LEE SHUK YEE v. EDWIN KWOK WING YUN

cacv 366/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 366 of 2005

(on appeal from HCB NO. 10541 of 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the Reasons for Judgment given by Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal from the order of Barma J dated 2 November 2005 adjudging Lee Shuk Yee (“Madam Lee”) bankrupt.  At the conclusion of the appeal hearing, the appeal was dismissed with written reasons to be handed down later which we now do.

Background

3.  The background to this matter is summarized in the judgment of Barma J as well as in the judgment of Rogers VP in CACV 114 of 2003, an appeal in previous proceedings between Madam Lee and the petitioner.  The petitioner is the trustee in bankruptcy of two bankrupts, Lee Shuk Mei and Lee Sin Chung (“the bankrupts”) who are siblings of Madam Lee.  The underlying debt founding the petition was in respect of costs in proceedings brought by Madam Lee in her capacity as the administratrix of the estate of her late father (“the deceased”) against the petitioner in his capacity as such trustee.

4.  For present purposes, the relevant facts may be summarized as follows.  The deceased who died intestate in 1990 had 11 children.  The right to administer his estate was a subject of contested proceedings in which Madam Lee was granted letters of administration.  A costs order was made in her favour against, inter alia, the bankrupts.  Those costs were taxed at over $1.7 million and allocaturs obtained but prior to the taxation the bankrupts were declared bankrupt.

5.  The main asset of the deceased’s estate was land in Tuen Mun (“the property”) which Madam Lee as administratrix sold on 17 May 1999 for $27 million.  The agreement and the assignment were executed on the same day, the former being registered in the Land Registry on 28 May 1999 and the latter on 8 June 1999.  On 27 May 1999, the Official Receiver, who was then the trustee in bankruptcy of the bankrupts, registered the bankruptcy orders against the property.  But by December 1999, the Official Receiver had abandoned any claim against the property, the registration having been made in an attempt to secure the proceeds of sale.  The letter of abandonment was registered on 29 December 1999.  Meanwhile, on 28 December 1999, at general meetings of creditors in respect of the bankrupts, the petitioner, the solicitor who had previously acted for both of the bankrupts, was appointed trustee for the administration of both estates.

6.  On 28 May 2000, several months after completion of the sale of the property had taken place, Madam Lee in her capacity as administratrix, brought proceedings against the petitioner as trustee in bankruptcy seeking a declaration that the registration of the bankruptcy orders was null and void and a declaration that by the assignment Madam Lee did assign all the estate right and interest in the property to the purchaser free from the bankruptcy orders.  But Madam Lee, having sold the property, had no locus standi.  So, not surprisingly, those proceedings were discontinued on 3 April 2001 with an order for costs in favour of the petitioner.  Those costs were taxed at $144,342 and an allocatur was sealed but the allocatur was stayed 31 October 2001 because of the costs order in favour of Madam Lee of over $1.7 million.

7.  The petitioner successfully applied for the stay to be lifted.  That decision was affirmed by this court in CACV 114 of 2003.  Madam Lee made no payment and that led to the service of the statutory demand and the filing of the petition.

The judgment below

8.  The main issue below was whether as Madam Lee contended, the order for costs gave rise to no personal liability on the part of Madam Lee but only a liability for such costs on the part of the estate.  Mr Allan who appeared for Madam Lee below made no less than six points in support of that submission.  They were recorded in paragraph 9 of the judgment below.  In essence, it was argued that the proceedings against the Petitioner which had given rise to the costs order had been reasonably commenced in the best interests of the estate, that the administratrix had acted on legal advice, that there was no evidence to suggest that she had brought the proceedings in bad faith, that in accordance with the general principles, the estate should bear the expenses incidental to the proper performance of her duties as the personal representative and, in any event, she was entitled to an indemnity out of the estate for all proper expenses incurred in relation to it, including any actions relating to the estate which it was proper to bring even though no prior leave had been given.

9.  The judge came to the conclusion that there was no substance in any of those points, holding (at paragraph 10) that as a matter of authority and of principle,

“where proceedings are commenced by a personal representative, that personal representative is personally liable to the other party for any costs to which the other party is entitled, in the absence of some special order directing otherwise.”

The judge cited with approval a passage from the judgment of Oliver J in In Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 which included the following observations (at 285e – f):

“…I cannot at the moment see why it should be contended that a liquidator who takes it on himself to institute proceedings, to bring parties before the court, to subject them to costs, and as against whom it is quite clearly established that no order for security can be made, should then be entitled to plead that he is not responsible beyond the extent of the assets in his hands.  I can see no reason at all why a liquidator should be entitled to an immunity which is not conferred on other the litigants.  A trustee or personal representative who institutes proceedings no doubt has the right to indemnity out of the estate which he represents but, if he litigates, he litigates at his own risk …”

10.  The judge then went on to say this:

“It seems to me to be quite clear that, as a matter of principle, where a personal representative chooses to bring proceedings against a third party, it is and should be no concern of the third party whether or not such personal representative has an indemnity against the estate which he is administering, and if so, whether such an indemnity is worth anything.  So far as the third party who has been sued is concerned, he is entitled, if he chooses to, to enforce any costs order in his favour against the personal representative, leaving it to the personal representative to take steps to recoup himself out of the estate if he is authorised to do so, and there are funds out of which this can be done.”

