DAH SING BANK LTD v. DAYLIGHT INDUSTRIAL CO LTD AND ANOTHER

IN THE COURT OF APPEAL

1987, No. 47
(Civil)

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J U D G M E N T

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Cons, V.-P. delivered the judgment of the Court:

1. We dismissed this appeal on the 7th of this month saying that we would hand down our reasons later which we now do.

2. The appeal raises a question on the distribution of an insolvent estate. One Mr. Cheung Wah died in 1984. At the time of his death he owed money to a company, the Daylight Industrial Co. Ltd. In January 1986 Daylight obtained a judgment against his estate, which was then in the hands of Mr. Cheung's two sons, to whom Letters of Administration had been granted in 1985.

3. To secure payment of the judgment debt Daylight sought a charging order against property, part of the estate, in Reclamation Street, Kowloon. The property was a already subject to a mortgage in favour of the Dah Sing Bank Ltd. and was subsequently sold by the Bank in October. But after what was due under the mortgage had been taken a balance of just over half a million dollars still remains. The Charging Order Nisi was granted on the 3rd February, with the 20th February fixed as the return date. The order was registered in the Land Office on the 6th February.

4. We pause now to refer to the Bankruptcy Ordinance Cap. 6. Section 3(1)(h) provides that a debtor commits an act of bankruptcy -

"if the debtor gives notice to any of his creditors that he has suspended or that he is about to suspend payment of his debts.

By subsection (2) -

“….. ‘a debtor’, unless the context otherwise requires, includes any person, whether a British subject or not, who at the time when any act of bankruptcy was done or suffered by him -

(a) was personally present in Hong Kong; or

(b) ordinarily resided or had a place of residence in Hong Kong; or

(c) was carrying on business in Hong Kong, personally or by means of an agent or manager; or

(d) was a member of a firm or partnership which carried on business in Hong Kong.

5. On their face these words are not particularly apt to include an insolvent estate. Nevertheless, on the 19th February, those advising Mr. Cheung's sons issued what they refer to as a “Notice in Bankruptcy” and served the same on the solicitors for Daylight the following morning, just before the hearing to show cause why the Charging Order should not be made absolute, at the same time advising that a "Petition in Bankruptcy" would be filed later that day. Although the solicitors for the sons were apparently present at the hearing before the Master no mention was made of the “Notice in Bankruptcy” or of the intention to file a petition that afternoon. The Master made the Charging Order absolute and it was duly registered in the Land Office seven days later.

6. The Notice of the 19th February was addressed to Daylight and was in these terms -

“We, the undersigned, as the administrators of the estate of Cheung Wah, deceased, formerly trading as Wah Kee Hardware and Building Materials (hereinafter referred to as 'the estate'), do hereby give you notice pursuant to section 3(1)(h) of the Bankruptcy Ordinance, Cap. 6 that the estate has suspended payment of its debts.”

7. The Petition, dated and filed on the 20th, was in accordance with the form specified by the Bankruptcy (Forms) Rules and asked "that an order be made for the administration in bankruptcy of the estate". (Section 112(1) and (9) give the appropriate authority.) Such an order was made on the 7th April. Its effect, by reason of subsection (4) was to vest “the property of a debtor .... in the Official Receiver as trustee thereof”. His duty then was to proceed forthwith "to realise and distribute it in accordance with the provisions of the Ordinance". The question before the court below was whether the balance of the moneys raised by the sale of the property, which the Bank had paid into court should be paid out to Daylight or to the Official Receiver. The judge found in favour of Daylight and the Official Receiver appeals.

8. Subsection (5) of Section 112 provides that -

“With the modifications hereinafter mentioned, all the provisions of Part III (relating to the administration of the property of a bankrupt) ........ shall, so far as the same are applicable, apply to the case of an administration order under this section in like manner as to an order of adjudication under this Ordinance ....”

No subsequent modification is relevant in the present instance, but Section 45(1), which appears in Part III, is crucial. It provides -

“Where a creditor has issued execution against the property of a debtor or has attached any debt due to him, he shall not be entitled to retain the benefit of of the execution or attachment against the trustee in bankruptcy of the debtor unless he had completed the execution or attachment before the date of the receiving order and before notice of the presentation of any bankruptcy petition by or against the debtor, or of the commission of any available act of bankruptcy by the debtor.”

9. Subsection (2)(c) provides, inter alia, that execution by way of a .charging order shall be deemed to be completed by due registration in the appropriate Land Office.

10. Mr. Woollard, in his able submission for the Official Receiver, concedes that without the assistance of Section 45 (1), and in particular its reference to "any available act of bankruptcy", the Official Receiver is bound to fail. He suggests however that in matters of bankruptcy there should be no distinction between the living and the dead and that the notice issued by the administrators on the 19th February should, by liberal interpretation, be brought within that phrase.

11. We have already observed that the relevant provision of Section 3 is not at first glance appropriate to do that. That indeed it does not do so is confirmed by the case of Hasluck v. Clark(1). There the goods of a deceased debtor had been seized by the sheriff, but not yet sold, when other creditors obtained an order for the administration of the estate under the English equivalent of Section 112. For reasons which are there very fully set out it was held that Section 45 had no application. Inter alia their Lordships would not accept that an administration order was the equivalent of a receiving order or a petition in bankruptcy or an act in bankruptcy. 'The judgment creditor was therefore entitled to retain the benefit of his execution.

12. Mr. Woollard asks us to hold that Hasluck v. Clark⁽¹⁾ was wrongly decided. It was, he suggests, the product of an attitude of the time, an attitude which favoured the individual creditor in an insolvency as against the general body of creditors. He suggests that the cases of Haly v. Barry(2) and Brereton v. Edwards(3) are other examples of this tendency. The present attitude however, exemplified by the decision of the House of Lords in Roberts Petroleum Ltd. v. Bernard Kenny Ltd.(4), is to the contrary and defers the rights of an individual to the principle that -

“when a judgment debtor, whether he be a natural person or a corporate body, has become insolvent, all the unsecured creditors should be treated equally, each receiving the same proportionate share of the inadequate fund available as all the others.”(5)

The object, at least in part, is "to avoid an unseemly scramble by creditors to achieve priority at the last moment".

13. Roberts Petroleum Ltd.⁽⁴⁾ was concerned with whether, in the very particular circumstances of that case, a charging order nisi obtained against an insolvent company should, in the exercise of the discretion of the court, be made absolute. With respect we do not find anything in the speeches of their Lordships which will justify our reading into Section 45 phrases which are not there and which, as was observed in Hasluck⁽¹⁾, would be expected there had the legislature so intended. The reasoning in Hasluck⁽¹⁾ was dependent to a large extent upon another decision of the English Court of Appeal, in In re Gould(6). It has remained unchallenged for some 90 years and is accepted as good authority, for example, by the learned editors of the 19th edition of Williams and Muir Hunter on Bankruptcy at pages 325 and 484. We are not prepared to say now that it was wrongly decided.

14. It must follow therefore that the Official Receiver fails in this appeal. He should point out, however, that neither Hasluck⁽¹⁾ nor argument on the lines we have adopted was raised in the court below, being introduced for the first time by my Lord Clough, J.A. The judge below came to his conclusion by the application of the doctrine of "relation back", that is he took the charging order, once made absolute, as being effective from the date of the order nisi, and the registration of the order absolute as operative likewise from the date of the registration of the order nisi. Not having heard argument in full on this approach we deliberately express no opinion as to whether or not it is correct.