RE LEE YIK KWONG

HCB 4043/2006

[2019] HKCFI 2912

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4043 OF 2006

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DECISION

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1.  On 15 October 2019, the Court handed down its decision ordering that the property known as Flat C, 5^th Floor, Block 10, Beverly Villas, 16 La Salle Road, Kowloon (“the Property”) be sold under the Partition Ordinance (Cap 352). As the Court did not receive submissions from the parties on how much time the current occupants of the Property should be given to deliver vacant possession, I directed the parties to jointly propose agreed directions for the filing of written submissions to address the timing for the delivery of vacant possession.

2.  Directions were subsequently agreed between the parties and written submissions have now been filed and considered by the Court.

3.  The applicants submitted that the appropriate period for the delivery of vacant possession of the Property should be 60 days from the making of the order to deliver vacant possession.  The applicants emphasised that no evidence has been provided by the respondent or the current occupants of the Property to suggest that the period should be anything more than 60 days.

4.  The respondent submitted that (1) there are special circumstances in this case, namely that Madam Fan (an occupant of the Property) is now 90 years of age and is suffering from dementia and other health problems, and (2) the Property should be vacated within one month after Madam Fan passes away.

5.  At the trial, the respondent also sought to rely on Madam Fan’s old age and health condition to contend that there would be very great hardship on Madam Fan in the event that an order for sale of the Property was made.  However, given the paucity of evidence placed before the Court at the trial, I was not satisfied that a case of very great hardship on the part of Madam Fan had been established.  That conclusion was reached by this Court after making a value judgment having regard to the available evidence before it.

6.  What is being sought by the respondent now is similar to the arrangement approved by the English court in Re Bremner (a bankrupt) [1999] BPIR 185.  In that case, the trustee in bankruptcy of Mr Bremner sought an order from the court to sell the family home and to terminate Mrs Bremner’s right of occupation in it by invoking section 33 of the Family Law Act 1996.  It was conceded that Mrs Bremner had no interest in the property other than a right of occupation.  By the time of the proceedings, Mr Bremner was terminally ill and his wife was caring for him in the family home.  Her health was also poor.  Mrs Bremner invited the court to approve an arrangement under which the sale of the family home would be postponed until three months after the death of her husband.  Jonathan Sumption QC,sitting as a deputy judge of the High Court, approved the arrangement on the basis that there were exceptional circumstances in the case.  

7.  The evidence placed before the court in Re Bremner was summarised by his Lordship at p 186D–E as follows:

“ Mr Bremner is now 79 years old and in very bad health. I have a substantial body of medical evidence before me which establishes that he suffered a stroke in 1994 and may have suffered a further stroke later, and that he has suffered for some time from high blood pressure and hernia. More recently, he has been diagnosed as having an inoperable oesophageal cancer and his expectancy is reckoned in months, probably no more than 6 months. Mr Bremner is housebound. His wife, who is 74 years old, is his only carer. The medical evidence is that the stress associated with his eviction from his home would clearly reduce his life expectancy and would probably lead to a fatal stroke or heart attack.”

8.  It was against, inter alia, such evidence that the learned Judge considered the circumstances to be exceptional and approved the arrangement under which the sale of the family home would be postponed until three months after Mr Bremner’s death.

9.  In the present case, as mentioned in my Decision dated 15 October 2019, no medical evidence of Madam Fan of any kind was placed before the Court at the trial.  On the basis of the very limited evidence regarding the personal circumstances regarding Madam Fan before the Court, I am unable to conclude that there are exceptional circumstances to justify the order sought by the respondent. 

10.  Having taken into account all the available evidence, I consider it appropriate to make an order that vacant possession of the Property should be delivered within 90 days.

11.  I also make an order nisi that the applicants’ costs of and occasioned by the preparation of the written submissions be paid out of the estate of the Bankrupt.

HCB 4043/2006

[2019] HKCFI 2485

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4043 OF 2006

________________________

________________________

________________________

D E C I S I O N

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A.  INTRODUCTION

1.  The 1^st applicants are the joint and several trustees of the estate of Mr Lee Yik Kwong (“the Bankrupt”). The 2^nd applicant is a recovery and liquidation funding company which was ordered to be added as a party herein on 2 August 2016.

2.  This is the substantive hearing of the applicants’ summons (“the Sale Summons”) to determine the beneficial ownership of the property known as Flat C, 5^th Floor, Block 10, Beverly Villas, 16 La Salle Road, Kowloon (“Flat 5C”), and whether the Court should order a sale of the Property if the Bankrupt is found to have a beneficial interest in the Property. 

3.  In addition to the Sale Summons, there are also the following two summonses before the Court:

(1)  the applicants’ summons to amend the Sale Summons to include the car parking space numbered 216 on Ground Floor, Beverly Villas, 16 La Salle Road, Kowloon (“the Car ParkingSpace”) as the subject matter of the Sale Summons (“the Amendment Summons”);

(2)  the respondent’s summons to strike out the Sale Summons and the Amendment Summons (“the Strike Out Summons”).

4.  At the start of the hearing, the parties agreed that I should hear and determine the Strike Out Summons.  After hearing arguments from both parties, I dismissed the Strike Out Summons with costs to be paid by the respondent to the applicants to be taxed if not agreed.  I indicated that I would set out my reasons for dismissing the Strike Out Summons in this Decision. 

