RE TAN KIN, GEORGE

HCB 1873/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 1873 OF 2003

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D E C I S I O N

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Introduction

1.  This is an application by summons for payment out of a sum of $936,850.73 (“Payment-out Application”) paid into Court on 24 August 2009 by the joint and several trustees in bankruptcy (“Trustees”) of the debtor (“Debtor”).

2.  The applicant (“Applicant”) is the petitioner in HCB 1873/2003 and judgment creditor of the Debtor in HCA 423/2001.  It is a company incorporated in the British Virgin Islands (“BVI”) on 7 June 1995.  It was struck off from the companies registry of BVI 1 November 2001, but restored on 14 August 2009 for the purposes of the present litigation.  Originally, it was a wholly owned subsidiary of a company listed in Australia, holding all of its 1,000 issued shares.  The Australian company changed its name on a number of occasions and is currently known as “Australia China Holding Limited” (“ACHL”). At the time of incorporation of the Applicant, Chiu Hon Sang Nelson (“Chiu”) and Choi Chung Bun Vincent (“Choi”) were its first directors.

3.  On 23 January 2001, the Applicant instituted proceedings in HCA 423/2001 against the Debtor and obtained judgment which led to the Debtor’s bankruptcy on 26 March 2003.  The Trustees were appointed trustees of the estate of the Debtor.

4.  On 22 December 2008, the Trustees paid the first dividend of $1,647,029.89 to the Petitioner by way of handing over a cheque to Choi, who signed receipt for and on behalf of the Petitioner.  At that time, the Petitioner had been struck off the companies registry of BVI and had no bank account in Hong Kong.  Choi incorporated a company in Hong Kong with an identical name as the Applicant (“SCE-HK”).  The only difference is that SCE-HK was incorporated and registered in Hong Kong, whereas the Applicant was incorporated and registered in BVI.  Choi banked the cheque into the bank account of SCE-HK.

5.  The Applicant, or more precisely the Applicant under the control of Chiu, was unaware of the distribution of the first dividend until around 12 June 2009 and had since raised its concern with the Trustees, through its solicitors.  At about the same time, the Trustees were ready to distribute the second dividend. 

6.  On 7 August 2009, the Applicant took out a summons under HCB 1873/2003 seeking, inter alia, investigation of the conduct of the Trustees under section 84 of the Bankruptcy Ordinance (“Section 84 Summons”).  In view of the dispute between Chiu and Choi about ownership or control of the Applicant, the Trustees took out an interpleader summons to apply, inter alia, for the second dividend to be paid into court (“Interpleader Summons”).

7.  On 18 August 2009, the matters first appeared before me.       I ordered the Section 84 Summons to be stayed.  In respect of the Interpleader Summons, I ordered payment of the second dividend into court and adjourned the Interpleader Summons sine die.  On 21 August 2009, the Applicant commenced proceedings in HCA 1806/2009 against Choi and SCE-HK to recover the first dividend and to seek other remedies.  On 24 August 2009, the Trustees paid the second dividend into court.

8.  In HCA 1806/2009, Choi alleged that the first dividend was applied to pay director’s remuneration due from the Applicant to      himself and to another director, Yang Wei Ping (“Yang”).  He also alleged that through Metropolis Enterprises Limited (“MEL”) and SCE-HK,        he beneficially owned 80% of the issued share capital of the Applicant.   He asserted that the institution of the action against him and SCE-HK    had not been properly authorized by the board of directors of the Applicant.  He challenged the authority of the Applicant’s solicitors in representing  the Applicant.   

9.  On 21 January 2010, Au J ordered the question whether   HCA 1806/2009 was instituted without the authority of the Applicant be tried as a preliminary issue.

10.  On 8 February 2010, I ordered, by consent, that the Section 84 Summons be adjourned sine die with liberty to restore for further directions pending the final determination of HCA 1806/2009 and the Trustees’ Interpleader Summons be withdrawn.  The second dividend paid into court previously remained in court.

11.  The preliminary issue was tried before Mr Recorder Chow SC on 1 to 3 December 2010.  Judgment was then reserved.  On 8 February 2011, Mr Recorder Chow delivered judgment in favour of the Applicant, holding that the action was commenced with the authority of the Applicant.

12.  On 22 February 2011, the Applicant took out the Payment-out Application under HCB 1873/2003 seeking payment out of the second dividend now standing in court to the Applicant.

