Re Inland Lot No. 476

HCMP1273/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1273 OF 2009

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Before : Hon Bharwaney J in Court

Dates of Hearing : 22 and 26 February 2010

Date of Judgment : 12 March 2010

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J U D G M E N T

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1.This is the plaintiff’s application for an order for sale of certain property under section 6 of the Partition Ordinance, Cap. 352 (“the Ordinance”). The plaintiff and the defendant are tenants in common in equal shares in respect of property located on the Ground Floor, 4 Sharp Street East, Hong Kong (“the Property”). The Property is used as a ground floor retail shop and comprises of a ground floor with an area of about 600 sq. ft. and with a yard of about 60 sq. ft., a cockloft of about 320 sq. ft., and a flat roof of about 60 sq. ft. The rest of the 6-storey building, completed in 1964, in which the Property is situated is used for residential purposes. The tenant of the Property, who has been paying $122,000 as a monthly rent for the Property, should have vacated the premises at the end of February 2010. Having heard the parties, I adjourned the hearing on 22 February 2010 to 26 February 2010 to enable the parties to present evidence to me of the likely rental that the Property could enjoy if the Property were to be re-let. This has been done.

2.The plaintiff and the defendant are half brothers. Their relationship is far from cordial, to say the least. In fact, they have been involved in disputes and litigation for a considerable period of time, including disputes as to the proper use and disposition of the Property.

3.In support of his application, the plaintiff produced a valuation report dated 18 November 2009 stating that the then current market value of the Property was $58 million. The matter came before Yam J on 2 December 2009 and he adjourned it to enable the defendant to adduce his own valuation report. This the defendant has done. In their report dated 21 December 2009, the defendant’s valuers valued the Property at $65 million.

4.The defendant initially took a point on service, complaining that there was no affidavit of service of the proceedings on the Director of Land, as required by section 3(2) of the Ordinance. The defendant no longer takes the point after having been served with an Affirmation of Service, affirmed on 19 February 2010, by a clerk to the plaintiff’s solicitors’ firm.

5.The defendant, however, maintains his opposition to the application on the grounds that he has a sentimental attachment to the Property and that it has not been established that it is more beneficial to the parties to sell the Property than to continue to own them.

6.The power to order a sale of their property is conferred on me by section 6 of the Ordinance which 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.”

7.I also refer to section 2 of the Ordinance which 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;

(c)  refuse to make any order.”

8.As the subject matter of the Property is one undivided equal share of the land together with the sole and exclusive right and privilege to hold use occupy and enjoy the shop premises, it is not practical to contemplate a partition of the Property. I have no hesitation concluding that a partition of the Property would not be beneficial to all the owners. I am, therefore, satisfied that I have the power to order a sale of the Property. Should I exercise that power which is clearly discretionary?

9.There has been considerable case law on the point, and the principles governing the exercise of discretion may be set out as follows :

“(1)  A co-owner has a basic right to rid himself of the shackles of co-ownership and ask for an order for partition or sale if he has no other remedy.

(2)  When 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.

(3)  Whether an order for sale is beneficial to all the co-owners is not determined by the dissent of the opposing co-owners or the assertion by them that it is not beneficial.  It has to be determined by the court objectively.”

10.Underpinning these principles is the acceptance that the right of ownership must include the right of disposition. That right takes on more importance particularly when co-owners are uncooperative and unable to fully utilize opportunities for the letting out of commercial premises at favourable rates. The evidence adduced before me clearly demonstrates a lack of cooperation between the co-owners, and their inability to agree to re-let the Property at the best available commercial rent.

11.Although the defendant initially opposed the application for sale on the ground of the allegedly unjust and inequitable conduct on the part of the plaintiff, Mr Raymond Lau, appearing for the defendant, accepted that it was not necessary for the Court to go into the rights or wrongs of the conduct of the parties. However, he maintained the defendant’s opposition to the sale on the ground of his client’s sentimental attachment to the Property, and on the ground that a sale would not be beneficial to all the owners of the Property as the Property enjoys good rental income.

12.I find it difficult to accept that the defendant could become sentimentally attached to commercial premises that he has never occupied, and particularly when the Property had been acquired after the defendant left Hong Kong and went to reside overseas. But, even accepting that the defendant has a sentimental attachment to the Property which was a testamentary gift from his father, I am unable to find that the loss of the Property, after its sale, constitutes very great hardship as would prevent the Court from making an order for sale.

