Case Detail

CACV 1/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1 OF 2010

(ON APPEAL FROM HCB NO. 1946 OF 2009)

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BETWEEN

	HO YING PAT BOBBY	Appellant
	and
	OVERSEAS WAY (CHINA) LIMITED	Respondent

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Before: Hon Le Pichon, Kwan and Fok JJA in Court

Date of Hearing: 10 March 2011

Date of Judgment: 10 March 2011

Date of Handing Down Reasons for Judgment: 16 March 2011

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1. This was an appeal by the appellant in person (“Mr Ho”) from a decision dated 28 December 2009 of Harris J who refused to stay the creditor’s petition based on a judgment debt and made a bankruptcy order against Mr Ho. Shortly before the hearing of the appeal, Mr Ho filed a notice to act in person. At the conclusion of the hearing the appeal was dismissed for reasons to be handed down which we now do.

Background

2. In the proceedings below, the debt was not disputed. Nor was any complaint made concerning procedural compliance. As recorded by the judge, the only relief sought by Mr Pirie who represented Mr Ho below was for a stay of the petition which the judge refused.

3. The debt arose in the following circumstances. Mr Ho was a partner in a firm of solicitors called Ho & Chan (“the firm”) which ceased business in 1998. Mr Ho’s former partner Joseph Chan (but not Mr Ho) was involved in a number of fraudulent conveyancing transactions. Purchase monies for various properties had been paid over to the firm by Livasiri & Co on behalf of its clients (which included the creditor) upon the firm’s undertaking. They were wrongfully withdrawn from the firm’s account by Mr Chan and misappropriated by him. The firm was unable to repay the monies when the transactions failed. It is common ground that Mr Ho is innocent of any wrongdoing and that his former partner was the sole perpetrator of the frauds.

4. Various proceedings were brought against the partners of the firm and the partners of Livasiri & Co and, in respect of HCA 20094 of 1998 (“HCA 20094”), the creditor obtained judgment on 4 November 2005 for $36.6 million plus interest, inter alia, against Mr Ho. The appeal to the Court of Final Appeal was dismissed on 15 July 2008. By the time of the petition the amount outstanding including interest and costs was approximately $100 million. Mr Ho was and remains unable to meet the judgment debt.

5. On 29 April 2009 Mr Ho issued a writ against Richards Butler (“HCA 1103”) which was amended on 14 May 2009. Richards Butler was the panel solicitor appointed by the Hong Kong Solicitors Indemnity Fund (“the Fund”) to represent him in HCA 20094. In broad terms, that claim is in negligence in failing to give Mr Ho proper advice in relation to the defence and settlement of HCA 20094 and in failing to act in Mr Ho’s best interests. It is alleged that Richards Butler put the interests of the Fund before those of Mr Ho in dealing with the possible settlement of HCA 20094 and thus caused him loss.

6. The court has been provided with a draft re-amended statement of claim which expands on the allegations. For present purposes, it is unnecessary to elaborate further on the allegations made (or intended to be made) in HCA 1103 and, for the sake of argument, it is assumed in Mr Ho’s favour that his claim is viable and that he has reasonable prospects of success.

This appeal

7. At the hearing Mr Ho sought leave to amend the grounds of appeal. While opposing the proposed amendments on the basis that they have no merit, Mr Lam SC who appeared for the creditor was content for the court to consider them de bene esse.

The discretion to stay a petition

8. The present appeal is against the judge’s exercise of his discretion in refusing to stay the bankruptcy petition. The circumstances in which this court may interfere are well-settled. It can only do so if it is shown that the judge has erred in principle or erred in law in the way in which he has exercised his discretion. Unless Mr Ho is able to demonstrate that there has been such an error, this appeal must fail.

