Re Leung Pui Pui Maggie

HCB 10465/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 10465 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 Miss Leung Pui Pui Maggie (“Ms Leung”) 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 C on 10/F of Block 3, Glorious Garden, No.45 Lung Mun Road, Tuen Mun, New Territories (“Property”), together with consequential orders.

2.The Property is a residential unit built under the Home Ownership Scheme operated by the Hong Kong Housing Authority. On 30 March 1999, it was assigned into the joint names of Ms Leung and her father, the Respondent (“Mr Leung”). The purchase price was HK$1,145,600 and the purchase was financed by a mortgage loan of HK$1,088,320 from HSBC, to be fully repaid by 300 monthly mortgage instalments.

3.The saleable floor area of the Property is about 592 sq ft.  Presently, Mr Leung, his current wife[1] and their 8-year-old child reside in it.

4.The application is opposed by Mr Leung.

Background

5.On 12 December 2007, Ms Leung filed a petition for her own bankruptcy.  On 22 January 2008, she was adjudicated bankrupt.  The total principal amount of the proofs of debt filed by unsecured creditors is HK$281,883. The estimated amount of interest calculated up to 14 June 2016 comes to around HK$303,955. Thus far, Ms Leung has contributed merely HK$11,711 to her bankruptcy estate account.

6.The valuation report in the bundle is dated March 2015. According to an updated oral valuation provided by Allied Surveyors Limited, the market value of the Property, as at 19 April 2016, was HK$3.8 million in the open market[2], and HK$2.9 million in the secondary market[3]. As at 21 March 2016, the outstanding mortgage amount due to HSBC was HK$454,203.

7.Mr Leung is 68 years old. He works part-time in a construction site. He told this court his monthly income varied between HK$10,000 and HK$20,000. His wife is unemployed as she is not allowed to work in Hong Kong, having arrived here on a two-way permit from the Mainland.

8.Ms Leung is 43 years old.  According to her statement of affairs dated 11 December 2007, she earned a monthly salary of HK$8,500 and an allowance of HK$2,600. Ms Leung has not filed any evidence in support of her father’s opposition. She also did not attend the hearing of the substantive application so her current employment and income cannot be ascertained. Mr Leung told this court he had not had contact with Ms Leung for years.

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.  At [68] - [69], Baroness Hale of Richmond said:

“68.  The burden will therefore be on the person seeking to show that the parties did intend their beneficial interests to be different from their legal interests, and in what way. This is not a task to be lightly embarked upon….

69.  In law, ‘context’ is everything and the domestic context is very different from the commercial world. Each case will turn on its own facts. Many more factors than financial contributions may be relevant to divining the parties’ true intentions…”

10.In ascertaining the parties’ true intentions, the task of the court is to ascertain their shared intention, actual, inferred or imputed, with respect to the property, in light of their whole course of conduct in relation to it. As this court reads Stack v Dowden, in apportioning the beneficial interests in a jointly-owned property, it should shift away from the use of the presumption of resulting trust, which essentially mandates an arithmetic calculation of how much, in money or money’s worth, each joint owner has contributed to the purchase price, as a tool. See also Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985.  

11.In the present case, Mr Leung claims it was he who paid the deposit for the purchase of the Property in December 1998 and it was he who paid the monthly mortgage instalments by giving cash to Ms Leung so that she could arrange for payment. He said the reason for this arrangement was that he was illiterate and was working on board a vessel, receiving his daily wages in cash. In support of his case, Mr Leung has adduced a large number of bank statements of his savings account with HSBC dated from the 4^th quarter of 2008 ie after Ms Leung’s bankruptcy.

12.This court does not doubt that after Ms Leung’s bankruptcy in January 2008, she did not make any further payment of the monthly mortgage instalments. But the more important question is what was the common intention of Mr and Ms Leung at the time of the purchase. In this regard, this court notes that Mr Leung did not go so far as to say it was never the father and daughter’s intention that Ms Leung would have no beneficial interest whatsoever in the Property, or, in layman’s term which this court has heard from time to time, that Ms Leung was an owner of the Property “in name only”.

13.The gist of the Trustees’ submission is that the burden of proof rests on Mr Leung to demonstrate that the beneficial interests in the Property differ from the legal interests and in what way, and that he has failed to adduce evidence, documentary or otherwise, to discharge that burden.

14.The Trustees also submit that the documentary evidence in this case in fact support the conclusion that each of Mr and Ms Leung owned half of the beneficial interests in the Property at the time of purchase. Such evidence include inter alia the deed of assignment dated 30 March 1999 by which the Property was assigned to Mr and Ms Leung jointly, the legal charge dated 30 March 1999 in which both of them executed as borrowers and beneficial owners of the Property, a letter from HSBC dated 11 March 2015 which advised that Ms Leung was responsible for the monthly mortgage repayments prior to her bankruptcy and lastly Ms Leung’s own statement of affairs. 

15.The Trustees also rely on the fact that there was no satisfactory proof of Mr Leung’s earnings and/or savings (if any) which would have enabled him to pay for the deposit and all the monthly mortgage instalments prior to Ms Leung’s bankruptcy in January 2008.

