CHOITHRAMANI GURDAS SABHAGCHAND v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

CACV 74/2015
[2018] HKCA 84

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 74 OF 2015

(ON APPEAL FROM HCB NO 8466 OF 2014)

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J U D G M E N T

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

1.  This is the appeal of Gurdas S Choithramani (“GSC”) against a bankruptcy order made against him by A Chan J on 9 March 2015. Also listed for hearing are two summonses issued by GSC on 29 January 2018. They seek to amend the notice of appeal filed by GSC on 2 April 2015 and to adjourn this appeal pending the “final determination” of GSC’s appeal in CACV 117/14.

2.  The petitioning creditor, HSBC, does not oppose the amendment of the notice of appeal, taking the view that the amendment does not add anything of substance to the existing grounds.  We have given leave to GSC to amend at the hearing.

3.  The bankruptcy petition is founded on a judgment debt being a costs order of $1.55 million made in favour of HSBC by Deputy High Court Judge Whitehead, SC in an action brought by GSC in HCA 2073/11 (“the GSC action”).  The order of DHCJ Whitehead on 28 April 2014 striking out the statement of claim is the subject of GSC’s appeal in CACV 117/14.

4.  The present appeal has taken close to three years to come to a hearing.  Notwithstanding this, GSC has applied to adjourn this appeal further until CACV 117/14 is “finally disposed of”.

5.  For a proper understanding of the lengthy period it took for this appeal to come up for hearing, it is appropriate to set out in some detail the relevant background.

Background

6.  In 1994, a company controlled by GSC, Esquire (Electronics) Ltd (“Esquire”), brought an action against HSBC in HCA 11077/94 (“the Esquire action”) for, among other things, economic duress.  GSC was not a party to the action, nor did he bring separate proceedings himself of the wrongs allegedly committed by HSBC.  Esquire was wound up in January 1996.  GSC was adjudged bankrupt in December 1996 on a petition presented by BNP in HCB 221/96 (“the 1^st bankruptcy order”).  The 1^st bankruptcy order was discharged only on 24 September 2003.

7.  In 2004, the Esquire action was tried in the High Court.  Esquire obtained judgment in its favour in 2005.  On the appeal of HSBC, the Court of Appeal set aside the judgment in 2006.  There was no further appeal.

8.  In December 2011, GSC issued the writ in the GSC action against HSBC.  The statement of claim is 54 pages.  All the wrongs alleged, with the exception of the wrongful procurement of judgment (i.e. the Court of Appeal judgment in the Esquire action), occurred before the commencement of the Esquire action and before the 1^st bankruptcy order.

9.  On 17 July 2012, HSBC issued a summons to strike out the GSC action.  The summons was listed for substantive argument on 28 April 2014.

10.  On 14 April 2014, GSC applied to adjourn the strike out application so he could procure the assignment or consent of the Official Receiver, who was the trustee in bankruptcy of the 1996-2003 bankruptcy, to his claims in the GSC action.  This application was dismissed by Au‑Yeung J on 16 April 2014 and likewise by DHCJ Whitehead for unreasonable delay when it was renewed before him on 28 April 2014.

11.  DHCJ Whitehead proceeded to hear the striking out application and decided that as GSC had no locus standi to bring or maintain the GSC action owing to the 1^st bankruptcy order and any causes of action he might have against HSBC would have been vested in the Official Receiver, he ordered the action to be struck out.  On 29 April, he made a costs order against GSC assessed at $1.55 million.

12.  On 26 May 2014, GSC filed a notice of appeal against the order of DHCJ Whitehead.  This is CACV 117/14.  On 30 May 2014, he applied for stay of execution of the costs order of the DHCJ Whitehead pending appeal.

13.  On 11 July 2014, HSBC served a statutory demand on GSC in respect of the judgment debt in the costs order.  The amount due with interest as at the date of the demand came up to $1,565,287.67.  GSC applied to set aside the statutory demand on 29 July 2014, the only ground raised was that the demand should be set aside pending the outcome of the appeal in CACV 117/14.

