Dadra Inc. v. Chan Choi Har Ivy

CACV 74/2023, [2024] HKCA 773

On Appeal From [2023] HKCFI 651

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 74 OF 2023

(ON APPEAL FROM HCA NO 1756 OF 2019)

________________________

________________________

____________________

JUDGMENT

____________________

Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.This is the Defendant’s appeal against the order of Master Phoebe Man (“the Master”) dated 10 March 2023 (“the Order”) that the Defendant be imprisoned for a period of 6 weeks by reason of her wilful failure to make a full disclosure as required under Order 49B, rule 1A(2) of the Rules of the High Court, Cap 4A.

2.In what follows, unless the context indicates otherwise:

(1)  references to “Order”/“rule” shall be to the Rules of the High Court; and

(2)  references to “Section” shall be to the Bankruptcy Ordinance, Cap 6 (“the Ordinance”).

BACKGROUND FACTS

3.On 23 September 2019, the Plaintiff commenced an action in the High Court (HCA 1756/2019) against the Defendant for the sum of HK$90,000,000, being the amount of a dishonoured cheque dated 3 November 2017 drawn by the Defendant in favour of the Plaintiff.

4.On 31 March 2021, upon the Plaintiff’s application for summary judgment under Order 14, Master K W Wong made an order that final judgment be entered in favour of the Plaintiff against the Defendant for the sum of HK$90,000,000 together with interest thereon and costs (summarily assessed in the sum of HK$392,400).

5.The Defendant’s subsequent appeal against the judgment of Master K W Wong was dismissed by Ng J on 28 February 2022 ([2022] HKCFI 568).

6.The Defendant failed to satisfy the judgment debt.  On 2 July 2021, upon the Plaintiff’s application, Master Rita So ordered the Defendant to attend court on 13 September 2021 and be orally examined pursuant to Order 49B.

7.At the first hearing of the oral examination on 13 September 2021, Master Dick Ho made an order (“the 1^st Disclosure Order”) requiring the Defendant to disclose 8 categories of documents (“Category (a)” to “Category (h)”) no later than 21 days prior to the date of the resumed hearing of the oral examination.

8.On 12 and 21 October 2021, the Defendant, through her former solicitors (ONC Lawyers), disclosed some bank statements, being part of the Category (a), but failed to make full disclosure as required by the 1^st Disclosure Order.

9.The oral examination of the Defendant came before the Master on 13 May 2022.  The Defendant was unrepresented at that hearing and was orally examined by the Plaintiff’s counsel, Mr Man.  The oral examination was not completed on 13 May 2022.  The Master ordered the oral examination to continue on 14 October 2022.  In the meantime, in view of the fact that the Defendant had indicated to the Master that she could produce further documents in compliance with her obligation under the 1^st Disclosure Order but required more time to obtain those documents, the Master made a further order (“the 2^nd Disclosure Order”) requiring the Defendant to disclose the documents that she had failed to disclose under the 1^st Disclosure Order (save for Category (h)), as well as some other additional documents and information, on or before 12 August 2022.

10.The Defendant failed to make any disclosure as required by the 2^nd Disclosure Order, whether on or before 12 August 2022 or at any time prior to the resumed hearing of the oral examination.

11.On 15 August 2022, a bankruptcy order was made against the Defendant (“the Bankruptcy Order”) by Linda Chan J in HCB 989/2022 upon the petition of another judgment creditor in HCA 3039/2017[1].

12.On 10 October 2022, Master J Wong made an order (“the Order to Proceed”) granting the Plaintiff leave to proceed with the oral examination of the Defendant notwithstanding the bankruptcy of the Defendant.  Since the actual terms of the Order to Proceed are material for the purpose of this appeal, we shall set them out in full:

“1. Notwithstanding the Bankruptcy Order made against Chan Choi Har Ivy (‘the Bankrupt’) on 15 August 2022, leave be granted to the [Plaintiff] as the judgment creditor in High Court Action No.1756 of 2019 (‘the HCA Proceedings’) to proceed with the proceedings of Oral Examination against the Bankrupt as the judgment debtor in the HCA Proceedings pursuant to Order 49B, Rules of the High Court (Cap.4A);

2. No Judgment or Order obtained by the [Plaintiff] as the judgment creditor in the HCA Proceedings shall be enforced against the Bankrupt without leave of the Court;

3. The [Plaintiff] shall not apply for any order for costs personally against the Official Receiver or the Provisional Trustee in Bankruptcy or the Trustee in Bankruptcy in the HCA Proceedings …”.

13.By a letter dated 11 October 2022, the Plaintiff’s solicitors informed the Defendant that Master J Wong had made the Order to Proceed and thus she was required to attend the hearing before the Master on 14 October 2022.  A copy of the Order to Proceed was also sent to the Defendant under cover of the letter of 11 October 2022.

14.By the time of the resumed hearing of the oral examination before the Master on 14 October 2022, the Defendant had still failed to make any further disclosure of documents as required by the 1^st and/or 2^nd Disclosure Orders.  The Plaintiff indicated to the Master that it would make an application to the court for an order of imprisonment of the Defendant.

