Does the voice of the trustee in bankruptcy of one co-owner carry greater weight when considering an order for sale?

In Lo Yau Shing (a bankrupt) ([2018] HKCFI 1574) the court was asked by the trustee in bankruptcy of one co-owner of a flat to grant an order for sale. This was resisted by the other co-owner.

B (the bankrupt) and F (his father) were joint tenants of the flat in which F lived with his wife. B’s bankruptcy gave rise to a severance of the joint tenancy (Re Dennis). B’s trustee in bankruptcy applied for an order for sale under section 60 of the Bankruptcy Ordinance and section 6 of the Partition Ordinance.

In Wong Chun Kei v Poon Vai Ching it was held that the court should make an order for sale unless either: (a) the order would not be beneficial to all co-owners; or (b) the order would result in very great hardship to one co-owner. The burden of proof was on the owner resisting the sale. Hardship could be physical or practical. The voice of the trustee in bankruptcy did not carry greater weight than that of the other co-owner.

The court refused to grant the order for sale. F and his wife were both very elderly and in very poor health. If the order were made:

‘The choices faced by Lo Senior and his wife will be to rent a modest room as residence, move into a residential home for the elderly run by charities (if one can be found) or hope for a big rise in social welfare payouts from the Government, which is unlikely.’ ([93])

In these circumstances, it would be unjust to make an order for sale, balancing the interests of F against those of the creditors. Further, it would cause very great hardship to F and his wife.

If the test were whether the circumstances were exceptional (Re Bremner; Everitt v Budhram) the outcome would be the same.

Michael Lower

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Equity follows the law: the burden of proof

In Lam Fung Ching Annie v Tse Kwok Wing Jacky ([2016] HKEC 2387, CA) the Court of Appeal rejected an application to appeal to it. L, T and T’s father held property as joint tenants. L severed the joint tenancy by notice and successfully applied for an order for sale. T sought to appeal against this finding and order. It appears to have been accepted that there was an equitable tenancy in common since it was accepted that T held her share on trust for her father. At first instance, the judge rejected T’s argument that her father was the sole beneficial owner; L was able to show that she was entitled to a one-third beneficial interest. There was some discussion as to the burden of proof. The Court of Appeal (Kwan JA giving the judgment) took the view that, following the severance, L had a one third share as a legal tenant in common. It was for T to show why the equitable position should differ from this and she had failed to do so ([22] and [23]).

Michael Lower

Alleged ouster of co-owner: injunction?

Khan v Mansoori ([2012] 5 HKLRD 637, CFI) concerned a dispute between P and D1 and D2 who were tenants in common of property in Kowloon. P lived in the USA. D1 and D2 changed the locks at the property. P alleged that he had been ousted from possession. D1 and D2 contended that P1 had no beneficial interest in the property but held his share as nominee for D1 and D2. The question at this stage was whether P should have an injunction pending the trial to restrain any actions by D1 and D2 ousting him from possession. The injunction was not granted. The balance of convenience weighed in favour of damages being the appropriate remedy should P succeed in the trial. P lived in the US, rarely visited Hong Kong and had no practical need to enter the property.

Partition or sale?

In Toh Tian Sze v Han Kim Wah ([2012] SGHC 111) the Singaporean High Court had to consider an application for an order for partition or sale. P and D were tenants in common in equal shares. The co-owned land was physically divided by a wall and there was a detached house on each side of the wall. P had bought his share as an investment and D had lived in one of the houses but had now moved out and it was occupied by a tenant. The houses were rather decrepit but planning consent could only be obtained for the construction of a pair of semi-detached houses as the sub-divided plots were too small to allow for permission to build two new detached houses to be obtained. The parties could not agree on a proposal to redevelop so P sought partition or sale. Since P clearly had a right to partition, the only question was whether the order should be for partition or sale. D’s interests would not be prejudiced by a sale. Redevelopment would unlock the economic value of the land but would require the parties to co-operate and this seemed unlikely to happen. An order for sale was made.

Order for sale: ‘beneficial to all the persons interested’

In Chan William Lai Yee v Chan Yau Yuen Fun Therese ([2012] HKEC 363) two luxury properties were held by the parties as tenants in common. The plaintiffs sought an order for sale. The defendant lived in one of the properties rent-free with her family. The plaintiffs were four elderly people who depended on their share of the property to support them financially. Essentially, they were not getting any benefit (either in terms of rent or possession) from the property occupied by the defendant. Section 6 of the Partition Ordinance gives the court the power to make an order for sale where partition is not practicable. In Wong Chun Kei Johnny v Poon Vai Ching ([2007] 1 HKLRD 825) Recorder Fok SC (as he then was) said:

‘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.’

He went on to say that whether the order is beneficial to all the co-owners is an objective question and that it might be beneficial even if some co-owners opposed the making of an order. Presumably this means that one looks at the interests of the co-owners as a body or perhaps at the interests of a hypothetical co-owner of the relevant property.