9. Mr Ho seeks a stay of the petition so that he can pursue his claim in HCA 1103. It is common ground that HCA 1103 is a hybrid or mixed claim which is vested in the Official Receiver. While it is open to the Official Receiver to pursue the claim, he has intimated by letter of 6 September 2010 that unless he is satisfied that both the claim is meritorious and there are sufficient funds/indemnity to cover costs and adverse costs, no consent would be forthcoming. Mr Ho does not have the means to provide the necessary funds.

10. Mr Ho’s solicitors subsequently applied on his behalf for the Official Receiver’s assignment of the right of action in HCA 1103 to him. The Official Receiver stated in his letter of 21 December 2010 that he will inform the solicitors of his decision in due course but, to date, there has been no reply. The position therefore is that without a stay, Mr Ho will not be able to pursue HCA 1103 save in respect of his personal claim. His solicitors have intimated to the creditor that in the event of an unsuccessful appeal Mr Ho may cause HCA 1103 to be amended so as to be able to pursue his personal claim against Richards Butler and any recovery would not form part of his estate.

11. Given the size of the debt, the creditor who is the largest creditor stands to recover very little as matters stand. If Mr Ho should prevail in HCA 1103, it is likely to augment his estate significantly.

12. While the discretion to stay is unlimited, in exercising that discretion, regard must be had to established principles in bankruptcy proceedings. Mr Lam referred to the line of authority to the effect that a petitioning creditor has a prima facie right to a bankruptcy order where the debt is clearly established and the procedural requirements have been complied with. The discretion to adjourn the petition for payment should only be exercised where there is a reasonable prospect of the debt being paid in full within a reasonable time: see, for example, Harrison v Seggar [2005] BPIR 583 at §7. In that case the judge set aside the district judge’s order in adjourning generally, effectively for nearly 4 years, to enable repayment by instalments.

13. It is also relevant to note that there is a public interest in bankruptcy proceedings because they are matters of status affecting third parties and it is in the public interest that those matters should be processed quickly: see TSB Bank plc v Platts [1997] BPIR 151, 156H-157C. A lengthy adjournment of a petition would be at odds with those considerations. The court’s reluctance to grant open-ended adjournments in order to enable the debtor to pursue claims against third parties is apparent from the approach adopted in Oxted Financial Services Ltd v Gordon [1998] BPIR 231 and Re Micklethwaite [2003] BPIR 101.

14. In the present case, the stay sought can be said to be open-ended in that Mr Ho is unable to predict with any degree of certainty how long the litigation is likely to take. It has not yet progressed beyond a statement of claim. What can be said is that it will be at least several years before the outcome will be known. Further, given the issues involved, it is the type of case that is likely to proceed to an appeal even if Mr Ho were successful. While the action may be resolved through mediation, there is no certainty that a settlement would be reached, much less when it would happen.

15. In the skeleton submissions of Mr McCoy SC and Mr Pirie, Mr Ho’s former counsel, 2 authorities were cited for the proposition that where a bankrupt has a viable action against a third party which, prima facie, has a reasonable prospect of success or even a good business prospect, the court can stay the petition to allow the bankrupt to pursue the action or the business prospect, to enable the creditor to be paid. The first was In re Yeatman (1880) 16 Ch D 283 where it was held that an appeal from an adjudication of bankruptcy should be stood over pending the trial of an action, the result of which, according to the appellant bankrupt, would be to render a fund available for the payment of the debt. But it is clear from the report of the appellant’s argument (at 286) that the action against the petitioning creditors would be tried “in a few days”. It was in those circumstances that James LJ (with whose opinion the other two judges concurred) held that the appeal should be stood over for the purpose of seeing whether there was any foundation for the appellant’s suggestion. What is clear is that the adjournment in Yeatman was of a very limited duration. In any event, it is not an example of a stay being granted where the adjournment involved is open-ended. Nor is it an authority for the proposition that a court would entertain open-ended adjournments favourably.

