THE OFFICIAL RECEIVER v. CHOW TUNG SHAN

CAMP 138/2020

[2021] HKCA 138

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 138 OF 2020

(ON AN INTENDED APPEAL FROM HCMP NO 1334 OF 2018)

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JUDGMENT

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Hon Yuen JA (giving the judgment of the Court):

1.  This is Mr Chow Tung Shan’s summons for leave to appeal out of time from a decision (“the Decision”) of DHCJ M.K. Liu (“the judge”) given on 30 October 2019 (“the 30.10.2019 order”) dismissing his application to appeal out of time from a master’s order disqualifying him from being a director¹ or taking part in the promotion, formation or management of a company for a period of 1 year effective from 21 days after 18 July 2019, i.e. 8 August 2019 (“the disqualification order”).

2.  There was no stay of the disqualification order.  By the time Mr Chow filed the summons in this court (20 August 2020), the disqualification order had ceased to be in force.  However, that does not render any appeal academic as consequential costs orders had been made against Mr Chow (although leave is required for an appeal against costs only)². 

Background

3.1.  The background, briefly, is as follows.

3.2.  Mr Chow, formerly a senior official at the Labour Department, retired in 2004 and set up a language centre. 

3.3.  In 2007, the business was taken over by Asia Global Holdings Ltd (“the Company”) and expanded.  Mr Chow was the majority shareholder and one of three directors, but apparently the other two directors did not take part in the management of the Company.

3.4.  According to Mr Chow, although the language centres were successful, the profits were ploughed back into research.  By the end of the first quarter of 2013, the Company had run out of reserve funds.  Plans to raise new capital were unsuccessful.  On 14 February 2014, an investor who had promised to commit funds decided to pull out at the last minute.  The Company ceased business the following day.

3.5.  In April 2014, the other two directors resigned from the board. 

3.6.  In May 2014, the Mandatory Provident Fund Authority (“MPFA”) notified Mr Chow and the two former directors that the Company had failed to pay employer’s and employee’s contributions to the MPF for 33 employees since January 2013. According to Mr Chow, the three of them immediately went to the MPFA’s office, admitted their oversight and expressed their wish to rectify the situation. The three of them paid a sum of $138,390.90 on 23 May 2014.  The balance was covered by the Protection of Wages on Insolvency Fund.  The MPFA did not take any proceedings against them.

3.7.  On 4 February 2015, the Company was wound up.  Liquidators were subsequently appointed.

Application for disqualification order

4.1.  On 28 August 2018, the Official Receiver (“OR”) applied in HCMP1334/2018 for a disqualification order against Mr Chow under s.168I Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap. 32 (“CWUO”).  Pursuant to s.168H(1) CWUO, the Court shall make a disqualification order against a person if it is satisfied that he has been a director of a company which has become insolvent while he was a director and that his conduct as a director of that company makes him unfit to be concerned in the management of a company.

4.2.  The conduct or “grounds” relied upon by the OR were as follows: 

(1)  Mr Chow failed to ensure the Company paid wages punctually, as 20 employees were not paid their wages in January and February 2014, just before the Company ceased business;

(2)  he failed to ensure the Company paid employer and employee MPF contributions from January 2013 to February 2014;

(3)  he failed to procure the Company to take out employees compensation insurance for one employee in August 2012; and

(4)  he failed to procure the Company to comply with certain statutory provisions relating to keeping of accounting records.

Proceedings

5.  On 18 July 2019, after a hearing at which Mr Chow was present, Master KH Hui gave an oral ruling and made a disqualification order for a period of 1 year, which is the minimum period under s.168H(4).

6.1.  Order 58 rule 1(3) Rules of the High Court (“RHC”) provides that an appeal against a master’s order should be filed within 14 days after the master’s order was made.  Accordingly, the last day for filing a notice of appeal was 1 August 2019.

6.2.  Mr Chow says on 9 August 2019, he received a copy of the master’s written ruling, and he filed a notice of appeal the same day.

The Decision

7.1.  On 30 October 2019, the judge heard Mr Chow’s application for leave to appeal the master’s order out of time.  The judge gave his decision the same day. 

