RE LI TAT KONG

HCB 741/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 741 OF 1995

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J U D G M E N T

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The application

1. This is an application by the Official Receiver seeking the commital of a bankrupt, Li Tat Kong ("Mr Li"), for contempt of court on the basis of alleged breaches by Mr Li of duties imposed on him by the Bankruptcy Ordinance (Cap. 6) ("the Ordinance"). Mr Li was adjudicated bankrupt on 22 November 1995, before the amendments introduced by the Bankruptcy (Amendment) Ordinance (Ordinance No. 76 of 1997) ("the amending ordinance") came into effect. As a result, most matters relating to his bankruptcy, including the present application, fall to be determined by reference to the provisions of the unamended Bankruptcy Ordinance. The only new provisions applicable to Mr Li are sections 30 to 30C, which deal with commencement and continuance of bankruptcy and discharge from bankruptcy. These apply in place of the former section 30 (see section 99 of the amending ordinance). References in this judgment to sections of the Ordinance other than sections 30 to 30C are, therefore, references to sections in the unamended Ordinance. In the case of sections 30 to 30C, however, they are references to the new sections introduced by the amending Ordinance.

2. The application for committal was made on 23 May 2002. It was, as required by rule 29 of the Bankruptcy Rules ("the Rules"), supported by an affirmation - the 5th Affirmation of Wong Siu Wan ("Ms Wong's 5th Affirmation"), also dated 23 May 2002. It was made on two broad grounds, which were set out in paragraph 19 of Ms Wong's 5th Affirmation. These were that:-

(1) in breach of his duties under section 19 of the Ordinance, Mr Li had failed to disclose his affairs in the course of his public examination; and

(2) in breach of his duties under section 26 of the Ordinance, Mr Li had wilfully failed to give inventory of his property, a list of his creditors and debtors and of the debts due to and from them, and to aid to the utmost of his power in the realisation of his property.

3. These grounds were amplified in Ms Wong's 5th Affirmation, in which the particular matters relied upon by the Official Receiver as constituting breaches by Mr Li of these duties were set out in some detail. These matters, therefore, form the basis of the application now before me.

The background to this application

4. However, before considering the terms of the relevant provisions of the Ordinance and the factual allegations made by the Official Receiver as the basis for the present application, it is, I think, relevant to set out a brief description of the course of Mr Li's bankruptcy, which forms the background to this application.

5. Mr Li's bankruptcy had its origins in a claim against a firm called Victor Foods Company ("Victor Foods"), which carried on business as a trader of frozen meats, in which he was a partner together with a Mr Chui. In May 1994, a creditor of Victor Foods ("the creditor") obtained judgment against it for some HK$973,000 odd. This judgment having gone unsatisfied, the creditor orally examined Mr Li and Mr Chui on 9 November 1994. Mr Li's examination was not completed that day, but at the end of that hearing, Master Woolley told Mr Li that he was not satisfied with his answers, and warned Mr Li that he was at risk of imprisonment unless he provided truthful answers at the adjourned hearing. At the conclusion of the resumed examination on 14 January 1995, Master Woolley said that he was satisfied that Mr Li's evidence at the examination had been untruthful in a number of respects, that Mr Li had failed satisfactorily to explain why considerable sums of money had passed through his bank accounts, and that Mr Li had not disclosed certain bank accounts. Master Woolley therefore ordered that Mr Li be imprisoned for a period of six weeks, and also ordered Mr Li to pay the judgment debt within six months, failing which a further term of imprisonment would be imposed.

6. Immediately before the expiry of that six month period, on 13 July 1995, Mr Li petitioned for his own bankruptcy. A receiving order was made on 13 September 1995, followed by an adjudication order on 22 November 1995. In June 1996, Mr Li put forward a proposal for composition, offering to settle his debts by paying a dividend of 15%. The funds for such payment were said to come from his mother. On 11 September 1996, the composition was approved, the receiving order rescinded and the adjudication order annulled by Master Woolley. On 11 June 1998, the creditor successfully applied to have Master Woolley's order set aside, on the grounds that the mandatory public examination of Mr Li had neither been held nor dispensed with pursuant to section 19A of the Ordinance.

7. Thereafter, the Official Receiver interviewed Mr Li on 18 June 1998, and a general meeting of creditors was held on 29 June 1998. The Official Receiver continued to try to investigate Mr Li's affairs, seeking information from Mr Li and his solicitors, Messrs Finley & Co. in correspondence.

8. As Mr Li had been adjudicated bankrupt on 22 November 1995, he would have been entitled to have his bankruptcy automatically discharged with effect from 22 November 1999 pursuant to the provisions of section 30A(1), this being one of the new provisions which applied to Mr Li's bankruptcy. However, on 20 July 1999 the Official Receiver gave notice of intention to object to Mr Li's automatic discharge. The Official Receiver's objection was supported by the creditor. This application was heard in May 2000, and on 2 June 2000, Le Pichon J (as she then was) postponed the automatic discharge for a period of three years from 22 November 1999 (see Re Li Tat Kong [2000] 3 HKC 360).

9. Le Pichon J considered that Mr Li had failed to co-operate with the Official Receiver, and that there was a need for further investigation into Mr Li's affairs (the public examination of Mr Li still not yet having been held) before the extent of his estate could be properly ascertained. A number of areas of his affairs were identified, in respect of which Le Pichon J considered that questions remained unanswered. These included several areas which are relevant to the present application, such as the explanation for apparently balancing transactions that appeared in Mr Li's bank statements for accounts which he held with the Hongkong Bank and the Chiyu Bank; the status of an account of Victor Foods with China State Bank; and the position in relation to a company called Kateford International Ltd ("Kateford").

