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CACV 167/2010
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IN THE HIGH COURT OF THE

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HONG KONG SPECIAL ADMINISTRATIVE REGION
D COURT OF APPEAL D

CIVIL APPEAL NO. 167 OF 2010

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(ON APPEAL FROM HCB NO. 8042 OF 2009)
F F

G BETWEEN G
SUEN KIN NING Debtor
H H
And

I The Incorporated Owners of Tsui Wah Building 1st Respondent I

Official Receiver of the HKSAR 2nd Respondent

J J

K K
Before: Hon Rogers Acting CJHC, Le Pichon and Cheung JJA in Court
L Date of Hearing: 23 December 2010 L

Date of Handing Down Judgment: 5 January 2011

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N JUDGMENT N

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Hon Rogers Acting CJHC:

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1. I agree with the judgment of Le Pichon JA.
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Hon Le Pichon JA:
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2. This is an appeal by the Official Receiver and a cross appeal by the

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debtor from an order of 8 July 2010 of Barma J. The matter before the judge
T concerned an application by the debtor that the fees due (estimated to be T

approximately $2.3 million) from the debtor to the Official Receiver be remitted
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absolutely or on such terms as the court may think fit. The judge ordered that
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the fees be remitted to the extent of $1.5 million and that the Official Receiver’s
C costs of $70,000 be paid by the debtor. At the conclusion of the hearing C

judgment was reserved which we now give.

D D

E The background facts E

F 3. This is an unusual case. F

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4. The debtor became the registered owner of a shop (“the property”)
H in a building known as Tsui Wah Building (“the building”) located in Sai Ying H

Pun in December 1987. At all material times the property had been let to
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Sonic Auto Services Ltd (“the tenant”) who, under the terms of the tenancy
J agreement, was responsible for the payment directly to the incorporated owners J

of the building (“the petitioner”) of all service and maintenance charges payable
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by the owner or occupier under the DMC.
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5. The debtor emigrated to Canada in 1993, returning to Hong Kong
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from time to time. He maintained a residence in Hong Kong situated at Yee

N Wo Street. His last visit to Hong Kong was in early 2007. He left for N

Canada in April 2007 and since then has been unable to travel due to ill health.
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The debtor is 75 years old and lives in a care centre in Canada.
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6. On 8 April 2008, the petitioner obtained an award against the
Q debtor from the Small Claims Tribunal in respect of unpaid renovation Q

contributions aggregating $49,750 and costs of $220. On 28 April 2008, the

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petitioner registered a charge dated 22 April 2008 against the property.
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7. Notwithstanding the registration of the charge, on 23 December

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2008, the petitioner issued a statutory demand against the debtor in the sum of
U $85,551.59 comprising the award, unpaid management fees from 1 August 2007 U

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to 31 December 2008 and the third instalment of the renovation contribution.

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The petitioner served the statutory demand and a letter of appointment on the
C debtor by sending them to the property on 2 January 2009 as inquiries as to the C

debtor’s whereabouts had apparently yielded no results.

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E 8. Although the petitioner was informed by the tenant that the E

statutory demand had not been passed to the debtor, the petitioner proceeded to
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obtain leave on 21 May 2009 to file a bankruptcy petition against the debtor.
G The application was made, inter alia, on the bases that the debtor had G

“absconded or is keeping out of the way with a view to avoiding service” of the
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statutory demand and that there were “no other available/other assets of the
I Debtor to the Petitioner available for execution” such that there was “no I

prospect of the sum due been recovered by execution or other means”.

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9. The petitioner presented a bankruptcy petition in June 2009 based K
on the debtor’s failure to satisfy the statutory demand. The petition stated,
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inter alia, that the petitioner

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“does not nor does any person on its behalf, hold any security on the
Judgment Debtor’s estate, or any part thereof, for the payment of the
N above-mentioned sum.” N

O The verifying affirmation was to the same effect. O

P 10. The petitioner then obtained an order for substituted service. A P

bankruptcy order was made on 5 August 2009.