16. The other case relied on was Fitch v Official Receiver [1996] 1 WLR 242. It concerned an application by the bankrupts to rescind the bankruptcy orders on the ground of change of circumstances. The application (which was not opposed) was supported by most of the creditors. It was their belief that the existence of the bankruptcy orders would prejudice the recovery of a substantial asset for the business partnership of the bankrupts. In my view, Fitch does not assist in circumstances where the sole creditor not only does not support and, instead, opposes the application for a stay. Further, it should be noted that the Court of Appeal in Fitch opined (at 249 C) that the creditors are the best judges of their commercial interests.

17. Neither of the cases relied on by Mr Ho supports the kind of adjournment that he is seeking. Having regard to the authorities earlier referred to and the principles that they establish, it is clear that the obstacles that have to be overcome in order to impugn the judge’s exercise of his discretion are insurmountable.

18. In the circumstances, since Mr Ho is unable to overcome this first and decisive hurdle, it is not strictly necessary to consider the other proposed amendments which, whether taken individually or collectively, cannot affect the outcome of this appeal. They will be mentioned briefly.

Annulment

19. One of the proposed amendments was to add an order for annulment under section 33(1)(a) of the Bankruptcy Ordinance (“the Ordinance”) as an alternative relief to an order for a stay. But the power to annul is a power conferred by section 2 of the Ordinance on the Court of First Instance and not on this court. In any event, if Mr Ho were to succeed, the bankruptcy order would be set aside and the petition stayed. The relief of annulment adds nothing to the relief already sought.

Arbitral awards in favour of Mr Ho and amendments relating to HCA 1103

20. Given the assumptions made in Mr Ho’s favour for the purposes of this appeal, those matters do not advance Mr Ho’s case any further.

Complaint relating to the creditor’s refusal to conduct meetings re HCA 1103

21. The point falls away given Mr Ho’s acknowledgment at the hearing that the creditor was not under any legal obligation to attend such meetings.

The amount of the petition debt

22. The judge was criticised for not making reference to the settlement of the bankruptcy proceedings against Mr David Fan a partner in Livasiri & Co and the payment to the creditor of $15 million in settlement. In fact there is a corrigenda to the judgment which added a paragraph to the judgment to address those matters.

23. At the hearing, Mr Ho’s complaint appeared to be that there was no updated information relating to the amount of the judgment debt as it stood at the date of the bankruptcy order since the settlement with Mr Fan would have reduced the amount of the debt. The point sought to be made by Mr Ho was far from clear: there was some suggestion that section 6D of the Ordinance applied and that the court should have amended the amount of the debt.

24. It is common ground that at the date of the bankruptcy order the judgment debt was outstanding. That was sufficient to ground a bankruptcy order which is not an adjudication of the precise amount of the debt. Recovery of part of the debt from other parties will be taken into account and reduce the amount of the debt pro tanto. It does not render the bankruptcy order invalid so long as the debt or part thereof remains extant at the date of the bankruptcy order.

Hon Kwan JA:

25. I agree with the Reasons for Judgment of Le Pichon JA.

Hon Fok JA:

26. I agree with the Reasons for Judgment of Le Pichon JA.

(Doreen Le Pichon)
Justice of Appeal

(Susan Kwan)
Justice of Appeal

(Joseph Fok)
Justice of Appeal

Mr Ho Ying Pat Bobby, the Judgment Debtor/Appellant in person

Mr Godfrey Lam SC & Mr Lawrence Cheung, instructed by Messrs LCP, for the Judgment Creditor/Respondent

CACV 1/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1 OF 2010

(ON APPEAL FROM HCB NO. 1946 OF 2009)

________________________

Re :	HO YING PAT BOBBY
Ex-parte :	OVERSEAS WAY (CHINA) LIMITED

________________________

Before: Hon Le Pichon JA in Chambers

Date of Hearing: 10 March 2010

Date of Decision: 10 March 2010

Date of Handing Down Reasons for Decision: 16 March 2010

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REASONS FOR DECISION

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1. This was an application by the petitioning creditor (“the applicant”) for security for costs in an appeal by the judgment debtor (“the appellant”) from a decision dated 28 December 2009 of Harris J. At the conclusion of the hearing, the application was refused. These are the reasons.

