Wong Arlene Bei Ling and Others v. Pao Zen Kwok Peter and Others

HCMP 1406/2018

[2021] HKCFI 3904

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1406 OF 2018

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BETWEEN

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Before:  Mr Recorder William Wong SC in Court

Dates of Hearing:  28 - 29 December 2021

Date of Judgment:  29 December 2021

Date of Handing Down Reasons for Judgment:  31 December 2021

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REASONS FOR JUDGMENT

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INTRODUCTION

1.This is the substantive hearing of the originating summons taken out by the Plaintiffs under Section 6 of the Partition Ordinance (Cap.352)  (“the Ordinance”)  on 6 September 2018 (“the Originating Summons”)  for an order for sale of the property at Block C of No. 28 Shouson Hill Road, Hong Kong (the “Property”)  and consequential relief. 

2.Initially, the 1^st and 2^nd Defendants opposed the Plaintiffs’ application.  However, the latest position of the 1^st and 2^nd Defendants is that they no longer oppose the sale of the Property albeit that they have some different views on the mode of sale of the Property to which this Court will resolve.

3.The 1^st Plaintiff, the 2^nd Plaintiff, the 1^st Defendant, the 2^nd Defendant and the 3^rd Defendants are siblings.  The siblings’ father was Pao Chi Li also known as Chi-Li Pao (“Mr Pao”).  Mr Pao died intestate in Hong Kong on 16 August 2005.  At the date of his dealth, Mr Pao was the sole legal and beneficial owner of the Property.  His lawful wife, Pao Ting Shou Fun (Mrs Pao)  and the siblings are the beneficiaries of the estate of Mr Pao. 

4.On 28 February 2014, Mrs Pao died intestate.  On 24 September 2014, letters of administration of the estate of Mrs Pao were granted by the Court to Ms Lau Yuk Kuen (now the 3^rd Plaintiff in these proceedings)  in her capacity as the lawful attorney of the 1^st Plaintiff.

5.At present, the Property is occupied by the 2^nd Plaintiff and his wife only.  The Property is a 3-storey detached house.  The living and sitting rooms are situated on the ground floor.  The bedrooms are on the 1^st and 2^nd floors.  It is impracticable to partition the Property amongst the siblings or the beneficiaries of the estate of Mr Pao. 

6.The 1^st Plaintiff emigrated to Canada in 1972 to get married and started her own family there.  She has been residing in Canada for over 49 years, and has no plan to return to live in Hong Kong.  The 1^st Defendant was born in 1949 and resides in Hong Kong but not in the Property.  The 2^nd Defendant was born in 1953.  He and his wife moved to Canada in 1988 and has been residing in Canada for the last 30 years.  The 3^rd Defendant was born in 1955.  He studied in England and stayed there after completion of his education.  He has been residing in England for over 45 years. 

7.In the circumstances, I am of the view that it is in the best interest of all siblings and beneficiaries of the estate of Mr Pao that the Property be sold and the proceeds of sale be distributed according to their respective legal entitlements under the law of intestacy in Hong Kong.  A co-owner has a basic right to rid himself of the “shackles of co-ownership” and when it is impracticable to make an order for partition, the court should make an order for sale unless the court is persuaded that a sale is objectively not beneficial to all co-owners.  (See Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at §§18-19 per Recorder Joseph Fok SC (as he then was)).  The 1^st Plaintiff, the 2^nd Plaintiff and the 3^rd Defendant no longer wish to remain as co-owners of the Property. 

8.As there is no objection to the sale by any of the Defendants, I will make an order that the Property to be sold on terms to be discussed below. 

MODE OF SALE

9.The Plaintiffs’ position is that the Property should be sold by a public tender followed by a private tender to provide the co-owners with an opportunity to submit a private tender after the public tender has been closed. If the public tender was unsuccessful, i.e., a sale is not effected at a price equal to or higher than the reserved price, it is proposed that any co-owner can commit to buy the Property at the reserve price within 24 hours of the no successful bid notification.  In the event of a successful public tender, after the public tender is closed and the highest bid determined, any co-owner can commit to buy the property at a price of 5% higher than the highest bid within 24 hours of notification of the highest price. 

