The Joint and Several Trustees of the Property of So Ching Wan v. Assen Ltd (in Liquidation) and Others

CACV 306/2019

[2020] HKCA 1081

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 306 OF 2019

(ON APPEAL FROM HCB NO. 4475 OF 2002)

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J U D G M E N T

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Hon Kwan VP ：

1.I agree with the judgment of Cheung JA.

Hon Cheung JA :

I.     The appeal and preliminary matters

2.1.On 7 June 2016, Chung J made an order, pursuant to section 29(1) of the Bankruptcy Ordinance (Cap. 6), requiring the respondents to provide answers and documents as set out in Annex A and Annex B of that order.  

2.2.The application before Chung J was made by the applicant, described as the Joint and Several Trustees of the Property of So Ching Wan (‘the Bankrupt’).  By a bankruptcy order dated 19 August 2002 the Bankrupt was made a bankrupt and the applicant was appointed as the trustees.  The bankruptcy order was discharged in August 2010.   

2.3.The applicant applied by way of an amended summons filed on 22 November 2018 (the summons was first issued on 12 October 2018), under Order 45, rule 6 of the Rules of the High Court (Cap. 4A) (‘RHC’) to enforce the order of Chung J.  The applicant also issued a summons dated 6 November 2018 to seek leave to continue these proceedings against the 1^st respondent retrospectively given its liquidation.

2.4.Deputy High Court Judge William Wong SC (‘the Judge’) dismissed both summonses.  The applicant now appeals to this Court against the dismissal of the amended summons and the costs order the Judge made against him.

2.5.There are two other matters which I will address first.  First, the Court had granted leave to the applicant to re‑amend the notice of appeal.  The respondents did not object to the application. 

2.6.The second matter is concerned with the ability of the applicant to bring these proceedings.  There are two trustees appointed, namely, Mr Alan Tang and Mr Wong Kwok Man.  As it turned out the proceedings had all along been conducted by Mr Tang himself.  The respondents challenged Mr Tang’s ability to bring the proceedings alone.  This issue had not been raised in the Courts below and this Court is only concerned with Mr Tang’s ability to bring the appeal.  I am of the view that he has the ability to do so.  Mr Tang and Mr Wong are the joint and several trustees.  The power to bring this appeal is given to all of them or any of them.  In Re Hong Kong Pak Tat Trading Co [2020] HKCFI 287, Godfrey Lam J held :

‘ 60. As far as legal power is concerned, however, it should be noted that Mr Kan and Mr Chen have been appointed joint and several liquidators of Pak Tat. Prima facie this means that they are conferred with powers that can be exercised by them jointly, i.e. powers in which each joins in the exercise, but also powers that can be exercised by them severally ― i.e. “powers which each may exercise independently of the other”: Kendle v Melsom (1998) 193 CLR 46, §5.’

2.7.From now on the reference to the applicant must be understood to be referring to Mr Tang himself.

II.     Background

3.1.The background of the case is as follows.  The Bankrupt used to be a director and is a shareholder of the 1^st respondent (‘Assen’).  The 2^nd to 4^th respondents were directors of Assen.  They are also Assen’s shareholders.

3.2.Assen appeared to be one of the Bankrupt’s vehicles for property investment, holding three Tuen Mun land lots acquired for about $13 million (‘the Properties’) in 1992, which were mortgaged to Kingston Capital Investment Limited (‘Kingston’) in July 1996.

3.3.Kingston obtained (1) an order dated 28 February 2001 for judgment of about $21 million with interest against Assen and two other of the Bankrupt’s companies (‘Sky Fair’ and ‘Chief Fine’), and for delivery of possession of the Properties and (2) a writ of possession of the Properties in April 2001.  Kingston also took possession of three Tuen Mun lots purchased in 1992 and owned by Sky Fair.

3.4.The Government had resumed parts of the Properties, compensating Assen $6.005 million in 2005/2006. Kingston claimed an interest in maximising the compensation amount, hence its representatives, the 2^nd to 4^th respondents, had been appointed to the board of Assen.  The 2^nd respondent claimed that his appointment was in 2002.  The Bankrupt had resigned in August 2002 immediately following his bankruptcy, and a 2013 shares allotment had diluted his shareholding from 20% to 0.01%.

3.5.The Properties were still registered under Assen’s name until before their sale by Kingston on 25 August 2016.  Assen’s audited accounts for 2008 to 2013/2014 stated that the Properties were Assen’s assets with a net book value of about $7.8 million (after depreciation) against a long‑term liability of $10 million, and debts due to unnamed shareholders totalled $2,940,800.  The two sums added up to be precisely the Properties’ price in 1992.

3.6.The 2^nd respondent also informed the applicant in writing in December 2014 that 

1)     Assen owed the unnamed shareholders’ debts to the 2^nd respondent;

2)     Assen owed the long-term liability to Kingston; and

3)     an ‘expert valuer’ valued the Properties at $10 million maximum (less than the price paid in 1992), compared to a valuation report dated 29 September 2015 valuing them at about $16 million.

III.     The Judge’s decision

4.1.The Judge held that the nature of the amended summons was not to enforce Chung J’s order but was rather a new application under section 29 of the Bankruptcy Ordinance.  First, the applicant was seeking to order the respondents to answer on oath as follows :

‘ If any of the Respondents cannot provide answers to any of the questions in Annex A to the Chung Order, and with reference to the Summary, each of these relevant Respondents file an affidavit/affirmation to state the reasons for not being in such a position to comply within 14 days of the Order to be made herein.’

4.2.Second, the amended summons also asked for an oral examination of the 2^nd to 4^th respondents under section 29 of the Bankruptcy Ordinance.  The reliefs sought by the applicant went beyond the ambit of Chung J’s order. 

