Re Tong Chi Kit

HCB 4942/2009

[2023] HKCFI 639

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4942 OF 2009

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J U D G M E N T

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Introduction and background

1.There is before this court an application by the Trustees of the property of Mr Tong Chi Kit (“Bankrupt”) 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 3 on 20/F of Block A, Po Nga Court, No. 2 Tai Po Tai Wo Road, Tai Po, New Territories (“Property”), together with consequential orders.

2.The Property is a residential flat built under the Home Ownership Scheme (“HOS”). According to the land search records, on 3 March 1989, the Property was assigned by the Hong Kong Housing Authority into the joint names of the Bankrupt and his then wife[1] Madam Ngan Mei Wah (“Madam Ngan”), the Respondent, at the consideration of HK$252,100. The purchase was financed by a loan of HK$226,800 from the Standard Chartered Bank and secured by a legal charge dated 27 December 1989. In January 2005, the loan was fully repaid and the legal charge was released.

3.The Property is free from encumbrance save for a Charging Order granted in favour of Fine State Finance Co Limited (“Fine State”) against the Bankrupt’s interest in the Property. According to the Trustees, they had given notice to Fine State by letter dated 9 November 2015 of their intention to make the present application and asked for a reply but none had been received.

4.The gross floor area of the Property is about 583 sq ft. According to Madam Ngan, the Bankrupt at first lived in the Property with the family but stopped living there in around 2006 to 2007. In her first affirmation dated 2 February 2016 (“Ngan 1”), Madam Ngan said she was living in the Property with her son Tong Yu Sum, Sam (“Sam”) and the Bankrupt’s mother (“Madam Chan”) who was close to 90 years old and required daily care and attention by her and Sam. Unfortunately, Madam Chan passed away in 2017. This was revealed in the 2^nd affirmation of Madam Ngan dated 27 January 2022 (“Ngan 2”). Since then, Madam Ngan has been living with Sam in the Property.

5.On 6 April 2009, the Bankrupt filed a petition for his own bankruptcy. On 19 May 2009, he was adjudicated bankrupt. By summons dated 17 December 2015, the Trustees made the present application. The application is opposed by Madam Ngan.

6.The total amount of the Bankrupt’s unsecured proved debts as adjudicated by the Trustees is HK$164,045.92. The Trustees’ estimate of the total amount of post-bankruptcy interest calculated up to 30 June 2023 is no less than HK$750,000.

7.According to an updated valuation report dated 8 September 2022 prepared by Allied Surveyors Limited for the Trustees, the value of the Property was as follows:

(1)	Open Market Value (on a vacant possession basis)[2]	HK$4,850,000
(2)	Secondary Market Value (on a vacant possession basis)[3]	HK$3,050,000

Deliberation

First Issue

8.The first issue in this case is whether the Bankrupt has any beneficial interest in the Property.

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 Erwiana Sulistyaningsih v Tsui Yun Bun Barry [2018] 1 HKLRD 487, Recorder Stewart Wong SC observed at [29]:

“29. In other words, unless there is evidence on which the Court makes a finding of contrary intention (actual inferred or imputed), and the burden is high, equity follows the law and beneficial ownership follows the legal ownership (Stack v Dowden at [54], per Baroness Hale). As stated in Snell’s Equity (33^rd ed, 2015) at para 24-049:

‘Where an express trust has not been declared, then the starting point is that equity follows the law, and the beneficial ownership of the property is held in the same way as the registered legal estate in the property. If the property is registered in the name of one party only, then they will be presumed to be the sole beneficial owner. If it is registered jointly in the names of both parties, then it is presumed that they hold for themselves as beneficial joint tenants. This will be the case even where one party has made no financial contribution at all to purchasing the property.” (emphasis added)

12.Madam Ngan’s evidence is that although she and the Bankrupt were the registered owners of the Property back in March 1989, it was then verbally agreed and all along intended between them that she would have the entire beneficial interest in the Property. The reason at that time was Madam Ngan’s concern about the Bankrupt’s spending habits - he never saved up money and was prone to spending more than he earned.