5.  Upon hearing my decision on the Strike Out Summons, Mr Simon Wong, on behalf of the respondent, indicated that the respondent would not oppose the Amendment Summons.  I then made an order in terms of the Amendment Summons.

6.  I now set out my reasons on why I dismissed the Strike Out Summons, and my decision on the Sale Summons.

B.  THE RELEVANT FACTUAL BACKGROUND

7.  On 18 May 2007, the Bankrupt was adjudged bankrupt by the Court.  On 3 August 2007, Mr Kenneth Chen Yung Ngai and Mr Stephen Briscoe were appointed the joint and several trustees of the Bankrupt’s estate.  On 13 June 2008, Mr Wong Tech Meng was appointed as one of the joint and several trustees of the Bankrupt’s estate in place of Mr Chen.

8.  Subsequently, the Bankrupt was automatically discharged on 18 May 2011 on the expiration of four years from the date of the bankruptcy order.

9.  During the course of the applicants’ investigations into the Bankrupt’s affairs, it was discovered that the Bankrupt and his father, Mr Lee Cheu (“Mr Lee Sr”), are registered as joint tenants of Flat 5C and the Car Parking Space (collectively as “the Property”).

10.  The Bankrupt is the only child of Mr Lee Sr and Madam Fan Lai Har (“Madam Fan”), who, according to the respondent, were married in Mainland China in 1946.

11.  The respondent is the wife of the Bankrupt, and the daughter- in-law of Mr Lee Sr and Madam Fan.

12.  On 20 April 2011, the applicants issued the Sale Summons against Mr Lee Sr.

13.  On 2 June 2011, Mr Lee Sr filed a Writ in HCA 926/2011 against the Bankrupt seeking, inter alia, a declaration that the Bankrupt held all his estate, right, title, benefit and interest of and in the Property on trust for Mr Lee Sr and that Mr Lee Sr is the sole beneficial owner of the Property (“the HCA Proceedings”).  Mr Lee Sr subsequently agreed to stay the HCA Proceedings until the determination of the Sale Summons.

14.  The Director of Lands was served with the Sale Summons and the relevant papers pursuant to section 3(2) of the Partition Ordinance (Cap 352).  On 7 June 2011, the Director of Lands indicated that the Government would not have objection to the proposed sale of Flat 5C.

15.  In January 2012, the Sale Summons was set down for a substantive hearing on 3 May 2012.  However, in the light of the then ongoing settlement discussions, the parties in April 2012 agreed to seek to vacate and adjourn the hearing to a date to be fixed.

16.  According to the respondent, in about February 2015, Mr Lee Sr was diagnosed by a psychiatrist to have vascular dementia, and since then was unable to proceed with these proceedings on his own.

17.  On 16 February 2016, the 1^st applicants applied for leave to enter into a deed of assignment to assign the interest in one half of the proceeds from the sale of the Property to the 2^nd applicant, which was granted on 15 June 2016 by Mr Justice Ng.

18.  In late 2016, the Sale Summons was set down for a substantive hearing on 11 January 2017.

19.  On 28 November 2016, the applicants took out the Amendment Summons.  Thereafter, the respondent instructed lawyers who sought to appoint the respondent as the next friend or guardian ad litem of Mr Lee Sr.

20.  On 11 January 2017, Mr Justice Ng ordered that the Sale Summons and the Amendment Summons be adjourned sine die with liberty to restore, and the respondent was given leave to take out an application to appoint herself as the next friend or guardian ad litem of Mr Lee Sr.

21.  On 22 January 2017, Mr Justice Ng made an order by way of consent that an expert was to be appointed to examine the mental capacity of Mr Lee Sr.

22.  On 10 April 2017, Professor Helen Fung Kum Chiu agreed to be appointed as the single joint expert to examine the mental capacity of Mr Lee Sr and requested the parties to arrange an interview with Mr Lee Sr.

23.  From April 2017 to mid-September 2017, Mr Lee Sr was said to be in and out of Intensive Care Unit, and accordingly, the interview with Professor Chiu for the purpose of examining the mental capacity of Mr Lee Sr was never arranged.

24.  In September 2017, Mr Lee Sr passed away.

25.  On 18 July 2018, the respondent was appointed to represent Mr Lee Sr’s estate in these proceedings.

26.  On 22 May 2019, the applicants took out a summons to restore the Sale Summons and the Amendment Summons for hearing.

27.  On 14 June 2019, Mr Justice Ng ordered by way of consent, amongst other things, that the Sale Summons and the Amendment Summons be restored to a date to be fixed.

28.  On 27 June 2019, the respondent took out the Strike Out Summons, which was ordered by Mr Justice G Lam by way of consent to be heard together with the Sale Summons and the Amendment Summons before this Court.

C.  THE STRIKE OUT SUMMONS

29.  In the Strike Out Summons, the respondent sought to strike out the Sale Summons and the Amendment Summons on the ground of “abuse of process and/or inordinate and inexcusable delay in prosecuting [the two summonses] causing prejudice to the respondent”.

