Re Cheng Kin Ching

HCB 47/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 47 OF 2009

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Re : CHENG KIN CHING, 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 Cheng Kin Ching (“Mr Cheng”) for an order for sale under s 60 of the Bankruptcy Ordinance, Cap 6 (“BO”) and s 6 of the Partition Ordinance, Cap 352 (“PO”), in respect of the property known as Flat 5, 24/F, Block B, Mei Chung Court, No 27 Mei Tin Road, Shatin, New Territories (“Property”), together with consequential orders.

2.The Property is in a Home Ownership Scheme Development.  On 10 May 1996, it was assigned into the joint names of Mr Cheng and his wife Madam Cheng Mo King (“Respondent”), at the consideration of HK$862,500.  The saleable floor area of the Property is about 401 sq ft.  The Respondent told this court only Mr Cheng and her resided in it.  They have no children.

3.The application is opposed by the Respondent on two grounds.

(1)   First, the Respondent said she alone made the monthly mortgage repayments for the Property — Mr Cheng is only a nominal owner.

(2)   Second, it would cause great hardship to her if the Property were sold.

4.The Respondent’s evidence that she alone made the monthly mortgage repayments for the Property is corroborated by Mr Cheng in his affirmation dated 1 June 2016.

5.Having said that, the Respondent also said in her affirmation dated 1 June 2016 she was prepared to accept and respect that the Trustees are entitled to half share of the Property and suggested the Property be sold after she had passed away or relocated to a home for the elderly.

Background

6.On 29 December 2008, Mr Cheng filed a petition for his own bankruptcy.  On 19 February 2009, he was adjudicated bankrupt.  In his statement of affairs, Mr Cheng admitted he owed 5 unsecured creditors slightly over HK$0.56 million.  The debts were almost all credit card debts.  The Trustees said the total of adjudicated claims amount to HK$408,041. Thus far, Mr Cheng has made no contribution to his bankruptcy estate account.  The mortgage loan has been completely paid off in July 2016.

7.According to an updated oral valuation by Allied Surveyors Limited, the value of the Property, as at 15 November 2016, was as follows:

(1)	Current Open Market Value (on a vacant possession basis)[1]	HK$4,000,000
(2)	Current Secondary Market Value (on a vacant possession basis)[2]	HK$2,950,000

8.The Respondent is 57 years old and is currently out of work. She said she had been working in the finance or more specifically securities industry for 36 years.  She left that industry and became a security guard in 2015.  She ceased being a security guard in March 2016.  Her last monthly salary was around HK$13,000.

9.Mr Cheng is 60 years old.  He told this court he used to work as a truck driver back in 1996 (when the Property was purchased) delivering vegetables within Hong Kong up to about 2008.  For the last 5 to 6 years and at the time of the hearing, he worked as a taxi driver earning roughly HK$10,000 a month.

Deliberation

10.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.  

11.In the present case, the Respondent says she alone made the monthly mortgage repayment in respect of the Property and has submitted copies of her Hang Seng Bank passbook in support.  The passbook reveals that from June 1996 onwards, there was a monthly withdrawal from the Respondent's account of initially HK$6,984.20 with the notation “HP PI”.  As confirmed in a letter from Hang Seng Bank to the Trustees dated 14 December 2016, it was a reference to the monthly repayment of a mortgage loan, the amount of which would be revised in accordance with HSBC's HK Dollar best lending rate from time to time.  The amount of monthly withdrawal did fluctuate from time to time and by 2016 it became HK$4,902.

12.In these circumstances, this court has no difficulty finding that it was the Respondent who made the monthly mortgage repayments in respect of the Property.  But that is not the end of the matter.  The fact that the monthly mortgage repayments were made with money from the Respondent per se does not mean that she became the sole beneficial owner of the Property.  As stated in Re Chang Sze Ling, bankrupt, unrep, HCB 4104/2004; 3 March 2016; per G Lam J:

“16. …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 paragraph 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 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.

