LEE SIU FUNG, SIEGFRIED v. ALAN CHUNG WAH TANG AND OTHERS

HCB 345/2001

[2019] HKCFI 2984

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 345 OF 2001

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BETWEEN

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D E C I S I O N

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1.  This is an application made by summons by Mr Lee Siu Fung Siegfried, the discharged bankrupt in these proceedings (“LSF”), for non-party discovery from Mr Ip Pui Lam Arthur and Mr Ip Pui Sum in their capacity as trustees in bankruptcy of Ho Yuk Wah David in HCB 3819/2011 (“DH Trustees”). The application is made for the purpose of obtaining documents to be used for an application brought by LSF for removal of the trustees in his own bankruptcy, Mr Alan Tang and Ms Anita Hou (“LSF Trustees” and “removal application”). The principal issues raised are whether the application is a fishing exercise, and whether LSF has a sufficient legitimate interest in the matter to which the documents are said to relate.

2.  The background to this bankruptcy has been set out in my Reasons for Decision dated 12 October 2016 ordering examination of LSF under s 29 of the Bankruptcy Ordinance (Cap 6) (“Ordinance”), and will not be repeated here.  Suffice it to recall that proofs of debt filed in the bankruptcy amount to some HK$458 million while LSF submitted a statement of affairs stating assets of HK$265 only, and that no dividend has been paid to the creditors at all.  The only avenue for recovery being pursued by the LSF Trustees appears to be claims against LSF and his associates.  There is, not surprisingly, no suggestion from LSF that there is any likelihood of a surplus of assets in the bankruptcy in which he may ultimately be interested.

3.  LSF’s removal application was issued by summons dated 1 February 2017.  On 27 March 2017, LSF’s younger brother and son (“Brother” and “Son”) also took out a similar summons for an order to remove the LSF Trustees.  On 12 April 2017, the Brother and Son issued a summons for non-party discovery from the DH Trustees.  On 14 July 2017, the Brother and Son took out a further summons against the LSF Trustees for specific discovery of documents, which were identical to those sought from DH Trustees based on the earlier summons (as subsequently amended).

4.  On 30 April 2018, both of the Brother’s and Son’s summonses were dismissed by this court on the ground that they had no legitimate interest in seeking discovery of the documents in question: see this court’s Decision [2018] HKCFI 939.  The documents sought and the circumstances which led to the Brother’s and Son’s attempt to obtain those documents have been described in that decision.  I am told that the Brother’s and Son’s appeal against my decision has been dismissed, with written reasons to be handed down.

5.  On 16 July 2018, LSF took out the present summons, seeking non-party discovery of the same documents from the DH Trustees (but not from the LSF Trustees).  He explained that he had taken a “wait and see” approach towards the Brother’s and Son’s discovery summonses and that eventually, because their applications were dismissed for want of standing, he believed he was justified to take out the present application.

6.  The documents sought are as follows:

“ 1. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing that any sum of money:

1.1 recovered during the course of the liquidation of CWB Textile Supplies Company Limited (in creditors’ voluntary liquidation) by its liquidators; or

1.2 paid to Grant Thornton (subsequently known as JBPB & CO),

was at any time diverted for the use of the “Lee Siu Fung Matter”, as further elaborated in the Affirmation of Hung Hoi Chun dated 12 April 2017 (the “Diverted Funds”);

2. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the payer and payee of the Diverted Funds;

3. All documents disclosed in HCB 3819/2011 and/or HCMP 450/2016 showing the date of diversions in relation to the Diverted Funds;

4. All documents disclosed by the Applicants to the Joint and Several Trustees in Bankruptcy of the Property of Ho Yuk Wah David (whether pursuant to the Order of the Honourable Madam Justice Au-Yeung on 7 April 2017 or otherwise) in HCB 3819/2011 which make reference to the proceedings herein, the Bankrupt herein or the “Lee Siu Fung Matter”.”

7.  The application is opposed by the LSF Trustees. The DH Trustees have taken a neutral stance.

8.  The grounds relied upon by LSF for the removal application are, as summarised in LSF’s affirmation dated 25 January 2017, that (a) the LSF Trustees are guilty of misconduct or have failed to perform their duties under the Ordinance; and (b) the interests of the creditors require it. 

9.  In LSF’s affirmation, the only issue to which the documents sought in the present discovery application are said to be relevant is whether the funds of David Ho (while an undischarged bankrupt) had been used to fund the administration of the present bankruptcy.  There is also a reference to the liquidation of CWT (defined below) but, as explained below, it seems to me to go nowhere.  On behalf of the LSF Trustees, Mr Siu submits that the application is a fishing expedition.