C1.  The relevant legal principles

30.  The legal principles on dismissal for want of prosecution were restated by Ma CJ in Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935 at §75.  The principles that are relevant to this case can be summarised as follows:

(1)  “ … striking out is a remedy of the last resort … and only where it would be plain and obvious to do so.”  [§75(1)]

(2)  “ Abuse of the process of the court is the foundation for the exercise of the jurisdiction to strike out for delay.”  [§75(2)]

(3)  “ Abuse can take many forms.  The Birkett v James second limb will continue, where it is proved, to be a form of abuse so that inordinate and inexcusable delay causing real prejudice would be an abuse.  Thus, where a delay which is inordinate and inexcusable causes a substantial risk that a fair trial is not possible, this is perhaps the most compelling form of prejudice to a defendant …” [§75(3)]

(4)  “ It is still important when looking at the aspect of delay that it should be both inordinate and inexcusable, and that abuse is shown.  It has never been the law that mere delay will be sufficient to justify an order to strike out …”  [§75(5)]

(5)  “ … in the majority of applications to strike out for delay, the aspect of prejudice to the defendant will often be extremely relevant … prejudice to the defendant (whether it exists or not) can still be very much a factor.  It is a factor that may well be relevant to the overall justice of the case …”  [§75(7)]

(6)  “ As to the conduct of the parties, this will of course remain a relevant consideration of the court. … it is wrong to say that the conduct of the parties is not a relevant consideration.  Quite the contrary, it will be relevant both to the critical question of abuse as well as to the overall justice of the case.  Thus, post-CJR, where all parties to the proceedings have the obligation to prosecute the proceedings and assist the Court in furthering the underlying objectives, it would be highly relevant to consider any failure on the part of the parties here.  As far as the defendant is concerned, I would say once again that there is no place anymore for defendants to adopt the attitude of ‘letting sleeping dogs lie’. No longer will it be possible (if it ever was) for a defendant to sit idly by and do nothing, in the hope that sufficient delay would be accumulated so that some sort of prejudice can then be asserted. If it is sought to be argued that time has dimmed the memories of witnesses, the court will usually want to know what steps have been taken by the defendant to take instructions, or proof or locate witnesses …  The court will certainly want to know what the true nature of the defence is, in order to assess the extent of the prejudice suffered by a defendant.”  [§75(8)]

C2.  Discussion

C2a.  Inordinate and inexcusable delay

31.  The respondent relied on the following three periods to support her case that there had been inordinate and inexcusable delay on the part of the applicants:

(1)  The first period: from the date of appointment of the applicants (3 August 2007) to the date when the Sale Summons was issued (20 April 2011).

(2)  The second period: from the date of the consent summons to vacate the substantive hearing for the Sale Summons (26 April 2012) to the applicants’ application to obtain leave to enter into a deed of assignment with the 2^nd applicant (15 June 2016).

(3)  The third period: from the order of Mr Justice Ng to appoint the respondent to represent Mr Lee Sr (18 July 2018) to the applicants’ application to restore the hearing for the Sale Summons and the Amendment Summons (22 May 2019).

32.  The first period:

(1)  I was not persuaded that this was a relevant period for the purpose of considering whether the Sale Summons and the Amendment Summons should be struck out for want of prosecution.  In a claim to dismiss or strike out proceedings for want of prosecution, the complainant would be complaining about the inordinate or inexcusable delay on the part of the applicant in prosecuting his proceedings. However, the first period in this case was concerned with the time before the two summonses in question were issued.  It appeared to me that the respondent was essentially complaining about the delay on the part of the 1^st applicants in taking out the two summonses, as opposed to the delay in prosecuting them.  I did not think that the respondent could properly rely on this period to support a dismissal for want of prosecution.

(2)  In any event, as explained by the applicants in their affidavit evidence, the delay in this period was caused by the lack of cooperation from the Bankrupt and the lack of funding to pursue legal proceedings.  I had no reason to doubt the veracity of these reasons.

33.  The second period:

(1)  From the evidence adduced by the applicants, the 1^st applicants during this period were engaged in findings ways to resolve the matter with Mr Lee Sr, and subsequently on account of the breakdown of the negotiations, in making arrangements for obtaining funding for continuing the proceedings. 

(2)  On behalf of the applicants, Mr Toby Brown accepted that the matter had moved slowly.

(3)  In my view, the delay during this period was inordinate.  However, in the light of the explanations given by the applicants, I did not consider the delay to be inexcusable. 

34.  The third period:

(1)  According to the applicants, during this period, they attempted to engage without prejudice negotiations with the respondent to resolve the matter and also sought advice from counsel to address issues arising from Mr Lee Sr’s death.

(2)  This period was relatively short.  Having taken on board the applicants’ reasons for their inactivity, I did not consider the delay in this period to be either inordinate or inexcusable.

C2b.  Prejudice

35.  On behalf of the respondent, Mr Simon Wong submitted that there were two forms of prejudice to Mr Lee Sr, namely (1) the Property could not be disposed of freely, and (2) the impossibility for Mr Lee Sr to testify in Court which made a fair trial impossible.

36.  As to (1), there was no evidence before the Court that Mr Lee Sr at any time wished to dispose of the Property.  Indeed, Mr Lee Sr in paragraph 29 of his affirmation filed on 7 June 2011 in opposing the Sale Summons stated: “In about 2002, I have decided to stay in theProperty for the rest of my life.  I considered that I would not sell or rent it. I love this flat.  It is my home.”  There was no evidence that Mr Lee Sr had a change of intention in respect of the Property between 2002 and the time when he passed away.

