Official Receiver v Zhi Charles, formerly known as Chang Hyun Chi and Another, FACV No. 8 of 2015

The Bankruptcy Ordinance, Cap. 6 (BO) provides that after a person is adjudged bankrupt, he is entitled to be discharged from bankruptcy automatically upon the expiry of the relevant periods prescribed by BO. For first-time bankrupts, the relevant period is four years and for repeated bankrupts, the period is five years beginning with the commencement of the bankruptcy. Section 30A(10)(a) of BO stipulates that where a bankrupt has, before the commencement of the bankruptcy, left Hong Kong and has not returned to Hong Kong, the relevant period shall not commence to run until such time as he returns to Hong Kong and notifies the trustee of his return. This case concerns whether section 30A(10)(a) infringes a bankrupt’s constitutional freedom to travel and to enter and leave Hong Kong (‘the right to travel”) under Article 31¹ of the Basic Law (BL31) and Article 8(2)² of the Hong Kong Bill of Rights, Cap. 383 (BOR8(2)).

In this case, Mr Zhi (Z) was a South Korean national, who obtained Hong Kong permanent resident status in 2000. He left Hong Kong on 9 August 2003 and lived overseas. On 20 December 2006, a bankruptcy order was made against him while he was not in Hong Kong and trustees of Z’s property were appointed (the Trustees). Although Z subsequently visited Hong Kong on a number of occasions from December 2006 to May 2012, he did not notify the Trustees of his return upon those visits. In July 2011, leave was granted to the Trustees pursuant to section 29 of BO to examine him but he failed to attend that examination. A prohibition order and a warrant for his arrest were issued. On 10 May 2012, He was arrested as he entered Hong Kong.

In July 2012, Z applied to Court to seek the following declaration: (1) by virtue of the expiry of 4 years after the bankruptcy order pursuant to sections 30A(1) and 30A(2)(a), he was automatically discharged from bankruptcy on 21 December 2010 ; (2) alternatively, if section 30A(10)(a) applied (that is, as he was not in Hong Kong before the bankruptcy order was made, the period of 4 years did not begin to run until he returned to Hong Kong and notified the Trustees in bankruptcy of his return), section 30A(10)(a) was unconstitutional as it affected his freedom to travel under BL31; (3) further or alternatively, if he had been automatically discharged from bankruptcy under sections 30A(1) and 30A(2)(a), section 29 could not lawfully be invoked to examine him.

The Court of First Instance dismissed Z’s application and he appealed to the Court of Appeal.

The Court of Appeal reversed the Judge’s decision and granted a declaration that section 30A(10)(a) was unconstitutional and that Z’s bankruptcy had been discharged on 21 December 2010.

The Official Receiver brought the appeal to the Court of Final Appeal (CFA). Leave to appeal was granted as important issues of public interest were raised.

After hearing the submission from the parties, the CFA unanimously dismissed the appeal and held that section 30A(10)(a) did not satisfy the proportionality test and therefore was unconstitutional. A thorough analysis and discussion was made by the highest court about the grounds relied upon by the parties.

The CFA decided that section 30A(10)(a) could only be constitutional if it satisfied the proportionality test. In considering the proportionality of the sanction imposed by section 30A(10)(a), the CFA found that the provision operated as part of a coherent scheme regulating discharge from bankruptcy which a bankrupt is entitled to as a matter of right after a period of time. Section 30A(10) provides that:

Notwithstanding sub-ss (1)-(3), where a bankrupt-

(a)		has, before the commencement of the bankruptcy, left Hong Kong and has not returned to Hong Kong, the relevant period under sub-s (1) shall not commence to run until such time as he returns to Hong Kong and notifies the trustee of his return;
(b)		after the commencement of his bankruptcy:
		(i)		leaves Hong Kong without notifying the trustee of his itinerary and where he can be contacted; or
		(ii)		fails to return to Hong Kong on a date or within a period specified by the trustee,
the relevant period under sub-s (1) shall not continue to run during the period he is absent from Hong Kong and until he notifies the trustee of his return.’

Section 30A(10)(a) governs the position of a person’s absence from Hong Kong before the commencement of the bankruptcy and section 30A(10)(b) governs such absence after its commencement.

The CFA noted that section 30A(10)(a) applied automatically regardless of whether the bankrupt was ready and willing to afford all co-operation to the trustee in the administration of his estate and without exception regardless of the circumstances that led to the bankrupt being absent from Hong Kong or his inability to return to Hong Kong including illness, impecuniosity or imprisonment. Moreover, it did not vest in the Court any discretion to disapply the sanction that arose by reason of his absence from Hong Kong.

The CFA considered another CFA case, viz. Official Receiver & Trustee in Bankruptcy of Chan Wing Hing v Chan Wing Hing & Secretary for Justice (2006) 9 HKCFAR 545 which dealt with the constitutionality of section 30A(10)(b)(i). In that case, the CFA held (by a majority) that section 30A(10)(b)(i) was not proportionate and therefore unconstitutional as the sanction under section 30A(10)(b)(i) was a harsh one because once triggered it operated indiscriminately at all times and irrespective of the circumstances and constituted a disproportionate impairment of the right to travel.

As the parties agreed that the judgment of the majority in Chan Wing Hing was a correct statement of the law in respect of section 30A(10)(b)(i) and the Court was not invited to depart from that decision, the CFA rejected the appellant’s argument that section 30A(10)(a) and section 30A(10)(b)(i) were distinguishable and found that there was no material distinction in their operation. In fact, the CFA found that the obligation imposed on a bankrupt under section 30A(10)(a) was even harsher than the mere notification requirement of section 30A(10)(b)(i) since it required the bankrupt to return to Hong Kong physically and notify the Trustees. The CFA therefore concluded that section 30A(10)(a) did not satisfy the proportionality test and was found unconstitutional.

As to the question of whether section 30A(10)(a) infringes the right to travel, in light of the common stance of the parties that it did and in the absence of full argument on an adversarial basis on this question, the CFA determined this appeal on the assumption that the operation of section 30A(10)(a) infringed on the right to travel under BL31 and BOR8(2). However, the CFA considered such assumption debatable and this issue should not be considered as settled.