Harbour Front Ltd v. The Official Receiver and Trustee of the Property of Leung Yat Tung

HCMP 400/2022

[2023] HKCFI 1294

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLEANOUS PROCEEDINGS NO 400 OF 2022

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.The Plaintiff issued an originating summons (“OS”) for the determination of questions arising out of a Settlement Agreement entered into with the Defendant (“OR”); and a Payment-In Summons. These 2 applications by the Plaintiff will be collectively referred to as “the Plaintiff’s Applications” below.

2.The Plaintiff disputes whether it should be liable under the Settlement Agreement for the statutory interest payable by the OR to the creditors. The Settlement Agreement includes the Plaintiff’s charge of shares to secure its liability. The Plaintiff seeks a release of the share charge upon its payment of a sum of money into Court or to issue a bank guarantee to cover all the proven debts of the estate of the Bankrupt pending resolution of the dispute. The OR will contest the Plaintiff’s Applications.

1. Separately, the intended intervener (“Healthy Wharf”) has issued a Summons for the removal of the OR as trustee of the Bankrupt’s estate in HCB 2019/2000 (“Removal Summons”). The OR adopt a neutral stance to that Summons.

2. On 19 May 2022, Healthy Wharf issued the present summons seeking to intervene in the Plaintiff’s Applications (“Joinder Summons”). It is Healthy Wharf’s case that the Plaintiff's Applications are a disguised attempt to vary the terms of the Settlement Agreement. Should Healthy Wharf be successful, it intends to seek a stay of the Plaintiff’s Applications, proceed with the Removal Summons and then contest the Plaintiff’s Applications.

3.This is a hearing of the Joinder Summons. The Plaintiff resists it on the ground that Healthy Wharf is seeking to usurp the role of the OR as trustee in bankruptcy and seize the conduct of the defence to the Plaintiff’s Applications. The subject matter of the OS is purely contractual in nature under the Settlement Agreement and Healthy Wharf does not have any interest which directly relates to the subject matter of the OS. There is no reason for Healthy Wharf to intervene in the OR’s administration of the Bankrupt’s estate.

B. BACKGROUND

4.By a Notice of Application dated 22 February 2007, the OR commenced proceedings against the Plaintiff to challenge the Bankrupt’s transfers of Fonfair Shares and the Money Facts Shares to the Plaintiff as transactions at an undervalue (“Avoidance Proceedings”) pursuant to Section 49 of the Bankruptcy Ordinance, Cap 6 (“BO”).

5.By way of the Settlement Agreement dated 12 February 2015, the Avoidance Proceedings were settled. The Settlement Agreement was approved and sanctioned by this Court by a Tomlin order dated 13 January 2015.

6.The Settlement Agreement contains, amongst others, the following terms:

(a) Clause 1:

“[The Plaintiff] agrees to make full payment to the Trustee for the satisfaction of all proved debts of creditors and interest pursuant to sections 38(9) and 71 of the Bankruptcy Ordinance in respect of the bankruptcy of Y T Leung ... together with all costs ... fees, expenses and disbursements (including legal expenses) that the Trustee is entitled to receive under the provisions of the Bankruptcy Ordinance.” (underline added)

(b) Clause 2:

“Subject to any reasonable extension to be agreed between the parties, failing which, further direction from the Court upon application by either party, the Trustee shall complete the adjudication of the proofs of debt (which have not been withdrawn) on or before 8 July 2015. Thereafter, [the Plaintiff] shall pay to the Trustee the full amount payable on the proved debts and interest pursuant to sections 38(9) and 71 of the Bankruptcy Ordinance within 28 days from the date of the Trustee's written demand to do so.” (underline added)

(c) As security for the Plaintiff’s obligations under Clause 1, the Plaintiff agrees to provide Securities, being:

(i) A charge over the Fonfair Shares and the Money Fact Shares in favour of the OR (Clause 4); and

(ii) A cheque covered by a bank guarantee in the sum of HK$15 million to the Defendant (Clause 5).