7.2.  Essentially, the judge held that the conduct or “grounds” at (1) and (4) above had not been established, and that the conduct or “ground” at (3), though proved, was a “minor matter”³.

7.3.  However, the judge found that in respect of the conduct or “ground” at (2), there were only payments of $138,390.90 made in May and June 2014⁴.        

7.4.  The judge then said:

“33. In my view, in respect of the failure under this ground, Mr Chow has not put forward any satisfactory explanation. Mr Chow said that he was unaware of the non-payment of the MPF contributions at the material times. However, this is not a defence. As a director, Mr Chow had the duty to ensure the Company to make the MPF Contributions. I note that no action has been taken by the [MPFA] against the Company or Mr Chow. However, this also cannot be a defence to the Disqualification Application made by the OR under this ground.

34. It is well-established that a director’s failure in ensuring the Company to make MPF contributions is a ground for making a disqualification order against that director. See OR v Ng Tin Ming⁵; OR v Ko Kok Hong⁶”.

(Emphasis added).

7.5.  As the judge considered that the appeal had no merit, the application for leave to appeal out of time was dismissed⁷.

Applications made after the Decision

8.1.  The following day, 31 October 2019, Mr Chow issued a notice of appeal directly in the Court of Appeal (“CA”) in CACV506/2019.  This was procedurally incorrect, for the judge’s refusal to extend time to appeal the master’s order was an interlocutory order⁸, and under s.14AA HCO, leave was first required to appeal against an interlocutory order from the Court of First Instance (“CFI”). 

8.2.  Under Order 59 rule 2B(1) RHC, such an application for leave should first be made to the CFI, and if refused, then to the CA.

8.3.  Accordingly, on 4 November 2019, the Registrar of Civil Appeals gave directions to Mr Chow that the notice of appeal in CACV506/2019 was liable to be struck out, and that if he objected to that course of action, he should lodge written submissions.

8.4.  On 12 November 2019, Mr Chow filed an affidavit which contained in part, factual evidence and in part, submissions.

8.5.  On 22 November 2019, the CA⁹ struck out CACV506/2019.

9.1.  Although the CA notified Mr Chow on 22 November 2019 explicitly that leave to appeal should be sought from the CFI, and only if refused, should a renewed application be made to the CA, for some unknown reason Mr Chow continued to file a number of affidavits in CACV506/2019 (even though it had already been struck out).

9.2.  On 18 March 2020, Mr Chow filed a summons for leave to appeal in CACV506/2019.  On 24 April 2020, the Registrar of Civil Appeals informed Mr Chow that the summons was liable to be struck out as it should have been taken out in the CFI and not the CA. 

9.3.  On 27 April 2020, the CA¹⁰ dismissed the summons, albeit expressly without prejudice to Mr Chow making an application to the CFI for leave to appeal by filing a summons for that purpose in HCMP1334/2018.

Application to the judge for leave to appeal out of time

10.1.  Eventually, on 8 May 2020, Mr Chow filed a summons in the CFI in HCMP1334/2018 for leave to appeal the judge’s 30.10.2019 order out of time. 

10.2.  The judge dealt with the summons on paper.  He did not consider the length or reason for Mr Chow’s delay in filing the summons out of time, but for reasons set out in his written decision of 10 June 2020, decided that there was no merit in the application, and refused leave.

Application to this court

11.1.  Apparently on 23 June 2020, Mr Chow again filed an affidavit in CACV506/2019 (even though that appeal had already been struck out). 

11.2.  It was not until 20 August 2020 that Mr Chow finally adopted the correct procedure and filed a summons in the CA in CAMP138/2020, to renew his application for leave to appeal the judge’s 30.10.2019 order out of time.  By this date (20 August 2020), the period of disqualification had expired. 

12.  Be that as it may, as indicated earlier in this Judgment, any appeal is not academic as costs orders had been made against Mr Chow.  As s.14(3) HCO however provides that leave is required for appeals solely on the issue of costs, we will treat this application as one for such leave as well.

Discussion

13.  Mr Chow has filed a number of affidavits without leave of the court, but as they contain in part evidence¹¹ and in part submissions, we will consider those parts which contain submissions.