37.  As to (2), Mr Wong emphasised that there was a real need for Mr Lee Sr to give oral evidence in Court regarding his intention in 1979 when the Property was purchased.  However, it was clear from the order dated 8 June 2011 given by Barma J (as he then was) that the makers of the affirmation filed in the Sale Summons would only need to attend the substantive hearing for the purpose of being cross-examined.  In other words, all the relevant evidence that Mr Lee Sr was supposed to give should have already been set out in his affirmation filed in June 2011. Moreover, if he or his lawyers considered appropriate and necessary, Mr Lee Sr could have applied for leave to file a further affirmation to respond to any matters raised by Mr Briscoe of the 1^st applicants in his second affidavit dated 28 September 2011.  But no such leave was applied.

38.  Accordingly, even assuming there was some inordinate and inexcusable delay on the part of the 1^st applicants to prosecute the Sale Summons and the Amendment Summons (contrary to my views set out above), I was not satisfied that there was any real prejudice caused to Mr Lee Sr as a result of such delay.

39.  My view on the absence of prejudice to Mr Lee Sr was to some extent fortified by the inactivity on the part of Mr Lee Sr or the respondent to move the proceedings forward in the second period and the third period. As Ma CJ said in Wing Fai Construction (above) at §75(8), “post-CJR, where all parties to the proceedings have the obligation to prosecute theproceedings and assist the Court in furthering the underlying objectives, it would be highly relevant to consider any failure on the part of the parties here.”  If Mr Lee Sr had really wanted to dispose of the Property, there was no reason why he could not take action at the beginning of the second period to restore the hearing.

C3.  Conclusion on Strike Out Summons

40.  For the above reasons, I dismissed the Strike Out Summons with costs to be paid by the respondent to the applicants to be taxed if not agreed.

D.  THE SALE SUMMONS (AS AMENDED)

41.  The applicants contend that there are two substantive issues in the Sale Summons (as amended).  The first is to determine who has beneficial interests in the Property.  The second is decide whether it is appropriate for the Property to be sold in the circumstances of this case in the event that the Court finds that the Bankrupt has a beneficial interest in the Property. 

D1.  Whether the Bankrupt has any beneficial interest in the Property

42.  It is undisputed that Mr Lee Sr and the Bankrupt became joint tenants of the Property on 21 April 1981.

43.  At the hearing, Mr Wong submitted that the respondent would rely on the doctrine of common intention constructive trust to contend that the Bankrupt holds his beneficial interest in the Property on trust for Mr Lee Sr’s estate.

D1a.  The relevant legal principles

44.  Where a property is vested only in one person’s name (A), the other party (B), in order to establish a beneficial interest, may be able to establish a constructive trust by showing that it would be inequitable or unconscionable for A to claim the entirety of the beneficial ownership. This requires two matters to be proved:

(1)  that there was a common intention that both should have a beneficial interest; and

(2)  that B has acted to his/her detriment on the basis of that common intention. 

See Grant v Edwards [1986] Ch 638 at 654D–E (Sir Nicolas Browne-Wilkinson VC); Luo Xing Juan Angela v Estate of Hui Shui See Willy (2009) 12 HKCFAR 1 at §38 (Ribeiro PJ).  This type of constructive trust is generally known as a “common intention constructive trust”.

45.  The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership.  In sole ownership cases it is upon the non-owner to show that he has any interest at all.  In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest.  See Stack v Dowden [2007] 2 AC 432 at §§56 and 68 (Baroness Hale); Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at §5.5 (Cheung JA).

46.  The party alleging the common intention constructive trust must first prove that there was, at any time prior to acquisition or exceptionally at some later date, an agreement, arrangement or understanding reached between the parties that the property is to be shared beneficially: see Lloyds Bank Plc v Rosset [1991] 1 AC 107 at 132E–F (Lord Bridge); Mo Ying (above) at §5.8 (Cheung JA).

47.  The question of whether there was a common intention that each party should have a beneficial interest in the property has been described as the primary or threshold question: see Oxley v Hiscock [2005] Fam 211 at §§47 and 68 (Chadwick LJ); Chan Chui Mee v Mak Chi Choi [2009] 1 HKLRD 343 at §24 (Johnson Lam J (as he then was)).

48.  The common intention, or the agreement, arrangement or understanding, between the parties may be based on express discussions between them or inferred from their conduct: see Lloyds Bank Plc v Rosset at 132E – 133B (Lord Bridge) and Oxley v Hiscock at §§36 and 40 (Chadwick LJ); Mo Ying (above) at §5.8 (Cheung JA).

D1b.  Discussion

49.  At the hearing, Mr Wong submitted that Mr Lee Sr and the Bankrupt had a common understanding that the Bankrupt would hold the Property on trust for Mr Lee Sr shortly after Mr Lee Sr paid the initial deposit for the purchase of the Property. When asked by this Court to identify the relevant evidence to support such a common understanding, Mr Wong referred the Court to paragraphs 12 to 14 of Mr Lee Sr’s affirmation, which read:

“ 12. After that day, I felt that handling a property transaction was pretty tiring to me. I was already 56 years old at that time and my health started to deteriorate. At the same time, I was also busy with my business in cloths and tailoring. I started to get worried and did not want to handle and be involved in liaising with management company and renovation contractors for this Property or the estate agents and lawyers if I decided to rent or sell the Property in future.

13.  I had a discussion with my wife. We came up with an idea to add the name of our son to the Property, so that he could manage the Property for me, that is to liaise with parties, contractors, agencies to deal with formalities and signing of documents. By adding his name, he could also collect rent from the tenant from me, if the Property was to be rented in future. In that case, I would not need to trouble myself in travelling to places to personally handle the troublesome matters.

