CHEUNG WING KWAN, TOMMY v. HONG KONG EXPORT CREDIT INSURANCE CORPORATION AND OTHERS

(English Translation – 英譯本)
HCMP 1856/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO.1856 OF 2011

(ON INTENDED APPEAL FROM DCCJ NO. 923 OF 2011)

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JUDGMENT

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

1.  The applicant, Mr Cheung Wing Kwan Tommy, is the plaintiff in District Court Action No. 923 of 2011. On 11 March 2011, he commenced proceedings in the District Court against Hong Kong Export Credit Insurance Corporation (hereinafter “ECIC”) and two employees thereof, claiming a sum of $859,326.09. On 12 April 2011, the three defendants took out a summons, applying to strike out Mr Cheung’s claim on the ground that he had no locus standi, which rendered the proceedings frivolous, vexatious or an abuse of process.

2.  On 30 June 2011, District Judge H. C. Wong allowed the defendants’ application and struck out Mr Cheung’s claim with costs to be taxed.  Mr Cheung sought leave from Judge Wong to appeal to the Court of Appeal against the said decision.  On 8 September 2011, Judge Wong refused to grant leave and ordered Mr Cheung to pay the defendants’ costs of the application assessed at $18,000.  Mr Cheung made the present application on 22 September 2011, seeking leave to appeal to this Court against Judge Wong’s decisions of 30 June and 8 September 2011.  He filed a supporting affirmation with a five-page statement attached thereto.  The defendants lodged a statement in opposition on 11 October 2011.

3.  Pursuant to O. 59 r. 2A(5)(a) of the Rules of the High Court, this Court may determine such an application without a hearing on the basis of written submissions only.  We consider it appropriate to deal with Mr Cheung’s application on the basis of the documents submitted.  In dealing with this application, we have not only taken into account Judge Wong’s two judgments and the above statements submitted by the parties, but have also reviewed all the documents filed with the court below.

4.  Section 63A(2) of the District Court Ordinance (Cap. 336) provides that leave to appeal shall not be granted unless this Court is satisfied that (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.

Mr Cheung’s claim

5.  We begin by outlining Mr Cheung’s claim and the relevant factual background.

6.  Mr Cheung used to be the proprietor of W. K. Cheung & Co., a business he had run for 37 years until October 2005 when he filed a bankruptcy petition in the High Court.  A bankruptcy order was made against him on 15 November 2005 and discharged on 15 November 2009.

7.  Mr Cheung asserted that his business failed because the ECIC had acted in breach of contract and shirked its responsibility to pay compensation under the relevant insurance. He therefore commenced proceedings against the ECIC and its two employees Ms Li and Mr Siu, claiming various sums including $132,119.09 being the insured amount, $720,000 being his living expenses over the four-year bankruptcy period, and the costs payable by him.

8.  The insurance in question was a Comprehensive Export Cover Policy signed on 1 September 2004 (hereinafter “the Policy”), which provided coverage to the insured party who sold goods to overseas buyers on credit terms, against the risk of not receiving payment.  Mr Cheung claimed that before signing the Policy, he had indicated to Ms Li, an employee of the ECIC, that he would not accept Clause 22, which stipulated that where an overseas buyer disputed the liability to pay, the ECIC would not pay any compensation unless the insured party obtained a final and enforceable judgment against the buyer in the  country in which the buyer was located, or resolved the dispute in such other way as agreed to by the ECIC.   Ms Li promised at that time that as long as the insured party delivered the goods as per the order, the ECIC would assume the responsibility to pay compensation. Mr Cheung stated that it was on the basis of that oral promise that he took out the insurance with the ECIC.

9.  In June 2005, Mr Cheung sold goods to a buyer in the USA, on “60-day D/A” terms.  When payment became due, however, the buyer refused to pay, claiming that the direction of the moveable hooks on the packaging of the goods was wrong.  Mr Cheung negotiated with the buyer but to no avail.  He then filed a claim on the Policy with the ECIC in August 2005.  According to Mr Cheung, Ms Li had repeatedly promised him that compensation would be paid out by Christmas, but she had not kept her promise.  Mr Cheung also claimed that Mr Siu, another staff member of the ECIC, recommended to him a debt-collecting company in the USA for the purpose of recovering the debt from the buyer, and that Mr Siu said that the company would only require one-time payment for its work and that it would not be necessary for Mr Cheung to personally travel to New York to attend the court hearing.  In fact, the debt-collecting company eventually required him to provide extra funds in order to proceed with the litigation and requested him to personally attend the hearing in New York.

10.  As Mr Cheung failed to recover the debt from the buyer or obtain compensation from the ECIC, he was unable to repay the bank loans and had no alternative but to wind up his business and petition for bankruptcy.

