Re Liu Yi Fang
Read the full judgment text of HCB 5613/2013 on BabelCite. This HCB judgment was delivered on 30 June 2015.
1. This is an application by the joint and several trustees in bankruptcy (“Trustees”) for an order for sale in respect of a property jointly owned by the bankrupt, Mr Liu Yi Fang (“Liu”).
Cited by 27 cases · Cites 1 case
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HCB 5613/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO. 5613 OF 2013 ________________________
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________________ D E C I S I O N ________________ 1.This is an application by the joint and several trustees in bankruptcy (“Trustees”) for an order for sale in respect of a property jointly owned by the bankrupt, Mr Liu Yi Fang (“Liu”). 2.An order for bankruptcy (“Order”) was made against Liu on 5 February 2014. Mr Liang Yang Keng and Mr Lau Siu Hung were appointed as the Trustees in a general meeting of creditors on 16 June 2014. 3.Liu and his mother Madam Poon Tong (“Poon”) jointly owned a property known as Flat D on 24th Floor of Tower 1, Euston Court, No 8 Park Road, Hong Kong (“Property”). 4.By a summons filed on 31 October 2014 (“Summons”), the Trustees apply for an order for sale of the Property and an order for payment of occupation rent by Poon from the date of the bankruptcy order. 5.The Summons is opposed by Poon. In respect of the sale, there are 2 grounds of opposition as follows :
The Law 6.The Trustees make this application pursuant to s 6 of the Partition Ordinance, Cap 352 (“PO”) and s 60 of the Bankruptcy Ordinance, Cap 6 (“BO”). 7.There is no dispute between the parties on the legal position vis-à-vis the Trustees and the Property and I shall state it briefly as follows. Upon the making of the Order, 2 things happened to Liu’s assets (including the Property) by operation of law. Firstly, Liu’s assets became vested in the Official Receiver (“OR”) (s 58(1) of the BO). Secondly, any property of Liu held in joint tenancy was severed automatically and the severance created a tenancy in common as between the OR on the one hand and Poon (as the other co-owner) on the other (Re Dennis [1993] Ch 72). Further, on the appointment of the Trustees, Liu’s assets were passed to and became vested in them (s 58(2) of the BO). 8.I should add that the Trustees, who represent the interest of Liu’s creditors, are duty bound to realise the assets in Liu’s bankruptcy estate to pay his debts (Re So Ming Wai, HCB 172/04, unrep, 9 October 2014, §22). 9.In the present situation, which is not uncommon, when there is no agreement by Poon to the sale of the Property, the Trustees have little choice but to apply for an order under s 6 of the PO to enable the Property to be sold. 10.Sections 2, 6(1) and 6(2) of the PO provide as follows :
11.As regards the exercise of the power under the PO, there are 2 authorities which have been widely accepted as stating the applicable principles. They have been cited in Re Ng Tze Ching, HCB 5883/06, unrep, 29 August 2014 at §§21 and 22 :
12.I shall return to Re Ng Tze Ching below because there is a conflict between that case and a later judgment in Re Cheung Chan Hong, HCB 4827/07, unrep, 3 September 2014. Mr Liu, who appeared for the Trustees, is relying upon the former, whilst Ms Li, appearing for Poon, is relying upon the latter. I do not believe that the determination of the Summons turns upon the difference in approach in these cases. However, in view of the reliance upon them, it is the duty of this court to deal with the matter. Beneficial Ownership 13.Despite the fact that the Property is jointly owned by Liu and Poon, Poon claims that she is the sole beneficial owner of the Property. There is no challenge to the proposition that Poon bears the burden to prove her assertion. 14.In Stack v Dowden [2007] 2 AC 432, it was held by Lady Hale :
15.Lord Neuberger said in the same judgment :
16.Stack v Dowden was applied in Hong Kong in Re Lau Yuet Ming Daisy, HCB 10078/03, unrep, 21 July 2014, §6. 17.The owners’ common intention regarding the ownership of their property may change after the acquisition of the property. In Jones v Kernott [2012] 1 AC 776, Lord Walker discussed the judgment in Stack v Dowden and said :
Very Great Hardship 18.I do not believe that there is any hard and fast principle under this heading. In Re Ng Tze Ching, it was observed in para 32 of the decision that “… Issues of hardship are necessarily facts sensitive”. Occupation Rent 19.Only 1 case has been cited by the parties on this topic. In Re Byford (Deceased) [2004] 1 P&CR 12 159, Collins J (as he then was) said :
