V CAPITAL LTD v. MARGARET CHIU

CACV 497/2021, [2023] HKCA 1307

On Appeal From [2021] HKCFI 3133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 497 OF 2021

(ON APPEAL FROM HCA NO 1431 OF 2017)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  The principal question which arises for determination in this appeal is whether a Master may, after a bankruptcy order has been made against a judgment debtor, make an order for the imprisonment of the judgment debtor on the ground that he has wilfully failed to make a full disclosure as required under Order 49B, rule 1A(2) of the Rules of the High Court, Cap 4A, in the absence of leave to proceed granted by the court under s 12(1) of the Bankruptcy Ordinance, Cap 6.

2.  In what follows, unless the context indicates otherwise, references to:

(1)  “Order” and “rule” shall be to the Rules of the High Court; and

(2)  “Section” or “s” shall be to the Bankruptcy Ordinance.

BASIC FACTS

3.  By a consent judgment dated 24 September 2018, Margaret Chiu (“the Debtor”) was ordered to pay US$5,127,168.23 plus interest thereon (“the Judgment Debt”) to V Capital Limited (“the Creditor”) within 30 days from the date of the judgment. The Debtor failed to pay the Judgment Debt to the Creditor.

4.  On 20 November 2018, the Creditor obtained an order for an oral examination of the Debtor under Order 49B, rule 1A.

5.  At the first hearing of the oral examination on 24 December 2018, Master Lui ordered the Debtor to (i) supply copies, or make available originals for copying, of 12 specified classes of documents in relation to her assets and liabilities to the Creditor not later than 35 days from the date of the order (“the Disclosure Order”), and (ii) produce them at the adjourned hearing of the examination (on a date to be fixed).

6.  On 29 January 2019, the Debtor, through her former solicitors, provided copies of some documents to the Creditor in purported compliance with the Disclosure Order. The Creditor was of the view that the Debtor had failed to fully comply with the Disclosure Order and, on 3 April 2019, took out a summons to enforce the Disclosure Order.

7.  On 15 April 2019, Master Ho ordered the Debtor to (i) comply with the Disclosure Order within 7 days, and (ii) file and serve an affirmation confirming that she had fully complied with the Disclosure Order within 7 days thereafter.

8.  No further document was disclosed by the Debtor. On 25 April 2019, the Debtor filed an affirmation (“the 1^st Affirmation”) stating as follows:

“I hereby confirm that I have fully complied with the Disclosure Order made by Master Lui dated 24^th December 2018”.

9.  The oral examination of the Debtor took place before Master Lai on 3 June 2019 (“the Examination Hearing”). In the course of her examination by the Creditor’s counsel, the Debtor initially stood by what she had stated in the 1^st Affirmation, ie, that she had fully complied with the Disclosure Order. However, upon further questioning by the Creditor’s counsel, it became clear that the Debtor had failed to fully comply with the Disclosure Order. The documents that the Debtor had failed to disclose included bank documents, accounts of her companies, documents showing the receipt and use of loans obtained under 5 mortgages of real properties in Sai Kung owned by Marspan Limited (a company owned/controlled by the Debtor), as well as some related loan agreements.

10.  Towards the end of the Examination Hearing, counsel for the Creditor informed the Master that the Creditor intended to make an application for an order for the imprisonment of the Debtor under Order 49B, rule 1B (“the Application”). The Master gave directions to the parties concerning the further conduct of the Application.

11.  Thereafter, a number of affirmations were filed by or on behalf of the Creditor or the Debtor in support of or in opposition to the Application. In the affirmations filed by the Debtor, she disclosed some further documents which she had previously failed or neglected to disclose as required by the Disclosure Order.

12.  On 22 April 2020, the Debtor was adjudged bankrupt in HCB 7106/2018.

THE DECISION

13.  The Master heard the Application on 15 March 2021.

14.  Originally, the Creditor relied upon all 3 grounds under Order 49B, rule 1B(1) in support of the Application. Order 49B, rule 1B(1), so far as relevant, states as follows:

“Where the Court is satisfied, following the examination conducted under rule 1A …, that the judgment debtor –

(a) is able to satisfy the judgment, wholly or partly; or

(b) has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; or

(c) has wilfully failed to make a full disclosure as required under rule 1A(2) … or to answer any question as provided under that rule …,

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.”

15.  By the time of the hearing on 15 March 2021, the Creditor relied only on sub-paragraph (c) of rule 1B(1), ie, the Debtor had “wilfully failed to make a full disclosure as required under rule 1A(2) …” (“the Disclosure Ground”).

16.  Order 49B, rule 1A(2) states as follows:

“The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.”

17.  The Master gave his decision on the Application on 27 October 2021 (“the Decision”). In the Decision, the Master found, inter alia, that:

(1)  the Debtor had failed to make a full disclosure as required under Order 49B, rule 1A(2)[1];

(2)  the Debtor’s failure to make a full disclosure pursuant to the Disclosure Order was “wilful”[2]; and

(3)  the Creditor had proved the Disclosure Ground beyond reasonable doubt[3].

