LI TAT KONG v. THE OFFICIAL RECEIVER AND ANOTHER

CACV 220/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 220 OF 2000

(ON APPEAL FROM HCB NO 741 OF 1995)

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J U D G M E N T

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Hon Rogers VP :

1. This is an appeal from a judgment and order of Le Pichon JA dated 2 June 2000 whereby the judge ordered that the relevant period for the purposes of section 30A of the Bankruptcy Ordinance, Cap. 6 shall cease to run from 22 November 1999 such that the bankrupt shall be discharged on 22 November 2002.

Background

2. The appeal arises in this way. The appellant petitioned for his own bankruptcy on 13 July 1995. A receiving order was made on 13 September 1995 and on 22 November 1995 he was adjudged bankrupt. The official receiver was appointed the trustee.

3. At the time that the appellant was adjudged bankrupt, there were no provisions for the automatic discharge of a bankrupt from bankruptcy. In 1996, however, section 30A of the Bankruptcy Ordinance was added. The section came into force on 1 April 1998. Subsection (1) of that section provides that :

"Subject to this section, a bankrupt is discharged from bankruptcy at the expiration of the relevant period under this section."

4. Since the appellant had not previously been adjudged bankrupt, the relevant period for the purposes of discharge under subsection (1) was a period of four years.

5. On that basis the period of four years was to expire on 21 November 1999. That day was a Sunday. The relevance of that will be considered later.

6. In July of 1999 the Official receiver gave notice to each of the proving creditors that the date on which the automatic discharge would take effect was approaching. He gave notice that he intended to object to the discharge on the grounds that the discharge would prejudice the administration of the estate. The notice was in compliance with subsection 30A(5) and nothing turns upon it.

7. On 13 October 1999 the official receiver issued a summons seeking the following order :

"that the relevant period of 4 years for the automatic discharge of the Bankrupt under ss. 30A(1) and (2)(a) of the Bankruptcy Ordinance shall cease to run for such period as submitted in the Official Receiver's report dated 12 October 1999 filed herein on the ground mentioned herein."

8. That report and summons were served on the appellant on 15 October 1999. In that respect there was compliance with section 30A(6) which provides that the trustee or a creditor who objects to the discharge of a bankrupt shall notify the court not less than 14 days before the end of the relevant period.

9. The matter was scheduled to come before the master hearing bankruptcy matters on 17 November 1999. On the day prior, thereto solicitors acting for the appellant proposed to the official receiver that on counsel's advice, the matter should be adjourned for argument with two hours reserved. On the following day when the matter came before the master the Official Receiver sought and obtained an order that the summons be :

"Adjourned to 22.11.99 at 9:30 a.m. to the Companies Judge."

10. On 22 November 1999 the matter came before the Companies Judge. On that occasion solicitors acting on behalf of the appellant appeared. The summons was adjourned and the Official Receiver was given leave to file a supplemental report within seven days and the appellant leave to file an affidavit in opposition 14 days thereafter.

11. Whilst the Official Receiver filed a supplemental report on 27 November, no evidence was filed on behalf of the appellant in accordance with the judge's order. The matter came before the judge again on 6 January 2000. On that occasion not only did the Official Receiver and solicitors for the appellant appear but there was an appearance also on behalf of the opposing creditors. The appellant was given leave to file an affidavit in opposition and the Official Receiver and opposing creditor were given leave to file evidence in reply. The order adjourning the summons included a provision that :

"The automatic discharge of the bankrupt be stayed pending the determination of the summons dated 13 October 1999."

12. It appears that on that occasion the court's attention had been drawn to some of the authorities which will be referred to below and therefor made the order. The matter was thereafter adjourned for a date to be fixed and came on for hearing in May 2000.

This appeal

13. Two points are taken on this appeal. The first is that the automatic discharge had taken effect on 21 November 1999 and thus by the time the matter came before the Companies Judge on 22 November 1999, the appellant had already been discharged from bankruptcy under the automatic provisions. As a fall back argument it is said that even if that were wrong and the automatic discharge was not, in the circumstances of this case, effective as of 21 November 1999, the court should not have exercised its discretion to order that the period of four years should cease to run under section 30A(3).

