WIN CITY LTD v. SHUM HO

HCA 1807/2015 & HCA 2877/2016 (heard together)

[2022] HKCFI 1958

HCA 1807/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1807 OF 2015

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HCA 2877/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2877 OF 2016

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(Heard together)

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REASONS  FOR  DECISION

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1.  On 11 February 2022, I handed down Judgment after a trial of 8 days in these two actions which were heard together ([2022] HKCFI 420). This Decision should be read together with the Judgment, and for ease of reference, I adopt the abbreviations used in the Judgment.

2.  At paragraphs 169 to 172 of the Judgment, I made an order for vacant possession of the Lexington Property, together with an award of damages against Mr Shum for trespass, or alternatively, mesne profits and interest. I also dismissed Mr Shum’s counterclaim.

3.  On 7 March 2022, Mr Shum, acting in person, filed and served a Notice of Appeal against the Judgment, and on 19 April 2022, issued a Summons for a stay of execution of the order for vacant possession pending appeal.

4.  The hearing first came before me on 6 June 2022. Mr Raymond Tsang, counsel for Win City (who did not appear at the trial), opposed the application, primarily on the grounds that there was no arguable appeal, as the Judgment turned on findings of fact and credibility.

5.  At the hearing, Mr Shum revealed for the first time, and to the surprise of Win City and the Court, that he had been made bankrupt in 2016, and he was unclear whether he was still an undischarged bankrupt. Needless to say, this revelation caused considerable concern. I therefore adjourned the matter to 22 June 2022 and directed in the meantime that Win City’s legal representatives contact the Official Receiver’s Office or Mr Shum’s trustee in bankruptcy to ascertain Mr Shum’s status. I also directed that a representative of the Official Receiver’s Office or Mr Shum’s trustee in bankruptcy to attend the adjourned hearing to assist the Court.

6.  On 20 June 2022, the Cxourt received a letter from Mr Osman Mohammed Arab (“Mr Arab”) of RSM Corporate Advisory (Hong Kong) Limited informing the Court that, inter alia:

(1)  On 11 May 2016 (the “Bankruptcy Date”), a bankruptcy order (the “Bankruptcy Order”) was made against Mr Shum in HCB 420 of 2016.

(2)  On 22 July 2016, he and Mr Wong Kwok Keung, were appointed Joint and Several Trustees of the property of Mr Shum (the “Trustees”).

(3)  Mr Shum was discharged from bankruptcy by an order of the Court dated 11 May 2020 (the “Discharge Date”).

(4)  The Trustees had not been informed or had been unaware of the present actions nor the appeal until they received a letter from Win City’s solicitors, Messrs Cheng, Yeung & Co.

(5)  The Trustees had neither assigned to Mr Shum any choses in action or property rights pertaining to the shares of Win City or the Lexington Property nor had they consented to Mr Shum continuing or commencing legal proceedings to pursue enforcement of any such choses in action or alleged rights.

(6)  In short, the Trustees were of the view that Mr Shum had no right to pursue an appeal and had no right to pursue the claims that he did in the present actions.

7.  After hearing the parties, I dismissed Mr Shum’s application with costs and indicated that I would hand down brief reasons in writing in due course, which I now do. Given the consequences of the dismissal, I inquired with Mr Tsang whether his client would be willing to give an undertaking not to enforce the order for vacant possession for another 48 hours to enable Mr Shum to make any an urgent application to the Court of Appeal if he so wished. Mr Tsang indicated that his client would give such an undertaking.

8.  The principles concerning litigation involving a bankrupt are well established.

9.  Section 12 of the Bankruptcy Ordinance (Cap 6) (“BO”) provides that:

On the making of a bankruptcy order, the Official Receiver shall thereby become the provisional trustee of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose. (emphasis added)

10.  Section 34 of the BO provides a description of debts provable in bankruptcy, inter alia, as follows:

(1)  Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, tort, promise or breach of trust shall not be provable in bankruptcy.

(2)  Subject to section 42(5), a person having notice of a petition in bankruptcy shall not prove in bankruptcy for any debt or liability contracted by the bankrupt after the date of his so having notice.

(3)  Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the date of the bankruptcy order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the bankruptcy order, including a liability to pay further damages as provided for in section 56A(2)(b) of the High Court Ordinance (Cap. 4) (following an award of provisional damages), shall be deemed to be debts provable in bankruptcy.

11.  Mr Tsang fairly accepted that Win City’s claims in the First Action against Mr Shum for damages for trespass or mesne profits arising before the Bankruptcy Date would be deemed by section 34 of the BO as debts provable in bankruptcy and leave was required to proceed with such claims after the Bankruptcy Order. On the other hand, damages for trespass or mesne profits arising after the Bankruptcy Date are not caught by the section.

12.  More importantly, however, Mr Tsang submitted that Win City’s claim for vacant possession of the Lexington Property does not fall within section 34, and therefore leave was not required to proceed with such a claim despite Mr Shum’s bankruptcy on the Bankruptcy Date. The Court was referred to a Chinese decision of the District Court in Chen Li Kuei v Luo Xing Juan Angela (unreported) DCCJ 8/2015, 15 December 2015. That decision in turn referred to Ezekiel v Orakpo [1977] 1 QB 260.