7.The date of 8 July 2015 had gone by without completion of adjudication of the proof of debts. Healthy Wharf was dissatisfied with the slow progress. On 21 January 2022, it issued the Removal Summons seeking to have the OR removed as trustee and replaced by a professional firm of accountants to administer the estate.

8.On 19 January 2022, the OR issued a final demand to the Plaintiff pursuant to Clause 1 of the Settlement Agreement, demanding the Plaintiff to make a payment of HK$22,456,000 to the OR within 28 days thereof (“Written Demand”).

9.Annex A of the Written Demand set out, inter amongst others alia, 13 items which the OR said that the Plaintiff should pay to the OR pursuant to the Settlement Agreement (“the Items”). After taking into account the funds which the Plaintiff has already paid to the OR, the outstanding amount (according to the OR) was HK$22,456,000.

10.By a letter dated 16 February 2022, the Plaintiff took issue with some of the Items. The Plaintiff issued and the OR accepted 2 cheques in favour of the OR for settlement of the amount of the admitted proofs of debt (HK$4,829,486.38 and HK$711,755.41). The remaining amount which was disputed was HK$16,914,758.20. The Plaintiff offered to put up a sum of HK$16,920,000 as security, to be held in escrow by a solicitors’ firm of good standing pending the final resolution of all outstanding issues (“the Proposal”). That should be enough to provide full security for the sums in the Written Demand in order to secure immediate release of the Securities.

11.By a letter dated 9 March 2022, the OR replied and provided further particulars and supporting documents regarding the Items.

12.The OR rejected the Proposal, and gave notice pursuant to Clause 6 of the Settlement Agreement that she was entitled to enforce the Securities insofar as the Plaintiff failed to honour its payment obligations under the Settlement Agreement.

13.As their disputes over the Items and the Proposal could not be resolved, the Plaintiff took out the OS on 14 April 2022. The issues which the Plaintiff seeks the Court’s determination are as follows:

(1) Whether and how much the Plaintiff is obliged to pay to the OR under the Settlement Agreement, in relation to each of the Items;

(2) Whether the Settlement Agreement contains various implied terms, including a duty to provide sufficient particulars and supporting documents to enable the Plaintiff to verify the sums due and payable;

(3) Whether the Plaintiff is entitled to the release of the charge over shares; and

(4) Whether the Plaintiff is entitled to damages for the OR’s breach of the Settlement Agreement.

14.On 19 April 2023, the Plaintiff also took out the Payment-in Summons, seeking the Court’s permission for it to make payment into Court a sum of HK$16,920,000 in return for the immediate release of the Securities.

15.There is no dispute that Healthy Wharf is the largest creditor of the Bankrupt, holding almost 90% of the total admitted debts and hence the largest beneficiary under the Settlement Agreement.

16.Healthy Wharf is also the funding creditor of the OR’s costs under the Funding Agreement in the Avoidance Proceedings.

17.The Securities are worth, on the Plaintiff’s own case, about HK$700 million in respect of the Shares and HK$15 million in respect of the Bank Guarantee.

C. EACH PARTY’S CASE

18.Healthy Wharf’s case is that the Plaintiff's Applications are disguised attempts to radically rewrite the terms of the Settlement Agreement to achieve 3 objectives:

(a) the release of the Securities worth about HK$715 million and replace it with a security of a value reduced by 98%, namely HK$16,920,000 cash payment into court; unlike the Securities, the new security cannot be readily enforced by the OR without a formal application to court;

(b) to legitimise the Plaintiff’s default and remove its obligation to satisfy the Written Demand within 28 days of its issue; and

(c) to dispute and substantially reduce the quantum of the Written Demand.

19.Such attempts to rewrite the Settlement Agreement, if successful, will be to the Plaintiff’s benefit but to Healthy Wharf’s detriment.

20.As its rights are directly affected, it is only fair that Healthy Wharf should be allowed to protect its own interests in the Plaintiff's Applications when it may be called upon to fund enforcement action should the Securities be relinquished.