14. The primary argument on behalf of the appellant is that discharge under section 30A(1) and (2)(a) is automatic and the running of time under those provisions cannot cease unless a specific order is made under section 30A(3). The argument continues that not only is the mere fact of an application under section 30A(3) not effective to prevent time running but once time had run, the appellant had been discharged from bankruptcy and had an accrued right consequent upon his status as a bankrupt having ceased and that could not be taken away by any subsequent order because that would be beyond the powers of the court.

15. In order to examine this argument it is necessary to consider the wording of two further subsections of section 30A. Subsection (3) reads :

"Where the court is satisfied on the application of the trustee or one of the bankrupt's creditors that a valid objection based on one or more of the grounds set out in subsection (4) has been made, the court may order that the relevant period under this section shall cease to run for such period, not exceeding, in the case of a person who -

(a) has not previously been adjudged bankrupt, 4 years; or

(b) has previously been adjudged bankrupt, 3 years,

as may be specified in the order."

16. Subsection (4) sets out the grounds upon which an objection can be made and subsection (6) to which I have already referred reads :

"Where the trustee or a creditor objects to the discharge of a bankrupt, he shall -

(a) notify the court; and

(b) in the case of a creditor, also notify the trustee,

not less than 14 days before the end of the relevant period under this section, stating the grounds of his objection and applying for an order under subsection (3)."

17. It is evident from the wording of this last subsection alone that the application for an order under subsection (3) can be made very shortly before the automatic discharge would take effect. That period in itself is so short that although clearly the matter could come before the court for a first hearing, in other words, for directions, if the matter were contested, it would be almost impossible for the court to allow evidence to be filed and for the court itself to hear the matter and give full consideration thereto. It is, in my view, self-evident on the wording of section 30A that questions relating to whether the period under subsection (1) should cease to run would have to be considered after the period would otherwise have expired.

18. I would mention for completeness that our attention was also drawn to various rules of the Bankruptcy Rules which provided for times for the performance of various matters required to where an application was made under section 30A(3). This would be of lesser significance because they are contained in the rules rather than the ordinance itself. If the rules were to conflict with the ordinance, clearly the ordinance would be that which was followed.

19. During the course of argument the court's attention was drawn to two decisions in England. The first in time was Hardy v. Focus Insurance Co. Limited [1997] BPIR 77. That was a decision of Robert Walker J. The legislation in the United Kingdom had a similar provision, although not identical, in relation to applications to the court for orders as to when the relevant period, the expiry of which should determine the bankruptcy, should expire. That case involved an application which had been made by a creditor. It was held that under the United Kingdom legislation a creditor could not so apply. Furthermore, the court had no power to compel the official receiver to make any application for such an order.

20. The district judge had on the first application made an order that the relevant period for the purposes of the section in the Insolvency Act 1986 should cease to run until the application which had been made was disposed of. In reference to that, the judge said at page 81D :

" I must now go back to consider s 279(3). It refers to the court being satisfied in relation to an undischarged bankrupt. The well-known and reliable practitioner's book Muir Hunter on Personal Insolvency notes at 3/129 :

'There seems to be no power to undo this mode of discharge, once the relevant period has expired.'

It seems to me that that is plainly right in a case where no application under s 279(3) has been made before the expiry of the 3-year period. If an application has been made by the official receiver, I would be very doubtful whether a bankrupt could, simply by managing to obtain an adjournment for any reason, good or bad, defeat the court's power to adjudicate on an application which had been properly launched. I am, therefore, rather doubtful about the official receiver's suggestion in his official report that, in practice, it is impossible to make an application under s 279(3) within the last 21 days before the expiration of the 3-year period because of the requirement of notice under r 6.215. I should, however, note that that view obtains at least slight support from a comment by Sir Mervyn Davies made in his judgment in Official Receiver v Murjani (unreported) 1 March 1995, although I do not regard that expression of view as a considered part of the decision."

21. Insofar as that passage relates to an inability to undo the mode of discharge once the relevant period has expired, no issue is taken. Mr Yu S.C. on behalf of the appellant takes issue, however, with the use of the word "application". He argues strongly that without an order an application in itself is simply of no use. Reference in this regard is made to the case of In re Jacobs (A Bankrupt) [1999] 1 WLR 619. This was a decision of Michael Burton QC (as he then was). On that occasion the official receiver had made application under section 279(3) for suspension of the relevant period relating to automatic discharge. The district judge, before whom the application came, adjourned the matter for a full inter partes hearing and ordered that the bankrupt's discharge be suspended until that hearing. The question which arose on the appeal is whether the district judge had power to make an interim order suspending the automatic discharge. In the course of his judgment the deputy judge referred to the decision of Robert Walker J and the passage quoted above. At page 626D of the report he went on after quoting from the Hardy case :