13.The parties’ whole course of conduct in relation to the Property includes the fact that the Bankrupt had not contributed anything financially towards its purchase. Rather, the initial down payment, the further payment, all the costs and expenses associated with the purchase and the mortgage repayments of around HK$1,250 per month were all paid by Madam Ngan out of her own funds and, in the case of mortgage repayments, also with the assistance of her relatives. Further, Madam Ngan’s evidence is that, by agreement, the Bankrupt was never in possession of the title deeds. Since the release of the legal charge in 2005, she has held on to the title deeds to the Property.

14.Madam Ngan’s explanation as to why the Property was registered in the joint names of the Bankrupt and her was to facilitate the approval of the mortgage loan as advised by the bank. At that time, the Bankrupt was a night-shift taxi driver and Madam Ngan was a saleswoman. Since the Bankrupt had no savings for the purchase of the Property, Madam Ngan’s initial plan was to purchase it in her own name with the assistance of a mortgage loan. The bank however advised her that her application might not be approved owing to her low and unstable income. It advised her that the Property should be held by her jointly with the Bankrupt so that the income of both would be taken into account when considering the grant of the mortgage loan.

15.Lastly, it is Madam Ngan’s evidence that soon after the purchase of the Property, the Bankrupt hit a low point in his life and resorted to gambling. Because of his gambling problems, he had borrowed from his family members, friends, and moneylenders and had never contributed to the living expenses of the family or the education expenses of their son. The debts owed to the finance companies including Fine State, as shown in his statement of affairs dated 3 April 2009, eventually led to his bankruptcy.

16.Madam Ngan’s account of the circumstances under which the Property was registered in the joint names of her and the Bankrupt as well as the Bankrupt’s longstanding financial/gambling problems is corroborated by inter alia the Bankrupt’s sister Tong Sau Mui (“Sau Mui”). This is what Sau Mui said in her 2^nd affirmation dated 27 January 2022:

“7. In 1987, I knew that the Bankrupt has no savings for holding a wedding banquet, therefore I paid for all expenses of his wedding banquet and received all gift and money from guests after the wedding was done.

8. In 1988, Madam Ngan told me that she wanted to purchase a property. She wanted to have a permanent home. We both knew that the Bankrupt has no savings. I told Madam Ngan that if she wants my assistance, I am happy to do so, because my brother, the Bankrupt will also live under the same roof. Madam Ngan said she has savings which are sufficient to pay for the down payment to the purchase of the Property.

9. Later on, the Bankrupt told me that he and Madam Ngan were purchased the Property and in joint name for the reason that they both earned unstable income and the mortgagee bank agreed to lend them money on the condition that he has to be added as one of the purchasers.” (emphasis added)

17.The Bankrupt’s lack of savings and his longstanding financial/gambling problems is also corroborated by his youngest sister Tong Sau King (“Sau King”) who made an affirmation dated 27 January 2022. In her affirmation, Sau King referred to the Bankrupt’s unstable income and his asking for money from her ie around HK$300 to HK$500 each time and never paid back. Sau King also affirmed that in or around 1989, the Bankrupt told her he and Madam Ngan would move to a new flat. Upon inquiry by Sau King as to where he got the money, the Bankrupt revealed that the purchase of the Property was all paid for by Madam Ngan. Lastly, Sau King affirmed that the Bankrupt was a serious gambling addict and his frequent borrowings from his father and her.

18.The gist of the Trustees’ submission is that the burden of proof rests on Madam Ngan to demonstrate that the beneficial interests in the Property differ from the legal interests and that she has failed to adduce sufficient evidence to discharge the high burden of showing she is the sole beneficial owner. Rather, the Bankrupt and the Respondent would have intended that the Property was a family asset in which they should have equal shares. This court does not agree.

19.First, it is said there is no corroborative evidence in relation to the existence of the agreement alleged by Madam Ngan.

20.This court does not accept this submission since Madam Ngan’s intention to purchase a home all by herself and the Bankrupt’s lack of means to contribute is well corroborated by his own 2 sisters. If the Bankrupt had no means to contribute anything towards the purchase of the Property, one asks why Madam Ngan would have agreed or intended that he should have any beneficial interest in it. One then asks further how the Bankrupt could have insisted that he should have half of the beneficial interest in the Property.

