RE LEUNG YAT TUNG

CACV 119/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 119 OF 2006

(ON APPEAL FROM HCB NO. 2019 OF 2000)

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REASONS  FOR  JUDGMENT
AND
DECISION  ON  COSTS

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Hon Tang JA (giving the reasons for judgment of the Court):

1.  A bankruptcy order was made on 1March 2001 against the bankrupt on the petition filed on 14 June 2000.

2.  According to the report of the Official Receiver dated 2 February 2005, “proofs of debt claiming the total sum of HKD173,331,915.23, SGD4,844,265.30 and USD9,587,639.50 were received.  The total assets realized to date amount (sic) to HKD92,707.84.”

3.  In 1991, the bankrupt set up two trusts: “The 747 Trust” and “The Harbour Front Unit Trust”.  The trust deeds are both dated 2 September 1991.  The trusts have been referred to as the Family Trust since the principal beneficiaries are the wife and the children of the bankrupt.

4.  The trustee of The Harbour Front Unit Trust is a Harbour Front Ltd which is the registered owner of shares in Fonfair Co Ltd (“Fonfair”) and Money Facts Ltd (“Money Facts”).  The shares were transferred by the bankrupt to Harbour Front Ltd in 1998.

5.  Fonfair is the owner of Yau Tong Marine Lot Nos. 2, 3 and 4 (“the Yau Tong property”).  The shares in Fonfair and Money Facts have substantial value because they owned indirectly about two thirds of this Yau Tong property.  Although the transfer of the shares by the bankrupt took place only in 1998, it is the bankrupt’s case that on 5 September 1991, he had made a declaration of trust in respect of his shares in Money Facts in favour of Harbour Front Ltd, and that Harbour Front Ltd in turn made a declaration of trust (also executed by the bankrupt who was then the sole director of Harbour Front Ltd) in favour of The Harbour Front Unit Trust.

6.  In relation to Fonfair, the bankrupt’s case is that on 12 September 1991, he made a declaration of trust in favour of Harbour Front Ltd and that on the same day, Harbour Front Ltd made a declaration of trust in favour of The Harbour Front Unit Trust.

7.  There is strong evidence to show that these declaration of trusts were made no earlier than 1998 so that they would be caught by section 49 of the Bankruptcy Ordinance, Cap. 6.

8.  An important issue in the recovery of assets is when the transfers were made.

9.  The public examination of the bankrupt took place before Master Hui in February 2006.  At the end of the public examination, Master Hui made the following orders:

Order Made by Master Hui in relation to production of documents

“IT IS ORDERED THAT:

The Bankrupt shall within the next 21 days, by way of affirmation, supply information or produce documents as listed below, to be served on the Official Receiver:-

(1)  All Profit and Loss accounts of Harbour Front Limited, audited or otherwise from inception in 1991 to present;

(2) Management accounts/ledger account of Harbour Front Limited from inception to present.

(3)  All assets of Harbour Front Limited and supporting documents from inception in 1991 to 2005.

(4)  Company register of members of Harbour Front Limited from inception in 1991 to present.

(5)  All documents relating to investments of Harbour Front Limited from inception in 1991 to present.

(6)  All bank statements of Harbour Front Limited from inception in 1991 to present.”

(The discovery order)

Order Made by Master Hui in relation to public examination

“(1) The public examination be adjourned sine die with liberty to restore.

(2) The Bankrupt do pay the Official Receiver’s costs of this Public Examination with Certificate for Counsel to the Official Receiver personally assessed summarily at $225,331.00.”

(The adjournment and costs order)

10.  The application for the discovery order was made orally.  The first intimation of the intended application was made by counsel for the Official Receiver at the end of the first day of the public examination.  That was repeated on the second day.

11.  The bankrupt was represented by Tsang & Lee, Solicitors, at the hearing of the public examination.

12.  On 16 February 2006, Tsang & Lee wrote the following letter to Harbour Front Ltd, attentioned Mrs Irene Leung, who is the wife of the bankrupt.

This letter reads:

“As you know, we act for Mr Leung Yat Tung in relation to certain matters concerning his bankruptcy.  At the public examination of Mr Leung today which is being held at the High Court, the Official Receiver and Trustee (‘Official Receiver’) indicated that he intends to apply for an order tomorrow morning that Mr Leung do produce copies of the following to the Official Receiver:

1. Audited accounts/profit and loss accounts or unaudited accounts for Harbour Front Limited for 1991 to 2005;

2. Management accounts/ledger accounts of Harbour Front Limited from 1991 to 2005;

3. List of assets of Harbour Front Limited from 1991 to 2005;

4. Declaration of trust documents in relation to assets specified in 3 above;

5. Register of members of Harbour Front Limited;

6. Annual reports of Harbour Front Limited from 1991 to present;

7. List of investments / investment of assets of Harbour Front Limited from 1991 to present;

8. All Harbour Front Limited bank statements from 1991 to present.

Mr Leung has instructed us to contact you direct in this regard. It would be of considerable assistance to Mr Leung if you could kindly confirm firstly, whether you have the documents listed above and if so, whether you would be prepared to release copies of the same to Mr Leung as soon as practicable so that he can supply the same to the Official Receiver. Please treat this matter as urgent and contact us by return, and if possible, by 9:15am tomorrow morning with your confirmations in this regard, as the Court hearing continues tomorrow morning. Outside office hours, please contact Tsang Wai Kwan on XXXX XXXX to discuss. Thank You.”