10. Shortly after Le Pichon J's decision, on 15 June 2000, the Official Receiver took out an application for the public examination of Mr Li, and on 6 July 2000, Le Pichon J directed that the public examination be held before a Master of the High Court. Meanwhile, Mr Li appealed to the Court of Appeal against the extension of his period of bankruptcy. His appeal was dismissed on 11 January 2001. On 9 May 2001, notice was given to Mr Li that his public examination would be held on 17 May 2001. On that date, the public examination was adjourned at Mr Li's application, pending the outcome of his application for leave to appeal to the Court of Final Appeal, which was then pending. On 12 July 2001, the Court of Appeal granted leave to appeal, subject to the provision of security, which was to be provided by 9 August 2001. The security was not lodged as required, and Mr Li's appeal to the Court of Final Appeal therefore lapsed. The Official Receiver took steps to restore the public examination for hearing, and it was fixed to be heard on 22 October 2001. Shortly before that date, there was another flurry of activity, with Mr Li seeking to pay the security which had been ordered, and to have his public examination adjourned pending the determination of an application for an extension of time to lodge the security. This attempt to postpone the public examination proved unsuccessful (as, ultimately, did Mr Li's attempts to pursue his appeal to the Court of Final Appeal), and the public examination commenced before Master A. Ho on 22 October 2001.

11. It was not possible to complete the examination that day, and it was therefore adjourned. It continued on 7, 8 and 9 January 2002, before being further adjourned, continuing again on 15, 18 and 19 March 2002. During the course of his public examination, Mr Li was examined about a range of matters by Miss Linda Chan on behalf of the Official Receiver. At the end of the hearing on 19 March 2002, the Official Receiver applied for the public examination to be adjourned sine die, pursuant to section 19(9) of the Ordinance and rule 83 of the Rules, on the grounds that Mr Li's affairs had not been fully investigated, and that Mr Li had failed to disclose his affairs at the public examination.

12. Master Ho acceded to this application, and adjourned the public examination of Mr Li sine die. In giving his reasons for his decision, he had this to say:-

"I accept the submission by Miss Chan that some of the answers given by Mr Li have not been frank. Some of the answers given are inconsistent and contradicatory. For instance, regarding the amount of legal costs and the loans by the relatives. ... My impression of Mr Li is that he has not been frank at all and some of the answers given are evasive. On the basis that the Officieal Receiver may take out a further application to examine the wife, the mother or the sisters of the bankrupt in the near future it is my view that the examination of the mother, wife and sister may shed light on the affairs of the bankrupt, Mr. Li. I'm satisfied that the affairs of Mr Li have not been sufficiently investigated so far and I'm prepared to adjourn the public examination sine die."

13. Thus, the public examination of Mr Li is not over, and may continue at some future time. Notwithstanding that the public examination of Mr Li has not come to an end, Mr Li is now no longer bankrupt, as he was automatically discharged from bankruptcy on 22 November 2002, as a result of the operation of section 30A of the Ordinance and Le Pichon J.'s order of 2 June 2002. Whereas under the unamended Ordinance the adjournment of his public examination sine die would have operated to prevent Mr Li from obtaining his discharge, since under the old section 30(1) a bankrupt could not apply for discharge until after the conclusion of his public examination, that no longer is the case having regard to the provisions of section 30A.

14. Although Mr Li has now been discharged from his bankruptcy, the property which vested in the Official Receiver as his trustee remains so vested for the benefit of those who were his creditors at the time of his bankruptcy. Mr Li also remains under an obligation to assist the Official Receiver by continuing to provide information in relation to his affairs, and doing such things as the Official Receiver requires for the purpose of completing the administration of his estate: see section 30A(8) of the Ordinance.

15. As I have mentioned, following the adjournment of the public examination sine die, the Official Receiver took out this application on 23 May 2002.

The Burden and Standard of Proof

16. It is well established that the standard of proof required in order to secure a finding of civil contempt against an alleged contemnor is proof beyond reasonable doubt - as Lord Denning M.R. put it in Re Bramblevale Ltd [1970] 1 Ch 128, at 137A-B:-

"A contempt of court is an offence of a criminal character. A man may be sent to prison for it. It must be satisfactorily proved. To use the time-honoured phrase, it must be proved beyond reasonable doubt."

17. After the application for committal had been brought, Mr Li made two affirmations in response to it. However, at the hearing before me, Mr Li, as he was entitled to, elected not to give evidence in his own defence, leaving it to Mr Smith to make submissions as to the matters relied upon by the Official Receiver with a view to persuading me that the case against Mr Li had not been proved to the necessary standard. As a result, I was not referred to Mr Li's affirmations (on which he was not cross-examined), and I have not taken the matters mentioned in them into account in his favour in coming to my decision.

Section 19 of the Ordinance and rule 83 of the Rules

18. I turn now to deal with the first ground on which the Official Receiver contends that Mr Li is in contempt. This is based on section 19 of the Ordinance. Section 19, so far as material, provides as follows:-

"(1) ... the debtor shall attend [the public examination] and shall be examined as to his conduct, dealings and property.

...

(8) The debtor shall be examined on oath and it shall be his duty to answer all questions as the court may put or allow to be put to him ..."