10.The 1^st and 2^nd Defendants object to the mode of sale being public tender to be followed by private tender and instead propose just having a public tender. 

11.I have duly considered the respective submissions of the Plaintiffs and the Defendants.  Whilst, the 2^nd Plaintiff might have attached some sentimental value to the Property, I am not convinced that it is right that the 2^nd Plaintiff should be put in a position of privilege vis-à-vis other public tenders.  There is no reason why the 2^nd Plaintiff cannot fairly participate in a public tender.  It can hardly be justified that the 2^nd Plaintiff should be able to refrain from making any bids in the public tender but is entitled to outbid the highest public bidder at the private tender stage. 

12.I am of the view that Mr Mui for the Defendants is correct in submitting that a public tender followed by a private tender would dampen interest in the Property.  It is only commonsense that members of the public will be less interested and inclined to put in a bid if he or she knows that whatever bid he or she puts in, it is likely that it will be a futile exercise as the 2^nd Plaintiff can always outbid him or her at the private tender stage.  There is costs involved in the preparation of a public tender.  Such inherent uncertainty is likely to reduce interest in the Property.  That will not be in interest of all the siblings and beneficiaries of the estate of Mr Pao.  In fact, Mr Yim for the Plaintiffs very fairly agree that in such situation a serious public tenderer will need to add a premium or cushion to the price that he or she is going to put in for fear that his or her bid will be trumped by the 2^nd Plaintiff in the private tender stage.  The Property is not the only luxurious property in the market.  This added hurdle will, most likely, reduce the pool of interested bidders.  This will not be in the interest of all the siblings and beneficiaries of the estate of Mr Pao. 

13.In Re Man Sham Chung Wui [2011] 1 HKLRD 427, Tang, ACJHC (as he then was)  at §62 rightly observed that:

“At the hearing, I expressed my reservations about the proposal. A public tender held under such circumstances is unlikely to elicit the best offer. Any person tendering would know that the highest tender would not result in a sale; it would be followed by bidding at a members’ meeting. There would be a further opportunity at a members’ meeting to be convened under para.3(b)  of the proposed directions to bid for the land through a member, presumably by open bidding. Further, a member with a large interest could easily outbid other bidders. The presence of a person who is well able to outbid other bidders often effectively results in no competitive bid. Businessmen are in the business of making money, and they can be expected not to be engaged in any futile endeavour. This can be seen from the oft reported lack of competition in sales under the Land (Compulsory Sale for Redevelopment)  Ordinance (Cap. 545), which by law must be sold by a public auction (s.5(1)(a))  unless agreed otherwise in writing by every owner of the lot and approved by the Tribunal in his absolute discretion: s.5(1)(b).” (Emphasis added.)

14.The observations of Tang, ACJHC (as he then was)  make perfect sense.  Mr Yim for the Plaintiffs submitted that in the above case, the result of the tender is subject to a right of the members to purchase the land at the same or a higher price.  However, in the present case, the proposal is that the 2^nd Plaintiff will offer to purchase the Property at 5% above the highest bidder.  I am not convinced that this distinction makes a difference.  The commercial effect on the potential bidders will be the same.  Secondly, Mr Yim submitted that the majority of the siblings and beneficiaries of the estate of Mr Pao support the Plaintiffs’ proposed mode of sale.  Even assume that to be true, as I note Mr Mui’s submission that the position of the 3^rd Defendant is unclear, I am of the view that the test is which mode of sale will be in the best interest of all co-owners and the majority cannot dictate the outcome.  The mode of sale is not determined by a democratic vote in such situation.  Thirdly, Mr Yim for the Plaintiffs submitted that the observations of Tang, ACJHC (as he then was)  were made in the context of the Land (Compulsory Sale for Redevelopment)  Ordinance (Cap.545).  I am not persuaded that that is correct.  The observations of Tang, ACJHC (as he then was)  applied with equal force to the present situation. 

