Harbour Front Limited v The Official Receiver and Trustee of the Property of Leung Yat Tung [2024] HKCFI 1203 provides an interesting illustration of how the ‘prevention principle’ may be applied in an unusual scenario of a claim for contractual interests under a settlement agreement. Whilst contractual provisions are unlikely to provide for any express constraint on a claim for contractual interests, the judgment offers valuable insight into how such a claim may nonetheless be subject to limitation.
The underlying bankruptcy has a long history and was commenced in 2001. The settlement agreement was entered into between the Defendant (who is the Official Receiver and Trustee administering the bankruptcy) and the Plaintiff, who had received shares from the bankrupt (prior to commencement of his bankruptcy) and was the respondent to a previous application made by the Defendant to avoid the share transfer. The Defendant commenced the avoidance proceedings against the Plaintiff in 2007, which were eventually settled by the settlement agreement between the parties in 2015.
Under Clause 1 of the settlement agreement, the Plaintiff agreed to make full payment for the “satisfaction of all proved debts of creditors and interest pursuant to sections 38(9) and 71 of the Bankruptcy Ordinance in respect of the bankruptcy of [the Bankrupt] …”. Under Clause 2, the Defendant agreed that it shall complete the adjudication of the proofs of debt on or before 8 July 2015, whereas the Plaintiff agreed to pay to the Defendant the full amount payable on the proved debts and interest pursuant to sections 38(9) and 71 of the Bankruptcy Ordinance within 28 days from the date of the Defendant’s written demand to do so (at §10).
The Court was asked to adjudicate whether interests were payable under the settlement agreement and, if they were payable, the quantum of such interests having regard to the allegations of the Plaintiff.
On liability to pay interests, the Court summarized the principles of contractual interpretation (§§41-44). In particular, the Court referred to the presumption against surplusage as a relevant consideration in a bespoke contract, and the need to consider the implications of each competing construction as cross-check. In its careful analysis, the Court emphasized the distinction in law between the Plaintiff and the bankrupt’s estate, and the importance of not necessarily eliding the statutory provisions with contract terms (§§50-51).
Turning to quantum of the contractual interests payable, the Court identified the relevant basis for depriving the Defendant any of its interests claim to be the ‘prevention principle’ articulated by the Court of Final Appeal in Kensland Realty Ltd v Tai Tang & Chong (2008) 11 HKCFAR 237 (§§64-65). Noting a need to identify a breach of contract and the causative connection between the breach and the benefits arising from the breach, the Court applied the principle on the facts found in the judgment.
The full judgment is available at https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=159853&currpage=T
Ms Sabrina Ho and Mr Arthur Poon acted for the Plaintiff
Mr José-Antonio Maurellet SC and Mr Brian Fan acted for the Defendant