21.The OR has relinquished her duties as trustee in bankruptcy in failing to contest the Plaintiff’s Applications and hence protect Healthy Wharf’s interest. This would affect how much of the Bankrupt’s assets may ultimately be distributed to Healthy Wharf and the sort of protection to which Healthy Wharf is entitled to prior to such distribution.

22.Should the Court exercise its discretion to allow Healthy Wharf’s joinder, the Plaintiff is not prevented from raising its concerns over the Settlement Agreement. Without being joined, Healthy Wharf would have no other forum to prevent the deprivation of fundamental protections afforded to it under the Settlement Agreement. Even if there is doubt, the Court should nevertheless exercise its discretion to allow the joinder so that the alleged interest could be properly tested at trial.

23.The Plaintiff disagrees and submits that Healthy Wharf should not be allowed to intervene in the administration of the Bankrupt’s estate. Afterall, it is a matter of contractual enforcement of the Settlement Agreement by the OR against the Plaintiff. Healthy Wharf does not have any interest which directly relates to the subject matter of the Plaintiff’s Applications. Allowing Healthy Wharf to be joined would add unnecessary layers of dispute and delay resolution of the dispute over the Settlement Agreement.

D. LEGAL PRINCIPLES ON JOINDER OF A PARTY

24.An intervener may be joined as a party under Order 15 rule 6(2)(b) RHC only if:

(1) He ought to have been joined as a party or his presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon; or

(2) He is a person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

25.A liberal approach should be given to this rule so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided: Chen Hongqing v Liu Yiu Keung Stephen [2021] HKCFI 440 at §§24-26, K Yeung J.

26.Order 15 rule 6 (2) (b) requires the intended intervener to demonstrate some interest in the matter which is directly related to the subject matter of the action. A mere commercial interest in its outcome divorced from the subject matter of the action is not enough: see University of Hong Kong v Hong Kong Commercial Broadcasting Co Ltd [2016] 1 HKLRD 536 at §23 per G Lam J (as he then was); Sanders Lead Co Inc v Entores Metal Brokers Ltd [1984] 1 WLR 452 at 460A-H per Kerr LJ. However, the existence of a cause of action between the intervener and one of the parties is not a necessary prerequisite: Chen Hongqing at §26(d).

27.The fear or concern of the intervener, whether fanciful or genuine, is insufficient to constitute an interest in justifying intervention: Yip Lai Fong v Sin Tung Hng, HCMP 2423/2002, unrep., 20 March 2003, §10, Chu J (as she then was).

28.Even if an intervener falls within Order 15 rule 6 (2) (b), the Court will not allow the joinder if to do so would over burden the plaintiff by adding layers to a dispute or vex the plaintiff by having him face more than one opponent at trial, thus adding to the time and expense of the action: Chong Kai Man v Kwan Yau Hang, HCA 1298/2011, unrep., 30 September 2013, at §§2-3 per DHCJ Hartmann (as he then was).

29.However, even where the interest in the subject matter alleged by the intervener is doubtful, the court is nevertheless prepared to exercise its discretion to allow the joinder so that the alleged interest could be properly tested at trial: Chen Hongqing, §§24-26.

E. ANALYSES

30.The issues turn on what the core dispute in the Plaintiff’s Applications are, whether Healthy Wharf should be allowed to intervene in the administration of the estate, whether Healthy Wharf has a direct interest to protect, and how the Court should exercise its discretion.

E1. Dispute in the cause or matter

31.Stripped to its core, the disputes in the cause or matter of the Plaintiff’s Applications are questions of law, ie (i) whether the Plaintiff is obliged to bear statutory interest for the proven debts under the Settlement Agreement; (ii) if it is, whether the Proposal contains sufficient alternative security pending resolution of the Plaintiff's Applications to justify the immediate release of the Securities. These are issues (1) and (3) in §13 above.

32.Issue (2) in §13 are likewise points of law. Issue (4) concerns the OR’s conduct in enforcing the Settlement Agreement.

