Li Xiao Yi and Another v. Alan Chung Wah Tang and Another
Read the full judgment text of CACV 189/2018 on BabelCite. This Court of Appeal judgment was delivered on 3 April 2019.
1. I agree with the reasons given by Barma JA.
Cited by 5 cases · Cites 9 cases
|
CACV 189/2018 [2021] HKCA 1735 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 189 OF 2018 (ON APPEAL FROM HCB 345/2001) ---------------------------
--------------------------- Before: Hon Chu JA and Barma JA in Court Dates of Hearing: 3 April 2019 Date of Judgment: 3 April 2019 Date of Reasons for Judgment: 25 November 2021 __________________________ REASONS FOR JUDGMENT __________________________ Hon Chu JA: 1.I agree with the reasons given by Barma JA. Hon Barma JA: 2.This was an appeal against the decision of G Lam J (as he then was) (“the Judge”) dated 30 April 2018 ([2018] HKCFI 939) by which he dismissed two applications by the applicants’ for discovery (one for non-party discovery, and the other for specific discovery) in support of their application (made under section 96(2) of the Bankruptcy Ordinance (Cap 6) (“the Ordinance”) and the court’s inherent jurisdiction) to remove Mr Alan Chung Wah Tang (“Mr Tang”) and Ms Anita Hou (“Ms Hou”) as the joint and several trustees in bankruptcy (“the trustees”) of Mr Lee Siu Fung Siegfried (“Mr Lee”). 3.We heard the appeal on 3 April 2019. At the hearing, the applicants were represented by Mr Wong Yan Lung SC and Mr Justin Ho, and the trustees were represented by Mr Patrick Siu. At the conclusion of the hearing, we dismissed the appeal, with costs to the trustees and indicated that our reasons for doing so would be handed down later. We now hand down our reasons, with apologies for the delay in doing so. 4.The two discovery applications arose in the context of long-running bankruptcy proceedings in respect of Mr Lee. The factual background to the appeal is, in summary, as follows. 5.Mr Lee was the founder, Chairman, CEO and single largest shareholder of Siu Fung Ceramics Holdings Ltd, a Hong Kong listed company which was wound up by the court in May 2000 on a winding up petition presented by HSBC in March 1999. In January 2001, HSBC presented a bankruptcy petition against Mr Lee in respect of a HK$322 million debt arising out of a guarantee given by him, and Mr Lee was adjudged bankrupt on 8 May 2001. Mr Tang and Mrs Alison Wong (“Mrs Wong”) (who are for convenience also referred to as “the trustees” in respect of the period up to Mrs Wong’s replacement by Ms Hou) were appointed as trustees of Mr Lee’s estate on 19 September 2002. 6.On 5 May 2005, three days before Mr Lee would have been automatically discharged from bankruptcy, the trustees made an application for the postponement of Mr Lee’s discharge for bankruptcy under sections 30A(3), (4) and (10) of the Ordinance. Following substantial and inexcusable delays in the trustees’ conduct of the application, I struck out the application as an abuse of process by my decision dated 27 August 2008, with the effect that Mr Lee was to be treated as having been discharged from bankruptcy on 7 May 2005. 7.In 2015, Mrs Wong resigned as a trustee and was replaced by Ms Hou with effect from 9 April 2015. 8.On 19 July 2016, the trustees applied for the private examination of Mr Lee and the applicants, under section 29 of the Ordinance. The applicants are respectively the younger brother and son of Mr Lee. The application was based on suspicions that Mr Lee had concealed or failed to disclose his assets with the assistance of his family members, including the applicants. 9.On 28 September 2016, the Judge made an order for the private examination of Mr Lee, for the reasons set out in his Reasons for Decision dated 12 October 2016 ([2017] 1 HKLRD 1155), and adjourned the remainder of the application (i.e. insofar as it concerned the applicants) for substantive argument. 10.On 27 March 2017, while that adjourned application was pending, the applicants issued their summons referred to in [2] above, seeking the removal of the trustees for misconduct. The main allegations of misconduct concern matters arising out of the bankruptcy proceedings in respect of a Mr Ho Yuk Wah David (“Mr Ho”), to which I should briefly refer in order to place these allegations in their proper context:
11.The gist of the applicants’ complaint in the removal proceedings is that the trustees have demonstrated themselves to be unsuitable to continue to act as trustees in respect of Mr Lee having regard to (1) Mr Tang’s conviction for contempt of court in HCMP 450/2016, and (2) Mr Tang and Ms Hou’s alleged participation in a fraudulent scheme by Mr Ho to place his funds out of reach of his creditors. 12.On 12 April 2017, the applicants took out the first of their two discovery applications, seeking non-party discovery against Messrs Ip in respect of documents showing the use of funds recovered from the CWT liquidation in the administration of Mr Lee’s bankruptcy (“the non-party discovery summons”). On 14 July 2017, the applicants took out the second of their discovery applications, this time for specific discovery against the trustees in respect of essentially the same documents (“the specific discovery summons”). On 31 August 2017, the non-party discovery summons was amended so that the same documents were sought under both summonses, namely:
13.In connection with their removal application, the applicants also sought a direction that the adjourned portion of the trustees’ application for private examination of the applicants should not be heard or determined until after the removal application was dealt with. This was refused by the Judge, who heard the application for private examination on 7 July 2017 and, by his judgment dated 21 September 2017, ordered that the applicants be examined in relation to four aspects of the trustees’ investigations into the affairs of Mr Lee. 14.The Judge then heard the two discovery applications on 23 January 2018 and dismissed both by his decision of 30 April 2018, on the basis that the applicants had no legitimate interest, and thus no locus, to apply for removal of the trustees, so that it followed that they had no basis for applying for the discovery sought, as it was sought for the purposes of the removal application. Having come to this conclusion, the Judge did not think it necessary to go on to decide whether the documents were relevant or whether, as submitted by counsel for the trustees, the discovery applications were merely a fishing expedition. 15.By a notice of appeal dated 25 May 2018 (as amended on 8 August 2018), the applicants appealed against the Judge’s conclusion that the discovery applications should be dismissed as they had no legitimate interest in making the removal application. On 22 August 2018, the trustees filed a respondents’ notice seeking to affirm the Judge’s decision on the additional basis that the discovery applications were impermissible fishing expeditions. 16.Before I turning to the parties’ respective arguments, there is one additional matter which should be mentioned. By a summons dated 27 April 2018 filed in HCB 3819/2011, Messrs Ip sought an order under section 29 of the BO that the trustees produce two classes of documents, namely (1) all documents leading up to, arising out of or in connection with the consultancy agreement between Sinowood and the trustees and (2) other funding agreements concerning Mr Lee’s bankruptcy, and all documents arising out of or in connection with such funding agreements. By a decision dated 18 January 2019 ([2019] HKCFI 149, [2019] 1 HKLRD 961), Recorder Eugene Fung SC ordered the production of the first category of documents, on the basis that there were cogent reasons for believing that Mr Ho controlled Keentrade and Sinowood at the material time and stood to benefit from any payments that the companies received from the respondents, such that the documents were reasonably required for Messrs Ip to carry out their functions as Mr Ho’s trustees in bankruptcy. The Recorder however declined to order production of the second category of documents, noting that the Keentrade funding agreement was terminated on 25 March 2013 and that Mr Lee’s bankruptcy was thereafter funded by a company called China New Investment Ltd (“CNIL”), and Ms Hou had confirmed on oath that CNIL was not related to Mr Ho, and there was no evidence to suggest otherwise. 17.In coming to his conclusion that the applicants lacked locus to apply for the removal of the trustees, as they had no legitimate interest in doing so, the Judge approached the matter by reference to the principles set out by the Privy Council in Deloitte & Touche AG v Johnson [1999] 1 WLR 1605. There, the liquidators of a Omni Securities Ltd brought a negligence claim against Deloitte Haskins & Sells ACG, the former auditors of Omni Securities. Deloitte applied to the Cayman Islands court for the removal of the liquidators, contending that the liquidators were in a situation of conflict of interest, as they were partners in a firm, Cooper & Lybrand, which was by the time of the proceedings part of the same corporate group as the applicant. Lord Millett, giving the opinion of the Privy Council, concluded that Deloitte did not have the requisite standing to make its application. As Lord Millett explained (at 1611B-F), when the court is asked to exercise a statutory power, it must first be satisfied, as a matter of jurisdiction, that the applicant falls within the category of persons specified in the statute. But this is not the end of the inquiry. The applicant must go on to show that he is a proper person to make the application, in the sense that he has a legitimate interest in the specific relief sought, as opposed to merely an interest in making the application or potentially being affected by its outcome. On the facts of Johnson, the Privy Council held that Deloitte did not have a sufficient interest in making the application, Lord Millett saying (at 1611F-1612C):
