Re Sng Allan, also known as Sng Hock Seng
Read the full judgment text of CACV 465/2018 on BabelCite. This Court of Appeal judgment was delivered on 6 June 2019.
1. I agree with the reasons for judgment and decision on costs of Barma JA.
Cited by 3 cases · Cites 9 cases
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CACV 465/2018 [2021] HKCA 1847 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 465 OF 2018 (ON APPEAL FROM HCB NO 3651 OF 2018) ________________________ BETWEEN
________________________ Before: Hon Kwan VP, Cheung JA and Barma JA in Court Date of Hearing: 6 June 2019 Date of Judgment: 6 June 2019 Date of Reasons for Judgment and Decision on Costs: 10 December 2021 ________________________ REASONS FOR JUDGMENT AND DECISION ON COSTS ________________________ Hon Kwan VP: 1.I agree with the reasons for judgment and decision on costs of Barma JA. Hon Cheung JA: 2.I agree with the reasons for judgment and decision on costs of Barma JA. Hon Barma JA: Introduction 3.This was an appeal by the Debtor against the judgment of G Lam J (as he then was) (“the Judge”) dated 27 August 2018 ([2018] HKCFI 2016) by which the appellant Debtor was adjudged bankrupt on the petition of the respondent Petitioner. 4.At the hearing before us, the Debtor was represented by Mr Paul Lam SC (leading Mr Foster Yim), and the Petitioner was represented by Mr Christopher Chain (leading Mr Nicholas Oh). At the end of the hearing, we dismissed the appeal and indicated that our reasons for doing so would be handed down at a later date. We also made certain orders and directions as to costs to enable the court to assess the costs of the appeal, and to deal with a possible claim by the Petitioner for the costs to be paid by a third party funder of the Debtor’s appeal, on paper without the need for a further hearing. These, with apologies for the time it has taken to provide them, are my reasons for our judgment. As our directions as to the costs of the appeal have been complied with, I deal at the end of this judgment with the questions of assessment of, and third party liability for, such costs. Background 5.The background matters can be briefly stated. By a Statutory Demand dated 15 March 2018, the Petitioner demanded that the Debtor pay a debt owed to the Petitioner in the amount of HK$48,989,888.57. This was the total of the outstanding principal under a margin loan granted by the Petitioner to the Debtor and accumulated interest thereon up to and including 13 March 2018. The loan was advanced pursuant to certain securities account agreements between the Petitioner and the Debtor. 6.The debt was secured by certain Hong Kong listed shares owned by the Debtor, namely: (1) 400,000 shares in Hanergy TFP (stock code 0566), the trading in which has been suspended since 20 May 2015; and (2) 51,000,000 shares in Tech Pro (stock code 03823), the trading in which has been suspended since 9 November 2017. In the Statutory Demand, the value of these shares was stated to be nil. 7.The statutory demand was served on the Debtor on 30 May 2018, but the Debtor neither complied with it nor did he make any application to set it aside. In consequence, the Petitioner petitioned for the Debtor’s bankruptcy by a petition dated 26 June 2018. 8.In the petition, the value of the shares was also stated to be HK$0, on the basis of “the ongoing suspension of trading in the [shares]”. The petition went on to state that it was not made in respect of the secured part of the debt. 9.On 27 August 2018, the petition was heard by the Judge. At the hearing, the Debtor sought leave to adduce expert evidence as to the alleged common practice in the industry of realising security upon the client’s default in meeting margin calls, and also to deal with the value of the shares. The Judge refused this request, and made the usual bankruptcy order against the Debtor. The decision below 10.The Judge’s reasons for his decision were as follows:
The appeal 11.The Debtor raised two grounds of appeal in his Notice of Appeal, namely:
12.The Petitioner contended that neither ground had merit. As to the Construction Ground, the Petitioner submitted that the proper construction of s.6B of the BO was that it does permit a petitioning secured creditor to value its security at nil value, without having to give up its security interest. As for the Valuation Ground, the Petitioner submitted it was not open to the Debtor to raise this ground on appeal given the position he took in the court below, where he did not suggest that the estimate of the value of the security was a sham or otherwise not genuine. The Construction Ground 13.The Construction Ground was a new ground sought to be raised for the first time on appeal. However, as it is a pure point of law, which does not depend on any evidence for its resolution, and was one which Mr Chain for the Petitioner did not object to and was prepared to meet, we allowed the Debtor to rely on this ground of appeal notwithstanding that it was not raised below. The principles of statutory interpretation 14.The proper approach to statutory interpretation is well settled, and there was no real dispute between the parties as to the applicable general principle, namely that the court will apply a contextual and purposive approach to give effect to the legislative intent whilst having due regard to the natural and ordinary meaning of the statutory language and words used and avoiding doing violence to the language of the provisions under consideration (see HKSAR v Furgo Geotechnical Services Ltd (2014) 17 HKCFAR 755, at [22] per Fok PJ). 15.Mr Chain also referred to the following principles, which are also well-established and not controversial:
The relevant provisions of the BO 16.The starting point is s.6(2)(b) of the BO, the pertinent parts of which provide as follows:
17.Although s.6(2)(b) requires the debt on which a petition is based to be unsecured, s.6B of the BO permits a secured creditor to petition for a debtor’s bankruptcy subject to certain conditions. S.6B provides as follows:
The Debtor’s submissions 18.For the Debtor, Mr Lam contended that, on a proper construction of s.6B(1)(b), a secured petitioner who estimates the value of his security as nil cannot invoke that subsection in order to present a bankruptcy petition, and may only rely on s.6B(1)(a) by giving up the security that he holds. 19.Mr Lam very fairly accepted that there are several cases in which the Hong Kong courts have made bankruptcy orders even though the petitioner had estimated the value of his security. However, he pointed out that in those cases, the point was not argued, and that there appears to be no Hong Kong or English authority in which the construction of s.6B or its English equivalent (s.269(1) of the Insolvency Act 1986, which is in identical terms to s.6B(1)). He also very properly drew our attention to the Australian authority of Re O’Leary, ex parte Bayne (1985) 61 ALR 674, where Sheppard J held (at 683):
20.However, he went on to submit that we should not follow Re O’Leary, as it is not binding on us, the point did not appear to have been fully argued, no detailed reasons were given, and the relevant Australian statutory provisions (s.44 of the Bankruptcy Act 1966 are differently worded), and Sheppard J’s view may have been influenced by the fact that, under Australian law (unlike Hong Kong and common law), the petitioning creditor is not bound by the estimate in his petition. 21.Mr Lam submitted that the Debtor’s construction should be adopted because:
The Petitioner’s submissions 22.For the Petitioner, Mr Chain referred us to the legislative history of s.6B submitting that it was a useful cross-check when considering its construction:
23.Bearing this in mind, Mr Chain argued that the proper construction of s.6B is that it does permit a petitioning secured creditor to value his security at nil, without having to give up the security. He put forward three main propositions in support of this construction. They can be summarised as follows:
Discussion 24.In my view, the Petitioner’s construction of s.6B is clearly correct. This is for a number of reasons. 25.First, the wording of s.6B(1)(b) does not, on its face, impose any restriction or qualification as to the estimated value to be placed on the security. On the natural reading of the statutory wording, there appears to be no reason why the estimated value cannot be nil. As is made clear by the examples referred to in [23(1)(b)] above, there are multiple ordinary practical scenarios where a security interest may quite properly and appropriately be valued at nil. 26.Second, I cannot agree with Mr Lam that the introduction of the notion of separate debts in respect of the secured and unsecured parts of the debt (or the use of the word “parts” in respect of the two notional elements of the secured debt) in s.6B mandates that the amount of the secured part of the debt or the estimated value of the security under s.6B(1)(b) must exceed zero. Quite apart from the fact that I can see no conceptual difficulty with a statement that the value of the secured part of the debt is zero, it must be borne in mind that the provision merely deems the debt to have two parts, one secured and the other unsecured. In reality there is only one debt, which is secured, and the security may or may not have any value, depending on the circumstances. Given that one is considering a statutory deemed construct, which is simply intended to enable a secured creditor to petition for a debtor’s bankruptcy where he is for all practical purposes unsecured in respect of the shortfall between the amount of the debt and the value of the security held, there is in my view even less reason to think that one (the secured) part, should have a non-zero value. 27.It is clear that the purpose of s.6B is to enable a secured creditor, whose security is worth less than the amount of the debt he is owed, to present a petition for the bankruptcy of the debtor concerned. It follows from this that it cannot have been the legislative intention that the secured creditor should necessarily give up his security in order to be able to present a petition. That being so, I am unable to see any rational reason why a secured creditor whose security is genuinely thought to be worthless at the time of the petition should be required to give it up in order to present his petition, whereas a secured creditor whose security is genuinely thought to have some value, however small (perhaps as little as HK$1) should be able to retain it. Such an outcome would, to my mind, well deserve the epithet “absurd”. 