" Now, the error that I suspect there must be in that passage is in the first sentence when he says 'in a case where no application under section 279(3) has been made,' I think he must have meant or said 'in a case where no order under section 279(3) has been made before the expiry of the three-year period,' because it is quite plain from what he says in the second sentence that he is dealing with a situation in which an application has timeously been made, 'properly launched,' as he puts it, namely, as I see it, before the expiry of the three-year period, but has not been able to be adjudicated, or its adjudication to be completed, before the end of the period, as a result of some adjournment for reasons good or bad."

I agree with Robert Walker J., in relation to that passage, that it would make no sense whatever if, simply because of an adjournment, the court's power to make the extension were forfeit, provided that the application was timeously made. It seems to me, as I put in argument to Mr Boardman, that there is no distinction between an application which comes on, as it did here, and could not be started at all by virtue of shortage of time, or where a hearing starts and is heard for a day, perhaps even two or three days, but cannot be completed before the expiry of the three-year period, and is still therefore either being heard or is perhaps adjourned over for a further date when and after the period expires, or, as I indicated earlier in my judgment, one where a hearing is concluded in the bankrupt's favour but the official receiver wishes to appeal. There can be, in my view, no distinction between those three and it cannot be right that the fact that the judicial process (which might even include an application for leave to appeal to the House of Lords in an appropriate case) is not concluded by the end of the three-year period means that the automatic discharge comes into effect. It seems to me that there must be power, and I agree with Mr. Butler that there is power, to extend the period on a basis short of making a final adjudication."

22. What is common between the judgments of Robert Walker J and Deputy Judge Burton is that it is implicit in the legislation that an application properly made should be considered and that if the application is correctly made it should not fail because the court has not had time to dispose of the matter before the expiry of the automatic period for discharge. Robert Walker J's interpretation of the legislation is that there is an automatic suspension upon a proper application being made until it is disposed of. Deputy Judge Burton, however, interprets a power in the court to make an interim order.

23. For my part, whilst I consider that it is evident that there will be an automatic discharge unless some order is made, the question which arises is as to what form that order should take. As Deputy Judge Burton said at page 622A-B of the Jacobs' case it would be pointless for a court to make an order adjourning an application on the part of the official receiver that time should cease to run for the purposes of section 30A(1) and (2), and it would be pointless to hold a further hearing if the bankrupt would have been discharged at the date of the adjourned hearing.

24. In my view it is implicit in an order adjourning a summons such as came before the master on 17 November that the order also contained and at least had the effect of causing the period defining the moment when the bankruptcy would come to an end, to cease to run.

25. Of course, if a court fails to deal with a particular claim, whether it is a substantive claim or an ancillary claim such as a claim for interest, steps have to be taken after the event in order to enable the court to deal with the matter. But that is not the situation here. In my view, part and parcel of the order adjourning the application on the part of the official receiver was the order to stop time running. The court would not order an adjournment unless it was also at the same time ordering the suspension of time running.

26. Had I any doubt about the matter it would be confirmed in my view because of the time provision in section 30A(6). It is clear that it must have been in the contemplation of those who enacted the ordinance that it would be necessary on many occasions to adjourn the application and that the application under section 30A(3) could not be dealt with before the time for automatic discharge would otherwise have arrived.

27. In the court below the judge was prepared to apply the slip rule in relation to her own order of 22 November 1999. In my view, the application of the slip rule in this regard would be pertinent both to the judge's order of 22 November 1999 as also to the order of the master of 17 September 1999.