13.  On 25 February 2011, Choi filed a notice of appeal against  the judgment of Mr Recorder Chow SC.

Basis of the Payment-out Application and Choi’s grounds of objection

14.  Apparently, the Applicant’s solicitors were not sure of the basis on which the Payment-out Application was made.  Initially, the application was taken out under sections 67, 72, 73, 83, 84 and 88 of the Bankruptcy Ordinance and rule 176 of the Bankruptcy rules.  Then, they amended the summons to invoke jurisdiction under Order 17 rule 5 of the Rules of the High Court (“RHC”).  After reading the skeleton argument of Choi’s counsel, Miss Lee, they wrote to the Court on 11 April 2011 to advise that their Summons was also taken out pursuant to section 97 of the Bankruptcy Ordinance and rule 5 of the Bankruptcy Rules.  By that letter,  I assumed the Applicant was seeking leave to invoke, in addition, the Court’s jurisdiction under section 97. However, at the hearing, Miss Fong, counsel for the Applicant, confirmed that the Applicant was relying on section 97 instead of Order 17 rule 5.  I think the concession was properly made.

15.  Sections 67, 72 and 73 of the Bankruptcy Ordinance are  about declaration of dividends by trustee in bankruptcy. Sections 83 and 84 are about appeal to the court by a bankrupt or creditor of the      bankrupt aggrieved by the trustee’s action.  Section 88 is about provision of statement of accounts by the trustee.  There is no dispute about the Applicant’s entitlement to be paid dividend and the amount of dividend.  Rules 5 of the Bankruptcy Rules prescribed the bankruptcy matters to be heard in open court.  Rule 176 prescribed a fee of $20 per folio for each statement of accounts of a bankrupt sought by a creditor from the trustee.   I absolutely fail to see how these provisions could have formed the basis  of the application for payment out of the money in court.  No argument was advanced by Miss Fong that the Payment-out Application was made pursuant to any of those provisions.  Thus, the Applicant solely relied on section 97 of the Bankruptcy Ordinance and rule 5 of the Bankruptcy Rules.

16.  Miss Lee opposed the Payment-out Application principally on the ground that the application proceeded on the wrong track and should  be dismissed.  She submitted that the application should have   been taken out by Originating Summons under Order 92 rule 5 of the RHC.  As a subsidiary ground, she submitted that the Payment-out Application   is pre-mature because the Applicant’s Section 84 Summons has been adjourned sine die by consent pending final determination of HCA 1806/2009, but no final determination has yet been made by the court.

17.  The Trustee’s position is neutral.

Effect of adjournment of the Section 84 Summons

18.  I deal with Miss Lee’s subsidiary ground first. Miss Lee seemed to suggest that as the Applicant’s Section 84 Summons has been adjourned sine die pending final determination of HCA 1806/2009, the Applicant is precluded from seeking payment out of the second dividend paid into court.

19.  Though the Applicant is seeking an order for payment out     of a sum of money paid into court by the Trustees pursuant to the Interpleader Summons taken out by the Trustees under HCB 1873/2003, the Trustees are not an interested party to the Payment-out Application.  The Defendants in HCA 1806/2009, namely, Choi and SCE-HK are.     The remedies sought under the Section 84 Summons are that the Trustees do declare and distribute dividends among the petitioners and other creditors, that the Trustee’s conduct in relation to the distribution of        the first dividend be investigated and be ordered to repay the first dividend to the Applicant etc.  The Trustees have declared and distributed dividend to all creditors, including the Applicant.  The Applicant’s share of dividend was paid partly by way of the first dividend via Choi and partly by way    of the second dividend into court pursuant to the Interpleader Summons.  The outstanding disputes between the Applicant and the Trustees are repayment of the first dividend and other matters relating to the Trustees’ conduct.  Those matters have been adjourned sine die pending a final determination of HCA 1806/2009.  But those matters have nothing to do with the payment out of the second dividend. Besides, Choi is not a party to the Section 84 Summons.  Thus, the adjournment of the Section 84 Summons does not have the effect of precluding the Applicant from taking out the Payment-out Application.

Jurisdiction under section 97 of the Bankruptcy Ordinance

20.  Section 97(1) of the Bankruptcy Ordinance provides:

“Subject to the provisions of this Ordinance, the court shall have full power to decide all questions of priorities and all other questions whatsoever, whether of law or fact, which may arise in any case of bankruptcy coming within the cognizance of the court or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.”

21.  Miss Fong submitted that the section gives the court very wide power to decide all questions whatsoever which may arise in any case of bankruptcy coming within the cognizance of the court or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case of bankruptcy.  She referred to Re Amadio (1978) 24 ALR 455, a decision of South Australia, in which the court gave a very wide meaning to the word “cognizance” in section 30(1)(a) of the Bankruptcy Act 1966 (Com) which in broad terms is similar to section 97 of the Bankruptcy Ordinance.  Rogerson J held at 469:

“The words “matter” and “cognizance” have technical “legal” meanings as well as wider general meanings.  The relevant meaning of “matter”, as given by the Shorter Oxford English Dictionary, I take to be “something which is to be tried or proved; statements which come within the consideration of the court; a subject of contention, dispute, litigation or the like”.  “Cognizance” has the general meaning of knowledge, especially knowledge as attained by observation or information”, and the specialized “legal” meaning of “the hearing and trying of a cause”, and “the right of dealing with any matter judicially; jurisdiction”.