16.This court agrees with the Trustees. In the present case, evidence on Mr and Ms Leung’s shared intention, actual, inferred or imputed, with respect to the Property is very thin indeed. There is also very little evidence on “their whole course of conduct” in relation to the Property between 1998/1999 and January 2008. Mr Leung did not give any evidence in relation to that. There was no evidence from Ms Leung at all. All that Mr Leung asserts (but without satisfactory proof) is that he paid the deposit and the monthly mortgage instalments right from the beginning. Even this much is contradicted by the letter from HSBC dated 11 March 2015. 

17.In these circumstances, this court is not satisfied that Mr Leung has discharged the burden on proof on him. Accordingly, this court finds Mr Leung and Ms Leung’s legal and beneficial interests in the Property are joint and equal.

18.The next question is whether this court can and should make an order for sale of the Property.

19.Upon the making of a bankruptcy order and the appointment of a trustee in bankruptcy, the bankrupt’s interest in his property is vested in the trustee by operation of law: section 58(2) of BO.

20.Further, upon the making of the 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).

21.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.”

22.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.”

23.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].

24.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 in, for instance, Re Ng Tze Ching, unrep HCB 5883/2006, 29 August 2014.

25.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.

26.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 in Hong Kong to an application by a trustee in bankruptcy for an order for sale of a co-owned property.

27.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, 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.”

28.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].”

29.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 Mr Leung.

30.On the Trustees’ calculation, Ms Leung’s total indebtedness is approximately HK$894,244 consisting of:

(a)	Unsecured proved debts:	HK$281,833
(b)	Total amount of interest[4]:	HK$303,955 (estimate)
(c)	Costs and expenses of
	Ms Leung’s bankruptcy:	HK$308,456 (estimate)

31.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$2.9 million. After deducting estate agents’ fees/commission, conveyancing costs and the outstanding mortgage loan, the net sale proceeds will be around HK$2.4 million.

32.Half of the net sale proceeds ie around HK$1.2 million will be payable to the bankruptcy estate while the other half will be payable to Mr Leung.

33.The HK$1.2 million available to the bankruptcy estate will be more than enough to cover the bankruptcy expenses, all unsecured debts and statutory interest. There will be a surplus of over HK$300,000 available to Ms Leung, on the Trustees’ calculation.

34.The HK$1.2 million payable to Mr Leung is subject to deduction of his indebtedness to The One Property Credit Express Limited (“One Property”) in respect of which One Property had obtained a charging order absolute dated 24 July 2015 in DCCJ382/2015 against his ½ share in the Property. The amount owed to One Property, as at 14 June 2016, was said to be HK$518,241. After the sale and the discharge of this charging order absolute, the Trustees estimate that a sum of HK$682,156 will be payable to Mr Leung.

35.This is a very difficult case.

36.On the evidence before this court, the Property is Mr Leung’s only significant asset. It is also his only place of residence for over 17 years. Mr Leung is already 68 years old and still works in a construction site on a “part time” basis. This court takes that to mean he works only when work is available. His wife is unable to work legally in Hong Kong. His son is 8 years old. The entire family’s expenses are borne by Mr Leung alone. Mr Leung told this court he had medical issues concerning his heart’s condition and had an operation[5] in 2014.

37.In view of his age, his unstable employment and his lack of means, it is practically certain that Mr Leung would not be able to purchase alternative accommodation for the simple reason that he would not be able to obtain mortgage finance. Left with less than HK$700,000, the only real choice faced by Mr Leung will be rental accommodation, may be a smaller flat in the same district, a so-called “sub-divided” flat or even a room as residence for him, his wife and his son. It is unclear on the evidence whether Mr Leung 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, by which time he would be 72 and most unlikely to be able to work in a construction site.

38.On one view of the matter, Mr Leung’s predicament is partly Ms Leung’s making and partly his own. But this court is not here to judge the parties’ past. It is to apply the law to the present.

39.Balancing the interests of the Trustees (representing the interest of the creditors) and the interests of Mr Leung, this court is of the view that the just result, objectively speaking, is to decline to order the sale of the Property.

40.Even if this court is found to be wrong to continue the Cheung Chan Hong approach, and that Mr Leung is required to show very great hardship in order to resist the Trustees’ application, this court is also of the view that the making of an order for sale will cause very great hardship to Mr Leung and his family.

41.Finally, 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)

42.Following the words of Collins J (as he then was) in Dean v Stout, and making a value judgment after looking at all the circumstances, this court, for reasons set out above, regards the personal and family circumstances of Mr Leung as lying outside the ordinary range of problems associated with bankruptcy and thus are “exceptional”. Hence, even assuming “exceptional circumstances” are required to be shown in the present case in order to resist the application, this court is still of the view that no order for sale should be made.

43.In the premises, this court is satisfied that it should not exercise its discretion to grant an order for sale.

Disposition and costs order nisi

44.The Trustees’ application is hereby dismissed.

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

46.Lastly, this court thanks Ms Wong for her thoughtful submissions and helpful assistance.

Ms Clara Wong of Gallant, for the Joint and Several Trustees of the property of the Bankrupt (the Applicants)

The Bankrupt: Ms Leung Pui Pui Maggie, absent

The Respondent: Mr Leung Chi Wing, appeared in person

The Official Receiver, absent

[1] Mr Leung and Ms Leung’s mother were divorced in 1984.

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

[3] No premium required.

[4] calculated up to 14 June 2016

[5] angioplasty