…

18. …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.

…

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.”

13.This court respectfully adopts the learned Judge’s analysis.

14.In the present case, the following factors point clearly to the intention of Mr Cheng and the Respondent that their interests in the Property be equal both legally and beneficially:

a)   The Property was assigned to Mr Cheng and the Respondent as joint tenants.

b)   The Property was and still is the family home of Mr Cheng and the Respondent.

c)   Pursuant to Clause 4 of the Legal Charge executed by Mr Cheng and the Respondent as Borrowers in favour of Hang Seng Bank, they charged the Property to the Bank as beneficial owners and assumed joint and several liability to the Bank to repay the mortgage loan.

d)   Mr Cheng affirmed in his Statement of Affairs at List A that the Property was jointly held by him and the Respondent.  At the bottom of List A, Mr Cheng made a remark which clearly recognised his half share in the Property as his only asset.

e)   In the Preliminary Examination submitted to the Official Receiver’s Officeon 24 February 2009, Mr Cheng said he did not hold any property on trust for any person.

f)   There is nothing in the evidence which indicates Mr Cheng and the Respondent ever intended that their legal and beneficial interests in the Property were unequal.

15.Further, in the Statement of Affairs and in his Annual Statements, Mr Cheng said he had paid, both before and after his bankruptcy, a certain amount of expenses, particularly utilities charges, for the family home.

16.On balance of probabilities, it appears to this court Mr Cheng and the Respondent have all along pooled their incomes together to support the family home without intending any precise arithmetic calculation of each party’s financial contribution or any correlation between such financial contribution and their beneficial interests in the Property.  For these reasons, this court rejects the Respondent’s case that Mr Cheng is only a nominal owner and finds that he did have a half share in the Property, legally and beneficially, upon the purchase of the Property and prior to his bankruptcy.

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

18.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: s 58(2) of BO.

19.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 VC (as he then was).

20.S 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 s 4 for a partition of the property;

(b) make an order under s 6 for a sale of the property; or

(c)   refuse to make any order.”

21.S 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.”

22.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].

23.As always, 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 (usually 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 inter alia Re Ng Tze Ching,unrep, HCB 5883/2006, 29 August 2014 and Re Liu Yi Fang [2015] 3 HKLRD 668.

24.In Re Cheung Chan Hong at [20]–[35], 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.

25.In Re Liu Yi Fang, A 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.

26.Subsequently, in Re Lau Hiu Tuen, unrep, HCB 8430/2006, G Lam J, 20 August 2015, at [23], the learned Judge summarised the recent divergence in judicial opinion of this issue:

“23. On behalf of the trustees, Mr Justen Li, who gave much assistance to the court, referred to certain passages in the English authorities of Re Citro (A Bankrupt) [1991] Ch 142 and Re Bremner [1999] BPIR 185 which might be read as suggesting that the difficulties arising from the eviction of the bankrupt’s family from their home are ordinarily not to be regarded as sufficient reason to prevail over the creditors’ interests in seeing the family home sold and the proceeds of sale distributed. In Re Cheung Chan Hong (a bankrupt) [2015] 2 HKLRD 1, however, Ng J declined to adopt the approach in Re Citro and held that there is no requirement for exceptional circumstances in order to resist an application for sale in the kind of cases under discussion. Since then, in Re Liu Yi Fang, HCB 5613/2013, 30 June 2015, Anthony Chan J has, disagreeing with Re Cheung Chan Hong, held that Re Citro should be adopted as laying down the proper approach in Hong Kong to an application by a trustee in bankruptcy for an order for sale of a co-owned property.”

27.At [24], the learned Judge further opined:

“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.” (emphasis added)

28.In the present case, it is not necessary for this court to resolve the recent divergence of judicial opinion.  This is because whether one takes the stricter approach of Re Liu Yi Fang or the more benevolent approach of Re Cheung Chan Hong,after giving due weight to the Respondent’s personal and family circumstances, this court is of the view that an order for sale should be made.  The reasons are these.