18.  Upon consideration of the relevant circumstances of the case, the Master decided to exercise his discretion to make an order for the imprisonment of the Debtor[4], and ordered the Debtor to be imprisoned for the period of one month (“the Order”)[5].

19.  On 27 October 2021, Master Phoebe Man stayed the execution of the Order pending the Debtor’s appeal against the Order.

THE RE-AMENDED NOTICE OF APPEAL

20.  By a Notice of Appeal filed on 9 November 2021, the Debtor appealed against the Order. The Notice of Appeal contained 6 grounds of appeal.

21.  On 16 March 2023, the Debtor obtained leave to amend the Notice of Appeal. The 6 original grounds of appeal were deleted and replaced by a single ground of appeal, namely, that the Master had no jurisdiction to order the imprisonment of the Debtor in that, instead of focusing on the Debtor’s conduct at the Examination Hearing, the Master’s decision was “on the whole history of the [Debtor’s] conduct in response to the various court orders and the contents of the [Debtor’s] affirmations, treating this as a committal proceeding akin to that stipulated under Order 52, which jurisdiction could only have been performed by a Judge of the High Court” (“Ground 1”).

22.  On 20 April 2023, the Debtor obtained leave to further amend the Notice of Appeal. In the Re-Amended Notice of Appeal, in addition to Ground 1, the Debtor raised a new ground of appeal (“Ground 2”), as follows:

“Further, the learned Master had no jurisdiction to order imprisonment under Order 49B, rule 1B at all, because:-

(a) The [Debtor] has been an adjudicated bankrupt since 22^nd April 2020: see Decision §20.

(b) Hence, under section 21A(1) of the High Court Ordinance (Cap.4) and section 12(1) of the Bankruptcy Ordinance (Cap.6), the Court’s jurisdiction to make imprisonment orders pursuant to Order 49B, rule 1B was excluded and/or not engaged, and the [Creditor] could not continue the present proceedings against the [Debtor] without leave granted by the Court.”

23.  We shall first deal with Ground 2, which we consider to be dispositive of the present appeal, before turning to Ground 1.

GROUND 2: WHETHER THE MASTER HAD JURISDICTION TO MAKE AN ORDER FOR THE IMPRISONMENT OF THE DEBTOR UNDER ORDER 49B, RULE 1B(1) AFTER SHE HAD BEEN ADJUDGED BANKRUPT

24.  The Debtor raises two arguments in support of Ground 2. First, the Debtor argues that since she had been adjudged bankrupt on 22 April 2020 and there was no application by the Creditor under the Bankruptcy Ordinance for leave to proceed with the Application for her imprisonment, the Master had no power or jurisdiction to order her imprisonment pursuant to Order 49B, rule 1B(1)(c) by virtue of the first limb of s 12(1) (“… no creditor … shall have any remedy against the property or person of the bankrupt in respect of the debt”).

25.  Second, the Debtor argues that the Creditor’s Application for an order for her imprisonment under Order 49B, rule 1B(1)(c) was an “action or other legal proceedings” within the meaning of the second limb of s 12(1). Since the Creditor never obtained the court’s leave to proceed with the Application, the continuation of the Application, including the proceedings before the Master on 15 March 2021, was irregular and contrary to s 12(1), and the Master had no jurisdiction to order her imprisonment.

26.  On the other hand, the Creditor argues that the Master did have jurisdiction to make the Order. In summary, the Creditor’s argument is as follows:

(1)  A Master has the power to order imprisonment following an examination not only for a debtor’s failure to satisfy the debt (under rule 1B(1)(a)) or disposition of assets (under rule 1B(1)(b)), but also entirely separately for his failure to disclose (under rule 1B(1)(c)).

(2)  Unlike rule 1B(1)(a) and (b) which concern the debt or assets of the debtor, rule 1B(1)(c) does not concern debt or assets (of which the Official Receiver might have an interest) at all, but focuses on the personal disclosure failure of the debtor.

(3)  Rule 1B(1)(c) confers on the Master a discretion to order imprisonment upon a debtor’s wilful failure to make a full disclosure at an oral examination. An order of imprisonment under rule 1B(1)(c) does not give the creditor any financial gain, nor prejudice pari passu distribution. Neither does it satisfy or extinguish any judgment debt.

(4)  Indeed, the Master’s consideration of the factors which led him to make the order for imprisonment focused entirely on the Debtor’s disclosure failure or conduct, but not on her ability to satisfy her debt or as regards any disposal of her assets.

(5)  The object of s 12(1) is to prevent a creditor “in respect of any debt provable in bankruptcy” from, instead of proving his debt in a pari passu situation, scrambling for recovery by court proceedings against the “property of the bankrupt” to the prejudice of other creditors: Re International Tin Council [1987] 1 Ch 419.