15.On 31 October 2022, the Plaintiff issued a summons seeking an order that the Defendant be imprisoned under Order 49B, rule 1B (“the Imprisonment Application”).  In opposition to the Imprisonment Application, the Defendant filed two affirmations, namely, her 3^rd Affirmation on 20 December 2022 and her 4^th Affirmation on 24 February 2023.

16.The Imprisonment Application was heard by the Master on 27 February 2023.  The Plaintiff was represented by counsel while the Defendant appeared in person at that hearing.

17.On 10 March 2023, the Master gave a written decision (“the Decision”) on the Imprisonment Application, finding beyond reasonable doubt that the Defendant had acted contrary to Order 49B, rule 1B(1)(c), and made an order that the Defendant be imprisoned for 6 weeks.  In addition, the Master made an order nisi that the Defendant shall pay the Plaintiff’s costs arising out of the application, to be taxed on an indemnity basis if not agreed.

18.On the same date (ie 10 March 2023), upon the Defendant’s undertaking to take out an urgent inter-partes summons before the Court of Appeal for a stay of execution of the Order pending appeal, the Master granted an interim stay of the Order pending the determination of the stay application.

19.On 13 March 2023, the Defendant filed and served a Notice of Appeal against the Order.

20.On 9 June 2023, this Court (Au and Chow JJA) made an order staying the execution of the Order pending the determination of the Defendant’s appeal.

THE NOTICE OF APPEAL

21.In the Notice of Appeal, the Defendant raises four grounds of appeal against the Order:

(1)  The Master erred in failing to recognize that the court had no jurisdiction to proceed with an Order 49B examination, or make an order of imprisonment of the Defendant, after she had been adjudged bankrupt (“the Jurisdiction Ground”).

(2)  The Master erred in finding that the Defendant wilfully failed to make a full disclosure under Order 49B, in that the Master failed to recognise that the Defendant had indicated that she considered there was no need for her to make any disclosure after she had been adjudged bankrupt.  Hence, even if the Court takes the view that a bankrupt may still be subject to examination and an imprisonment order under Order 49B, there was at most a “mistake of law” instead of “wilfulness” on the part of the Defendant (“the Mistake of Law Ground”).

(3)  The Master erred in exercising her discretion under Order 49B, rule 1B to make an order of imprisonment against the Defendant (“the Discretion Ground”).

(4)  The Master erred in making an adverse costs order against the Defendant personally when the Defendant had already been adjudged bankrupt (“the Costs Ground”).

THE JURISDICTION GROUND

22.The Defendant contends that the Master had no jurisdiction to proceed with the oral examination under Order 49B, or make the Order for her imprisonment, after she had been adjudged bankrupt.  This constitutes the main ground of appeal of the Defendant.

23.In support of this ground of appeal, Mr Yau (for the Defendant) submits that:

(1)  The key purposes of Order 49B are (i) to coerce payment, and (ii) to enable a judgement creditor to discover the assets of the judgment debtor that are available to satisfy the judgment.  In support of this proposition, Mr Yau relies on Shyam Naraindas Kirpalani v Days International Limited [1982] HKLR 534, at 538E-F per Cons JA and 551G-H per Leonard VP[2]; the speech of the Attorney General when moving the second reading of the Debtors (Arrest and Imprisonment) Bill 1983 before the Legislative Council on 7 December 1983 (at pp 290-291 of Hong Kong Hansard); and Bank of India v Murjani [1989] 2 HKLR 276, at 286 per Hunter JA (with whom Yang CJ and Barnett J agreed).

(2)  A similar conclusion was reached in the recent judgment of this Court (Chu VP and G Lam and Chow JJA) in V Capital Limited v Margaret Chiu [2024] 1 HKLRD 340, which held that Order 49B, rule 1B(1)(c) has two purposes which are both “geared towards the successful execution of a judgment debt”, namely, (i) to act as a threat against a judgment debtor who might otherwise be unwilling to make a full disclosure, and (ii) to coerce the judgment debtor into paying off the judgment debt in order to obtain his release from imprisonment.

(3)  The analysis in V Capital should be applied with full force to the present case.  The same conclusion can also be justified for the following reasons.

(4)  First, Order 49B and the bankruptcy regimes are subject to vastly different considerations and could not have been intended to operate in parallel:

(a)  To allow an unsecured judgment creditor to proceed with an Order 49B examination and then apply for an order of imprisonment of the bankrupt would effectively sidestep the bankruptcy regime, in that the judgment creditor would be permitted to make inquiries into matters the legislature had intended to be exclusively administered by the trustee in bankruptcy subject to the supervision of the Bankruptcy Court under Sections 19 and/or 29.

(b)  A trustee in bankruptcy is an officer of the court who stands in a very different position when compared to a private individual creditor who acts in his own interest without regard to the interests of the general body of unsecured creditors.  If a judgment creditor is able to take advantage of Order 49B and apply for an imprisonment order to extract directly from the bankrupt information and documents concerning the bankrupt’s assets which would not otherwise be available to the judgment creditor, this would disturb the orderly functioning of the bankruptcy regime and the work of the trustee in bankruptcy, and would not be what the legislature intends.