Ownership of the Property 20.Poon’s evidence has been set out in 2 affirmations dated respectively 10 December 2014 and 9 March 2015. Her evidence, together with some of the evidence adduced by the Trustees, may be summarised as follows. 21.Poon is a well-educated lady having graduated in a well-known university in the Mainland with a degree in Chemistry. She came to Hong Kong in 1983 because she found that her career opportunities were limited in the Mainland. 22.At the time when the Property was purchased in 1988, Poon was 51 years old, divorced, and had been working as a mandarin teaching consultant since her arrival in Hong Kong. She had accumulated some wealth through her mandarin teaching job and her investment in the Hong Kong stock market. 23.Poon says that the purchase of the Property was for the sole purpose of acquiring a long-term residence for herself in Hong Kong. The Property was registered in the joint names of her and Liu. Liu was 26 years old at the time and had also been living in Hong Kong since 1983. However, he had to spend most of his time in Beijing due to the requirement of his job. 24.The reason why Liu’s name appeared as one of the purchasers was (a) to facilitate the mortgage application as Liu had a salaried job whilst Poon had no employment contract and (b) for estate duty purpose. In respect of the latter, I understand it to mean that Poon had the intention of leaving the Property to Liu upon her death. However, she never intended to provide a gift to Liu at the time of the purchase because she could not afford such a valuable gift. 25.Poon says that she alone paid for the Property which cost HK$1,151,500. The down payment, balance of the purchase price (minus the mortgage loan), stamp duty and expenses and the mortgage repayments (HK$7,417 per month) were all paid by her. At the time of acquisition, Liu was at the early stage of his working life and had limited financial means. His monthly salary was about HK$12,000. 26.As to relevant documents in relation to the purchase, due to the lapse of time, Poon is unable to produce her past bank statements or any records to prove her earnings at the material times and the payments for the Property, including the mortgage repayments. Efforts made by her solicitors to obtain documents from the mortgagee bank and the solicitors who handled the conveyancing of the Property on her behalf have not been fruitful. 27.In July 1989, Poon made early repayments to discharge the mortgage. She managed to do so by reason of a new business generated through her Mainland network. From about December 1988, Poon helped her Mainland friends and their enterprises to manage exchange rate risk by exchanging the funds remitted by them to Hong Kong into USD. Later, she would use the USD to pay for the purchases made by the Mainland parties. Fees were paid to her for handling these transactions. Whilst the funds were in her custody, she was permitted to use them for her own investments in the stock market. A company, Chania Enterprises Co Ltd (“Chania”) was acquired for the purpose of this business. 28.From the company record of Chania, it can be seen that Poon and Liu were appointed directors of Chania with effect from 5 December 1988. They had the same address and the former was stated to be a teacher and the latter a manager. The shares of Chania were owned by Poon and Liu equally[1]. However, Poon says that the shares in Liu’s name were held by him as her nominee. 29.Poon says that she set up another company, Full Link Holdings Inc (“FLH”), in about 1991 to 1992 to take advantage of various business opportunities and her Mainland network. Initially, the main business of FLH was the import and trading of mechanical and electrical equipment. In about 1997, FLH launched its first Mainland real estate project. A number of other companies were also set up by Poon during 1991 to 1996. There were altogether 8 of them, excluding Chania. Two of the 8 companies, Full Link Enterprises Ltd (“FLE”) and Maho Ltd (“Maho”), are of interest and they will be mentioned again below. 30.It is convenient here to mention the Trustees’ evidence about Liu’s involvement with the Full Link group of companies. According to the website information of the Full Link Group[2], he is the CEO of the “Hong Kong Full Link Group” (it appears that there are various Mainland companies within the Full Link Group) and he founded the “Full Link Company” in 1992. It is common ground that there is no evidence that Liu holds any shares in any of the companies in that Group. However, due to the interposition of FLH, which is a BVI company, the matter is simply not transparent. 