Tan Kah Eng v. Tan Eng Khiam

HCA9640/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9640 OF 1999

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Before : Hon Bharwaney J in Court

Date of Hearing : 11 August 2010

Date of Ruling : 13 August 2010

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RULING ON THE STRIKE OUT APPLICATION/PRELIMINARY ISSUE

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1.This is my ruling on the defendant’s application to strike out the plaintiff’s claim and to dismiss his action. The parties were in agreement that I could deal with this matter, either as a strike out application or by way of determination of preliminary issue prior to the trial of the main action.

2.The defendant applies to strike out the action on the ground that the proceedings were nullity for the reason that the plaintiff was an undischarged bankrupt in Singapore and had no capacity to bring these proceedings for repayment of loans he had allegedly advanced to the defendant. 

3.The plaintiff was adjudged bankrupt on 11 November 1994 in bankruptcy proceedings in Singapore.  As pleaded in the statement of claim, the plaintiff advanced six loans to the defendant, pursuant to agreements reached between the plaintiff and defendant in Hong Kong, between 2 October 1997 and 21 February 1998 in the total amount of S$3,120,190 and HK$3,000,000.  The plaintiff brought these proceedings to recover these amounts by the issue of the writ and statement of claim on 11 June 1999.  A concurrent the writ and statement of claim was issued with leave of court on 5 November 1999 for service outside the jurisdiction on the defendant in Singapore.  The plaintiff’s bankruptcy was annulled by a certificate of annulment dated 18 February 2000. 

4.I received evidence on Singapore law from two experts, the plaintiff’s expert Mr Choh Thian Chee Irving and the defendant’s expert Mr Vinodh Coomaraswamy.  In this affirmation of 9 August 2010, made in response to the expert report of Mr Coomaraswamy, Mr Choh conceded that the definition of property in section 2 of the Bankruptcy Act of Singapore (“BA”) appeared to cover the property of the plaintiff both within and out of Singapore and that section 131(1)(a) of BA had the arguable effect that the Official Assignee’s (“OA”) prior sanction was required before an undischarged bankrupt could commence in action in Singapore or overseas, other than an action for damages for injury to his person.  A bankrupt who contravenes section 131(1)(a) of BA commits an offence.  Although there is no express provision in BA that a bankruptcy order made in Singapore should have extraterritorial effect, I note section 147(1) and (3) of BA which provide that it shall not be a defence in proceedings for an offence under the Act that anything that is relied on as constituting that offence was done outside Singapore. 

5.The first matter that arises for my determination is whether or not a Hong Kong court should have regard to and give effect to foreign bankruptcy laws.  As Mr James Sherry for the plaintiff and Mr Leo Remedios for the defendant agreed, this was a matter which had to be determined by the application of Hong Kong law.  

6.I have had regard to the authorities cited to me by Mr Remedios, including the decision of the Court of Final Appeal in Chen Li Hung v. Ting Lei Miao (2000) 3 HKCFAR9, Modern Terminals (Berth 5) Ltd v. States Steamship Company [1979] HKLR 512and Swycher v. North Wall Finance Inc. [2003] EWHC 1147 (QB)  The statement of principle expressed by Lord Dundine in Galbraith v. Grimshaw [1910] AC 508, in these terms, was approved and followed in the Modern Terminals case :

“[So] far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the court finds that there is already pending a process of universal distribution of a bankrupt’s effects it should not allow steps to be taken in its territory which would interfere with the process of universal distribution ...”

7.In the light of these authorities I have no difficulty concluding that the Hong Kong court should give effect to the adjudication order made against the plaintiff in the Singapore bankruptcy proceedings.  Mister Sherry conceded as much when he submitted that a Hong Kong court ought to recognise the capacity of the Singapore OA to bring proceedings in Hong Kong to recover the property of the person made bankrupt in Singapore.  However, he submitted that in the absence of a competing claim by the OA, the court ought not to prevent the plaintiff from pursuing these proceedings in Hong Kong.  I do not accept that submission.  A recognition of the right of the Singapore OA to bring proceedings in Hong Kong to recover the property of a person made bankrupt in Singapore must include a recognition that the Singapore bankrupt has lost the right, by reason of the bankruptcy, from bringing the same proceedings. 