11.  Mr Cheung claimed that he had been misled by Ms Li of the ECIC into signing the insurance contract.  He also argued that Clause 22 of the Policy contravened section 5 of the Unconscionable Contracts Ordinance (Cap. 458).  He alleged that, by reason of Ms Li’s failure to keep her promise and misrepresentations by Mr Siu, he had become bankrupt and suffered loss and damage.

12.  By Mr Siu’s affirmation of 21 April 2011, the ECIC submitted the email correspondences between the parties and relevant documents, and categorically denied Mr Cheung’s allegations.

The judgment striking out the claim

13.  The main ground of the defendants’ application to strike out Mr Cheung’s claim was that he did not have the right to sue, which had been vested in the Official Receiver as trustee in bankruptcy.  The defendants submitted that Mr Cheung proceeded with the claim without obtaining the Official Receiver’s consent.  His application for legal aid was unsuccessful, and no creditor was willing to financially support his claim against the ECIC.  His claim therefore could not proceed.  The defendants submitted that Judge Wong was only required to focus on the question of who had the locus standi and was not required to assess Mr Cheung’s allegations or the defendants’ denial.

14.  On 15 June 2011, Judge Wong heard the defendants’ application.  Accepting the Hong Kong and Australian cases cited by counsel for the defendants (which will be discussed below), the Judge took the view that notwithstanding the discharge of the bankruptcy order, the right to sue was still vested in the Official Receiver, whose consent Mr Cheung must obtain before he could proceed with his claim.  On Mr Cheung’s request, Judge Wong adjourned the hearing to 30 June 2011 to give him an opportunity to obtain the Official Receiver’s consent.

15.  On 28 June 2011, the Official Receiver’s Office wrote to the court, clearly stating its position that the Official Receiver would not consent to Mr Cheung’s claim or assign the relevant right of action to Mr Cheung unless the Office was satisfied that the claim was meritorious and that there was sufficient security to pay all necessary costs of the claim and to indemnify the liability to pay the defendants’ costs should the claim fail.  The position taken by the Office was supported by a Court of Appeal decision (Koh Kee Suan Andrew v. Ip Kay Lo Vincent [2001] 3 HKLRD 439).

16.  By the time of the hearing on 30 June 2011, Mr Cheung still failed to obtain the Official Receiver’s consent.  Judge Wong struck out his claim on the basis of the above binding authority of the Court of Appeal.  In her judgment of 8 September 2011 dismissing Mr Cheung’s application for leave to appeal, Judge Wong reiterated that the claim was struck out because Mr Cheung did not have the right to commence the action and that had nothing to do with whether his overseas buyer was entitled to refuse payment.

Application for leave to appeal

17.  In the statement in support of his application, Mr Cheung puts forward the following seven grounds of appeal:

(1) The bases of his claim were that the ECIC had misled him or made misrepresentations and that Clause 22 of the Policy was unreasonable.  He says that the court had in principle agreed with the bases of his claim, hence the defendants’ allegation regarding abuse of process could not stand and the court was not entitled to strike out the claim.

(2) The defendants had never actually paid any compensation.  His claim had nothing to do with the debts with which the Official Receiver as trustee was concerned.  The defendants’ act of putting up the Official Receiver’s Office as an excuse was both unreasonable and an unjustified abuse of power against the plaintiff.

(3) It was wrong for the defendants to rely on section 30A(8) of the Bankruptcy Ordinance (Cap. 6) to show that the functions of the Official Receiver as trustee continued to apply to the plaintiff upon the discharge of the bankruptcy order.

(4) Section 32(2) of the Bankruptcy Ordinance stipulates that where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, with the exception of fines, secured debts and damages for personal injuries.  Section 32(8) also provides that the discharge releases the bankrupt from liabilities.

(5) Section 58 of the Bankruptcy Ordinance, which was relied on by the Official Receiver, was not applicable to the present case because the right of action had not been vested in the trustee, who was not entitled to abuse his power after the bankruptcy order was discharged.

(6) It is a contravention of Article 35 of the Basic Law and Articles 10 and 11 of the Hong Kong Bill of Rights to make use of other ordinances to punish a discharged bankrupt.

(7) The defendants should bear costs as they had misled him and failed to pay compensation in accordance with the insurance contract.

Discussion

18.  We have examined the record of the proceedings before the lower court.  Mr Cheung alleges that Judge Wong had in principle agreed with the bases of his claim, but in fact the judge had never made such a ruling.  In any event, this allegation has no relevance to the core question of whether Mr Cheung’s claim should be struck out.

19.  Mr Cheung’s interpretation of sections 30A(8), 32(2), 32(8) and 58 of the Bankruptcy Ordinance is incorrect.  These provisions, together with the other relevant provisions (sections 2, 12 and 61(b)), have received clear interpretations by the courts in Hong Kong and Australia.  In interpreting statute law, the wording of the provision cannot be taken too literally, and very often reference must be made to relevant judicial decisions.

