THE LAW SOCIETY OF HONG KONG v. WONG SIU KI, OSWALD & 5 OTHERS

HCMP6025/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.6025 OF 2000

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D E C I S I O N

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1. The 1st respondent was made bankrupt on 23 December 1998. The official receiver is his trustee in bankruptcy. In 1999 the applicant successfully prosecuted a complaint against the 1st respondent pursuant to the Legal Practitioners Ordinance. In those proceedings, the 1st respondent was ordered to pay indemnity costs. When the taxation of those costs came before Master A. Ho on 18 June 2001, the learned master ruled that the applicant required the leave of the court in order to continue with the taxation, by virtue of section 12 of the Bankruptcy Ordinance Cap. 6. No leave had been obtained. The applicant now appeals Master Ho's ruling.

2. Section 12(1) of Cap. 6 states :

"Effect of bankruptcy order

(1) On the making of a bankruptcy order the Official Receiver shall be thereby constituted receiver of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose."

3. Two issues arise in this appeal :

(a) Is this claim for costs a "debt provable in bankruptcy"?

(b) If it is not, is leave still required by virtue of section 12?

4. The learned master ruled that leave was required whether the debt was provable in bankruptcy or not.

5. On the first question I am satisfied that the applicant's claim for the costs of the disciplinary proceedings is not a "debt provable in bankruptcy". The reason is to be found in section 34 of the Bankruptcy Ordinance which provides :

"(1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, tort, promise or breach of trust shall not be provable in bankruptcy.

(2) Subject to section 42(5), a person having notice of a petition in bankruptcy shall not prove in bankruptcy for any debt or liability contracted by the bankrupt after the date of his so having notice.

(3) Save as aforesaid, all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the date of the bankruptcy order, or to which he may become subject before his discharge by reason of any obligation incurred before the date of the bankruptcy order ... shall be deemed to be debts provable in bankruptcy.

(3A) Notwithstanding subsection (3), a debt owing to the Government in respect of a fine or monetary penalty imposed under an Ordinance shall not be provable in bankruptcy."

6. The debt in question arose after the date of the bankruptcy. (sections 34(2) and (3)). Moreover, it is a demand in the nature of unliquidated damages arising otherwise than by reason of contract, tort, promise or breach of trust. Thus section 34(1) also applies.

7. More difficult is the second issue. By virtue of section 12 is leave nonetheless required regardless of the fact that it is not a debt provable in bankruptcy? Mr Shaw on behalf of the applicant submits that it is not. The court's provisional view was the same as the learned master's, namely that leave was required. However, at the conclusion of the hearing on 30 October 2001, I adjourned the matter to give Mr Shaw an opportunity to consider and provide a copy of the case of Cobham v. Dalton (1875) 10 Ch App 655 which is referred to in "The Annoted Ordinances of HK" as support for the proposition that the restraint of proceedings against a debtor is limited to debts provable in bankruptcy only. In addition, during the adjournment Mr Shaw has, helpfully, done further research which he has sent to the court in the form of a further written submission. Having considered this further submission, I have changed my provisional view and decided that Mr Shaw is right in his submission as to the correct construction of section 12.

8. The correct reading of section 12 seems to me to require :

(i) leave of the court be applied for

(ii) by any creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy

(iii) to enable such a creditor :

(a) to pursue any remedy against the property or person of the bankrupt in respect of the debt or

(b) to proceed with or commence any action or other legal proceedings.

9. In other words the restrictions in section 12 apply only to creditors to whom the bankrupt is indebted in respect of any debt provable in bankruptcy. As the debt in the present case is not such a debt section 12 has no application and no leave is required. This interpretation is illustrated by the following emphases being added to section 12 :

"On the making of a bankruptcy order the Official Receiver shall be thereby constituted receiver of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy SHALL have any remedy against the property or person of the bankrupt in respect of the debt, NOR SHALL proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose."

10. Mr Shaw's research and submission does not stop there. He makes the following additional points :

(1) Our section 12 is effectively the same as section 7 of the Bankruptcy Act 1914. In the 1932 edition of "The Elementary Principles of the Law of Bankruptcy and Deeds of Arrangements" the commentary on section 7 is as follows :

" From the time the order is pronounced no creditor, to whom the debtor is indebted in respect of any debt provable in bankruptcy, shall have any remedy against the property or person of the debtor in respect of the debt or shall commence any action or other legal proceedings unless with the leave of the Court and on such terms as the Court may impose (s.7(I))."

(2) In the 1933 edition of "Gibsons Bankruptcy" the authors comment (on section 7(1)) :

" On the making of a receiving order an official receiver will become receiver of the debtor's property; and thereafter, except as directed by the Act, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy will have any remedy against the debtor's person or property, or may commence any action or other legal proceedings except by leave of the Court." (the authors' emphasis)

(3) The commentary on section 7 in the 1934 edition of "Bankruptcy, Deeds of Arrangement and Bills of Sale" is :

" As soon as the order is made, an official receiver is constituted receiver of the property of the debtor, and thereafter, except as directed by the Act of 1914, no creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy has any remedy against the property or person of the debtor in respect of the debt, nor can he commence any action or other legal proceedings unless with the leave of the Court, and on such terms as the Court may impose." (my emphasis)

Clearly, the meaning here is that the "creditor to whom the debtor is indebted in respect of any debt provable in bankruptcy" needs the leave of the court. It does not mean that anyone commencing legal proceedings requires leave.

(4) In England section 7(1) of the 1914 became section 132(3) of the 1985 Insolvency Act. The editors of "Current Law" stated that :

"The new provision also maintains the existing exemption from the moratorium in respect of any creditors whose debts would not be provable in the bankruptcy : such creditors remain free to commence or continue any legal proceedings against the debtor pertaining to claims of that character."

(5) When section 132(3) of the 1985 Act became section 285(3) of the 1986 Insolvency Act the position remained unaltered.

11. I therefore allow the appeal with costs to the applicant. The learned master's ruling that leave is required is set aside. The learned master did not have the advantage of considering Mr Shaw's thorough research or of hearing his careful submission.

12. Bearing in mind, finally, that the applicant seeks a taxed order for costs merely so that they can be paid by the Government following disciplinary proceedings such an interpretation of section 12, also commends itself to practicality and common sense.