RE MUI KWOK KEUNG

HCB 6633/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6633 OF 2015

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J U D G M E N T
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1.  This is the hearing of a petition presented on 7 August 2015 by Mui Kwok Keung (“the Debtor”) for his own bankruptcy on the ground that he is unable to pay his debts. The petition is opposed by a creditor, Mr Wong Wui Shing (“Mr Wong”), on the grounds that the Debtor has failed to make full and frank disclosure of his assets and that he has sufficient assets to meet all his debts.

Background fact

2.  There is little dispute on the fact relevant to the petition. The fact and matters set out in §§3 to 10 below are taken from the Reasons for Verdict of HH Judge Woodcock delivered on 26 March 2012 in DCCC 890/2012.

3.  The Debtor was until April 2010 a practising barrister in Hong Kong.  On 26 March 2012, he was convicted of five charges of champerty, contrary to common law and punishable under section 101I of the Criminal Procedure Ordinance (Cap 221).  The charges involved five individuals who had agreed to engage the Debtor as their barrister in return for 25% or 30% of any amount which might be recovered by them in their claims.

4.  Mr Wong was one of the five individuals involved in the champertous agreements.  In June 1999, Mr Wong sustained back injuries during the course of his employment at an engineering company.  In June 2000, Mr Wong met the Debtor.  He accepted the Debtor’s offer to pursue his claim in return for 25% of any damages he might receive as the Debtor’s fee.  In October 2001, Mr Wong’s employee compensation claim was settled at $279,718 and he also received $130,000 from his insurance company.  Mr Wong paid 25% out of these two sums to the Debtor as his legal fees.

5.  In 2002, Mr Wong commenced a personal injuries claim against his employer.  Although Lam, Lee & Lai were his solicitors on record, Mr Wong never met anyone from nor paid any fee to this firm.

6.  In 2003, Mr Wong’s personal life fell apart leading to his divorce.  The Debtor produced a debit note apparently signed by Mr Wong at the criminal trial[1] in which Mr Wong acknowledged having borrowed $109,750 from the Debtor.

7.  In October 2003, at the request of the Debtor, a bank account in the joint names of Mr Wong and the Debtor was opened at Bank of China (“Joint Account”).  The Joint Account was controlled by the Debtor.

8.  Mr Wong’s claim against the employer was settled in January 2005.  Pursuant to a consent order, the employer paid around $1.43 million to Mr Wong, being an award of $1,764,718 less the amounts previously received by Mr Wong. The entire amount was paid into the Joint Account on 21 January 2005.  Unknown to Mr Wong, the employer also paid the costs said to have been incurred by Mr Wong in his claim.

9.  On 27 January 2005, the Debtor transferred $550,250 from the Joint Account to Mr Wong’s own account at Bank of China.  On the same day, the Debtor withdrew $879,750 in cash from the Joint Account (“the Sum”) and deposited the same into Madam Chan’s account at Bank of China.  Madam Chan then withdrew the Sum in the form of a cashier order payable to herself which, in turn, was paid into her bank account at Hang Seng Bank.  On 30 March 2005, the Debtor withdrew the balance of $5,000 odd from the Joint Account and closed it on the same day.

10.  Mr Wong was aware that the amount transferred by the Debtor to him represented about 38% of his award, but was told by the Debtor that apart from the 25% legal fees (which amounted to $357,500), Mr Wong also owed him other legal fees incurred in a criminal assault offence, an allegation of child neglect and his divorce proceedings.  Mr Wong agreed that the Debtor could take $100,000 from his award for his ex‑wife’s maintenance and acknowledged that he had to repay the debt of $20,000 to the Debtor.  However, the Debtor never provided any breakdown on any of the fees and payments to Mr Wong.  

11.  On 26 March 2013, the Debtor was sentenced by HH Judge Woodcock to an imprisonment of three years and six months.  As no submission was made on behalf of the Debtor on the compensation order sought by the prosecution, the learned Judge made a compensation order requiring the Debtor to pay an aggregate amount of $1,509,750 as compensation to the four individuals who were PW2 to PW5[2] including Mr Wong (“Compensation Order”).  The amount was ordered to be paid into court on or before 1 August 2013.  In the case of Mr Wong, the Debtor was ordered to pay $759,750 to Mr Wong, after deducting the amount of the debt owed by Mr Wong as well as the other expenses and matters agreed to be deductible by the prosecution.

12.  There is no dispute that despite the Compensation Order, the Debtor has not paid any amount to Mr Wong.

13.  The Debtor appealed against both his conviction and sentence.  By Reasons of Judgment handed down on 18 November 2013 (“CA Judgment”), the Court of Appeal refused the Debtor’s application for leave to appeal against conviction and sentence.  The Debtor’s application for leave to appeal to the Court of Final Appeal was dismissed on 22 October 2014.