14.  On 18 September 2014, Deputy High Court Judge Wilson Chan (as he then was) dismissed GSC’s application to stay execution of the costs order pending appeal and the application to set aside the statutory demand.

15.  On 30 September 2014, HSBC issued a summons in CACV 117/14 for security for costs of the appeal.

16.  GSC renewed his application for stay of execution pending appeal to the Court of Appeal in a summons issued on 21 October 2014 in HCMP 2607/14.  In the same summons, he also sought leave to appeal out of time against the refusal of DHCJ Wilson Chan to set aside the statutory demand.

17.  On 6 November 2014, HSBC presented a bankruptcy petition against GSC in HCB 8466/14 based on the statutory demand.

18.  The Court of Appeal (Lam VP and Yuen JA) dismissed GSC’s summons in HCMP 2607/14 on 20 November 2014.

19.  On 3 December 2014, Yuen JA ordered GSC to provide security for costs of the appeal in CACV 117/14 in the sum of $383,000 within 21 days of the order.

20.  On 16 December 2014, Mr Christopher Young of counsel sent an email to Mr Nicholas Hunsworth of HSBC’s solicitors asking “if [GSC] can come up with the security for costs, would [HSBC] be agreeable to the adjournment of the bankruptcy proceedings until after the appeal [in CACV 117/14].”  Mr Hunsworth’s substantive reply came on 18 December 2014, stating that “[HSBC] have confirmed that if [GSC] puts up the security for costs by 24 December 2014, and the appeal is to proceed, they are prepared to agree to an adjournment of the bankruptcy petition until after the hearing of the appeal [in CACV 117/14].”

21.  GSC provided security as ordered on 23 December 2014.

22.  GSC wrote a further email to Mr Hunsworth on 30 December 2014 stating that the bankruptcy petition was to be heard on 7 January 2015 and asking the latter to send him a draft consent summons so the hearing of the petition might be vacated without the necessity of an attendance.  Mr Hunsworth sent a reply on the same or next day stating that he was “happy to agree to an adjournment of the petition for say 2 weeks until after the hearing of the appeal [in CACV 117/14] but [GSC] will have to ask the Court for such an adjournment”, because “one cannot deal with the adjournment of bankruptcy petitions in the same way as summonses in private litigation because there may be other creditors who want to be heard on the petition, hence the Court will not accept a consent summons to adjourn a bankruptcy petition”.

23.  On 2 January 2015, GSC applied for legal aid in the bankruptcy proceedings and his appeal in CACV 117/14.  As a result, both proceedings were stayed for 42 days under the statute and the legal aid stay was to expire on 16 February 2015.  On 13 January 2015, the Court of Appeal vacated the hearing date of CACV 117/14 on 14 January 2015, and directed the appeal be re-listed once GSC’s legal aid application had been determined.  After the legal aid application was refused on 2 March 2015, and on 5 March 2015, CACV 117/14 was re‑scheduled to be heard on 24 November 2015, HSBC’s legal representatives having declined an earlier date in June 2015 offered by the listing officer.

24.  On 26 February 2015 and 6 March 2015, GSC filed affirmations to oppose the bankruptcy petition.  He contended that the sole purpose of the petition was to stifle his appeal in CACV 117/14 and if his appeal were to succeed, there was no basis to bankrupt him.  He further alleged that HSBC proceeded with the petition in breach of the undertaking given by Mr Hunsworth in December 2014.  He sought an adjournment of the petition until after the conclusion of the appeal in CACV 117/14 or until after 17 March 2015 when counsel who agreed to represent him pro bono would be available.

25.  The petition was heard by A Chan J on 9 March 2015.  After hearing HSBC’s solicitor Mr Au Simon Ming Si, GSC and a friend of GSC Mr Warburton who was permitted by the judge to make submissions for him, the judge made the bankruptcy order (“the 2^nd bankruptcy order”) which is the subject of the present appeal.  The judge said he was “unable to see any legitimate defence to this petition which is based on a judgment debt” and therefore it was his duty to make the usual bankruptcy order with costs.