4.3.The Judge then held that he needed to be satisfied that a new section 29 application was justified in view of two new significant developments since Chung J’s order, namely, the 1^st respondent had since been wound up on 2 November 2016 and liquidators were appointed to take over and investigate the affairs of the 1^st respondent and on 25 August 2016, Kingston as mortgagee in possession sold the Properties by auction to one Ample Sparkle Development Limited who was the highest bidder at $9.2 million.  The Judge held :

‘ 22. It is of great importance that liquidators were appointed into the 1st respondent for a considerable period of time. The liquidators of the 1st respondent informed this Court that there is no asset identified or realized in the liquidation of the 1st respondent. The liquidators of the 1st respondent submitted that any information or documents to be discovered in the present application would not beneficial to the administration of the estate of the Discharged Bankrupt.’

4.4.The Judge held, among other things, that the applicant must satisfy the Court the essential condition for making a section 29 order, namely, the provision of information or documents is reasonably required for him to carry out his functions.  The Judge dismissed the amended summons for the following reasons :

1)     The 1^st respondent has been wound up.  The 2^nd to 4^th respondents have ceased to be directors of the 1^st respondent.  The affairs of the 1^st respondent are under the supervision of the liquidators of the 1^st respondent who informed the Court that they had no intention to apply for disclosure of documents against the 2^nd to 4^th respondents because the 1^st respondent had recovered all its assets and distributed to its creditors.  The applicant was aware of the petition to wind up the 1^st respondent and had made no objection to the petition.  The proper procedure is for the applicant to take out applications before the Companies Court.  It is not conducive to the orderly administration of liquidation of the 1^st respondent for concurrent investigations to take place. 

2)     The current position, unlike that before Chung J, is that there are no assets to be recouped which can enhance the value of the discharge of the Bankrupt’s shareholding in the 1^st respondent. He accepted the liquidators’ view on this.  As to the applicant’s claim that the sale was at a gross undervalue, he had adduced no expert evidence that the subject property should be worth about $140 million (as asserted by the applicant) instead of $9.2 million.

3)     The order sought by the applicant by reference to the 22‑page summary of the questions and documents that he wished to pursue against the 1^st respondent is convoluted, incomprehensible, lacking in focus and is more in the nature of the applicant’s personal comments.  It is wrong as a matter of principle and oppressive to require the respondents to respond.  The summary is susceptible to further disputes.

4)     The order sought by the applicant is not within the ambit of section 29(1A) of the Bankruptcy Ordinance :

‘ 29(1A) The court may require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property.’ (emphasis added)

The questions and documents set out in Annex A and Annex B are not concerned with dealings with the discharge of the Bankrupt.  They are related to the internal affairs of the 1^st respondent.  The only exception is question 8 of Annex A which the 2^nd to 4^th respondents submitted that it has been fully answered. 

5)  The application is oppressive.  The applicant has stated that he intends to bring contempt proceedings against the 2^nd to 4^th respondents.  It is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought.

4.5.The Judge held that he also took into account two matters in the exercise of his discretion. First, given the true nature of the application before him was a section 29 application, he did not need to deal with the issue whether there was non‑compliance of Chung J’s order.  If the applicant considered that the respondents had breached that order he could bring contempt proceedings at that stage and the issue of compliance could be ventilated.  Second, if the applicant has any complaint about how the liquidation of the 1^st respondent is being conducted including whether there is any undervalue sale of assets, he is at liberty to take out applications in the winding up proceedings.

4.6.The Judge ordered the costs of the amended summons including the costs of the hearing as follow :

1)     the applicant to pay the costs of the 2^nd to 4^th respondents, on a party to party basis, with certificate for two counsel, to be taxed if not agreed;

2)     the applicant to pay the costs of the 1^st respondent, on an indemnity basis, to be taxed if not agreed.  

4.7.The Judge also ordered the applicant to pay the costs of the 1^st respondent on an indemnity basis in respect of the leave summons.  The Judge accepted the 1^st respondent’s submission that the applicant was well aware that the liquidators of the 1^st respondent did not have answers to any of the questions set out in Annex A and they had also delivered whatever documents they had to the applicant prior to the taking out of the amended summons.  It is, in the circumstances, unreasonable and unnecessary to join the liquidators of the 1^st respondent and there is no basis to apply for relief in the leave summons. 

IV.     The issues

5.Mr Thomas Wong for the applicant has identified three issues in this appeal :

1)     whether the amended summons before the Judge was a new section 29 application and not for the enforcement of Chung J’s order;

2)     whether the Judge’s exercise of discretion against the granting of the order was plainly wrong; and

3)     whether the indemnity costs order in the 1^st respondent’s favour was plainly wrong.

V.     Overview

6.1.Before I deal with these issues, an overview is needed to see what had happened after Chung J’s order by reference to the respective position of the parties.  

1)     The respondents’ case

(1)     The 1^st respondent

6.2.Mr Lau Siu Hung, one of the liquidators of Assen, explained in his affirmation that the questions in Annex A are related to matters long before 2 November 2016 when the winding‑up order was made against the 1^st respondent and the appointment of the provisional liquidators of the 1^st respondent.  The liquidators were appointed by the Official Receiver and they were unlikely to have the answers to the questions in Annex A.  Mr Lau said the applicant should be well aware of this and had never informed the liquidators to provide answer to any of the questions of Annex A before the amended summons was served on the 1^st respondent.

6.3.In any event the liquidators had provided all the books and records of the 1^st respondent (which were delivered by the ex‑director of the 1^st respondent to the liquidators) to the applicant.  The liquidators in letters dated 13 April 2018 and 25 May 2018 informed the applicant that the ex‑director of the 1^st respondent did not deliver any other books and records of the 1^st respondent to the liquidator.

6.4.Mr Lau also explained the sale of the Properties.  Kingston exercised its power of sale in respect of the Properties under the legal charge created in 1996 and 1997.  He also explained why there was no surplus after sale of the land and he also dealt with the issue of valuation of the Properties. 

(2)      The 2^nd to 4^th respondents

6.5.It is  the  2^nd  to 4^th  respondents’  case  that they had duly complied with Chung J’s order.  Messrs. Ribeiro Hui, their former solicitors, had by a letter to the applicant dated 28 July 2016 provided full written answers to the questions listed in Annex A and produced substantially all the documents listed in Annex B.  Over 50 documents were supplied to the applicant to facilitate their investigation.