8.I have had regard to the opinions of Mr Choh and Mr Coomaraswamy on whether Singapore law prevented the plaintiff from bringing these proceedings in Hong Kong. I prefer the opinion of Mr Coomaraswamy and find that the adjudication order made against the plaintiff applied not only to his property situated in Singapore but also to his property in Hong Kong.  I also hold that, by reason of section 131(1)(a) of BA, the plaintiff could not have commenced these proceedings in Hong Kong without the prior sanction of the OA.  It can be inferred from the letter from the OA dated 19 May 2010 that no prior sanction had been granted to the plaintiff to commence these proceedings.  It must follow that, under Singapore law, which the Hong Kong Court recognises, the plaintiff had no capacity to bring these proceedings and that they were a nullity. 

9.Having so concluded, I turn to consider the main argument raised before me, namely, whether the annulment had the effect, under Singapore law, to restore full capacity to the plaintiff retrospectively, as if he had never been made bankrupt, or whether the restoration of full capacity only operated prospectively from the date of the annulment, so that the proceedings remained a nullity.  

10.There is no Singapore authority directly on point. 

11.I set out the relevant statutory provisions as follows.

12.Section 95A(7) of BA provides that :

“where the Official Assignee annuls a bankruptcy order under this section, any sale or other disposition of property, payment duly made or other things duly done by or under the authority of the Official Assignee or by the Court shall be valid except that the property of the bankrupt shall revert to the bankrupt or, on an application by any person interested, vest in such person as the Court may appoint and on such terms as the Court may direct.”

13.The Singapore provision is similar to section 74(6) of the Australian Bankruptcy Act 1966 which provides that :

“where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to subsection (7), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his or her estate or interest in it, on such terms in subject to such conditions (if any) as the Court orders.”

14.Both the Singaporean and Australian provisions have their genesis in the bankruptcy legislation in England on which our own section 33(4) of the Bankruptcy Ordinance is based.  Section 33(4) provides that :

“Where the Court annuls a bankruptcy order under this section or section 20I, any sale or other disposition of property, payment made or other thing duly done by or under the authority of the Official Receiver, a nominee or a trustee or by the court is valid, but if any of the bankrupt’s estate is then vested in such a trustee, it shall vest in such person as the Court may appoint or, in default of any such appointment, revert to the bankrupt on such terms (if any) as the Court may direct...”

15.Mr Choh’s opinion is that the effect of annulment is the same in English law and in Singapore law, namely that the bankrupt is put in the same position as if there had been no bankruptcy order made against him.  In support, he cites from the Law and Practice of Bankruptcy in Singapore and Malaysia, Butterworths Asia, 1999 Edition, at p. 408 as follows :

“annulment of a bankruptcy order liberates a bankrupt from the status of bankruptcy as well as the disqualifications of a bankrupt. It wipes out the bankruptcy altogether and puts the bankrupt in the same position as if there had been no bankruptcy order made against. This is, however, subject to any disposition lawfully made by the Official Assignee prior to be annulment and any condition imposed by the Court annulling the bankruptcy.”

16.Mr Coomaraswamy agrees that the English and the Australian position is that the annulment of the bankruptcy reverses the fact of bankruptcy altogether and puts the bankrupt in the same position as he was in prior to bankruptcy. However, he points to recent Malaysian authority and offers five reasons why, in his opinion, under Singapore law the annulment did not have the effect of retrospectively rendering the plaintiff competent to commence these proceedings. 

17.Firstly, he said that the effect of annulment was not intended to be a complete reversal, as the reversion of the bankrupt’s property was subject to acts done by or with the OA’s consent and as offences continue to be offences even after the annulment. However, a similar situation prevails in the UK and in Australia but in those jurisdictions the annulment operates retrospectively subject to these reservations. 

18.Secondly, he pointed to case law such as Ingall v. Moran to the effect that an action must be validly commenced at the time it was commenced and that defects in the capacity of the plaintiff to commence the proceedings could not be cured by subsequent events.  That authority does not help on this point as that case dealt with the grant of letters of administration.  Such a grant does not operate retrospectively to confirm capacity on an administrator who commenced proceedings prior to grant.  That authority does not support Mr Coomaraswamy’s opinion that the annulment did not operate retrospectively under Singapore law. 