(6)  The Creditor having dropped any reliance on Order 49B, rule 1B(1)(a) and (b), there was no longer any remedy “against the property or person of the bankrupt in respect of the debt” being sought by the Creditor. The Application was only in respect of the Debtor’s personal wilful failure to make a full disclosure under rule 1B(1)(c).

(7)  An application under rule 1B(1)(c) is quasi-criminal in nature, and the remedy, namely, imprisonment for her wilful failure to make a full disclosure, is evidently:

(a)  a penal consequence;

(b)  a personal order against her only, notwithstanding the bankruptcy; and

(c)  outside the ambit of the Official Receiver’s interest.

(8)  As such, the fact of the Debtor’s bankruptcy does not shackle the Master in any way from dealing with the discrete aspect of her wilful failure to make a full disclosure, unattached to her property/estate, under Order 49B, rule 1B(1)(c).

(9)  Further, no leave of the court was required for the Creditor to continue (or proceed with) the Application because, for the purpose of s 12(1), “remedy against the property or person of the bankrupt in respect of the debt” or “action or other legal proceedings” mean “action, proceedings or remedy that might prejudice pari passu distribution of the bankrupt’s estate”. It could not have been intended by the legislature that the leave of the court is required for the commencement or continuation of any personal proceedings or claims against the bankrupt (eg a criminal charge of dangerous driving against the bankrupt, or an application for departure prevention under s 77(1) of the Inland Revenue Ordinance[6]). The Application was not concerned at all with any “debt provable in bankruptcy” or property of the Debtor, but was a personal remedy against her. Hence, no leave of the court was required to proceed with the Application.

27.  In our view, the question of whether the Master had jurisdiction to make the Order in the present case depends on whether an application for an order for the imprisonment of a judgment debtor under Order 49B rule 1B(1)(c) should properly be regarded as a “remedy against the … person of the bankrupt in respect of the debt” and/or “other legal proceedings” within the meaning of s 12(1). The answer to this question entails a consideration of (i) the true construction of s 12(1), and (ii) the purpose of Order 49B, rule 1B(1)(c).

Construction of s 12(1)

28.  We start with the issue of construction. Section 12(1) states as follows:

“Effect of bankruptcy order

(1)  On the making of a bankruptcy order, the Official Receiver shall thereby become the provisional trustee 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.”

29.  As submitted by the Debtor, s 12(1) has two limbs, namely, after the making of a bankruptcy order against a judgment debtor, no creditor (i) shall have any remedy against the property or person of the bankrupt in respect of the relevant debt, and (ii) no creditor shall proceed with or commence any action or other legal proceedings against the bankrupt, unless with the leave of the court.

30.  In most cases, there should be little difficulty in determining whether a step or action taken by a creditor should be regarded as a “remedy against the property or person of the bankrupt in respect of the debt” under the first limb. However, the scope of the second limb (“any action or other legal proceedings”) is less clear. The true interpretation of these words should have regard to the context and purpose of s 12(1).

31.  The modern English equivalent of s 12(1) is s 285(3) of the Insolvency Act 1986. Section 285 of the Insolvency Act 1986, so far as relevant, states as follows:

“(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.

…

(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall –

(a) have any remedy against the property or person of the bankrupt in respect of that debt, or

(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

…”

It can be seen that s 285(1) of the 1986 Act is similar to s 14(1)[7], while s 285(3) of the 1986 Act is similar to s 12(1).

32.  The context and purpose of s 285 of the 1986 Act was considered by the House of Lords in Smith (a Bankrupt) v Braintree District Council [1990] 2 AC 215. The issue in that case was whether the bankruptcy court had jurisdiction under s 285(1) of the Insolvency Act 1986 to stay the issue by a magistrates’ court under s 102 of the General Rate Act 1967 of a warrant of committal against a person who had failed to pay rates. It was held by the House of Lords that the words “or other legal process” in s 285(1) of the Insolvency Act 1986 covered such proceedings before the magistrates’ court. At 229G-230, Lord Jauncey of Tullichettle (with whom the other members of the House of Lords agreed) stated the following:

“The purpose of section 285 is to protect the estate for the whole body of creditors and to prevent unsecured creditors, after the initiation of bankruptcy proceedings, from taking steps by putting pressure on the debtor to obtain advantages over other creditors. It is matter of agreement that it does not apply to proceedings which are purely criminal, but the council goes further and submits that it does not apply to proceedings which are quasi-criminal or punitive. What then is the nature of the proceedings under sections 102 and 103 of the Act of 1967? … If between the time when the term of imprisonment is fixed and the time when the warrant falls to be issued the ratepayer pays the whole of the sum due, the warrant will not be issued, and if he pays part of that sum the period of imprisonment in the warrant will be rateably reduced. Furthermore if, after imprisonment has begun, the ratepayer pays the whole of the sum specified in the warrant, he will be released. Two matters emerge from the consideration of the foregoing sections, namely: (1) that the issue of a warrant cannot be viewed in isolation but must be considered as part of the whole procedure for recovery of unpaid rates by way of distress, and (2) that although there may be a punitive element present in the power to issue a warrant of commitment, the predominant purpose thereof is to coerce the defaulting ratepayer into making payment. Why would the magistrates’ court be empowered under section 102(1)(6), having fixed a term of imprisonment, to postpone the issue of a warrant if not to put pressure on the defaulter to pay?