19. It is well established that where a debtor refuses or fails to answer a question which has been allowed by the court to be put to him, such refusal or failure can be punished as a civil contempt, and that in certain circumstances, such a course may open to the court notwithstanding that the witness has purported to answer the question put: see e.g., Coward v Stapleton [1953] 90 CLR 573. However, as the High Court of Australia pointed out in its judgment in that case (at p.578):-

"It is only in a strictly limited class of cases that a witness can properly be convicted of refusing to answer a question which he has purported to answer. A disbelief on the part of the court in the truth of the purported answer is not, without more, a sufficient foundation for such a conviction. The words used, considered in their setting and in the light of the demeanour of the witness, must show that in fact the witness is declining to make any reply which can properly be called an answer to the question. There must be a manifestation of some form of an intention on the part of the witness not to give a real answer. It is essential not to lose sight of the sharp distinction that exists between a false answer and no answer at all. Of course a purported answer may be so palpably false as to indicate that the witness is merely fobbing off the question. His attitude in the box may show that he is simply trifling with the court and is making no serious attempt to give an answer that is worth calling an answer. In such cases it may well be right to say that the witness refuses to answer the question, but it cannot be too clearly recognised that the remedy for giving answers which are false is normally a prosecution for perjury or false swearing, and not a summary committal for contempt. Such a committal can be justified only by a specific finding of an evinced intention to leave a question or questions unanswered, or by a finding of contempt in some other defined respect."

20. Apart from section 19, Miss Chan also relied on the provisions of rule 83 of the Rules in support of this ground. That provides, so far as material, as follows:-

"Where the court is of the opinion that a debtor is failing to disclose his affairs ... and no good cause is shown by him for such failure, the court may forthwith commit the debtor for contempt of court or may adjourn the public examination sine die, and make such further or other order as the court thinks fit."

21. Miss Chan contended in her skeleton argument that the relevance of rule 83 was that it provided the sanction for a bankrupt's failure to perform his duties in a public examination. It was not initially clear to me whether it was intended to suggest only that Mr Li's answers in the course of his public examination revealed that he intended not to give any proper answer to the questions, and thus was guilty of contempt on the basis explained in Coward v Stapleton, or whether it was suggested that rule 83 went further than this. However, Miss Chan made it clear in the course of argument that her position was that even if it could not be said that Mr Li was refusing to answer questions which were properly put to him, rule 83 provided a further and distinct basis for committal in respect of Mr Li's answers. If this is right, it follows that Mr Li can be found guilty of contempt if:-

(1) I am satisfied beyond reasonable doubt that such answers as he made to the questions put to him during his examination demonstrated that he was, in effect, deliberately refusing to answer such questions; or

(2) I am satisfied beyond reasonable doubt that he had, without reasonable excuse, failed to disclose his affairs in the course of his public examination.

Is rule 83 ultra vires?

22. Mr Smith, for Mr Li, contends however that the second of these alternatives is not open to Miss Chan. He submitted that while there could be no objection to the terms of rule 83 if it were construed so as to confine the power that it apparently gives the court to commit for contempt to situations in which such a power would have arisen at common law (i.e. by reason of a bankrupt's refusal to answer questions properly put to him), if it were construed as providing an independent basis for committal, rule 83 would be ultra vires the rule making power conferred by section 113 of the Ordinance, which is in the following terms:-

"113. The Chief Justice may, with the approval of the Legislative Council, make rules providing for, generally, the carrying into effect the objects of this Ordinance."

23. Mr Smith drew my attention to the fact that rule 83 is the only rule that purports to confer a power of committal, and that all the other instances in which the court is given the power to commit for contempt are prescribed in the Ordinance. Mr Smith also pointed out that the Ordinance also provides in section 129 of the Ordinance for a range of bankruptcy offences punishable by fine or imprisonment. He submitted that the objectives of the Ordinance were quite capable of being achieved with this range of provisions, and that there was nothing in the rule making power conferred by section 113 that permitted the creation by the Rules of an additional basis on which a bankrupt could be exposed to the risk of a committal for contempt.

24. Miss Chan's response was that the power to commit for contempt contained in rule 83 fell within the terms of section 113, in that the existence of such a power would clearly assist in carrying the objects of the Ordinance into effect, since it would provide an additional weapon in the court's armoury which could be used in order to ensure that there was a proper examination and scrutiny of the bankrupt's affairs and the reasons for the bankruptcy. In this connection, she drew my attention to authorities illustrating the purpose and importance of the holding of a public examination of the bankrupt. In Re Paget, ex p Official Receiver [1927] 2 Ch 85, Lord Hanworth M.R. said (at pp.87-88):-

"... the object of the examination [is] not merely for the purpose of collecting debts on behalf of the creditors or of ascertaining simply what sum an be made available for the creditors who are entitled to it, but also for the purpose of the protection of the public in the cases in which bankruptcy proceedings apply, ... there shall be a full and searching examination as to what has been the conduct of the debtor in order that a full report may be made to the court ... the purpose of the Act being to secure a full and complete examination and disclosure of the facts relating to the bankruptcy in the interests of the public and not merely in the interests of those who are the creditors of the debtor."

and Fletcher's Law of Insolvency (3rd ed) states (at para. 7-027) that:-

"... The public examination has traditionally been regarded as one of the most important aspects of the bankruptcy process, for it is intended to serve one of the main purposes of the public policy associated with bankruptcy law, namely the protection of the public by the gathering of as much information as possible about the debtor and his affairs. ..."

25. I accept that the public examination of a debtor is an extremely important feature of the bankruptcy legislation. However, this factor is not, in my view, sufficient on its own to dispose of the attack on rule 83 as being ultra vires to the extent that it confers a power of committal for contempt. In order to decide whether or not the creation of the provision in rule 83 permitting the committal for contempt of a bankrupt was within the powers conferred upon the rule-maker by section 113 of the Ordinance, it is necessary to ascertain whether or not the legislative intention behind the conferring of such powers was that they should be used in this way.