19.Thirdly, he said that upon annulment of bankruptcy, the bankrupt’s property “reverts” to the bankrupt, subject to compliance with provisions of the Act.  This would mean that the bankrupt would still be subject to the statutory disability imposed in section 131(1)(a) and other provisions of the Act.  Mr Remedios understood him to be saying that the bankrupt must make full and frank disclosure and not commit offences before he can obtain an annulment.  That may be right. But the fact that the bankrupt has to comply with the provisions of the Act cannot support the conclusion that the annulment does not operate retrospectively once it is granted. 

20.Fourthly, Mr Coomaraswamy took a point of construction, which was expressed very eloquently to me by Mr Remedios, that there would be nothing to revert to the bankrupt if the effect of the annulment was that the property was deemed always to have been vested in him.  Clearly, Blackburn J in Bailey v. Johnson (1872) LR 7 EX 263was alive to the implication of the word “revert” in section 81 of the Bankruptcy Act 1869 and abstained from expressing an opinion on whether the effect of that provision is in every case to go back to the beginning, and to place the bankrupt in the position of having always owned what, by the section, is to “revert” to him.  However, the five other judges in that case all agreed with Cockburn CJ that :

“the effect of section 81 is, subject to any bona fide disposition lawfully made by the trustee prior to the annulling of the bankruptcy, and subject to any condition which the Court annulling the bankruptcy may by its order impose, to remit the party whose bankruptcy is set aside to his original situation ... to remit the bankrupt ... to his original powers and rights in respect of his property.”

Notwithstanding the eloquent submissions of Mr Remedios, it is too late to turn back the clock in an attempt to construe the provision as having prospective, and not retrospective, effect. 

21.Finally, Mr Coomaraswamy offered the reasoning that it would not be consistent with the legislative intent of the Act to cure an action which was defective at the time of its commencement by the retrospective effect of an annulment of bankruptcy and that this was especially so if the bankrupt concealed information when proposing the compromise to secure the annulment.  I do not accept these statements as supportive of the proposition that in Singapore an annulment of bankruptcy does not have retrospective effect.  If the intention of the legislature is to give it retrospective effect, that intention must include an intention to cure any defect in title or capacity or other acts done by the bankrupt during the period of bankruptcy.  So far as concealment of information is concerned, the court is empowered by section 95A(6) of BA to revoke a certificate of annulment if the acceptance of the proposal by the creditors was obtained by fraud.  The possibility of fraud cannot support the conclusion reached by Mr Coomaraswamy that the annulment of bankruptcy does not have retrospective effect under Singapore law.  

22.As stated above, the Singapore provision is similar to the Australian provision relating to annulments of bankruptcy.  I derive considerable assistance from the judgment of Giles JA in Union Club v. Lord Andrew Charles Robert Battenberg [2006] NSWCA 72 (7 June 2006) who said :

“Retrospective operation

52. In referring to annulment of the bankruptcy ‘on’ a particular date, ss 153A(1) and 74(5) were open to the view that their annulment operated to bring the bankruptcy to an end without any retrospective effect. Annulment by court order pursuant to s 153B was open to the same view. However, historically and from the saving provisions dealing with the consequences of annulment, that view was not adopted. Smallcombe v Olivier did not prevail, and from Bailey v Johnson onwards numerous decisions spoke of annulment as having retrospective operation. In Australia, in re Taylor; ex parte Taylor (1898) 8 BC (NSW) 50 it was said at 51 that if a bankrupt obtains an order annulling the bankruptcy he ‘goes scot free, and it is as though he had never been in the Court at all’. In the High Court in Cameron v Cole Latham CJ said at 594, citing Cockburn CJ in Bailey v Johnson, that in respect of his property the debtor is ‘restored to the status quo ante’ and ‘remitted to his original situation’; see also Starke J at 594 (‘remit all persons interested to their original positions’). In Marek v Tregenza [1963] HCA 40; (1963) 109 CLR 1 at 4-5 Kitto and Menzies JJ described annulment as restoring the bankrupt to his former condition, so far as that could be done without invalidating intermediate acts of the court and bankruptcy officials. The language of restoring the bankrupt to his original situation was used in re Lawson (1939) 11 ABC 137, re Gay (1943) 13 ABC 134 and re Falvey (deceased) (1946) 13 ABC 291. In all these cases but Cameron v Cole the annulment was because the bankrupt had paid his creditors in full or obtained a legal acquittance of his debts, that is, the bankrupt had properly been made bankrupt. Retrospective operation even in that circumstance was thoroughly established. I will come to more recent decisions taking up, and further extending, these descriptions of annulment.