(c)  There is no place for any argument that a judgment creditor may assist the trustee in bankruptcy in exercising the latter’s statutory functions.  Part 5 of the Ordinance provides for a comprehensive and self-contained scheme on how the court may control a trustee in bankruptcy and how a bankrupt may appeal against his decision.  If a judgment creditor is allowed to be delegated a task which should have been carried out under the provisions of the Ordinance by the alternative route of Order 49B, the Bankruptcy Court would not be able to hold the judgment creditor accountable because, unlike a trustee in bankruptcy, a judgment creditor is not required to “act in a fiduciary capacity and deal with the property under [his] control honestly, in good faith, with proper skill and competence and in a reasonable manner” under Section 84(1).

(5)  Second, insofar as the Plaintiff is using the application for an order of imprisonment to aid the execution of the monetary judgment it has obtained, such use would not be for a proper purpose.  This is because, after the Defendant’s bankruptcy, she no longer has any properties which could be subject to execution by the Plaintiff to satisfy any judgment debt owed by the Defendant to the Plaintiff.  The Defendant’s properties have, by the operation of Sections 12(1) and 58(1) and (1A), been vested in the Official Receiver and subsequently the trustee in bankruptcy, and she ceases to have any interest in them.  Any disclosure leading to the identification of properties previously owned by the Defendant would not have helped the Plaintiff enforce its monetary judgment as such properties are subject to the bankruptcy regime, and their distribution should be effected according to the statutory order of priorities under the Ordinance.

(6)  Third, the reasoning and conclusion in V Capital is also consistent with Re Ryley (1885) 15 QBD 329, where it was held that, upon the making of a receiving order under s 9 of the Bankruptcy Act 1884 against a judgment debtor, a judgment creditor would lose the right to enforce payment of his judgment debt by way of an order to commit the debtor to prison[3], because an order of commitment was not a process of contempt; instead, its purpose was to enforce the payment of a debt.  This means of enforcement could no longer be utilised by a judgment creditor after a receiving order had been made against the judgment debtor as all creditors would need to proceed under the bankruptcy regime.  A bankruptcy order made under Section 12 would have the same consequence.

24.Although the Defendant contends that the Master had no jurisdiction to make the Order after she had been adjudged bankrupt, Mr Yau accepts that the Master could have made the Order upon “P’s obtaining leave from the bankruptcy court pursuant to s.12 of the [Ordinance] to proceed with such application”[4] (meaning an application for the imprisonment of the Defendant).  In our view, this acceptance (or concession) by Mr Yau is correct, having regard to the following statutory provisions.

25.Order 49B, rule 1 provides that where a judgment for the payment of a specified sum of money is, wholly or partly, unsatisfied, the court, on an ex parte application of the judgment creditor, may order that the judgment debtor be examined under rule 1A.

26.Order 49B, rule 1A provides, amongst other things, that:

“(1) Upon appearance of the judgment debtor for examination, he shall give evidence and he may be examined on oath by the judgment creditor and the Court; and the Court may receive such other evidence as it thinks fit.

(2)  The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.”

27.Order 49B, rule 1B(1) provides, so far as relevant, as follows:

“Where the Court is satisfied, following the examination conducted under rule 1A …, that the judgment debtor –

(a) is able to satisfy the judgment, wholly or partly; or

(b) has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; or

(c) has wilfully failed to make a full disclosure as required under rule 1A(2) … or to answer any question as provided under that rule …,

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.”

28.Section 12(1) states as follows:

“Effect of bankruptcy order

(1)  On the making of a bankruptcy order, the Official Receiver shall thereby become the provisional trustee of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose.”

29.In V Capital, it was held that:

(1)  The purposes of an order of imprisonment under Order 49B, rule 1B(1)(c) are twofold:

(a)  to act as a threat against a judgment debtor who might otherwise be unwilling to make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income, or answer all questions put to him, at the examination; and

(b)  to coerce the judgment debtor into paying off the judgment debt in order to obtain his release from imprisonment.

(2)  An application for the imprisonment of a judgment debtor under Order 49B, rule 1B(1)(c) should properly be regarded as “a remedy against the person of the bankrupt in respect of” the judgment debt, and also “other legal proceedings”, within the meaning of Section 12(1).

(3)  Hence, the judgment creditor is not entitled to commence, or proceed with, an application for the imprisonment of a judgment debtor under Order 49B, rule 1B(1)(c) without the leave of the court granted under Section 12(1).

(4)  In the absence of such leave, the Master has no jurisdiction to make an order for the imprisonment of the judgment debtor even if the conditions referred to in Order 49B, rule 1B(1)(c) are satisfied.