21.Second, one of the matters relied upon by Madam Ngan in support of the alleged agreement or intention is that she was the one who had in fact all along paid for the purchase of the Property, including the mortgage payments, while the Bankrupt had contributed nothing. However, Madam Ngan was unable to produce any documentary evidence on her income or her payments.

22.That is true as far as it goes. But Madam Ngan has already explained that firstly, due to the lapse of time, she was unable to produce her past bank records. Secondly, the bank or the solicitors involved in the purchase of the Property back in 1989 would no longer be in possession of the documentary records.

23.While strictly speaking the Trustees have no obligation to, they have not adduced any evidence to contradict the second part of Madam Ngan’s explanation - there is no evidence that they have inquired with the mortgagee bank or the solicitors involved whether any records could still be retrieved.

24.In this court’s view, the totality of the evidence shows that all along the Bankrupt had no means and had resorted to borrowings, both before and after the purchase of the Property, to support himself and his spending and gambling habits. The reality is that the Property had been purchased and the mortgage loan had been fully repaid. If it were not Madam Ngan who paid, either with her own income and/or with the help of relatives, who else would that be? It would of course be ideal if Madam Ngan were able to produce a file containing all the written records of her income and her payments over the years. But this court can only do the best it can on what is actually before it.

25.Third, it is said that on Madam Ngan’s own explanation, when she applied for the mortgage loan, the bank advised her that her application might not be approved owing to her low and unstable income and that was why the Property was eventually registered jointly in her and the Bankrupt’s names. If so, the Trustees question how Madam Ngan was able to pay for all the mortgage instalments and family expenses without contribution from the Bankrupt.

26.This court has already alluded to the overwhelming evidence that the Bankrupt had no means, could not even pay for his own wedding, had frequently resorted to borrowings and did not take responsibility for his family particular his son Sam. In fact, the evidence strongly suggests he was a financial burden to everyone close to him. In these circumstances, it is only reasonable to infer that the responsibility for all the mortgage instalments and family expenses must have fallen on Madam Ngan.

27.To conclude, in light of the available evidence on Madam Ngan’s and the Bankrupt’s whole course of conduct in relation to the Property, this court is satisfied that Madam Ngan has discharged the burden of establishing their agreement and intention at the time of the purchase was that she would have the entire beneficial interest in the Property.

28.Since the Bankrupt has no beneficial interest in the Property, that is sufficient to dispose of the present application.

Second Issue

29.For completeness, this court will proceed to consider the next question ie whether this court can and should make an order for sale of the Property.

30.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.

31.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).

32.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.”

33.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.”

34.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].

35.There is no doubt that physical partition of the Property is impracticable. The Trustees submit that it will obviously be beneficial if the Property is sold such that the sale proceeds could be used to repay the Bankrupt’s creditors.

36.As usual, 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; Anthony Chan J at [25] - [27].

37.In Re Cheung Chan Hong at [20] – [30], this court explained at length 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.

38.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.

39.Subsequently, in Re Lau Hiu Tuen unrep, HCB8430 of 2006, 20 August 2015, Godfrey Lam J (as he then was), 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.”

40.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].”

41.Accordingly, this court shall decide the Second Issue “on the basis of all the objective facts of the case,” balancing the interest of the Trustees, representing the interest of creditors, against that of Madam Ngan.

42.On the Trustees’ calculation set out in the 2^nd affidavit of Law Hoi Yan Helen dated 23 September 2022, 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$3.05 million. After deducting estate agents’ fees/commission, conveyancing costs and disbursements, the net sale proceeds will be around HK$3,003,500. A half share of the estimated net sale proceeds is around HK$1.5 million. After deducting the legal costs of the Trustees in this application (which may be payable by Madam Ngan if the application is allowed) at around HK$153,623, the Trustees estimate that HK$1,348,127 should be available for distribution to Madam Ngan.

43.As far as the interest of the creditors is concerned, the Trustees submit that the Bankrupt had never contributed to his bankruptcy estate and the outstanding debt had not been repaid for over 13 years after the Bankruptcy Order was made. The chances for the creditors to recover their debt is very low without an order for sale.

