Dah Sing Bank, Ltd v. Daylight Industrial Co Ltd and Another

HCMP002746/1986

Headnote

S.45, Bankruptcy Ordinance. Cap. 6. - Charging Order Nisi - Notice of an act of bankruptcy - whether or not the doctrine of relation back has any application.

HELD

The correct time to consider the priorities and interests of the parties is when the Court hears the application for the charging order nisi to be made absolute. If the issue is not ventilated at that time the doctrine of relation back becomes operative and accordingly the date when the execution is deemed to be completed will be the date of the making of the charging order nisi and its registration in the Land Office.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BETWEEN

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Coram: Hon. Mayo, J. in Chambers

Date of Hearing: 17th March, 1987

Date of Delivery: 26 MAR 1987

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JUDGMENT

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1. This is an Interpleader Summons. Mr. Cheung Wah owned property on the Ground Floor of No. 207 Reclamation Street, Kowloon which was mortgaged to the Plaintiff. He died on the 4th of August 1984 and letters of administration were issued to Cheung Heung Kuen and Cheung Ho Ming on the 14th of June 1985. The 1st Defendant was owed money by the deceased. They took legal action against the deceased's estate and obtained judgment on the 17th of July 1986 in the sum of $1,666,625.29.

2. The 1st Defendant obtained a Charging Order Nisi against the property on the 3rd of February 1986, and this was registered in the Land Office on the 6th of February. The date fixed for the return of the said Order Nisi was the 20th of February. An application was made on that date for the Order Nisi to be made absolute. The application was duly served on the administrators of the deceased's estate and they were invited to show cause as to why the Order Nisi should not be made absolute.

3. On the 19th of February 1986 the administrators issued a bankruptcy notice pursuant to section 3(1) (h) of the Bankruptcy Ordinance, Cap.6. It was stated in this notice that the estate had suspended payment of its debts. This notice was sent by ordinary post to the 1st Defendant on the same day.

4. In addition to this, the solicitor representing the 1st Defendant was served by a solicitor representing the administrators with the notice immediately before the 1st Defendant's solicitor was due to appear before the Master on the return of the application for the Order Nisi to be made absolute.

5. The parties before me agree that in all the circumstances the 1st Defendant's solicitors did accept service of the notice prior to the hearing on behalf of the 1st Defendant. However, no reference was made to the bankruptcy notice before the Master nor was any other cause shown why the Order Nisi should not be made absolute. This being the case the Master made the Order Absolute. The Charging Order Absolute was registered in the Land Office on the 27th of February 1986.

6. An administration order was made on the 7th of April 1986 which was registered in the Land Office on the 15th of April.

7. The Plaintiff exercised the power of sale contained in the mortgage secured on the property and after applying the proceeds of sale towards the discharge of the indebtedness due to them, there was a surplus of £509,573.68. Both the 1st Defendant's and the 2nd Defendant's claim to be entitled to receive these monies and the purpose of the interpleader proceedings before me is to determine which claim is valid.

8. All of the facts I have recited were agreed by the parties. Mr. Ma for the 1st Defendant also conceded that his clients were not taking issue on a) the service of the bankruptcy notice on his clients' solicitor prior to the hearing before the Master b) the service of the bankruptcy notice by post to his clients c) that the bankruptcy notice constituted and act of bankruptcy and d) that a Charging Order Nisi was of itself insufficient to constitute execution. These concessions were helpful and confined the scope of the main issue to be decided by me.

9. Mr. Remedios for the 2nd Defendant referred me to section 45 of the Bankruptcy Ordinance, Cap.6 which reads:

10. He argued that there could be no doubt that the 1st Defendant had received notice of the commission of an act of bankruptcy before the Charging Order Nisi had been made absolute on the 20th of February. Over and above this it was necessary to have regard to the requirement in section 45(2)(c) that the Charging Order had to be registered at the Land Office before the execution could be deemed to have been completed. As can be seen from the agreed facts, registration had not been effected until the 27th of February.

11. Mr. Remedios referred me to the headnote of House of Lords' decision in Roberts Petroleum Ltd. v Bernard Kenny Ltd. ⁽¹⁾ as authority for the proposition that a Charging Order Nisi had to be made absolute before an execution could be deemed to have been completed.

12. Mr. Ma did not accept that this was the case. It is clear from the facts of Roberts Petroleum that the issue which was before the Court was whether or not a Charging Order Nisi should be made absolute. In the present case the situation was entirely different. A Charging Order Absolute had been made and no attempt had been made to lodge an appeal against the Master's Order.

13. There was nothing in any of the speeches of the law Lords to indicate any retreat from the doctrine of relation back. The reason for this was that it did not come within the scope of the issues before the Court. In no way did Roberts Petroleum Ltd. impinge upon the well establish principle of relation back. Megaw LJ considered the various authorities in Burston Finance Ltd. v Godfrey⁽²⁾ and accepted that they were still applicable. The rational of the doctrine is that there is only one Charging Order that is made. Initially the Order is made provisional upon an opportunity being given to all parties concerned to set it aside. If no cause is shown the order is then made absolute. This reasoning can be seen in Haly v Barry⁽³⁾ and Breretor v Edwards⁽⁴⁾.

14. I am satisfied that Mr. Ma is correct in his submission. The doctrine of relation back is applicable and there is nothing in Roberts Petroleum which has the effect of undermining this. The consequence of this is that the reference to the Charging Order in section 45 is to the Charging Order Nisi the date of which precedes any notice of an act of bankruptcy. Likewise the registration of the Charging Order Nisi on the 6th of February 1986 was the operative date for registration in the Land Office as required by section 45 It makes obvious sense that there should be consistency and that if the doctrine of relation back applies to the Charging Order Nisi it should also apply to the registration.

15. I also come to the conclusion that if the administrators of the deceased's estate had wished to assert their rights the proper time for them to do so was when the Master heard the application for the Order Nisi to be made Absolute on the 20th February.

16. If I were to come to any other conclusion it would almost inevitably mean that the parties would be faced with the unsatisfactory situation of having successive opportunities of making representations to the Court as to whether the execution should be deemed to be completed.

17. For these reasons I order that the monies being held by the plaintiff should be payable to the 1st Defendant. I will hear the parties on costs.

(1) [1983] 2 AC 192

(2) [1976] 1 WLR 719

(3) (1868) Ch. App. 452

(4) (1888) Ch. App. 452

Representation:

Mr. J. Ma inst'd by Szeto & Yeung for 1st Defendant.

Mr. L. Remedios inst'd by Official Receiver for 2nd Defendant.