Re Ho Ying Pat Bobby

HCB1946/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 1946 OF 2009

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Before : Hon Harris J in court

Date of Hearing : 15 December 2009

Date of Decision : 28 December 2009

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DECISION

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The petition

1.The judgment creditor, Overseas Way (China) Limited, seeks a bankruptcy order against the judgment debtor, Ho Ying Pat Bobby.

Introduction

2.The judgment debtor is a solicitor.  He was a partner in a firm of solicitors called Ho & Chan (“the Partnership”), which ceased business on 30 November 1998.  Mr Ho’s partner Chan Kwok Yim was involved in a number of fraudulent conveyancing transactions, one of which involved the judgment creditor, Overseas Way (China) Limited.  Mr Ho was not involved in any of these transactions.

3.In 1998 the judgment creditor, along with 2 other companies, commenced HCA 20094/1998 against the Partnership advancing claims arising from Mr Chan’s conduct of a transaction involving it and which caused it to suffer considerable loss (“Action”).  The precise subject matter of the claim is not relevant to the petition before me.  The judgment creditor obtained judgment for HK$36,600,000 plus interest against the judgment debtor on 4 November 2005.  The judgment was unsuccessfully appealed to the Court of Appeal and then to the Court of Final Appeal, who dismissed the appeal on 15 July 2008.  I am told that including interest and costs the judgment debtor owes the judgment creditor approximately HK$100,000,000.

4.There is no dispute that Mr Ho is presently unable to pay the judgment debt or a significant part of it.  There would appear to be no prospect of him paying any part of the judgment debt in the near future.  As a consequence the judgment creditor issued a Bankruptcy Petition on 13 February 2009. 

5.On 28 April 2009 the judgment debtor filed an affidavit in support of an application for an order under section 20 of the Bankruptcy Ordinance, Cap. 6, for the implementation of an interim arrangement, which would have the affect of staying the petition.  The judgment debtor explained in his affidavit that on the advice of counsel he was about to commence legal proceedings against the firm of solicitors, Richards Butler, who represented him in the Action.  The judgment debtor claimed that Richards Butler were negligent in failing to advise him properly in relation to the defence and settlement of the claim made against him by the judgment creditor.  He argued that he had received advice from Mr Pirie, who represented the judgment debtor before me, that he had a strong claim and would recover significant damages and that if he were bankrupted it was unlikely that the Official Receiver would continue the action.  Further he would be struck off the role of solicitors (which is not in dispute) and this would affect his earning potential.

6.The judgment debtor argued that it was, therefore, in the judgment creditor’s best interests that the petition be stayed.  He also suggested that his claim against Richards Butler raised an issue of importance to solicitors generally, namely, and I quote from the skeleton argument of Mr Pirie:

“how the Solicitor’s Indemnity Fund Limited (‘SIF’) administers the Indemnity Fund”.

7.The particular point of concern is the extent to which a solicitor appointed by the SIF (such as Richards Butler) to represent a solicitor subject to a claim (such as Mr Ho) can properly advise the SIF and take into account its interests whilst conducting the defence of the relevant proceedings.  In the Action that the judgment creditor subsequently commenced against Richards Butler (“HCA1103/2009”) it is suggested that Richards Butler put the interests of the SIF before those of Mr Ho in dealing with the possible settlement of the claim against him and thereby caused him loss.  In argument Mr Pirie suggested that Richards Butler had failed to appreciate that the SIF is not an insurer, but provides an indemnity.  I understood him to be suggesting that in these circumstances it was wrong for Richards Butler to be seeking the SIF’s approval to a proposed settlement and that if they had not done so and simply focused on the judgment debtor’s interests the case would have been settled on terms favourable to him.

8.The petition was heard for the 2^nd time before Poon J on 4 May 2009.  Mr Pirie also represented Mr Ho on that occasion.  Mr Pirie sought either an adjournment of the petition or, as I read his skeleton argument, in the alternative an order for the implementation of a voluntary arrangement.  The court refused to entertain the application for an interim voluntary arrangement on the grounds that a master should hear such an application.  My own view is that on the papers then before the court insufficient information had been provided by the judgment debtor to justify the granting of an order under section 20 in any event.

9.Mr Pirie asked that the petition to be adjourned for argument with 2 days reserved.  It is unclear to me why Mr Pirie thought that such a long period was required to argue a simple matter in which he cited no authorities or textbooks.  It might cynically be thought that it was an attempt to delay the hearing.

10.Before me Mr Pirie sought only a stay of the petition.  He did so on the following grounds:

(1) HCA1103/2009 raised an issue of public importance to solicitors;

(2) the judgment debtor has a strong case against Richards Butler;

(3) there is reason to think that HCA1103/2009 will be settled; and

(4) it would be unfair and unhelpful to the judgment debtor for him to be bankrupted and loose the ability to work as a solicitor.