28. In this respect it is unnecessary to decide the point as to whether the period laid down in section 30A(2)(a) expired on 21 November 1999 or 22 November 1999. There is no dispute between the parties that had 21 November not been a Sunday, time would have expired that day. The normal rule at Common Law is that the fact that the last day of a prescribed period is a Sunday does not extend a period which would otherwise expire on a Sunday. It is only if section 71(1)(b) of the Interpretation and General Clauses Ordinance, Cap. 1 is applicable that the period would be extended to 22 November. For completeness, however, I would express my view that this subsection is not applicable in this case. Section 71(1) reads as follows :

"In computing time for the purposes of any Ordinance -

(a) a period of days from the happening of any event or the doing of any act or thing shall be deemed to be exclusive of the day on which the event happens or the act or thing is done;

(b) if the last day of the period is a public holiday or a gale warning day or black rainstorm warning day the period shall include the next following day, not being a public holiday or a gale warning day or black rainstorm warning day;

(c) where any act or proceeding is directed or allowed to be done or taken on a certain day, then if that day is a public holiday or a gale warning day or black rainstorm warning day, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next following day, not being a public holiday or a gale warning day or black rainstorm warning day;

(d) where an act or proceeding is directed or allowed to be done or taken within any time not exceeding 6 days, no public holiday or a gale warning day or black rainstorm warning day shall be reckoned in the computation of that time."

29. It is clear that subsections (c) and (d) would be inapplicable to this case. Since nothing is required to be done the period of bankruptcy expires automatically. In my view subsection (b) applies to a period of days and not a period of weeks, months or years. The period specified in subsection 71(1)(a) is one of days. The reference in subsection (1)(b) to "the period" must be a reference, it seems to me, to the same period as is referred to in subsection (1)(a). In those circumstances subsection (1)(b) must relate to a period of days. This would be by no means unreasonable since in periods which are reckoned in days rather than weeks, months or years, the occurrence of a gale warning or a black rainstorm warning or indeed of a public holiday would be of particular significance, and the periods to be reckoned must of their nature be short. It is therefore understandable that the legislature should extend that period to take account of such events. When the periods are long, however, such as weeks, months or years, there is no apparent reason why the periods should be extended since those affected by the periods have plenty of time to take account of whatever is required to be done.

30. The significance in relation to the automatic discharge under the Bankruptcy Ordinance is of course also apparent. It would be somewhat illogical if a period of bankruptcy were extended simply because the last day of the period happened to be a gale warning day or a black rainstorm warning day. Whilst the particular effect of the discharge provisions in the Bankruptcy Ordinance could not determine the effect of a general provision in the Interpretation and General Clauses Ordinance, there would no doubt be a parity of reasoning in many periods provided for in various ordinances.

The exercise of the discretion

31. Before coming to the conclusion that the time for automatic discharge should cease to run for a period of three years, the judge went through the relevant facts in specific detail. There has been no significant challenge as to the judge's assessment of those facts. I do not propose to rehearse them here. It is sufficient to say that whilst on the statement of assets the appellant was recorded as having debts in the order of $15 million the true facts emerged that the debts were in the order of $39 million. This is to be contrasted with assets of $107,000.

32. Prior to the bankruptcy proceedings one of the appellant's creditors had sought to recover his debt. The appellant had been examined orally as a judgment debtor. After warning at a previous hearing, the public examination concluded with an order for imprisonment because the appellant had failed to disclose relevant material. As the judge recorded in her judgment, that spell in prison did not appear to have any curative effect on the appellant.

33. The judge had no doubt that the appellant's estate could not be properly and fairly ascertained, gathered in and distributed for the benefit of the creditors without further in depth investigation into the financial affairs. As a result she was satisfied on the evidence that the administration of the bankrupt's estate would be prejudiced by discharge. In coming to that conclusion the judge went on to say :

"Further, I am also satisfied that he has failed to co-operate with the Trustee by failing to respond promptly and timeously to queries raised. ... I have no doubt that the public interest would not be served by his early discharge from bankruptcy."

34. Whilst our attention was drawn to the provisions of section 30A(8) those in my view are not sufficient to assist the appellant in this case. On the facts as found by the judge, the circumstances of the case fall well within section 30A(4)(b) and (c) and indeed (d). The judge was in my view quite correct to order that the period should cease to run, and for my part I would draw attention to subsection 30A(7). It would be open to the appellant to apply for his discharge prior to the expiration of the three-year period particularly if he can show that he has fully cooperated with the Official Receiver. This case is, in my view, clearly a case where the onus should be upon the bankrupt to return to court to satisfy the court that cooperation has indeed taken place rather than the court refusing to order that the period should cease to run and making further orders which may have little prospect to being adhered to.

Hon Wong JA :

35. I agree with the judgment of the Vice-President and would also dismiss the appeal.

Hon Leong CJHC :

36. I agree. The appeal will therefore be dismissed with an order nisi that the bankrupt/appellant do pay the respondents their costs of their appeal to be taxed if not agreed.