6.6.The 2^nd respondent in his 3^rd affirmation also dealt with the following matters :

(1)     whether there was any value in Assen;

(2)     the applicant’s allegation that the remaining properties of Assen were sold at an undervalue; and

(3)     whether Kingston should have sold the mortgaged property earlier.

6.7.Subsequent to the letter dated 28 July 2016, the applicant requested further and additional documents by way of a letter dated 31 August 2016.  They provided further documents and answers by a letter dated 15 September 2016.  The letter further explained that the other further and additional documents requested by the applicant either did not exist or were not within the respondents’ possession.

6.8.After receiving the answers and documents from the respondents, the applicant wrote yet another letter dated 18 January 2017 posing 16 follow‑up questions, many of which were of little or no relevance or had already been answered by the 2^nd to 4^th respondents in earlier correspondences.  By a letter dated 21 March 2017, Messrs. Hom & Associates, on behalf of the 2^nd and 4^th respondents, made clear to the applicant that the follow‑up questions posed by the applicant were simply ‘unnecessary, if not frivolous vexatious and/or oppressive’.

6.9.The applicant’s amended summons asked for the respondents to comply with Chung J’s order with reference to the summary.  The applicant had clarified at the hearing on 16 November 2018 that the order sought was for the respondents (i) to answer the questions listed in the summary and (ii) to produce the documents requested in the summary rather than to comply with Chung J’s order.  The summary spanned over 12 pages.  The 2^nd, 3^rd and 4^th respondents contended that the comments, observations, queries contained in the summary either (i) raised new and irrelevant issues which went well beyond the scope of Chung J’s order, (ii) repeated questions that had already been answered in earlier correspondence or (iii) directed spurious and frivolous accusations against the 2^nd to 4^th respondents.

2)     The applicant’s case

6.10.The position taken by the applicant can be seen from his 3^rd and 5^th affirmations. In respect of the 3^rd affirmation, the applicant stated that he accepted the liquidators had provided a list of documents and had permitted the applicant to inspect and copy Assen’s records.  The applicant then said none of these management accounts and none of the accounting vouchers were ‘signed off’ by any one.  There was clear evidence that no one wanted to take ‘responsibility’ for their production.  All ‘management accounts’ were computer Excel spreadsheets and all vouchers were dated 31 March of the relevant year (from 2003 to 2006) except for accounting entries relating to the passing of Government compensation funds (for land resumed) to Kingston in 2006 and 2009 - but then, these accounting entries are not even supported by any ‘vouchers’.

6.11.After noting the many problems and discrepancies in these Assen records as compared to the documents and answers (and other documents obtained by him), the applicant wrote to the liquidators to draw these to their attention.  Despite reminders by him the liquidators took no action to investigate these problems and discrepancies, but effectively took the same position and views of the 2^nd respondent that there was no equity in Assen to its shareholders and thus any investigations were futile.

6.12.To give a flavour to the stance of the applicant, this is what he said in various parts of his 3^rd affirmation : the respondents only provided on a piece‑meal basis ‘answers’ and ‘highly selected documents’; many of the documents were obviously ‘manufactured’ and ‘tailor‑made’ on a retrospective basis, prima facie of a suspicious nature and if not inconsistent inherently and contradictory to other documents.

6.13.The applicant stated one main reason repeatedly given by the 2^nd respondent and the solicitors engaged by him for not producing full and proper answers or full and complete documents in compliance with the order was their assertion that the value of shares in Assen was nil and hence the efforts to pursue the respondents were futile as these would not yield or result in any ‘value’ to the Bankrupt’s estate.  Mr Tang claimed that this assertion had been made before Chung J but had not stopped the Order from being made.  He claimed that the assertion was simply wrong :

‘ 19. ... is but a ‘self‑fulfilling’ artifice designed and effectuated by [the 2^nd respondent] for himself (Kingston) by artificially ‘minimising’ value of the Properties of Assen but ‘maximising’ claims and liabilities of the Company, and with him having gone to the length of falsifying the accounting records of Assen to achieve this purpose (as discussed below).’

6.14.In his 5^th affirmation the applicant continued his allegation that the 2^nd respondent had been ‘cooking the books of and producing false accounts of Assen’.  He referred to the ‘artificial valuation’ and ‘manipulation of an opaque auction’.  He said there is clear evidence of ‘outright lies’ of the 2^nd respondent. He claimed the valuation reports obtained by the 2^nd respondent were procured to support the assertion that the value of shares in Assen is nil to support the pre‑packaged auction sale at $9.2 million.  The applicant used the words ‘Acts of perjury and contempt of Court’ in dealing with the conduct of the 2^nd respondent. 

VI.     True nature of the amended summons

7.1     I will now turn to the first issue of the appeal.

1)     Order 45, rule 6(1)

7.2.Order 45, rule 6(1) of the RHC provides that :

‘ Notwithstanding that a judgment or order requiring a person to do an act specifies a time within which the act is to be done, the Court shall, without prejudice to Order 3, rule 5, have power to make an order requiring the act to be done within another time, being such time after service of that order, or such other time, as may be specified therein.’

2)     The principles

7.3.This Court observed in CYM v YML [2013] 1 HKLRD 701 (CA) :

‘ 51. ...In cases where the parties have a genuine bona fide disagreement on the interpretation of an order instead of a recalcitrant judgment debtor, or where the parties have a bona fide dispute about the quantum of an item under an order for payment, such disputes should be resolved by a summons taken out under O.45 r.6 instead of a judgment summons.’

7.4.In Re Ho Yuk Wah David (bankrupt) [2015] 2 HKLRD 603 Anthony To J at [19] held that :

‘ (1) The rule enables the court to give the respondent one last chance to comply with its order before the applicant may invoke the penal sanctions available in the court’s armory.

(2)     The burden is on the applicant to prove that an order had been made requiring the respondent to perform an act within a specified time and the respondent failed to do so.