2. The appeal relates to the judge’s refusal to stay the bankruptcy petition against the appellant. The application for security for costs was made on the basis that the appellant is impecunious and that the appeal is unmeritorious.

3. The applicable legal principles are well-settled. Impecuniosity does not lead automatically to an order for security for costs but once impecuniosity has been demonstrated, it is for the appellant to demonstrate countervailing factors militating against an order, such as the merits of the appeal. The court has to form some sort of preliminary view of the merits: where they appear to go strongly one way or the other, this might by itself be a decisive factor; but where it appeared they could go either way, the court will generally look to the existence of other factors to tilt the balance, in the absence of which security should be ordered. See Chung Kau v Hong Kong Housing Authority & Others [2004] HKLRD 650 at 656B-H.

4. It is common ground that the appellant is impecunious. But before turning to the merits of the appeal, it is necessary to state, by way of background, how the debt upon which the bankruptcy petition was founded, arose.

Background

5. The appellant in a solicitor and used to be a partner in a firm of solicitors called Ho & Chan (“the firm”) which ceased business in late 1998. The firm had two equity partners, namely, Chan Kwok Yim (“Mr Chan”) and the appellant. It also had a salaried partner, a Mr Emerson.

6. Mr Chan wrongfully misappropriated and dissipated monies paid to and received by the firm in the course of its business in connection with a property investment project. It is common ground that the appellant and Mr Emerson were not involved in any of Mr Chan’s wrongdoing.

7. The applicant was one of the plaintiffs in proceedings brought against a number of defendants including the partners of the firm (namely, the appellant, Mr Chan and Mr Emerson) sued in the name the firm (the third defendant) in respect of the balance of monies paid over for the project (HCA 20094/1998). Prior to those proceedings, part of the monies paid to the first and third defendants had been repaid, leaving outstanding a sum of $36.6 million.

8. The fourth defendant was absent at the trial. By then, he was serving his sentence, having been convicted of various offences involving deception and theft in October 2000. The appellant and Mr Emerson were left to defend the claim against them as partners of the firm.

9. Messrs Richards Butler were the panel solicitors appointed by the Solicitors Indemnity Fund (“the Fund”) to represent them but apparently on an “exgratia basis” (whatever that meant) up to $10 million less the deductible of $200,000 as the claim was still being investigated by the Fund. It seems that the Fund was reserving its position as to the appellant’s entitlement to an indemnity because of Mr Chan’s fraud although it seems that there was an arbitration award in June 2004 in the appellant’s favour in a similar matter involving the appellant and the Fund.

10. The trial began in May 2004 and, with a few interruptions, concluded in January 2005. On day 66 of the trial (14 October 2004) the plaintiffs settled their claim against Mr Emerson. At that point, the firm effectively meant the appellant.

11. In November 2004, there were serious settlement discussions between the solicitors for the various parties to settle not only HCA 20094/02 but also another set of proceedings brought by the other plaintiffs in HCA 20094 against, inter alia, the firm (HCA 2967/02). Richards Butler’s handling of those discussions on behalf of the appellant is the subject matter of an action (HCA 1103/09) brought by the appellant against Richards Butler on 29 April 2009 for professional negligence. That claim (described in § 15below) became the central feature of the appellant’s application to stay the bankruptcy petition.

12. The judge found in favour of the applicant and entered judgment against the appellant in the sum of $36.6 million plus interest and costs in November 2005. Appeals to this court and subsequently to the Court of Final Appeal proved unsuccessful. The amount owing is substantial, said to be in the region of $100 million.