30.We do not accept Mr Yau’s submission that the Order 49B and the bankruptcy regimes could not have been intended to, or could not, operate in parallel.  In respect of the three reasons advanced by Mr Yau in support of this submission referred to at §23(4) above, our views are as follows:

(1)  Although the legislature has made provisions for a statutory scheme for the public examination of a bankrupt and inquiry as to the bankrupt’s conduct, dealings and properties under Sections 19 and 29, there is nothing in the Ordinance to suggest that the Order 49B process is totally displaced or excluded.  On the contrary, Section 12(1) permits such a process to be commenced or proceeded with, provided that the court’s leave to do so is obtained.  It may be that there would be less of a need to resort to the Order 49B process after a bankruptcy order has been made against a judgment debtor having regard to the existence of the said statutory schemes for public examination and inquiry of the bankrupt debtor.  However, that would be a matter going to the exercise of the court’s discretion whether to grant leave under Section 12(1), not whether a master has jurisdiction to proceed with the Order 49B process commenced or carried on with the court’s leave.

(2)  The fact that a trustee in bankruptcy is an officer of the court  whose duty is to act in the interests of the general body of unsecured creditors, whereas a judgment creditor would generally act only in his own interest, are also matters going to the exercise of the court’s discretion whether to grant leave under Section 12(1).  Further, when the court grants leave to proceed under Section 12(1), it may impose conditions or restrictions on the use of documents or information obtained by the judgment creditor from the bankrupt in the course of the oral examination, or a prohibition against any enforcement of the judgment by the judgment creditor without leave of the court (as Master J Wong did in the present case).

(3)  When seeking the leave of the court to commence or proceed with an examination of a bankrupt (judgment debtor) under Order 49B, there is no requirement that the judgment creditor should be acting as a “delegate” of the trustee in bankruptcy.  The judgment creditor would be acting in his own interest, although the fruits of the examination may eventually be of use to the trustee in bankruptcy in the administration of the bankrupt’s estate in accordance with bankruptcy regime under the Ordinance.

31.We also do not accept Mr Yau’s submission referred to at §23(5) above that the Plaintiff made the Imprisonment Application for an improper purpose merely because the Defendant had been adjudged bankrupt and thus she ceased to have any properties which could be subject to execution by the Plaintiff to satisfy the judgment debt owed by the Defendant to the Plaintiff. Generally speaking, the purpose of an application by a judgment creditor for the examination of a judgment debtor under Order 49B, rule 1A is to enable the judgment creditor to obtain from the judgment debtor a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and other relevant information in aid of execution and enforcement of a judgment debt.  While it is correct that upon the making of a bankruptcy order against the judgment debtor, his property would generally become vested in the Official Receiver or provisional trustee by virtue of Section 58(1) and (1A), and the judgment creditor can no longer execute or enforce the judgment debt outside the bankruptcy regime under the Ordinance, it does not follow that the documents and information obtained from the judgment debtor pursuant to the Order 49B process could not assist the judgment creditor in recovering the judgment debt (or a part of it).  For example, the judgment creditor can pass whatever relevant documents and information that he manages to obtain from the judgment debtor to the trustee in bankruptcy and the trustee in bankruptcy, aided by such information, may be able to collect assets (including hidden assets) of the judgment debtor which he would not otherwise be able to collect and distribute them to the general body of unsecured creditors of the judgment debtor (including the judgment creditor).  As a matter of fact, in the Plaintiff’s letter dated 5 October 2022 to the Official Receiver seeking the latter’s consent to the Plaintiff’s proceeding with the oral examination, the Plaintiff expressly confirmed that it was willing to provide the information which might be disclosed by the Defendant at the hearing to the Official Receiver[5].

32.It is important to appreciate that the information required to be disclosed by a judgment debtor under Order 49B, rule 1A(2) is not limited to his assets as at the date of the examination, but extends to his “liabilities, income and expenditure and of the disposal of any assets or income”.  Such information could be of use to the trustee in bankruptcy to recover assets belonging to the judgment debtor’s estate from third parties.  It is also relevant that, by the time of the Defendant’s bankruptcy, the Order 49B process had already begun for more than a year.  By seeking leave to proceed under Section 12, the Plaintiff was merely continuing with an ongoing process.

33.In our view, there is no basis to contend that the Plaintiff acted for an improper purpose in seeking to proceed with the oral examination after the Defendant had been adjudged bankrupt.  The Plaintiff’s further application to seek an order of imprisonment of the Defendant for her wilful failure to make a full disclosure as required by Order 48B, rule 1A(2) was a continuation of the process begun by the application for the oral examination.  The court’s power to make an order of imprisonment against a judgment debtor for his wilful failure to make a full disclosure as required under rule 1A(2) is necessary to give teeth to the judgment debtor’s obligation to make a full disclosure.

34.The case of Re Ryley relied upon by Mr Yau does not assist the Defendant, because under s 9 of the Bankruptcy Act 1883[6], a creditor was not entitled to any remedy against the person or property of a bankrupt debtor in respect to his debt without the leave of the court, and no leave was obtained in that case[7].