Divorce proceedings and enforcement proceedings

14.  In 2011, the Debtor petitioned for his divorce in FCMC 18/2011.  The trial commenced on 19 November 2013 and was concluded on 6 August 2014.  In the judgment on ancillary relief dated 18 August 2014 (“Ancillary Relief Judgment”), Deputy Judge KK Pang held that the property known as Flat 11C Whampoa Garden (“the Property”) then registered in the joint names of the Debtor and his mother was beneficially owned by them as to 50% each.  In the same Judgment, the learned Judge concluded that as the Debtor’s ex‑wife had already obtained her 50% share of the family assets, her application for ancillary relief was dismissed with no order as to costs.

15.  As no payment had been made by the Debtor pursuant to the Compensation Order, Mr Wong commenced enforcement proceedings against the Debtor in DCMP 297/2015 and obtained an order on 5 February 2015 for oral examination of the Debtor on his means of satisfying the Compensation Order and requiring him to produce documents relating to his debts and assets for the past seven years.

16.  By another order dated 31 March 2015, the Debtor was ordered to provide to Mr Wong by 26 May 2015 (1) a checklist setting out his professional fee receivables, and (2) all the conveyancing documents and payment records in relation to the Property.  On 28 July 2015, a further order was made against the Debtor requiring him to issue fee notes for the fees receivables in the specified matters and providing copies of documents relating to his debts and assets by 28 October 2015.

17.  In July 2015, the Debtor was discharged from prison.  Shortly afterwards, the Debtor present a petition for his own bankruptcy.

Locus of Mr Wong as a creditor

18.  The Debtor contends that Mr Wong is not a creditor.  Despite the Compensation Order, the Debtor denies that he is liable to pay any amount to Mr Wong.  In this regard, the Debtor relies on §79 of the CA Judgment, where the Court of Appeal rejected the Debtor’s complaints about the Compensation Order in this way:

“In the light of the application’s position at trial, and the careful and prudent course adopted by the judge in relation to the prosecution’s application for a compensation order, we are distinctly unimpressed by these complaints; as we are with the submission that the relevant prosecution witnesses were themselves parties to an illegal contract and thereby not entitled to any compensation.”

19.  The Debtor asserts, boldly, that in the above statement, the Court of Appeal was expressing disapproval on the Compensation Order as Mr Wong himself was a party to the illegal contract.  The assertion is wholly without merit.

(1) As is clear from §79 of the CA Judgment, the Court of Appeal rejected the Debtor’s complaints against the Compensation Order on the bases that the Debtor had decided not to make any submission on the prosecution’s application for compensation including his ability to pay any such compensation, and there was no merit in his contention that no compensation should be made to the prosecution witnesses who were themselves parties to the illegal contracts.

(2) The fact that the Compensation Order had not been disturbed or varied on appeal was further confirmed by a letter dated 16 December 2014 from the court.

20.  The Debtor also relies on his letter dated 26 March 2015 to the Court of Appeal in which he asserted that as there was an “explicit ruling in the [CA] Judgment that illegality of a champerty agreement has deprived relevant parties a right of compensation”, he considered that the Compensation Order is “no longer enforceable”.  I am unable to see how his assertions in this letter can change the fact that the Compensation Order has never been varied and remains binding upon the Debtor.

21.  As the Compensation Order remains enforceable and no payment has been made by the Debtor, it is indisputable that Mr Wong is a creditor of the Debtor and, therefore, has locus standi to oppose the petition.

Whether the Debtor is unable to pay his debts

22.  Mr Victor CF Cheung, counsel for Mr Wong, submits that where, as here, a debtor presents a petition for his own bankruptcy, the burden is on him to prove that he is unable to pay his debts, as required by section 10(1) of the Bankruptcy Ordinance (Cap 6).  In this regard, Mr Cheung relies on the principles expounded by DHCJ Poon (as he then was) in Re Cheuk On Ching [2004] 3 HKC 192 at §16:

“The law has recognized that there are genuine advantages to permitting an insolvent debtor to invoke the bankruptcy jurisdiction on his own volition where he is unable to pay his debts. By doing so, he must come to the court with clean hands before being freed from the accumulative burdens of his debts and is given a chance in due course to make a fresh start. The burden is on the debtor and not for the creditors to prove that he does not have the funds to repay his debts.” (emphasis added)

23.  Mr Cheung submits that in the list of assets dated 7 August 2015 (as amended on 22 September 2015 and re‑amended on 22 October 2015) filed by the Debtor in support of the petition, the Debtor only disclosed certain fee receivables in the aggregate amount of about $900,000 as his assets but failed to disclose the fact that he had at least the following assets which had been transferred to Madam Chan without any consideration and, therefore, have been held by Madam Chan as his trustee:

(1) The Sum transferred to Madam Chan on 27 January 2005.