26.  On 2 April 2015, GSC filed a notice of appeal against the 2^nd bankruptcy order.  This is the present appeal being CACV 74/15.

27.  On 9 April 2015, following the 2^nd bankruptcy order, the Court of Appeal stayed CACV 117/14 pending the Official Receiver’s decision on the progress of that appeal.  There followed lengthy but inconclusive correspondence between the solicitors for HSBC and the Official Receiver on the status of the latter in CACV 117/14.

28.  On 23 September 2016, the Court of Appeal directed that CACV 117/14 be restored for hearing and notice of hearing be given to the Official Receiver as the trustee in bankruptcy of the 1996-2003 bankruptcy and the 2015 bankruptcy.

29.  On 14 December 2016, the Registrar of Civil Appeals gave directions by consent, namely, that the time for setting down the present appeal in CACV 74/15 be extended to seven days after the hearing of the appeal in CACV 117/14 on 14 February 2017.

30.  At the hearing of CACV 117/14 on 14 February 2017, Ms Margaret Ng sought an adjournment of this appeal pending GSC’s summons issued on 27 January 2017 for annulment of the 1^st bankruptcy order and his proposed application in the 1996‑2003 bankruptcy for a declaration the Official Receiver has by conduct given consent to GSC to bring and continue the GSC action, alternatively, for an order that the Official Receiver do assign the GSC action to him.  The application for adjournment was dismissed by the Court of Appeal (Yuen, Kwan and Poon JJA) on 17 February 2017.  As Ms Ng indicated she had inadequate time to prepare for the appeal in CACV 117/14, the court gave directions that all parties have leave to file and serve further written submissions within the stipulated time and judgment would be handed down in due course.

31.  On 22 March 2017, the Registrar of Civil Appeals gave further directions by consent, namely, that the time to file and serve an application to fix a date for the present appeal in CACV 74/15 be extended to seven days after the delivery of the judgment of the Court of Appeal in CACV 117/14.

32.  On 21 July 2017, the Court of Appeal handed down its judgment in CACV 117/14 dismissing the appeal.  The judgment of the court was given by Yuen JA.  Ms Ng submitted notwithstanding the 1996‑2003 bankruptcy, GSC had locus standi to pursue these two causes of action against HSBC pleaded in the statement of claim: (a) wrongful procurement of the 1996‑2003 bankruptcy, which is personal to GSC and not vested in the Official Receiver; and (b) wrongful procurement of the judgment of the Court of Appeal against Esquire in the Esquire action, which occurred in 2006 and was after the 1996‑2003 bankruptcy.

33.  Yuen JA agreed with Ms Ng that DHCJ Whitehead did not consider arguments on the two causes of action when he struck out the GSC action on the basis GSC had no locus standi to bring or maintain it owing to the 1996‑2003 bankruptcy and in that respect was in error.  The court then went on to consider each of the two causes of action.

34.  In respect of (a), having considered the claim as pleaded (paragraphs 209 and 211 and 214 of the statement of claim), and the Privy Council decision of Wilson v United Counties Bank Ltd [1920] AC 102 relied on by Ms Ng, the court came to the view on the case as pleaded, there is no obligation to GSC’s “person” (as distinguished from any obligation to his property) owed to GSC by HSBC, and it is insufficient simply to plead that the bankruptcy has caused the alleged loss of business reputation.  GSC has only pleaded causes of action affecting his property, but these are causes of action vested in the Official Receiver.  So this cause of action would have been struck out if DHCJ Whitehead had properly adjudicated on it.

35.  As for (b), it is not necessary to consider if this is a cause of action now vested in the Official Receiver as trustee of the 2015 bankruptcy.  GSC was not a party to the Esquire action.  If judgment in that action was procured wrongfully, the party to sue in respect of that wrong would be Esquire as any loss allegedly suffered by GSC would be merely reflective loss for which generally no action would lie.  Hence, DHCJ Whitehead would also have struck out this cause of action if he had adjudicated upon it.