31.In 1999, Maho, a company jointly owned by Poon and Liu purchased another property – Flat D, 28/F, Bk 32 South Horizons, No 32 Yi Nam Rd, Hong Kong (“SH Flat”). 32.In 2000, a flat next to the Property (Flat 24E) was purchased by Chania. According to Poon, the partition wall between the 2 properties was subsequently demolished so that the 2 flats were made into 1 unit. 33.Coming back to the mortgage over the Property. There were in fact 3 mortgages altogether. The 1st mortgage was apparently taken out to fund the acquisition of the Property (see paras 24 and 25 above). The 2nd mortgage was dated February 1989, and the record stated that it was to secure general credit facilities. Both the 1st and 2nd mortgages were discharged together in July 1989. 34.The 3rd mortgage was dated January 1996. It was taken out by Poon and Liu to secure a bank loan to FLE, and was discharged in 2001. At all material times, both Poon and Liu were directors of that company. 35.Poon is 77 years old now and has been residing at the Property for over 25 years. 36.Poon also relies on Liu’s claim that she has sole beneficial ownership over the Property. By his Statement of Affairs dated 29 April 2014, Liu had informed the Trustees of such beneficial interest. The assertion was repeated in an affidavit of his solicitor, Henry Wan Hok Wai, dated 13th June 2114. Analysis 37.I am unconvinced about the merits of Poon’s case. To begin with, I believe that she has understated the earning capacity of Liu at the time of acquisition of the Property. It appears from the website information (see para 30 above) that Liu started his career in 1984 after obtaining his Physics degree the previous year. In 1986, he started working for a very substantial American company, described as the world’s largest machine room equipment manufacturing and marketing company. With a monthly salary of HK$12,000 in 1988, Liu would have no difficulty contributing to the purchase of the Property at least in respect of the monthly mortgage repayments. 38.Further, there is no evidence at all of Poon’s income or savings in 1988. The fact that she would have been unable to obtain a mortgage on her own is certainly not supportive of her case. Whilst I accept that it would be very difficult to obtain records going back to 1988, it is nevertheless surprising that none has been produced. There is no explanation from Poon why she has not kept any of the relevant records. 39.Furthermore, taking a most favourable view for her benefit, the evidence suggests that Poon and her son were working as a team in the development of their business and in the acquisition of properties. This is borne out by the fact that Chania is jointly owned. All the properties are jointly owned (both the SH Property and Flat 24E are held by jointly owned companies). In all likelihood, Liu also has a significant stake in the Full Link Group. It should be noted that FLH started its business in mechanical and electrical equipment, which was an area in which Liu had been working. Given the age and experience of the mother and son, an objective appraisal of the facts suggests that the latter was, more like than not, taking a leading role in the business. 40.There are other indications that Poon’s case is not a credible one. Firstly, she failed to mention the 2nd and 3rd mortgages. They were clearly taken out to fund the budding business. There is no explanation as to the source of the redemption funds. Secondly, despite having received 4 letters from the Trustees inviting her to sell the Property or to purchase the half share belonging to Liu’s estate, Poon failed to respond by asserting that the Property belongs to her entirely. 41.In the premises, I reject Poon’s case that the entire beneficial interest in the Property belongs to her. There is no reason to doubt that the beneficial ownership is the same as the legal ownership. Very great hardship 42.Poon’s evidence is that, in addition to her old age, she is suffering from diabetes mellitus and hypertension (described by her as “high risk”). It has also been said that Poon needs to see a psychiatrist but there appears to be no medical record of such treatment. Her condition has deteriorated following her son’s on-going litigations from 2012 and his bankruptcy in 2014. 