44.As far as Madam Ngan is concerned, on the evidence before this court, the Property is her only significant asset. It has also been her family home for over 30 years. This court is satisfied that Madam Ngan was the one who had in fact all along paid for the purchase of the Property, including the mortgage payments. There is also little doubt that all of the burden of providing for the family in terms of (i) paying for the living expenses of herself, the Bankrupt’s mother and Sam as well as Sam’s education expenses, and (ii) the expenses for the care of the Bankrupt’s mother, fell on her.

45.Madam Ngan is around 62 to 63 years old. She told this court she was working as a saleswoman in Watson’s promoting cosmetic products earning around HK$9,000 odd each month. Her income was unstable and depended partly on how much she could sell each month. Her education level is Primary 6 and it would be difficult for her to find a higher paid job.

46.Madam Ngan also told this court about her thyroid problems. Her health issues included swelling in the neck, difficulty in getting to sleep, painful knee joints and discomfort of the heart. Since 2019, Madam Ngan started attending regular medical check-up, lab tests and taking medication. The Trustees dispute the severity of Madam Ngan’s thyroid conditions but that dispute cannot be satisfactorily resolved based on the very limited medical evidence before this court.

47.Owing to her age, education background and health issues (which may or may not be attributable to her thyroid problems), Madam Ngan said it was uncertain how much longer she could continue to work. That is really self-evident.

48.Sam is around 30 years old. He has filed 2 affirmations in support of his mother’s opposition to the application. In the affirmations, Sam discloses that he had Form 4 education and was forced to work because the Bankrupt did not pay for his education and living expenses and because Madam Ngan’s income was unstable. At the time of his 2^nd affirmation dated 27 January 2022, he said he used to be a bartender but was unemployed owing to COVID 19 since most bars and restaurants were closed. At the hearing, Sam frankly told this court that he was again employed in a restaurant bar earning around HK$23,000 to HK$25,000. His income varied depending on the tips he received.

49.As stated earlier, the Trustees estimate that after the sale of the Property, HK$1,348,127 should be available for distribution to Madam Ngan.

50.In this court’s view, if Madam Ngan uses this amount to rent a sub-divided flat ie 劏房to live in at the costs of several thousand dollars a month, it may perhaps last 15 to 18 years, depending on inflation but before allowing a sum for her future living expenses. Alternatively, if Madam Ngan were to use the amount to purchase somewhere modest to live, it may well enable her to fork out the deposit. However, in view of her age and her unstable income, it is practically certain that she would not be able to obtain a mortgage loan in her name. Effectively, this means she cannot purchase a new home, however modest it may be. Lastly, it is Madam Ngan’s evidence that she is not eligible for public housing since she had already benefited once under the HOS in purchasing the Property. This is not disputed.

51.The Trustees submit that Sam could consider shouldering the economic burden of Madam Ngan’s accommodation. This is valid up to a point. It is true that Sam is mature and is in reasonably paid employment. But sooner or later, he will have his own family to support. In assessing Madam Ngan’s personal circumstances, it is unrealistic for this court to assume that Sam will be willing and able, even if he wishes, to bear the financial burden of Madam Ngan’s new home, rented or purchased, in addition to his own family home, not to mention his own living and family expenses, for the next decade or so. It may be easy to say that if the worst come to the worst, Madam Ngan can always depend on her son for the rest of her life. But in this court’s view, the economic and mental stress and anxiety of Madam Ngan caused by her present and future predicament is indeed very great hardship for someone who has toiled all her life for no fault of hers other than having an irresponsible gambling addict as a husband.

52.Balancing the interest of the Trustees representing the interest of the creditors and the interest of Madam Ngan, this court is of the view that the just result, objectively speaking, is not to order the sale of the Property.

Disposition and costs order nisi

53.The Trustees’ application is accordingly dismissed.

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

Miss Goh Suet Yee of M/s Gallant for the Joint and Several Trustees of the property of the Bankrupt

The Respondent, acting in person

The Bankrupt was not represented and did not appear