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R 11. The debtor first became aware of the award, the statutory demand, R

the petition and the bankruptcy order when, on or about 8 October 2009, the
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debtor’s daughter found the letter dated 2 October 2009 from the Official
T Receiver to the debtor sent to his Hong Kong residence. It would appear that T

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that address is shown in the tenancy agreement as the address of the landlord
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i.e. the debtor.
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12. The debtor’s statement of affairs filed on 9 December 2009

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revealed assets within Hong Kong worth in excess of $27.5 million and a sole
E creditor, namely, the petitioner. Meanwhile, on 5 November 2009, the Official E

Receiver agreed to pay the petitioner its costs in the sum of $45,000.
F F

13. On 16 December 2009, the debtor issued proceedings under

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section 33(1) of the Bankruptcy Ordinance to annul the bankruptcy order.
H H

14. The Official Receiver filed his report dated 31 December 2009 to
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the effect that the debtor was “obviously solvent”, that the bank balances
J realised exceeded $15.7 million and that the Official Receiver’s fees and J

disbursements including settlement of the petitioner’s costs were estimated at

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$2,312,563.89 and $55,000 respectively.
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15. On 4 January 2010 the debtor made an application under
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section 114(2) of the Bankruptcy Ordinance for an order that the fees due to the

N Official Receiver be remitted absolutely or on such terms as the court may think N

fit (“the fees summons”). It is common ground that the actual time costs
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incurred by the Official Receiver is of the order of $70,000.
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16. The bankruptcy order was annulled on 5 February 2010 by the
Q judge who dismissed the petition and ordered the debtor to pay the Official Q

Receiver’s costs of $6,200 incurred for that application. The order which is
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the subject matter of the appeal and cross appeal was made on 8 July 2010.
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The appeal and cross appeal

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C 17. The court has a discretion under section 33(1) of the Bankruptcy C

Ordinance to annul a bankruptcy order if (a) the order ought not to have been
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made; or (b) the provable debts and expenses have all been paid or secured.
E Although the debtor had elected to pursue an annulment under subclause (b), E

the court is not precluded from giving to consideration to the circumstances in

F F
which the bankruptcy order came to be made. To the contrary, on the hearing
G of applications to annul a bankruptcy order under section 33(1) on the grounds G

of payment of the proved debts in full, the practice is to consider those

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circumstances as well as the conduct of the bankrupt: Muir Hunter on Personal
I Insolvency, Vol 1, § 3-591. I

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18. In my view the judge ought not to have declined to rule on whether

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or not an application under subclause (a) would have been successful. Quite K
simply, this is a case where the petitioner was a fully secured creditor. It is
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undeniable that a charge had been registered against the property well before the

M commencement of the bankruptcy proceedings. Had the existence of the M

charge been disclosed, leave for the filing of the bankruptcy petition would
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never have been obtained because there would have been no grounds to justify
O such leave. In that connection, for my part, I take a dim view of the conduct of O

those responsible for the failure to disclose. In those circumstances, it is clear

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that a bankruptcy order ought not to have been made. Such a conclusion is
Q ineluctable from the facts and is not a matter that admits of any contrary Q

argument. I would add that the estimated value of the property which appears
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in the statement of affairs is $5.5 million. In any event, since the property was
S otherwise unencumbered, given the size of the debt, by no stretch of the S

imagination could it have exceeded the value of the property.

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19. The consequences of an annulment in relation to the assets of the

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debtor are dealt with in section 33(4) which provides as follows:
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“Where the court annuls a bankruptcy order under this … section …,
any sale or other disposition of property, payment made or other thing
D duly done by or under the authority of the Official Receiver, a nominee D
or a trustee or by the court is valid, but if any of the bankrupt’s estate is
E then vested in such a trustee, it shall vest in such person as the court E
may appoint or, in default of any such appointment, revert to the
bankrupt upon such terms (if any) as the court may direct, and the
F court may include in its order such supplemental provisions as may be F
authorised by the rules.”
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20. In adjudicating on the meaning of a similar provision under the
H Bankruptcy Act 1869, in a case where the bankruptcy order was annulled, H

Cockburn CJ held that:

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“The effect …is, subject to any bona fide disposition lawfully made by
J the trustee prior to the annulling of the bankruptcy, and subject to any J
condition which the court annulling the bankruptcy may by its order
K impose, to remit the party whose bankruptcy is set aside to his original K
situation.”