…

78. In Worrell v Westpac Banking Corporation (1994) 51 FCR 304 the question was whether, following the annulment of their bankruptcy, the former bankrupts should be substituted as applicants in proceedings commenced by their trustee, or whether they should be joined as applicants. Time bars made the question significant. Citing the passage from Coyle v Cassimatis earlier set out, Drummond J declined to distinguish annulment pursuant to s 74(5) of the Act from the annulment pursuant to s 154 in that case. His Honour said (at 306-7) -

‘There is nothing in Thiessbacher which provides any support for the proposition that annulment operates retrospectively where the propriety of the making of the sequestration order is attacked, and prospectively where annulment is justified by reason of an event occurring after sequestration. There is no ground in my view for differentiating between the consequences of annulment in these two situations. It follows that there is no warrant for giving to an annulment under s 74(5) of the Act, which, like an annulment under old s 154(1)(b) and new s 153B [sic], is founded on events occurring after the commencement of an unchallenged sequestration order, the limited effect suggested.’

79. There is strong recent support for the retrospective effect of annulment extending to reversing the fact of becoming bankrupt, not only where the annulment was under s 153B of the Act but also when it was under s 76(5). Retrospectivity could perhaps have been confined to property, or to property and status, and there may have been influence of Cockburn CJ’s language of remission to the person’s original situation beyond its intended meaning, but that has been the course of judicial thinking. A distinction could have been drawn between annulment when the bankruptcy should not have come about and annulment when the bankrupt had properly been made bankrupt, but was not. No significance has been attached to the change in language from annulment of the sequestration order to annulment of the bankruptcy.

80. Drummond J noted his earlier decision in re Coyle [1993] FCA 161; (1993) 42 FCR 72 in which he described annulment under ss 153A and 153B as generally ‘that the bankruptcy is set aside ab initio and the annulled bankruptcy is treated as never having taken place for any purposes, save those set out in s 154 and in other special situations of the kind referred to in Oates v Commissioner of Taxation at 297’. His Honour ordered that the former bankrupts should be substituted as applicants.

81. Accidents of history may have been at work, but it is important that there be uniformity in this area, and I consider that I should follow the recent cases and, so doing, hold that annulment of the respondent’s bankruptcy reversed the fact that he had become bankrupt.”

23.Notwithstanding that Mr Coomaraswamy has produced two very detailed and very well researched expert reports on Singapore law, for the reasons set out above, I prefer the opinion of Mr Choh on this point and find that the effect of annulment under Singapore law is that the bankrupt is put in the same position as if there had been no bankruptcy order made against him.  I give effect to the certificate of annulment of the plaintiff’s bankruptcy dated 18 February 2000 and hold that the effect of the annulment was to confirm capacity retrospectively to the plaintiff to commence these proceedings on 11 June 1999.  As such, the proceedings are not a nullity and cannot be struck out. 

24.For the sake of completeness, I also rule that there is insufficient evidence before me from which I can infer that the certificate of annulment is or is likely to be revoked by the Court in Singapore. 

25.My conclusion that under Singapore law an annulment of bankruptcy has retrospective effect does not bring this matter to a close.  I still have to consider the third matter raised by the defendant, namely, that there was material non‑disclosure on the part of the plaintiff when he applied for leave to serve the writ out of the jurisdiction in that he had failed to disclose that he was a bankrupt in Singapore and had not obtained the prior sanction of the OA to commence these proceedings.