22.  I have no difficulties in giving the word “cognizance” the widest possible meaning.  But construction of a statute is not the same      as finding out the meaning of a particular word or expression.  It is to ascertain the intention of the legislature from the words and expressions used by reading the statute as a whole.  There are many aids to construction.  One of those aids is the ejusdem generis rule of construction.  In construing section 97, importance lies less in the word “cognizance” than the expressions before it, namely: “to decide all questions of priorities and all other questions … which may arise in any case of bankruptcy”.  The court in bankruptcy exercises bankruptcy jurisdiction.  The expression “all questions of priorities” gives a flavour of what the expression that follows “all other questions …” means. Applying the ejusdem generis rule of construction, “all other questions” must mean all other questions which are to be decided in bankruptcy, such as declaration and distribution of dividend, setting aside settlements, trustee’s costs, administration of bankruptcy etc.  Those other questions must be issues which involve the bankrupt or are connected with his bankruptcy.  It does not include adjudicating disputes between parties whose dispute has nothing to do with the bankrupt but who are involved merely because of some issue in dispute between them relating to a subject matter which arose in bankruptcy.

23.  Miss Fong argued that there is no dispute that the second dividend belongs to the Applicant.  The reason for the same to be paid into court was that the Trustees were not in a position to resolve the disputes or to determine the true authority of Choi and Chiu in acting for and on behalf of the Applicant.  These are common ground.  These precisely demonstrate that the dispute between Choi and Chiu is not a question which arose in bankruptcy.    

24.  Miss Fong further argued that Choi disputed ownership or control of the Applicant by ACHL or Chiu and asserted that through MEL and SCE-HK he was the beneficial owner of the Applicant and he and Yang were directors of the Applicant.  She submitted that after a full trial of three days, Mr Recorder Chow SC resolved all those disputes in favour of Choi. Specifically, Mr Recorder Chow SC found that ACHL was the sole shareholder of the Applicant since 30 July 2009, had removed all the then existing directors and re-appointed Chiu, Fu and Chai as directors.  Though Choi filed a notice of appeal almost immediately, he did not apply for stay of execution of the judgment of Mr Recorder Chow SC.  On 22 February 2011, Chiu and Chai passed a resolution to retain the Applicant’s solicitors to take out the Payment-out Application.  Miss Fong submitted that since pursuant to Order 13 rule 1(b), no intermediate act    or proceeding shall be invalidated by an appeal, the resolution was lawfully passed and the Payment-out Application was duly authorised and properly taken out by the Applicant.  Miss Fong submitted that I should exercise jurisdiction under section 97 of the Bankruptcy Ordinance and rule 5 of the Bankruptcy Rules to order payment out of the second dividend to the Applicant.

25.  In the light of the judgment of Mr Recorder Chow SC, I can see little merit in Choi resisting the Payment-out Application.  His case  has been dismissed.  His appeal does not have the effect of rendering      the resolution passed by Chiu and Chai to retain solicitors to take out      the Payment-out Application invalid.   

26.  The payment in court is a dividend which belongs to the Applicant.  It is true that the payment in arose in a case of bankruptcy which this Court has cognizance of.  It is also true that the Payment-out Application has been duly authorised and properly made.  However, the application is not for distribution of dividends by the Trustees or for determining priorities to dividends from the estate of the Debtor or any related applications under the bankruptcy proceedings.  There are no further legal rights or factual disputes arising from bankruptcies that     need to be dealt with at this stage.  The bankruptcy proceedings in       HCB 1873/2003 have in effect been concluded.  There is no adverse   claim to the second dividend. The only dispute is who are the owners    and persons in control of the Applicant so that the second dividend if    paid out falls into the proper hands of the Applicant.  That question      does not arise in bankruptcy, though the payment into court did and was made pursuant to an order of this Court in the exercise of its bankruptcy jurisdiction.

27.  In the circumstances, I doubt very much if I have jurisdiction under section 97 of the Bankruptcy Ordinance to order payment out   which has the effect of determining an issue in dispute between parties     in a non-bankruptcy proceeding, namely HCA 1806/2009 to which another court has already assumed jurisdiction.  The preliminary issue has been tried, but no pronouncement of the action has been made, let alone the decision in the preliminary issue is now being appealed against.  The payment out cannot be a matter within the bankruptcy jurisdiction of this Court, though it was made pursuant to an order of this Court in a case of bankruptcy.  The fact that the Applicant called itself the plaintiff in the Payment-out Application is evident that the Applicant considered this a shareholders’ dispute than a bankruptcy matter. The fact that the opposing parties to the Payment-out Application are the defendants in HCA 1806/2009 is evidence that the Applicant has chosen the wrong forum.