26. In my view, it was not. It is noticeable that the Ordinance itself provides for a range of situations in which a bankrupt or other person can be found guilty of contempt of court. These are section 18(3) (failure by bankrupt, without reasonable excuse, to make out and submit a statement of affairs to the Official Receiver); section 20(15) (disobedience by bankrupt of an order of the court made on an application for enforcement of the provisions of a composition or scheme); section 26(4) (wilful failure by bankrupt to perform duties as to discovery and realisation of property); section 53(5) (failure of bankrupt's servants or agents to deliver possession of his property to his trustee); section 55(refusal by bankrupt to join in selling, or to execute documents necessary for the sale of, property outside Hong Kong) and section 110 (disobedience by bankrupt, trustee or any other person of order or direction made or given by the court). By contrast, with the exception of rule 83, there appears to be no other provision in the Rules which purports to confer a power of committal.

27. It seems to me that the existence of specific provisions in the main Ordinance providing for powers of committal does indicate that it was the legislative intention for powers of this nature to be conferred by the Ordinance itself, particularly having regard to the consequence for a bankrupt of being found to have been in contempt.

28. I do not think that the fact that a power of committal would not be inconsistent with the provisions of section 19 is a sufficient basis on which to conclude that the provisions of rule 83 so far as committal is concerned are intra vires. It seems to me that while any inconsistency between the rule and the provisions of the Ordinance would be a basis for concluding that the rule is, to that extent at least, ultra vires, the converse does not follow.

29. Miss Chan also submitted that the existence of the bankruptcy offences listed in section 129 of the Ordinance was not a relevant factor in considering whether or not the power of committal contained in rule 83 was ultra vires. She submitted that it was perfectly possible for there to be more than one way of dealing with particular defaults by a bankrupt (an example being in relation to the failure to submit a statement of affairs). I think that this is correct. However, it does not seem to me to be of any real assistance on the ultra vires point, which is not whether it is appropriate for there to be a power to commit at all, but whether that power is one which can only be conferred by the Ordinance, as distinct from the Rules.

30. I note also that the view is expressed in Bennion on Statutory Interpretation (at Section 64, p.194) that:-

"The term 'rules' is mainly reserved for instruments, such as rules of court, which regulate judicial or other procedure."

and

"Rules have the same nature as regulations, except that the term rule is usually reserved for an instrument dealing with the procedure of a court, tribunal, corporation or other statutory body".

31. While it would clearly be competent for rules (such as the Bankruptcy Rules) to prescribe the procedure by which applications for committal should be regulated, it is much less clear that the jurisdiction to commit should itself be regarded as a procedural matter.

32. It was not suggested that the requirement in section 113 for the approval of the Rules by the Legislative Council was a factor to be taken into account. It is, in any event, unclear whether the process of obtaining such approval would involve the same steps as the enactment of the primary legislation itself.

33. I have therefore come to the view that the power of committal apparently conferred by rule 83 is not a matter that was within the ambit of the rule making authority, and that it is therefore not a matter to which I should have regard in considering whether or not Mr Li ought to be committed for contempt of court. I note also that rule 83 does not appear to have any equivalent in the English insolvency legislation, whether under the Bankruptcy Acts or their successor, the Insolvency Act 1986. It also appears that there was no equivalent in the Australian bankruptcy legislation considered in Coward v Stapleton. Nor was it suggested that there was any provision for committal for contempt in the bankruptcy rules (as opposed to primary bankruptcy legislation) of either of these jurisdictions.

The case under section 19

34. I turn now to consider each of the specific areas of complaint in respect of the Official Receiver's application insofar as it is based on section 19 of the Ordinance.

Mr Li's income and the extent of his assets

35. The first matter relied upon by the Official Receiver related to Mr Li's personal and family income. As the Official Receiver pointed out, Mr Li said that the income earned by himself and his wife between 1987 and 1994 was about HK$170,000 per year, and that neither of them had much in the way of savings. Miss Chan submitted that, having regard to assets apparently owned by Mr Li and his wife, prior to his bankruptcy, such as a new BMW motor car, assets listed in an application to emigrate to Canada made in about 1990 (including a fixed deposit of some HK$250,000, interests in Hong Kong properties said to be worth some HK$1.55 million and an interest in Victor Foods then valued at about HK$3 million), a Canadian property in respect of which a substantial deposit was paid, a property in a building called Great Smart Tower in Hong Kong apparently acquired by Mr Li and his partner Mr Chui in October 1993 for some HK$3.66 million, and a residential property in Hong Kong at a development called Villa Tiara, which was apparently acquired by Madam Kee in September 1997 for HK$4.3 million, for which a deposit of about HK$1.29 million was paid, these answers were either untrue, or alternatively that Mr Li had made no real attempt to give a real answer as to his income.

36. The apparent existence, at various times, of these assets was also relied upon by the Official Receiver as showing that either Mr Li was lying as to his income, or that he had hidden assets which had not been disclosed to the Official Receiver.

37. In the course of Miss Chan's submissions, she took me to the various passages in the transcript of Mr Li's public examination where Mr Li was questioned about these matters. It was pointed out that:-

(1) In relation to the BMW car, it was difficult to see how Mr Li could have paid for this from his stated income, since it was, according to Mr Li, acquired on hire purchase with monthly payments of some HK$7,000 to HK$8,000. Miss Chan pointed out that Mr Li's evidence that these sums were paid for by Victor Foods, but were recorded as loans to him in its books, did not sit well with Mr Li's asserted level of income and the fact that at the end of the day, his current account with Victor Foods showed only a balance of HK$200,000 owing by him to Victor Foods. Moreover, a suggestion by Mr Li that some of the funds might have come from his and his wife's savings appeared to contradict other answers which he had given to the effect that they had no substantial savings.

(2) In relation to the deposit of HK$250,000 referred to in his application for emigration to Canada, it was pointed out that Mr Li gave a number of contradictory answers within a fairly short space of time.