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Therefore, subject to any bona fide disposition made by the Official Receiver

M prior to 5 February 2010 and subject to any terms imposed by the judge, the M
debtor’s estate which was vested in the Official Receiver must revert to the
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debtor.
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21. While the court has a discretion under section 33(4) to impose
P conditions, when imposing conditions, the court must have regard to those P

provisions. It is to be noted that on annulling the bankruptcy order the judge

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did not impose conditions other than to order the debtor to pay the Official
R Receiver’s costs of $6,200 incurred in relation to the application to annul. R

Since the fees summons was then pending, the applicable principles cannot
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depend on whether the issue of fees (which was pending) was dealt with as a
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term or condition of the annulment or (as has happened in the present case)

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subsequently at a separate hearing. Regard must still be had to the provisions of

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section 33(4).
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22. Mr Suen who appeared for the Official Receiver submitted that a
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remission should not be ordered merely because of a disparity between the scale
E fees and the actual time costs and, further, that in the absence of hardship, the E

court should not exercise its powers of remission under section 114(2) of the
F F
Bankruptcy Ordinance. It was said that such disparity is irrelevant, inter alia,
G because “Government policy” is such that remunerative bankruptcy cases G

should cross-subsidise non-remunerative cases.

H H

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23. The following observations would appear to be apposite on the I
question of “Government policy”. First, the legislation is silent on that issue.
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Second, such a policy (of cross-subsidy) contradicts section 115 of the

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Bankruptcy Ordinance which provides for the payment into the general revenue K
of all fees and remuneration received by the Official Receiver. In short, the
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so-called “Government policy” is wholly unsubstantiated.

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24. An estimated breakdown of the Official Receiver’s the fees was
N before the court. In summary, it comprises the following items: N

O HK$ O
Table A, Item 18 (Notices in Gazettes) 1420.00
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Table B, Cap item 1 (10% Realisation fee) 1,576,653.89
Table B, Cap item 3 (5% Distribution fee) 4918.18
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Table B, Item 5 (Official Stationery) 670.00
R Table B, Item 9 (Ad valorem fee) 650,340.00 R

Table A, Item 14 (fee to Court for release) 78,835.00

S _____________ S
2,312,837.07
T T

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25. The Official Receiver’s claim for fees is based on the fees
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prescribed in the Bankruptcy (Fees & Percentages) Order, Cap. 6C. He has no
C power to waive or enter into any compromise over the amount of the prescribed C

fees under the Bankruptcy Ordinance. That situation was considered

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“unsatisfactory” (see Re: To Chuck Lai, unreported, HCB 849/1995, 12 June
E 2000) but, regrettably, nothing seems to have been done about it in the decade E

that has elapsed since that decision. So the situation continues to be

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“unsatisfactory”.
G G

26. Be that as it may, the court is not subject to such constraints. It

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was accorded a wide discretion by section 114(2) to remit “any particular fee or
I fees … either absolutely or on such terms as it may think fit.” As earlier noted, I

when the discretion has to be exercised in the context of an annulment, the

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provisions of section 33(4) are relevant and cannot be ignored. In ordinary
K parlance, an annulment can only mean that the matter or event annulled must be K

regarded as having had no legal existence. In other words, what one should
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seek to do is to restore the status quo ante. In my view, section 33(4) should
M be given effect to the extent possible without compromising what should fairly M

and properly be allowed by way of fees having regard to all the circumstances.
N N

O 27. In the present case, according to the estimated breakdown provided, O

the Official Receiver seeks “realisation fees” of approximately $1.57 million.

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In other words, the assets “realised” were said to have a value of $15.76 million.
Q The statement of affairs reveals that the debtor had cash deposited in bank Q

accounts of only about $11.66 million. How that has become $15.76 million is
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not explained. Assuming that cash had been transferred to the Official
S Receiver following the bankruptcy order, the shortfall or difference could be S

accounted for by the $1.8 million owing by the tenant under the tenancy
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agreement and the value of one share in a private company estimated at
U $315,000. But there was no evidence to suggest that those assets have been U

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“realised” since the $15.76 million was referable to ‘bank balances’ only. The
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rest of the estate is made up of 6 properties owned by the debtor. This puts
C into perspective the ‘work’ that the Official Receiver had actually undertaken in C

the short-lived ‘bankruptcy’.

