RE LAU KWOK FAI, BERNARD

HCB 11144/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 11144 OF 2004

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J U D G M E N T

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1.  This is a bankruptcy petition presented by the Secretary for Justice (“the petitioner”) against Lau Kwok Fai Bernard (“Mr. Lau”), a former senior inspector of police.  The petition was founded on a judgment debt obtained by the petitioner by default in HCA No. 1317 of 2003 on 11 June 2003.  The petitioning debt is in the sum of HK$647,037.77.  No application has been made by Mr Lau to set aside the judgment or to stay  the execution of it. 

2.  The judgment debt due to the petitioner was in respect of housing loan and allowance made to Mr. Lau when he was in the civil service.   He had defaulted in payment since his interdiction in June 2001. He was dismissed from the police force in June 2003. 

3.  On 20 October 2004, a statutory demand for the said sum of HK$647,037.77 was served on Mr. Lau personally.  The sum was made up of the judgment debt of HK$664,257.43, with the accrued interests and costs, less HK$281,403.23 being the withheld salary of Mr. Lau on 24 July 2003.

4.  As the statutory demand was not complied with, the petition was presented on  18 November 2004.  The amended petition was served  on Mr. Lau personally on 4 February 2005.

5.  Mr. Lau filed one affirmation in these proceedings, raising two broad grounds in opposition. 

6.  Firstly, he said that the petitioner has obtained a charging order only in respect of one of his landed properties, being the ground floor including garden of the Remaining Portion of Lot No. 3712 in DD No. 116, Yuen Long (“the G/F property”).  The petitioner has not obtained any charging order in respect of the first floor of the property (“the 1/F property”). Although both properties were mortgaged by Mr. Lau to HSBC to secure  a loan to him, the outstanding loan as at 22 February 2005 was HK$1,158,799.50.  Mr. Lau claimed that the market value of the G/F property is HK$1,050,000.00 and that of the 1/F property is HK$900,000.00.  So the value of his properties should be sufficient to cover all his liabilities to HSBC and the petitioner.

7.  Secondly, he has lodged an appeal against the decision of Chu J in HCAL No. 95 of 2003 dismissing his application for judicial review of the decision of the Commissioner of Police (“the Commissioner”), by which he was interdicted from duty, and the decision of  the Secretary for Civil Service (“the Secretary”), by which he was dismissed from the civil service.  He filed a Notice of Appeal in CACV No. 93 of 2005 on 9 March 2005. Upon his dismissal, all his claims to pension, gratuity, other benefits,  together with the emoluments withheld during his interdiction were forfeited.  The salary withheld over 2 years and later forfeited amounted to almost HK$1.5 million, more than sufficient to pay the petitioning debt. His present inability to pay the petitioning debt is attributable to the unlawful acts of the Commissioner and the Secretary.

8.  In his written submission, Mr. Lau asked the court to focus on the second ground, namely, the merits of his appeal in CACV No. 93 of 2005.  I was told that this appeal is to be heard on 19 October 2005.  Mr Lau submitted that unless the petitioner could establish that his appeal is completely devoid of merits, this petition should be dismissed.  In his written submission, he stated that he does not intend to apply for an adjournment of the petition, and that he would only ask for its dismissal.  In his oral submission, he asked the court to consider as an option adjourning the petition until after the determination of his appeal. 

9.  I will deal with the first ground first.  There is no obligation or requirement that a creditor must apply for a charging order in respect of  all known properties of the debtor.  Under the Bankruptcy Ordinance, Cap. 6, a secured creditor has no right to petition unless he either surrenders his security or restricts his petition to the unsecured part of the debt.  For the latter purpose, the petition would need only state the estimated value of the secured part of the debt as at the date of the petition. 

10.  In the amended petition, it is stated that a charging order absolute was obtained in respect of the G/F property, that the amount owed to HSBC up to 14 December 2004 was HK$1.2 million odd, that the current market value of the G/F property was estimated at HK$1 million and the forced sale value at HK$800,000.00, and therefore the petitioner does not hold sufficient security for the petitioning debt.