18.The Judge also referred to the decision of Chu J (as she then was) in Wang Din Shin v Nina Kung HCAP 8/1999 (unrep, 20 Aug 2004), in which the defendant sought to remove the administrators pendente lite of her deceased husband’s estate on the basis that they had, inter alia, misused their position as shareholders in a number of companies in which the estate was interested to interfere with the management of those companies. The application was said to be made in order to protect her interests as a shareholder of those companies. Chu J refused the application, holding that the jurisdiction under section 33 of the Probate and Administration Ordinance (Cap 10) was only intended for use by those who are beneficially entitled to the estate and whose interests can be identified with that of the estate. In contrast, the defendant qua shareholder was a stranger to the estate, and her interests were in fact opposed and adverse to those of the estate. She therefore had no rights or interest in the identity of the administrators of the estate. Insofar as her separate interest as a shareholder or partner might have been harmed, her only remedies were for damages or an injunction. 19.Applying these principles, the Judge held that the applicants were similarly strangers to Mr Lee’s estate. They were merely relatives, and not creditors, of Mr Lee, and had no interest in his bankruptcy estate. Although they were the subject of an application for private examination, that application had already been determined in the trustees’ favour. Their only other potential concern was that the trustees might bring claims against them, but this could not ground a removal application, as in this respect their interests were adverse to the estate. Furthermore, it was not the case that the applicants would be left without a remedy if claims were to be brought against them – they would have the same protection and remedies that all litigants have against frivolous and vexatious claims. In any event, the applicants’ complaint that the trustees are (allegedly) being funded by Mr Ho was immaterial, as it is not a defence to an action (nor a ground for staying it) to show that the plaintiff had entered into a champertous arrangement, or one savouring of maintenance, with a third party. 20.Before us, Mr Wong, who did not appear before the Judge below, submitted that the Judge erred in approaching the question of standing from the perspective that the applicants might be the subject of a potential claim from the trustees. He submitted that the gravamen of the applicants’ complaint was that they were to be subjected to a private examination conducted by the trustees under section 29 of the Ordinance, and therefore had a legitimate interest in making the removal application by reason of their need to protect themselves from the risk of being treated unfairly in the private examination by trustees who (they say) are unfit to hold office. He referred us to sections 82 to 84 of the Ordinance, which provide for the court’s control of the exercise of discretionary powers of trustees on application by the bankrupt or a creditor or “any other person … aggrieved by any act or decision of the trustee”. He submitted that if the applicants have standing to seek the court’s intervention as persons aggrieved by the trustees’ acts, following an unfair examination, there is no reason why they should not be able to remove the trustees to avoid the infliction of the grievance in the first place. 21.Mr Wong also placed reliance on the decision in Smedley v Brittain [2008] BPIR 219, a decision of Registrar Nicholls in the Chancery Division on an application by a debtor to remove a bankruptcy trustee for alleged misconduct in obtaining the debtor’s books and records. Registrar Nicholls held at [24]-[26] of his judgment that a bankruptcy trustee was required to act reasonably in his dealings with the debtor and that a debtor could apply to remove the trustee from office if the trustee failed to do so, although the threshold for making and succeeding in such an application was a high one, bearing in mind that the trustee is appointed with a view to realizing assets for the benefit of creditors. Mr Wong suggested that the same approach should apply to the applicants, who he said were in the same position as the bankrupt, in that they would also be dealt with by the trustees, who should thus owe them the same duties to act reasonably towards them. 22.Mr Wong also contended that the Judge was wrong to consider that the applicants were “strangers” to the bankruptcy in the sense explained by Lord Millett in Deloitte v Johnson. While the applicants were not creditors of Mr Lee’s estate, they were participants in the bankruptcy process as subjects of the trustees’ exercise of the coercive powers conferred on them by the Ordinance. This, said Mr Wong, was to be contrasted with the position in Deloitte v Johnson and Wang Din Shin v Nina King, where the applicants were external to the liquidation and administration respectively. Unlike the applicants in those cases, these applicants would not have any alternative recourse outside the liquidation process, such as an action for damages or an injunction. 