This appeal

11.  At the appeal hearing, Mr Allan who appeared for Madam Lee made three points.  Suffice it to say that not only did the points lack substance and merit, none was remotely arguable.

12.  The first point was that because the administratrix was acting in accordance with the proper performance of her duties and under legal advice and not acting in bad faith, “it would be wrong in law and unfair” to hold Madam Lee personally liable for costs incurred in her capacity as administratrix in the proceedings which she had instituted against the petitioner.  It was said that Madam Lee should or would be entitled to recover her costs from the estate.  Sharp v Lush (1879) 10 Ch D 468 was cited.  Mr Allan submitted, inter alia, that

“the lawful Administratrix of the estate in the circumstances of this case could not be held personally responsible and/or liable for the costs associated with HCMP 2507 of 2000.”

This bald assertion was wholly unsupported by authority.  Sharp v Lush cannot assist Mr Allan because that case addresses a different point, namely, what is recoverable by a personal representative vis-à-vis the estate and not the costs position in litigation between a personal representative and a third-party.

13.  The next point was that the petitioner failed to get his house in order until 15 September 2005 when he was granted leave to amend the petition including the deletion of the reference in the title of the petition to Madam Lee being the administratrix of the deceased’s estate.  It was said that the inclusion of that description gave rise to confusion as to whether it was sought to bankrupt Madam Lee personally or to obtain an order for the administration of the estate in bankruptcy under section 112 of the Bankruptcy Ordinance and that involved an element of unfairness.  For my part, I cannot see the relevance of section 112 since the estate was solvent at the time of the deceased’s death.  Further, I agree with counsel for the petitioner that as a matter of bankruptcy law, the administrator of an estate can only be adjudged bankrupt in his personal capacity.  A person cannot be adjudged bankrupt in his representative capacity since assets held in that capacity are trust assets which do not form part of his personal estate. 

14.  Be that as it may, the nub of the second point made in the written submissions was that the judge erred in the exercise of his discretion under rule 203 of the Bankruptcy Rules by waiving any irregularity as to service.  The reasons the judge gave for exercising his discretion are set out in paragraph 8 of his judgment, namely that Madam Lee must have been well aware of the proceedings given the number of previous hearings at which she had had legal representation, and, further, that Mr Allan had been unable to identify any conceivable prejudice to Madam Lee in carrying on with the proceedings.  Mr Allan did not even attempt to show that there was no basis upon which the judge could reasonably have reached those conclusions.  Rather, at the hearing, the complaint was that Madam Lee had been wrongfooted by the alleged ambiguity.  I cannot see that that was so for it would not have made a jot of difference to Madam Lee’s liability for costs.  The so-called point has arisen only because of the failure to grasp the difference between the administratrix’s liability for costs vis-à-vis a third-party and her entitlement as such administratrix to be indemnified by the estate.  The legal position which is as stated by the judge in the passages cited earlier, is also clearly spelt out in the standard legal textbooks on the subject.  See, for example, Williams, Mortimer and Sunnucks, Executors, Administrators and Probate (2000 Edition), para. 66-01.

15.  The final point taken was that there was no evidence of any permission given by the creditors’ committee to the petitioner to bankrupt Madam Lee personally and absent permission given under section 61 of the Bankruptcy Ordinance, the proceedings were somehow invalid.  The judge took the view that the purpose of section 61 was for the protection of the bankruptcy estate.  Re a Debtor (No. 26A of 1975) [1984] 3 All ER 995 and Re Branson, ex parte Trustee [1914] 2 KB 701 establish that whilst a trustee who proceeds without the requisite permission may not be able to recoup his costs of the estate, the absence of such permission does not constitute a defence for a third-party against whom proceedings have been brought.  Mr Allan made no attempt to address those authorities.

Costs

16.  At the conclusion of the appeal hearing, the court dismissed the appeal with costs in favour of the petitioner.  The decision as to the basis of taxation was adjourned, with reasons to be given in writing.  Madam Lee’s solicitors were ordered to show cause in writing within 28 days of the reasons being handed down as to why costs should not be ordered against them with liberty to either party to apply.

17.  In my view, it was blindingly obvious that the appeal came about because of the inability (or unwillingness) on the part of Madam Lee’s legal advisers to differentiate between the liability of a personal representative vis-à-vis a third-party in proceedings commenced by the personal representative against the third-party and the right of the personal representative to be indemnified out of the estate.  It was equally obvious that the key holding below encapsulated in paragraph 13 of the judgment had not been understood.  That I find to be inexcusable.  In my view, the appeal should never have been brought.  Not only were the so-called points raised not remotely arguable, the submissions made on appeal had no proper legal basis.  The entire appeal was a waste of time and resources.  It was irresponsible for those advising Madam Lee to have brought this appeal and, in my view, this case merits the award of costs on an indemnity basis.  I would make an order nisi awarding costs on that basis.

Hon Yeung JA:

18.  I agree with the judgment of Le Pichon JA.

Hon Rogers VP:

19.  There will be an order as proposed in paragraph 17.