My Lords, the words ‘or other legal process’ must be construed in the context of the underlying purpose of section 285, namely, the protection of the bankrupt’s estate for all his creditors. It follows that proceedings by one creditor to enforce payment to himself are the sort of proceedings contemplated by the section. It cannot be in doubt that the issue of a warrant of distress would fall within the description ‘or other legal process.’ It would be both strange and illogical if the bankruptcy court could stay such proceedings but had no power to stay the next stage of the proceedings when distress had not been wholly successful. In my view, as a matter of pure construction, the words ‘or other legal process’ in section 285(1) are quite wide enough to comprehend all the machinery provided by Part VI of the Act of 1967 for the recovery of unpaid rates, including proceedings for the issue of a warrant of commitment.”

33.  The context and purpose of s 285 of the Insolvency Act 1986 as identified by Lord Jauncey, namely, “to protect the estate for the whole body of creditors and to prevent unsecured creditors, after the initiation of bankruptcy proceedings, from taking steps by putting pressure on the debtor to obtain advantages over other creditors”, echoed what Millett J (as he then was) said in Re International Tin Council [1987] Ch 419 at 456A-B, that the “great object of insolvency law, whether individual or corporate” was to “protect the debtor from harassment by the creditors, and the assets from piecemeal realization and unequal distribution as the creditors scramble for them”.

34.  The above discussion regarding the context and purpose of s 285 of the Insolvency Act 1986 is equally applicable to s 12. In our view, the words “action or other legal proceedings” cannot mean literally any action or legal proceedings which have no relation whatsoever to the debt of the bankrupt (eg purely criminal proceedings such as a charge of dangerous driving against the bankrupt). Properly construed, they should be understood to refer to action or proceedings by a creditor in respect of a debt provable in the debtor’s bankruptcy which, if commenced or proceeded with, would or might prejudice or affect the scheme of pari passu distribution of the bankrupt’s estate under the Bankruptcy Ordinance.

Purpose of Order 49B, rule 1B(1)(c)

35.  As regards the purpose of Order 49B, rule 1B(1)(c), the starting point is s 21A of the High Court Ordinance, Cap 4 (“HCO”), which was enacted in 1984 pursuant to s 2 of the Debtors (Arrest and Imprisonment) Ordinance (No 1 of 1984).

36.  Section 21A(1) of the HCO provides that “…a person shall not be arrested or imprisoned to enforce, secure or pursue a civil claim for the payment of money or damages except under an order of Court; and the Court shall have jurisdiction to make such an order for arrest or imprisonment only to enforce, secure or pursue a judgment for the payment of a specified sum of money”. Section 21A(4)(b) of the HCO goes on to provide that the Court may make an order for arrest or imprisonment under this section subject to such conditions as it thinks fit, including “… the condition that the judgment debtor be released on the payment of the judgment debt and costs …”. It is immediately apparent that the legislative purpose of empowering the Court to make an order for the imprisonment of a judgment debtor under s 21A of the HCO is to assist a judgment creditor to “enforce, secure or pursue” a judgment debt. For this reason, the legislation also expressly provides that a judgment debtor may be released from imprisonment on payment of the judgment debt and costs.

37.  Order 49B, which was enacted pursuant to s 7 of the Debtors (Arrest and Imprisonment) Ordinance and s 54(2) of the HCO, contains detailed rules concerning the execution and enforcement of judgment for money by imprisonment under s 21A(1) of the HCO. The following provisions of Order 49B are relevant for the purpose of the present discussion:

(1)  Rule 1B(1) provides for 3 different situations where the Court may make an order for the imprisonment of a judgment debtor, namely, (a) where the debtor is able to satisfy the judgment, wholly or partly; (b) where the debtor has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; and (c) where the debtor has wilfully failed to make a full disclosure as required under Order 48B, rule 1A(2) or at the examination under Order 48 or to answer any question as provided under that rule or Order. The Creditor accepts that sub-paragraphs (a) and (b) concern the debt and assets of a judgment debtor and an application for the imprisonment of the debtor who has been adjudged bankrupt under either paragraph would be caught by s 12(1), but maintains that sub-paragraph (c) only focuses on the personal disclosure failure of the debtor and falls outside the scope of s 12(1). Having regard to the legislative purpose of an order for imprisonment under s 21A of the HCO mentioned in §36 above, it is difficult to see why sub-paragraph (c) should be viewed differently from sub-paragraphs (a) and (b) for the purpose of s 12(1).

(2)  Order 49B, rule 4 provides that “[e]very person arrested or imprisoned in execution of a judgment shall be released at any time on the judgment being fully satisfied …”. This rule gives effect to s 21A(4)(b) of the HCO, and also makes it clear that the Court’s power to imprison a judgment debtor under Order 49B is “in execution of a judgment”.