13.  In Ezekiel v Orakpo, the English Court of Appeal considered the intention and effect of section 7(1) of the Bankruptcy Act 1914 (the “1914 Act”), the counterpart at the time to our section 12 of the BO. Section 7(1) of the 1914 Act provided that:

“On the making of a receiving order an official receiver shall be constituted receiver of the property of the debtor, and thereafter, except as directed by this Act, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the debtor in respect of the debt, or shall commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose.”

14.  Ezekiel v Orakpo was an action by a landlord for possession of shop premises on the ground that the tenant’s lease had been forfeited for non-payment of rent and for payment of arrears of rent and mesne profits. The writ was issued on 23 January 1975, but a receiving order in bankruptcy had been made against the tenant a few weeks earlier on 6 January 1975, and the tenant contended that proceedings issued by the landlord were invalid and should be stayed under, inter alia, section 7 of the 1914 Act. Rejecting the tenant’s argument on appeal, the Court explained the position at 267E-268B:

“What has first to be considered is whether an action in which an order for possession is sought where a lease has been forfeited for default in payment of rent, comes within the terms of section 7(1) at all. If it does not, it is not necessary to get leave of the court under section 7 before commencing such an action. In our view, an action for possession following the forfeiture of a lease is not within the terms of the section, and this is so whatever the ground of forfeiture to which the lessor has recourse under the covenants in the lease. The nature of the action is the same in every case, namely, that the right and interest of the lessee to possession has been terminated before its natural expiry in pursuance of a contractual provision in his lease so that he becomes a trespasser if he continues in occupation of the premises. The obverse of this situation is that the lessor becomes entitled to possession on forfeiture of the lessee’s interest. The action for re-entry is in the nature of an action in trespass. It is not a remedy against the property of the debtor in respect of a debt, notwithstanding that the occasion of the forfeiture is default in payment of the rent reserved by the lease. The consequence of forfeiture (subject to the power of the court to grant relief) is to determine the lessee’s interest. It is not a remedy enforcing payment of the rent due and it is not within the ambit of section 7(1).”

Accordingly, the Court held that the proceedings were duly constituted insofar as they related to the claim for possession and the court below had jurisdiction to entertain them.

15.  I respectfully agree. Although the present case was not concerned with the forfeiture of a lease, there is no material difference between the present case and Ezekiel v Orakpo, as Win City’s claim cause of action against Mr Shum in the First Action was similarly in the nature of trespass. Hence, insofar as Win City sought vacant possession after its termination of the licence to Mr Shum and Ms Chu to reside in the Lexington Property, the claim was properly constituted and proceeded with notwithstanding the Bankruptcy Order.

16.  As I had noted in paragraph 151 of the Judgment, it is not Mr Shum or Ms Chu’s case that they have any enforceable right to possession against Win City and that any licence granted by Win City would have been a licence that was terminable at will. Rather, their respective defences (which I rejected) rested on their contention that they remained the true owners of Win City and the transfer of their Win City shareholding to Mr Li should be voided.

17.  Therein lies the problem with Mr Shum’s intended appeal and the present application. Section 58 of the BO provides that, inter alia, upon the appointment of a trustee in bankruptcy, the property of the bankrupt shall forthwith pass to and vest in the trustee appointed. Such property includes any right to claim a property, which is a chose in action. Further, notwithstanding discharge from bankruptcy, property which had been vested in the trustee would not be revested in the discharged bankrupt (see e.g. Wan Po Jun Mary Pauline v Au Yeung Yee Man Representative of the Estate of Au-Yeung Wing Hong [2017] 1 HKLRD 91 at §§6-10; Cornhill Enterprises Ltd v Leung Chun Sang [2016] HKLRD 1525 at §§23-25).

18.  As a result of the Bankruptcy Order, any right of action that Mr Shum had in respect of the Win City shareholding passed to and vested initially with the Official Receiver and then to the Trustees upon their appointment. Such a right of action included the right to appeal from the Judgment (see e.g. Cornhill Enterprises Ltd (ibid) at §22 and 26). As mentioned above, the Trustees have made clear that they had neither assigned to Mr Shum any choses in action or property rights pertaining to the shares of Win City or the Lexington Property nor had they consented to Mr Shum continuing or commencing legal proceedings to pursue enforcement of any such choses in action or alleged rights. Insofar as Mr Shum wishes to challenge the decision of the Trustees, that is a matter for the bankruptcy court.

19.  In the circumstances, Mr Shum has no locus standi to bring the intended appeal, and his notice of appeal is liable to be struck out. It follows that, in the absence of an arguable appeal, his application for a stay of the order for vacant possession pending appeal must fail (Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §9(6)). For those reasons, I dismissed the application.

20.  Last but not least, I thank Mr Tsang and Mr Arab for their assistance.