26.Clearly, there was a material nondisclosure in the present case.  At the time that he commenced proceedings, the plaintiff had no capacity to sue under Singapore law and the Hong Kong court, informed of the plaintiff’s bankruptcy on Singapore, would have concluded, after giving effect to Singapore law, that these proceedings were a nullity and would have refused to grant leave to serve out of the jurisdiction.  Given this material non-disclosure, it is only right that I should discharge the leave that was granted. 

27.However, Mr Sherry submitted that, applying the principles governing such applications, the Court ought to re-grant leave now that the bankruptcy had been annulled and the plaintiff restored retrospectively to full capacity to commence and maintain these proceedings. 

28.It was held by the Court of Appeal in Pacific Electric Wire & Cable Co. Ltd v. Texan Management CACV 369/2006 that where leave is to be discharged on the grounds of material non-disclosure, the discharging court must consider the matters not disclosed on the original application, and, if appropriate, re-grant leave.  The rationale for this approach was explained by Rogers VP in that case as follows :

“16 Following what Hunter JA said in Wo Fung and the other distinguished judges said in ex parte Polignac, it seems to me that there is certainly no absolute bar to a renewed application for service of a writ outside the jurisdiction in cases where there has been nondisclosure of a material fact. The court must protect its own process by preventing a party that has been at fault from obtaining an advantage. It is clear that in cases of Mareva for injunctions and Anton Piller orders that consideration may entail the court refusing to reimpose an injunction. The reason for that is that if an injunction is discharged but immediately reimposed, the advantage obtained when the original injunction was imposed, will be retained. The rule has never been extended, however, as far as I am aware, to, for example, a court refusing to grant a final injunction even if an interlocutory injunction has been discharged.

17. To punish a party by preventing it from ever obtaining an order for service outside the jurisdiction on the basis that there has been a non-disclosure of a material fact on the first application for service outside the jurisdiction, would be a punishment and not a matter of protection of the court’s own process. This case might be considered an extreme example of why it would wrong to adopt such a rule. A litigant might be deprived of the opportunity of recovery in a case where it is said that it has been defrauded of US$450,754,409 and HK$1,801,508,060. On any footing that would be a punishment which even Draco might have considered excessive for a transgression of the requirement to make full disclosure. It is not for the court to deprive parties of their property and meet out such punishments. If the court were to proceed on the footing that it was imposing a punishment, questions would arise as to the scale of punishments and as to who should benefit from them.

18. Finally on this aspect, in so far as it has been suggested in the first instance case of Dallah Albaraka (Ireland) Ltd v Symphony Gems NV & others [2005] 3 HKLRD 703 at paragraph 34, relied upon by Mr Whitehead SC on behalf of Mr Hu, that the court would not entertain a second application to serve proceedings outside the jurisdiction if the first order for service were set aside, the observations made in that case were not grounded on any authority or analysis of the underlying principles and were, indeed, contrary to what was said by this court in the Wo Fung case.

19.     Whilst, therefore, the original orders fall to be set aside and the plaintiff would have to bear the costs of the application to set them aside and all the costs thrown away, the question which the court must consider is whether, on all the facts now known, it is appropriate that the proceedings are served outside the jurisdiction.”

29.It would appear, on all the facts now known, that it is appropriate that the leave be re-granted for service outside the jurisdiction.  As can be seen from the plaintiff's statement of affairs prepared by him on 17 March 1995 in the Singapore bankruptcy proceedings, his unsecured creditors were owned the sum of S$169,008.44. As against that, the plaintiff claims the equivalent of about HK$18 million in these proceedings.  To deny him the right to maintain these claims must be considered to be excessive for the transgression of the requirement to make full disclosure of the Singapore bankruptcy proceedings resulting from as unpaid debts of less than the equivalent of HK$1 million. 