23.Finally, Mr Wong submitted that the Judge erred in concluding that the applicants’ interests were opposed to that of the estate, particularly when the bankrupt himself had also made an application to remove the trustees on similar grounds. He contended that what the applicants opposed were the statutory steps which the trustees were taking against them in the course of the administration of the bankruptcy, and that this was in fact aligned with (rather than opposed to) the best interests of the estate, in that if (as the applicants contended) their private examinations were unnecessary, and were wrongfully pursued by incompetent or unfit trustees, making the application should be regarded as helping to avoid funds of the bankruptcy estate being wasted on unmeritorious proceedings against the applicants. Mr Wong also claimed that it would be wrong as a matter of policy to deprive the applicants of standing on the basis of their opposing stance alone, given that they were more likely to be aware of misconduct on the part of the trustees. In any event, he said, the court’s discretionary power to control and remove its officers on grounds of misconduct exists not only to protect the interests of the parties, but also serves to safeguard the public’s confidence in the court and its officers. 24.I am, with respect, not persuaded by Mr Wong’s submissions. As Lord Millett explained in Deloitte v Johnson, the question of legitimate interest must be answered by reference to the nature of the relief or remedy that is sought. In my view, the applicants’ alleged concerns that the trustees might conduct the private examination in an unfair or oppressive manner simply do not justify an application on their part to remove the trustees from office, particularly after an order for examination has already been made. 25.To the extent that there might have been any basis for concern as to potentially unfair conduct of the examination by the trustees, the proper forum for ventilating these concerns was at the hearing of the application for private examination. As noted above, that application has already been heard and decided, the Judge having ruled that it should go ahead notwithstanding the applicants’ attempt to stay or postpone it until after their application for removal of the trustees was dealt with. That case management decision has not been appealed. I also note that this point does not seem to have been raised in the course of the application for private examination. On that occasion, the grounds of opposition were related to the areas of proposed examination (see [11] to [47] of the Judge’s earlier decision dated 21 September 2017 by which he ordered the private exemption of the applicants), and also on other general factors such as the fact that the applicants were strangers to the bankruptcy, general delay, and oppression on the basis of delay and the possibility that proceedings may be brought against the applicants (see [48] to [55] of that decision). No appeal appears to have been brought against the decision of the Judge ordering the private examination of the applicants. 26.In my view, it is inappropriate for a person who has been made the subject of an order for private examination, which has not been appealed, to launch a collateral attack on the order by applying to remove the trustees under section 96(2) or the inherent jurisdiction of the court. It is clearly an attempt at a second bite of the cherry, given that the concerns now expressed could, and should, have been raised in the context of the application for examination (and in this respect the application amounts to an abuse of process of the Henderson v Henderson sort, particularly where as here, a ground which could have been, but was not, relied upon is raised). Moreover, it seeks a remedy which goes far beyond what is required to address the alleged grievance, as the removal of the trustees would not merely affect the conduct of the private examination, but would have serious ramifications for all other aspects of the administration of the bankrupt’s estate, with regard to which the applicants can have no complaint and in respect of which they plainly have no legitimate interest to interfere. 27.Further, insofar as the examination may turn out to be conducted in an unfair manner, the applicants will have the opportunity to object to this in the course of the examination, which will be presided over by a registrar or a Judge. 28.In his submissions before us, Mr Wong also emphasized the fact that the examination had yet to take place, and that the removal of the trustees would relieve the applicants from the trustees’ improper exercise of their powers. However, taking this submission at its highest, it is simply an argument that the applicants would derive some benefit from the removal of the trustees if they are successful in their application. However, as Lord Millett explained in Deloitte v Johnson, this fact alone is insufficient to confer standing upon the applicants. 