KWOK HIU CHUN DAMIEN v. THE OFFICIAL RECEIVER

CACV 59/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 59 OF 2017

(ON APPEAL FROM HCB NO. 5440 OF 2012)

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REASONS FOR JUDGMENT

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Hon Cheung JA :

I. The appeal

1.1   A bankruptcy order was made on 25 September 2012 against the bankrupt based on his own petition for bankruptcy.  The bankrupt applied under section 43D of the Bankruptcy Ordinance (Cap 6) (‘BO’) to exclude the amount of $85,625.94 paid out by his employer, the MTR Corporation Limited (‘MTRC’), to him as long service award from his estate for the purpose of the BO (‘the exclusion application’).  The exclusion application was refused by Master Simon Lo.  Pursuant to extension of time granted by Anthony Chan J, the bankrupt appealed against the decision of Master Lo. 

1.2   The Master’s jurisdiction to hear the application is under Practice Direction 3.1 on Bankruptcy and Winding-Up Proceedings.  Para 3.1(j) confers jurisdiction to hear the exclusion application. Section 98(2) of the BO provides for the Court of Appeal to hear appeals from the exclusion application.  This Court heard the appeal without the benefit of a reasoned decision by the Master as he did not provide such a decision and the parties did not request one.  This is unsatisfactory. On appeal to this Court, a reasoned decision from below should always be provided.

1.3    We dismissed the appeal at the conclusion of the hearing.  We ordered the bankrupt to pay the OR the costs of the appeal and the application for extension of time.  Such costs (together with the costs of HCMP 2074/2016) are to be taxed by the taxing master.

1.4   I now give reasons for our decision.

II. Background

2.1   The bankrupt was an employee of MTRC between 15 November 2005 and 18 February 2014.  On 1 July 2009, he elected to change from the Mandatory Provident Fund Scheme (‘MPF Scheme’) under the Mandatory Provident Fund Schemes Ordinance (Cap 485) (‘MPFSO’) to the MTRC Provident Fund Scheme (‘P Fund Scheme’) under the Occupational Retirement Schemes Ordinance (Cap 426) (‘ORSO’).  The bankrupt applied for early retirement from MTRC and his last day of employment was 18 February 2014.

2.2   The bankrupt later received a payment advice concerning the P Fund Scheme which showed that he had an accrued benefit of $159,405.76.  This sum is apportioned into two parts, a sum of $85,625.94 (‘the Sum’) was payable to him as long service payment and a sum of $73,779.82 which was stated to be benefit to be preserved under the Minimum MPF Benefits Rules.

2.3   On 25 February 2014, the bankrupt signed a receipt acknowledging receipt of the Sum as full payment from MTRC of the long service payment in accordance with the Employment Ordinance (Cap 57) (‘EO’).

2.4   The receipt also stated that:

‘ I understand that in accordance with the relevant statutory provisions and the governing rules of the [P Fund Scheme], my vested benefit in the [P Fund Scheme] that is attributable to the Employer’s contributions will be used to offset the amount of Long Service Payment paid by the Employer (the maximum amount of the vested benefits which can be used for offset is the amount of Long Service Payment paid).’

2.5   The Official Receiver (‘OR’) gave notice to claim, among other things, the Sum for the bankrupt’s estate on the basis that it was property acquired by him after the commencement of his bankruptcy.  On 6 March 2014, the bankrupt paid the Sum to the OR.

2.6   On 4 February 2016, Master Lo dismissed the bankrupt’s application to exclude the Sum from his estate.

Statutory retirement benefit schemes

3.1  There are two statutory schemes on employee retirement benefit.  One is under the MPFSO. The other is under ORSO.  Under section 5 of the MPFSO, the Mandatory Provident Fund Schemes Authority may issue a certificate of exemption exempting the members of an occupational retirement scheme and their employer from the provisions of the MPFSO.