(3)     Once that is proved, the burden is then shifted to the respondent to show why he should not be required to comply with the order to perform the act, upon being given a second chance.

(4)     The obligation to perform the act required had been determined and made an order of the court.  Thus, in considering whether to exercise the discretion under this rule, there is no need for the court to revisit the appropriateness or otherwise of its previous order.

(5)     The question is simply whether in all the circumstances the respondent should be excused from performing the act under its previous order.  As the court’s orders are made to be complied, such circumstances must be very rare indeed.  A possible example would be impossibility in performance as a result of change of circumstances.’

For ease of reading, I have numbered the sentences in that paragraph.  See also Wah Sun Hong Ltd v. Wong Lee Yuk Ping Agnes (unreported, HCA 874/2015, 12 August 2016) at [17].

3)     Affidavit and oral examination

7.5.The terms of the amended summons in respect of the requirement of oath and oral examination under section 29 of the Bankruptcy Ordinance clearly went beyond the terms of Chung J’s order. 

7.6.Mr Thomas Wong submitted that the Judge was wrong about his view on the respondents being required to answer on oath and by way of oral examination.  He referred to Re Ho Yuk Wah David [2019] HKCFI 1398 (Decision 31 May 2019) where Recorder Linda Chan SC held :

‘ 30. Further and in any event, as Mr Chen submits, the court has inherent power under section 29 of the Bankruptcy Ordinance or the inherent jurisdiction to make an ancillary order to ensure that the exercise of its jurisdiction or the remedies it grants is effective. He relies on the well established principle propounded in AJ Bekhor & Co Ltd v Bilton [1981] 1 QB 923, a case concerned with the jurisdiction of the court to make an ancillary order requiring disclosure of assets in aid of Mareva injunction, at 940 G–H, 942 G–H, per Ackner LJ. I agree. Indeed, an order requiring a respondent to file an affirmation to explain the whereabouts of the documents which were once, but no longer in, the “custody or power” of the respondent is frequently made by the court under section 286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), which confers the power on the court to make an order for private examination and production of documents against the respondent.’

7.7.In Re Ho Yuk Wah David (bankrupt)(No 3) [2019] 1 HKLRD 961 (Judgment dated 18 January 2019), Recorder Eugene Fung SC held that :

‘ 39. In their Summons, the applicants further seek an order that if any of the documents sought “had never been or is no longer in his/her/its custody and/or power, [the respondents should] file an affidavit / affirmation stating in respect of each document whether it had been in his/her custody and / or power, and if it had been, when it was last in his / her custody and / or power and the reason it is now no longer in his / her custody and / or power” (the Proposed Affidavit).

40.     Section 29 of the Bankruptcy Ordinance does not  confer  any  power  on  the  court to  order a party to file the Proposed Affidavit.  Specifically, s.29(lA) only empowers the court to “require a person referred to in subsection (1), other than the bankrupt, to submit an affidavit to the court containing an account of his dealings with the bankrupt or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt’s dealings, affairs or property”.  The respondents submitted that the court does not have jurisdiction to order the making of the Proposed Affidavit.’ (emphasis added)

7.8.Recorder Fung’s decision focused on the specific provision of section 29(1A) as highlighted in the quotation above.  Similarly in the present case the Judge at [42] stated that none of the documents sought under Annex B are concerned with dealings with the Bankrupt.  But the real issue here is not whether the Court has the jurisdiction to order the respondents to answer on oath and to be orally examined.  The point is simply that Chung J had not made such orders and the applicant cannot seek such orders under the guise of enforcement under Order 45, rule 6.  This is not the situation where an order to produce specific documents had been made and whether the Court has ancillary power to make a further order requiring the examinee to make an affirmation to explain the whereabouts of such documents if they are no longer in his possession, power or custody.

4)     The summary

1)     The six areas

7.9.The six areas that the applicant contended that the respondents had not complied with are as follows :

(1)     Assen’s books and records;

(2)     Director’s current account with the 2^nd respondent; Business operation;

(3)     Amount due to shareholders ($2,940,880) and long‑term liabilities ($10 million);

(4)     Valuation on the land properties owned by Assen;

(5)     Allotment of 9,995 shares on 1 March 2013; and

(6)     Tenancy agreements.

7.10.Instead of simply identifying what questions that the respondents had not answered and what documents they had not provided, the applicant in the Amended Summons required the respondents to respond by reference to the summary.  A trimmed down version of the summary of 13 pages has since been supplied.  The summary contained not merely what the applicant considered that the respondents had not complied with but also the applicant’s comments on the issues.  I will refer to some of these comments :

(1)     Assen’s books and records :

Page 1

‘ i) [The 2^nd respondent] became director and shareholder of Assen on 2 January 2002; at least he should have audited accounts for and since the year ended 31 March 2002.

ii)     [The 2^nd respondent] had to prepare the audited accounts for 2008‑2013 retrospectively after 20 January 2015, which suggests that audited accounts for 2008 to 2013 had not been prepared at the relevant time.

iii)     Similarly, audited accounts before 2007 were not in possession ‘earlier on’ suggests that the audited accounts for 2003 to 2007 produced to the trustees on 28 July 2016 were also prepared retrospectively.

iv)     [The 2^nd respondent] should explain why the Directors did not produce audited accounts for the years ended 31 March 2015 and 2016.’

Page 3

‘ i) [The 2^nd respondent] manipulated the accounts and falsified vouchers to conceal historical information prior to 31 March 2002, including key information on cost of the land, and details of funding from then ‘old’ shareholders of Assen (and related parties) to acquire land etc.

ii)     The Board and the auditors completely disregarded apparently all transactions that took place prior to 1 April 2002 :

a)     Two founder shares issued upon incorporation on 19 December 1991;

b)     Purchase of land properties in 1992; and

c)     Allotment of three shares to the [2^nd respondent, 4^th respondent] and Cheung Charn Yuen on 2 January 2002

iii)     As noted below, the audited accounts of Assen (as compared to the ‘management accounts’) show a completely different ‘picture’ of ownership and funding for the land; and Kingston was never named as a creditor therein.’