36.  On 28 July 2017, GSC wrote to the court to seek an extension of time to file and serve an application to fix a date for the hearing of this appeal in CACV 74/15 until after the expiry of time for applying for leave to appeal against the judgment of the Court of Appeal in CACV 117/14 or after the Court of Final Appeal has ruled on his appeal in CACV 117/14.  HSBC opposed any further adjournment of CACV 74/15.

37.  On 7 August 2017, the Registrar of Civil Appeals gave directions for GSC to file and serve an application on or before 14 August 2017 to fix a date for the hearing of CACV 74/15.  GSC has complied with this.

38.  On 18 August 2017, GSC filed a notice of motion applying to the Court of Appeal for leave to appeal against the judgment of 21 July 2017 to the Court of Final Appeal.  Written submissions were served by the parties by 21 September 2017.  The Court of Appeal has not given its decision on the notice of motion.

39.  GSC’s present solicitors filed a notice to act in CACV 74/15.  As mentioned earlier, they issued a summons on 29 January 2018 to adjourn this appeal pending the “final determination” of GSC’s appeal in CACV 117/14.

This appeal and the application for adjournment

40.  At the forefront of Ms Ng’s argument is her contention that A Chan J erred in refusing to adjourn the petition until after the appeal in CACV 117/14 had been disposed of.  She referred to the email exchanges in December 2014 which we have recited in some detail.  Ms Ng submitted by the emails there was a binding agreement between GSC and HSBC that upon GSC paying security for costs of $383,000 into court by 24 December 2014, HSBC would be bound as a matter of contract not to proceed with the bankruptcy petition until two weeks after the appeal had been determined.  The judge however failed to consider this binding agreement, he made no finding if there was in existence such a binding agreement, he did not consider whether there were such terms in this agreement as asserted by GSC, and he simply did not apply his mind to this agreement when he decided to make a bankruptcy order in one paragraph merely stating that he “[is] unable to see any legitimate defence to this petition which is based on a judgment debt.”  She submitted that if the judge had properly directed himself, he would have exercised his discretion to adjourn the petition until after CACV 117/14 had been determined.

41.  We have been taken by Ms Ng and Mr Hunsworth to relevant parts of a transcript of the hearing before the judge on 9 March 2015. We are satisfied from the transcript there is no substance in Ms Ng’s submission.  The judge was keenly aware of GSC’s contention that the petition should be adjourned in light of the emails of Mr Hunsworth in December 2104 exhibited to GSC’s two affirmations filed on 26 February 2015 and 6 March 2015. From the exchanges of the judge with HSBC’s solicitor Mr Au, the judge noted that “on one view”, Mr Hunsworth’s emails should be construed or understood in the context that at the time he sent them, the bankruptcy petition was scheduled to be heard on 7 January 2015 and CACV 117/14 was set down for hearing on 14 January 2015.  There was at that time no application of GSC for legal aid of the two proceedings and hence no mandatory stay of proceedings thereby changing the situation completely.  The judge had asked GSC’s friend Mr Warburton if he had any factual disagreement with what Mr Au had said.  He was satisfied on Mr Warburton’s response that “certainly on one view”, Mr Hunsworth’s emails should be construed or understood in the context as presented by Mr Au.

42.  There was no discernible error on the part of the judge.  He is not required to go further and make definite findings in the way as contended by Ms Ng.  Regardless of whether there was any binding or enforceable agreement as alleged, it is relevant to take into consideration that the alleged agreement, “certainly on one view”, should be construed or understood in the relevant context.  It is wholly immaterial that Mr Hunsworth’s emails did not specifically mention the hearing dates of 7 January 2015 or 14 January 2015, for there is no rule of law that the factual matrix in the construction of an agreement must be found within the agreement itself.  Besides, it is elementary that any alleged agreement between the parties to adjourn the petition cannot be binding on the bankruptcy court, as it is not the practice of the court to grant lengthy adjournment of bankruptcy proceedings which are different from ordinary civil litigation and the court is duty bound to consider the wider public interest including the effect on an individual’s legal status and the interest of other creditors.

