RE LAM SIU WING AND ANOTHER

HCB 7991/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7991 OF 2009

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D E C I S I O N

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Background

1. On 23 May 2007, Choi Yum Man (“the applicant”) met an accident at work while he was employed as a construction site worker by Lam Siu Wing (“the bankrupt”).

2. The applicant then instructed solicitors to issue an Application on 16 December 2008 in the District Court under DCEC 1522/2008 (“EC Proceedings”) to claim for employees’ compensation against the bankrupt.

3. Up to the time when a judgment of liability was entered in the EC Proceedings on 28 August 2009, the Bankrupt Order herein was not made yet.  The bankrupt was only subsequently ordered to be so on 7 September 2009.

4. At the material time, neither the applicant nor his solicitors knew that a bankruptcy order had been made herein, partly because the bankrupt had never appeared in the EC Proceedings. 

5. The EC Proceedings were thus proceeded with in the bankrupt’s absence all along.  The applicant was eventually awarded employees’ compensation in the sum of $31,196.67 on 8 January 2010.

6. The applicant then issued a writ against the bankrupt on 17 May 2010 at the District Court under DCPI 691/2010 for common law damages (“the Common Law Claim”).  Again, the bankrupt did not appear.  In his absence, he was ordered to pay damages in the sum of $366,724.33 on 2 December 2011.

7. In order to get paid pursuant to the orders made in his favour in the EC Proceedings and the Common Law Claim, the applicant intended to make applications under sections 16 and 20A of the Employees Compensation Assistance Ordinance (“ECAO”).  To make himself eligible under the ECAO, the applicant was minded to issue a bankruptcy petition against the bankrupt.  In preparation thereof, he caused his solicitors to conduct a bankruptcy search on 15 May 2013, and only by then it was discovered that the bankruptcy order herein had been made back on 7 September 2009.

8. The applicant therefore made an application (“the ECAO application”) to the Employees Compensation Assistance Fund Board (“the Board”) without taking further enforcement actions. 

9. The Board took the view that since a bankruptcy order had been made against the bankrupt in as early as September 2009, the applicant should apply for an order “rectifying/validating all orders/judgments made against [the bankrupt in the EC proceedings and the Common Law Claim]”[1] pursuant to section 12 of the Bankruptcy Ordinance.

10. As a result, the applicant took out two summonses herein for leave pursuant to section 12 of the Bankruptcy Ordinance (“section 12 leave”) to proceed with the EC Proceedings and the Common Law Claim. 

11. By letter dated 27 December 2013, the Official Receiver’s Office expressed reservation as to whether a section 12 leave would effectively “rectify/validate” any judgment which has been obtained improperly.  It was because of this reservation that the Official Receiver refused to sign on the consent summonses prepared by the applicant’s solicitors.

12. A hearing was therefore held on 9 January 2014. At the direction of this court (with the consent on the part of the applicant’s solicitors), the matter was adjourned to 28 January 2014 so that the Official Receiver might appear and make submissions on her reservation as expressed in her letter aforementioned. 

The Issues

13. Both parties accepted that it is well established that “proceedings in insolvency begun without the stipulated leave should not be regarded as irretrievably null but rather as existing and capable of redemption by the late giving of leave”, and that the court may grant retrospective leave to allow a creditor to commence or proceed with an action or other proceedings against a bankrupt after the making of the bankruptcy order against him.  (see Re Saunders (A Bankrupt) [1997] Ch 60 at 82B to 83F, followed by Ribeiro J. (as his Lordship then was) in Re Chung Wo Construction Company Limited (HCCW 104/1997, unreported, 28 July 1999) at paragraph 14)

14. The only issues herein are whether such retrospective leave should still be given after the judgments in the EC Proceedings and the Common Law Claim have been given and the effect of such a leave on those judgments.

The Official Receiver’s Argument

15. Mr Lam submitted on behalf of the Official Receiver that the judgments obtained prior to a section 12 leave being granted are irregular in nature which cannot be “rectified/validated” by the section 12 leave. The judgments are liable to be set aside and it would be up to the respective trial judges to waive the irregularity or to set aside the judgments.  He advocated that the Bankruptcy Court should not assist in by-passing the trial judges who have the sole discretion to decide on whether the judgments should be “rectified/validated”.