13.  The reply, dated the same date, was from Poon & Cheung, solicitors for Harbour Front Ltd and reads:

“We act for Harbour Front Limited and refer to your letter dated 16^th February 2006 addressed to our client which was passed to us for reply.

In respect of the documents as requested under items 1,2,3,6 & 7 of your said letter, we are instructed that our client is a BVI Company (unlike a company registered in Hong Kong as required by the Companies Ordinance) and does not keep and maintain the information/records as requested which was set out in your said letter.

In respect of the documents as requested under items 4,5 and 8 of your said letter, we are instructed that they are the properties of our client which are also confidential. Accordingly, our client is not obliged to produce the same.

However, should the Official Receiver and Trustee require other information/records which our client is able to provide assistance, please advise the said Official Receiver and Trustee to write to us directly.”

14.  This is what the Master said when he made the discovery order:

“This is the application on the power of the Official Receiver pursuant to section 26(2) of the Bankruptcy Ordinance for an order that Mr Leung do produce certain information and documents of Harbour Front Limited. In my ruling it is clear that Mr Leung is still in de facto control of Harbour Front Limited.

It is Mr Leung’s case that he is no longer a director or shareholder of this BVI company, and through his legal advisors, produced to the court a letter from Messrs Poon & Cheung, Solicitors, dated 16 February 2006, alleging that the documents sought to be produced by the Official Receiver are either not existence or a confidential document of Harbour Front Limited, which is not willing to provide to Mr Leung.

As I said, it is my ruling that Mr Leung is in fact equals to Harbour Front Limited, I reject what has been submitted on his behalf. I make the order as sought by the Official Receiver.”

15.  Ms Cheung submitted that the discovery order was in two parts.  First, it required the bankrupt to supply information from his own recollection.  Secondly, it required the production of documents.  The wording of the discovery order is less than clear.  It is not clear what information is sought from the bankrupt and given the potential serious consequence of non compliance, it is important that any such order should be clearly worded.  Furthermore, the bankrupt has made it clear in the public examination that he had no relevant information to supply.  No co-operation could be expected from him.  As for production, the correspondence has made it clear that in relation to some of the items, Harbour Front Ltd asserted that they did not have them and in relation to others, they would not supply them to the bankrupt.  The Master ordered the supply of information and discovery on the basis that the bankrupt “equals to Harbour Front Ltd”.  We do not believe it was open to the Master so to find in the course of the public examination, particularly, when no notice or no proper notice had been given to the bankrupt that that was the basis upon which discovery was sought.

16.  For the above reasons, we set aside the discovery order.

Appeal against the costs order

17.  Mr Bartlett, counsel for the bankrupt, argued that the usual order is for the costs of the public examination to be paid out of the estate and he cited Re Strand, ex-parte The Board of Trade [1883] 13 QBD 492 in support.

18.  But as Re Li Tat Kong, ex parte Official Receiver [2003] 2 HKLRD 501, a decision of Deputy Judge Barma SC (as he then was) shows, the costs of a public examination is at the discretion of the court.  In that case, he ordered the costs to be borne by the bankrupt, because his answers during the public examination had been far from satisfactory and had made the exercise largely futile.

19.  Here, the Master was of the view that the public examination was largely futile because of the attitude of the bankrupt.  The Master was entitled to take that view.  We see no reason to interfere with the exercise of discretion by the Master.

20.  The Master made a gross sum assessment in a sum of $225,331 to cover the costs of the three days.  However, the third day was taken up by the order for discovery.  Since we set aside the discovery order, the bankrupt should not be required to pay the third day’s costs.  The parties have agreed that the costs for that day was $44,000.  So the amount would be reduced to $181,331.

21.  The Master also adjourned the public examination sine die.  Under rule 83 of the Bankruptcy Rules, the court may, for example, adjourn the public examination sine die:

“… where the court is of opinion that the Bankrupt is failing to disclose his affairs …”

22.  It is not clear on what basis the Master adjourned the public examination sine die.

23.  It is possible that the Master was influenced by the discovery order that he made.  Since we now have set aside the discovery order, we believe it is fair that we should remit the matter to the Master so he can revisit the exercise of his discretion.

Costs of the appeal

24.  Mr Bartlett asked for the costs of the appeal.  Since he has been substantially, but not fully, successful, we believe the bankrupt should have 75% of the costs of the appeal.  Such costs should be borne by and paid out of the estate of the bankrupt.

25.  The Official Receiver was performing its statutory duty.  Though we take the view that the discovery order should not have been made, the Official Receiver had not acted in an improper or unreasonable way, Re Li Tat Kong.  This is not a case where the Official Receiver was the unsuccessful party below and appealed.  The appeal is a direct consequence of the discharge by the Official Receiver of its statutory duty.  So the costs of the appeal should be borne by the estate and not by the Official Receiver personally.