(3) As to the Canadian property, the explanations given by Mr Li were at odds with his professedly low level of income and absence of savings.

(4) As to the Great Smart Tower property, Mr Li's explanation that the deposit for this property (which he said was dealt with by Mr Chui) was somehow financed by the use of a post-dated cheque facility of Victor Foods was incredible.

(5) As to the Villa Tiara property, the explanations as to who was the owner in the property and the source of the deposit for it (variously said to be a relative of Madam Kee's and a joint property owned by her and a relative of hers) were attacked as unsatisfactory.

38. Miss Chan also drew my attention to the fact that Mr Li reiterated the truth of the contents of the application for emigration to Canada, despite their being inconsistent with his having no significant savings. She also said that an answer he gave to the effect that the application was not made as an investor, was inconsistent with the suggestion in the application that a sum of money should be brought over to Canada to be invested in a proposed business dealing in frozen meat offal products.

39. Finally reliance was placed by Miss Chan on the fact that Mr Li now lives with his family in an expensive property, which was acquired by Kateford for some HK$13.38 million.

40. Mr Smith, in submissions for Mr Li, sought to deal with the substance of these points, as follows:-

(1) Mr Li had stated that the BMW was paid for by Victor Foods.

(2) The Canadian emigration documents and information related to matters which Mr Li had pointed out were upwards of 10 years old, and that Mr Li sought to deal with these through some documents which he produced relating to fixed deposit receipts for the period 1992, which appeared from the transcript to have been accepted as an explanation of the fixed deposit of HK$250,000.

(3) As for the Canadian property, Mr Li had said that it could be shown from the documents of Victor Foods that the funds for this came from Victor Foods, but these documents were now no longer in a legible state, through no fault of his.

(4) The explanation of the Great Smart Tower property by Mr Li was that it was handled by Mr Chui and funded by post-dated cheques.

(5) As to the Villa Tiara property, Mr Li had expressly denied that his funds were used in the acquisition of this property.

(6) As to Mr Li's answer that the emigration was not under the investor category, there was nothing wrong with this, since there was a separate category of applicant (apparent on the face of the form) called the "entrepreneur" category, and it was clear that it was under this category that the application was made.

(7) As to the fact that Mr Li lived in a property owned by Kateford, there was nothing odd about this, since both his wife and his mother were directors and shareholders of Kateford.

41. In my view, there is not a great deal in the point about the category under which Mr Li applied for permission to emigrate to Canada. It may also be fair to say that that aspect of the examination related to a matter from quite a long time ago, which had not, it seems, been previously the subject of much inquiry in the course of Mr Li's bankruptcy. The notion of using post dated cheques to finance the deposit for the Great Smart Tower was a curious one, since it cannot have been the intention of a banker affording such a facility to Victor Foods that it should have been operated by the drawing of post dated cheques on accounts of the partners themselves, as opposed to genuine customer cheques. However, it may be that, rightly or wrongly, this was in fact what happened, whether at the instigation of Mr Chui (as Mr Li suggested) or otherwise. I shall deal separately with the question of Mr Li's involvement with Kateford below. However, it seems to me that many of Mr Li's answers and explanations in relation to the other matters mentioned above were far from satisfactory, and leave one with the distinct impression that these matters are not adequately explained or dealt with.

Loans, advances and financial assistance to Mr Li

42. The second area of complaint by the Official Receiver related to the question of loans, advances and financial assistance obtained by Mr Li, both before and after his bankruptcy. Early in his public examination, Mr Li stated that the only loans, advances or financial assistance afforded him, were HK$300,000 from his sister, Miranda Li, in order to assist in paying a fine imposed by mainland authorities, to secure his release from prison on the mainland, which was apparently due to his involvement with Victor Foods, and HK$5.1 million from his mother to cover legal fees of HK$2.1 million between May 2000 and October 2001, and the payment under the composition with creditors of HK$3 million. This is clear from the transcript, from which it is also clear that Mr Li confirmed the accuracy of this. Nonetheless, he later accepted that there had been further payments of $200,000 by his mother in respect of legal fees prior to May 2000, and that she had also paid $100,000 back to his sister. It is then said that these answers were further contradicted by his subsequent answers in relation to the source of funds for the Villa Tiara property.

43. Miss Chan also relied on the failure of Mr Li to produce his legal bills to the Official Receiver when requested to do so.

44. As to these matters, Mr Smith submitted that Mr Li had (as he said in his examination) understood the initial question on legal fees to be as to the source of the legal fees from 2000 to 2001, and he answered this, by identifying his mother as the source of funds. It appears from the transcript that this is correct, although there are other questions at about the same time that appear to put the point clearly. It is, however, possible that Mr Li might not have fully appreciated the import of the questions which were being put.

45. As to the $100,000 repaid to Miranda, it seems that Mr Li's answers underwent some refinement. He seems initially to have accepted that he repaid this amount, but later said that his mother made the repayment, and told him about it.

46. So far as the effect of the evidence as to the financing of the Villa Tiara property was concerned, it was not clear to me what the response was as to this point. I bear in mind, however, that this was not a property which was owned by Mr Li, but by Madam Kee (whether on behalf of herself, a relative or both may not matter much in this context), and I would hesitate to say that evidence that advances were made to Madam Kee for the deposit for this property would necessarily be contradictory of Mr Li's evidence as to advances to himself.

47. The non-disclosure of the legal bills would appear to be relied on in support of the complaint based on rule 83. However, the question of whether or not privilege attached to the bills was not really explored before me, and I note that although the Official Receiver indicated that an application would be made for production of the bills, no such application was in fact made.

