WONG YAN HONG AND ANOTHER v. HONG KONG HOUSING AUTHORITY AND ANOTHER

HCB 2989/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 2989 OF 2000

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D E C I S I O N

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1. This is an application by a creditor Fujian Enterprises (Holdings) Company Limited ("Fujian"), for an order under s.102 of the Bankruptcy Ordinance, Cap.6. This provision is headed "Power to change carriage of proceedings" and it provides as follows:

"When the Petitioner does not proceed with due diligence on his petition the court may either dismiss the petition or substitute as petitioner any other creditor to whom the debtor may be indebted in the amount required by this Ordinance in place of the petitioning creditor."

2. In the written submissions of counsel for Fujian, Mr Steven Lau, it is stated that Fujian seeks to be substituted as the petitioner in the sense that it would be asking for the petition to be amended to plead the debt owing to Fujian by the debtor and that is to be the basis on which Fujian is to bring the petition against the debtor, Mr Wong Wai Dai.

3. In the oral submissions of counsel today, Mr Lau has changed his stance. I am told that Fujian would be asking for substitution as the petitioner without an amendment of the petition in that it is to be placed in the shoes of the petitioner and be given the conduct of the petition based on the petitioner's debt, not Fujian's own debt.

4. The background matters leading up to this application may be given as follows.

5. On 22 March 1999, Fujian obtained summary judgment against the debtor in the absence of the debtor in HCA No.14517 of 1998 in the sum of HK$5,468,157.81. A statutory demand for that judgment debt ("the 1st statutory demand") was served by Fujian on the debtor on 30 September 1999. As the 1st statutory demand was not complied with, Fujian brought a bankruptcy petition against the debtor in HCB No.973 of 2000 on 29 March 2000. On 9 May 2000, the debtor paid RMB300,000.00 to Fujian in part payment. On 31 May 2000, the petition in HCB No.973 of 2000 was withdrawn, as Fujian had reached a settlement with the debtor, giving the debtor time to pay the judgment debt.

6. In the meantime, the petitioner presented a petition in these proceedings based on a statutory demand which was served by advertisement in a newspaper on 22 May 2000 for a debt of HK$1,017,753.42. The petition herein was filed on 14 August 2000 and served on the debtor on 3 October 2000.

7. On 5 October 2000, Fujian issued a fresh statutory demand against the debtor ("the 2nd statutory demand") for the balance of the judgment debt which the debtor had failed to pay. The 2nd statutory demand was served on the debtor personally on 10 November 2000 and it was not complied with.

8. Fujian has not to date presented a bankruptcy petition on the basis of the failure of the debtor to comply with the 2nd statutory demand. Apparently, Fujian's legal advisers are of the view that Fujian could not present another petition as there is already a petition filed by the petitioner on 14 August 2000. There is in fact no legal impediment to Fujian presenting a petition in these circumstances. Indeed, it is common practice for creditors to present other petitions notwithstanding there is a prior petition.

9. This petition first came before a master on 8 November 2000. Between that date and 3 January 2001, the petition was adjourned on three occasions as the debtor and the petitioner were in negotiations for settlement.

10. On 17 January 2001, when the matter was brought before the master, he was told that the petitioner would agree to a dismissal of the petition. This was opposed by Fujian which had on that date filed a Notice of intention to appear and to support the petition. The hearing was adjourned to 31 January.

11. On 31 January 2001, the petitioner formally sought leave to withdraw the petition. This was opposed by Fujian which had applied to be substituted as the petitioner. The debtor opposed Fujian's application for substitution. The master adjourned both applications to me on 5 February 2001.

12. On 5 February 2001, I gave directions for the filing of evidence by Fujian and the debtor relating to Fujian's application for substitution.

13. On 19 March 2001, I adjourned the petitioner's application and Fujian's application for argument because Fujian's counsel had raised a question of construction of s.102 of Cap.6.

14. The position of the petitioner today is still to ask for leave to withdraw the petition notwithstanding that the petitioner has not been paid in full. I understand from Mr Chan Chung who appeared for the petitioner that a settlement has been reached between the petitioner and a third party who has agreed to pay the debt owing to the petitioner and that some part payments have been made.

15. The first matter I need to resolve is whether Fujian can bring itself within the ambit of s.102, before I consider the form of the order that I am empowered to make under that provision.

16. Section 102 is similar to s.111 of the Bankruptcy Act 1914. I was referred by counsel to the 19th edition of Williams and Muir Hunter on the Law and Practice in Bankruptcy, 1979 edition, where the learned authors had made this comment on s.111 of the 1914 Act:

"Substitution of petitioning creditor

The petitioner proposed to be substituted must be duly qualified, under s.4, both as to the amount of his debt, and as to the continued 'availability' of the act of bankruptcy alleged in the petition. Proof that the original petitioner has not proceeded 'with due diligence' seems to be a prerequisite for the exercise of the jurisdiction to substitute" (at p.469).

17. In Butterworths Hong Kong Bankruptcy Law Handbook at p.248, the following annotation was given in respect of s.102:

"The person seeking to be substituted as a petitioner must prove the following: (i) that the original petitioner has not prosecuted the petition with due diligence (see Re a Debtor (No.28 of 1976) [1977] 1 All ER 193) and; (ii) he is an unpaid creditor ..."