35.Neither party has made any, or any detailed, submissions on how the court’s discretion whether to make an order to proceed under Section 12 ought to be exercised.  For the purpose of disposing of the present appeal, it is not necessary for us to determine the principles for the exercise of the said discretion because, as a matter of fact, Master J Wong did make an order under Section 12 granting leave to the Plaintiff to proceed with the “proceedings of Oral Examination … in the HCA Proceedings pursuant to Order 49B …”, and there is no appeal or challenge against that order.  The critical question in the present case is whether the Order to Proceed made by Master J Wong on 10 October 2022 covered the Imprisonment Application made by the Plaintiff on 31 October 2022.  The answer to that question depends on the true construction of the Order to Proceed.

36.On behalf of the Plaintiff, Mr Man argues that the Order to Proceed “effectively ‘covers’ both an approval to proceed under O.49B and [the] application or the making of the Imprisonment Order”.  Mr Man submits that:

(1)  The court’s power under Order 49B, rule 1B to order the imprisonment of a judgment debtor is part and parcel of the “proceedings of Oral Examination”.  It is absurd to have an oral examination conducted with curtailment of the court’s power to order imprisonment, or other powers enacted in Order 49B.

(2)  For example, as held in V Capital, one purpose of the power under Order 49B, rule 1B(1)(c) is “to act as a threat against a judgment debtor who might otherwise be unwilling to make a full disclosure …, or answer all questions put to him at an examination under r.1A(2).”  It is unreasonable to grant leave to proceed with an oral examination without the statutory assurance of its effectiveness.

(3)  Further, the court is so empowered “… following the examination conducted under rule 1A …”, and such power may be exercised in its discretion.  On the true interpretation of the Order to Proceed, the leave to proceed with the “proceedings of Oral Examination” must be understood to include the leave to apply for an order of imprisonment because such application (a) is part and parcel of the oral examination, and (b) whether to make an order of imprisonment is in the hands of the court “following the examination”.

(4)  The application for an order of imprisonment does not go beyond the ambit of the Order to Proceed granted pursuant to Section 12(1); such application is a “remedy against the … person of the bankrupt” within the meaning of Section 12(1).

37.On the other hand, Mr Yau argues that is it crystal clear that no leave had been obtained by the Plaintiff to proceed with the Imprisonment Application.  The Order to Proceed does not change matters, because:

(1)  An application for an order of imprisonment under Order 49B, rule 1B is legally distinct from an application for an order to examine a judgment debtor under Order 49B, rule 1(1)(a). Whilst the question of whether an imprisonment order should be made is inextricably linked to the outcome of the examination, the court would always have to consider two issues separately: (i) whether the judgment debtor should be examined, and (ii) whether an imprisonment order should be made.  Thus, it would be incumbent upon the Plaintiff to apply for leave under Section 12 to proceed with an application for an order of imprisonment.  This however was not done, and the Order was therefore made without jurisdiction or power.

(2)  That the Official Receiver might have consented to the examination is irrelevant: (i) the consent was not a consent to the application for an imprisonment order; (ii) the giving of the consent was wrong in law in light of the submissions above, and (iii) as the Plaintiff’s own evidence shows, even if the Official Receiver might be taken as not being interested in the HK$620 million commission received by a company under the Defendant’s control in 2018, the trustee in bankruptcy is now pursuing the Defendant for the same and has made direct inquires with the Defendant.  It would be unfair and onerous for the Defendant to have to deal with the same inquiry twice.

38.In our view, the Order to Proceed made by Master J Wong covered not only the Plaintiff’s application for the oral examination of the Defendant, but also its application for an order of imprisonment of the Defendant.  In this regard, it is significant to note that under Order 49B, rule 1B(1)(c), the court may make an order for the imprisonment of a judgment debtor where it “is satisfied, following the examination conducted under rule 1A …, that the judgment debtor ... has wilfully failed to make a full disclosure as required under rule 1A(2) … or to answer any question as provided under that rule …”.  The court’s power to imprison a judgment debtor may be exercised following the examination provided that it is satisfied of the matters mentioned in rule 1B(1)(c).  There is nothing in the rules which requires the taking out of a separate summons for an order of imprisonment by a judgment creditor, or a separate hearing to be held to determine the question of whether the court ought to exercise its discretion to make an order of imprisonment of a judgment debtor, although obviously the judgment debtor should be given a proper opportunity to make representations as to why he has not wilfully failed to make disclosure or answer questions, and/or why no order for imprisonment should be made.  When Master J Wong made the Order to Proceed on 10 October 2022, he must have appreciated that there was a possibility that the court hearing the oral examination might come to the view, following the oral examination, that the judgment debtor (ie the Defendant) had wilfully failed to make a full disclosure as required under Order 49B, rule 1A(2), and decide to invoke the power of imprisonment under Order 49B, rule 1B(1).  We consider that an application for the imprisonment of a judgment debtor may properly be regarded as being part and parcel, or merely consequential, to the oral examination.  Had an order for the imprisonment of the Defendant been made after the conclusion of the oral examination on 14 October 2022 in this case, it can hardly be argued that the Order to Proceed did not cover the Plaintiff’s application for an order of imprisonment or was not sufficient to give the Master jurisdiction to make such order.  The fact that the Plaintiff took out a separate summons (on 31 October 2022) and the issue of the Defendant’s imprisonment was argued on a different date (27 February 2023) should not, in our view, lead to any different analysis or result.