15.Further, I also agree with Mr Mui for the Defendants that the Plaintiffs’ proposal, in effect, amounts to allowing the 2^nd Plaintiff to put in a referential bid.  There is no justification as to why only the 2^nd Plaintiff or the co-owners can put in a referential bid but not every public tenderer.  In Harvela Investment Limited v Royal Trust Company of Canada (C.I.)  Limited & Ors [1986] 1 A.C. 207 at 232A, Lord Templeman said:

“Thirdly, if referential bids were permissible, the vendors’ object of provoking the best price that Harvela and Sir Leonard were each prepared to offer in ignorance of the rival bid was frustrated.”

16.The object of putting up the Property for sale by tender must be to secure or provoke the best price that potential purchasers would be prepared to offer.  I agree that the Plaintiffs’ proposal of a public tender to be followed by a private tender will not help to achieve this purpose.  The 2^nd Plaintiff will never have to reveal what would be the best price he will be prepared to offer for the Property.  He can wait until the results of the public tender are disclosed, and then decide whether he wants to offer 5% more to secure the Property.  This will not be fair to other public tenderers.  Hence, it does not help to secure the best price for the Property. 

17.For all the above reasons, I order the sale should be carried by public tender only.  

CHOICE OF ESTATE AGENTS

18.The Plaintiffs propose Savills and the Defendants choose Jones Lang LaSalle.  Both are reputable professional estate agency firms.  However, Savills proposes to charge the co-owners 0.5% of the final transaction price as commission, whereas Jones Lang LaSalle is prepared to charge only 0.35%.  Savills is prepared to spend HK$70,000 on marketing expenses, which they will seek to re-coup from the co-owners if there is no successful sale.  Jones Lang LaSalle is prepared to invest HK$147,200 on marketing expenses which they will absorb whether or not the sale is successful. 

19.I am of the view that Jones Lang LaSalle should be appointed as the estate agent for the sale of the Property.  Although Mr Yim for the Plaintiffs submitted that empirically Savills has a much larger market share in the sale of substantial transactions, it is not the same as saying that given such empirical evidence, Savills will have or is likely to have higher success rate in marketing the Property.  The Court cannot arrive at such conclusion. 

20.Hence, I am of the view that better arrangement should be that Jones Lang LaSalle will be appointed as the estate agent for the sale of the Property for a period of 6 months.  If Jones Lang LaSalle fails to effect a sale, then Savills will be appointed as the estate agent for the sale of the Property for another 6 months. 

RESERVE PRICE

21.The parties have no disagreement that the reserve price should be the mean figure of two valuation reports prepared by Jones Lang LaSalle and Knight Frank.  Accordingly, the Court makes an order according to such term. 

22.The parties can also agree on a mechanism to adjust the reserve price downwards by a certain percentage if the first tender fails to achieve any sale.

INSPECTION AND VIEWING OF THE PROPERTY

23.The Plaintiffs’ proposal is that they will make every possible accommodation to facilitate the inspection and viewing of the Property.  The Defendants submitted that the 2^nd Plaintiff and his family should be away from the Property for 2 months before the scheduled tender closing date.  On this issue, I agree with Mr Yim for the Plaintiffs that the 2^nd Plaintiff as a co-owner, a tenant in common, is entitled to live in the Property.  Although, I note Mr Mui’s submission that the 2^nd Plaintiff and his family have lived in the Property for 8 years rent-free, this is not the occasion to determine whether the other siblings and beneficiaries of the estate of Mr Pao have suffered any loss as a result of the same. 

24.I am of the view that the right balance to strike is that the 2^nd Plaintiff and his family should allow unlimited requests for inspection and viewing through the appointed estate agency.  Open house should also be arranged to increase the exposure of the Property. 

TIME FOR DELIVERY OF VACANT POSSESSION BY THE 2^ND PLAINTIFF

25.I also make an order that the 2^nd Plaintiff should deliver vacant possession of the Property 28 days before the scheduled completion date of the sale of the Property. 

COSTS

26.As far as costs is concerned, although the 1^st and 2^nd Defendants initially objected to the sale of the Property, it is fair to say that the main intention between the parties is the mode of sale.  The 1^st Defendant has as early as December 2018 indicated that he does not oppose a sale of the Property.  Although the position of the 2^nd Defendant is less clear, it appears to the court that the main focus of the 2^nd Defendant is also on the mode of the sale.  On the mode of sale, it can be said that the Defendants are the substantive winner.  I also note that the Defendants’ suggestion that the 2^nd Plaintiff should vacate the Property two months before the scheduled tender closing date is not accepted by the Court.