16. He added that if the trial judges knew that the respondent/defendant was a bankrupt, they might have made different costs orders in the EC Proceedings and in the common law action respectively.  Mr Lam worries that if the judgments may be “rectified/validated” in this way, the applicant/plaintiff may be able to take advantage of costs orders which he would not have been given in the first place had the bankruptcy status of the respondent/defendant been disclosed to the trial judges.  This, he submitted, might prejudice the interest of the bankrupt’s creditors. 

17. Mr Lam further stated that the applicant’s ECAO application is not “legal proceedings” within the meaning of section 12 of the Bankruptcy Ordinance.  He therefore had doubts as to whether section 12 leave should be granted in this situation for the purpose of the ECAO application.

Decision

18. I am of the view that section 12 leave should be granted in respect of both the EC Proceedings and the Common Law Claim.

19. Like the legal proceedings themselves (in the case of the Common Law Claim, the commencement of the action as well), the irregular nature of the judgments stems solely from the fact that no section 12 leave has been obtained beforehand.  If the commencement of the action and the continuation of the proceedings are capable of redemption by the giving of leave retrospectively, in my view, there is no reason why the judgments themselves cannot be rectified in a similar way.  Once a retrospective section 12 leave is given, it would be treated as if the proceedings had been commenced/continued in a proper manner, and it follows that the judgments/orders given can no longer be regarded as irregular.

20. As aforesaid, the Official Receiver suggested that these matters should be referred back to the trial judges for their decision as to whether the irregularity of the judgments may be waived and that if the irregularity is so waived, no section 12 leave is required.  I do not accept that this is a proper way ahead.  Pursuant to section 2 of the Bankruptcy Ordinance, “court” has been defined to mean “the Court of First Instance sitting in its bankruptcy jurisdiction”.  In other words, section 12 leave has to be sought from the Court of First Instance.  The trial judges hearing the EC Proceedings and the Common Law Claim cannot “rectify” their judgments as such.  If that can be done, it is the Court of First Instance sitting in its bankruptcy jurisdiction which would be bypassed.  This cannot be right.

21. Neither do I share the worry expressed by Mr Lam that the applicant would be able to retain unjustifiably the favourable costs orders if the judgments may be rectified in this way and that the interest of the bankrupt’s creditors may as a result be prejudiced.  First of all, I doubt whether the trial judges’ respective decisions on costs would be affected by the bankruptcy status of the respondent/defendant.  Even if their decisions would be so affected, it should be noted that it is a term in both summonses that the applicant is not entitled to enforce any order of the proceedings against the estate of the bankrupt without leave of the court.  That means even though there are costs orders on record against the bankrupt, his creditors’ interest would not be prejudiced unless leave is granted for the enforcement of those orders.

22. With respect, I also take the view that the Official Receiver’s point on the meaning of “legal proceedings” in section 12 of the Bankruptcy Ordinance is irrelevant.  It is true that the effect of the section 12 leave is to enable the applicant to proceed with his ECAO application.  Having said that, such an application is not the subject matter of the summonses before this court.  The EC Proceedings and the Common Law Claim remain the subject matters of the applications before me.  Hence, the applicant does not have to satisfy this court that his ECAO application comes within the meaning of “legal proceedings” in order to proceed with his section 12 leave applications.

23. The Official Receiver has confirmed that there is no surplus balance in the bankruptcy estate and that no dividend is likely to be paid.  Accordingly, it is unlikely that the grant of section 12 leave herein will have any impact on the interests of the bankrupt’s creditors.

24. Under these circumstances, I consider it appropriate for section 12 leave to be granted in respect of both the EC Proceedings and the Common Law Claim.  I therefore make an order in terms of paragraph 1 of both summonses filed by the applicant on 11 December 2013.

Costs

25. By consent, I have made an order that there be no order as to the costs of these applications save that the applicant do pay costs of the Official Receiver in the total sum of $3,000 within 14 days of the order.

26. The applicant’s own costs be taxed in accordance with Legal Aid Regulations.