10.  To see the relevance (or lack of it) of the documents sought, it is necessary to examine what now appears from the facts and evidence.  On the information available at present, the position seems to be as follows:

(1) In December 2003, Sun Ascent International Ltd (“Sun Ascent”) entered into a consultancy agreement, and Topmark Asia Ltd (“Topmark”) entered into a funding agreement, with the liquidators of CWT Textile Supplies Co Ltd (“CWT”), namely, Mr Alan Tang and Mrs Alison Wong, in relation to CWT’s action for professional negligence against its former auditors.  There is evidence that David Ho was connected with Sun Ascent and Topmark, and for present purposes I proceed on that basis.[1]

(2) Mr Alan Tang and Mrs Alison Wong were also the LSF Trustees (until around 2014 or 2015, when Mrs Alison Wong retired and was replaced by Ms Anita Hou). 

(3) In 2005, the LSF Trustees entered into a funding agreement dated 4 August 2005 between Keentrade Investments Ltd (“Keentrade”), and a consultancy agreement with Sinowood International Ltd (“Sinowood”), in relation to the administration of the bankruptcy of and litigation against LSF.  Pursuant to these agreements, Sinowood provided consultancy services, and Keentrade provided funding, in connection with the LSF Trustees’ litigation against LSF and other parties.[2] There is an issue raised by the DH Trustees that David Ho controlled or was connected with Keentrade and Sinowood.  For present purposes I proceed on the basis this is an arguable issue.

(4) HSBC, a major creditor of LSF, assigned its debts to Keentrade in around August 2005.[3]

(5) Following the 2008 worldwide financial crisis, Keentrade became unable to provide any resources.[4]

(6) Meanwhile, CWT’s action against its former auditors was settled and resulted in a recovery of HK$45 million by CWT’s liquidators.  The precise date of the settlement was not clear, but it would appear that the money had been received by March 2009.  According to a Distribution Schedule dated 5 March 2009, part of that money was used in relation to the bankruptcy of LSF.[5]

Ms Anita Hou, one of the current LSF Trustees, has said she was the case manager handling the matter at the time.  She has given an explanation from her personal knowledge.  The explanation is that, as the funders of the CWT liquidation and the funders of the LSF bankruptcy were related companies or belonged to the same group of investors, the former requested the CWT liquidators to apply part of the proceeds of recovery (which belonged to the funders in the CWT liquidation) to pay the outstanding legal fees relating to the LSF bankruptcy.  It may be noted that at that stage, Messrs Deacons acted for both the CWT liquidators and the LSF Trustees.[6]

(7) On 2 August 2011, David Ho was adjudged bankrupt in Hong Kong on his own petition.

(8) The Keentrade funding agreement was terminated on 25 March 2013.[7]

(9) Prior to 10 June 2013, Keentrade assigned the debts (acquired from HSBC) to Heartbeast Commercial Co Ltd.[8]

(10) In 2015, Heartbeast Commercial Co Ltd in turn further assigned the debts to China New Investment Ltd (“CNIL”), which had agreed to fund the litigation against LSF.[9]

In HCB 3819/2011 (the bankruptcy proceedings of David Ho), the court has noted that Ms Anita Hou stated on oath that CNIL was not related to David Ho.  That evidence of Ms Hou was not placed before me but the court there noted that her explanation was not a bare denial.  Recorder Eugene Fung SC held that the DH Trustees had produced nothing to show that CNIL was related to David Ho.  For the purposes of the present application, Mr Alan Kwong, appearing for LSF, accepts that his client can do no better than the DH Trustees and accepts that there is nothing to show that CNIL is related to David Ho.

11.  On this basis, there is nothing, in my view, that shows even on a prima facie basis that the LSF Trustees had received funds from or belonging to David Ho after his bankruptcy in 2011. Mr Kwong relied on paragraph 18(3) of Recorder Eugene Fung SC’s decision of 18 January 2019 which stated:

“ … Mr Tang on behalf of the respondents sent two letters dated 9 May 2012 and 8 October 2012 to Keentrade. Each of the letters was recorded to have been copied to “Sinowood International Limited Attn: Mr David Ho (via email)”. Moreover, the Bankrupt was identified by Mr Tang in his letter to Keentrade dated 8 October 2012 as “Mr David Ho of your consultants, Sinowood International Limited ”.”

12.  These were simply letters copied to David Ho after his bankruptcy, not material indicative of any funding received from him.  Moreover, as I said at paragraph 25 of my Decision dated 30 April 2018 dismissing the Brother’s and Son’s discovery applications:

“ Since the documents sought from the [LSF] Trustees are all also in the possession of Messrs Ip [ie the DH Trustees], there is no reason to think that no action will be taken if they do indeed reveal that funds had flown from David Ho while an undischarged bankrupt.”

There is no such action taken by the DH Trustees.

