Re Choi Sze Fai

HCB 1276/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 1276 OF 1997

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R E V I E W

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Review

1. On 16 May 2002, I ruled that the automatic discharge of Mr. Choi Sze Fai ("Mr. Choi") should be suspended for 3 years from 14 April 2002 under section 30A(3) of the Bankruptcy Ordinance, Cap. 6 ("the Ordinance"). Mr. Choi then, on 27 May 2002, pursuant to section 98(1) of the Ordinance, applied to review the said ruling. To summarize the grounds for review, Mr. Choi said that there should be no suspension of the automatic discharge as I should have accepted his case. Further or in the alternative, discretion should be exercised in his favour and the suspension should last for no more than 5 months from 14 April 2002, and hence I should not suspend the automatic discharge of his bankruptcy order any further upon the present review.

2. Ms. Mckenna, for the Official Receiver and Trustee (the "OR"), replied that there was no new evidence at the review before the Court and all the matters were canvassed by the parties on 24 April 2002. It was generous to suspend the automatic discharge for 3 years instead of 4 years in light of the conduct and behaviour of Mr. Choi. The OR nevertheless agreed to such decision and is taking active steps to administer the estate of Mr. Choi.

Two further cases

3. I agree with Ms. Mckenna that no new evidence has been adduced by the parties at the time of review, apart from 2 further cases referred to me by Mr. Choi, viz, Choi Sze Fai v. Pretty Full Development Ltd. & Others [1999] 3 HKC 261 and Re Li Tak Kong [2000] 3 HKC 360. I deal with them one after one.

4. For the former case, it is one of the two High Court proceedings that Mr. Choi commenced without obtaining any consent from the OR. In short, the defendants therein applied to strike out the action on the ground that, prior to commencement of the action, Mr. Choi had been adjudged bankrupt. A master agreed with the application and Mr. Choi appealed and it was allowed. The Hon. Mr. Justice Cheung, as he then was, held that if Mr. Choi were holding his interest as trustee for another person, he could sue as trustee under O.15 r.14 RHC without joining the beneficiary. However, afterall, this case cannot assist Mr. Choi in the present proceedings. First, the interlocutory ruling says that as a matter of law, Mr. Choi might commence the proceedings as trustee, but no finding of facts has been made that he is indeed a trustee. Further, it does not alter my ruling that Mr. Choi has failed to complete the Statement of Affairs properly.

5. Turning to the second case, it not only does not help Mr. Choi, but also reinforces that proper approach has been taken to exercise my discretion judicially. The applicable principle can be founded on p. 362 of the case report, namely:

"In exercising its discretion, the court would have regard to the scope and purposes of the statutory provisions conferring the discretion, the interests of commercial morality and the public interest. Before a discharge was granted or permitted to occur, there should be an adequate investigation of a bankrupt's conduct and affairs, and such investigation should generally be concluded. It was incumbent on the bankrupt to make a full and frank disclosure and to proffer all pertinent information regarding his assets and financial dealings to the Official Receiver. In seeking a discharge, the bankrupt had to show that he had taken all reasonable steps to ensure that his estate was available for distribution among his creditors and that the trustee was appraised of all relevant information; it was not good enough for him to adopt a purely passive or reactive role. Where there had been concealment or lack of co-operation on the part of the bankrupt, it would not be unfair to delay his discharge."

Ruling

6. In the present case, I have ruled that Mr. Choi failed to complete his Statement of Affairs properly. His explanation offered was not accepted. He also failed to co-operate with the OR in administration of his estate. His conduct towards the OR was threatening, discourteous and unsatisfactory. So, Mr. Choi was not just adopting a purely passive or reactive role, it was found that there was indeed concealment as well as lack of co-operation on his part. Nonetheless, having considered the steps taken by the OR and the underlying principle of the legislation, an order for a 3 years' suspension of the automatic discharge was made. In the circumstances, I remain of the same view, and so the review is dismissed.

Costs

7. Ms. Mckenna, for the OR, indicated that she would not be asking costs in case that the application of review were dismissed. As such, there will be no order as to costs for the review application.

Representation:

Ms. Phyllis McKenna, Senior Solicitor, for Official Receiver.

Mr. Choi acting in person.

HCB 1276/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 1276 OF 1997

____________________

____________________

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J U D G M E N T

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Introduction

1. This is an application by the Official Receiver and Trustee ("the OR") for an order that the automatic discharge from bankruptcy under sections 30A(1) and (2)(a) of the Bankruptcy Ordinance, Cap. 6 ("the Ordinance") be suspended for such period as the Court may order under section 30A(3) thereof.

2. The OR objects to the automatic discharge of the bankrupt Mr. Choi Sze Fai ("Mr. Choi") which should have taken place on 14 April 2002. In the present case, interim extensions of the adjudication order were made on 13 March 2002 and 24 April 2002 until the determination of the OR's application. If the objection is valid, the court has power and discretion to suspend the discharge for a period not exceeding four years from 14 April 2002.