3.2   Provisions relating to the exemption are found in the Mandatory Provident Fund Schemes (Exemption) Regulation (Cap 485 sub leg B) (‘the Exemption Regulation’).

3.3   Where a scheme under the ORSO is exempted from the MPFSO, it is subject to Schedule 2 of the Exemption Regulation which contained mandatory conditions applicable to the exempted ORSO scheme (section 17 of the Exemption Regulation).

3.4   Section 4 of Schedule 2 of the Exemption Regulation requires the preservation of ‘minimum MPF benefits’, the calculation of which is set out in section 1 of Schedule 2.  Under section 5 of Schedule 2, the trustee of the scheme shall transfer the ‘minimum MPF benefits’:

‘ (a) to a registered scheme in which the member’s new employer is a participating employer; or

(b) to a master trust scheme or an industry scheme, nominated by the member, that accepts transfers of minimum MPF benefits.’

3.5   Under section 6 of Schedule 2, among other things, the employee who has attained retirement age ‘shall be entitled as of right to have paid to him by the trustee of the scheme the entirety of his minimum MPF benefits in the scheme in a lump sum.’

3.6   Under section 15 of the Exemption Regulation, an employee may elect to change his retirement benefit scheme from the MPFSO to ORSO.

3.7   Under both the MPFSO (section 12A) and ORSO (section 70A), there are provisions which allowed the employer to set off from the accrued benefits, long service award/severance payment payable by the employer to the employee upon the termination of the employer’s employment under the EO.  In other words, the employee will not receive on retirement both his statutory benefit accrued on the one hand and long service award/‌severance payment on the other hand.

Section 16 of MPFSO and its application

4.1   This appeal was determined on a short point.  The exclusion application was based solely on section 16 under Part 3 of the MPFSO.  It provides that:

‘16. Protection of accrued benefits

(1) No part of any accrued benefits in a registered scheme in respect of a scheme member shall be taken in execution of a judgment debt or be the subject of any charge, pledge, lien, mortgage, transfer, assignment or alienation by or on behalf of the scheme member and any purported disposition to the contrary is void.

(1A) To avoid doubt, if a scheme member is adjudicated bankrupt, the right or entitlement of the scheme member to any accrued benefits in a registered scheme is excluded from the property of the scheme member for the purposes of the Bankruptcy Ordinance (Cap 6).’

4.2   Had the bankrupt received the accrued benefits under the MPFSO then this section will exclude them as his property for the purpose of the BO.  However, the bankrupt did not receive his accrued benefit under the MPFSO because he had elected to join the P Fund Scheme which is governed by the ORSO and not the MPFSO. Specifically, section 6 of the Exemption Regulation excludes the operation of section 16 of the MPFSO.  It provides that :

‘ 6. Effect of exemption certificate

 Without prejudice to the operation of section 3, the effect of an exemption certificate is that the existing members and new members of the ORSO exempted scheme to which the certificate relates, and the relevant employer of the scheme, are each exempt from Part 3 of the Ordinance.’

4.3   The exclusion provision of section 16 is within Part 3 of MPFSO.  As a result, section 16 is plainly not applicable and the bankrupt has no basis to lodge his exclusion application. This provides a complete answer to the bankrupt’s exclusion application and to this appeal.  This point cannot be overcome by Mr Wong’s submission that section 6 of the Exemption Regulation is not applicable to the OR. In my view, this is irrelevant because of the wording of section 6 : it affects the bankrupt directly because he is exempted from the exclusion provisions.

4.4   The minimum MPF benefits, however, are excluded from the bankrupt’s estate by virtue of section 16 of MPFSO because of its nature as an MPF benefit. 

Other matters

5.  It is not necessary for the purpose of this appeal to consider the other points by Mr Wong concerning the interpretation of section 16 and the calculation of the minimum MPF benefits.  The latter point was not even raised in the exclusion application.

Hon Kwan JA :

6.  I agree with the Reasons for Judgment of Cheung JA.

Hon Poon JA :

7.  I agree.