E2. No intervention allowed in the administration of the estate

33.Once the disputes are identified, it can easily be seen that all the issues concern the OR’s administration of the estate and her enforcement of the contractual rights under the Settlement Agreement.

34.Healthy Wharf should not be allowed to intervene for the following reasons:

35.Firstly, it is well established that a creditor is not allowed to intervene in the administration of the bankrupt’s estate save as provided under the BO, eg sections 82 to 84; The Annotated Ordinances Hong Kong – Bankruptcy Ordinance (Cap 6), Sections 82 to 84.

36.A trustee-in-bankruptcy is an officer of the Court. He is not an agent of the creditors, but an independent third party who in pursuance of the law takes possession of the bankrupt’s assets (including the right of litigation) and uses them to repay the debts of the bankrupt. The OR would assess the strength of the arguments of the debtor’s ongoing actions independently and professionally and deal with them properly. Not only would no injustice be caused to the debtor, but it would also be fairer to the parties of the litigations. See Tang Tim Chue v Tang Ka Hung Robert [2015] 1 HKLRD 214, Official English Translation [2015] 1 HKLRD 220 at §23, Chu JA (as she then was).

37.Even if a judgment creditor is the petitioner in the bankruptcy proceedings, he should not be allowed to intervene in the administration of the bankrupt’s estate, otherwise he would enjoy an advantage over other creditors. The judgment creditor can invite the trustee to exercise the appropriate powers. If the judgment creditor disagrees with the decision of the trustee, he can always apply to the court to compel the trustee to act in a particular manner. See Secretary for Justice v Sanrita Wong Kwok Mei [2014] 5 HKC 597 at §16, DHCJ Lok (as he then was).

38.Accordingly, Healthy Wharf’s role as the biggest creditor does not give him locus standi to intervene in the Plaintiff's Applications.

39.The matters in dispute in §§31-32 above are well within the ability of the OR (or any new trustee to be appointed to replace her) to handle. I am not sure it is correct for Healthy Wharf to describe the Plaintiff’s intention under the Plaintiff’s Applications to be to “rewrite” the Settlement Agreement (as opposed to changing the form of the Securities). Even if Healthy Wharf does hold that view, there is nothing to prevent it from inviting the OR to advance that point. Likewise, if Healthy Wharf has other points to make to ensure protection of its own interest (eg the need to recuperate Healthy Wharf’s funding for the Plaintiff's Applications, and to seek further security to cover interest from 1 April 2022[1]), it can make representation to the OR. The OR will, in her independent and professional assessment, decide whether to advance those points before the Court in the Plaintiff's Applications.

40.Secondly, Mr Lee, counsel for Healthy Wharf, submits that there is no channel to dispute the OR’s decision under section 83 of BO if the OR refuses to make a decision. He contrasts section 83 of BO with section 303 of the Insolvency Act 1986. The former gives a creditor aggrieved by “any act or decision” of the trustee a channel to apply to the Court to reverse or modify the trustee’s act or decision. The latter gives the creditor similar rights in respect of a trustee’s “act, omission or decision”. He submits that in the present case, the OR relinquished her duty in refusing to contest the Plaintiff's Applications. That was an “omission” not covered by section 83 of BO.

41.With respect, it is no longer correct for Healthy Wharf to state that the OR has relinquished her duties in not defending the Plaintiff's Applications. The OR initially, by a letter dated 22 April 2022, told Healthy Wharf’s solicitors that she would not contest the Plaintiff’s Applications, as Healthy Wharf failed to confirm whether it would provide funding to the OR. However, a year later, by letter dated 24 April 2023 (well after the Joinder Summons was issued), the OR’s position is to defend the Plaintiff's Applications with the Court’s sanction.

42.Anyhow, the OR’s refusal to contest a set of proceedings or to advance certain position is a “decision” in itself. If Healthy Wharf feels aggrieved, it may apply to the Court under section 83 of BO.