11.It will be noted immediately that the judgment debtor does not suggest that the debt on which the judgment creditor relies is not due, that he is able to pay the debt or will shortly be able to do so or that there is any procedural defect with these proceedings.  Mr Pirie has not put before me any authority in which an undisputed bankruptcy petition has been stayed to allow a judgment debtor to pursue a claim against a party other than the petitioner or any other creditor on the grounds that this will maximise return to creditors.

The correct approach to assessing the application for a stay

12.Both Mr Coleman, SC, who appeared with Lawrence Cheung, for the judgment creditor, and Mr Pirie accepted that in determining a bankruptcy petition the court’s primary concern is the interests of creditors.  Mr Pirie accepted that generally if, as in the present case, there is no dispute about the debt and the creditors before the court insist upon a bankruptcy order being made an order would be granted as a matter of course.  Mr Pirie submitted that if, however, there is evidence before the court that demonstrates that it is in the creditors’ best interests that the petition be stayed because, as he argues in the present case, they will be better off than if the judgment debtor is bankrupted the court can properly exercise its inherent jurisdiction to stay the petition in question.  Mr Pirie could not identify any authority in support of this proposition, but Mr Coleman, SC, accepted, as I do, that as a general proposition it is correct.  I suggested to Mr Pirie that whilst the court might properly stay a petition if it thought that it was manifestly in the interests of the creditors to do so unless this was the case a bankruptcy order should be made.  In other words if the creditor’s view that a bankruptcy order should be made is rational, although the court may think it is not necessarily the best view, the court should grant the order sought and not substitute its views of what is in the creditor’s best interests for the creditor’s own views.  Mr Pirie accepted this, but argued that in the present case the only rational course was to stay the petition in order that the judgment debtor could pursue his claim against Richards Butler.

Discussion

13.Before turning to consider whether or not a stay is the only rational order to make I will consider the argument that HCA1103/2009 gives rise to an issue of importance and that this is a reason to grant a stay.  In my view this is clearly wrong.  The issue Mr Pirie has identified does not involve the judgment creditor and provides no legitimate reason to stay the petition.

14.Mr Pirie argued that staying the petition is the only rational choice for the following reasons:

(1) The judgment debtor currently earns about HK$40,000 a month working as a solicitor.  His entire income is spent on living expenses.  He saves nothing.  If he is bankrupted he will be struck off the role of solicitors and this will affect his earning potential.

(2) The judgment debtor’s total assets are currently worth about HK$800,000.

(3) The judgment creditor’s claim is presently worth about HK$100,000,000 including interest that has accrued on the judgment and costs.

(4) If the judgment debtor is bankrupted the amount available for distribution to the judgment creditor and any other creditors that will seek to prove in the bankruptcy will be minimal.

(5) The judgment debtor has a strong claim against Richards Butler and there is reason to think, which I address in more detail below, that he will recover a sizable sum from Richards Butler.

15.Mr Coleman, SC, did not dispute the level of income and assets that the judgment debtor says he has available to satisfy his creditors.  He argued that little information has been provided about the claim against Richards Butler and his client quite reasonably sees it as far more speculative than the judgment debtor suggests.  If the judgment debtor is bankrupted the Official Receiver can pursue the claim if it considers that it has merits.  There is thus no reason not to make a bankruptcy order.

16.I now turn to consider these arguments in more detail.

17.I have been provided with the Statement of Claim in HCA 1103/2009.  The complaint is that Richards Butler did not take the opportunity to settle the Action when it arose during the course of the trial and in particular following an offer contained in a letter of 18 November 2004 from the solicitors for the plaintiffs in the Action, although they should have known that the judgment debtor was bound to loose and that the offer enabled him to settle the Action on advantageous terms.  I note in passing that despite Mr Pirie’s assertion that it should have been clear all along that the judgment debtor was bound to loose the Action there is amongst the correspondence that has been exhibited by the judgment debtor a letter from Burke & Company to Richards Butler dated 16 April 2009 in which it states that both Neville Sarony, SC and Patrick Lawrence, QC have advised that the judgment debtor’s appeal to Court of Final Appeal had a “fair chance” of success, which suggests that the merits of the judgment debtor’s defence were not seen as quite as dire at the time as Mr Pirie suggests.  I also note in passing that despite the Court of Final Appeal giving judgment on 15 July 2008 it appears that it was not until sometime after the petition was issued on 13 February 2009 that the judgment debtor began to consider taking action against Richards Butler.  The opinion of Mr Pirie that appears in the bundle is dated 14 April 2009.