48. In all the circumstances, it seems to me that Mr Li's answers in relation to these matters were not wholly satisfactory, and some further investigation would appear to be called for. I note that this was also the view of Master Ho, at the conclusion of Mr Li's examination before him.

Legal Fees

49. The third area of complaint by the Official Receiver related to the question of legal fees. It was pointed out that Mr Li had failed to deal with how his legal fees before May 2000 and after October 2001 were paid or being paid. As to the first period, Mr Li later said that these fees amounted to HK$200,000, and were paid by his mother. As to the later period, it did not appear that Mr Li provided any explanation, but I was not referred by Miss Chan to any particular question where such an explanation was asked for. Nor was this raised in the correspondence, which only appeared to seek disclosure of legal bills between 1995 and May 2000, this being resisted on the basis that such bills might be privileged.

50. For the reasons explained in relation to the second area, I would agree with Master Ho that Mr Li's answers and evidence in relation to payment of legal fees called for further investigation. I think, however, that I would attach less weight to the failure to produce the legal bills, in the light of the Official Receiver's failure to make the threatened application for their production.

Mr Li's role in Victor Foods

51. The fourth area of complaint related to Victor Foods. It was submitted by Miss Chan that Mr Li was at pains to distance himself from the financial affairs of Victor Foods, but that this was gainsaid by evidence from Mr Chui and Mr Li at the creditor's examination and documents disclosed and answers given in correspondence, and in the course of the public examination, as those revealed that large sums of money had passed through Mr Li's bank accounts, and that his explanation for these was that they were payments made to Victor Foods, which he put through his account in order to avoid the payment of bank surcharges on large deposits. Miss Chan contended that this showed that Mr Li was in fact involved in the financial affairs and debt collection aspects of Victor Foods' business. She also referred to the evidence in the public examination referred to in paragraph 47 of Ms Wong's 5th Affirmation as indicating the extent of his involvement in Victor Foods' financial affairs. Criticism was levied at some aspects of this evidence (such as the system of using post-dated cheques for short term finance) as being incredible. The suggestion that some or all of these matters could have been clarified had Victor Foods' books been in better condition was dismissed on the basis that these were provided to him (see paragraph 46 of Ms Wong's 5th Affirmation).

52. Mr Smith submitted that Mr Li's evidence on the system of post-dated cheques charges was consistent throughout. He also submitted that this was the case in relation to Mr Li's evidence on the use of his account to avoid the incidence of bank charges (and that such evidence was also consistent with evidence of Mr Chui in the creditor's examination in 1994). He also said that Mr Li could not be blamed for the state of the accounting records of Victor Foods, which had made it impossible for him to substantiate his explanation.

53. Mr Li's explanations of these matters are somewhat lacking in detail. However, as I have pointed out earlier, while the use of post dated cheques to raise short term finance was somewhat curious, it may be that the bank concerned did not (for whatever reason) object to this apparent misuse of a facility which appears to have been granted to Victor Foods. Again, however, as with other aspects of Mr Li's evidence, one is left with the distinct impression that there is scope for further investigation.

Kateford

54. The final area of criticism related to the affairs of Kateford. Kateford operates in substantially the same area of business as Victor Foods did. It is said to have built up a turnover of some HK$5 billion a year, with profits running into millions of Hong Kong dollars. It was said by Mr Li that the business is that of his wife and mother, and that he is no more than an employee, being employed by Kateford as a salesman, at a salary of HK$15,000 per month. He said that his mother was a very experienced business person.

55. It was pointed out for the Official Receiver that Mr Li was the only person in Kateford who had any experience in the frozen food business, and that his evidence as to his mother's prior business experience was unconvincing and contradictory, in that it was stated in his application to emigrate to Canada (the truth of which he reaffirmed in his public examination) that his mother had been a housewife for some time prior to the application. It also appeared from his evidence that her previous business experience was in the shoe trade, and there was little detail as to the extent of her business expertise, and the size of her former business. Criticism was also levelled at Mr Li's evidence that Kateford needed little funding to operate its business, because it was able to obtain credit from its sellers, and obtain payment in advance of delivery from its buyers, and thus required little in the way of cash or funding. The fact that Mr Li was living in a property owned by Kateford was again highlighted in this context.

56. Mr Smith responds that Mr Li has consistently denied that Kateford is beneficially owned by him, that the criticism of Kateford's means of obtaining payment for its sales is misguided, since what Mr Li described was no more than standard "D/P" (or documents against payment terms). It was said by Mr Smith that the fact that Mr Li lived in a property owned by Kateford was not particularly surprising, since his wife and mother were directors of that company, and it was not uncommon for directors to be provided with accommodation.

57. It is clear that the Official Receiver is deeply suspicious about Mr Li's involvement in Kateford. The suggestion is, no doubt, that Mr Li is in fact (and has always been) the beneficial owner of Kateford. The suggestion may be well founded. Certainly there seems to be scope for further examination of Kateford's affairs. It may be that the Official Receiver should take proceedings to establish that Kateford formed part of Mr Li's estate in bankruptcy, if he thinks it possible to do so.

Whether Mr Li failed or refused to answer questions put to him

58. It will be apparent from the foregoing examination of the principal complaints of the Official Receiver that there are several respects in which Mr Li's evidence at his public examination bear further investigation, and that Master Ho was, in my view, justified in concluding that this was necessary, and that the public examination should be adjourned sine die.

59. However, I am here concerned with the question of whether or not Mr Li has, by his conduct at his public examination, placed himself in contempt. Having regard to my views as to the non-availability of rule 83 of the Rules as a basis for a finding of contempt, I would only find Mr Li guilty of contempt if I am satisfied beyond reasonable doubt that he has failed or refused to answer questions which were properly put to him in the course of his public examination.

