LI XIAO YI AND ANOTHER v. ALAN CHUNG WAH TANG AND ANOTHER

CACV189/2018

[2022] HKCA 1623

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 189 OF 2018

(ON APPEAL FROM HCB 345/2001)

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RE: LEE SIU FUNG, SIEGFRIED

(A DISCHARGED BANKRUPT)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  On 3 April 2019, this court (Chu JA, as she then was, and Barma JA)  dismissed the applicants’ appeal against the judgment of G Lam J (as he then was)  (“the Judge”)  dated 30 April 2018 by which he dismissed two applications by the applicants for discovery in support of their application to remove the respondents (“the trustees”)  as joint and several trustees in bankruptcy of the estate of Mr Lee Siu Fung Siegfried.

2.  The facts and issues in the substantive appeal, as well as the court’s reasons for dismissing it, are set out in our Reasons for Judgment (“the Reasons”)  dated 25 November 2021([2021] HKCA 1735).  We will not repeat them here.

3.  The applicants subsequently applied, by an Amended Notice of Motion dated 14 February 2022, for leave to appeal to the Court of Final Appeal.  The application is opposed by the trustees.

4.  The applicants lodged written submissions on 21 February 2022 (“the applicants’ submissions”), after which the trustees lodged their submissions on 7 March 2022 (“the trustees’ submissions”), followed by the applicants’ reply submissions on 14 March 2022 (“the applicants’ reply submissions”).

5.  Having considered the Amended Notice of Motion and the parties’ written submissions, we see no reason to depart from the usual practice of determining an application of this kind on the papers.  We have therefore determined the applicants’ application on the basis of the documents filed.

The present application

6.  The Amended Notice of Motion identified a single question (“the Question”)  which is said to be a question of great general or public importance (“GPI”):

“Is the class of persons who have standing to apply under section 96(2)  of the Bankruptcy Ordinance (Cap. 6)  for the removal of a trustee on grounds of misconduct, impropriety or want of probity limited to creditors and other persons with an economic interest in the distribution of the estate, or does it include other persons who are directly affected by the exercise or proposed exercise of a power given to the trustee?”

7.  The applicants’ arguments in relation to the Question, as set out in their written submissions, are as follows:

(1)  the applicants are “directly affected” by the exercise or proposed exercise of coercive powers given to the trustees, in particular, those relating to private examination under section 29 of the Bankruptcy Ordinance, Cap 6 (“the Ordinance”), and they are thus not “strangers” to the bankruptcy ([3.2] of the applicants’ submissions);

(2)  persons who are directly affected by an exercise of powers by an insolvency officeholder should, as a matter of principle, have standing to challenge that act by way of an application for removal ([3.3] of the applicants’ submissions);

(3)  it is wrong in principle to limit the category of persons eligible to apply for removal of a trustee to creditors with an economic interest in the distribution of the insolvent estate ([7] to [9] and [12] to [15] of the applicants’ submissions; [3] of the applicants’ reply submissions);

(4)  the applicant in Deloitte & Touche AG v Johnson [1999] 1 WLR 1605 was not subject to the exercise of a specific statutory power conferred on the liquidator, and that case should accordingly be distinguished from the present ([11] of the applicants’ submissions);

(5)  the applicants in any event have a legitimate interest to apply for removal of the trustees because there is a “real risk” of the trustees exercising their examination powers in an “oppressive manner” which is said to be consistent with the trustees’ past misconduct ([18] to [22] of the applicants’ submissions);

(6)  there are what the applicants describe as “solid grounds” to believe that the trustees are not acting, and will not act, reasonably towards the applicants in exercising their powers as trustees under the Ordinance, based on what is said to be “cogent evidence” of their misconduct and unfitness for office ([21] of the applicants’ submissions), and that removal of trustees whose conduct has become questionable is consistent with the best interests of the estate ([24] of the applicants’ submissions).

8.  At the outset, we should point out that in the Reasons, this court did not in fact limit the categories of persons with locus to make a removal application under s. 96(2)  of the Ordinance to those with an economic interest in the distribution of the estate.