43.Fourthly, Mr Lee, submits that the OR may be in a position of conflict of interest in that she may be worried about being sued by the Plaintiff and hence have to vindicate her own interest. With respect, I do not agree. As stated in §38 above, the OR is independent and professional. She acts in the interest of the whole body of creditors.

44.Fifthly, any disagreement between the OR and Healthy Wharf as to whether funding should be provided for the OR to handle the Plaintiff's Applications is an internal matter in the administration of the estate. It cannot be used as an excuse for Healthy Wharf to intervene and take over the OR’s role in the defence.

E3. No direct interest in the Settlement Agreement

45.The disputes between the Plaintiff and the OR in the Plaintiff's Applications are purely contractual in nature. The 2 of them are the only parties to the Avoidance Proceedings which gave rise to the Settlement Agreement. The payment obligations under the Settlement Agreement are owed by the Plaintiff to the OR. The Securities were granted by the Plaintiff to the OR. Healthy Wharf has no rights under the Settlement Agreement.

46.Further, as a creditor, Healthy Wharf has no right to specific assets of the Bankrupt. Its right is limited to the participation in the collective enforcement procedure under the BO and proving in the bankruptcy on a pari passu basis together with the other creditors of the Bankrupt: see Choi Lisa Mei Yin v Yau Pak Kin [2018] HKCFI 1790 at §138, Au-Yeung J. The fact that Healthy Wharf is a funding creditor does not undermine this principle.

47.Hence, while the outcome of the Plaintiff’s Applications may affect the pool of assets available for distribution, and Healthy Wharf’s exposure to costs under the funding agreement, Healthy Wharf’s interest in the Plaintiff’s Applications is at most a remote commercial interest. That is not sufficient to justify an order for joinder.

E4. Exercise of discretion

48.Having regard to the analyses above, Healthy Wharf’s intervention is not necessary to ensure that all matters in dispute could be effectually and completely determined and adjudicated upon under Order 15, rule 6(2)(b).

49.To allow Healthy Wharf to be joined would only burden the Plaintiff with an additional opponent for no useful purpose, which will lead to undue increase in costs and time.

50.Healthy Wharf has made clear that its motive is to apply for stay of the OS after being joined as a party, pending outcome of the Removal Summons. I consider that to be an ulterior motive which will only cause delay because:

(1) There is no certainty that Healthy Wharf will be successful in its Removal Summons. There is no certainty that the Plaintiff’s application for intervention in that Summons will be successful either. Whilst the OR has taken a neutral stance in that Summons, it is still for Healthy Wharf to convince the Court that it is right to have the OR removed. If the OR is removed, the new trustee can then take over from there.

(2) Even with the change in trustee, I cannot see how it can change the terms of the Settlement Agreement, the Written Demand which has crystallized the proven debts (which Healthy Wharf does not appear to dispute) and the claim for statutory interest.

(3) It is in the interest of the Plaintiff and the creditors of the Bankrupt’s estate as a whole for the Plaintiff's Applications to be determined without delay, so as to enable administration of the estate to be completed as soon as possible.

F. CONCLUSION

51.The matters in dispute in the Plaintiff’s Applications are matters concerning administration of the estate which are well within the ability of the OR to handle. The OR is a party to the Settlement Agreement and is the proper person to enforce the contractual rights thereunder. Healthy Wharf does not have anything beyond a commercial interest. Its ulterior motive in staying the OS after being joined pending disposal of the Removal Summons should not be entertained. I therefore decline to grant leave for Healthy Wharf to be joined. The Joinder Summons is thus dismissed.

52.On a nisi basis, costs should follow the event and be paid by Healthy Wharf to the Plaintiff. I summarily assess such costs at $180,000.

53.I thank counsel for their assistance.

Ms Sabrina Ho and Mr Arthur Poon, instructed by Yiu & Associates, for the Plaintiff

Mr Jonathan Lee, instructed by Tung, Ng, Tse & Lam, for Healthy Wharf Limited

Attendance was excused for the Official Receiver and Trustee of the property of Leung Yat Tung