11.  According to the valuation report given by the Commissioner of Rating and Valuation on 29 March 2005, the open market value of the G/F property as at 18 March 2005 was HK$1,050.000.00 and its forced sale value was HK$900,000.00.  The correct basis for giving an estimate of the value of the security should be that of the forced sale value ( Platts v Western Trust & Savings Ltd  [1996]  BPIR 339 at 347G).  Mr. Lau contended that the forced sale value of both the G/F property and the 1/F property at present should be HK$1,550,000.00, because of improvement in the economy.  No evidence was adduced by him to  back up his estimate.  It is not clear if he accepted the forced sale value of the G/F property estimated by the Commissioner of Rating and Valuation.  HSBC has confirmed by letter dated 31 March 2005 that as at that date the outstanding mortgage loan of Mr. Lau was HK$1,176,291.84.  There is no basis for Mr. Lau’s supposition that the interest accrued on the judgment debt and subsequently on the petitioning debt should not be taken into account in considering if the estimated value of the security is sufficient to cover the petitioning debt.  On any view, it does not appear that the G/F property would be sufficient security for the petitioning debt.

12.  As I have mentioned, the statutory demand was not complied with.  By virtue of section 6A(1)(a), Mr. Lau would appear unable to pay the petitioning debt.  Under section 6D(3), the court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts.  By analogy to section 178(1)(c) of the Companies Ordinance, Cap. 32 and  Re Philipp and Lion Far East Ltd, CWU No. 130 of 1991, Jones J,  17 May 1991, page 9,  a debtor is unable to pay his debts if he cannot pay them as they fall due out of cash or readily realisable assets in his hands .  See also Re Lam Ngai Fung Tony, HCB No. 4641 of 2001, Deputy Judge To, 3 December 2001 at paragraphs 11 to 13.  After citing the relevant passage in Penlington’s Company Law which was approved in  Re Philipp and Lion Far East Ltd, Deputy Judge To stated in paragraph 13 as follows :

“I think the above text is equally applicable to bankruptcy proceedings in relation to the question as to whether a debtor  is able to pay his debt when it falls due.  The test is whether he can pay it out of cash or readily realisable assets in his hands.  No regard  may be given to future contingencies, because those events may or may not happen.  Similarly, no regard may be given to future income because such income may or may not be available.  Such future income is not cash or readily realisable assets in his hands.  Of course, regard may be had to such future income as part of the total circumstances to be considered as to whether the Debtor’s offer to secure or compound for a debt has been unreasonably refused by the Petitioner.”

13.  There is no evidence that Mr. Lau has cash or readily realisable assets to pay all his debts.  Further, he stated in paragraph 13 of his affirmation that he will adopt the course of action of repaying his debt due to HSBC instead of to the petitioner, until all appeal avenues in his litigation with the petitioner have been exhausted.

14.  The first broad ground raised by him is without merits. 

15.  I turn to his second ground.  The Notice of Appeal filed by Mr. Lau ran to 25 pages with 134 paragraphs.  The grounds of appeal which are set out from paragraph 36 onwards, may be summarized as follows and I will number them for ease of reference, also giving the paragraph numbers in the judgment of Chu J relevant to these grounds: 

Regarding the decision of the Secretary,

(1)	there was no evidence that the Secretary had considered a lesser punishment apart from dismissal from the civil service;
(2)	there was an obvious conflict of interest concerning the Secretary’s role in deciding on the punishment imposed on Mr. Lau as he had in October 2002 taken out proceedings for judicial review against the Government for reducing the salary of civil servants through legislation in HCAL No. 177 of 2002, which was taken to the Court of Final Appeal;
(3)	the Secretary had failed to give reasons for his decision [paragraph 83 of the judgment];
(4)	the judge was wrong to accept the evidence of the Secretary that the interim representation of Mr. Lau in June 2003 was not received by the Secretary [paragraph 82 of the judgment];
(5)	the Secretary had made a pre-determined decision on the punishment without considering all relevant papers [paragraph 81 of the judgment];
(6)	there was a breach of natural justice in that Mr. Lau had not been forewarned or given an opportunity to respond to the punishment of forfeiture of all the associated benefits;
(7)	the decision of the Secretary is null and void as he had sub-delegated his authority to impose punishments [paragraphs 72 to 80 of the judgment];
(8)	there is no statutory provision authorising forfeiture of pension and vacation leave accumulated prior to interdiction, so part of the decision is unlawful;
(9)	the punishment imposed is disproportionate and the decision irrational [paragraphs 90 to 91 of the judgment].