(2)     Director’s current account with the 2^nd respondent :

Page 4

‘ i) [The 2^nd respondent] manipulated transactions and excluded rental income received by him on behalf of Assen from audited figures to exaggerate his personal claims.

ii)     [The 2^nd respondent] was unable to produce proof of debt and audited accounts to the then provisional liquidators, as the amount due in the audited accounts was far less than the amount he claimed.’

(3)     Amount due to shareholders and long term liabilities :

Page 4

‘ i) [The 2nd respondent] has made false and misleading statements on behalf of Assen’s Board. The explicit erroneous references were deliberate and not simply ‘clerical error’ as Ribeiro suggested.

ii)     [The 2nd respondent’s] letter dated 20 January 2015 is in direct contradiction to the Ribeiro letter, showing clearly the 2nd respondent’s lies concerning the position of Kingston.’

7.11.The summary also contained what the applicant considered to be the issues for examination. Again I will give some examples :

(1)     Assen’s books and records :

Pages 1 and 2

‘ (c) Why were all pre-2003 accounts not produced?

(d)     Why were the 2003, 2004 and 2005 ‘audited’ accounts not signed by the auditors?

(e)     Why are all audited accounts produced completely different from ‘management accounts’ for all relevant years?’

Page 3

‘ (f) What are the reasons/purposes for re-creating the accounting records of Assen as if all 1992/3 transactions took place in 2003?

(g)     Why was Kingston recorded as a creditor for $16 million in 2003 by presumably lending $16 million via Assen to shareholders; and who were these shareholders?

(h)     Was there any documentary evidence for the $16 million lending from Kingston to Assen?’

(2)     Amount due to shareholders and long-term liabilities :

Page 5

‘ (i) What are the reasons for [the 2^nd respondent] to claim ‘ownership’ of the $12,940,800 ‘shareholder’s loan + long‑term liabilities’ in 2003, when he knew these were monies from ‘original’ shareholders of Assen to acquire the Assen lots in 1992?

(j)     Why has [the 2^nd respondent] failed to produce any documents to support his claim for ‘ownership’ of these ‘shareholder’s loans’?

(k)     Why is [the 2^nd respondent] so keen to show Kingston as a recorded creditor of Assen?’

7.12.These examples clearly support the view that, quite apart from the form of the request (i.e. answer on oath and oath examination) being different from that ordered by Chung J, the ambit of the inquiry also went beyond Chung J’s order.  It is by no means simply an enforcement of Chung J’s order by giving the respondents one last chance to respond. 

7.13.The Judge described the original summary as being convoluted, incomprehensible, lacking in focus and more in the nature of Mr Tang’s personal comments.  Although the summary has since been trimmed, my view is that the Judge’s comment on this summary is still valid.  The examples that I have cited earlier fully support this view.  The applicant asks the Court to narrow down the scope of the inquiry if we consider it necessary.  It is not right, as the Judge had said, that the Court should comb through the summary in order to identify what are the proper questions that ought to be answered and documents to be produced.  The burden is on the applicant to identify the proper questions and documents.

5)     ‘Catch-all and follow-on’ clauses?

7.14.The applicant sought to rely on the last question in Annex A namely, ‘Other questions to be raised following replies to the above or otherwise based on further documents to be produced by the respondents’ and also the last item in Annex B : ‘Other documents deemed by the trustees to be appropriate to be produced following the respondents’ answers and response to the questions put to them or production of the above documents, or otherwise’. The applicant described these clauses as ‘catch-all and follow-on’ clauses which enable him to make the follow‑up requests.  I am of the firm view that it could not have been the intention of Chung J to grant the applicant such wide power.  Annex A and Annex B had specified the type of documents and questions to be asked.  It is inconceivable that Chung J would give the applicant carte blanche power to ask for further documents and raise further questions simply based on the material the applicant had received without Chung J having sight himself of those new questions and documents. At most these clauses enable the applicant to return to Chung J to seek a further order on the new questions and documents that he wishes to pursue.

6)      Fundamental objection

7.15.More fundamentally even if the application was a real Order 45, rule 6 application, (which is not), in the light of the matters that I have discussed earlier under the heading of Overview, no useful purpose would be achieved by requiring the respondents to be subject to further questioning. It is clear that they had made the stance known that they have no further information to be supplied.  In view of the extremely belligerent stance of the applicant that the respondents have manufactured and falsified documents, it is unlikely that any useful purpose would be achieved by acceding to the applicant’s requests.  On the contrary, it will only generate more unnecessary disputes between the parties. It is of note that the chief complaint of the applicant is that the sale of the Properties was at a gross undervalue, but he has not been able to provide any proper valuation of the Properties.

7.16.A similar view was expressed by Anthony Chan J in Joe Zhixiong Zhou v. Saif Partners II LP & anor [2019] HKCFI 2467 (unreported, HCCL 16/2016, 9 September 2019) where an Order 45, rule 6 application was made :

‘ 5. I have a great deal of reservation whether the jurisdiction under Order 45, rule 6 is meant for a case where the respondent had steadfastly refused to comply with the court order. There seems to be no reason to believe that making another order in largely the same terms as the existing one by this court would produce a positive result for the Defendants.’

7.17.The observation is pertinent, particularly in the context of the case where the relief now sought by the applicant is drastically different from the terms of the original order.

VII.     Exercise of discretion

8.1     I now turn to the second issue of whether the Judge was wrong in his exercise of discretion in refusing to grant the relief sought by the applicant on the basis that the application before him was a section 29 application.

1)      Section 29 and the principles

8.2.Section 29(1) provides that :

‘ (1) The court may, on the application of the Official Receiver or trustee, at any time after a bankruptcy order has been made against a bankrupt summon before it the bankrupt or his spouse, or any person known or suspected to have in his possession any of the estate or effects belonging to the bankrupt or supposed to be indebted to the bankrupt, or any person whom the court may deem capable of giving information respecting the bankrupt, his dealings or property, and the court may require any such person to produce any documents in his custody or power relating to the bankrupt, his dealings or property.’

