Official Receiver, The Trustee Of The Property Of Leung Man Yuen v Leung Man Yuen And Another

Judgment Date20 September 2016
Subject MatterBankruptcy Proceedings
Judgement NumberHCB582/1996
CourtHigh Court (Hong Kong)
HCB582/1996 OFFICIAL RECEIVER, the Trustee of the Property of LEUNG MAN YUEN v. LEUNG MAN YUEN AND ANOTHER

HCB 582/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 582 OF 1996

____________

RE: LEUNG MAN YUEN trading as WAI MAN
IRON WORKS ENGINEERING COMPANY

____________

BETWEEN

OFFICIAL RECEIVER, the Trustee of
the Property of LEUNG MAN YUEN
Applicant
(a Discharged Bankrupt)

and

LEUNG MAN YUEN 1st Respondent
LAI FUNG YEE 2nd Respondent

____________

Before: Hon G Lam J in Chambers
Date of Hearing: 5 May 2016
Date of Supplemental Submissions: 19 May 2016
Date of Decision: 20 September 2016

_____________

D E C I S I O N

_____________

1. This is an application by the Official Receiver in her capacity as the trustee (“the trustee”) of the property of Mr Leung Man Yuen (a discharged bankrupt), the 1st respondent herein, for (1) a declaration that the trustee and Madam Lai Fung Yee, the 2nd respondent herein, hold the property known as Flat 7, 3/F, Block A, Siu Lun Court, 3 Siu Hing Lane, Tuen Mun, New Territories (“the Property”) as tenants in common in equal shares; and (2) an order that the Property be sold pursuant to the Partition Ordinance (Cap 352).

2. A bankruptcy petition was presented against the 1st respondent, Mr Leung, on 31 October 1996. That a receiving order was made on 15 January 1997 was a sign of the antiquity of this matter, since it was a step necessary only in the old bankruptcy procedure prior to the amendments to the Bankruptcy Ordinance that took effect in 1998. Mr Leung was adjudicated bankrupt by order on 10 April 1997. 7 proofs of debt have been lodged with the trustee claiming a total of HK$796,853.04, before taking into account bankruptcy interest which runs at judgment rate or any rate otherwise applicable, whichever is higher (see s 71(3) of the Bankruptcy Ordinance (Cap 6)), from the commencement of bankruptcy. Only a sum of HK$2,296.83 has so far been realised for the estate. Mr Leung has made no contribution to the estate. No dividend has been declared or distributed to the creditors. Under the provisions available in the new bankruptcy regime, Mr Leung was automatically discharged from bankruptcy after 4 years, on 10 April 2001. The present summons was filed by the trustee on 15 October 2014.

3. Following Mr Leung’s bankruptcy, it is clear as a matter of law that:

(1) Upon the making of a bankruptcy order, because there is by statute (s 58(1) of the Bankruptcy Ordinance) a vesting of the property of the bankrupt in the Official Receiver, there is an alienation (albeit involuntary) of the bankrupt’s property, with the result that, there being no longer any unity of title, the joint tenancy was severed by operation of law and converted into a tenancy in common: Megarry and Wade, The Law of Real Property (8th ed), §13-046; Re Chow Yuet Lam, trading as Wah Mei Weaving Factory [2000] 1 HKC 404; Morgan v Marquis (1853) 9 Ex 145; In re Dennis [1993] Ch 72.

(2) By virtue of s 58(1), the undivided share of the bankrupt under the tenancy in common in respect of the co-owned property became vested initially in the Official Receiver, then in the provisional trustee in bankruptcy (if any) and subsequently in the trustee in bankruptcy upon their appointment (if a person other than the Official Receiver is appointed as such): see s 58(1), (1A) & (2) of the Bankruptcy Ordinance.[1]

(3) The trustee in bankruptcy has various powers to deal with any property so vested, including selling it.

(4) The discharge of the bankrupt releases him from all bankruptcy debts, but, as provided in s 32(2):

“has no effect … on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of this Ordinance for the purposes of carrying out those functions.”

Further, a discharged bankrupt must, notwithstanding the discharge:

“ (a) continue to give such information respecting his affairs; and

(b) attend on the trustee at such times, and do such other things,

as the trustee requires for the purpose of completing the administration of the estate.”