(3)  Order 49B, rule 7 provides that “… when any person imprisoned in execution of a judgment has been once discharged he shall not again be imprisoned on account of the same judgment, but his property shall continue liable, under the ordinary rules, to attachment and sale until the judgment is fully satisfied”. This rule reinforces the view that the Court’s power to imprison a judgment debtor under Order 49B is “in execution of a judgment”. Furthermore, it shows that the purpose, or primary purpose, of an order for imprisonment under rule 1B(1)(c) is not to penalise a judgment debtor for his failure to make a full disclosure. Otherwise, it is difficult to see why, in a situation where a judgment debtor has previously been imprisoned under rule 1B(1)(a) or (b) but has since been discharged, should not be imprisoned again for a failure to make a full disclosure under rule 1B(1)(c) even though it is on account of the same judgment.

38.  It seems to us that the purposes of Order 49B, rule 1B(1)(c) are twofold: (i) to act as a threat against a judgment debtor who might otherwise be unwilling to make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income, or answer all questions put to him, at an examination under rule 1A(2), and (ii) to coerce the judgment debtor into paying off the judgment debt in order to obtain his release from imprisonment. Both purposes are geared towards the successful execution of a judgment debt.

39.  The Creditor argues that an order for the imprisonment of a judgment debtor under Order 49B, rule 1B(1)(c) would not prejudice the pari passu distribution of the bankrupt’s estate, or give the judgment creditor any financial gain. We are not persuaded that this is necessarily the case. An order for imprisonment under Order 49B, rule 1B(1)(c) can only be made where the court is satisfied beyond reasonable doubt that a judgment debtor has wilfully failed to make a full disclosure or answer any question at an examination under Order 49B, rule 1A(2). In other words, it targets the situation where there has been a wilful failure on the part of a judgment debtor to fully disclose all his assets, liabilities, income and expenditure and of the disposal of any assets or income, or answer all questions put to him, at an examination. As observed by Ribeiro PJ in Lam Chi Bin Stanley v OSK Asia Futures Limited, FAMV 1/2004 (1 April 2004), at §4, a finding that there has been the requisite wilful failure of disclosure would “no doubt implicitly carries a belief that assets exist of which full disclosure has not been made”. While there could be different reasons why a judgment debtor may wilfully fail to make a full disclosure of his assets or answer questions at an examination, a common one would be because he does not want to use his assets to discharge a debt lawfully owed by him. In such a case, the fact that the judgment debtor may obtain a release from imprisonment upon full satisfaction of the judgment under Order 49B, rule 4 would act as a powerful incentive for him to utilize his hidden assets (through a third party, if necessary) to pay off the judgment creditor who has obtained an order for his imprisonment, to the prejudice of his other general creditors.

40.  In our view, the Creditor’s Application for an order for the imprisonment of the Debtor under Order 49B, rule 1B(1)(c) is plainly a “remedy against the … person of the bankrupt in respect of the [Judgment Debt]” within the meaning of s 12(1).

41.  We are also of the view that the Creditor’s Application should properly be regarded as “other legal proceedings” within the meaning of s 12(1). In Smith (a Bankrupt) v Braintree District Council, ante, Lord Jauncey held that an application for a warrant of committal against a person who had failed to pay rates under s 102 of the General Rate Act 1967 fell within the description “or other legal process” in s 285(1) of the Insolvency Act 1986 in view of the following features of the application: (1) the issue of a warrant could not be viewed in isolation but must be considered as part of the whole procedure for recovery of unpaid rates by way of distress, and (2) although there might be a punitive element present in the power to issue a warrant of commitment, the predominant purpose thereof was to coerce the defaulting ratepayer into making payment.

42.  Ms Lok (on behalf of the Creditor) has gone to great lengths to point out the differences between the two statutory schemes under Order 49B, rule 1B(1)(c) and s 102 of the General Rate Act 1967. While there are undoubtedly differences between the two schemes, we consider the above reasoning of Lord Jauncey to be equally applicable to the present consideration. An application for an order of imprisonment under Order 49B, rule 1B(1)(c) should not be viewed in isolation but must be considered as part of the whole procedure for recovery of a judgment debt, and although there might be a punitive element present in the power to make an order for imprisonment under Order 49B, rule 1B(1)(c), the predominant purpose thereof was to coerce a judgment debtor into making a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income, and ultimately making payment of the judgment debt. As s 21(A)(1) of the HCO provides, the jurisdiction to order imprisonment is only conferred to enforce, secure or pursue a monetary judgment.

43.  The Creditor argues that if the Application is caught by s 12(1), the Debtor would not have locus to pursue the present appeal because a bankrupt is generally not entitled to bring an appeal against any order in relation to his assets which only the Official Receiver or trustee in bankruptcy can decide (Tai Yu Ting v Inland Revenue Board of Review [2006] HKCLRT 206, §§18-26), while personal claims which “relate to the bankrupt’s body, mind or character without immediate reference to his rights of property” are excepted (Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650, §§7-8). The Creditor is able to make this argument because it is apparently the Debtor’s position that the Application here concerns the “property of a bankrupt”[8]. However, the Creditor’s argument would have no force if, as we see it, the Application should properly be regarded as a “remedy against the … person of the bankrupt” within the meaning of s 12(1).

