HO YING PAT BOBBY v. OVERSEAS WAY (CHINA) LTD

CACV 1/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1 OF 2010

(ON APPEAL FROM HCB NO. 1946 OF 2009)

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Hon Le Pichon JA:

1.  This was an appeal by the appellant in person (“Mr Ho”) from a decision dated 28 December 2009 of Harris J who refused to stay the creditor’s petition based on a judgment debt and made a bankruptcy order against Mr Ho. Shortly before the hearing of the appeal, Mr Ho filed a notice to act in person. At the conclusion of the hearing the appeal was dismissed for reasons to be handed down which we now do.

Background

2.  In the proceedings below, the debt was not disputed.  Nor was any complaint made concerning procedural compliance.  As recorded by the judge, the only relief sought by Mr Pirie who represented Mr Ho below was for a stay of the petition which the judge refused.

3.  The debt arose in the following circumstances.  Mr Ho was a partner in a firm of solicitors called Ho & Chan (“the firm”) which ceased business in 1998.  Mr Ho’s former partner Joseph Chan (but not Mr Ho) was involved in a number of fraudulent conveyancing transactions.  Purchase monies for various properties had been paid over to the firm by Livasiri & Co on behalf of its clients (which included the creditor) upon the firm’s undertaking.  They were wrongfully withdrawn from the firm’s account by Mr Chan and misappropriated by him.  The firm was unable to repay the monies when the transactions failed.  It is common ground that Mr Ho is innocent of any wrongdoing and that his former partner was the sole perpetrator of the frauds.

4.  Various proceedings were brought against the partners of the firm and the partners of Livasiri & Co and, in respect of HCA 20094 of 1998 (“HCA 20094”), the creditor obtained judgment on 4 November 2005 for $36.6 million plus interest, inter alia, against Mr Ho.  The appeal to the Court of Final Appeal was dismissed on 15 July 2008.  By the time of the petition the amount outstanding including interest and costs was approximately $100 million.  Mr Ho was and remains unable to meet the judgment debt.

5.  On 29 April 2009 Mr Ho issued a writ against Richards Butler (“HCA 1103”) which was amended on 14 May 2009.  Richards Butler was the panel solicitor appointed by the Hong Kong Solicitors Indemnity Fund (“the Fund”) to represent him in HCA 20094.  In broad terms, that claim is in negligence in failing to give Mr Ho proper advice in relation to the defence and settlement of HCA 20094 and in failing to act in Mr Ho’s best interests.  It is alleged that Richards Butler put the interests of the Fund before those of Mr Ho in dealing with the possible settlement of HCA 20094 and thus caused him loss.

6.  The court has been provided with a draft re-amended statement of claim which expands on the allegations.  For present purposes, it is unnecessary to elaborate further on the allegations made (or intended to be made) in HCA 1103 and, for the sake of argument, it is assumed in Mr Ho’s favour that his claim is viable and that he has reasonable prospects of success.

This appeal

7.  At the hearing Mr Ho sought leave to amend the grounds of appeal.  While opposing the proposed amendments on the basis that they have no merit, Mr Lam SC who appeared for the creditor was content for the court to consider them de bene esse.

The discretion to stay a petition

8.  The present appeal is against the judge’s exercise of his discretion in refusing to stay the bankruptcy petition.  The circumstances in which this court may interfere are well-settled.  It can only do so if it is shown that the judge has erred in principle or erred in law in the way in which he has exercised his discretion.  Unless Mr Ho is able to demonstrate that there has been such an error, this appeal must fail.

9.  Mr Ho seeks a stay of the petition so that he can pursue his claim in HCA 1103.  It is common ground that HCA 1103 is a hybrid or mixed claim which is vested in the Official Receiver.  While it is open to the Official Receiver to pursue the claim, he has intimated by letter of 6 September 2010 that unless he is satisfied that both the claim is meritorious and there are sufficient funds/indemnity to cover costs and adverse costs, no consent would be forthcoming.  Mr Ho does not have the means to provide the necessary funds.

10.  Mr Ho’s solicitors subsequently applied on his behalf for the Official Receiver’s assignment of the right of action in HCA 1103 to him.  The Official Receiver stated in his letter of 21 December 2010 that he will inform the solicitors of his decision in due course but, to date, there has been no reply.  The position therefore is that without a stay, Mr Ho will not be able to pursue HCA 1103 save in respect of his personal claim.  His solicitors have intimated to the creditor that in the event of an unsuccessful appeal Mr Ho may cause HCA 1103 to be amended so as to be able to pursue his personal claim against Richards Butler and any recovery would not form part of his estate.

11.  Given the size of the debt, the creditor who is the largest creditor stands to recover very little as matters stand.  If Mr Ho should prevail in HCA 1103, it is likely to augment his estate significantly.  

12.  While the discretion to stay is unlimited, in exercising that discretion, regard must be had to established principles in bankruptcy proceedings.  Mr Lam referred to the line of authority to the effect that a petitioning creditor has a prima facie right to a bankruptcy order where the debt is clearly established and the procedural requirements have been complied with.  The discretion to adjourn the petition for payment should only be exercised where there is a reasonable prospect of the debt being paid in full within a reasonable time: see, for example, Harrison v Seggar [2005] BPIR 583 at §7.  In that case the judge set aside the district judge’s order in adjourning generally, effectively for nearly 4 years, to enable repayment by instalments.

