RE CHAN JOHN LOONG FAI (“THE BANKRUPT”)

CACV 460/2019

[2022] HKCA 430

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 460 OF 2019

(ON APPEAL FROM HCB NO 6991 OF 2017)

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D E C I S I O N

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Hon Barma JA (giving the Decision of the Court):

1.  On 10 December 2021, we handed down our judgment in this matter[1] (“the Judgment”), allowing the appeal of the Official Receiver against a judgment of L Chan J (“the Judge”)  dismissing her application for directions as to whether Mr Alan Chung Wah Tang (“Mr Tang”)  was a “fit person” to be appointed by the creditors of the Bankrupt as the Bankrupt’s trustee in bankruptcy under section 17 of the Bankruptcy Ordinance, Cap 6, and if not, for a declaration that the resolution passed at the first creditors’ meeting to appoint Mr Tang as trustee was invalid and ineffective. We also made a costs order nisi that the Official Receiver should have half her costs of the appeal and in the court below against Mr Tang to be taxed on a party and party basis, with a certificate for two counsel on appeal (see [67] of our judgment). Mr Tang and the Official Receiver have since both applied for that costs order nisi to be varied, by summonses respectively dated 16 December 2021 and 24 December 2021 (“the Variation Summonses”).

2.  We are of the view that it is appropriate for the Variation Summonses to be dealt with on paper on the basis of the documents filed and the written submissions lodged by the parties, and now hand down our decision on the applications.

3.  By his summons, Mr Tang sought to vary the costs order nisi to the effect that there should be no order as to costs, or alternatively to the effect that the Official Receiver’s costs of the appeal and the proceedings below be treated as an expense of the bankruptcy and be paid out of the bankruptcy estate (and not Mr Tang personally).

4.  The Official Receiver, for her part, sought a variation of the costs order nisi, contending that she should be awarded all of her costs of the appeal and in the court below.

5.  The parties do not take issue with the basis of taxation, or with the awarding of a certificate for two counsel in respect of the appeal.

6.  As we explained in our judgment, the appeal raised two issues: (i)  whether the court had jurisdiction to give the directions sought by the OR (“the Jurisdiction Question”); and (ii)  if it did, whether the Judge erred in finding that Mr Tang was a “fit person” to be appointed as a trustee under section 17 of the Ordinance (“the Fitness Question”).  The costs order that we made took account of the fact that the Official Receiver succeeded on the Jurisdiction Question, while the Fitness Question was disposed of accepting undertakings from Mr Tang as to his future conduct, a course which was suggested by the court at the hearing of the appeal.

7.  Mr Wong, representing Mr Tang, submitted that there should be no order as to costs on appeal or in the court below.  He contended that:

(i)  in respect of the costs below, since the original application was ex parte and the Official Receiver did not seek costs against Mr Tang at the time, it would be neither proper nor fair to order Mr Tang to pay any of the Official Receiver’s costs in the court below;

(ii)  Mr Tang was the successful party on appeal; and

(iii)   it would be unfair for this court to award any costs to the Official Receiver, as the Jurisdiction Question was of general importance and this court’s determination of it would benefit the insolvency profession and the public generally.  It was suggested that the unfairness would be even greater should Mr Tang be required to pay any costs personally.

8.  As to Mr Wong’s contention that it would be unfair to order costs against Mr Tang, given that the Official Receiver’s summons was ex parte, the fact is that although formally ex parte, the summons was served on Mr Tang shortly after it was filed.  Thereafter, Mr Tang actively contested the proceedings, and (although acting in person)  provided evidence by way of affirmation and made full submissions to the Judge.  In these circumstances, we see no unfairness in ordering Mr Tang to pay costs (in this case part of the costs), when the matter was in fact argued before the Judge on an inter partes basis.

9.  Mr Wong’s argument that the Official Receiver’s failure to seek costs against Mr Tang personally in the court below, meant that this should not be ordered by us, is a non-starter.  It is trite that the court has an unfettered discretion in awarding costs, and a party’s stance on costs does not constrain the court in the exercise of its discretion in the way that it thinks appropriate.

10.  Mr Wong’s submission that Mr Tang was the successful party on appeal is clearly wrong.  This court rejected both grounds raised in Mr Tang’s Respondent Notice dated 18 October 2019 (see [43] and [65] of our Judgment), and clearly found in favour of the Official Receiver in respect of the Jurisdiction Question, which Mr Tang had actively contested.  Although we accepted that Mr Tang could be regarded as a fit person to be appointed as a trustee in bankruptcy upon the giving of such undertakings and assurances, we did not conclude (as it was no longer necessary for us to do so)  whether the Judge was correct to hold that Mr Tang was a fit person to be so appointed in the absence of the undertakings and assurances he eventually gave (see [63]-[64] of the Judgment).