28.  But, even if this Court has jurisdiction, I would not have exercised it.  The Applicant is a company out of this jurisdiction.  It has   no assets or bank account in Hong Kong.  If paid, the second dividend would be held or disposed of outside Hong Kong.  There is a real risk that such money could not be recovered if Choi succeeds in his appeal and   that the Applicant’s solicitors are found to have no authority to act for    the Applicant.  On the other hand, the Applicant has no business activities in Hong Kong.  Its complaint is that it is being denied of the fruits of its litigation which it intends to use for the purpose of the continued litigation.  Other than that, it would suffer no prejudice if payment out is not ordered.    On balance, I am in favour of maintaining the status quo with the second dividend to continue to remain in court pending the final determination of ownership and control of the Applicant.

Jurisdiction under Order 92 rule 5 of RHC

29.  Miss Lee argued that the Payment-out Application proceeded on the wrong track and should be dismissed.  She submitted that the  proper procedure should be that under Order 92 rule 5 of RHC.  I agree.  The Applicant is seeking an order for payment out of a sum of money paid into court by the Trustees pursuant to the Interpleader Summons taken out by the Trustees under HCB 1873/2003.  A final order for payment in was made pursuant to the Trustees’ Interpleader Summons dated 13 August 2008.  The application for other relief sought by the Interpleader Summons was adjourned sine die and was subsequently withdrawn on 8 February 2010.  The second dividend was paid in as per my order.  There is no pending cause or matter outstanding.  The Court is left in its hands a payment representing the second dividend which indisputably belongs to the Applicant.

30.  There was no previous application for payment out by petition or by originating summons.  The Section 84 Summons was taken out under HCB 1873/2003 against the Trustees.  The Applicant sought various remedies against the Trustees relating to the first dividend which has fallen into the hands of Choi and SCE-HK.  None of remedies sought was about payment out of the second dividend paid into court.  In fact at the time of issue of the Section 84 Summons, there was no money paid into court.  The Section 84 Summons was adjourned sine die on 8 February 2010    and not restored.  Accordingly, the Payment-out Application is a fresh application for payment out and does not have the effect of restoring        the Section 84 Summons.

31.  The Applicant is entitled to be paid the second dividend, which has been paid into court.  The dispute is as between Chiu and Choi as to who is in control of the Applicant and to whom the second dividend is to be paid.  There could be no dispute that it is a fresh application.  Order 92 is of general application.  The Payment-out Application should have been made pursuant to this order.  Rule 5(2) prescribes that such application must be made by an Originating Summons, unless the application is made in a pending cause or matter or an application for the same purpose has previously been made by petition or originating summons.  The Payment-out Application should therefore be made by way of an Originating Summons. 

Conclusion

32.  The bankruptcy proceedings in HCB 1873/2003 have in effect come to an end.  The Court is left in its hands a payment representing     the second dividend which indisputably belongs to the Applicant.  The shareholders or former shareholders of the Applicant are in dispute as to the ownership and control of the Applicant to whom, the second dividend should be paid.  That dispute is not a bankruptcy dispute.  It does not arise in bankruptcy, though the payment in court did and was paid into court pursuant to an order of this Court in the exercise of its bankruptcy jurisdiction.  In my view, section 97 of the Bankruptcy Ordinance and rule 5 of the Bankruptcy Rules are not wide enough to give this Court jurisdiction to decide any question which does not arise in bankruptcy though the subject matter to which that question arose might have arisen  in bankruptcy.  This is particularly so as another court has assumed jurisdiction over that dispute.

33.  The proper procedure would have been for the Applicant      to invoke the procedures under Order 92 rule 5 of RHC either by way       of Originating Summons or under HCA 1806/2009.  As the Applicant adopted the wrong procedures, the Payment-out Application must be dismissed with costs to Choy Chung Bun Vincent. 

34.  There is no dispute that the Applicant is entitled to the second dividend now paid into court.  I have not decided otherwise.  What I have decided is that the Payment-out Application was dismissed due to a procedural irregularity.  There is nothing to prevent the Applicant from renewing its application by adopting the proper procedure.  I have, in particular, not decided on the issue as to who is or are the beneficial owners of the Applicant, which is still pending a final determination in HCA 1806/2009.  As my decision does not have the effect of finally determining the substantive rights of any party to an action, my order made herein does not fall within Order 59 rule 21(1)(a).  Leave to appeal against my decision from me is required under section 14AA(1) of the High Court Ordinance.