43.Due to the removal of the partition wall between Flat 24E and the Property, in the event of a sale of the Property reinstatement work would be necessary. It is said that such reinstatement work, the temporary relocation and the storage of her furniture and belongings during the work would bring about a great deal of physical labour and hardship to Poon. 44.The SH Flat is presently occupied by Poon’s ex-husband and his own family and will not be available for her use. 45.Compared with the run-of-the-mill applications of this type, Poon is quite fortunate in that she is in a comfortable financial position and will not have any major difficulty in finding alternative accommodation if the Property is sold. Ms Li, quite rightly, is not pressing this part of her case. 46.On behalf of the Trustees, Mr Liu has rightly pointed out that, firstly, Poon has been invited to purchase the other 50% interest in the Property. There is no suggestion that she does not have the means to do so. The offer still stands. Secondly, the Property was valued at HK$13.3 million in October 2014. The proceeds of sale to which Poon would be entitled would allow her considerable flexibility on where she would like to be relocated if that be her choice. 47.In the premises, I have no difficulty concluding that the facts of this case are far from demonstrating very great hardship. Occupation rent 48.Mr Liu submits that after the bankruptcy of Liu, Poon continues to reside in the Property. The Trustees have been unable to derive any financial benefit from the Property whilst Poon is residing therein. In the circumstances, to do justice between the Trustees and Poon, it is proper to order Poon to pay half of the market rental of the Property to the Trustees as occupation rent from the date of the bankruptcy until the date of sale of the Property. Mr Liu relies on Re Byford (Deceased), supra. 49.According to a valuation report adduced by the Trustees, as at 5 February 2014 the market rental of the Property was HK$31,000 per month. There is no challenge to this evidence. 50.Based on this evidence, Mr Liu submits that the occupation rent should be HK$31,000 ÷ 2 = HK$15,500 per month. 51.I have been referred by Ms Li to Snell’s Equity, 33rd edn, rubrics 20-084 and 20-085 (footnotes omitted) :
52.According to both counsel, there is no precedent in Hong Kong where occupation rent was awarded in a bankruptcy case. 53.A claim for occupation rent was declined by the court recently in Re Leung Wang Fai, HCB 15328/03, unrep, 17 March 2014. It was a case involving an 82 year old co-owner (mother of the bankrupt) who had to look after her 85 year old husband who was suffering from ill health. 54.Whilst it is common ground that the court has the power to order the payment of occupation rent in order to do broad justice between the parties, what are the principles which guide the court in exercising this power in the present context? Doing the best I can, and bearing in mind the authorities cited to this court, matters of first principles and sound common sense, I believe that the court should be guided by the following :
55.Turning to this case, I shall err on the side of excessive leniency to Poon and decline to make an order in favour of the Trustees for the following reasons. Although the invitation to Poon to purchase the other 50% interest in the Property was made some 10 months ago, given the circumstances of this case, it would have been reasonable to allow her 1 month to consider the matter. On the assumption that the sale would have required 1 month to effect, the issue is therefore boiled down to 8 months of occupation rent. 56.I would not have simply adopted Mr Liu’s formula of 50% of the market rent as the occupation rent for the reasons alluded to in para 54(v) above. A discount should be made to reflect the reality of the situation. I believe that this should be a rough and ready assessment by the court. Otherwise, it can turn into an expensive inquiry with conflicting expert evidence. Such an exercise may not be consistent with doing broad justice. All in all, the amount of money at stake is not very substantial. 57.Finally, Poon’s personal circumstances and the attachment which she has with the Property by reason of residing there for nearly 30 years deserve the consideration of the court. 58.For these reasons, the application for occupation rent is declined. Re Ng Tze Chung and Re Cheung Chan Hong 59.These decisions were separated by 4 days. The difference in principle between the 2 authorities concerns the approach to be taken by the court in an application by a trustee in bankruptcy for the sale of a property used to be jointly owned by the bankrupt. 60.In Re Ng Tze Ching, after referring to Wong Chun Kei (see para 11 above), the court went on to hold as follows :
