Dr. Andrew Kee-suan Koh v. Dr. Vincent Kay-lo Ip
Read the full judgment text of CACV 75/2000 on BabelCite. This Court of Appeal judgment was delivered on 23 February 2001 before Rogers VP, Le Pichon JA and Yeung J.
Civil procedure – leave to appeal to Court of Final Appeal – bankruptcy – whether bankrupt may use name of Official Receiver as trustee to bring appeal – requirement of full indemnity – whether insufficient indemnity renders order a nullity – Bankruptcy Ordinance (Cap 6) s.12 and s.83 – action for breach of contract and deceit – concurrent findings of deceit by two courts – damages reduced on appeal from HK$1,500,000 to HK$1,170,422.40 – defendant adjudicated bankrupt before leave application filed – Official Receiver as trustee declined to pursue appeal – Deputy Judge ordered bankrupt be permitted to use name of Official Receiver on condition of HK$300,000 security for costs – bankruptcy divests bankrupt of interest in assets and liabilities – right of appeal against monetary judgment vests in trustee – per Heath v Tang – judgment debt provable in bankruptcy – trustee holds assets for creditors' sole benefit – long-standing practice of Lord Chancellor ordering assignees to permit bankrupt to use their names upon full indemnification – per Benfield v Solomons – beneficiary's rights cannot be waived by trustee – per Osborn v Cole – where indemnity insufficient to cover estimated costs of HK$600,000, security of HK$300,000 of no practical consequence – court has no jurisdiction to make orders adversely affecting creditors' property rights at behest of person with no interest – application for leave to appeal refused.
Legal issues: Leave to appeal by bankrupt using name of Official Receiver as trustee
Outcome: Application for leave to appeal to the Court of Final Appeal refused
Cited by 16 cases
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CACV000075A/2000 CACV 75/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 75 OF 2000 (ON APPEAL FROM HCA NO. 699 OF 1992)
Coram: Hon Rogers VP, Le Pichon JA and Yeung J in Court Date of Hearing: 9 February 2001 Date of Handing Down Judgment: 23 February 2001 ____________________ J U D G M E N T ____________________ Hon Rogers VP : 1. This is an application for leave to appeal to the Court of Final Appeal. The application for leave was made on 20 August 2000. It is necessary to set out some of the history behind both the action in which leave to appeal is sought and the bankruptcy proceedings which have been brought against Dr Ip. 2. The action was for breach of contract and was based on deceit. The judgment at first instance was handed down on 15 December 1999. The judge found that, beyond reasonable doubt, representations constituting wilful deceit had been made by Dr Ip. Judgment was entered on 13 January 2000 in the sum of HK$1,500,000. Although notice of appeal had been served, a bankruptcy petition based upon the judgment sum was filed on 21 March 2000. The appeal was heard before Mr Justice Godfrey VP, Mr Justice Ribeiro JA (as he then was) and myself. Judgment on the appeal was given on 18 July 2000. By that judgment the finding of the judge at first instance that the plaintiff was entitled to recover damages in deceit was upheld; the damages were, however, reduced to HK$1,170,422.40. 3. By Order dated 14 August 2000 Dr Ip was adjudged bankrupt and the Official Receiver was constituted receiver of the estate. The Order was filed on 17 August 2000. Thus by the time that the application for leave to appeal to the Court of Final Appeal was filed, Dr Ip had already been adjudged bankrupt. 4. The effect of a bankruptcy order is, of course, that upon the making of the order the Official Receiver is constituted the receiver of the property of the bankrupt: see section 12 of the Bankruptcy Ordinance, Cap. 6. Thus, the bankrupt was divested of, and ceased to have any interest in, either his assets or his liabilities. As explained by Hoffmann LJ in the case of Heath v Tang [1993] 4 All ER 694, in the same way as the bankrupt is not able to pursue an action to recover a debt or damages for the benefit of his estate he would not be entitled to appeal against an order which was enforceable only against his estate. 5. That decision was cited with approval by the High Court in Australia in the case of Cummings v Claremont Petroleum NL (1996) 185 CLR 124. As was pointed out by Dawson and Toohey JJ in that case, and is equally apposite in this case, if the appeal succeeds, nothing will come into the hands of the trustee which can be applied in the administration of the bankruptcy. Of course, the success of an appeal would mean that a substantial judgment would cease to be a debt provable in the bankruptcy. As far as this case is concerned that would mean that a greater dividend would be payable to the remaining creditors than would otherwise be the case. But this still does not affect the fact that the judgment under appeal is a monetary judgment and, being a liability, the interest in that judgment belongs to the creditors. 6. Any right of appeal in the present action was, therefore, vested as part of Dr Ip's estate in the Official Receiver as trustee for the creditors. 7. The Statement of Affairs was sworn on 10 October 2000. That showed that the total assets of Dr Ip were some HK$1,172,475, but half a million dollars of that amount had been pledged as security to creditors. The liabilities to unsecured creditors were HK$4,858,541.80. This left a deficiency of assets of HK$3,686,066.80. On 17 November 2000 an order was made at the Official Receiver's request that the Dr Ip's estate be administered in a summary manner. As part of the order, the Official Receiver was made the trustee of the property of Dr Ip. Needless to say he was made trustee for the benefit of Dr Ip's creditors. 8. The Official Receiver, as trustee of Dr Ip's estate, was unwilling to proceed with the application for leave to appeal to the Court of Final Appeal. No doubt this was at least partly because he was faced with concurrent findings of fact of two courts. A decision to that effect was communicated to Dr Ip on about 28 November 2000. Following that an application was launched on 30 November 2000 to the judge hearing bankruptcy matters :