(5) In particular, any property of the bankrupt vested in the trustee by reason of the bankruptcy does not re-vest in the bankrupt upon discharge: see Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255 at §§20-23; 有關張德華的事宜 (Re Cheung Tak Wah) (unrep, HCB 4980/2004, 18 August 2009) at §24, per Kwan J; see also Lim Lye Hiang v Official Assignee [2012] 1 SLR 228. In this respect the effect of discharge is to be contrasted with the position following the annulment of bankruptcy upon which, by virtue of s 33(4) of the Bankruptcy Ordinance, the bankrupt’s estate hitherto vested in the trustee becomes vested in such person as the court may appoint or, in default of such appointment, reverts to the bankrupt.

4. It follows that in spite of Mr Leung’s discharge from bankruptcy, any interest he had in the Property which had become vested in the trustee on 10 April 1997 remains so vested.

5. The Property is a flat in a Home Ownership Scheme estate developed and built by the Hong Kong Housing Authority (“HKHA”). It was purchased in Mr Leung’s and Madam Lai’s joint names in 1991 at the price of HK$521,800. The Property can be sold either in the open market or in a secondary market consisting of persons nominated by HKHA or certified by HKHA as eligible buyers. If it is sold in the open market, the vendors have to pay HKHA a premium assessed by the Director of Housing. The open market value and secondary market value of the Property were estimated to be HK$3.5 million and HK$2.47 million respectively as at March 2015, and HK$3.9 million and HK$2.78 million respectively as at November 2015.

6. By this application, the trustee seeks to put an end to the co‑ownership and realise the Property for the benefit of Mr Leung’s creditors. The application is made under the Partition Ordinance. S 2 of that Ordinance 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.”

7. S 3(1) provides

“Where any property in land is held in the manner referred to in section 2, any person interested in such property may institute proceedings in the Court under this Ordinance by way of an action for partition or sale.”

It follows from §§3 and 4 above that despite the discharge of Mr Leung from bankruptcy in 2001, the trustee is a person interested in the Property for the purposes of s 3.

8. S 4 provides for the power of the court to make an order for the partition of property in land in different ways. S 6 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.

(3) (a) Without prejudice to subsection (1), if any person interested in the property applies to the Court to make an order for the sale of the property instead of an order for partition, then, unless the other persons interested undertake to purchase the interest of the party applying for an order for sale, the Court may, if it thinks fit, make an order for the sale of the property.

(b) If an undertaking is given by the other persons interested, the Court may order a valuation of the interest of the person applying for an order for sale in such manner as it thinks fit.

……”

The respondents’ position

9. Mr Leung has not filed any evidence in these proceedings although he has attended the hearings. The 2nd respondent, Madam Lai, who is the former wife of Mr Leung, has lived in the Property since acquiring it and now resides there with her son and daughter-in-law. She opposes the trustee’s application on 3 grounds, which may be summarised as follows:

(1) that the acquisition of the Property in 1991 was funded entirely by her and that she was and is the sole beneficial owner of the Property;

(2) that there was an agreement reached in 2000 between the trustee and Madam Lai for the latter to purchase the interest of Mr Leung in the Property which had vested in the trustee for the sum of HK$191,000; and

(3) that after 2000, the trustee had failed to take any action in relation to the sale of the Property or of the trustee’s interest in it for over 12 years until 2012.

I shall deal with these matters in turn below.

Beneficial ownership of the Property

10. Mr Leung and Madam Lai were married in 1973. They had a son and a daughter born in 1977 and 1980 respectively. Prior to the purchase of the Property they had lived in a public housing estate in Tuen Mun.

11. By a sale and purchase agreement dated 18 November 1991, the couple agreed to purchase the Property from HKHA at the price of HK$521,800 pursuant to the Home Ownership Scheme. The sum of HK$26,100 being the deposit and part payment of the purchase price was paid to HKHA at the time of the agreement. The payment was made by a cashier’s order of Bank of East Asia (“the Bank”) dated 18 November 1991.

12. Under the agreement, the balance of the purchase price in the sum of...

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