44.  In all, we conclude that the Master had no power to make the Order against the Debtor in the circumstances of present case.

The issue of retrospective leave

45.  At the hearing of the appeal, the Creditor (through Ms Lok) confirmed that she would not rely on the argument that leave of the court to proceed with the Application can be taken to have been jointly sought and impliedly granted[9].

46.  The Creditor contends, nevertheless, that the absence of leave did not render the proceedings before the Master a nullity, and those proceedings are capable of redemption by granting leave retrospectively. The Creditor submits that retrospective leave should now be granted by the Court of Appeal having regard to the fact that the Debtor filed 4 affirmations after the bankruptcy order, was represented by 3 counsel, accepted the Master’s jurisdiction, and argued the Application substantively. According to the Creditor, had the Debtor raised the issue of jurisdiction at the hearing before the Master, leave or retrospective leave could have been sought to cure the irregularity, and there was no reason why leave would not have been given. As for the power of the Court of Appeal to grant retrospective leave at this stage of the proceedings, the Creditor relies on s 13(4) of the HCO, which provides that for the purposes of and incidental to the hearing and determination of any appeal to the Court of Appeal, the Court of Appeal shall have “all the authority and jurisdiction of the court or tribunal from which the appeal was brought”.

47.  That the court has power, in appropriate circumstances, to grant retrospective leave to commence or proceed with an action or other legal proceedings under s 12(1) is not in doubt: see Re Chung Wo Construction Co Ltd, HCCW 104/1997 (28 July 1999), where Ribeiro J (as he then was) granted an employee retrospective leave to commence a common law action for personal injuries against his employer (in liquidation) under s 186 of the Companies Ordinance[10]. In granting retrospective leave, Ribeiro J followed the approach of Lindsay J in Re Saunders (A Bankrupt) [1997] Ch 60, where the learned judge, after a careful review of a long line of English and Commonwealth authorities stretching back to the nineteenth century, declined to follow the judgments of Milmo J in Wilson v Banner Scaffolding Ltd (The Times, 22 June 1982) and of Rattee J in Re National Employers Mutual General Insurance Association Ltd [1995] 1 BCLC 232 (to the effect that proceedings commenced without leave of the court against a company in liquidation were a nullity and the court had no power to grant retrospective leave to validate such proceedings), and held instead that the court had power to grant retrospective leave under s 285(3) of the Insolvency Act 1986[11] in appropriate circumstances.

48.  The first question for consideration in the present case is whether the Master could properly have granted the Creditor leave to proceed with the Application at the hearing on 15 March 2021 had the issue of jurisdiction been raised by the Debtor at that time. The following provisions are relevant for the purpose of the present discussion:

(1)  Under s 12(1), the power to grant leave to proceed is vested in the “court”.

(2)  Section 2 provides that, unless the context otherwise requires, “court” means “the Court of First Instance sitting in its bankruptcy jurisdiction”.

(3)  “Court of First Instance” is defined in s 3 of the Interpretation and General Clauses Ordinance, Cap 1, and also in s 2 of the HCO to mean “the Court of First Instance of the High Court”.

(4)  Section 4(1) of the HCO provides that the Court of First Instance shall consist of (a) the Chief Judge of the High Court, (b) such judges as the Chief Executive may appoint, (ba) such recorders as the Chief Executive may appoint, and (c) such deputy judges as the Chief Justice may appoint.

(5)  Rule 6(a) of the Bankruptcy Rules, Cap 6A, provides that –

“Subject to the provisions of the Ordinance and rules – (a) the Registrar may under the general or special directions of a judge hear and determine any application or matter which under the Ordinance and rules may be heard and determined in chambers”.

(6)  §4.1 of Practice Direction 3.1 (Bankruptcy and Winding-up Proceedings) provides that –

“4. Applications to Masters in bankruptcy proceedings

4.1 The following applications may be heard and determined by a Master in chambers under Rule 6(a) of the Bankruptcy Rules:

(a) for leave to continue or commence proceedings against a debtor under Section 12(1) of the Bankruptcy Ordinance”.

49.  Hence, a Master in a properly constituted application under s 12(1) would have power to grant leave (including retrospective leave) to proceed with or commence any action or other legal proceedings against a debtor who has been adjudged bankrupt. Thus, in Re Lam Siu Wing [2014] 6 HKC 333 (HCB 7991/2009, 6 February 2014), Master Herbert Au-Yeung granted retrospective leave to proceed with/commence an application for employees’ compensation/common law action for damages for personal injuries in the District Court. At §20 of his decision, Master Herbert Au-Yeung made the following observation –

“… the Official Receiver suggested that these matters should be referred back to the trial judges for their decision as to whether the irregularity of the judgments may be waived and that if the irregularity is so waived, no section 12 leave is required. I do not accept that this is a proper way ahead. Pursuant to section 2 of the Bankruptcy Ordinance, ‘court’ has been defined to mean ‘the Court of First Instance sitting in its bankruptcy jurisdiction’. In other words, section 12 leave has to be sought from the Court of First Instance. The trial judges hearing the EC Proceedings and the Common Law Claim cannot ‘rectify’ their judgments as such. If that can be done, it is the Court of First Instance sitting in its bankruptcy jurisdiction which would be bypassed. This cannot be right.”