39.Mr Yau relies on the letters passing between the Plaintiff and the Official Receiver dated 29 September 2022 and 5 October 2022 preceding the making of the Order to Proceed (by consent), in which they only referred to the Plaintiff’s application for leave to proceed with the “oral examination” but did not refer to any application for the imprisonment of the Defendant, as evidence that the Order to Proceed did not cover the Imprisonment Application. However, Mr Yau accepts that those letters were not placed before Master J Wong when he made the Order to Proceed.  That being the position, we do not see that the letters are relevant to the true construction of that order.  In any event, if an application for imprisonment should properly be regarded as being part and parcel, or merely consequential, to the oral examination, Mr Yau’s argument would have no force.

40.Mr Yau also relies on a subsequent letter from the Official Receiver to the Plaintiff dated 26 October 2022, in which the Plaintiff sought the Official Receiver’s consent to its intended application for the imprisonment of the Defendant, as evidence that the Order to Proceed did not cover the Imprisonment Application.  As a matter of principle, we do not consider that the subsequent communications between the Plaintiff and the Official Review are admissible as evidence for the true construction of the Order to Proceed.  Further, it would appear from the Official Receiver’s letter dated 26 October 2022 that she considered the Plaintiff’s intended application for the imprisonment of the Defendant did not require the court’s leave because it related solely to the “bankrupt’s body”, but would require leave if it was made pursuant to Section 21A of the High Court Ordinance, Cap 4.  While we have some reservation on the Official Receiver’s reasoning, it is not necessary for us to reach a concluded view on the validity of the distinction drawn by the Official Receiver.  We do not consider that the contents of the post-Order to Proceed correspondence between the Plaintiff and the Official Receiver are helpful for determining the true construction of the Order to Proceed.

41.For the sake of completeness, we should mention that while we accept Mr Yau’s submission that the fact that the Official Receiver had consented to the oral examination is not relevant to the present discussion (because the answer to the question of whether the Plaintiff had been granted leave to proceed with the Imprisonment Application depends on the true construction of the Order to Proceed made by Master J Wong), we do not accept Mr Yau’s submission that the Official Receiver was wrong in law to give his consent to the oral examination.  It was a matter for the Official Receiver to decide whether to give consent to the oral examination.  In any event, this is not an issue germane to the present discussion, because there is no challenge or appeal against the Order to Proceed made by Master J Wong.

42.For all of the above reasons, we reject the Jurisdiction Ground.

THE MISTAKE OF LAW GROUND

43.Under this ground, Mr Yau argues that a condition for making an order of imprisonment under Order 49B, rule 1B(1)(c) is that the Defendant’s failure to make full disclosure was wilful.  However, the Defendant had all along indicated that she considered there was no need for her to make disclosure to the Plaintiff after she had been adjudged bankrupt. Hence, even if the Court rejects the Defendant’s submissions above under the Jurisdiction Ground and takes the view that a bankrupt may still be subject to examination and an order of imprisonment under Order 49B, there was “at most an honest mistake at law, as opposed to wilfulness”.

44.In the Notice of Appeal, at §2, the Defendant refers to §§15-16 of her 3^rd Affirmation filed on 19 December 2022 as evidence that she had indicated to the Master that she considered there was no need for her to make disclosure after she had been adjudged bankrupt.  §§15-16 of the Defendant’s 3^rd Affirmation state as follows:

“15. 原告人指稱仍有需要口頭詢問的程序，「因此而決定下一步簡易裁決命令，所應該進行的適當程序」(見陳秉志的第五份非宗教式誓詞第25段)，實在不合理。原告人僅為本人其中一名債權人，根本不能夠繞過破產程序而獲得指稱本人拖欠的款項。破產管理官日後會在扣除有關破產費用後，把剩餘款項按欠款比例派發給各債權人。

16. 因此，原告人的口頭詢問的程序已經因為本人正式破產，而變得毫無用處。原告人堅持繼續口頭詢問的程序似乎是別有用心，迫使本人披露商業機密。”

45.It seems to us that what the Defendant said at §§15-16 of her 3^rd Affirmation was not that she considered she was under no legal obligation to make any disclosure, or further disclosure, after she had been adjudged bankrupt.  Instead, what she was saying was that:

(1)  It was unreasonable of the Plaintiff to pursue the oral examination because, after her bankruptcy, the Plaintiff could not side-step the bankruptcy procedure and seek to recover the judgment debt owed by her to the Plaintiff, but could only recover a due proportion of the outstanding debt through the Official Receiver.

(2)  The process of oral examination had become wholly useless as a result of her formally being made bankrupt.

(3)  The Plaintiff’s purpose of insisting to continue with the oral examination was to force her to disclose commercial secret.