9. That application was heard on 14 December 2000. Deputy Judge Kwan made the following order :
10. That order was made under Section 83 of the Bankruptcy Ordinance. It should be noted that that section refers to decisions of the trustee and not the Official Receiver. Since the Official Receiver was by that stage the trustee of the estate nothing turns on this for the purposes of this case however. 11. The important matter for the purposes of this case is that the order permitted the use of the name of the Official Receiver or in other words, the name of the trustee, for the purposes of bringing an appeal. Orders permitting the use of the name of the trustee to bring proceedings have a long history. The practice goes back to the jurisdiction of the Lord Chancellor, and thus the courts, to control trustees. In the case of Heath v Tang, Hoffmann LJ referred to, amongst other cases, Benfield v Solomons and 9 Ves. Jun. 77. That was a decision of Lord Eldon. In that decision Lord Eldon referred to the Lord Chancellor ordering the assignees to permit the bankrupt to use their names, but he specifically referred to the bankrupt indemnifying the assignees. 12. That there should be a full indemnity is only natural. Once it is appreciated that the estate of any bankrupt is held by the trustee on trust for the creditors, it follows that it is the creditors' interests and wishes which have to be considered. It would be wrong in principle if an appeal were pursued which would incur a liability for costs which would have to be borne out of the funds available to the creditors. The only basis for supposing that the creditors' concerns and interests were considered when the order of the Deputy Judge was made is that the Official Receiver voiced his objection. 13. In this instance Dr Ip proposes to act in person, at any rate on this application he appeared in person, but there would nevertheless be costs involved in the Official Receiver considering the matter as well as the liability for costs if the appeal should not be successful. On the basis that Dr Ip would act in the name of the trustee to prosecute the appeal, those costs would fall upon the estate and, insofar as the estate is unable to pay all the costs, would fall upon the Official Receiver. In the latter case, the shortfall would effectively have to be met out of public funds. 14. The requirement that there should be an indemnity is something which is referred to in the cases. For example in Ex Parte Kearsley (1886) 17 QBD 1 the giving of an indemnity as to costs by creditors is referred to by Cave J. This case was cited in the footnote to Williams and the Muir Hunter on Bankruptcy the 19th edition at page 425 in the passage which reads :
15. That there must be an indemnity when the bankrupt is permitted to use the name of the trustee to bring proceedings seems to me to be essential. In the case of a creditor, it might even be said that he had an interest in the assets of the bankrupt. But a bankrupt has none. Without such an indemnity the rights of the creditors, for whose benefit of the assets of the bankrupt have been assigned to the trustee, would be overridden. There would be a liability imposed on such assets to satisfy any award of costs in the proceedings which the bankrupt were authorised to take in the name of the trustee. It would in effect be affecting a right of property held for the sole benefit of the creditors. It would certainly be encumbering assets which had been assigned to the trustee for the benefit of the creditors absolutely. 16. It seems to me that it would make no difference even if the Official Receiver had consented to proceedings being taken in his name without an indemnity, since a beneficiary's rights are not there to be given away by a trustee. 17. The necessity for an indemnity has been recognised even in circumstances where the person who had been discharged from bankruptcy wished to take an assignment of the cause of action. In the case of Osborn v Cole [1999] BPIR, Registrar Baister considered that there was a sufficient risk that the Official Receiver would be liable for costs that he refused to order an assignment of a cause of action under the equivalent of Section 83. In that case the applicant, who had previously been bankrupt was unable, or at least refused, to give an indemnity. 18. In these circumstances, it would appear to me that the order made by the Deputy Judge was made without jurisdiction. It was an order which affected the creditors' rights of property. The security of HK$300,000 ordered by the Deputy Judge was far less than the costs which had been estimated would be incurred by the plaintiff in the intended appeal. Those amounted to HK$600,000 with additional costs if the appeal were to last more than one day. The Deputy Judge made the order despite the fact that it was clear, as was pointed out by the Official Receiver, that $300,000 would be insufficient to cover the liability as to costs and this is disregarding any costs the Official Receiver may have to incur in the appeal by way of a watching brief. The second paragraph of the Order was, therefore, of no practical consequence since an indemnity had not been given. 19. In those circumstances, the creditors' interests in the assets of the bankrupt which had been assigned for their sole benefit would be adversely affected. The Court has no right or power to make orders which adversely affect property rights at the behest of someone who has no interest in those rights. The position is, if anything exacerbated because the beneficial owners of the rights were not consulted and the trustee objected. 20. In the light of that, the order made by the Deputy Judge cannot affect the question of leave to appeal. The right to appeal rests in the trustee. The trustee does not wish to appeal. Without an indemnity to safeguard the trust assets there can be no right in any other party to appeal in the trustee's name. 21. This application must therefore be refused Hon Le Pichon JA : 22. I agree. Hon Yeung J : 23. I agree.
Representation: Mr Alexander Wong, instructed by Messrs K F Wong & Co., for the Plaintiff/Respondent Dr Vincent Kay-Lo Ip, the Defendant/Appellant, in person Miss Linda Chan, instructed by Official Receiver, for the Defendant/Appellant |
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