8.3.This Court in Hau Po Man Stanley (in bankruptcy) & Ors v Joint & Several Trustees [2008] 1 HKC 256 held that the purpose of the discretionary power under section 29(1) is as follows :

‘ 20. It is common ground the power conferred by s 29(1) is discretionary in nature. Its purpose is to enable:

‘ … the court to help a trustee to discover the truth and circumstances connected with and to gather information about the bankrupt’s property, affairs and dealings, in order that the trustee may be able, as effectively as possible, and with as little expense as possible, to complete his function; to put the affairs of the bankrupt in order and to administer the bankruptcy in all its various aspects, including the getting in of any assets of the bankrupt” (emphasis supplied).

8.4.The Court’s power under section 29 is to be exercised in the same way as an application under the now repealed s.221 of the Companies Ordinance (Cap. 32): Re Lai Kwok Ying (a bankrupt) (HCB 8750/2007, [2009] HKEC 1300, 7 August 2009) at [5] (Kwan J (as Kwan VP then was)).  The new equivalent provision is section 286B of the Companies (Winding Up and Miscellaneous Provisions) Ordinance.

8.5.In Joint and Several Liquidators of Kong Wah Holdings Ltd (2006) 9 HKCFAR 766, a section 221 case, Lord Millett NPJ at [23]‑[28] addressed in detail the scope and nature of section 221.

8.6.The following summary extracted from his judgment is similarly applicable to a section 29 inquiry in respect of a bankrupt.

1)     It is designed to enable a liquidator to carry out his functions.  These are twofold: (1) to collect the assets of the company, settle its liabilities and distribute its surplus funds amongst its creditors; and (2) to investigate the causes of the company’s failure and the conduct of those concerned in its dealings and affairs.  The first of these functions is primarily of concern to the company’s creditors and shareholders; the second serves a wider public interest in enabling the authorities to take appropriate action against those guilty of misconduct in relation to the company.

2)     It confers extraordinary powers on the Court.

3)     It is a vital part of the statutory insolvency regime.  It is designed to meet the difficulties faced by liquidators in finding out what has happened to the company’s assets and what has caused the failure of the company.  It has often been observed that a liquidator is usually a stranger to the affairs of the company.  He relies on orders for examination and production to reconstitute the knowledge of the company, in circumstances where the records are often inadequate, in order to be able to perform his duties in recovering the company’s assets and generally to enable him to carry out his functions effectively and with as little expense and as expediently as possible.

4)     Its purpose, however, is not limited to reconstituting the state of the company’s knowledge, even though that may be one of the purposes most clearly justifying the making of an order.  It may be used to discover facts and documents relating to potential claims by the liquidator against third parties or to enable him to report to the authorities with a view to taking action against those responsible for the company’s failure.  There is an important public interest ensuring that the liquidator should obtain the information needed to understand the company’s affairs and the reasons for its failure; and to report to the authorities to enable them to take appropriate action against those guilty of misconduct in relation to the company’s affairs.

5)     The powers conferred on the Court are wide, general and unlimited.  The liquidator must satisfy the Court that the information or documents sought are reasonably required to enable him to carry out his functions.  In considering this question, the authorities establish that great weight should be given to the views of the liquidator, for he is an officer of the Court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed; moreover, there are often great difficulties in seeing how the terms of the order can be cut down and remain effective.

6)     Its wide power and inquisitorial nature are capable of working with great severity against third parties.  It does not follow that the Court is bound to make an order merely because it has jurisdiction to do so.  It has a discretion to make or refuse the order sought or to modify or limit its terms. 

7)     The Courts should not attempt beforehand to attempt to classify all the occasions on which it may be proper to make an order within the section.

8.7.Lord Millett NPJ then at [30] summarised and elaborated on the general principles governing the balancing exercise :

‘1) The liquidator must show that the documents are reasonably required to enable him to carry out his functions, not that they are necessary to enable him to do so;

2)     the case for making an order under the section in respect of a former officer is usually stronger than in respect of a stranger who owes no fiduciary duties to the company and who is not under a statutory duty to assist the liquidator;

3)     there is an element of oppression in requiring a party to provide information which exposes him to potential liability;

4)     an order for oral examination is likely to be more oppressive than an order to produce documents;

5)     it is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought;

6)     an order is not necessarily oppressive because it is inconvenient for the party subject to it or causes him a lot of work or may make him vulnerable to future claims;

7)     in the light of the summary nature of the procedure and the need for expedition, the court cannot be expected to indulge in fine judgments as to the precise width of the order which should be made; and

8)    the court must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective.’

8.8.Godfrey Lam J in Re Lee Siu Fung Siegfried [2017] 1 HKLRD 1155 (CFI) discussed the extent of the permissible enquiry by the liquidator :

‘ 31. It was said in Hau Po Man Stanley at [32] that a mere “fishing” expedition by the applicant is not permissible under s.29. At first sight there might appear to be a conflict with what was said by Lord Millett NPJ in Joint and Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006)9 HKCFAR 766; Kong Wah Holdings Ltd at [33], namely, that the liquidator is “necessarily engaged in just such an expedition and the purpose of s. 221 is to enable him to carry it out effectively”. But on closer analysis it seems to me there is no real conflict.

32.  The feature highlighted by Lord Millett’s remark is that in the context of private examination, which is inquisitorial in nature, the officer in question, whether a liquidator or trustee, does not advance a case or specific pleaded allegations.  He may not in fact have the material to do so; yet the procedure “may be used to discover facts and documents relating to potential claims by the liquidator against third parties”: Kong Wah Holdings Ltd at [26].  The object is to gather for the office-holder information about the affairs of the company or the bankrupt to enable him to carry out his functions effectively.

...