11.  In fact, at [50] and [53] of our judgment, we accepted that in seeking the court’s directions, the Official Receiver was carrying out her duty as the bankruptcy regulator by ensuring that the fitness of a person appointed as trustee is properly considered, and that the Official Receiver had genuine and legitimate concerns about Mr Tang’s fitness to act as trustee, and that such concerns arose out of Mr Tang’s past conduct. 

12.  As to the suggestion that the appeal involved a matter of public interest, while we would accept that the Jurisdiction Question was one of general importance, this is not determinative.  It is also appropriate to have regard to the fact that Mr Tang contested the proceedings in his own interests.

13.  For the Official Receiver, Mr Chain submitted that the Official Receiver had succeeded on the Fitness Question and so should be awarded the whole of her costs of the appeal and below.  Mr Chain contended that the need for substantive court hearings would have been dispensed with had Mr Tang offered the undertakings prior to the hearing below or prior to the appeal.

14.  With respect, we do not think that the Official Receiver can be regarded as having been the successful party on the Fitness Question.  As we have explained, the resolution of this question came about following the court’s suggestion that undertakings and assurances might be given by Mr Tang to address the Official Receiver’s concerns.  Although Mr Wong SC (who appeared for the Official Receiver at the hearing of the appeal)  made it clear that the Official Receiver’s concern was to obtain reasonable assurances of modifications to Mr Tang’s attitude and behaviour, and not to seek his permanent disqualification from being able to act as a trustee in bankruptcy, it does not appear to us that the Official Receiver explored the possibility of dealing with the matter in the way that it eventually was.  Indeed, her position on appeal was that Mr Tang was not a fit person to be appointed as a trustee (see the Official Receiver’s supplementary notice of appeal at paragraph 3(g)).

15.  That said, it is equally clear that Mr Tang did not, for his part, put forward any proposals to give undertakings or assurances, and on the contrary, he fiercely disputed the Fitness Question (both before the Judge and also on appeal, until the court’s suggestion was taken up by the parties).

16.  In our view, in these circumstances, neither party could be regarded as the winner in relation to the Fitness Question, which was ultimately resolved by the parties taking up the court’s suggestion that Mr Tang should give appropriate undertakings and assurances to the court regarding modifications to his future behaviour.

17.  Finally, it seemed to us that the time and effort expended on the Jurisdiction and Fitness Questions were approximately equal.  We were therefore of the view that the appropriate order to make was that 50% of the costs (effectively those relating to the Jurisdiction Question)  both of the appeal and in the court below should be paid by Mr Tang to the Official Receiver.  For the reasons given above, we remain of that view, notwithstanding both parties’ suggestion that some other order should be made.

18.  As to Mr Tang’s alternative proposal, Mr Wong submitted that it would be unfair for the court to order costs against Mr Tang personally given the general importance of the Jurisdiction Question.  He also suggested that to order costs against Mr Tang would, given the substantial amount of the costs involved, be effectively to penalise Mr Tang for his previous contempt of court again.

19.  We cannot agree with these submissions.  As noted above, although the Jurisdiction Question can properly be regarded as one of general importance, Mr Tang must be regarded as having contested these proceedings in his own interests, and there is therefore no unfairness in making a costs order against him.  Further, the making of an order for costs against Mr Tang in proceedings (separate and distinct from the previous contempt proceedings)  which he strenuously but unsuccessfully contested, cannot be regarded as further punishment for the contempt.  The Official Receiver’s concerns which prompted her application were not intended to inflict further punishment on Mr Tang for his past contempt, but to ensure that, going forward, the office of trustee in bankruptcy was held by persons who were fit to do so. 

20.  Mr Chain, for his part, submitted that the Official Receiver’s costs in these proceedings should not be classified as an expense of the bankruptcy, as there was no reason why the Bankrupt’s estate should be made to bear costs of an application which stemmed from Mr Tang’s personal conduct, and which related to his fitness to act as trustee in bankruptcy cases generally and not just in the present bankruptcy proceedings.  We agree with this submission.

21.  Moreover, as we have noted, Mr Tang’s resistance of the Official Receiver’s application was for his own interests, and not for the administration of the Bankrupt’s estate for the benefit of his creditors.  In general, where a trustee in bankruptcy is a litigant in his own right and is unsuccessful, he is personally liable for costs (see Alan C.W. Tang v John J. Toohey, unreported, CACV 177/2004, 3 October 2005, at [59]).  There is certainly no inflexible rule that a trustee-in-bankruptcy should not be ordered to meet costs orders personally (see The Joint and Several Trustees of the Property of So Ching Wan v Assen Limited (in liquidation)  & ors [2021] HKCA 666 at [1.3]).

22.  In our view, it is clear that Mr Tang should bear the costs ordered against him personally and that such costs should not be payable out of the bankruptcy estate.

23.  For the reasons given above, we decline to vary the costs order nisi made at [67] of the Judgment and accordingly dismiss both the Variation Summonses.  The parties each applied for costs of the Variation Summonses, but as each party had lodged an application to vary the costs order nisi in their favour, and neither was successful, we think that it would be appropriate to make no order as to costs in respect of the Variation Summonses.