50.  These having been said, in an application for leave under s 12(1), the Official Receiver (or trustee in bankruptcy of the bankrupt), who is an officer of the court and can provide relevant information concerning the estate, creditors and debtors of the bankrupt, as well as the general status of the bankruptcy, would be a proper and necessary party. In our view, if the Debtor had raised the issue of jurisdiction at the hearing on 15 March 2021, the Master could not properly have granted the Creditor leave to proceed with the Application in the absence of a properly constituted application being taken out by the Creditor under s 12(1).

51.  As for the question of whether the Court of Appeal should now grant retrospective leave to the Creditor to proceed with the Application, we do not have a full picture of the Debtor’s assets and liabilities or the status of the Debtor’s bankruptcy. Such information would plainly be relevant for a proper exercise of the court’s discretion whether to grant leave under s 12(1). We also do not have the benefit of the Official Receiver’s views on whether leave to proceed should be given. In the circumstances, we would not be minded to exercise any power that the Court of Appeal may have to grant retrospective leave under s 12(1). Lastly, we do not see any good or sufficient reason to direct that retrospective leave be sought from the Bankruptcy Court as now belatedly suggested by the Creditor in the 2^nd Supplemental Skeleton of the Respondent dated 24 November 2023[12].

GROUND 1: WHETHER THE MASTER FAILED TO FOCUS ON THE DEBTOR’S WILFUL FAILURE TO MAKE FULL DISCLOSURE AT THE EXAMINATION

52.  In view of the conclusion that we have reached on Ground 2, we can deal with Ground 1 more briefly.

53.  The Debtor’s complaint under this ground is, in gist, that the Master, instead of properly focusing on whether the Debtor had wilfully failed to make a full disclosure or answer all the questions put to her at the Examination Hearing, erroneously focused on the Debtor’s conduct before and after the Examination Hearing[13]. In our view, the Debtor’s complaint is not justified when the Decision is read in its proper context.

54.  We accept, as a matter of construction of Order 49B, rule 1B(1)(c), that the court may make an order for the imprisonment of a judgment debtor only if the judgment creditor has wilfully failed to make a full disclosure as required under rule 1A(2), or answer any question, at the examination[14]. In other words, the court should focus on whether, during the examination, the debtor wilfully failed to disclose or answer any question.

55.  However, when considering the Debtor’s complaint under this ground, it is important to have regard to the way in which the Debtor defended the Application before the Master and the issues which were raised for determination by the Master at the hearing. There was no dispute that the Debtor had failed to make a full disclosure at the Examination Hearing as required under Order 49B, rule 1A(2). Although the Debtor stated in the 1^st Affirmation that she had fully complied with the Disclosure Order, she admitted, in her subsequent affirmations, that she had failed to give a full disclosure[15]. As a matter of fact, she disclosed more than 1,600 pages of documents after the Examination Hearing which she ought to have disclosed under the Disclosure Order. Since (i) she was required to make a full disclosure of all her assets, liabilities, income and expenditure and of the disposal of any assets or income at the Examination Hearing under Order 49B, rule 1A(2), and (ii) the documents which she had been ordered to disclose under the Disclosure Order plainly fell within the scope of this rule, there could not have been any doubt that the Debtor had, as a matter of fact, failed to make a full disclosure at the Examination Hearing as required under Order 49B, rule 1A(2).

56.  As recorded by the Master at §50 of the Decision:

“Mr Wong SC conceded at the hearing that the judgment debtor had breached the Disclosure Order and the Compliance Order. He only contended that such breaches were not intentional.”

It was no part of the argument of Mr Wong, SC (the Debtor’s former counsel) before the Master that although the Debtor had breached the Disclosure Order, such breach had been remedied prior to the Examination Hearing such that there was no longer any failure to make a full disclosure as required under Order 49B, rule 1A(2) by the time of the Examination Hearing. At the hearing of the present appeal, Mr Tse, SC also accepted, on behalf of the Debtor, that she had failed to make a full disclosure as required at the Examination Hearing.

57.  In our view, the Master was fully justified to find, at §51 of the Decision, that “there is no doubt whatsoever that the judgment debtor had failed to make a full disclosure as required under Order 49B rule 1A(2) of the RHC. The only issue is whether the non-disclosure was ‘wilful.’”