61.In Re Cheung Chan Hong, the court also considered Re Citro and was unable to agree with the approach of that authority. It was stated in §21 :
62.The court then examined with admirable care the statutory context which underpinned the English authority. In particular, the court referred to the judgment of Bingham LJ in the same case in §28 (footnote omitted):
63.Paras 30 to 32 set out the decision in Cheung Chan Hong on the proper approach :
64.It is readily apparent that the court took the view that it had an unfettered discretion in an application by a trustee in bankruptcy for the sale of a co-owned property under s 6 of the PO. 65.With great respect, I decline to adopt the same approach. However, it must be acknowledged that the court in Re Ng Tze Ching did not consider the statutory context of Re Citro. On the other hand, Mr Liu submits that the 3 points identified in para 26 of Re Ng Tze Ching are in accordance with common and commercial sense. 66.Re Ng Tze Ching was applied in Re So Ming Wai, HCB 175/04, unrep, 14 October 2014. However, it appears that Re Cheung Chan Hong was not referred to the court in that case. 67.I do not read Wong Chun Kei in the same manner as the learned Judge did in Re Cheung Chan Hong. In para 16 of that judgment, Recorder Fok SC referred to the authority of Fook Sun Enterprises Co Ltd v Cromwell Investment Co Ltd v Ors [1973-1976] HKC 335 :
68.In paras 17 to 19, the learned Recorder referred to the subsequent endorsements of Fook Sun Enterprises in other cases, the proper formulation of the principles (see para 22 of Re Ng Tze Ching in para 11 above) and concluded as follows :
69.The principles stated in Wong Chun Kei are now regarded as well-established. I refer to another recent authority in this area, Re Lau Yuet Ming Daisy, HCB 10078/03, unrep, 21 July 2014, §§11 and 12 :
70.I prefer not to characterise the trustee’s right, or the right of the creditors, in the present context as one superior to that of the innocent co-owner. I believe that the approach of Re Ng Tze Ching is consonant with our bankruptcy law, in particular the conversion of any joint tenancy into a tenancy in common and the trustee’s duty to realise the bankrupt’s estate to repay the creditors, and the POas explained in Wong Chun Kei. 71.It should not be overlooked that when the court is dealing with an application under the PO, regard must be paid to the purpose of that Ordinance (see para 21 of Re Ng Tze Ching cited in para 11 above). 72.I agree with Mr Liu that the points identified in para 26 of Re Ng Tze Ching are consonant with common and commercial sense. 73.If one is to consider whether the law should give preference to personal over property interest, it should not be overlooked that some unpaid creditors may also face the prospects of losing the home for his/her family. 74.If the exercise is one of unfettered discretion to be determined after consideration of all relevant factors, this is liable to turn an application of the present type into a considerably more complex and expensive litigation. For instance, the court may be asked to consider the conduct of the innocent spouse so far as contributing to the bankruptcy (see the provisions of s 336(4) of the Insolvency Act 1986 (“IA”) referred to in para 17 of Re Cheung Chan Hong). 75.If one is to have regard to the respective rights of the parties, what is the right which an innocent spouse has to counter-balance that of the trustee to have the co-owned property sold? It is difficult to see what right there can be. 76.I have referred above to the case of an innocent spouse because cases involving the same, especially when there are children, may be seen to be most deserving of sympathy. 77.Finally, my understanding of Re Citro is as follows :
Conclusions 78.In the premises, I grant the application sought in the Summons. The parties should endeavour to agree the terms of the order to be made (there may be complications arising from the demolition of the partition wall : see para 32 above), failing which a joint letter should be written to the court identifying the disagreements of the parties. The matter may then be dealt with on papers if the court sees fit. I make an order nisi that the costs of this application be paid by Poon to be taxed if not agreed. 79.Last but not least, I am grateful to counsel for their assistance in these matters.
Mr Liu Man Kin, instructed by F Zimmern & Co, for the Joint and Several Trustees in bankruptcy of the estate of Liu Yi Fang, the bankrupt Ms Miranda Li, instructed by Henry Wan & Yeung, for Madam Poon Tong |
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