29.On the Trustees’ calculation, the total of Mr Cheng’s indebtedness together with the costs and expenses of his bankruptcy is as follows:

(1)	Unsecured debts proved:	HK$408,041 (estimated)
(2)	Interest[3]:	HK$640,655 (estimated)
(3)	Costs and expenses of Mr Cheng’s bankruptcy:	HK$368,664 (estimated)
	TOTAL:	HK$1,417,360

30.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$2.95 million. After deducting estate agents’ fees/commission, conveyancing costs, the estimated net sale proceeds will be around HK$2,904,500.

Selling Price of the Property:	HK$2,950,000.00 (estimated)
Less:
(i) Estate agents’ fees/commission	HK$29,500.00 (estimated)
(ii) Conveyancing costs and disbursements (ie legal costs and disbursements relating to the preparation and execution of the relevant documents for effecting the sale)	HK$16,000.00 (estimated)
Net sale proceeds:	HK$2,904,500.00 (estimated)
Half of the net sale proceeds	HK$1,452,250.00 (estimated)

31.Half of the net sale proceeds ie around HK$1,452,250 will be payable to Respondent while the other half will be payable to the bankruptcy estate.  The net amount available to the bankruptcy estate can in fact cover the bankruptcy expenses, the unsecured debts and interest up to 30 June 2017 in full.  Ignoring full payment of interest for the moment, the legal costs in relation to this application can also be paid in full from the bankruptcy estate.  The Respondent herself, on the other hand, will receive a fairly large sum of cash.

32.As stated above, Mr Cheng is 60 years old while the Respondent is only 57.  Mr Cheng earns about HK$10,000 and, if the Respondent is prepared to work, she can earn around HK$13,000 a month as security guard.  Given the current state of the labour market and the minimum wages, the Respondent should have no difficulty finding work.  If so, the combined household income can be in the region of HK$23,000.

33.Once the Property is sold in the secondary market on a vacant possession basis, the amount payable to the Respondent will be in excess of HK$1.45 million.  This amount may or may not be sufficient to make the down payment for the purchase of alternative accommodation, and even if it is sufficient, the alternative accommodation will probably be smaller than their present residence and will probably be further away from downtown.  This outcome is not perfect from the Respondent’s point of view but nor can it be regarded as great hardship.  Mr Cheng's credit card debts have been outstanding for over 8 years but he has made zero contribution to his bankruptcy estate account and he has been automatically discharged from his bankruptcy.  Without the sale of the Property, there will be no funds to make any distribution to the creditors or cover the costs and expenses of his bankruptcy.

34.This court has great sympathy for the Respondent and recognises that the situation is not of her own making.  Nevertheless, looking at the matter objectively, balancing the interest of the creditors against the Respondent, this court should accede to the Trustees’ application.

Disposition and costs order nisi

35.This court hereby grants an Order in terms of paragraphs 1 to 8 and 11 of the draft order submitted by the Trustees, save that

(1) under paragraph 2, the words “28 days” be replaced by “90 days”;

(2) under paragraph 5, the reserve price for sale of the Property in the open market and HOS Secondary Market be set at HK$4 million and HK$2.95 million;

(3) paragraph 8(b) of the draft order shall be deleted and replaced by the following:

“after deduction of the sums mentioned in paragraph 8(a) above, if any, from the sale proceeds, the net sale proceeds of the Property be divided equally between the Applicants and the Respondent. The Applicants shall pay the Respondent’s half share to her as soon as practicable after the sale, and the remaining balance shall form part of the bankruptcy estate.”

36.There shall be an order nisi that each party shall bear its own costs of and occasioned by this application.  The Trustees’ costs of this application shall be paid out of the bankruptcy estate, summarily assessed at HK$100,000.

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

The Bankrupt: Mr Cheng Kin Ching, appeared in person

The Respondent: Madam Cheng Mo King, appeared in person

Attendance of the Official Receiver was excused