27.Taking all the matters into consideration and in view of the fact that court involvement is necessary to decide on the mode of sale and other relevant matters, I make an order that the costs of all parties should be borne out of the proceeds of the sale of the Property with a certificate for one counsel.

28.Out of abundance of caution, the parties’ costs means the parties costs taxed by a High Court master on a party to party basis if the parties cannot agree on the same.

DISPOSITION

29.Accordingly, I make an order in terms of the Schedule as set out below.

30.Finally, it remains for me to thank Mr Yim and Ms Lai for the Plaintiffs and Mr Mui for the Defendants for their helpful assistance. 

Mr Valentine Yim and Ms Myranda Lai, instructed by Y. K. Lau & Chu, for the 1^st to 3^rd Plaintiffs

Mr Nelson Miu, instructed by Lee, Wong & Lam, for the 1^st Defendant

The 2^nd and 3^rd Defendants were not represented and did not appear

Schedule

The sale of the Property shall be conducted in accordance with the following terms and conditions:

1.  The Property be sold by public tender. Any party to this action may tender for the Property on the same terms and conditions set out in this Schedule.

2.  Mr HO Cham, solicitor, of Messrs. Ho and Wong, Solicitors (“Mr Ho”)  shall within 28 days from the date of this Order appoint Mr HO Ka Wai (何家威)  of Jones Lang LaSalle Limited (the “Agent” and “JLL” respectively)  as sole agent for the sale, for an initial period of six months.  The Agent shall be authorized to invite and receive tenders for the sale of the Property in the manner prescribed in this Schedule.

3.  JLL shall charge the co-owners a fee of 0.35% of the final transaction price and shall spend at least HK$147,200 on marketing expenses for the sale of the Property, to be borne by JLL irrespective of whether the Property is successfully sold or not.

4.  The Agent shall, within 60 days from his appointment,

(a)  obtain from JLL and Knight Frank Hong Kong Limited each a valuation report on the open market value of the Property as at a common valuation date.  The costs of obtaining the valuation reports, estimated at HK$60,000 and HK$80,000 respectively, shall be borne by the co-owners to be paid out of the proceeds of sale of the Property.   The mean (i.e. the average)  of the two valuations shall be the reserve price (the “1^st Reserve Price”)  for the Property in the sale; and

(b)  place an advertisement in at least one Chinese local newspaper for five days and one English local newspaper for one day, inviting offers for the purchase of the Property by public tender for 45 days from the date of the first publication of the advertisement.

5.  The Agent is entitled to make unlimited requests for viewing of the Property by potential tenderers. For each such request, the Agent shall provide two possible viewing time slots to the 2^nd Plaintiff, who shall commit to be away from the Property for one of the two possible viewing time slots. For each such request:

(a)  the Agent shall provide 48 hours’ notice prior to the earliest possible viewing time slot and the 2^nd Plaintiff shall reply within 24 hours;

(b)  communications between the parties on such viewing requests shall be conducted via the parties’ solicitors, namely Y.K. Lau & Chu for the Plaintiffs and Lee, Wong & Lam for the 1^st Defendant; and

(c)  such communications shall be conducted via email. The parties shall each nominate two solicitors, namely: Ms LAU Yuk Kuen at [email protected] and Ms SHEK Yau Lin at [email protected] for the Plaintiffs, and Mr. Dennis LAM at [email protected] and Ms. Amy LAM at [email protected] for the 1^st Defendant.

6.  Without prejudice to paragraph 5 above, the Agent shall arrange for the Property to be viewed by selected potential tenderers without prior appointment on the 2^nd, 4^th and 6^th Sundays (from 1:00 p.m. to 6:00 p.m.)  within the two-month period prior to (and counting back from)  the closing of the public tender. At any time during such viewing, the number of viewers physically inside the Property cannot exceed four on the part of the potential tenderers, and the viewers must be accompanied by at least one but not more than two members of staff of JLL. There shall be no limitation on the number of the parties of potential tenderers (each party consisting of not more than four viewers, not counting the number of accompanying staff of JLL)  that can participate in the viewing on each of the said Sundays, as long as they are not inside the Property at the same time.