29.I am further unable to agree with the distinctions which Mr Wong sought to draw between Deloitte v Johnson and the present case. I do not read Lord Millett in Deloitte v Johnson as suggesting that every person who is “within the bankruptcy process” (to adopt Mr Wong’s terminology) has standing to make an application to remove a bankruptcy trustee. On the contrary, Deloitte v Johnson is authority for the proposition that the only persons who have a legitimate interest to remove a liquidator from office are the creditors, they being the persons entitled to participate in the ultimate distribution of assets (see per Lord Millett at 1611H). Further, as Lord Millett noted (at 1610E-F), their Lordships were unaware of any case in which the court had removed a liquidator on the application of a person who was not a creditor or a contributory, as the case may be. 30.Nor do I think Mr Wong’s attempt to distinguish Johnson on the basis that there was no allegation that the liquidator had breached any duty owed to the applicant or acted unconscionably to the applicant in that case. As the Judge pointed out at [23] of his decision under appeal, in response to a similar submission by the applicant in the court below, Lord Millett cannot be taken as suggesting that every person who alleges impropriety or want of probity necessarily has a sufficient interest to seek the removal of a liquidator or a bankruptcy trustee. The touchstone in every case remains whether the applicant has a legitimate interest in removing the liquidator or trustee from his office. If, as in the present case, the applicants are only concerned with, and affected by, one limited aspect of the trustees’ administration of the bankrupt’s estate, they do not have a sufficient interest to seek an order which would pertain to the whole process. 31.As far as Smedley is concerned, it should be noted that the question of the debtor’s locus to make a removal application appears to have been assumed, and was not argued, with Deloitte v Johnson and Re Corbenstoke Ltd (No. 2) [1990] BCLC 60 (approved in Deloitte v Johnson) not referred to. But even assuming (without deciding) for present purposes that the debtor has such locus, it seems to me that the position of the applicants is far removed from that of the debtor. First, the debtor may (conceivably) have an interest in the estate, to the extent that it may turn out that there is a surplus. Second, the extent of the debtor’s involvement in the bankruptcy process and of his dealings with the trustee is far more extensive than that of the applicants. For both of these reasons, it does not seem to me that the applicants’ position can be equated to that of the debtor himself, so that the decision in Smedley does not assist the applicants. 32.As for the suggestion that the applicants should not be regarded as strangers to the estate, this is the opposite of what was submitted in the context of the examination application (see the 21 September 2017 decision at [48]). In any event, it seems to me that the Judge was quite right to take the view that the applicants should be regarded as strangers to the estate, as they have no interest in it. 33.Moreover, the submission that the applicants’ position is not necessarily hostile to the estate, on the basis that they are seeking to improve its position by ensuring that its funds are not expended on unnecessary or unmeritorious applications must be rejected. As the targets of the examination, they clearly have an interest of their own to protect and in this regard, their interests are clearly at odds with those of the estate in bankruptcy. 34.Finally, I do not consider that the applicants’ case is advanced by their suggestion that they are well placed to identify misconduct on the part of the trustees. In my view this is no answer to the approach established in Deloitte v Johnson that, as a matter of judicial restraint, the court will only make orders on the application of a person who has a legitimate interest in the relief sought. The mere fact that the applicants may be well placed to identify misconduct on the part of the trustees or the fact that the court has supervisory jurisdiction over its officers does not assist the applicants if they are otherwise unable to satisfy this hurdle. 35.For all of the foregoing reasons, I am of the view that the Judge was right to conclude that the applicants lacked standing to make their removal application, and in consequence that their applications for discovery in aid of such an application fell to be dismissed on this basis. 36.Like the Judge, having come to this conclusion, I do not think it necessary to consider whether or not the discovery orders should have been made, assuming that the applicants had the necessary locus which the Judge and this court have held that they lacked. 37.In these circumstances, the applicants’ appeal was dismissed, with costs to the trustees, to be taxed on the party and party basis if not agreed.
Mr Wong Yan Lung SC and Mr Justin Ho, instructed by Anthony Siu & Co, for the applicants Mr Patrick Siu, instructed by ONC Lawyers, for the respondents | |||||||||||||||||||
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under CACV 189/2018