RE CHAN JOHN LOONG FAI

HCB 6991/2017

[2019] HKCFI 2501

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6991 OF 2017

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DECISION ON COSTS

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1.  This is an application by the trustee, Mr Alan Chung Wah Tang (“Mr Tang”) of SHINEWING Specialist Advisory Services Ltd for a variation of the costs order nisi I made on 2 August 2019 (“the Decision”).

2.  I made the costs order nisi in the Decision on an application by the Official Receiver (“the OR”) pursuant to s 17 of the Bankruptcy Ordinance; Cap 6 and rr 157 and 158 of the Bankruptcy Rules; Cap 6A.  In the application, the OR sought (1) direction on whether Mr Tang was a fit and proper person whom the creditors in general meeting might have considered appointing as trustee of the property of the Bankrupt under s 17 of the Bankruptcy Ordinance, and, if not, (2) for direction that the resolution passed at the first meeting of creditors of the Bankrupt, so far as it concerns the appointment of Mr Tang as trustee under s 17 of the Bankruptcy Ordinance, was invalid and ineffective.  I dismissed the application for reasons given in the Decision. 

3.  I ordered in the costs order nisi that there be no order as to costs on the ground that most of the reasons of my decision were not advanced by Mr Tang.  Mr Tang then filed a summons on 8 August 2019 seeking to vary the order nisi for an order that the OR do pay him the costs of and incidental to the application to be taxed if not agreed.  He however asked in §11 of his opening submissions for an order that the costs to be paid by the OR be taxed on indemnity basis. 

Indemnity costs

4.  The OR does not oppose Mr Tang’s change of stance in his opening submissions for indemnity costs but tackles the claim on the merits.  Mr Tang’s ground for indemnity costs is that this is a “test case” for all other new (if not also existing) cases of a similar nature.  I do not think that is a valid ground.  The application is not a test case.  It is not a situation where the OR has started a number of similar applications and used this one to test the validity of all.  The OR in fact intended to start such application whenever Mr Tang was appointed trustee by the creditors and contributories of a bankrupt.  There were two previous applications which were resolved by Mr Tang withdrawing from the appointment.  (See §72 of the Decision.)

5.  The OR submitted that for indemnity basis to be ordered, there must be some special features in the case.  The application may be scandalous or vexatious or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner.  Furthermore, indemnity costs may be ordered where the litigants conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion to what is at stake (see Choy Yee Chun (representative of the estate of Chan Pui Yiu v Bond Star Development Ltd [1997] HKLRD 1327; Town Planning Board v Society for Protection of the Harbour Ltd (No 2) [2004] 2 HKLRD 95).  But there is no such feature in this application. 

6.  I agree with the OR and decline Mr Tang’s application for indemnity costs.

Mr Tang’s submissions for costs

7.  I made no order as to costs in the costs order nisi because most of the reasons of my decision were not advanced by Mr Tang.  I think this approach is problematic.  It makes the costs order an award to the winning party for having made the correct arguments.  But that is not a principle for awarding costs.  Otherwise, unrepresented parties may frequently be deprived of the costs when they are successful in litigation but did not know how to make the proper legal arguments.  I think parties may be deprived of costs if they should advance facts and/or arguments that result in substantial waste of time and resources, but not when they merely fail to advance good arguments. 

8.  Mr Tang relies on Order 62, rule 3(2) of the Rules of the High Court which provides:

“ If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

9.  Mr Tang submitted that the OR’s summons was dismissed.  The costs should follow the event and the costs order should be in his favour.  He further submitted that even if he did not advance all the reasons for my decision, he had at least provided a lot of facts and arguments that form the basis of the decision.  Hence, he should at least have 50% of the costs. 

10.  Mr Tang then submitted that the OR started this application on ex parte basis, but had failed to draw all relevant facts, issues, chronology etc. to the court’s attention.  I do not think the OR had proceeded this application on ex parte basis.  The OR did not ask for any ex parte order.  She served all the papers on Mr Tang.  She asked for directions for filing of affidavits and written submissions.  An inter partes hearing was then fixed for disposal of the application.  All these were done with a view for the matter to be disposed of on inter partes basis.

11.  Mr Tang then submitted that the OR had used this application for “directions” as a full blown adversarial removal application.  I think the OR had made this clear from the start.  The terms of the directions sought were clear and unambiguous.  Mr Tang knew from the start that it was not a procedural matter.  He never made this complaint against the OR.  He makes the point now because this is one of my points in the Decision.

12.  Mr Tang also submitted that the OR had tried to coerce him to resign from his trusteeship rather than taking the matter to court.  I think the OR has already taken the matter to court twice.  Those matters were resolved by Mr Tang withdrawing from the appointments.  This criticism is not correct.  

13.  Mr Tang further complained that the OR’s sanctions against him had caused prejudice to him and his firm.  I cannot consider the position of his firm as this application is not related to his firm.  Regarding the prejudice to him, those matters are outside this application.  I am only considering the costs order for this application, not to matters outside this application. 

14.  Mr Tang also complained that the OR had sent reports and letters concerning him to various creditor groups in no less than three cases and he was not given such materials so that he could not have defended himself.  These again are matters related to other cases and outside this application.  I will not consider them. 