(2) The 50% beneficial interest in the Property (estimated to be worth $3.4 million) which, as stated in §§29, 57‑59 of the Ancillary Relief Judgment, had been transferred by the Debtor to Madam Chan in March 2013 without any payment having been made by Madam Chan.

24.  Mr Cheung submits that the fact that the Debtor remains the beneficial owner of the above assets — which he describes as “hidden assets” — have been specifically raised in the affirmations filed by Mr Wong in opposition to the petition.  Despite this, the Debtor has not produced any documents to substantiate his assertions that the transfers of the Sum and the 50% interest in the Property to Madam Chan were made for the purpose of repaying the debts allegedly owed by him to Madam Chan.  This, says Mr Cheung, shows that the transfers to Madam Chan were made by the Debtor with the intention to defraud his creditors and, therefore, are void pursuant to section 60 of the Conveyancing and Property Ordinance (Cap 219).  If these “hidden assets” are taken into account, the Debtor is not and cannot be said to be unable to pay his debts.

25.  The Debtor accepts that the burden is on him to satisfy the court that he is unable to pay his debts and in seeking an order for his own bankruptcy, he must come to the court with clean hands.  So far as I can understand from his submissions, the Debtor contends that the allegation of “hidden assets” has no merit for the following reasons:

(1) Deputy Judge KK Pang already held in the Ancillary Relief Judgment that his 50% beneficial interest in the Property “was conveyed to Madam Chan with past consideration, of which sufficiency of the same was not disputed by the court.”  The Debtor even goes so far as to suggest that the learned Judge “even pointed to a case (ie) saying that past consideration is good enough for property transaction”.

(2) The learned Judge took into account his 50% interests in the Property and “pointed out that he had no doubt about [the Debtor’s] poor financial position at all material times and that he never disputed validity of Madam’s [sic] payment for [him]”.

(3) The ancillary relief proceedings only concerned his ex‑wife’s claim and cannot be relied on by any creditors.  There is in any event no evidence or finding in those proceedings which supports Mr Wong’s allegation on “hidden assets”.

26.  The Debtor’s contentions must be rejected.  Nowhere in the Ancillary Relief Judgment did the learned Judge make any finding on the sufficiency or otherwise of the consideration allegedly paid by Madam Chan to the Debtor.  In any event, as Mr Wong was not a party to the ancillary relief proceedings, he is not bound by any findings made by the court in such proceedings.

27.  At the hearing, the Debtor advances a further ground to refute Mr Wong’s contention as to “hidden assets”.  He argues that as Mr Wong only became a creditor after he had transferred his 50% interest in the Property to Madam Chan, he was not a creditor at the relevant time and, therefore, cannot complain about the propriety of such transfer.  I reject the argument.  First, it does not appear from the evidence before the court that the transfer was made before the Compensation Order.  More importantly, the obligation to repay Mr Wong arose from the fact that the Debtor had taken the Sum which belonged to Mr Wong pursuant to an agreement which was found by the court to be illegal.  On the basis of this finding, the Debtor never had the right or entitlement to take the Sum from Mr Wong and must repay the same to him.  The Compensation Order confirms the liability of the Debtor to repay the Sum to Mr Wong which accrued on the date when the Debtor took the Sum from the Joint Account.

28.  As the Debtor has not adduced any evidence in support of his assertions that he was indebted to Madam Chan and that the transfers of the Sum and his 50% interest in the Property were made for a legitimate purpose, as matter now stands, there is a prima facie case that the Debtor remains the owner of the assets transferred to Madam Chan.  It follows that I am not satisfied that the Debtor has discharged the burden of showing that he is unable to pay his debts.

29.  In light of the above conclusion, it is not necessary to deal with the points (raised by this court at the hearing) as to whether there is any advantage for Mr Wong to oppose the petition and to pursue his claim through the enforcement proceedings, bearing in mind that upon a bankruptcy order having been made by the court, the Official Receiver will become his trustee, and is obliged to investigate his affairs including the propriety of the transfers.  The only advantages which Mr Cheung is able to identify in keeping the Debtor free from bankruptcy are (1) the advance stage of the enforcement proceedings and (2) the costs involved in having to apply for leave to bring proceedings against the Debtor to avoid the transfers after his bankruptcy.  As I indicated at the hearing, it seems to me that the primary person against whom Mr Wong should seek recovery of the Sum is Madam Chan who had admittedly received the Sum from the Debtor.  Even if it is necessary to join the Debtor as a party to such proceedings, the costs involved in obtaining leave to commence proceedings against the Debtor will be minimal as the Official Receiver is unlikely to take an obstructive stance to such application.  However, in light of my conclusion that the Debtor has failed to discharge the burden of satisfying the court that he is unable to pay his debts, it is not necessary to determine this point.

Conclusion

30.  For the above reasons, I dismiss the petition.  I make an order nisi that the costs of the petition be paid by the Debtor to the opposing creditor, to be taxed if not agreed.