 2 AC 432 to similar effect.  As stated by Lord Walker and Baroness Hale in Jones v Kernott at §51:

“(1) The starting point is that equity follows the law and they are joint tenants both in law and in equity.

(2) That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

(3) Their common intention is to be deduced objectively from their conduct: “the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party” (Lord Diplock in Gissing v Gissing [1971] AC 886, 906). Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden, at para 69.

(4) In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, “the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property”: Chadwick LJ in Oxley v Hiscock [2005] Fam 211, para 69. In our judgment, “the whole course of dealing … in relation to the property” should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions.

(5)    Each case will turn on its own facts.  Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in case (3)) or fair (as in case (4)).”

20.Applying that approach here, it seems to me there is little in this case that shows Mr Leung and Madam Lai had any common intention for the Property to be held beneficially by them otherwise than on an equal basis.  On the contrary, the evidence suggests that their intention at the time was that the Property was their joint asset.  They purchased the Property as joint tenants.  They both made direct financial contribution towards the purchase monies, albeit in unequal shares.  In addition, Mr Leung’s regular payments to Madam Lai for family expenses represented an indirect financial contribution.  As far as the monthly repayment instalments are concerned, it is clear Madam Lai paid them and defrayed other family expenses out of Mr Leung’s contribution and other income she managed to obtain which were pooled together.  Further, they both undertook legal liability to repay the Bank under initially the equitable mortgage and later the legal charge, by which they granted the Bank security over the Property as “beneficial owners”. 

21.Further, in Mr Leung’s and Madam Lai’s statutory declarations of September 1998, they both stated the Property was owned by them together (in Chinese, “該居屋為夫妻共同擁有”).  Mr Leung stated in his preliminary examination by the trustee in May 1998 that he had an interest in the Property.  In his statement of affairs dated June 1998, he included under List C a liability representing a half share of the mortgage loan and a value of the asset secured being half of the estimated value of the Property.  Madam Lai herself wrote to the trustee in March 1999 offering to purchase Mr Leung’s “half interest” in the Property (in Chinese, “一半屋權”).  In March 2000, Madam Lai’s solicitors wrote to the trustee stating that she was interested in the “offer for purchasing 50% share” of and in the Property from the trustee.  It was not until November 2012 that Madam Lai asserted, for the first time, that she was the sole beneficial owner of the Property.

22.In her second affirmation in these proceedings, Madam Lai sought to suggest that Mr Leung was already having an affair and did not want to bear any responsibility at the time when the Property was purchased.  I do not accept that evidence.  It had never been mentioned before and is contrary to all the evidence mentioned above. 

23.My conclusion, accordingly, is that Madam Lai has failed to show that she and Mr Leung had a common intention at the time when they acquired the Property that it was not to be beneficially owned by them as joint tenants.  Nor has she been able to show (nor, indeed, has she alleged) that they formed any common intention at a later time, up to 10 April 1997, that their respective shares in the Property would change.  After 10 April 1997, it is clear that the co-owners, being the trustee and Madam Lai, did not have any common intention to change the beneficial ownership of the Property.

Agreement for purchase of trustee’s interest in the Property

24.As mentioned above, there was correspondence between Madam Lai and the trustee that explored the possibility of a purchase by Madam Lai of Mr Leung’s interest in the Property.  In fact the parties got very close to an actual agreement.  On 5 March 1999 Madam Lai wrote that she was willing to purchase the half-share of Mr Leung for HK$191,000.  By a letter dated 4 November 1999 the HKHA granted consent for the assignment of Mr Leung’s interest in the Property to Madam Lai subject to the conditions stated in that letter.  On 14 January 2000, in a letter marked “without prejudice & subject to contract”, the trustee confirmed that the offer of HK$191,000 was acceptable subject to certain terms and asked Madam Lai to send over a draft assignment.  On 30 March 2000, solicitors who were acting for Madam Lai wrote to the trustee indicating that she was interested in purchasing the 50% interest and was seeking “mortgage arrangement” from the Bank.  Unfortunately, she did not take steps to seal the deal despite a reminder from the trustee dated 30 July 2001.

25.The evidence suggests that there were certain telephone conversations between Madam Lai and one Ms Liu of the Official Receiver’s Office in January 2002 when Madam Lai indicated that she had been unable to raise the necessary finance to purchase the interest.  In September 2007, Madam Lai indicated that she would not purchase Mr Leung’s interest in the Property.