3. The Official Receiver's objection is based on section 30A(4)(c) and (d) which read as follows:

" (4) The grounds on which an objection can be made to the discharge of a bankrupt under this section are as follows-

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(c) that the bankrupt has failed to co-operate in the administration of his estate;

(d) that the conduct of the bankrupt, either in respect of the period before or the period after the commencement of the bankruptcy, has been unsatisfactory"

Adjournment

4. During the hearing of the application, it was noted that parties exhibited only selected documents in their evidence. Ms. Phyllis McKenna, senior solicitor for the OR, applied for an adjournment for production of further documents. Mr. Choi objected it on the ground that further adjournment would prejudice his position. I agreed with Mr. Choi and as such, the application was carried on upon the documents presented by the parties so far, namely, the OR's First Report dated 8 February 2002, Affirmation of Mr. Choi dated 19 March 2002 and the OR's Second Report dated 4 April 2002.

Background

5. On 21 March 1994, Mr. Choi, as a solicitor, was convicted of a number criminal offences of dishonesty towards his employers and clients, forgery and attempts to prevent the course of justice. He was sentenced to 6 years in prison by the District Court of Hong Kong. He appealed to Court of Appeal but was unsuccessful. Thereafter on 14 August 1995, the Solicitors Disciplinary Tribunal ordered that Mr. Choi's name be struck off the roll of solicitors and made costs order against him. On 30 October 1997, the Law Society applied to bankrupt Mr. Choi for a sum of HK$97,163, being taxed costs of the said disciplinary proceedings. Receiving order was served on Mr. Choi at Stanley Prison on 15 January 1998 and on 31 March 1998, Mr. Choi submitted his Statement of Affairs ("the Statement of Affairs") and finally, on 14 April 1998, an order of adjudication was made against Mr. Choi.

The OR's Case

6. Mr. Choi has been one of the most difficult bankrupt to handle. He not only failed to co-operate with the OR but also demonstrated unsatisfactory conduct after the commencement of the bankruptcy. He was unwilling and evasive in answering queries raised by the OR. His negative attitude has impeded the investigation of his affairs by the OR.

7. Regarding a property known as Flat D, 7/F, Cheong Wang Mansion, No. 539 Castle Peak Road, Kwai Chung, New Territories ("the Property"), he declared in the Statement of Affairs that he had half share. It accorded with the public record at Land Registry. The other half share belonged to Mr. Choi's brother, Mr. Choi Kai Man. However, he later said that he was holding the half share in trust for his brother only. Nonetheless, no explanation was offered and no step was taken to exclude it from his estate pursuant to S.43D of the Ordinance. The Property is still registered in both the names of Mr. Choi and his brother. Further, although Mr. Choi's brother redeemed the Mortgage on 8 June 1998, both he and Mr. Choi took no step to discharge the other encumbrances registered by the Department of Justice for costs of criminal prosecution as well as the said receiving order and adjudication order against Mr. Choi.

8. On 16 August 1998, bearing in mind Mr. Choi then claimed that he was not half of the owner of the Property, issued notices of prosecution under S.24 Crimes Ordinance (Cap. 200) against the OR without any justification, wrongfully alleging that OR had threatened to disconnect water supply therein.

9. After commencement of the bankruptcy, Mr. Choi commenced two High Court proceedings HCA No. A10132 of 1998 and HCA No. 7223 of 2000 without obtaining any prior consent from or informing the OR at all. In these two actions, it was not until the defendants in these two proceedings challenging the status of Mr. Choi as bankrupt, the OR was then informed. The OR invited Mr. Choi to attend its office for interview twice by 2 letters dated 10 March 1999 and 18 March 1999 respectively to explain the position. Mr. Choi failed the OR and merely replied in writing that he had taken out the proceedings for and on behalf of one Madam Lam Lai Kuen. Further, Mr. Choi threatened to take action against the OR for damages if the proceedings would be discontinued by the OR. Upon seeking legal advice, the OR had no alternative but to allow Mr. Choi to continue with the said two proceedings for the time being and hoped that the status of Mr. Choi would become clear upon final determination of the proceedings.

Mr. Choi's Case

10. Mr. Choi said that he had tried his best to avoid bankruptcy but in vain. He did co-operate with the OR including consenting it to obtain all his information and financial record from the Inland Revenue Department and banks.

11. He did inform the OR that the Property was not belonging to him when he completed the Statement of Affairs. That was why the handwriting word "registered" appeared twice on the Statement of Affairs to note this point. Further, the OR should have known it by a letter dated 18 March 1998 from Messrs. Henry C.K. Tung & Co. when his brother took steps to redeem the mortgage.

12. The OR, upon knowing that he did not have any interest in the Property, went to inform the Office of Water Authority to cut the water supply of the Property to force his brother and other occupiers to lend him money to discharge the bankruptcy. It was only after he made a strong complaint that the water supply of the Property was not disconnected.

13. Regarding the said two High Court proceedings, Mr. Choi said that he commenced them as trustee for Madam Lam only. In short, he owed Madam Lam some money and as such, beneficiary interest in a property at Bangkok was passed to her. Hence, he saw no reason why the OR should be informed of the trust property. Further, upon questioned by the OR, he did explain clearly everything. Last, but not least, the OR never asked him to discontinue the proceedings. He also did not fail to attend meetings as requested by the OR. For the first appointment, he received the letter after the appointed time. On the second occasion, he explained clearly his position in writing.