28.This is particularly so when one considers Mr Lam’s question why a secured creditor who estimates the value of his security at nil should be allowed to retain it. This question is readily answered by reference to rule 13 of the Proof of Debt Rules, and by the example of a post-petition increase in the value of the security referred to by Mr Chain. There can be no justifiable reason why a petitioner who genuinely and reasonably estimates the value of his security at the time of the petition to be HK$1 can apply under the Proof of Debt Rules to amend the estimated value in the event of a subsequent increase in the value of the security, but a petitioner who genuinely and reasonably estimates the value of his security to be nil cannot rely on the same procedure. Rule 13 of the Proof of Debt Rules makes no distinction between the petitioner and other creditors. Each of them has to put in a proof of debt in order to participate in any dividend that might be declared. 29.Mr Lam submitted in oral argument (relying on Re Lacey (1884) 13 QBD 128 and Re Button [1905] 1 KB 602) that the common law rule preventing a petitioner from revising his estimate of value in respect of his security should still be followed, at least to the extent that rule 13 of the Proof of Debt Rules should only be understood as permitting a petitioner to avail himself of the rule 13 procedure in the case of a bona fide mistake as to the estimate, but not in the event of a change in value of the security. Although it is correct that the cases relied on do suggest that the petitioner cannot change his estimate save in the case of a bona fide mistake, I can see no justification for such a reading of the rule. Nothing in the rule suggests that it should be so limited in the case of a petitioner – it refers only to creditors, which would naturally include the petitioner, and contains no indication of different treatment for a petitioning creditor. Further, Mr Lam accepted, when it was put to him in argument, that rule 13 reflected the recommendation at paragraphs 1521 and 1522 of the Cork Report (1982, Cmnd 8558) which came many decades after those cases were decided. Those paragraphs related to valuation of securities and were in the following terms:
30.This also suggests, to my mind, that the position now is that the petitioning creditor is in the same position as any other creditor, and thus can amend the value he places on his security in the light of actual events. That being so, it is impossible to see why a petitioning secured creditor who values his security at zero should be in any different position from other petitioning creditors who regard their securities as having some value, or why the petitioning creditor who values his security at zero should be treated differently from other proving creditors who have done the same. 31.Further, as Mr Chain correctly pointed out, even this limited acceptance by Mr Lam of the applicability of rule 13 to a petitioner necessarily undermined Mr Lam’s suggestion that there was no reason why a petitioner who estimated his security to be of nil value should not be required to give it up. 32.For all of the foregoing reasons, it seems to me that the terms of s.6B, the context (of the BO and the Bankruptcy Rules), the statutory purpose as revealed in the legislative materials and the unreasonable and unjust consequences of the interpretation of s.6B advanced by Mr Lam all point firmly in favour of the Petitioner’s interpretation of s.6B as entitling the petitioner to place a nil value on security held by him. This conclusion is also consonant with all the authorities from various jurisdictions to which we were referred. Although there was little discussion or debate as to the construction issue in those authorities, this might be because it was regarded as being a straightforward matter which admitted of no real argument. It follows that the Construction Ground put forward by the Debtor must be rejected. The Valuation Ground 33.The Debtor also sought to contend that the Petitioner’s estimate of a nil value for the shares was not genuine and was arbitrary, because the reason given for such valuation was misconceived, as it did not follow from the suspension of trading of the shares that they had become valueless. 34.Mr Chain for the Petitioner objected to this ground, and submitted that it was not open to the Debtor to advance this argument on appeal when it was not taken in the court below. 35.Mr Lam fairly accepted that the Valuation Ground had not been taken in the court below, and as noted in [10(2)] above, the Judge recorded that there was no suggestion before him that the estimate was a sham, or other than genuine. 36.In these circumstances, it is not open to the Debtor to raise the Valuation Ground on appeal. This is clearly a point which, if raised below, would have been likely to have been the subject of evidence from the Petitioner to refute it. It is well-established that where a point is taken for the first time on appeal, in respect of which evidence might have been filed that might have defeated it in the court below, it will not be allowed to be raised on appeal. As Blair Kerr J observed in Tang Koon Wai v Tang Ting Chun (Unreported, CACV 25/1970, 25 November 1970), at [22]:
37.In the circumstances, it is not necessary to consider the Valuation Ground further, and it must be rejected. Disposition and questions of costs 38.For the reasons explained above, the Debtor’s appeal was dismissed. It was accepted by Mr Lam that costs should follow the event. Mr Chain sought disclosure from the Debtor of the identity of the funder of the Debtor’s appeal, with a view to seeking recovery of the costs of the appeal from the funder, in the event that the Petitioner’s costs could not be recovered from the Debtor. Accordingly, we dismissed the appeal with costs to the Petitioner with certificate for two counsel, and made the following further orders (set out in paragraphs 3 to 6 of our Order dated 6 June 2019) in relation to costs at the end of the hearing, with a view to enabling the costs to be assessed and any question of third party liability for costs to be addressed:
39.Pursuant to the Order dated 6 June 2019, the Debtor’s solicitors wrote to the court (with a copy to the Petitioner’s solicitors) on 10 June 2019 disclosing the name and last known address of the Funder. Thereafter, on 18 July 2019, the Petitioner’s solicitors lodged a statement of costs providing a breakdown of the Petitioner’s costs of the appeal, which amounted to HK$338,390. However, there was no indication as to whether the statement of costs had been served on the Funder, and if so, whether the Funder had been informed of our Order, her potential liability for the costs of the appeal, or the need to lodge submissions concerning her liability for and the amount of the costs claimed. On 29 July 2019, the Debtor’s solicitors lodged a list of objections to the Petitioner’s costs statement on behalf of the Debtor. No submissions or objections have been received from the Funder. Further, the Petitioner has not thereafter indicated whether or not it seeks payment of its costs by the Funder (in this regard it may be noted that this may not prove necessary, as the Official Receiver had on 7 June 2021 written to the Petitioner’s solicitors to inform them that there might be sufficient assets in the Debtor’s estate to pay the Petitioner’s costs). 40.In these circumstances, it seems to me that the appropriate course to take at this stage would be to assess the Petitioner’s costs on a gross sum basis, but only as between the Petitioner and the Debtor. Such assessment will not bind the Funder. So far as the Funder is concerned, if it is sought to pursue the Funder for any part of the Petitioner’s, the Petitioner should write to the court to seek further directions to enable this to be achieved. 41.As between the Petitioner and the Debtor, the Debtor’s principal objection in relation to the statement of costs filed related to the number of solicitors engaged. The Debtor submitted that there was no need for three solicitors to have been employed, and accordingly sought to exclude the costs attributable to the second associate solicitor mentioned in the statement of costs. Beyond this, objection was taken to various items charged by the partner and first associate solicitor, on the basis of excessive time spent. 42.The objection that three solicitors should not have been engaged appears to be based on a misconception. It is clear from the statement of costs that only two solicitors were engaged by the Petitioner at any time during the conduct of the appeal. The partner was engaged throughout, the first associate solicitor was engaged from the beginning of the appeal until 15 October 2018, and the second associate was engaged only after 29 October 2018. The Debtor’s major objection is thus unfounded. It remains to consider whether the time spent by the solicitors in dealing with the appeal was reasonable (no objection is taken as to counsel’s fees). Taking a broad brush approach, I would accept that a small reduction might be made in respect of the Petitioner’s solicitors charges and would reduce the time spent by the partner under section C of the statement of costs by 2 hours, and that spent by the second associate by 3 hours, in total. This leads to a reduction of HK$21,200. I would therefore assess the Petitioner’s costs of the appeal in the total amount of HK$317,190, as between the Petitioner and the Debtor.
Mr Christopher Chain and Nicholas Oh, instructed by Li & Partners, for the Petitioner Mr Paul Lam SC and Mr Foster Yim, instructed by Tam, Pun & Yipp, for the Debtor The Official Receiver, attendance excused |
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