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E 28. In my view, it is only reasonable to infer that the legislature E

intended the scale fees to reflect and be commensurate with the responsibility
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that goes with being the trustee in bankruptcy. A bankruptcy would not
G normally result unless the bankrupt’s debts exceed his assets. Not only will G

the trustee have to get in all the assets, he will have to realise them by turning
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them into cash before a dividend can be paid to the creditors. Generally
I speaking, the larger the estate, the more complex the administration of the estate I

becomes. Often it would require the trustee to exercise his judgment and make
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difficult decisions.
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29. But the present case is not the run-of-the-mill or typical bankruptcy.
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The Official Receiver as trustee has had to do very little beyond taking over the

M cash assets of the debtor and to settle the single debt of under $100,000. As M
earlier noted, but for the nondisclosure of the fact that the petitioner was a fully
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secured creditor, bankruptcy proceedings would have been out of the question.
O Given those circumstances, the suggestion that scale fees of the order of O

$2.3 million should be paid is both scandalous and outrageous.

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30. It is, of course, appreciated that the Official Receiver cannot of his
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own volition waive fees to which his office could claim to be entitled. The
R constraints of those in public office in relation to their official duties are R

something which the court must respect. It has come to public knowledge that
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the effect of multiple bankruptcies in Hong Kong in recent years has put
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considerable manpower and financial difficulties on the office of Official

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Receiver. Nevertheless, it is the court’s function to ensure that the present U

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legislation does not result in a wholly inequitable imposition of a financial

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burden where it is not justified or justifiable. The court cannot sanction the
C fees and costs which are sought to be charged in this case on the basis of C

subsidising the cost of operations of the Official Receiver.

D D

E 31. In my view, this is a case that cries out for the exercise of the E

court’s discretion to remit and in the exercise of that discretion, the objective of
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section 33(4) needs to be borne firmly in mind. In the circumstances, I
G consider that the remission should extend to all the fees of the Official Receiver G

save for the amount of $70,000 reflecting actual time costs incurred. I would
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allow, by way of disbursements, the cost of publishing notices in gazettes
I (Table A, Item 18). I

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32. At the hearing, the Official Receiver was asked to clarify the status

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of the consent summons dated 5 November 2009 relating to the petitioner’s K
costs of $45,000 and the reference in his report to the settlement of the
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petitioner’s legal costs estimated at $55,000. Since the hearing, the court has

M been informed that payment of $45,000 was made on 15 July 2010. Had the M
amount not already been settled, I would not have considered it appropriate to
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award the petitioner any of its costs given the nondisclosure. However, since
O the agreement to settle the petitioner’s costs of $4,500 occurred prior to the O

annulment, it comes within the bona fide disposition exception contemplated by

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section 33(4). Accordingly, the Official Receiver is entitled to be reimbursed
Q the amount of $45,000 so paid. Q

R Order R

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33. I would dismiss the appeal, allow the cross-appeal and set aside
T order below. I would order that the fees of $2,312,837.07 be remitted except T

for the sum of $70,000. The Official Receiver is allowed, by way of

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disbursements, the sums of $1,420 and $45,000 respectively. I would also

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make an order nisi of costs in favour of the debtor.
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Hon Cheung JA:

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34. I agree.
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F Hon Rogers Acting CJHC: F

G 35. Accordingly, there will be an order in terms of paragraph 33 above. G

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K K
(Anthony Rogers) (Doreen Le Pichon) (Peter Cheung)
Acting Chief Judge, Justice of Appeal Justice of Appeal
L High Court L

M M
Ms Linda Chan, instructed by Messrs Peter K.S. Chan & Co., for the Judgment
N Debtor/Respondent N

Mr Jenkin Suen, instructed by the Official Receiver/Appellant

O O

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Q Q

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T T

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