34.  On the other hand, it would appear that in Hau Po Man Stanley at [32] the Court of Appeal was concerned about expeditions that ignore costs and proportionality: see Re Lee Priscilla Hwang (bankrupt) [2012] 4 HKLRD 581 at [23] per Recorder A Chow SC (as Chow J then was).  What could also be regarded as impermissible fishing is to seek to extract information from persons in respect of a matter when there is no well‑founded ground upon which to consider him prima facie capable of giving information: Re Maundy Gregory, ex parte Norton [1935] Ch 65, 74.  It would also be impermissible fishing to begin an examination without any clear suspicions and to conduct it to determine if matters or facts might emerge which may be of interest or assistance, though this does not mean a liquidator is not permitted to probe the circumstances relating to those on which the examination is centred, in the hope of determining whether there is another line of enquiry which should be pursued to ascertain the truth: Re Weihong Petroleum Co Ltd (No 2) [2003] 2 HKLRD 747 at [40]‑[41], [43].’

2)     The applicant’s submission

8.9.Mr Thomas Wong, relying on these principles, submitted that the Judge erred because :

1)     contrary to the Judge’s view, the mere fact that Assen is wound up and under the supervision of liquidators does not mean the applicant cannot continue to enforce Chung J’s order.

2)     In principle, as the Bankrupt’s shareholding in Assen is his assets, the applicant should be entitled to investigate Assen.

3)     The mere fact that the liquidators of Assen take a different view from the applicant does not mean that the applicant would ipso facto have to abandon his investigation considering the unusual circumstances of the case.

4)     The mere fact that Kingston had sold the Properties does not mean that no assets can be recouped which can potentially enhance the value of the Bankrupt’s shares.

5)     Although the applicant does not have expert valuation evidence, he is not required to make out a prima facie case that the sale was at an undervalue or improper before he could carry out the inquiry.

6)     No good reason existed that would justify the Judge’s view on change of circumstances.

7)     The applicant’s legitimate requirements outweigh any oppression to the Bankrupt.

8)     The Judge’s decision frustrated the applicant’s legitimate efforts as an officer of the Court.

9)     The cumulative effect is that the decision is erroneous and plainly wrong.

3)     My view on the exercise of discretion

8.10.At the outset it is important to remind ourselves what Bokhary PJ and Chan PJ said in Kong Wah Holdings Ltd at [2] :

‘ …whether and if so how those powers ought to be exercised in any given case will depend on the circumstances of the case. The court must exercise its powers effectively but of course not so as to support over‑zealousness or cause oppression. The court must do what, all things considered, appears at the time to be just and proper.’

8.11.In this case whether the Judge’s discretion was properly exercised or not must be considered in the context of the case.  The role of a trustee in bankruptcy, like that of the applicant, by reference to public policy or public interest, must likewise be judged by the facts of the case.

8.12.In respect of Mr Thomas Wong’s argument that, in principle, a trustee in bankruptcy of a shareholder of a company in liquidation should be entitled to conduct or continue investigations over that company, as the bankrupt’s shareholding represents an asset of his, reference was made to Re Esal (Commodities) Ltd (1988) 4 BCC 475 where Dillon LJ held (at 480‑481) :

‘ ...where the parent company of a group goes into liquidation, ...it would be fully open to [its] liquidators...to make documents obtained under [the then English equivalent of Cap 32 s 221] available to the directors or liquidators of the subsidiaries to assist them in getting in...or defending assets for the ultimate benefit not merely of the subsidiary, but also of the parent company itself,’

8.13.Dillon LJ recognized that the subsidiaries may themselves be in liquidation and potential conflicts of interest between the parent and the subsidiaries may exist.  Mr Thomas Wong argued that by analogy, where the Bankrupt has been a shareholder (and thus akin to a parent company) of Assen, the applicant should be entitled to obtain a section 29 order in respect of Assen even though it is in liquidation, for the Bankrupt’s (creditors’) ultimate benefit.

8.14.Mr Thomas Wong also referred to Re China Metal Recycling (Holdings) Ltd (order for examination) [2015] 2 HKLRD 747 where provisional liquidators were appointed to a listed company and were empowered to take control of all its subsidiaries including those in the Mainland.  Four of the Mainland subsidiaries are in bankruptcy administration on the Mainland (apparently as a result of applications made by creditor banks), and that the subsidiaries of these four subsidiaries are in turn probably also covered by such bankruptcy administration.  Godfrey Lam J held at [67] :

‘ I think it is fair to say that, where bankruptcy administrators have been appointed under the laws of mainland China in respect of particular subsidiaries, it may not be possible for the provisional liquidators actually to take possession or control of the assets of such subsidiaries. But this is not a ground for opposing the examination altogether. Nor do I think it would be right to restrict the order for examination in such a way as to preclude questions that touch upon the subsidiaries in bankruptcy administration. They may have had dealings with other subsidiaries in the Group. Further, the provisional liquidators, representing China Metal as the holding company, are likely to need information to deal with the bankruptcy administrators in order to protect the company’s interests.’

8.15.These two cases are clearly decisions based on their own facts and one cannot extract a principle from them that, because the Bankrupt had been a shareholder of Assen, the applicant would be entitled to obtain a section 29 order on the basis that it is for the Bankrupt’s ultimate benefit.  The whole of the Judge’s decision must be considered.  He did not dismiss the applicant’s case simply because Assen is in liquidation and under the supervision of the liquidators.

8.16.Mr Thomas Wong reminded us of this Court’s decision in Alan Chung Wah Tang v Lee Siu Fong [2020] HKCA 482 where reference was made at [30] to the lower court’s decision that :

‘ There may or may not be a case, even prima facie case, for impugning or re-opening any transaction, but it is not necessary to establish a prima facie claim in order to justify an order for examination.’

8.17.The view that the applicant is not required to establish a prima facie case for the purpose of a section 29 inquiry must again be considered in the factual background of each case.  The situation before the Judge was quite different from that before Chung J.  By the time of the hearing before the Judge, the applicant had already received from the respondents their replies to the questions in Annex A and the request for documents in Annex B.  In the light of these materials, it is legitimate to ask what information the applicant himself possess in order to impugn the sale?  In my view it would be impermissible fishing to seek to extract information from the respondents in respect of matters when there is no longer any well founded ground upon which to consider them capable of giving some more information.  My earlier comments under Order 45, rule 6 of the request being unlikely to reveal new information but will generate more unnecessary disputes between the parties apply equally to the present discussion.

