Dadra Inc v Chan Choi Har Ivy [2024] 4 HKLRD 508, [2024] HKCA 773

Jeff Yau represented the defendant in Dadra Inc v Chan Choi Har Ivy [2024] 4 HKLRD 508, [2024] HKCA 773.

D failed to satisfy a judgment debt in favour of P. On P’s application, D was ordered to attend court for an oral examination pursuant to O.49B of the Rules of the High Court (Cap.4A, Sub.Leg.) (the RHC) but failed to fully comply with the disclosure orders. A bankruptcy order was then made against D upon the petition of another judgment creditor. Subsequently, the Master made an order granting P leave to proceed with the oral examination of D notwithstanding her bankruptcy (the Order to Proceed). By the time of the resumed hearing of the oral examination, D had still failed to make further disclosure. Upon P’s application, the Master made an order that D be imprisoned for six weeks pursuant to O.49B r.1B(1)(c) of the RHC by reason of her wilful failure to make a full disclosure as required under O.49B r.1A(2) (the Order).

D now appealed against the Order on the main ground that the Master had no jurisdiction under O.49B of the RHC to proceed with an oral examination or make an order for imprisonment after she had been adjudged bankrupt. D argued that the O.49B regime and the bankruptcy regime under the Bankruptcy Ordinance (Cap.6) (the BO) could not have been intended to operate in parallel; and that P made the application for an improper purpose because D as a bankrupt ceased to have any properties which could be subject to execution by P. D also raised other grounds of appeal, including that her failure to make full disclosure was not wilful but at most an honest mistake of law given that she had indicated her view that there was no need to make any disclosure after she had been adjudged bankrupt; and that the Master erred in exercising her discretion to make the Order.

Held, dismissing the appeal, that:

• (1) An order of imprisonment under O.49B r.1B(1)(c) of the RHC served two purposes: (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 or her release from imprisonment. Such an application was 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 s.12(1) of the BO which deals with the effect of a bankruptcy order. Hence, the judgment creditor could not commence, or proceed with, an application for the imprisonment of a judgment debtor without the court’s leave under s.12(1). Without such leave, the master lacked jurisdiction to make an imprisonment order, even if the conditions in O.49B r.1B(1)(c) were met. There was nothing in the BO to suggest that the O.49B process was totally displaced or excluded; on the contrary, s.12 permitted the process with leave. The need to resort to the process might be reduced after a bankruptcy order had been made; but this would go to the exercise of the court’s discretion whether to grant leave under s.12(1), not the master’s jurisdiction (V Capital Ltd v Chiu Margaret [2024] 1 HKLRD 340 applied). (See paras.29-30.)
• (2) The purpose of examination under O.49B r.1A was to enable the judgment creditor to obtain from the judgment debtor a full disclosure of his relevant financial information in aid of execution and enforcement of a judgment debt. Information required to be disclosed under O.49B r.1A(2) was not limited to his or her assets as at the date of the examination, but extended to his or her “liabilities, income and expenditure and of the disposal of any assets or income”. While a bankruptcy order vested property of the judgment debtor in the Official Receiver or provisional trustee by virtue of s.58(1) and (1A) of the BO, and the judgment creditor could no longer execute or enforce the judgment debt outside the bankruptcy regime under the BO, the information obtained pursuant to the O.49B process could nevertheless be of use to the trustee in bankruptcy to recover assets belonging to the judgment debtor’s estate from third parties for the benefit of the general body of unsecured creditors. (See paras.31-32.)
• (3) In the present case, by the time of D’s bankruptcy, the O.49B process had already begun for more than a year. By seeking leave to proceed under s.12 of the BO, P was merely continuing with an ongoing process. P’s further application to seek an order of D’s imprisonment for her wilful failure to make a full disclosure as required by O.49B r.1A(2) was a continuation of the process begun by the application for the oral examination. (See paras.32-33.)
• (4) The Order to Proceed was obtained with the Court’s leave and covered P’s applications both for the oral examination and for an order of imprisonment. Order 49B r.1B(1)(c) allowed the court to order imprisonment following an examination if certain conditions were met. The rules did not require a separate summons or a separate hearing for an imprisonment order, though the judgment debtor should be given a proper opportunity to respond. The Master must have appreciated the possibility of imprisonment following the oral examination; therefore an application for the imprisonment of a judgment debtor may properly be regarded as being part and parcel of, or merely consequential to, the oral examination (Re Ryley (1885) 15 QBD 329 distinguished). (See paras.34, 38.)
• (5) D’s “mistake of law” ground failed. The Master’s findings in this respect were compelling and the alleged mistake of law was just another excuse for D’s non-compliance to make disclosure. (See paras.43-56.)
• (6) The Master had not wrongfully exercised her discretion in making the Order in the circumstances; nor was it accepted that that no useful purpose would be served by the making of the Order. The power of the court to make an imprisonment order was necessary to enforce the judgment debtor’s obligations to make full disclosure and prevent the flouting of the obligations with impunity. Further, a finding that there had been the requisite wilful failure of disclosure implicitly carried a belief that assets existed of which full disclosure had not been made, though such a positive finding was not necessary. Section 21A(4)(a) of the High Court Ordinance (Cap.4) allowed for discharge, variation or suspension of imprisonment orders. Thus, the making of an imprisonment order could incentivise a bankrupt debtor to disclose assets in the hope of obtaining a discharge or reduced sentence, which could indirectly benefit the judgment creditor under the bankruptcy regime (Lam Chi Bin v OSK Asia Futures Ltd (FAMV 1/2004, [2004] HKEC 418) applied). (See paras.57-60.)

[The above is excerpted from the headnote to the report in HKLRD.]