46.It is of note that, at §§6-7 of the Defendant’s 4^th Affirmation filed on 24 February 2023, she stated the following[8]:

“6. 原告人在訴訟中一直針對本人透過本人控制的公司於2017年，中環中心交易中所涉及的港幣6.2億元佣金 (下稱「該佣金」) 一事，要求本人披露該佣金的去向及交易細節。如本人在第三份非宗教式誓詞第10及12段所述，本人作為地產經紀，本人於收取佣金程序上只作為中間人角色，實際收取該佣金另有其人。本人也解釋了，有關收取佣金程序及手續，基於該安排涉及相當的商業機密。

7.  基於商業機密及道德考量，本人一直未能透露有關詳情予原告人。”

47.It seems clear that the Defendant decided not to make disclosure because of, amongst other matters, commercial secrecy and ethical considerations. 

48.At §14 of Mr Yau’s Skeleton Argument for the Defendant (Appellant) dated 28 June 2024 and footnote 5 thereto, Mr Yau also relies on §§9-11 of the Defendant’s 4^th Affirmation as evidence that she had indicated to the Master that she considered there was no need for her to make disclosure to the Plaintiff after she had been adjudged bankrupt.  It is not necessary to quote those passages of the Defendant’s 4^th Affirmation in this Judgment, because it is clear from even a cursory reading of them that the Defendant was merely trying to explain why (i) she considered that the Official Receiver could obtain the bank statements of a company called “Dutfield Estates Limited” without her participation, and (ii) she no longer felt bound by commercial secrecy and ethical considerations to withhold some documents relating to Dutfield Estates Limited, including in particular a cheque for the sum of HK$620 million.

49.All these having been said, at §28 of the 5^th Affirmation of Chan Ping Che[9] filed on 26 October 2022, the Plaintiff accepted that at the resumed hearing of the oral examination on 14 October 2022, the Defendant claimed that because she had been adjudged bankrupt in August 2022, she did not have to disclose documents to the Plaintiff.

50.For the purpose of this appeal, we shall proceed on the basis that the Defendant did say to the Master that she did not have to make disclosure (or further disclosure) of documents to the Plaintiff because she had been adjudged bankrupt in August 2022.  Even so, we are far from being satisfied that the Defendant’s failure to make full disclosure as required was due to any “mistake of law” on her part.  There was simply no proper basis for her to believe that, after she had been adjudged bankrupt, she was no longer under any legal obligation to make disclosure as directed by the court under the 1^st and 2^nd Disclosure Orders.

51.As found by the Master, the Defendant clearly understood the contents of the 1^st and 2^nd Disclosure Orders and the legal consequences of a failure to make the disclosure as required at the hearing of the oral examination.  At §25 of the Decision, the Master found as follows:

“基於以下原因，本席亦同意債權人的陳詞，指陳女士清楚明瞭該兩個文件披露命令的內容及其於訊問期間不作披露的法律後果：

a) 在2021年9月13日的口頭訊問排期聆訊當中，聆案官何展鵬已經向陳女士詳細解釋 ，不按照法庭命令於押後聆訊提供文件的嚴重後果，包括但不限於作出監禁命令。

b) 在2022年5月13日的口頭訊問正式聆訊當中，本席曾詢問及確認陳女士是否明白第一個文件披露命令的內容和其中的「警告」，及向陳女士解釋第二個文件披露命令的意思，及不遵從該命令的嚴重性，本席亦特別提到監禁的可能性。陳女士當時表示明白。

…”

52.Further, prior to the resumption of the hearing on 14 October 2022, there were two letters from the Plaintiff’s solicitors to the Defendant dated 15 August 2022 and 20 September 2022 complaining about the Defendant’s failure to make disclosure in compliance with the 2^nd Disclosure Order, and putting on record that Plaintiff reserved the right to seek an order of imprisonment against the Defendant at the hearing on 14 October 2022 pursuant to Order 49B, rule 1B.

53.It has not been suggested by the Defendant (in either her 3^rd or 4^th Affirmations or in Mr Yau’s submission) that she ever sought any legal advice on whether she remained under an obligation to make disclosure after she had been adjudged bankrupt, notwithstanding the repeated explanations given to her by Master Dick Ho and the Master on the consequences of a failure to make disclosure as required by the 1^st and/or 2^nd Disclosure Orders.  It is relevant that the Defendant had said to the Master at the hearing on 13 May 2022 that she understood her legal obligation to make disclosure and would seek legal advice on the matter[10]. Although that hearing took place before the Defendant had been adjudged bankrupt (in August 2022), it clearly shows that the Defendant was aware of her right and the need to seek legal advice in relation to her disclosure obligations.

54.As a matter of fact, the Defendant had put forward a variety of other excuses (in addition to commercial secrecy and ethical considerations) for not making disclosure as required by the 1^st and 2^nd Disclosure Orders, including that she had thrown away some documents when she moved offices 5 to 6 times, she had to go to HSBC to get the relevant documents, her secretary and other staff members had left her company, and she needed more time to obtain the relevant documents through her banker or auditor[11].

55.At §§21-39 of the Decision, the Master explained her reasoning for finding that the Defendant wilfully failed to make a full disclosure at the examination under Order 49B, rule 1B(1)(c).  The Master’s reasoning is compelling, and her finding is fully justified. 