13. Against that background, I turn to the merits of the appeal.

Merits of the appeal

14. Underpinning the appellant’s case for a stay of the bankruptcy petition before the judge was his claim in HCA 1103 (which was said to be strong) against Richards Butler. Plainly, any recovery would improve his financial situation and would either enable him to repay or come to an accommodation with the applicant or augment the assets available to meet creditors’ claims. To date, the applicant appears to be the only creditor. As matters stood at the time of the stay application and now stand, realistically, the most the applicant can expect to recoup if the appellant were made a bankrupt is less than 1% of the amount owing.

15. HCA 1103 is a claim for professional negligence and raises the issue as to the role and duties of a panel solicitor appointed to represent a solicitor subject to a claim such as the appellant and the extent (if at all) to which it may properly advise the Fund and take into account its interests when, under the Scheme established under Cap. 159M, the Fund is a “mere indemnifier” and not an insurer. For present purposes, it suffices to state that the gist of the complaint is that an advantageous settlement of both actions could have been achieved following an offer made by the solicitors for the applicant by letter of 18 November 2004 had Richards Butler properly advised the appellant and when Richards Butler knew that the appellant, facing a claim of $36.6 million, had no defence and no means with which to meet any judgment. As at the beginning of October 2004, some $4 million of the ex gratia amount remained available in circumstances where the applicant was willing to settle for approximately $2.5 million.

16. While the judge accepted that as a general proposition a court could properly exercise its inherent jurisdiction to stay a bankruptcy petition if there was evidence to show that a stay would manifestly be in the best interests of the creditors, he was not satisfied that staying the petition was the only rational choice. The judge took the view that the information provided was far from sufficient for determining whether HCA 1103 had any substance. He was also not convinced that Richards Butler should have known that the appellant was bound to lose, noting (in § 17 of the Decision) that the appellant had received advice that his appeal to the Court of Final Appeal had a “fair chance” of success. He also considered that if the appellant’s claim was worth pursuing, it would be open to the Official Receiver to discuss funding arrangements to allow it to be pursued.

17. In opposing the application for security for costs, the appellant filed evidence and exhibited a number of documents pertaining to the settlement discussions that were not before the judge. At the hearing itself, it transpired that some crucial documents (including the applicant’s offer of 18 November 2004) had been overlooked and not exhibited to the appellant’s affidavit. The applicant’s counsel not objecting, those documents were allowed to be used at the hearing.

18. Given the materials now before the court, I consider that the appellant has shown HCA 1103 to be a viable claim. While it would neither be desirable nor appropriate to go into further detail at this stage,this scenario, being significantly different from that before the judge, might well of itself produce a different outcome.

19. There are other matters that should be mentioned on the question of merits. As to whether, to Richards Butler’s knowledge, the appellant’s defence was hopeless at the material time i.e. November 2004, the only written advice available to Richards Butler was that obtained from leading counsel in London in April 2000 which made it clear that there was no defence. No other written advice appears to have been obtained at any time prior to or during the trial, whether from counsel who represented the appellant at trial or other counsel. The advice referred to in § 17 of the Decision was given by counsel (who was not the trial counsel) subsequently at the appeal stage and, thus, must be irrelevant. Finally, another aspect of the judgment the appellant seeks to challenge relates to the judge’s observations relating to the course open to the Official Receiver’s which were said to be misconceived. It is the appellant’s stance that HCA 1103 is a claim that is available personally to the appellant and not “property” within section 2 of the Bankruptcy Ordinance which is plainly arguable.

20. As earlier noted, the court has to form some kind of preliminary view at this stage. Looking at the matter overall, I consider that the appellant has more than reasonable prospects of succeeding in the appeal. Accordingly, I do not consider this to be an appropriate case for security to be ordered.

(Doreen Le Pichon)
Justice of Appeal

Mr Nicholas Pirie, instructed by Messrs Burke & Company, for the Judgment Debtor/Respondent

Mr Lawrence Cheung, instructed by Messrs LCP, for the Petitioning Creditor/Applicant

The Official Receiver (attendance excused)

RE HO YING PAT BOBBY

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