18.Unfortunately, the letter of 18 November 2004 and other relevant correspondence has not been provided to me or to the judgment creditor.  Amongst the correspondence that the judgment debtor has exhibited to his affidavit is a letter from Richards Butler to the judgment debtor dated 5 January 2005 that refers in paragraph 2(iii) to a letter dated 18 November 2004 from the plaintiff’s solicitors in the Action, which appears to be the 2^nd offer referred to in paragraph 22 of the Statement of Claim.  Richards Butler describe the contents of the letter and what transpired subsequently as follows:

“(iii) On 18^th November 2004, we received two draft Consent Summonses containing the Plaintiffs’ offer to discontinue their claims against the 1^st Defendant, you and Mr Emerson in Ho & Chan (5A) and (5B) on the basis that the 1^st Defendant pay the Plaintiffs the total sum of HK$5,522,000 and that a total payment of HK$2,522,000 be paid to the Plaintiffs in respect of their claims against you and Mr Emerson in Ho & Chan (5A) and 5(B).  The parties were to bear their own costs.

(iv)  On 19^th November 2004, we wrote to Livasiri and Stephenson Harwood & Lo to obtain their agreement to make a joint counter offer.  In summary that counter offer was that the 1^st Defendant would pay a total of HK$1,522,000 to the Plaintiff and a payment of HK$1 million would be paid to the Plaintiffs in respect of their claims against you and Mr Emerson.  The Parties were to bear their own costs.  Livasiri did not agree to make such a joint counter offer.

(v)   On 1^st December 2004, we made an independent offer to settle the Plaintiffs’ claim against you and Mr Emerson in Ho & Chan (5A) and (5B) on the basis that a payment of HK$1 million be made to the Plaintiffs.  The Parties were to bear their own costs.  We have received no response to this offer.”

19.The judgment debtor complains that he should have been advised to accept the offer contained in the letter of 18 November 2004.  He alleges in paragraph 24 of the Statement of Claim that instead what happened was that a counter offer was made to the plaintiff (which was represented by Lau & Chan) stating that the Claims Committee of the SIF would only consider an offer of settlement, which included settlement of various other claims including claims against Mr Chan on a “drops hands basis”.  This would appear to be inconsistent with Richards Butler’s letter of 5 January.  It also appears to me from the correspondence that the judgment debtor has exhibited between himself and Richards Butler between 27 September and 22 November 2004 that the judgment debtor had more knowledge of the settlement discussions than the Statement of Claim suggests that he did, which seems likely as he states in paragraph 13 of his Affidavit that in recent years he has mainly been practicing as a civil litigator.

21.As Mr Coleman, SC, pointed out if I make a bankruptcy order the Official Receiver will be responsible for assessing whether or not the judgment debtor’s claim is worth pursuing and in making this assessment the Official Receiver will have access both to the judgment debtor and the relevant documents.  If the Official Receiver thinks that there is potential value to creditors in pursuing the claim it is open to him to discuss funding arrangements with the judgment creditor, which will allow the claim to be pursued.  Mr Pirie argued that the Official Receiver made it clear at the last hearing before Poon J that he would only continue with HCA1103/2009 if a funding arrangement is put in place and he is given an indemnity in respect of any potential liability he has for costs and this is unlikely to be forthcoming.  If Mr Pirie is correct and the case against Richards Butler is on a proper examination as strong as he suggests I cannot see why I should assume at this stage that the judgment creditor would not be willing to consider a funding arrangement.  In any event I do not think that this is of itself a reason not to make a bankruptcy order if the judgment creditor’s objection to a stay is not wholly unreasonable.

22.Mr Pirie argued that despite the fact that Richards Butler has not yet filed a defence or apparently indicated what their defence is likely to be I should assume that it is probable that they will see the claim as having substance and one that should be settled.  In addition to what he suggests is the obvious strength of the claim Mr Pirie says that another reason to take this view is that a similar claim has been made by Livasiri & Co. against their solicitors Stephenson Harwood & Lo in connection with the Action and that Stephenson Harwood & Lo settled the claim.  Whether or not Richards Butler takes a similar view to that taken by Stephenson Harwood & Lo in other proceedings is a matter of speculation to which limited weight can be attached.

Conclusion

23.In my view the judgment debtor has not demonstrated that the granting of a stay is the only rational decision to make.  I therefore make the bankruptcy order sought in the petition.

Mr Russell Coleman, SC and Mr Lawrence Cheung, instructed by Messrs LCP, for the Judgment Creditor

Mr Nicholas Pirie, instructed by Messrs Burke & Company, for the Judgment Debtor