26.The trustee picked up the matter again another 5 years later, when it wrote to Madam Lai on 3 October 2012 asking whether she was prepared to purchase Mr Leung’s interest in the Property and, if so, at what price.  Madam Lai instructed solicitors again who wrote on 7 November 2012 to offer to purchase the interest for HK$300,000.  The trustee found it unacceptable, given that the market value of the Property had by then increased substantially.

27.On these facts, there is in my view no binding contract that could prevent the trustee from asking for an order for sale of the Property under the Partition Ordinance.  While there might have been agreement in principle on the price in 2000, the trustee’s letter of 14 January 2000 was expressly “subject to contract” and contained the following statement at the end:

“Please note that nothing in this letter should be construed as binding in any material way on my Office until and unless the Assignment is executed by me.”

As such there was no complete agreement which was binding on the trustee: Chitty on Contracts (32^nd ed) Vol 1, §2-125.  As can be seen from their letter of 30 March 2000, even Madam Lai’s own solicitors only treated the trustee’s letter as an “offer” in which she was “interested”.  Moreover, the offer or agreement in principle was not taken up or acted upon by Madam Lai for over 12 years, during which the market value of the Property and hence of Mr Leung’s share had substantially increased.  In my judgment, the correspondence did not give rise to any agreement that provides a reason for refusing an order for sale in the present application.

28.Madam Lai said that in around 1999 or 2000, Ms Liu of the Official Receiver’s Office had discouraged her from borrowing money and had instead encouraged her to save HK$500 per month for the purpose of purchasing Mr Leung’s interest in the Property from the trustee.  This cannot in my view be regarded as an assurance that the trustee would, for an indefinite period and irrespective of market conditions, be willing to sell Mr Leung’s interest to Madam Lai at HK$190,000.

Lapse of time

29.As stated above, a bankrupt’s property is vested in the trustee by reason of the bankruptcy.  Under Hong Kong law such property is not re-vested in the bankrupt upon discharge of bankruptcy or by reason of the lapse of time.[2] As a result there have been cases, of which the present application is one, where proceedings for an order for sale were brought many years after the discharge of bankruptcy.  Both as a matter of principle and because of the potential prejudice to the parties involved, it can in my view be a matter for concern that steps are not taken to realise the bankrupt’s property until after an inordinate amount of time.  Such concern was expressed by Mimmie Chan J in Re Yick Kin Chung, a bankrupt (HCB 1187/2004; 1 December 2014) at §§34-35 and by myself in Re Wong Kwok Keung, a bankrupt (HCB 4672/2001; 9 June 2015) at §16.  In the former case her Ladyship stated at §34:

“… The Trustees argued that the value of the Property has risen in the interim. This does not alter the fact that interest is payable out of the proceeds for the period of delay. Nor does the increase in value of the Property obviate the prejudice to the Wife, when the price of any other property which could have been purchased using the proceeds of sale has likewise risen, with the result that she would not be able use any such proceeds to purchase comparable property in substitution for the Property which has to be sold.”

But for the fact that interest on bankruptcy debts under s 71 of the Ordinance is not discretionary, her Ladyship stated (at §35) that she would have disallowed the interest accruing during the period of delay in the application for the order of sale.

30.Having regard to the lapse of time and to what was said in Official Receiver for Northern Ireland v O’Brien [2012] BPIR 826 at §4 (see below), I raised at the hearing the question of whether any limitation period might be applicable to an application of this kind.  I am grateful to counsel for the trustee for their further supplemental submissions on this topic which were lodged with my leave after the hearing.

31.The trustee’s claim in this application is two-fold: first, for a declaration that the trustee and Madam Lai hold the Property as tenants in common in equal shares, and, secondly, for an order for sale under the Partition Ordinance including ancillary and incidental orders and directions.  S 7(2) of the Limitation Ordinance (Cap 347) provides:

“No action shall be brought by any other person to recover any land after the expiration of 12 years from the date on which the right of action accrued to him or, if it first accrued to some person through whom he claims, to that person …”

Ss 8 and 9 of the Limitation Ordinance further make certain provisions as to when a right of action accrues in the case of present and future interests in land respectively.  In particular, s 8(1) provides:

“Where the person bringing an action to recover land, or some person through whom he claims, has been in possession thereof, and has while entitled thereto been dispossessed or discontinued his possession, the right of action shall be deemed to have accrued on the date of the dispossession or discontinuance.”