Regarding the decision of the Commissioner,

(10)	onerous conditions affecting Mr. Lau’s livelihood were imposed on him during his interdiction [paragraphs 47 and 48 of the judgment];
(11)	there was a breach of natural justice in failing to give him the opportunity to make representations before a decision was made to interdict him upon criminal conviction for traffic offence, which would trigger the stopping of his pay and allowance [paragraph 44 of the judgment];
(12)	the Commissioner failed to take into account the reporting requirement imposed on Mr. Lau when deciding whether he should approve the payment of salary [paragraphs 49 and 50 of the judgment];
(13)	there is no statutory provision to empower interdiction upon criminal conviction of a police officer [paragraphs 21 to 26 of the judgment];
(14)	due to the unlawful and unreasonable decision of the Commissioner in not approving the payment of salary to Mr Lau, he was deprived of the means to engage a lawyer to conduct his criminal appeal [paragraphs 62 to 70 of the judgment];
(15)	the executive order providing that an officer under interdiction may not without permission of the Chief Executive leave Hong Kong contravened Article 8 of the Hong Kong Bill of Rights [paragraphs 53 to 61 of the judgment].

16.  In his written submissions to this court, Mr. Lau made this additional point.  Duties were imposed on him during the interdiction, these included daily reporting, attending monthly interview, prior notification if he should intend to leave Hong Kong, and not to take up any form of paid employment without permission of the Commissioner.  He claimed that there is no evidence the Secretary had taken into consideration he had performed these various duties ordered by the Commissioner, when the Secretary made the decision to forfeit the salary withheld during his interdiction. 

17.  Mr. Lau contended that if his appeal is successful, and if the Court of Appeal should make a declaration as sought that the decision of the Secretary is unlawful, procedurally unfair, irrational and of no effect, the forfeiture of his withheld pay would become unlawful and the Government would need to reimburse him, even though he did not expressly seek reimbursement as one of the reliefs in his application for  judicial review.  He claimed that he has not relied on a future contingency or future income, so Lam Ngai Fung Tony is distinguishable.

18.  The hearing today is not a dry run of the appeal in CACV No. 93 of 2005.  I have nevertheless considered the grounds of appeal in the Notice of Appeal and the judgment of Chu J being the subject of the appeal.

19.  The fact remains that the petitioning debt is the subject of a judgment obtained against Mr. Lau.  That judgment has not been set aside and there is no stay of execution of the judgment.  There is no basis for dismissing the petition as urged by Mr. Lau.

20.  I go on to consider whether I ought to adjourn the petition until after the determination of his appeal.

21.  I bear in mind that insofar as Mr. Lau has brought an application for judicial review against the Government challenging the decision to dismiss him with consequential forfeiture of his emoluments, that application was unsuccessful.

22.  Most of his grounds of appeal dealt with matters covered in Chu J’s judgment.  I am quite unable to discern any serious flaw in the judge’s reasoning.  Those grounds of appeal that are not dealt with by the judge, which I have numbered as (1), (2), (6) and (8) above and the additional point in his written submission, were not in the grounds in the Notice of application for leave to apply for judicial review.  They are completely new.

23.  Under Order 53 rule 6(1) of the Rules of the High Court, subject to paragraph (2), no ground shall be relied on or any relief sought at the hearing of the application for judicial review except the grounds and relief set out in the statement in Form 86A.  At the hearing of the application for judicial review, there was no application under rule 6(2) to allow Mr Lau to amend his statement, by specifying additional grounds or relief or otherwise.

24.  Even if Mr Lau should be given leave to argue the new grounds on appeal, they do not appear to me to have any serious prospect  of success.

25.  I should also mention that from the factual background given in Chu J’s judgment, Mr. Lau was given opportunity and did make representation in mitigation of punishment to the Commissioner and to the Secretary, see paragraphs 9 to 17 and 82 of the judgment.

26.  I decline to adjourn the petition until after the determination of his appeal.

27.  For the above reasons, I make a bankruptcy order against Mr. Lau.   The petitioner’s costs are to be paid out of Mr Lau’s assets.