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Landmark ruling over co-owned village house

The High Court has turned down a historic attempt to enforce a charging order against someone owning a part share in a village house. Boase Cohen & Collins Partner Fiona Chan summarises an intriguing case.

Hong Kong, 9 October 2019: For the first time, the Hong Kong courts have heard a case in respect of a charging order against the co-owner of a village house. In rebuffing the order and outlining its reasons for doing so, the Court of First Instance has brought clarification on an important area of enforcement of charging order by way of sale of the debtor’s property jointly owned by another person.

The case – [2019] HKCFI 1932 – centred on a civil action brought by a finance company which was seeking to recover an outstanding debt from the co-owner of the house, a three-storey property in Sai Kung in the New Territories.

The finance company had obtained the charging order against the man’s share in the property and was seeking to enforce it, but this was opposed by his sister who lived in the house and also owned a share.

The Court was told that the charging order was obtained in 2016 in the sum of HK$2.5 million plus interest and costs. By the time of the hearing, the finance company contended that the debt stood at more than HK$5.1 million. It claimed the house was valued at HK$16 million and so the defendant’s one-third share was worth more than HK$5.3 million.

The sister said she had been living in the house with her family for 24 years and that it was also occupied by her brother’s immediate family, but not him. She said an order for sale would force her into co-ownership with a stranger, which would cause her substantial hardship.

She also argued that the government grant of the property prohibited partition and that the premium payable to remove that restriction was around HK$8 million. She stated that she had no desire to sell and wished to continue living there.

In its judgment, the Court ruled that the nature of the charge that the finance company, the chargee, has over the land is a form of security but does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right to possession.

It also concluded that whether the Court would make an order for sale concerning a part share of the jointly owned property was a matter of discretion for the Court to determine. In exercising the discretion, the Court should balance the parties’ competing interests, especially between the prima facie entitlement of the finance company as a judgment creditor, against any substantial prejudice which would be suffered by the sister as a co-owner of the property as a result of an order for sale.

In this case, the Court did not make an order for sale in view of the circumstances, which were:

  • It was a village house for family use;
  • No partition of the house was made in respect of the shares owned by the debtor and family members;
  • The common areas of the property, such as the roof and staircase, could not practically be partitioned, and the current usages of the property would be affected;
  • Consent to partition from the government was required and a premium was payable; and
  • The amount of the premium was unknown and the sister was at no fault in causing damage to the finance company;

Last but not least, the Court noted that since the finance company had advanced funds to the brother without any security, it should have known that enforcement by sale was a discretionary matter.

SaleOrder PHOTO

The Court of First Instance considered, for the first time, a charging order against the co-owner of a village house.