14.  It is well-established that the court will consider the following factors in applications for leave to appeal out of time:

(1)  the length of the delay;

(2)  the reason for the delay;

(3)  the merits of the intended appeal;

(4)  any prejudice to the other party (although the absence of prejudice does not mean that an extension should be granted).

15.  As for (1), Mr Chow should have applied to the CFI for leave to appeal the 30.10.2019 order within 14 days of that order¹², i.e. by 13 November 2019.  He did not do so until 8 May 2020.  Also, when the judge refused leave, he should have renewed his application for leave by applying to the CA within 14 days of the date of refusal¹³, i.e. by 24 June 2020. He did not file his application until 20 August 2020. 

16.  As for (2), although the delays were clearly substantial, the reason was due to his unfamiliarity with the rules of court.  Mr Chow had not sat on his hands. Just one day after the 30.10.2019 order, he had filed a notice of appeal direct to the CA.  Unfortunately, this procedure was incorrect, and although advice on the correct procedure was given on more than one occasion by the court (whether from the Registrar of Civil Appeals or from the CA itself), Mr Chow did not adopt the correct procedure¹⁴ until lengthy periods had elapsed.  However, as his intention to appeal the 30.10.2019 order was clear throughout, we will take it that the reason for the delays was his inability to understand the advice given, rather than an unwillingness to comply with the rules of court, which apply equally to litigants in person as they do to legally represented parties.

17.1.  As for (3), this is the most important of the four factors.  It is of course correct that the refusal of leave out of time to appeal the disqualification order was made in the exercise of the judge’s discretion, and it should not be interfered with by an appellate court unless there has been an error of law, or misapprehension of material fact, or relevant matters had not been taken into account, or irrelevant matters had been taken into account, or the decision was plainly wrong.  

17.2.  However, it would be noted that the judge’s reasoning for making the disqualification order as expressed in [33] of the Decision was as follows:

“Mr Chow said that he was unaware of the non-payment of the MPF contributions at the material times. However, this is not a defence. As a director, Mr Chow had the duty to ensure the Company to make the MPF Contributions”.

17.3.  It would appear from the above passage that the judge did not make a finding on the facts, whereby he rejected Mr Chow’s evidence that he was not aware of the non-payment of the MPF contributions.  By saying simply that “unawareness” was “not a defence”, the judge seems to have treated the failure to ensure payment as conclusive in an application for disqualification.  This seems to be corroborated by the judge’s reference in [34] to other cases where the directors in question had (albeit with other conduct) failed to ensure payment of MPF contributions.  The judge said simply:

“It is well-established that a director’s failure in ensuring the Company to make MPF contributions is a ground for making a disqualification order against that director. See OR v Ng Tin Ming; OR v Ko Kok Hong”.

17.4.  In these two cases, the directors in question had failed in other duties apart from failing to ensure that their companies paid MPF contributions, which caused the court to consider that they were unfit for the purposes of s.168H.

18.  In any event, each case must be considered on its own facts.  It is not the law that failure to ensure payment of MPF contributions would inevitably lead to disqualification in all cases, even if the director thought they had been paid.  An appeal based on the adoption of such an approach by a judge has a reasonable prospect of success.  As held in OR v James Conrad Louey¹⁵, not every breach of duty by a director calls for a disqualification order, and courts dealing with these applications need to adopt a more nuanced approach after having considered all the circumstances of the case. 

19.  For this reason, we would give leave to appeal the 30.10.2019 order out of time, and for the purposes of s.14(3) HCO.  Leave to appeal is given on the basis of the ground set out in the foregoing paragraph only, as none of the other matters raised by Mr Chow in his affidavits/submissions enjoys a reasonable prospect of success.

Order

20.  We would make the following orders:

(1)  The respondent in HCMP1334/2018 Chow Tung Shan do have leave to appeal out of time against the order of DHCJ M.K. Liu given on 30 October 2019;

(2)  leave to the respondent to file a notice of appeal¹⁶ (restricted to the ground in para. 18 of the Judgment of the Court of Appeal of 3 February 2021) within 14 days after the date of this Judgment;

(3)  costs of the summons filed on 20 August 2020 to be costs in the cause of the appeal.