20.  In interpreting the relevant provisions of the Bankruptcy Ordinance, which are similar to those of the Australian bankruptcy legislation, the Australian judicial decisions provide valuable assistance.  For present purposes, the relevant Australian cases include Official Receiver v. Shultz (1990) 96 ALR 327 (the High Court of Australia), Daemar v. Industrial Commission of New South Wales & Anr. (No. 2) (1990) 99 ALR 789 at 795 (the Supreme Court of New South Wales), Gosden & Anr. v. Dixon & Anr. (1992) 107 ALR 329 (the Supreme Court of New South Wales), and Samootin v. Shea [2010] NSWCA 371 at paras. [92] to [98] (the Supreme Court of New South Wales).  As to the relevant Hong Kong cases, they include two Court of Appeal cases (Dr Paul Ki Ping Ki v. Next Magazine Publishing Ltd, CACV 33/2004, 4/11/2004, at para. 7; Lau Kwong Hing v. Luk Chi Keung & Wan Chun Yee, CACV 10/2005 & CACV 200/2005, 21/3/2011, at paras. 7 and 8) and one Court of First Instance case (Re Cheung Tak Wah (a bankrupt), HCB 4980/2004, 18/8/2009, at paras. 23 to 27).

21.  The legal principle established by the above cases and the relevant statutory provisions is that, upon the making of a bankruptcy order, the property of the bankrupt shall vest in the Official Receiver, who will hold the property first as provisional trustee and then as trustee.  If a person other than the Official Receiver is appointed as provisional trustee or trustee, the property shall forthwith pass to and vest in the person so appointed (section 58).  The property of the bankrupt vested in the Official Receiver shall include the bankrupt’s right to sue in respect of certain causes of action at the commencement of the bankruptcy, namely on the day of the bankruptcy order (sections 2, 43(1) and 30), with the exception of rights of suit involving claims for damages for personal injuries and defamation (Chung Kau v. Hong Kong Housing Authority & Ors. [2004] 2 HKLRD 650 at paras. 6 to 8).  The cause of action in the present case already existed by the time of the making of the bankruptcy order.  It was purely related to a financial dispute and did not involve personal injuries or defamation.  Therefore, the right of action was vested in the Official Receiver.

22.  The property vested in the trustee in bankruptcy is not returned to the bankrupt upon the automatic discharge of the bankruptcy order.  Although the discharge releases a bankrupt from all the bankruptcy debts (subject to section 32(1), (3) and (8)), it has no effect on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of the Bankruptcy Ordinance (section 32(2)).  Consequently, following the discharge of the bankruptcy order, the trustee is still under a duty to complete the administration of the bankrupt’s estate, including realising all realisable property vested in the trustee and distributing the proceeds to the creditors (Gosden & Anr. v. Dixon & Anr. ; Re Balhorn, ex parte Balhorn and Official Trustee (1981) 39 ALR 223).  As for the bankrupt, notwithstanding the discharge of the bankruptcy order, he is still under a legal duty to continue to assist the trustee in completing the administration of the estate, including realising the property vested in the trustee and distributing the proceeds to the creditors (section 30A(8); Re Balhorn, ex parte Balhorn and Official Trustee; Re Waters, ex parte Waters (1874) LR 18 Eq 701).

23.  Applying the above legal principles, the right of action in the present case did not revert to Mr Cheung upon the discharge of the bankruptcy order.  There is no question of any abuse of power on the part of the trustee or any breach of Hong Kong law.  The Official Receiver had every reason not to consent to Mr Cheung’s claim or assign the right of action to Mr Cheung.  Judge Wong’s decision is correct beyond doubt.

Conclusion

24.  Mr Cheung’s intended grounds of appeal have no reasonable prospect of success.  Nor is there some other reason in the interests of justice why the appeal should be heard.  Accordingly, we refuse to grant leave to Mr Cheung. Pursuant to O. 59 r. 2A(8), we also make an order that he may not under r. 2A(7) request the Court to reconsider his application at an inter partes hearing.

25.  The defendants have asked for costs of this application, assessed by way of gross sum assessment at $29,506.  We find the application reasonable and make an order nisi that Mr Cheung do pay the three defendants’ costs of this application, assessed on an indemnity basis and by way of gross sum assessment at $29,506.  If no written application is made to vary this costs order nisi within 14 days from the date hereof, the order nisi shall become absolute.  We also direct that Mr Cheung shall submit to this Court a statement in opposition within 14 days of this order if he has any dispute as to the amount of costs sought by the defendants.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. Edmund Cham, Solicitor.