14.  The Bankrupt, who was then 29 years old, agreed to take up this role. Therefore I immediately informed Messrs Shea & Co that the Bankrupt would be added as an additional purchaser of the Property.”

50.  In the two-page affirmation filed herein, the Bankrupt simply stated that he had read Mr Lee Sr’s affirmation, that the contents therein were true and accurate to the best of his knowledge, information and belief, and that he would adopt the contents therein as his evidence.

51.  However, even if Mr Lee Sr’s evidence quoted above is accepted in its entirety, it does not support the case that Mr Lee Sr and the Bankrupt had a common intention that the Bankrupt would hold his beneficial interest in the Property on trust for Mr Lee Sr.  All Mr Lee Sr stated in the above-quoted passages in his affirmation was to explain why he decided to include the Bankrupt’s name as an additional purchaser of the Property.   There is no affidavit evidence from Mr Lee Sr to deal with any agreement, arrangement or understanding reached between him and the Bankrupt that the Property was to be beneficially owned solely by Mr Lee Sr, and not to be shared beneficially.  Further, there was nothing in the Bankrupt’s cross-examination which can be used to support such an agreement, arrangement or understanding.

52.  In these circumstances, the respondent has failed to establish that the Bankrupt holds the Property on a common intention constructive trust for Mr Lee Sr’s estate.

53.  As the respondent has failed to show that the beneficial ownership is different from the legal ownership vis-à-vis the Property, equity follows the law.  It follows that before the Bankrupt’s bankruptcy, the Bankrupt and Mr Lee Sr were joint tenants of the Property in law and in equity.

54.  For the sake of completeness, I should point out that certain events in 2002 (1) fortify my conclusion that the Bankrupt and Mr Lee Sr were joint tenants of the Property and (2) seriously undermine the respondent’s case that the Bankrupt has been holding his beneficial interest in the Property on trust for Mr Lee Sr:

(1)  By an agreement for sale and purchase dated 20 February 2002 and signed by both the Bankrupt and Mr Lee Sr, the Bankrupt agreed to sell his interest in the Property to Mr Lee Sr for HK$2,500,000 with the completion date of 22 April 2002.  The Bankrupt acknowledged receipt of HK$250,000 as deposit for the sale from Mr Lee Sr by signing on the execution page of the agreement.

(2)  By a supplemental agreement dated 3 May 2002 and signed by both the Bankrupt and Mr Lee Sr, the date of completion was postponed to 3 July 2002.

(3)  By a cancellation agreement dated 15 July 2002 and signed by both the Bankrupt and Mr Lee Sr, it was agreed that the agreement for sale and purchase would be cancelled and that the deposit of HK$250,000 would be returned to Mr Lee Sr by the Bankrupt.

(4)  All three agreements were prepared by Messrs Deacons and registered in the Land Registry against the Property. 

(5)  On the face of the three agreements, it is clear that they show that both Mr Lee Sr and the Bankrupt in 2002 considered the Bankrupt to have some beneficial interest in the Property.

(6)  According to his affirmation evidence, Mr Lee Sr (a) considered that it was no longer necessary for the Bankrupt to manage the Property for him and therefore wanted to have the Bankrupt’s title transferred back to him, (b) had never paid anything to the Bankrupt for the transfer, (c) was unable to understand the significance of the sale and purchase agreement, (d) felt it was unnecessary for him to give money to the Bankrupt when being asked to pay the balance of the purchase price and therefore instructed his solicitors to cancel the sale and purchase, and (e) never received HK$250,000 from the Bankrupt pursuant to the cancellation agreement.

(7)  When asked about these 2002 transactions in cross-examination, the Bankrupt said that they happened a long time ago and that he did not have a clear recollection about them.

(8)  I agree with Mr Brown that the version of events put forward in Mr Lee Sr’s affirmation is inherently implausible.  It is directly inconsistent with the contemporaneous documents and the inconsistencies could not be explained by Mr Lee Sr in his affirmation evidence, or by the Bankrupt.  I therefore consider that both Mr Lee Sr and the Bankrupt in 2002 had acknowledged that the Bankrupt held some beneficial interest in the Property.

55.  As mentioned earlier, the Property was registered in the name of Mr Lee Sr and the Bankrupt as joint tenants:

(1)  On making of a bankruptcy order, any property of the bankrupt held under a joint tenancy would be severed automatically and the severance would create a tenancy in common between the trustee in bankruptcy on the one hand and the other co-owner on the other hand: see Re Dennis [1993] Ch 72 at 74 (Sir Donald Nicholls VC); Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668 at §7 (Anthony Chan J); Re Lo Yau Shing (a bankrupt) [2018] 3 HKLRD 540 at §12 (Peter Ng J).

(2)  Further, the bankrupt’s interest in the property became vested initially in the Official Receiver or provisional trustees, and subsequently in the trustees of bankruptcy upon their appointment: see sections 58(1), 58(1A) and 58(2) of the Bankruptcy Ordinance (Cap 6).

56.  For the reasons given above, it is appropriate for me to make a declaration that the interest in the Property is vested in and held in equal shares between Mr Lee Sr’s estate, and the 1^st applicants, as tenants in common. 