32.In Official Receiver for Northern Ireland v O’Brien [2012] BPIR 826, one O’Brien was adjudged bankrupt on 20 February 1990 and his estate was vested in the Official Receiver.  The bankrupt and his wife were co-owners as tenants in common of a dwelling house.  Correspondence between the Official Receiver and the wife relating to the sale of the property failed to yield a result.  The Official Receiver issued a summons almost 12 years after the bankruptcy order, on 15 February 2002, against the wife seeking an order, pursuant to the Partition Act 1868, for vacant possession of the property and that it be sold in lieu of partition with the proceeds of sale to be divided.  In his judgment Deeny J stated (at §4):

“… It seems that this case was one of more than 30 cases where the Official Receiver had issued proceedings to avoid becoming statue barred in respect of any claim for sale of premises which he jointly owned as trustee in bankruptcy of a series of bankrupts. This particular case was repeatedly adjourned on consent by the Master. However, in parallel, cases seem to have been brought before the then Chancery Judge and two cases were selected for hearing to act as test cases for the general group of such proceedings. In each case in the group the Official Receiver had issued proceedings prior to the expiration of 12 years from the date on which his right of action for possession and sale accrued. Pursuant to Article 21 of the Limitation (NI) [Order] 1989 the right would have been barred after the expiration of 12 years. …” (emphasis added)

33.The passages underlined would suggest that the Official Receiver’s claim in that case was subject to limitation under Article 21 of the Limitation (Northern Ireland) Order 1989 (read together with Schedule 1 to the Order which governs the time of accrual of rights of action to recover land).  These provisions appear to bear some similarities to s 15 of and Schedule 1 to the (English) Limitation Act 1980, and ss 7-9 of our Limitation Ordinance.  Understandably, however, the reasons for thinking that a limitation period applied were not clear from O’Brien, as the point was not material there.  That case is therefore of very limited assistance for present purposes.

34.In Williams v Thomas [1909] 1 Ch 713 at 730, Buckley LJ stated that the expression “to recover any land” (in s 2 of the Real Property Limitation Act 1833, predecessor to s 7 of the Limitation Ordinance) does not mean regain something that the plaintiff had and lost, but means “obtain any land by judgment of the Court” and, moreover, is not limited to obtaining possession of any land.  Further, it is stated in Jourdan, Adverse Possession (2^nd ed) at §1-14 that:

“An action can be one to ‘recover’ land provided that it asserts a claim to the title to or the possession of land.”

35.In principle, as at present advised, I see no reason why a proceeding brought by a trustee in bankruptcy, as a co-owner of property succeeding to the bankrupt’s interest by operation of law, against the other co-owner, so as to assert the trustee’s title or to recover possession or rent, cannot be regarded as an action to recover land.  It has been held that it is possible for one co-owner of land to establish adverse possession as against the other co-owner, provided there has been ouster of the latter by the former: Tang Tak Sum v Tang Kai Fong [2015] 1 HKLRD 286; Law Wai Kuen v Wong Shau Kwong [2004] 4 HKC 528; Doe d Fishar v Prosser (1774) 1 Cowp 217; 98 ER 1052.

36.In my view, however, it is unnecessary to decide whether the trustee’s claim for the declaration in this case was capable of being barred or was actually barred under s 7 of the Limitation Ordinance because, as submitted by Mr Liu and Ms Lam for the trustee, Madam Lai had repeatedly recognised and acknowledged the title of the trustee in her letters from 1999 to 2012.  That being the case, ouster cannot simply be inferred from her continued occupation of the Property without interruption by the trustee.

37.I accept counsel’s submission that the trustee’s other claim, namely, the claim for an order for sale under the Partition Ordinance, is not an action falling within s 7(2) of the Limitation Ordinance (Cap 347).  Such a claim does not in my view fall within the ordinary meaning of the phrase “to recover any land”.  On the contrary, a proceeding under the Partition Ordinance is premised on the applicant’s joint holding of land, and is launched, in the case of a claim for an order for partition, to “obtain a delimitation of parcels” and, in the case of a claim for an order for sale, to procure a sale and obtain a share of the proceeds, in either case ridding himself of the “shackles of co‑ownership”.  Indeed, in Williams v Thomas, supra, both Buckley LJ (at pp 730-731) and Cozens‑Hardy MR (at p 722) considered that the nature of an action for assignment of dower which was in issue in that case was close to the nature of an action for partition and as such not an action “to recover any land”.  A long period of co-ownership does not give rise to a bar in limitation to prevent a co-owner from seeking partition or sale.