9.  In this regard, it is pertinent to note the following aspects of the Reasons:

(1)  as is made clear by Lord Millett in Deloitte, the burden falls on the applicant to demonstrate that he is a proper person to make an application for the removal of a liquidator, in that he must show that he has a legitimate interest in the specific relief sought (i.e. removal), as opposed to merely an interest in making the application or potentially being affected by its outcome (the Reasons, at [17]);

(2)  even if the applicants were able to show that they would derive some benefit from the removal of the trustees if they are successful in their application, this fact alone would be insufficient to confer standing upon them (the Reasons, at [28]);

(3)  while not every person who is “within the bankruptcy process” has standing to make an application to remove a trustee in bankruptcy, creditors, according to Deloitte, are clearly such persons; further, it is also rare for an applicant for removal to be anyone but a creditor or a contributory (the Reasons at [29]);

(4)  a person who merely alleges impropriety or want of probity does not necessarily have a sufficient interest to seek the removal of a liquidator or a trustee – the touchstone in every case remains whether the applicant has a legitimate interest in removing the liquidator or trustee from office (the Reasons, at [30]);

(5)  quite apart from the fact that the applicants do not have an interest in any surplus in the bankruptcy estate, as a debtor does, the extent of the debtor’s involvement in the bankruptcy process and of his dealings with the trustee is far more extensive than that of the applicants (the Reasons, at [31]);

(6)  as such, the applicants on the facts of this case should be regarded as strangers to the estate, as they have no interest in it (the Reasons, at [32]).

10.  As is made clear by the authorities discussed in the Reasons, the applicable test is one of “legitimate interest”, and not “direct effect” (as contended by the applicants without citing any authority in support).  Thus it matters not in what way the applicants are said to be affected, directly or indirectly, by the outcome of an application for the trustees’ removal, or by the trustee’s exercise of their statutory powers.  The applicants are obliged to establish a legitimate interest in making the removal application.

11.  It can also be seen that in the Reasons, this court simply observed (by reference to Deloitte), that in reality, the categories of persons who will be practically able to demonstrate a legitimate interest in removal applications will typically be creditors, contributories or the debtor, all of whom may have an interest in any surplus in the estate.  We did not hold that persons with so-called non-economic interests would never be able to demonstrate a legitimate interest in the estate, whether or not a legitimate interest in removal could be shown would be a question of fact that is context-dependent in any given case.

12.  Fundamentally, as submitted by the trustees, the applicants have failed to show that they have a legitimate interest in removing the trustees (see [26], [30] and [32] of the Reasons).

13.  The applicants also argued that by reason of the trustees’ past misconduct, there was a “real risk” that they would exercise their powers oppressively in conducting the private examination.  There is, in our view, no sound basis for this contention.  In any event, this is not the test, which requires the applicant to demonstrate a legitimate interest in the trustees’ removal, which for the reasons we gave, the applicants had not done.  We have also noted (see [25] to [27] of the Reasons)  that the applicants’ concerns regarding the manner in which the private examination would be conducted by the trustees, which were raised in support of the present application, were not raised in the application for private examination itself, and we were of the view that this had amounted, in effect, to an attempt at a second bite of the cherry.  As we also pointed out, there was no appeal against the Judge’s order for private examination, and any unfairness could be raised with the presiding judge during the examination process.

14.  The applicants also submitted that the removal of trustees whose conduct has become questionable is consistent with the best interests of the estate.  There is no merit in this argument.  As we held in the Decision, the applicants’ interests are clearly adverse to those of the estate.  As the targets of the private examination, their interests are naturally and clearly at odds with those of the estate in bankruptcy ([19] and [33] of the Reasons).

15.  For the above reasons, we doubt whether the Question amounts to one of GPI, and even if it does, we do not consider it to be arguable on appeal.

The “or otherwise” ground

16.  The applicants also suggest that for the reasons set out in [10] and [11] of the Amended Notice of Motion, leave to appeal to the Court of Final Appeal should be granted on the “or otherwise” ground.

17.  As pointed out by the trustees at [26] of their submissions, it is the practice of this court to defer to the Appeal Committee of the Court of Final Appeal in respect of any question as to whether leave to appeal should be granted on the “or otherwise” ground.  We therefore do not consider it deal with this ground, and shall leave it to the Court of Final Appeal for determination.

18.  For the reasons above, we dismiss the application for leave to appeal to the Court of Final Appeal.

19.  The application having been dismissed, we see no reason why costs should not follow the event.  We therefore order that the applicants are to pay the trustees’ (i.e. the respondents’)  costs of this application, to be taxed if not agreed, with certificate for two counsel.