60. Having regard to the considerations discussed by the High Court of Australia in Coward v Stapleton, it does not seem to me that I can be satisfied to that standard that Mr Li has done this. It appears from the transcript that questions that were put received answers. It is not possible to tell from the transcript what Mr Li's demeanour or tone was, when giving those answers. Although some of his answers may not have meshed exactly with the question put, my impression is that in substance answers were given. There may well, as I have indicated above, be doubts as to the veracity of some of the answers given - but it remains my impression that answers were given.

61. I have had regard to Master Ho's observations as to Mr Li's evidence, and it seems to me that those accord with the conclusion which I have reached. Master Ho did not indicate that Mr Li had not answered questions which he had allowed to be put to Mr Li. Rather, he said that Mr Li had given answers which were, in his view, evasive and less than frank.

62. This also seems to be the effect of the Official Receiver's submissions, in which it was from time to time said that Mr Li was either lying or refusing to answer the questions put. This, it seems to me, encapsulates the difficulty in relation to this part of the application - where it is as likely as not that an untrue answer has been given, it seems to me that it would be difficult to be satisfied without hearing and seeing the witness that there could be no reasonable doubt but that the correct inference to draw was that there was an evinced intention to avoid answering the question. The same point can, I think, be made in relation to the suggestion in various places in Ms Wong's 5th Affirmation that Mr Li's answers were unbelievable - a statement which seems to me implicitly to accept that answers (although answers which were thought to be untrue) were given.

63. Had Mr Li given evidence before me, and been cross-examined as to these matters, the position might have been different. However, Mr Li chose, as he was entitled to do, not to give evidence in his own defence. While this might be thought to be a somewhat unsatisfactory state of affairs, I would observe that while Master Ho did not himself have power to commit Mr Li for contempt (see section 99A(6) of the Ordinance, it would have been open to him, had an application been made to him to do so or had he thought it appropriate to do so, to have adjourned the examination of Mr Li to be heard before a judge (pursuant to section 99A(2)(b)), who would have had such power of committal. This was, in fact, the course which was adopted in Coward v Stapleton itself.

64. I therefore do not find Mr Li guilty of contempt under section 19 of the Ordinance.

Would Mr Li have been liable under rule 83?

65. I have considered whether or not I would have found Mr Li guilty of contempt under rule 83 of the Rules, had I been of the view that that rule was intra vires in purporting to confer on the court a jurisdiction to commit. It will be apparent that I consider Mr Li's answers to the questions put to him in his public examination to have been unsatisfactory in a number of respects. For an order of committal to be made, however, I would have had to be satisfied beyond a reasonable doubt that Mr Li had failed, without reasonable excuse, to disclose his affairs.

66. Apart from the explanations which I have noted above, Mr Smith also submitted that it should be borne in mind that the questions put to Mr Li extended over a variety of subject matters, over a considerable period of time, in the course of an examination lasting some seven days, and that Mr Li was without the benefit of legal representation during such examination (although his solicitors were present, they were not entitled to participate in the examination).

67. On the other hand, some areas of the examination in respect of which complaint was made were in relation to matters which Mr Li must have known were the subject of investigation, both from the reasons for which Le Pichon J suspended his automatic discharge for a period of three years, and from the correspondence which had passed between the Official Receiver and his own solicitors.

68. On balance, I would have been hesitant to convict Mr Li of contempt, notwithstanding the views which I have expressed in relation to the quality of the evidence given by him in his public examination. While there must be real doubt as to whether or not he has fully disclosed his affairs, it does not follow that it is clear beyond reasonable doubt that he has not done so. There is, in my view, a real difference between having doubts about whether a bankrupt's affairs have been fully disclosed or sufficiently investigated so as to justify the adjournment of a public examination sine die, and being able to say positively that one is satisfied that his affairs have not been disclosed. This would be so even if the relevant standard of proof were on a balance of probabilities, and is even more so where, as here, the standard of proof required is beyond reasonable doubt. While further examination might bring additional matters to light, it may, at the end of the day, not do so, so that the doubts, although properly entertained, may turn out to be unfounded. It also seems that rule 83 provides for a range of penalties for a bankrupt's failure to disclose his affairs during his public examination, and I would also have had some hesitation in concluding, on the basis of the transcript alone, that Mr Li's performance was so woeful as to justify his being treated as being in contempt of court.

Section 26 of the Ordinance

69. Turning to the application for committal based on section 26(4), I set out first the material provisions of section 26:-

"(2) [The debtor] shall give such inventory of his property such list of his creditors and debtors, and of the debts due to and from them respectively, submit to such examination in respect of his property or his creditors ... and generally do all such acts and things in relation to his property and the distribution of the proceeds amongst his creditors as may be reasonably required by the Official Receiver ... or may be provided by this Ordinance ...

(3) [The debtor] shall, if adjudged bankrupt, aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors.

(4) If a debtor wilfully fails to perform the duties imposed on him by this section or to deliver up possession of any part of his property, which is divisible amongst his creditors under this Ordinance and which is for the time being in his possession or under his control, to the Official Receiver or to the trustee or to any person authorised by the court to take possession of it, he shall, in addition to any other punishment to which he may be subject, be guilty of a contempt of court and may be punished accordingly."

70. Under this section, Miss Chan submitted that Mr Li was guilty of contempt in the follwing four respects.

The adequacy of Mr Li's statement of affairs

71. The first was that Mr Li had submitted a grossly inadequate statement of affairs, which failed to disclose:-

(1) The loans and advances made to him by his mother and sister.

(2) A bank account of Victor Foods, with the China State Bank.