56.In all, we do not accept that the Defendant was labouring under any “mistake of law” as alleged, or that she was acting under any “honest” mistake of law in failing to make disclosure as required by Order 49B, rule 1A. The alleged mistake of law is, we consider, just another excuse put forward by the Defendant for her wilful failure or refusal to make disclosure as required under Order 49B, rule 1A(2).

THE DISCRETION GROUND

57.Under this ground, the Defendant argues that the Master erred in the exercise of her discretion to make the Order because she had failed to consider and/or attach sufficient weight to a number of factors, namely –

(1)  the Defendant had no assets of her own which were capable of being subject to execution by the Plaintiff and it would thus be wrong for an imprisonment order to be imposed;

(2)  the Plaintiff expressly acknowledged that it would not “circumvent the bankruptcy regime to obtain D’s assets” at §17 of the 6^th Affirmation of Chan Ping Che filed on 16 January 2023; and

(3)  no court should make an order which would serve no useful purpose.

58.We have already rejected the Defendant’s argument that because she had been adjudged bankrupt and thus all her assets had become vested in the trustee in bankruptcy, the Plaintiff could not, even with leave granted by the court under Section 12, proceed with the Order 49 process (including the Imprisonment Application), or that the Master had no jurisdiction to make the Order for her imprisonment under Order 49B, rule 1A(2).  As earlier noted, even after a judgment debtor has been adjudged bankrupt, a judgment creditor may properly proceed with an oral examination under Order 49B with the court’s leave in order to seek relevant documents and information relating to the judgment debtor’s assets, liabilities, income and expenditure and the disposal or any assets or income, and such documents and information may eventually be of use to the trustee in bankruptcy to collect assets of the judgment debtor for the benefit of the general body of unsecured creditors, including the judgment creditor.  Without being backed up by the power of the court to make an order of imprisonment, the judgment debtor could flout his obligation to make full disclosure of relevant documents and information as required under Order 49B, rule 1A(2) with impunity.

59.Further, as observed by Ribeiro PJ in Lam Chi Bin Stanley v OSK Asia Futures Limited, FAMV 1/2004 (1 April 2004), at §4, a finding that there has been the requisite wilful failure of disclosure “no doubt implicitly carries a belief that assets exist of which full disclosure has not been made” (even though, we may add, that there is no requirement for such a positive finding to be made before the court can be satisfied that a judgment debtor has wilfully failed to make the requisite disclosure).  On the other hand, under section 21A(4)(a) of the High Court Ordinance, “[t]he Court may, on application, discharge, vary or suspend an order for arrest or imprisonment made under this section, either absolutely or subject to such conditions as the Court thinks fit.”  Thus, the making of an order of imprisonment against a bankrupt debtor may incentivize him to come clean in the hope of obtaining a discharge or a reduction in the period of imprisonment under this section.  While any assets so disclosed could not be used to satisfy the judgment debt directly, they could indirectly benefit the judgment creditor under the bankruptcy regime.

60.In all, we do not see that it was a wrongful exercise of discretion for the Master to make the Order in the circumstances of this case, or that no useful purpose would be served by the making of the Order.

THE COSTS GROUND

61.Under this ground, the Defendant argues that the Master erred in awarding the costs of the Imprisonment Application to the Plaintiff by failing to recognise that the Defendant had been adjudged bankrupt.  In support of this ground, Mr Yau refers to Order 49B, rule 6, which provides that “[t]he costs of obtaining and executing the order and warrant of arrest or imprisonment shall be added to the costs of the judgment and shall be recoverable accordingly”, and argues that the costs of the Imprisonment Application “should have been but was not treated by the Master on the same footing as the costs of the judgment (which, as the judgment sum, should fall within … s.34(3) of the [Ordinance] as ‘all debts and liabilities, present or future, certain or contingent, to which the bankrupt is subject at the date of the bankruptcy order’)”.  Hence, says Mr Yau, by virtue of Order 49B, rule 6, the Master should have treated the Plaintiff’s costs as a “provable debt” and made a special provision for the same instead of making an order for the Defendant to bear such costs personally.

62.This argument has plainly no merit.  The costs order made by the Master was that the Defendant should pay the Plaintiff’s costs of the Imprisonment Application, to be taxed on an indemnity basis if not agreed.  The order made by the Master merely fixed the Defendant’s liability for the Plaintiff’s costs and the basis for assessment of those costs.  It would not affect the operation and effect of Order 49B, rule 6, or Section 34(3).

DISPOSITION

63.The Notice of Appeal is dismissed with costs to the Plaintiff, to be taxed if not agreed, with certificate for one counsel only.

64.There shall be a stay of execution of the Order for a period of 28 days from the date of this Judgment.  In the event that the Defendant shall make an application to this Court for leave to appeal to the Court of Final Appeal within the said period of 28 days, the stay of execution shall continue until the disposal of the application for leave to appeal.

Mr Man Hon Chiu and Mr Johnson Cheung, instructed by Peter Cheung & Co, for the Plaintiff

Mr Jeff Yau, instructed by ONC Lawyers, for the Defendant