13.The plaintiff wants to sell the Property so that he can satisfy the Charging Orders registered against his half share of the Property by his ex-wife to the value of about $5 million and in order to pay off his other indebtedness and to provide financial support to his siblings. The disposition of a property to pay off debts is, of course, the right of every owner and co-owner of property, and ought to be recognised particularly in the present case where the plaintiff is facing two statutory demands issued by the defendant and by a company controlled or managed by the defendant’s sister. If these demands are not met the consequent bankruptcy of the plaintiff is likely to result in the trustee in bankruptcy applying for sale of the Property.

14.However, Mr Raymond Lau argued that the sale of the property would not be beneficial to all the owners as the defendant would be deprived of substantial rental income from the Property which he currently enjoys. Mr Wong Hay Yiu for the plaintiff, countered that argument by submitting that the proceeds of sale, which the defendant would be entitled to, could be invested into purchasing other commercial premises, or even domestic premises, with similar rental returns.

15.On 26 February 2010, I received a valuation from the plaintiff’s valuers stating that the current market rental value of the Property was $140,000 per month, exclusive of rates and management fees. This is less than the offer of $165,000 a month received from Daily On Limited to rent the Property in February 2008, which was not accepted by reason of the lack of cooperation between the co-owners, and their inability to agree to re-let the Property. However, the valuation from the defendant’s valuers, Mr Chris Tang (“Mr Tang”) of Advice Surveyor’s (HK) Ltd, surprised me. He said that the current market rental value of the Property was $215,000 per month. I found this surprising because, in his earlier report dated 21 December 2009, he had concluded that the annual yield from the Property was 2.4%, which he had derived “from analysing the Asking Prices and Rentals of Retail Shops in the Causeway Bay area in which the Property is also situated”. He used that annual yield of 2.4% to work out a value of $65,000,000 for the Property. On the basis that the current market rental was $215,000 per month, the market value of the Property, worked out on the same basis, would be over $100,000,000, yet Mr Tang made no correction to his earlier valuation of $65,000,000.

16.If I had needed to do so, I would have rejected the rental valuations of both valuers and found the likely current market rental value of the Property to be in the region of $165,000 per month. However, the burden is on the defendant to satisfy me that a sale would not be beneficial to all the owners of the Property given the rental income that the Property can enjoy. Even if the Property can obtain a better return than other property that the defendant can invest in with his share of the sale proceeds, given the history of dealings between the parties and their inability to co-operate, I am far from satisfied that the parties can reach timely agreement to fully utilise opportunities to let out the Property at the best available rate.

17.I am not persuaded by the defendant that an order for sale would not be beneficial to all the co-owners. I am not persuaded that the return the defendant can achieve by investing his share of the sale proceeds in other tenanted property would be substantially less than the likely return from this Property.

18.For these reasons, I am satisfied that I should exercise my discretion to order a sale.

19.From the latest correspondence exchanged between the parties, it appears to me that the defendant was not opposing a sale of the property provided that, out of the proceeds of sale, a sum of $20 million be paid into court as security for the payment of the damages that the plaintiff might be adjudged liable to pay to the estate of Lam Tim, deceased, in HCA4713/2001. It would not be a proper exercise of discretion to make such an order in this case. The defendant and indeed, the plaintiff’s former wife, are always at liberty to make separate application, supported by proper evidence of a real risk of dissipation, for a Mareva injunction to restrain the plaintiff from dissipating the proceeds of sale.

20.The parties have exchanged draft minutes of an order for sale of the Property to cater for the possibility that I may so order. The plaintiff wanted to try to sell first by private tender with a reserve price of $60,000,000, so as to save costs, and if that failed to achieve a sale, to sell by public auction with a reserve price of $55,000,000. The plaintiff submitted that sale by private tender was a cost saving and effective means of sale. The defendant wanted a sale by public auction with a reserve price of $62,000,000, and if that failed to achieve a sale, to sell by another public auction with a reserve price of $60,000,000. I order and direct that the sale should first be by way of private tender with a reserve price of $62,000,000, and if that failed to achieve a sale, that there be a second sale by public auction with a reserve price of $60,000,000. I further direct the parties to agree draft minutes of order, to reflect the above, within 14 days from the date hereof and, in the absence of agreement, to exchange and file their respective minutes within 14 days from the date hereof, together with a written note of the concise reason(s) relied upon in support of each party’s version and in opposition to the other party’s version, for my consideration and determination.

21.I award costs of the proceedings to the plaintiff to be taxed, if not agreed.

Mr Wong Hay Yiu, instructed by Messrs Joseph C.T. Lee & Co.,for the Plaintiff

Mr Raymond Lau, instructed by Messrs Fan Wong & Tso,for the Defendant