FRED LEE AND ANOTHER v. LAI WAI HUNG

HCB 14977/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDING NO. 14977 OF 2002

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D E C I S I O N

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The application

1.  The application of the Trustee in Bankruptcy (the trustee) is pursuant to section 30A(4) of the Bankruptcy Ordinance to suspend the running of the relevant period for the discharge of the bankrupt.  This is in effect prolonging the period of bankruptcy of the bankrupt.

2.  The bankruptcy order was made on 31 October 2002 by self-petitioning of the bankrupt.  The bankruptcy order shall be discharged on 31 October 2006 under section 30A(1) of the Bankruptcy Ordinance if not for this application.

3.  According to the affirmation of the trustee, no creditor has complained to the trustee to initiate this application.  This is purely the decision of the trustee himself.

Evidence

4.  In support of this application, the trustee has filed the affirmations.  The bankrupt opposes this application and has filed the affirmations in opposition of the trustee’s affirmations.  The trustee has, in return, filed his affirmation in reply to the bankrupt’s affirmation in opposition.

5.  The trustee originally relied on two grounds in support of his application under section 30A(4)(d) of the Bankruptcy Ordinance for his application, namely that the bankrupt had made excessive borrowings, knowing that he might not be able to repay and that he had made misrepresentations to JCG and SHK banks for loans.  The trustee now abandons his ground of excessive borrowing in light of the judgment of Kwan J. in Lee Yuk Man’s case [2007] 1 HKC164.  He only relies on the remaining ground of misrepresentation alone.  The trustee has no other complaints against the bankrupt.

6.  Mr. Gopaoco, solicitor acting for the Trustee admits that the burden is on the Trustee to show that the bankrupt had, at the time of making the applications to JCG and SHK for loans, the intention of making misrepresentations to the banks.  Mr. Gopaoco has helpfully asked for a short adjournment to make enquiry with the Trustee in relation to the steps taken by the Trustee in the investigations into the matter for this application. The adjournment was granted and Mr. Gopaoco told me that the Trustee only came to know the discrepancies in the information given to the banks by the bankrupt by comparing such information with the information given by the bankrupt in his questionnaire.  The Trustee did not there and then made enquiries with the bankrupt or the banks.  He kept the information and waited near the end of the period of bankruptcy.  He then took out the application to suspend the automatic discharge under section 30A of the Bankruptcy Ordinance.  It was only after he had taken out the application, he called upon the bankrupt and informed him of this application.  The Trustee has not made any inquiry with the banks involved in this case at all up till now.

7.  It was under those circumstances above that the Trustee took out the present application. In my view, he had not given the bankrupt the opportunity of giving explanations to the discrepancies in the information given to the banks for the loans.  Nor did he make any inquiry with the banks involved.  I consider that the Trustee had not made investigations into the matter before he took out the present application.  Had he made the investigations first moment he discovered those discrepancies, he would be able to collect information or evidence as to how and why such things happened.  The bank staff involved in this case would be able to give the facts of this matter.  The trustee then would be in a better position to consider whether it was appropriate to take out this application.

8.  For the present application, the bankrupt affirmed that for the JCG loan application, he had informed the bank staff, who filled in the particulars for him, that he could not remember all of the credit cards, loans or credit facilities himself. [028-10(i)]  So he said that he just gave what he could remember and the bank staff took it. [029-10(ii)]  In the application form [114], the bankrupt made the declaration that those particulars given were correct and that he gave the authority to JCG to “contact all relevant parties for verification and to disclose any information … for the purpose of exchange credit information, debt collection or any other reasonable purposes.” Counsel for the bankrupt submits that this shows that the bankrupt did not have the intention of making misrepresentation to the bank at that time.  I agree.

9.  For the application relating to SHK loan, the bankrupt said in his affirmation that the bank staff filled in the application form.  He could not recall whether he had provided the information in the application to the staff of SHK.[019-15(f &g)]  He also said that at the time of the application, he could not recall the number of credit facilities he had and the credit cards he held. [020-15(l)]

10.  The Trustee has put forth no evidence to rebut the bankrupt’s evidence.  I therefore accept the bankrupt’s evidence. I specifically ask Mr. Gopaoco how this court should draw the necessary inference under the evidence before me that the bankrupt had the intention of make misrepresentations to the banks at the material time.  Mr. Gopaoco submits he was unable to invite this court to draw such inference.

Conclusion

11.  In the circumstances, I have to find that the Trustee has failed to prove his case. I dismiss his application.

Orders

12.  I make the following orders:

(1)	The trustee’s application is dismissed.
(2)	The interim order for suspension of the relevant time by the order dated 27 October 2006 be discharged forthwith;

Costs

13.  {After hearing submissions from parties} I take into consideration of the judgment of Kwan J. in Lee Yuk Man’s case, in which the judge found that the approach and mechanism adopted by the trustee were flawed in that the trustee had acted too readily in deciding to take out this application without any investigations into the matter before taking out the application [183H].  In this case, the period of bankruptcy of the bankrupt has been prolonged unnecessary.  Since the trustee has failed to discharge his quasi-judicial obligation properly, the trustee is not entitled to recover his costs of and occasioned by this application out of the bankrupt’s estate, following the approach of the learned Judge in Lee Yuk Man’s case [191D-F].  I further order that the bankrupt shall have costs of this application, including all costs reserved in the meantime, such costs are to be taxed, if not agreed.  The question of whether such costs should be paid by the Trustee personally or out of the estate has been discussed before me by those the representing the respective parties.  I consider that the costs of this application should not be borne by the creditors, as according to the Trustee, they did not initiate this application.  I find that the Trustee has failed to discharge his duties of making reasonable investigations into the facts of this case before taking out this application.  As such, I consider that the Trustee has to bear the costs of this application personally.