In this case, it was clear that the parties were unwilling to continue as co-owners and the primary purpose of the legislation is to allow unwilling co-owners to terminate an unwanted co-ownership (Pun Jong Sau v Poon Wing Kong). An order for sale would allow all the parties to benefit from a reasonably bouyant market. It would not cause undue hardship to the defendant (para. 22).

Wai Ming Trading Ltd v Poon Tang Fat

In Wai Ming Trading Ltd v Poon Tang Fat ([2012] HKEC 146) W owned 11 / 12 and P owned 1 / 12 of a plot of land. P had assured W that he would sell the 1/12 share to W and, on the strength of that, W had acquired the interests of the other former owners. P later decided not to sell. W now sought an order for sale and P resisted. W was successful; partition was not practicable and there was nothing to indicate that the interests of the co-owners would be better served by continuing the co-ownership. There was no evidence that the sale would impose any hardship on P. The agreement was another relevant factor.

Order for sale – need to show that the nature of the land makes partition undesirable?

Lam Sik Shi v Lam Sik Ying ([2010] HKEC 779, CA) concerned a dispute between two half-brothers who were tenants in common of a shop in Causeway Bay. The plaintiff’s application for an order for sale had succeeded at first instance. Indeed, the defendant had accepted that partition was not the appropriate relief. Rather, he sought to prevent a sale. The defendant appealed on the ground that there was no basis on which the judge could have decided that partition was not feasible. But there had been no suggestion before him that partition was feasible and such evidence as there was provided a sufficient basis on which to conclude that partition was not feasible. The defendant also argued that it had not been shown that partition would not be beneficial to all the parties because of the lack of evidence that it was not practicable. The Court of Appeal pointed out that section 6(1) of the Partition Ordinance specified four reasons for finding that partition was not beneficial and that the nature of the land was only one of these.

Sentimental attachment: a reason not to make an order for sale?

In Ip Fung Ying v Cheng Chi Chung ([2011] HKEC 894) the District Court had to consider an application for an order for sale under section 6 of the Partition Ordinance. The parties were a divorced couple. Consent orders were made in the divorce proceedings: each party owned 50% of the equity; both of them could stay in the property as separate households; and if the property were sold the net proceeds of sale were to be shared equally between them. In the event, the parties could not live happily under the same roof. The wife and daughter moved out and the wife made the application for an order for sale. The husband opposed the application alleging an oral promise by the wife made before the consent orders that she would not seek to sell the property. He also alleged that he had a sentimental attachment to the property and that its sale would cause him hardship. The court made the order for sale. If the wife had made the promise and if it had been relied on by the husband why wasn’t it recorded in writing? In any event, the allegation of the promise was inconsistent with the express terms of the order which contemplated a possible sale. The alleged sentimental attachment cut no ice with the court. The husband had allowed the physical state of his part of the property to deteriorate badly. This was hardly consistent with a strong attachment to it. Partition was not possible.

Court can order separate properties to be sold as a single lot

The Partition Ordinance does not allow the Court to bundle several properties together to form a single property. Once the Court has decided that each of the properties is to be sold it can order that they be sold as if they were a single lot. Co-owners cannot resist the making of an order for sale simply because they would prefer that the other co-owners be locked into the co-ownership and so to pay an inflated price to buy out the relevant shares.

Golden Bay Investment Ltd v Chou Hung ([1994] 2 HKC 197, CA) concerned four separate co-owned properties. The plaintiffs had applied for an order for sale in respect of them, either as a single lot or as four separate units. The four properties were all empty; the buildings on them had been demolished because they were unsafe. The Court of Appeal ordered that the properties be sold as a single lot. This was the obviously sensible course if the best price was to be obtained. The Court, having decided that each property was to be sold, is empowered by section 6(4) to give such necessary or proper consequential directions. This allows it to order that separate properties be sold as if they were a single lot. Bokhary JA also remarked that the Court would not refrain from making an order for sale simply in order to lock the plaintiffs into a co-ownership and so force them to buy in the remaining shares at an inflated price.

Court can order a sale under the Partition Ordinance whether or not partition is feasible

The Court’s power to order a sale under the Partition Ordinance can be exercised whether or not a partition is physically feasible or practicable.

In Pun Jong-Sau v Poon Wong-Kong ([1980] HKLR 662, HC) the majority of the co-owners of a fairly old multi-storey building applied for an order for sale under the Partition Ordinance. Four co-owners (the defendants) argued against the making of such an order. Expert evidence showed that partition was physically but not economically feasible. The defendants argued that if the Court would not make an order for partition then it had no power to order a sale. Trainer J. rejected this. The aim of the Partition Ordinance was to give the Court the ability to respond as it saw fit and even to refuse to make an order. The Court could make an order for sale even when partition was not physically possible or practicable.