13.  Mr Kwong says there is also an issue whether David Ho was involved in funding the CWT liquidation.  However, on the evidence, that seems all to have taken place, with recovery achieved, in 2009. David Ho was only adjudicated bankrupt in August 2011.  Mr Kwong is unable to point to anything wrong for the LSF Trustees to receive funding from David Ho or his companies prior to his bankruptcy.  There is no basis to suggest that the agreement by Topmark and Sun Ascent for part of the proceeds of recovery to be used to pay the expenses incurred in the LSF bankruptcy was somehow an act intended to defraud David Ho’s creditors before his bankruptcy.

14.  There is also some allegation made by LSF that Mr Alan Tang, as one of the CWT liquidators, had “diverted” funds belonging to CWT or to Grant Thornton (the firm to which Mr Alan Tang at that time belonged), to the LSF bankruptcy.  As Ms Hou has credibly explained, however, the money applied to the LSF bankruptcy belonged to, and was so applied at the request of, the funders of the CWT liquidation.  There is nothing to gainsay that explanation, which was apparently also supported by over 40 pages of documents supplied to the Brother and Son under cover of a without prejudice letter from the LSF Trustees’ solicitors’ letter dated 3 August 2017.  In any event, if there was any wrongful diversion as alleged, it would be a matter for the creditors of CWT or Grant Thornton to take up rather than for LSF, and one would have thought that they would long have taken action against the CWT liquidators or the LSF Trustees if there were anything in the allegation.

15.  Mr Kwong also says there is a question whether David Ho stands to benefit from any recovery in the LSF bankruptcy.  As Mr Siu points out, however, even if David Ho had an interest in Keentrade and Sinowood and, through this, has some entitlement to share in the proceeds of any recovery in the LSF bankruptcy, this is no evidence of misconduct on the part of the LSF Trustees at all.  On that assumption, what will happen is simply that, if recovery is finally made against LSF, and it is established that the DH Trustees are entitled to be paid any amount due to David Ho, Keentrade or Sinowood, then payment will be made to the DH Trustees instead.  But the fact is, as LSF well knows, his trustees have not been able to recover a single cent from him yet.

16.  For these reasons, I agree with the submission made on behalf of the LSF Trustees that this application is nothing but a fishing expedition.  This alone is sufficient to dispose of the summons.

17.  There is a separate question of LSF’s standing that has been raised.  The documents are sought for the purposes of the removal application.  The removal application is being made under s 96(2) of the Ordinance and the inherent jurisdiction of the court.  Section 96(2) provides as follows:

“ (2) If the court is of opinion—

(a) that a trustee, other than the Official Receiver, is guilty of misconduct or fails to perform his duties under this Ordinance; or

(b) that his trusteeship is being needlessly protracted without any probable advantage to the creditors; or

(c) that he is by reason of lunacy or continued sickness or absence incapable of performing his duties; or

(d) that his connexion with or relation to the bankrupt or his estate or any particular creditor might make it difficult for him to act with impartiality in the interest of the creditors generally; or

(e) that the interests of the creditors require it,

the court may remove him from his office and appoint another person in his place.”

18.  Inasmuch as the provision does not preclude an application from being made by the bankrupt, there is no lack of jurisdiction as such to entertain an application by the bankrupt.  There have indeed been reported examples of application by the bankrupt for removal of the trustees: Smedley v Brittain [2008] BPIR 219; Re Lau William John (a bankrupt) [2016] 2 HKLRD 404; Re Tam Mei Kam (unrep, HCB 3777/2011, 21 February 2014), though Mr Kwong has not referred to any example of a successful application. 

19.  That there may be jurisdiction to entertain an application does not, however, mean that a bankrupt will necessarily have a sufficient, legitimate interest in applying for the removal of his trustee in bankruptcy on the grounds relied upon.  The question of the bankrupt’s standing depends, in my view, under nature and content of the particular grounds for removal.  For example, LSF has in his affirmation asserted that the interests of the creditors require the removal of the LSF Trustees, which is clearly a reference to the ground in s 96(2)(e).  I am at a loss to see how a bankrupt can rely on the interests of the creditors to try to remove the trustee, and Mr Kwong was driven to accept that that paragraph in his client’s affirmation can be ignored.  Likewise I can understand if a bankrupt complains that the trustee is not competent in recovering assets so that the bankrupt’s prospects of recovering any surplus in the bankruptcy are impaired (see eg In re a Debtor, ex parte The Debtor v Dodwell (the Trustee) [1949] Ch 236, 240-241), but LSF does not suggest there is any prospect of surplus in this case.

20.  I have some doubt whether a bankrupt such as LSF in a bankruptcy such as this has sufficient legitimate interest to seek removal of a trustee based on alleged misconduct committed against some other party in connection with the acquisition of funds for the administration of the bankruptcy.  In light of my conclusion above, however, it is not necessary to deal with this question and I therefore express no opinion on it.

21.  For the above reasons, LSF’s summons is to be dismissed.  There will be an order nisi that LSF pay the LSF Trustees the costs of and relating to this application forthwith.