D2.  Whether the Property should be sold

57.  Section 2 of the Partition Ordinance (Cap 352) 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.”

58.  Section 6 of the Partition Ordinance relevantly 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.”

59.  The Property consists an apartment in a building and a car parking space.  Given the nature of the Property, it seems to me to be almost impossible to equitably and sensibly divide the Property into aliquot parts amongst the two co-owners.  In these circumstances, I believe it would be impracticable to make an order for partition of the Property. Indeed, this appears to be common ground between the parties.

60.  In Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825, Recorder Joseph Fok SC (as he then was) at §§18 and 19 restated the following propositions in the context of the Partition Ordinance:

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

(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(s)) that (a) such an order will not be beneficial to all the co-owners, or (b) 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.

Both Mr Brown and Mr Wong accept that these propositions are applicable in this case.

61.  The respondent contends that hardship would be caused to the other co-owner of the Property (namely Madam Fan) if an order for sale is made.  The following evidence is relied up by the respondent to support her position:

(1)  Mr Lee Sr did not leave behind a will and Mr Lee Sr’s wife, Madam Fan, would be a 50% beneficial co-owner of the Property.

(2)  Madam Fan, the Bankrupt and the respondent are currently residing at Flat 5C.  Madam Fan’s grandchildren would sometimes stay at Flat 5C.

(3)  Madam Fan is now 89 years old.  Her health is not good and it is not convenient for her to move about.

(4)  Madam Fan has been living at Flat 5C for over 30 years.

62.  The applicants have adduced evidence to show that as at 1 August 2019, the value of the Property was in the region of HK$20 million to HK$22 million.

63.  There is no evidence on how much is currently owing by the Bankrupt to his creditors.  The only evidence before the Court is as follows:

(1)  In the Petition dated 15 May 2006 filed by a creditor, it was stated that the Bankrupt was indebted to the creditor in the aggregate sum of US$616,656.64 and HK$2,930.00 as at 8 May 2006.

(2)  In the Statement of Affairs dated 31 July 2007 filed by the Bankrupt, the estimated total indebtedness was HK$862,130.09 due to four unsecured creditors.

64.  The Court does not have any medical evidence regarding the physical condition of Madam Fan.  Further, the respondent has not adduced any evidence on the financial position of Madam Fan, including details of her assets other than the 50% interest in the Property, and whether she is financially capable to rent or purchase another property.

65.  Accordingly, and applying the propositions restated by Recorder Joseph Fok SC in Wong Chun Kei (above), I am not satisfied that the respondent has established a case of very great hardship on the part of Madam Fan in the event that an order for sale of the Property is made. I consider that an order for sale should be made.

66.  There is a divergence in judicial opinion on whether the approach applied by the majority in the English Court of Appeal in Re Citro (a bankrupt) [1991] Ch 142 should be adopted in Hong Kong:

(1)  In Re Citro, it was held, amongst other things, that for the purpose of making an order for sale in favour of a trustee in bankruptcy under section 30 of the Law of Property Act 1925, (a) where a spouse, having a beneficial in a matrimonial home had become bankrupt, the interests of the creditors would usually prevail over the interests of the other spouse and a sale of property ordered within a short period, and (b) only in exceptional circumstances, more than the ordinary consequences of debt and improvidence, could the interests of the other spouse prevail so as to enable an order for sale to be postponed for a substantial period. 

(2)  The Re Citro approach has been followed by Anthony Chan J in Re Ng Tze Ching (unreported, HCB 5883/2006, 29 August 2014) and in Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668.

(3)  However, Peter Ng J declined to follow the Re Citro approach in Re Cheung Chan Hong (a bankrupt) [2015] 2 HKLRD 1. 

67.  Given the view I expressed above that the respondent has not established a case of very great hardship, it is unnecessary (1) for the applicants to rely on the ReCitro approach to contend that the creditors’ voice should prevail over that of Madam Fan, or (2) for the respondent to rely on the ReCitro approach to demonstrate any exceptional circumstances why Madam Fan’s voice of not selling should prevail over that of the creditors.  In these circumstances, it is unnecessary for me to express any view on whether the Re Citro approach should be followed in Hong Kong. 

68.  For the above reasons, I would make an order for sale of the Property. 

69.  The Court has not received any submissions from the parties on how much time the current occupants of Flat 5C should be given to deliver vacant possession to the applicants.  I therefore direct the parties to jointly propose agreed directions within 7 days for the filing of written submissions to address the timing for the delivery of vacant possession, failing agreement the parties should immediately seek further directions from the Court.  I also give general liberty to apply.

70.  I also make an order nisi that the applicants’ costs of the Sale Summons be paid out of the estate of the Bankrupt.

Mr Toby Brown, instructed by Gall, for the 1^st and 2^nd applicants

Mr Simon Wong, instructed by Fongs, for the respondent

Both the Director of Lands and the Official Receiver, unrepresented, absent from the hearing

HCB 4043/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPCTY PROCEEDINGS NO. 4043 OF 2006

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J U D G M E N T

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1.  I have before me a summons of Lee Yik Kwong who was made a bankrupt on 18 May 2007.  In his summons issued on 7 July 2007, the bankrupt seeks the following relief:

(1)	to annul the bankruptcy order;
(2)	to adjourn all applications in the bankruptcy proceedings until after the determination of his appeal from the judgment of HH Judge Ng on 14 May 2007 in DCCJ No. 1291 of 2005; and
(3)	to stay the bankruptcy order.

2.  The bankrupt has appeared today and made submissions to the court.  The Official Receiver made a report to the court dated 12 July 2007.