Ruling

14. When exercising my discretion over the matter, I bear in mind the underlying principle of the introduction of automatic discharge provision as described in para. 17.16 of the Law Reform Commissions Report on Bankruptcy (1995) which says:

"The introduction of the automatic discharge, with the objection system, have a two fold effect. Firstly, bankrupts would have a greater incentive than at present to co-operate with the trustee, as failure to co-operate could result in the trustee objecting to a bankrupt's discharge. Secondly, the rehabilitation of a bankrupt from bankruptcy would be assured, subject to rehabilitation being delayed as a consequence of a bankrupts own failings."

Certainly, as also commented by the Mrs. Justice Le Pichon in Re Hui Hing Kwok [1999] 3 HKC 683,

"Rehabilitation is the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key consideration. It should only be delayed by bankrupt's own failings ......"

15. Having considered the evidence placed before me and the submissions made by both parties, I come to the conclusion that the automatic discharge should be suspended for 3 years from 14 April 2002.

Mr. Choi's Own Failings

16. First, I am satisfied that Mr. Choi failed to complete his Statement of Affairs properly. Mr. Choi's explanation is simply unbelievable. He was a solicitor. He attempted to use the word "registered" to explain that he was trustee in the Property only. However, to prevent himself from going into bankrupt, he suggested to offer the whole of the Property as security, though not successful. He or his brother have made no attempt to discharge the Charging Order Nisi and Absolute registered against the Property as early as 19 August 1994 and 17 February 1995 respectively. They have also allowed the receiving order and order of adjudication appearing on the land search of the Property since 18 February 1998 and 26 May 1998 respectively. All these actions or non-actions points to the fact that Mr. Choi do have interest in the Property.

17. Further bearing in mind the concept of trust property, Mr. Choi elected to skip completely in the Statement of Affairs his dealings with Madam Lam and the interest of the property in Bangkok. Why didn't Mr. Choi also simply omit the Property in the Statement of Affairs?

18. Second, I find it difficult, if not impossible, to accept that the OR would employ improper means to force Mr. Choi to pay to discharge the bankruptcy, and a fortiori, the complaint and remarks made by Mr. Choi towards the OR must be wrongful.

19. Third, the OR certainly has the duty and right to ask Mr. Choi to attend meeting in examination of his affairs. Even I will be accepting Mr. Choi's explanation that he only came to notice of the 1st meeting late, by electing to write a letter and not attending the 2nd meeting proposed by the OR, or failing to suggest another convenient time, is simply not co-operating with the OR.

20. Forth, I find, without prior consent from or notice to the OR, the conduct of Mr. Choi commencing the two High Court proceedings is unsatisfactory. It put the OR into a very embarrassing position when they were queried by a third party as to the knowledge of the said proceedings. Although I note that Mr. Choi tried to explain his position to OR upon questioning, the Amended Statement of Claim produced at exhibit OR-6 in one of the proceedings simply indicated that Mr. Choi commenced the proceedings in his own name without mentioning that he was a trustee or at all.

21. Fifth, I agree with Ms. McKenna's submission that the general attitude of Mr. Choi have been threatening and discourteous to the OR. When making such comment, I remind myself that Mr. Choi, having been a solicitor, can defend his rightful interest without fear. However, he has been exceeding the limit. It suffices for me to extract the following paragraphs to demonstrate Mr. Choi's attitude:

"I have heard a 'rumour' that your department was used to employ some inappropriate methods to force/threaten some innocent people to settle the bankrupt's debt ......" (letter of Mr. Choi dated 30 November 2001)

"Apart from deliberately giving me a late notice of the hearing, the Official Receiver also cheated me into believing that the said hearing of 13th March 2002 is a substantive hearing." (paragraph 8 of Affirmation of Mr. Choi)

Remarks on the OR

22. Sixth, on the other hand, with due respect, noting the inconsistency of allegations by Mr. Choi over his ownership in the Property as early in 18 March 1998, the OR did not do anything but "waited" over 3.5 years and then, issued a letter to Mr. Choi's brother on 13 November 2001 inviting him to buy off the interest of Mr. Choi in the Property. While agreeing with Ms. McKenna's saying that Mr. Choi had failed to co-operate with the OR and demonstrated unsatisfactory conduct, as well as there was no fund for the OR, I am sure there must be something that OR could have done to resolve the problem. But for these remarks over the OR, I would have suspended the automatic discharge for 4 years. As the OR is asking me to exercise discretion, I believe that Mr. Choi should be given a "discount" here. One year or a quarter deduction is appropriate in the circumstances.

Costs

23. I do not have an opportunity to hear representation from the parties to the question of costs. Nonetheless, I believe that I should not make any costs order in the circumstances. Hence, there will be an order nisi for no order as to costs, which will be made absolute after the expiration of 14 days from today.

Representation:

Ms. Phyllis McKenna, Senior Solicitor, for Official Receiver.

Mr. Choi acting in person.