43.  As we have emphasised to Ms Ng in the course of this hearing, she is attacking the exercise of discretion of the judge in refusing to adjourn the petition.  There is nothing to indicate that he had not taken all relevant matters into consideration in the exercise of his discretion, including Mr Hunsworth’s emails which should be construed or understood in the relevant context, the fact that the hearing date of CACV 117/14 in November 2015 was eight months away, that an application for stay of execution of the costs order pending the appeal in CACV 117/14 had been refused at first instance and by the appeal court, that the appeal in CACV 117/14 did not seem to have any reasonable prospect of success, as all these matters had been adequately canvassed in the questions he raised with the parties and the Official Receiver and the responses they gave.  It would be quite wrong to criticise the judge’s decision, which was arrived at after those exchanges, as rested simply on one sentence he gave which was subsequently reduced into his written decision.

44.  There is no basis at all for this court to interfere with the exercise of discretion of A Chan J in refusing to adjourn the petition until after CACV 117/14 had been disposed of.

45.  In any event, the appeal in CACV 117/14 has been determined by the Court of Appeal in July 2017.  Ms Ng contended the appeal has not been “finally determined” in light of a pending application for leave to appeal to the Court of Final Appeal, and sought an adjournment of the present appeal pending the “final determination”.  We decline to grant an adjournment as sought.  There is no merit in the contention that CACV 117/14 has not been finally disposed of.  That came about with the delivery of the judgment in July 2017.  Whether GSC should have leave in the exercise of discretion of the Court of Appeal or the Appeal Committee to appeal to the Court of Final Appeal is an entirely separate matter.

46.  The principles governing the approach of the bankruptcy court where a debtor challenges a judgment debt have been set out in some detail in the judgment of Yuen JA in Tam Mei Kam, ex parte Chiu, Szeto & Cheng, solicitors (a firm), CACV 87/2012, 8 May 2013 at §§22 to 27.  Where a petition is presented on a judgment debt, the court sitting in the bankruptcy jurisdiction will treat the judgment debt as prima facie evidence that the judgment debtor is indebted to the judgment creditor for that sum.  As prima facie evidence of indebtedness, it may be rebutted by “going behind” the judgment.  But that is not to say in every case the bankruptcy court should exercise its powers to inquire into the consideration of a judgment debt.  If the judgment debtor has lodged an appeal against the judgment debt, the bankruptcy court may stay the petition to await the result of the appeal.  The power to stay bankruptcy proceedings is discretionary, and the mere fact that a debtor has lodged an appeal does not confer on him the right to insist on a stay of the petition founded upon the judgment debt.

47.  A Chan J declined to exercise his discretion to stay the petition as he had come to the view that he “[is] unable to see any legitimate defence to this petition which is based on a judgment debt.”  GSC has failed in his appeal to set aside the judgment on substantive grounds.  He cannot rebut the prima facie indebtedness arising from the judgment in CACV 117/14 in dismissing the appeal, as the general principle is that the bankruptcy court would only inquire into a judgment debt obtained after a full hearing on the merits only if he can show fraud, collusion or miscarriage of justice, the latter term having been described as “something from which [the court] can conclude that had there been a properly conducted judicial process it would have been found, or very likely would have been found, that nothing was in fact due to the claimant.” (Tam Mei Kam, §§26.2 and 27)

48.  We do not find it necessary to deal with other points raised in the amended notice of appeal or the written and oral submissions of Ms Ng, which have been answered by Mr Hunsworth.  We are satisfied none of the points taken are of any merit.

49.  We dismiss GSC’s appeal against the 2^nd bankruptcy order.  There is no reason why costs should not follow the event.  We make an order that the costs of this appeal be paid to HSBC out of the bankruptcy estate of GSC and that the costs should be taxed if not agreed.