13.  It is also relevant to note that there is a public interest in bankruptcy proceedings because they are matters of status affecting third parties and it is in the public interest that those matters should be processed quickly: see TSB Bank plc v Platts [1997] BPIR 151, 156H-157C.  A lengthy adjournment of a petition would be at odds with those considerations.  The court’s reluctance to grant open-ended adjournments in order to enable the debtor to pursue claims against third parties is apparent from the approach adopted in Oxted Financial Services Ltd v Gordon [1998] BPIR 231 and Re Micklethwaite [2003] BPIR 101.

14.  In the present case, the stay sought can be said to be open-ended in that Mr Ho is unable to predict with any degree of certainty how long the litigation is likely to take.  It has not yet progressed beyond a statement of claim.  What can be said is that it will be at least several years before the outcome will be known.  Further, given the issues involved, it is the type of case that is likely to proceed to an appeal even if Mr Ho were successful.  While the action may be resolved through mediation, there is no certainty that a settlement would be reached, much less when it would happen.

15.  In the skeleton submissions of Mr McCoy SC and Mr Pirie, Mr Ho’s former counsel, 2 authorities were cited for the proposition that where a bankrupt has a viable action against a third party which, prima facie, has a reasonable prospect of success or even a good business prospect, the court can stay the petition to allow the bankrupt to pursue the action or the business prospect, to enable the creditor to be paid.  The first was In re Yeatman (1880) 16 Ch D 283 where it was held that an appeal from an adjudication of bankruptcy should be stood over pending the trial of an action, the result of which, according to the appellant bankrupt, would be to render a fund available for the payment of the debt.  But it is clear from the report of the appellant’s argument (at 286) that the action against the petitioning creditors would be tried “in a few days”.  It was in those circumstances that James LJ (with whose opinion the other two judges concurred) held that the appeal should be stood over for the purpose of seeing whether there was any foundation for the appellant’s suggestion.  What is clear is that the adjournment in Yeatman was of a very limited duration.  In any event, it is not an example of a stay being granted where the adjournment involved is open-ended.  Nor is it an authority for the proposition that a court would entertain open-ended adjournments favourably.

16.  The other case relied on was Fitch v Official Receiver [1996] 1 WLR 242.  It concerned an application by the bankrupts to rescind the bankruptcy orders on the ground of change of circumstances.  The application (which was not opposed) was supported by most of the creditors.  It was their belief that the existence of the bankruptcy orders would prejudice the recovery of a substantial asset for the business partnership of the bankrupts.  In my view, Fitch does not assist in circumstances where the sole creditor not only does not support and, instead, opposes the application for a stay.  Further, it should be noted that the Court of Appeal in Fitch opined (at 249 C) that the creditors are the best judges of their commercial interests.

17.  Neither of the cases relied on by Mr Ho supports the kind of adjournment that he is seeking.  Having regard to the authorities earlier referred to and the principles that they establish, it is clear that the obstacles that have to be overcome in order to impugn the judge’s exercise of his discretion are insurmountable.

18.  In the circumstances, since Mr Ho is unable to overcome this first and decisive hurdle, it is not strictly necessary to consider the other proposed amendments which, whether taken individually or collectively, cannot affect the outcome of this appeal.  They will be mentioned briefly.

Annulment

19.  One of the proposed amendments was to add an order for annulment under section 33(1)(a) of the Bankruptcy Ordinance (“the Ordinance”) as an alternative relief to an order for a stay.  But the power to annul is a power conferred by section 2 of the Ordinance on the Court of First Instance and not on this court.  In any event, if Mr Ho were to succeed, the bankruptcy order would be set aside and the petition stayed.  The relief of annulment adds nothing to the relief already sought.

Arbitral awards in favour of Mr Ho and amendments relating to HCA 1103

20.  Given the assumptions made in Mr Ho’s favour for the purposes of this appeal, those matters do not advance Mr Ho’s case any further.

Complaint relating to the creditor’s refusal to conduct meetings re HCA 1103

21.  The point falls away given Mr Ho’s acknowledgment at the hearing that the creditor was not under any legal obligation to attend such meetings.

The amount of the petition debt

22.  The judge was criticised for not making reference to the settlement of the bankruptcy proceedings against Mr David Fan a partner in Livasiri & Co and the payment to the creditor of $15 million in settlement.  In fact there is a corrigenda to the judgment which added a paragraph to the judgment to address those matters.

23.  At the hearing, Mr Ho’s complaint appeared to be that there was no updated information relating to the amount of the judgment debt as it stood at the date of the bankruptcy order since the settlement with Mr Fan would have reduced the amount of the debt.  The point sought to be made by Mr Ho was far from clear: there was some suggestion that section 6D of the Ordinance applied and that the court should have amended the amount of the debt.

24.  It is common ground that at the date of the bankruptcy order the judgment debt was outstanding.  That was sufficient to ground a bankruptcy order which is not an adjudication of the precise amount of the debt.  Recovery of part of the debt from other parties will be taken into account and reduce the amount of the debt pro tanto.  It does not render the bankruptcy order invalid so long as the debt or part thereof remains extant at the date of the bankruptcy order.

Hon Kwan JA:

25.  I agree with the Reasons for Judgment of Le Pichon JA.

Hon Fok JA:

26.  I agree with the Reasons for Judgment of Le Pichon JA.