8.18.The Judge held that a new section 29 application will need to be justified having regard to the new circumstances of the 1^st respondent being wound up and Kingston having sold the Properties.  In my view the Judge was right to regard these developments as new circumstances.  Upon the winding up of the 1^st respondent the liquidators had conducted an investigation to the affairs of the 1^st respondent and found that there was no falsification of accounts or there are other assets to be recovered.  Mr Thomas Wong had gone into details of the sale.  He argued the fact that Kingston had sold the Properties does not mean that no assets can possibly be recouped which can potentially enhance the value of the Bankrupt’s shareholding in Assen.  The sale itself may be impugned on the basis that it resulted in a sale of the assets of the 1^st respondent (and thus the Bankrupt) at gross undervalue or it was otherwise improper.  But the Judge had already addressed these issues :

‘ 34. The essence of Mr Tang’s submission is that the auction sale resulted in a sale of the assets of the 1^st respondent at gross undervalue. However, Mr Tang adduced no expert evidence to support his submission that the subject property should be worth about HK$140 million instead of HK$9.2 million. I accept Mr Wong SC’s submission that Mr Tang’s affirmation evidence is opinion evidence and as such is not admissible as evidence for the purpose of this hearing.

35.     Mr Lau of the liquidators of the 1^st respondent submitted that the open auction was supported by a surveyor’s report.  It is also fair to point out that Mr Tang has been requested to produce expert report to support his allegation that the auction sale was a sale at undervalue but he failed to do so.  Mr Tang explained that he has no financial resources to prepare a valuation to support his allegation which I accept to be true and correct.  However, the position remains that there is no evidence to substantiate the claim of an undervalue sale.

36.     In the circumstances, given that there is no evidence to contradict the factual position that the 1^st respondent has no assets and there are no further assets to be recovered, I do not think it is right to invoke section 29 of the Bankruptcy Ordinance to order the respondents to carry out a futile exercise.’

8.19.In my view the liquidators’ view not to pursue further was justified and the argument that the applicant was being frustrated in his task is rejected.

8.20.The Judge had further taken into account that on the facts of this case :

‘ it is oppressive to require the 2^nd to 4^th respondents to provide information and documents and to commit themselves on oath when the Trustees positively allege that the 2^nd to 4^th respondents have committed the crime of perjury and are in contempt of court.’

8.21.Lord Millett NPJ in Kong Wah Holdings Ltd stated that it is oppressive to require a person suspected of wrongdoing to prove the case against himself on oath prior to proceedings being brought.  As it turns out, the applicant had, by way of ex‑parte application, sought leave to issue contempt proceedings against the 2^nd to 4^th respondents.  The application was dismissed by Godfrey Lam J who held, amongst other things, that there was material non‑disclosure by Mr Tang in his ex‑parte application in that he had not even referred to the decision of the Judge :

‘The Trustees have not drawn attention to the reasoning in the Decision or even exhibited a copy of the Decision to the affirmation in support, let alone addressed the concerns it raised.’

8.22.The applicant has not given any indication that he would not pursue further contempt proceedings against the 2^nd to 4^th respondents.  The Judge’s comment on oppression is still valid.

VIII.    Judge’s order of indemnity costs

9.1.The Judge ordered the applicant to pay indemnity costs to the 1^st respondent on the basis that it was unreasonable and unnecessary to join the 1^st respondent and there was no basis to issue the leave summons.  He held that the applicant was well aware of the facts that the liquidators of the 1^st respondent did not have answers to any of the questions as set out in Annex A and they had also delivered whatever documents they had to the trustees prior to the taking out of the amended summons.  Although the applicant said what was asked was for the liquidators to confirm that they had provided all the documents and were unable to answer the questions, no such request was made prior to the taking out of the amended summons and the applicant had not advanced any basis as to why the liquidators should be subject to the request.  Further the Court cannot make any order on the speculative basis that it is possible that the liquidators would be able to comply.

9.2.I agree with the Judge’s view.  The applicant has not even begun to show that the discretion on costs was wrongly exercised.  Further as it transpired the applicant had not obtained the permission of the creditors’ committee to bring these proceedings.  Section 61(b) of the Bankruptcy Ordinance provides that the trustee may, with the permission of the creditors’ committee, do all or any of the following things ―

‘ (b) bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt;’

9.3.The purpose of section 61 is for the protection of the Bankrupt’s estate to ensure that only proper legal proceedings could be issued so as not to deplete the Bankrupt’s estate. 

9.4.Although the absence of such permission does not constitute a defence for a party against whom proceedings had been brought, a trustee who proceeds without the requisite permission may not be able to recoup his costs from the estate, see Lee Shuk Yee v Edwin Kwok Wing Yun (unrep, CACV 366/2005, 16 May 2006). 

9.5.The applicant had also not sought leave from the Court prior to commencing the proceedings before the Judge.  No explanation was given by Mr Tang, an experienced insolvency petitioner, why this happened.   

IX.     Conclusion

10.The appeal is dismissed.

X.     Costs of appeal

11.The appeal is totally without merits.  We will make a costs order nisi that the applicant is to pay costs of the appeal to the liquidators of the 1^st respondent and also to the 2^nd to 4^th respondents on an indemnity basis.  Mr Tang is to pay the costs personally and not from the estate of the Bankrupt.  Such costs are to be taxed on an indemnity basis. 

Hon Au JA :

12.I agree.

Mr Thomas W K Wong, instructed by Stevenson, Wong & Co., for Mr Alan Chung Wah Tang, one of the Joint and Several Trustees of the Property of So Ching Wan

Mr Lau Siu Hung, one of the joint and several liquidators of Assen Ltd (in liquidation), from Sammy Lau CPA Ltd, for the 1^st respondent

Mr Anson Wong SC, leading Mr Alan Kwong and Ms Sakinah Sat, instructed by Hom & Associates, for the 2^nd to 4^th respondents

Attendance of the Official Receiver was excused