3.  I understand from the Official Receiver that the bankrupt has not submitted his statement of affairs up to present.

4.  In his supporting affirmation made on 7 June 2007, the bankrupt deposed that on 17 May 2007, he filed an application in the District Court to seek leave to appeal to the Court of Appeal against the said judgment of Judge Ng and his application would be heard on 11 July 2007.  He submitted that the bankruptcy order should not be made against him on 18 May 2007 before his application was heard on 11 July 2007.

5.  The bankrupt did not appear before Judge Ng on 11 July 2007 to argue his application nor did the Official Receiver.  The judge dismissed his application and reasons were handed down the following day.  She referred to sections 12(1) and 58(1) and (2) of the Bankruptcy Ordinance, Cap. 6, by which the bankrupt’s right in respect of his application for leave to appeal to the Court of Appeal has become vested in the Official Receiver as his trustee in bankruptcy.  It is up to his trustee in bankruptcy whether to avail himself of the right and proceed with the application.  As the Official Receiver was not before the judge, the bankrupt’s application fell to be dismissed.

6.  That being the position, the basis to annul the bankruptcy order, as put forward by the bankrupt in his supporting affirmation, is gone.

7.  I should mention further that the court was not provided with any information of what grounds, if any, are relied on by the bankrupt in support of his application for leave to appeal against the judgment of Judge Ng.

8.  I am therefore in no position to come to any view that his application is made bona fide with reasonably arguable grounds of appeal.  That also is the stance of Mr Cheng who appeared for the Official Receiver.  Besides, even if the bankrupt could satisfy the Official Receiver that he has any real prospects of success in his application or proposed appeal, the Official Receiver would still require sufficient indemnity for his costs before he gives consent to the bankrupt to proceed with any application for leave to appeal or any proposed appeal.  I note that to date, the only asset realised by the Official Receiver comprised a bank balance of about $50.

9.  I see no reason to annul the bankruptcy order in these circumstances.  I am also not minded to grant a general stay of the bankruptcy order without conditions, pending any further application for leave to appeal that the bankrupt might wish to bring, for the reasons given in my earlier decisions in ReChow Shun Yung, HCB No. 5334 of 2004, 10 June 2005, paragraphs 20 to 24 and Re David C Buxbaum, HCB No. 7637 of 2004, 16 September 2005 paragraphs 14 to 16.

10.  The bankruptcy order has been advertised and gazetted on 1 June 2007, so publicity has already been given to the order before the present application was issued by the bankrupt.  I cannot discern any basis for granting a limited stay of the bankruptcy order.  In his own interest, the bankrupt should co-operate with the Official Receiver from now on and give a proper account of his assets and liabilities.

11.  I dismiss the bankrupt’s summons.

12.  I order the petitioner’s costs and the Official Receiver’s costs in this application to be paid out of the estate of the bankrupt.  For the Official Receiver’s costs, I assess the amount on a gross sum basis at $5,250.00.

HCB 4043/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 4043 OF 2006

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J U D G M E N T

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1.  This is a bankruptcy petition presented by HRA Investments Limited (“the petitioner”) of Vancouver, Canada against Lee Yik Kwong (“the debtor”), also known as Stephen Lee, based on a statutory demand issued on 16 December 2005.  The petitioner is a wholesaler of jewellery and diamonds.

2.  The debt demanded in the statutory demand was made up of two judgment debts :

(1)     In DCCJ No. 1291 of 2005, the debtor was adjudged to pay the petitioner US$91,116.40 with interest and fixed costs of HK$1,380.00.

(2)     In HCA No. 1034 of 2005, the debtor was adjudged to pay the petitioner US$456,299.86 with interest and fixed costs of HK$1,550.00.

5.  The debtor has opposed the petition on the ground that the default judgments obtained against him should be set aside for irregularity, as service of the writs in both actions on him was defective.  Further, he contended that he has a defence on the merits.  After the petition was presented in May 2006, the debtor issued a summons in September 2006 to set aside the default judgment in each of the actions.  His application in the District Court was heard on 7 March 2007 and was dismissed by Master Lai.  He lodged an appeal on 21 March 2007, this was heard by HH Judge Ng on 2 and 10 May 2007.  The Judge handed down a 37-page judgment on 14 May 2007, dismissing his appeal.  In the hearings before the Master in the District Court and the Judge, the debtor was represented by counsel.

6.  The summons to set aside the default judgment in the High Court came before the Registrar on 7 March 2007.  He adjourned the application pending determination of the debtor’s application in the District Court, and ordered the execution of the default judgment be stayed pending determination of the debtor’s application to set aside the default judgment in the District Court or the petitioner’s petition for bankruptcy against the debtor, whichever is earlier.

7.  The bankruptcy petition came on for trial before me on 7  February 2007.  I adjourned the hearing to a date after the determination of the debtor’s application to set aside the default judgment by the District Court Master.  Today is the adjourned hearing of the petition.

8.  What I need to consider is whether the debts demanded in the statutory demand are valid judgment debts.  It is well established that where a petition is based on a judgment debt, circumstances may be alleged which would show that the judgment should be disregarded on sufficient cause being shown.  In an appropriate case, the court of bankruptcy may go behind a judgment debt and inquire into the validity of the debt.

9.  The debtor has relied on the same arguments which were exhaustively examined before the Master in the District Court and on appeal, which was a hearing de novo, by the District Judge.

