Re Yeung Kin Wah Andy

HCB 2425/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2425 OF 2005

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Re: Yeung Kin Wah Andy, the Bankrupt

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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 Yeung Kin Wah Andy (“Mr Yeung”) 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.19 on 3^rd Floor of Tsui On House, Tsui Ping (North) Estate, No.19 Tsui Ping Road, Kowloon (“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 Mr Yeung’s mother, the Respondent, Madam Yeung Lai Wan (“Madam Yeung”) and Mr Yeung himself on 26 August 2002. The purchase price was HK$157,900 and the purchase was financed by a mortgage loan of HK$155,400 from Bank of China (Hong Kong) Limited, to be fully repaid by 240 monthly mortgage repayments of approximately HK$833 each. 

3.The saleable floor area of the Property is about 324 sq ft.  At the time of the hearing, Madam Yeung, Mr Yeung and his wife resided in it.

4.The application is opposed by Madam Yeung.

Background

5.On 1 April 2005, Mr Yeung filed a petition for his own bankruptcy.  On 17 May 2005, he was adjudicated bankrupt.  The principal amount of the proofs of debt filed by the 4 unsecured creditors is HK$256,305. The amount of interest calculated up to 31 December 2016 comes to HK$265,429. Thus far, Mr Yeung has made no contribution to his bankruptcy estate account.

6.The valuation report in the bundle is dated 2012. According to the updated oral valuation provided by Allied Surveyors Limited, the value of the Property, as at 5 April 2016, was HK$2.3 million in the open market[1], and HK$1.45 million in the secondary market[2].

7.Madam Yeung is 73 years old and is unemployed. She lives on old age allowance (currently around HK$2,400) from the Hong Kong Government. Her son, Mr Yeung, pays for the household expenses, including the monthly mortgage instalments.

8.Mr Yeung is 54 years old.  He works as a casual truck driver and earns between HK$13,000 and HK$15,000 a month.

Deliberation

9.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. 

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

11.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.

12.Further, 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).

13.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.”

14.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.”

15.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]; Re Cheung Chan Hong [2015] 2 HKLRD 1 at [13].

16.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 adopted in Hong Kong, for instance, in Re Ng Tze Ching,unrep HCB 5883/2006, 29 August 2014.

17.In Re Cheung Chan Hong at [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.

18.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.

19.Subsequently, in Re Lau Hiu Tuen, unrep, HCB8430 of 2006, 20 August 2015, Godfrey 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.”

20.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, e.g. 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].”

21.Accordingly, this court shall decide the present matter “on the basis of all the objective facts of the case, balancing the interest of the one against the other.”

22.On the Trustees’ calculation, Mr Yeung’s total indebtedness is approximately HK$ 708,000 consisting of:

(a)	Unsecured proved debts:	HK$256,305
(b)	Total amount of interest[3]:	HK$265,429 (estimate)
(c)	Costs and expenses of Mr Yeung’s bankruptcy:	HK$187,121 (estimate)

23.If an order for sale is granted and the Property is sold in the secondary market, the estimated gross sale proceeds will be around HK$1.45 million. After deducting estate agents’ fees/commission, conveyancing costs and the outstanding mortgage loan, the net sale proceeds will be around HK$1.37 million.

24.Half of the net sale proceeds ie around HK$685,000 will be payable to the bankruptcy estate while the other half will be payable to Madam Yeung. The HK$685,000 available to the bankruptcy estate will cover the bankruptcy expenses and the bulk of the unsecured debts and statutory interest. The amount payable to Madam Yeung ie HK$685,000 can be further reduced to around HK$560,000, should this court grant an order for sale and accede to the Trustees’ intended application for costs against her.

25.On the evidence before this court, the Property is Madam Yeung’s only significant asset. It is also her only place of residence for decades.  Her husband passed away over 10 years ago due to nasal cancer. Madam Yeung herself suffers from various medical conditions including diabetics, hypertension and hyperlipidemia.

26.In view of her age, it is impossible for Madam Yeung to find any meaningful employment. If an order for sale is granted, the practical certainty is that she will continue to depend on her son, the meagre social welfare payouts from the Government and the HK$685,000, alternatively HK$560,000, left from the sale to cover her future costs of accommodation and living expenses as well as medical bills. In view of her age, her means and her lack of employment, it is also practically certain that Madam Yeung would not be able to purchase alternative private accommodation since she would not be able to obtain mortgage finance. She also told this court that she was not eligible to apply for public housing again, as she had already purchased a flat in a public housing estate ie the Property. This was not challenged by the Trustees. It is unclear on the evidence whether Mr Yeung himself is eligible to apply for public rental housing. Even if he is, the long waiting list for such housing means he would not be allocated one until at least 3 or 4 years later. It is also highly doubtful whether Mr Yeung himself will be able to obtain mortgage finance for alternative private accommodation either, given the fact that he had been made bankrupt once, his age and his lack of means. The choices faced by Madam Yeung will be to rent a modest room as residence, move into a subsidised home for the elderly run by charities (if she can find one) or hope for a big rise in social welfare payouts from the Government, which is unlikely. 

27.Balancing the interests of the Trustees (representing the voice of the creditors) and the interests of Madam Yeung, this court is firmly of the view that the only just result, objectively speaking, is to decline to order the sale of the Property.

28.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 Madam Yeung.

29.Madam Yeung has already lived a modest life so far. She told this court and this court has no reason to doubt that she used to work in a garment factory in Hong Kong. She has ceased to be a factory worker about 30 years ago. This is more or less in line with the decline and eventual disappearance of the garment manufacturing industry in Hong Kong roughly around that time. Given her age, the loss of her spouse and her medical conditions, this court finds it extremely harsh on Madam Yeung and is of the firm view that it would constitute very great hardship to her if this court were to make an order for sale which will have the effect of causing her living conditions to further deteriorate.

30.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 Madam Yeung’s personal circumstances are such as to constitute exceptional circumstances.

31.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)

32.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)

33.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 Madam Yeung including her age, her medical conditions and her heavy dependence on the Bankrupt and social welfare in the foreseeable future as circumstances lying outside the ordinary range of problems associated with a bankruptcy and thus are “exceptional”.

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

Disposition and costs order nisi

35.The Trustees’ application is hereby dismissed.

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

Mr Jeremy Shek of Gallant, for the Joint and Several Trustees of the property of the Bankrupt (the Applicants)

The Bankrupt: Mr Yeung Kin Wah Andy, appeared in person

The Respondent: Madam Yeung Lai Wan, appeared in person

The Official Receiver, absent

[1] Subject to payment of premium to the Housing Authority – no calculation has been provided by the Trustees.

[2] No premium required.

[3] calculated up to 31 December 2016