7.  No photographs or videos shall be taken inside the Property, whether by members of staff of JLL or any of the viewers of the Property during any viewing specified in paragraphs 5 and 6 above.   There shall be no restriction on the taking of photos or videos of the exterior of the Property. JLL may when accompanied by the 2^nd Plaintiff or his authorized representatives(s)  take photographs of the exterior and interior of the Property showing wear and tear.

8.  No tender received in the aforesaid tender exercise shall be valid until and unless:

(a)  the tender shall have reached the office of the Agent no later than 5 p.m. on the date specified in paragraph 4(b)  above; and

(b)  the tender shall enclose with it a cashier order for the sum of 5% of the tendered price issued by a licensed bank in Hong Kong and made payable to Messrs. Ho and Wong, Solicitors.

9.  Bids be opened internally at the offices of the Agent at 5:30 pm on the day of the closing of the public tender. The parties or their authorized representatives are entitled to be present at the opening of the bids if they so wish.

10.  If there is no tender received at or above the 1^st Reserve Price, the Property shall be put forward for sale by public tender by the Agent at 10% off the 1^st Reserve Price (the “2^nd Reserve Price”)  within 4 months thereafter in accordance with the procedures specified in paragraphs 4(b)  to 9 above.

11.  If there is no tender received at or above the 2^nd Reserve Price, the Property shall be put forward for sale by public tender by the Agent at 10% off the 2^nd Reserve Price (the “3^rd Reserve Price”)  within 4 months thereafter in accordance with the procedures specified in paragraph 4(b)  to 9 above.

12.  The 3^rd Plaintiff and the 1^st Defendant shall be authorized to sign any sale and purchase agreement and execute any assignment in respect of the Property for themselves and on behalf of the 1^st and 2^nd Plaintiffs and the 2^nd and 3^rd Defendants in favour of the aforesaid highest tenderer, subject to the reserve price to be obtained pursuant to paragraphs 4(a), 10 and 11 above.

13.  Mr Ho shall apply the proceeds of sale of the Property in the following manner and priority:

(a)  Payment of (i)  the Agent’s fee referred to in paragraph 3, (ii)  fees ($98,000)  and disbursement of Mr Ho himself for the purpose of carrying out this Order, and (iii)  the parties’ costs of these proceedings, to be taxed if not agreed;

(b)  Discharge of liabilities due to the Government in respect of the Property including Government rent, rates and ground rent (if any);

(c)  Payment of all management fees, outgoings and for the discharge of incumbrances on the Property;

(d)  Payment of the residue to the 1^st, 2^nd and 3^rd Plaintiffs and the 1^st, 2^nd and 3^rd Defendants in accordance with the following proportions:

(i)  the 1^st Plaintiff: 10%

(ii)  the 2^nd Plaintiff: 10%

(iii)  the 3^rd Plaintiff: 50%

(iv)  the 1^st Defendant: 10%

(v)  the 2^nd Defendant: 10%

(vi)  the 3^rd Defendant: 10%

14.  In the event of an unsuccessful sale of the Property, the costs and expenses of the sale referred to in paragraph 13(a)  above, including Mr Ho’s fees (now $10,000 instead of $98,000)  and disbursement but excluding parties’ costs of these proceedings, the Agent’s fees referred to in paragraph 3 , shall be borne by the 1^st, 2^nd and 3^rd Plaintiffs and the 1^st, 2^nd and 3^rd Defendants in the proportions set out in paragraph 13(d)  above. In the event of an unsuccessful sale of the Property, no order shall be made as to parties’ costs.  

15.  The 2^nd Plaintiff shall, upon being given two months’ notice by Mr Ho, do vacate and deliver up vacant possession of the Property to Mr Ho 28 days before the date of the execution of the aforesaid assignment.

16.  Mr Ho do certify the results of the sale of the Property to the Court within 28 days of the execution of the aforesaid assignment.