10.  In the written submission of the petitioner’s solicitor, he has drawn my attention to the points taken by the parties before the Master and the Judge.

11.  There is no reason why the debtor should have another bite of the cherry before this court, having raised these issues twice in 2 tribunals and having had both issues determined against him, namely, whether service of the writ was defective in that it was not brought to his notice, and whether he has a meritorious defence to the petitioner’s claim on the dishonoured cheques. 

12.  I am mindful that the debtor has issued a summons yesterday in the District Court seeking leave to appeal to the Court of Appeal against the judgment handed down on 14 May 2007 and that his application is to be heard on 11  July 2007, but that is neither here nor there.

13.  I have considered the judgment of the District Judge, I see no reason to go behind or impugn that judgment.

14.  The contention raised by the debtor on affirmation that he might not be in Hong Kong at the time the writs in the District Court and the High Court were served on him in March and June 2005 was abandoned in the hearing before the Judge, after his solicitors had obtained his travelling records from the Immigration Department.

15.  The Judge correctly found that the address at La Salle Road, Kowloon was the last known address of the debtor when service of the writ was effected, indeed this was one of the matters conceded by his counsel.

16.  In paragraphs 49 to 61 of her judgment, the Judge considered the evidence and came to the conclusion that the debtor has not satisfied the court that he did not have notice of the writ at the material time.

17.  The Judge was critical of the debtor’s failure to disclose any documentary evidence to support his contention that for 10 years he had not been living at the La Salle Road address but in Discovery Bay, notwithstanding he has filed 4 affirmations over 7 months.  I note further that evidence of this kind was not placed before the Judge even though the Master had commented on the absence of such evidence in his judgment.  It was only after the hearing before the Judge that the debtor placed documentary evidence before this court for the first time to show he had been living in Discovery Bay.  They are utilities bills sent to him at an address in Discovery Bay in May 2002, September 2003, April 2004, May  2006 and January 2007.  However, no utilities bills regarding the relevant periods in March and June 2005 were disclosed, or for the entire year of 2005.  There is still no documentary evidence of any assignment of the property in Discovery Bay or a tenancy agreement.

18.  Even if I were to accept the debtor’s assertion he was residing at Discovery Bay and not at La Salle Road, other matters taken into account by the Judge in arriving at the conclusion that his denial of having received the writ is of doubtful credibility are still valid.  They are set out in paragraphs 55 to 60 of the judgment.  The debtor’s evidence concerning his address at La Salle Road is contradictory, as stated in paragraphs 55 to 58.  His evidence when he acquired actual knowledge of the writ is vague, as mentioned in paragraph 59.

19.  The parents of the debtor have been living at the address in La Salle Road.  The debtor is a joint tenant of this property with his father since 1981.  The address at La Salle Road was given by the debtor as his contact address since the 1990s when he set up various companies.  There is still no explanation from the debtor why he did not update or notify the Companies Registry to replace the La Salle Road address with the Discovery Bay address as his address in relation to the companies he set up.

20.  Notwithstanding the debtor’s allegation in a recent affirmation that his relationship with his father has deteriorated drastically, he has remained a joint tenant of the property at La Salle Road with his father, and, according to him, is holding that property on trust for his father.  According to one of the debtor’s affirmations, after he came to know about the two actions some time in 2006, he made enquiries with his father if the writ was received and his father said he was not aware of having received the writ.  There is no reason to doubt the process server’s evidence that the writ was served by insertion in the letter box at the La Salle Road address and that in the normal course of events, the writ would have come to the attention of the occupants.  

21.  I note further in one of the affirmations filed by the process server in the bankruptcy proceedings in February 2006, when he attempted service of the statutory demand on the debtor at La Salle Road in December 2005, he was given the mobile phone number of the debtor by a man, probably the debtor’s father.  Further, all appointment letters sent to the debtor at La Salle Road by post in January and February 2006 have not been returned through the dead letter service.

22.  There is no basis to go behind the finding made by the Judge that the debtor did have notice of the writ when it was served, and that the default judgment was a regular judgment.

23.  I also agree with the Judge that the debtor has not made out a case of real prospects of success on the merits of his defence.  The Judge has examined thoroughly the evidence before her in paragraphs 65 to 92 of the judgment, and I see no reason to disagree. 

24.  Further, the debtor’s counsel had made a concession that of the two cheques in the District Court Action, the debtor has no defence to the petitioner’s claim for the first cheque in the sum of US$55,616.00.  His counsel also conceded that the debtor would no longer maintain the argument that the two cheques were issued merely as gestures of sincerity or good faith and that they were delivered to the petitioner on the understanding that they would not be presented for payment.  It was only in an affirmation made in March 2007 that the debtor raised for the first time there was total failure of consideration for the second cheque, on the allegation that the diamonds covered by the invoice were not delivered.  This line of defence was rightly rejected by the Judge.

25.  The petitioner has established valid judgment debts on which the petition is founded.  As a judgment creditor with wholly unsatisfied judgment debts, the petitioner is entitled ex debito justitiae to a bankruptcy order against the debtor.  I find there was proper service of the statutory demand by advertisement in a newspaper on 20 January 2006.  An order was made for substituted service of the petition by a Master on 17 July 2006, and that order was complied with.

26.  The debtor has failed to make out any proper ground for opposing the petition.  I make a bankruptcy order against him.  The petitioner’s costs, including the costs reserved, are to be paid out of the bankrupt’s estate.