30.I accept the submissions of Mr Remedios that the non-disclosure was deliberate.  The fact that the plaintiff was discharged bankrupt in Singapore must have been known to him and ought to have been disclosed by him to his solicitors making the application for leave to serve out of the jurisdiction.  As against that, however, the bankruptcy was annulled some 3 months later on 18 February 2000 with the effect that full capacity to sue was restored retrospectively to the plaintiff.  Mr Remedios has rightly submitted that the plaintiff has never made disclosure of the fact of his bankruptcy and it was only early this year that this fact became known to the defendant’s legal representatives.  However, the weight to be placed on the plaintiff’s continuing non-disclosure of the fact of his bankruptcy has to be measured in the light of the annulment and its effect. 

31.Mr Remedios rightly complained that the annulment did not have the effect of condoning the criminal offence committed by the plaintiff in bringing these proceedings in Hong Kong without the prior sanction of the OA.  

32.He also complained that the defendant suffers prejudice by reason of the fact that he suffered from a serious stroke in 2007 which has totally impaired his capacity to give evidence in defence of the plaintiff's claims. 

33.I do not see that the prejudice suffered by the defendant as a result of his stroke can be a relevant consideration in the exercise of discretion to re-grant leave for service outside the jurisdiction.  Even if it were a relevant consideration, I note that Deputy Judge To, as he then was, dismissed the defendant’s application to strike out for want of prosecution on 15 January 2009.  He was well aware of the fact that the defendant had suffered a stroke which had reduced him to a vegetative state.  Notwithstanding that, he was unable to find that the delay in prosecuting the proceedings gave rise to any substantial risk that it was not possible to have a fair trial of the issues in the action or that the delay was such as was likely to cause or to have caused serious prejudice to the defendant.  There has been no appeal from the judgment. No additional circumstances arising between 15 January 2009 and today have been identified to me as constituting additional prejudice and which I ought to have regard to before exercising my discretion to re-grant leave. 

34.Finally, Mr Remedios submitted that the material non-disclosure continues up to today in that there has been no disclosure of the special resolution based upon which the OA issued the certificate of annulment and that there was every indication of a fraud having been committed on the creditors in accepting a compromise, which resulted in the annulment, without knowledge of the assets of the plaintiff in Hong Kong and in the PRC which, as he has alleged in his witness statement, exceeded RMB30 million.  

35.I accept the evidence of Mr Coomaraswamy that the plaintiff’s failure, if that be the case, to disclose significant assets overseas to the OA and to his creditors would be regarded as a fraud within the meaning of section 95A (6) of the BA and a ground was setting aside the certificate of annulment, with the result that the bankruptcy order would be reinstated, pursuant to Rule 216 of the Singapore Bankruptcy Rules, which, in turn, would incapacitate the plaintiff from commencing and maintaining these proceedings. 

36.In BP Exploration Co. (Libya) Ltd v. Hunt [1976] 3 All E.R. 879Kerr J held that a failure to refer to arguments on the merits which the defendant may raise in answer to the claim should not generally be characterised as a failure to make a full disclosure unless they were of such weight that the omission might mislead the court in exercising its jurisdiction and its discretion whether or not to grant leave.  Mr Sherry submitted that the circumstances leading to the annulment were not material to the issue of whether or not I should re-grant leave to serve outside the jurisdiction. However, given the significance of the special resolution and the fact that a non-disclosure of his overseas assets to his creditors might result in the setting aside of the certificate of annulment, thereby rendering these proceedings a nullity once again, I conclude that I am unable to re-grant leave to serve out of the jurisdiction unless the plaintiff is prepared to make disclosure of the special resolution resulting in the issue of the certificate of annulment on 18 February 2000 and to satisfy me that there was no fraud committed, within the meaning of section 95A(6) of the BA, when the certificate of annulment was issued or otherwise satisfy me that the certificate of annulment cannot or can no longer be set aside.

37.I will hear the parties on Monday 16 August 2010 at 10 a.m. on this specific matter, and on the directions that I ought to give if I were to decide to re-grant leave, including whether or not I should give a direction for re-service of the writ or to dispense with re-service, and whether or not the trial of the action can commence on Monday morning or later.  I will also hear the parties on the question of costs. 

Mr Anthony James Sherry, of Messrs Raymond Chan, Kenneth Yuen & Co., for the Plaintiff

Mr Leo Remedios & J. Remedios, instructed by Messrs John Ip & Co., for the Defendant