(3) A bank account at the Royal Bank of Canada in the joint names of himself and his wife

(4) A bank account in his own name at the Chiyu Bank and

(5) A bank account in his own name at the Hongkong Bank.

The non-disclosure of bank accounts was particularly relied upon as it was said that there was no proper account of the whereabouts of Victor Foods' funds, which had apparently been paid into Mr Li's own account.

72. It was not disputed that these matters were not disclosed in the statement of affairs which Mr Li filed on 16 October 1995. However, Mr Smith submitted that the failure to do so was not a contempt, since:-

(1) Mr Li did not, as he said in his public examination, regard the loans from family members as carrying any legal obligation to repay.

(2) The Victor Foods accounts had been disclosed in the course of the examination of Mr Li as a judgment debtor in 1994.

(3) The Royal Bank of Canada account had been inactive or closed for some time, as disclosed by enquiries which were made by Mr Li or his solicitors.

(4) There was no suggestion that Mr Li's Chiyu Bank account had any money in it to justify its inclusion in the statement of affairs.

(5) Mr Li's Hongkong Bank account was also disclosed in the course of the examination of Mr Li in 1994.

As to the point about Victor Foods' funds, Mr Smith pointed to the explanation which had been given in correspondence and in the public examination as to the purpose of passing funds destined for Victor Foods through Mr Li's account. I was also shown copies of Mr Li's account statements which seemed to bear out his explanation, although Victor Foods' account statements were not available, apparently because of their damaged state.

73. It seems to me that the only family loan that should have been disclosed by Mr Li in his Statement of Affairs was that from his sister, as those from his mother were apparently made after the making of the statement of affairs. However, given Mr Li's apparent belief that repayment would not be demanded, it seems to me that his failure to disclose it in his Statement of Affairs is perhaps excusable. I do not think that the fact that his mother may have repaid some part of this to his sister affects the position, since this would not have been a repayment by Mr Li himself.

74. As to the Victor Foods bank account, and Mr Li's Hongkong Bank account, the disclosure in the examination as a judgment debtor would not have been a matter of which the Official Receiver would seem to have been aware at the outset of Mr Li's bankruptcy. It does not seem to me that it is for the Official Receiver to have to go through previous evidence given by Mr Li to identify potential assets of his - it is for him to disclose them in his Statement of Affairs. So far as the explanation of transfers is concerned, while there may be scope for further examination of this, the fact that these accounts were disclosed in his previous evidence does tend to suggest that Mr Li was not deliberately concealing these matters in omitting to include them in his statement of affairs.

75. As to the other two bank accounts, in the absence of any evidence that there were any funds in them at the time of Mr Li's bankruptcy, I do not see that there was any basis on which they ought to have been disclosed in the statement of affairs.

76. In relation to this area of complaint therefore, I would not consider that Mr Li is in contempt of court. Even if I am wrong as to this, I would not have thought it appropriate to imprison him for these omissions at this stage, since the loans from his relatives and the two bank accounts which seem to have had some funds in them appear to have been disclosed at some later stage.

The sources of the funds for payment of the RMB 2 million fine

77. The second area in respect of which it was suggested that Mr Li was guilty of a contempt under this provision related to the alleged failure of Mr Li to give a true account of the origins as to the sum of RMB 2 million which was used to pay the fine imposed by the mainland authorities so as to secure Mr Li's release from prison. Mr Smith submitted that this had been adequately (if not completely explained) by Mr Li's compilation of a document explaining this matter.

78. In my view, this complaint is not one which is apt to form the basis of a charge under section 26(4). Section 26 seems to me to be designed to lend efficacy to attempts to identify and take control of a bankrupt's property. The question of the origins of the funds used in paying a fine to the mainland authorities some time before Mr Li's bankruptcy would not seem to me to have any real relevance to such an exercise. I would therefore decline to find Mr Li guilty of contempt in respect of this complaint.

Failure to provide all documents relating to Mr Li's application to emigrate

79. The third area of complaint under section 26 relates to the alleged failure by Mr Li to provide a complete set of all the documents in relation to his application for emigration to Canada, despite the order of Master Ho. However, it seems to me that in relation to this complaint Mr Smith is right in saying that it is clear from the transcript that Master Ho only intended to order Mr Li to produce such documents as were in his possession. It has not been shown that there are real grounds for thinking that Mr Li has in his possession more documentation which he has failed to disclose. I therefore do not regard this aspect of the application as well founded.

Refusal to supply other documents

80. The final area of complaint relates to the alleged refusal of Mr Li to supply documents requested by the Official Receiver. However, it seems to me in relation to this that while a request for production of documents was made, and it was suggested that an application would be made for an order requiring Mr Li to produce them, no such application was in fact made. It seems to me that in these circumstances, the position of the Official Receiver in relation to such documents was not entirely clear, and that I cannot say that I am satisfied beyond reasonable doubt that Mr Li's failure to provide such documents to the Official Receiver was wilful, so as to attract liability for contempt.

81. I therefore conclude that the Official Receiver has not proven beyond reasonable doubt that Mr Li was guilty of a contempt of court under section 26 either.

Costs

82. I should say, that, as will be clear from the views which I have expressed as to the quality of some of his answers in the course of his public examination, Mr Li's behaviour has not been beyond reproach. One is also left with the distinct impression from the correspondence between his legal advisers and the Official Receiver that he and those advising him have been less than fully cooperative in respect of his bankruptcy, and the Official Receiver's attempts to investigate his affairs. However, for the reasons that I have given, such lack of cooperation falls short, in my view, of placing him in contempt of court.

83. Nonetheless, as Mr Li has been successful in resisting the charges of contempt brought against him, I think that I should make an order nisi that he shall have his costs of this application, on the party and party basis, to be taxed if they cannot be agreed.