58.  In relation to the issue of whether the Debtor’s failure to make a full disclosure at the Examination Hearing was “wilful”, the Debtor put forward a variety of explanations or excuses for her failure, including that (i) her secretary, on whom she relied to keep and store documents, was sick in January and February 2019; (ii) her former solicitors, on whom she relied to “sort out” the bank statements, gave her wrong advices, including that it was sufficient to produce bank statements for 1 year (even though the Disclosure Order expressly required the Debtor to disclose passbook and bank statements of all bank accounts in Hong Kong and elsewhere maintained by the Debtor in her sole name or jointly with any other person or of any firm or business of which she was the sole proprietor or a partner for a period of 3 years), and (iii) she had been suffering from depression since April 2012. These explanations or excuses were carefully considered but rejected by the Master[16]. At §§98-101 of the Decision, the Master set out his conclusion as follows:

“Conclusion on whether the failure to disclose was wilful

[98] At the hearing on 15 April 2019 for the Compliance Order, the judgment debtor’s then counsel informed the court that the judgment debtor had further documents to disclose in compliance with the Disclosure Order. At that hearing, Master Ho had reminded the judgment debtor through her counsel that if the judgment debtor failed to comply with the Disclosure Order, she might be imprisoned under Order 49B and being cited for contempt. The judgment debtor’s then counsel confirmed to the court that the judgment debtor understood the effect of the Disclosure Order and the possible consequences stipulated in the Disclosure Order …

[100] From the email sent by the judgment debtor’s then counsel to her on 28 January 2019 exhibited to JD’s 4^th Affirmation and what the judgment debtor’s then counsel told the court at the hearing of 15 April 2019, it was clear that the judgment debtor clearly knew that she had not made full disclosure under the Disclosure Order in January 2019. Yet, the judgment debtor affirmed JD’s 1^st Affirmation on 25 April 2019 confirming that she had fully complied with the Disclosure Order without disclosing further documents. I agree with the judgment creditor that the judgment debtor ‘in fact deliberately made a false statement on oath, in defiance of the Disclosure Order and the Compliance Order ([22] of JC’s Supporting Affidavit).’ (Original italic)

[101] The judgment debtor made no further disclosure until filing of JD’s 3^rd Affirmation almost one year after the Examination Hearing. The further documents disclosed in JD’s 3^rd and 4^th Affirmations were very substantial. The judgment debtor’s failure to fully disclose pursuant to the Disclosure Order could not be accepted as casual, accidental or unintentional. It was nothing but wilful.”

59.  Having regard to the Master’s rejection of all the explanations or excuses given by the Debtor for her failure to make a full disclosure at the Examination Hearing, the Master’s finding at §101 of the Decision that the Debtor’s failure was “nothing but wilful” must, we consider, be read as a finding of “wilfulness” on the part of the Debtor at the Examination Hearing.

60.  The Debtor’s complaint that the Master wrongly considered her conduct before and after the Examination Hearing is misplaced. The Master was entitled to consider matters, including the Debtor’s conduct, occurring before or after the Examination Hearing which were evidentially relevant to the central question to be determined, namely, whether the Debtor had wilfully failed to make a full disclosure as required under Order 49B, rule 1A(2) at the Examination Hearing.

61.  For the sake of completeness, we would add that even if the Debtor’s complaint under Ground 1 is justified in the sense that the Master failed to focus on the Debtor’s conduct and state of mind at the Examination Hearing, on the basis of the undisputed and indisputable facts in the present case, we would have no hesitation in finding that (i) the Debtor failed to make a full disclosure as required under Order 49B, rule 1A(2), and (ii) her failure was wilful, at the Examination Hearing.

62.  In all, Ground 1 is rejected.

DISPOSITION

63.  The Debtor’s appeal is allowed, the Order of Master Lai dated 27 October 2021 is set aside, and the Creditor’s Application for an order for the imprisonment of the Debtor is dismissed.

64.  In relation to the costs of the Application below, in view of the fact that (i) the Creditor was entitled to make and proceed with the Application prior to the date on which the Debtor was adjudged bankrupt, and (ii) no issue was taken by the Debtor concerning the Master’s jurisdiction to make an order for imprisonment under Order 49B, rule 1B(1)(c)[17], we consider that the fair order to make would be (i) the Creditor shall have the costs of the Application up to the date of the Debtor’s bankruptcy on 22 April 2020, to be taxed if not agreed (with certificate for counsel, if necessary), and (ii) there be no order as to costs as from 23 April 2020. We so order.

65.  In relation to the costs of the appeal, in view of the fact that (i) the Creditor has failed under Ground 1, and (ii) Ground 2 was only raised by way of re-amendment of the Notice of Appeal on 21 April 2023, we order the Creditor to pay 50% of the Debtor’s costs of the appeal (including the costs of the application before Master Phoebe Man on 27 October 2021 for stay of execution pending appeal), to be taxed if not agreed, with certificate for 2 counsel.

66.  The costs orders mentioned in §§64 and 65 above are orders nisi, which shall become absolute unless an application is made to vary the same within 14 days from the date of this judgment.