38.Leaving the law of limitation aside, can the lapse of time nevertheless form the ground for refusing an order for sale under the Partition Ordinance?  In the UK, where the sale of a bankrupt’s co‑owned property in a similar situation is governed by specific legislation in s 335A of the Insolvency Act 1986, s 335A(3) provides that, after a year from the vesting of the bankrupt’s estate in the trustee in bankruptcy, the court “shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt’s creditors outweigh all other considerations”.  In this context it has been held that the passage of a lengthy period of time between the vesting of the estate and the application for an order for sale is capable of amounting to exceptional circumstances: Foyle v Turner [2007] BPIR 43.

39.In the present context in Hong Kong, in principle I see no reason why delay cannot in an appropriate case give rise to a ground for not making an order for sale.  It may for example lead to severe prejudice and hardship on the part of the co-owner if the property were ordered to be sold so long after bankruptcy.  In both Official Receiver for Northern Ireland v Rooney and Paulson [2009] BPIR 536 and Official Receiver for Northern Ireland v O’Brien, supra, the court came to the conclusion that in view of the time lapsed, there was “good reason” not to make an order for sale under the Partition Act 1868.  However, not only are the facts and the legislation there both different from the present case, but reliance was placed in both cases on the provisions of Articles 6 and 8 of the European Convention on Human Rights.  While Article 6 is broadly similar to Article 10 of the Hong Kong Bill of Rights, Article 8 of the European Convention is quite different in terms from Article 14 of the Bill of Rights.  The result in these cases does not in my view offer any safe guidance to the appropriate approach in Hong Kong.

40.In contrast, a trustee’s decision to wait for an improvement in the property market has been held to justify not seeking immediately to realise a property solely-owned by the bankrupt.  In Holtham v Kelmanson [2006] BPIR 1422, the bankruptcy order was made in June 1995 but the trustee did not apply for a sale of his dwelling house until March 2005.  The bankrupt resisted the application on the ground of delay.  Upholding the registrar’s order for sale, Evans-Lombe J said (at §17(ii)):

“There is no evidence as to the Official Receiver’s or the Trustee’s intentions with relation to the property since the property vested in them. However it seems to me that they cannot be criticised for delaying taking steps to realise the property at a time when its value did not produce an equity over the amount secured by the mortgage on it. It may well be that had Mr Holtham offered to buy the freehold reversion on the mortgage over the property after he had obtained his discharge the Official Receiver would have sold it to him for a modest amount. Neither the Official Receiver nor the Trustee can be blamed for delaying taking steps to realise the property on a rising property market when the result of doing so has been that the creditors may receive payment in full of their debts or something very near it. The trustee in bankruptcy’s primary duty is to the creditors. Had the Official Receiver taken steps to remove Mr Holtham when the property was subject to negative equity there would, no doubt, have been complaints by Mr Holtham that to do so was oppressive without achieving anything for the creditors.”

41.Regrettably the delay of the trustee has not been explained in this case, so that it is unknown whether it was a deliberate decision justified by objective circumstances.  At the end of the day I am left with considerable unease about the time taken by the trustee in seeking a sale. On the other hand neither has Madam Lai demonstrated any specific prejudice resulting from the delay, other than the general unwelcome and unpleasant consequence of having to have her home sold after so many years have elapsed since Mr Leung’s bankruptcy.  Nor has she complained of any specific hardship caused by the delay that would result from a sale of the Property now.  While I accept anxiety has no doubt been caused, the evidence is in my view insufficient to show that Madam Lai has suffered psychiatric damage as a consequence of the trustee’s inaction.  The trustee’s delay moreover seems to have been favourable to Madam Lai in one respect, in that although she owned only half of the Property she had had the use of the whole of it up to now even after she had ceased in 2006 to have to pay any monthly mortgage repayments.  Accordingly I do not regard the delay to be a sufficient reason for rejecting the trustee’s application.

42.In all the circumstances, and for the above reasons, I would grant the declaration and make the order for sale sought by the trustee, with vacant possession to be delivered by Madam Lai within 3 months from the date of this decision.  

43.In view of the lateness of the application I would make a provisional order that each party bear his or her own costs, such order to become absolute unless within 21 days either party applies to vary it.

Mr Liu Man Kin and Ms Patricia Lam, instructed by the Official Receiver’s Office, for the applicant

The 1^st and 2^nd respondents appeared in person