18. Fujian's counsel has not sought to argue that on the facts of this case, the petitioner has not proceeded with due diligence on the petition. Indeed, I am not satisfied that lack of due diligence of the petitioner has been established on the materials before me. It is however submitted that even though it is not shown that the petitioner has failed to proceed with due diligence, an order should nevertheless be made under s.102 if the court is satisfied that it is just and equitable to do so. In support of that proposition, Mr Lau has referred me to another passage in the Butterworths Hong Kong Bankruptcy Handbook at p.248 which is as follows:

"It is submitted that the purpose of this section is to prevent a creditor from using the presentation of the bankruptcy petition as means of exerting pressure on the debtor to pay him at the expense of other creditors, by enabling the court to give the carriage of the petition to one of those other creditors in circumstances where the petitioning creditor is not prosecuting the petition for the benefit of the creditors generally: see Re Purvis & Anor. [1998] BPIR 153 at 160 per Chadwick J. It should be noted that although the above comment was made in the context of rule 6.31 of the English Insolvency Rules 1986 (SI 1986/1925), it should equally apply to this section."

19. That may well be the purpose or legislative intent of s.102. However, I do not understand the author in the Hong Kong Bankruptcy Law Handbook to be saying that it is not necessary for a creditor to establish that the original petitioner has failed to proceed with due diligence. The separate passage that I have quoted earlier from the same work showed that the author is of the view that failure of the original petitioner to proceed with due diligence is one of the matters that a substituting creditor must prove.

20. I have also been referred to rule 6.31 of the Insolvency Rules 1986 dealing with the change of carriage of petition. I cannot see how the provisions of this rule which are very different from s.102 of Cap.6, would have assisted in the construction of our provision.

21. In my judgment, the meaning of s.102 is clear. The court is empowered to dismiss or substitute as petitioner any other creditor only where it is established that the original petitioner does not proceed with due diligence on his petition.

22. As I am against Fujian on this point, it would not be necessary for me to rule on the other matter raised by Mr Lau, namely the form of the order I can make in the event that I am satisfied that Fujian has fulfilled the requirement in s.102.

23. I propose to deal with the form of the order briefly as I have heard arguments on this.

24. There is no doubt that the court can give leave to substitute a creditor by amending the petition if an order is made under s.102. The difficulty Fujian faced here is that Fujian was in no position to present a petition as at 14 August 2000, the date of the original petition. On that date, Fujian had withdrawn its petition based on the 1st statutory demand and had not issued or served the 2nd statutory demand. I understand from Mr Lau that Fujian had not issued execution or other process in respect of the judgment debt so the other limb in s.6A that execution has been returned unsatisfied would have no application here.

25. The general principle as to the effect of an amendment of a pleading applies equally to the amendment of a petition. An amendment takes effect not from the date of the amendment but from the date of the original document which it amends.

26. There is nothing in Cap.6 to suggest that this general principle is not applicable. Indeed, s.99 of Cap.6 is to the effect that the rules and practice of the High Court for regulating the ordinary civil procedure of the court shall so far as the same may be applicable and not inconsistent with the provisions of Cap.6 be applied to bankruptcy proceedings.

27. If Fujian had asked for an amendment of the petition, and assuming that it could establish lack of due diligence to proceed with the petition by the petitioner, I would not have given leave to Fujian to amend the petition in these circumstances.

28. Faced with this difficulty, Fujian has changed its position regarding the form of the order it is asking the court to make. It now seeks an order to be put into shoes of the petitioner without an amendment of the petition, so it would be proceeding with the petition on the basis of the petitioner's debt. This form of order called a change of carriage order, is provided for in rule 6.31 of the Insolvency Rules 1986, which also laid down provisions as to the circumstances in which the court shall not make such an order, namely where the court is satisfied that the petitioning creditor's debt has been paid, secured or compounded for by means of a disposition of property made by some person other than the debtor or a disposition of the debtor's own property made with the approval of or ratified by the court.

29. There is no equivalent provision in our bankruptcy legislation.

30. I note that s.102 of Cap.6 is given the heading "Power to change carriage of proceedings". However, the provision itself makes no mention that the court may make an order "giving [the substituting creditor] carriage of the petition in place of the petitioning creditor, but without requiring any amendment of the petition", unlike rule 6.31.

31. I have not been referred to any decided case where this form of order had been made under s.111 of the Bankruptcy Act 1914 which was similar to our s.102. The provisions in rule 6.31 are entirely new.

32. I am not satisfied on the wording of s.102 that the form of change of carriage order as envisaged in rule 6.31 of the Insolvency Rules is permissible.

33. In any event, it has not been shown to me that it would be appropriate in the circumstances of this case to make this kind of change of carriage order, assuming that I do have the power to do so.

34. As I am against Fujian on all the points raised by its counsel, I must dismiss Fujian's application for an order under s.102. I give leave to the petitioner to withdraw its petition. I will hear the parties and the Official Receiver on the costs of these applications.