15.  Mr Tang also referred to the OR’s investigation from 2016 to 2018 of the full details of assets, liabilities, source of funding for case administration and major outstanding issues and litigation for over 50 cases that were handled by him.  He said that such investigation had resulted in his incurring very substantial resources.  However, these matters are again related to other cases and not this application.

16.  Finally, Mr Tang relies on Re Lau Nga Yee Christine (a bankrupt) HCB 3486/2002 (unreported, 30 September 2004).  In that case, Reyes J ordered the OR to pay costs to an unrepresented bankrupt on the ground that the OR, in seeking a payments order against a bankrupt, had taken a partisan line against the bankrupt. 

The OR’s opposition to costs

17.  The OR also referred to Order 62, rule 3(2) of the Rules of the High Court.  She accepted that since the Civil Justice Reform in 2009, the court may be more ready to depart from the usual rule of costs following the event (Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679).

18.  The OR also referred to Secretary for Justice v Lau Kwok Fai & Another [2005] 3 HKLRD 88 where the Court of Final Appeal made no order as to costs on consideration of the desirability in the public interest of clarifying the important issues in that case.

19.  The OR relied on Re Li Tat Kong, ex p Official Receiver [2003] 2 HKLRD 501.  In that case, the OR made an application for the committal of a bankrupt following his public examination.  Deputy High Court Judge Barma SC (as he then was) dismissed the application and made a costs order nisi that the OR should pay costs to the bankrupt. 

20.  On the OR’s application for variation of the order nisi, the learned judge held in §17 of the judgment on costs that the investigation of the affairs of a bankrupt is a matter that has a distinct public interest element to it, it being in the public interest to establish the causes of the bankruptcy.  The OR’s decision to bring committal proceedings with a view to furthering that public interest is a matter which can properly be considered to be the exercise of a statutory duty which is judicial or quasi-judicial in nature and is in accordance with the OR’s duties under the scheme of the bankruptcy legislation.  It was also not possible to say that the OR had acted in an improper or unreasonable way, notwithstanding that the application for committal was ultimately unsuccessful.  The learned judge varied the order nisi to no order as to costs. 

21.  The OR also relied on the decision of the Court of Appeal in Re Leung Yat Tung CACV 119/2006 (unreported, 11 July 2006) which referred to Li Tat Kong and applied the same approach in §25 of the decision on costs. 

22.  The OR also drew my attention to the earlier case of Re Copyright Ltd [2004] 2 HKLRD 113 (HCMP 2606/2002, 17 September 2003).  It was an application by the OR for a disqualification order against Mr Tsang.  The application was dismissed by Kwan J (as she then was).  The OR submitted that the application was brought after due consideration of the evidence against Mr Tsang and the law and there was an element of public interest involved.  Kwan J held in §87 of the judgment that these matters applied to all applications for disqualification order brought by the OR.  Costs in such application are at the discretion of the court, and are to be awarded on the principles usually applicable to civil litigation. The authority must take its chance on costs like any other litigant.  There is no justification for a special costs rule in this type of litigation (Boyle and Marshall, Practice and Procedure of the Companies Court (1997) para 16.21; citing the decision of the English Court of Appeal in Re Southbourne Sheet Metal Co Ltd (No 2) [1993] BCLC 135).  The learned judge saw no special circumstances in the case to depart from the usual rule that costs should follow the event.

23.  The OR submitted that she took on a regulatory role of the bankruptcy regime in Hong Kong.  As an officer of the court, she assisted the court in taking cognizance of the conduct of trustees under s 84 of the Bankruptcy Ordinance (Cap 6).  However, the OR did not rely on s 84 or even mentioned it in the application against Mr Tang.  Section 84 dealt with the performance of duties by the trustee and observance of the requirements imposed by the ordinance and rules on him.  It also provides for the resolution of complaints made to the court against the trustee by any creditor, the OR, the bankrupt or any other person in regard thereto.  However, it is not supposed to deal with professional disciplinary matters about trustees.

24.  The OR further submitted that while discharging her duties in the regulatory role, she was concerned about Mr Tang’s contempt of court despite his having paid the penalty and costs.  She had a serious question about his fitness to act as liquidator or trustee which is an officer of the court (at least so far as it concerned winding up by the court and bankruptcy) as Mr Tang had failed and was unwilling to comply with court orders.  That was an attribute of his that would go against the discharge of duties as a liquidator or trustee. 

25.  I have referred to the OR’s consideration of Mr Tang’s fitness in the Decision.  The OR considered Mr Tang unfit because he did not appear to appreciate the inappropriateness of his conduct and the seriousness of his contempt of court.  He maintained that he committed the contempt as a partner of his former firm and not as a liquidator.  Hence, he insisted that he had done nothing wrong (§19 of the Decision).  In his affirmation, he persisted in attacking and/or explaining away the finding of his contempt.  He suggested that the Court of Appeal’s conclusion was wrong.  He insisted that his former majority partners had set unreasonable terms of access to documents when both To J and the Court of Appeal found them to be cooperative and reasonable in the circumstances.  He also read the Court of Appeal judgment selectively to downplay his contempt to a mere technical contempt caused by his stubbornness.  Mr Chain submitted for the OR that these matters reflected his lack of substantive reformation and remorse and did not demonstrate that he had determined not to commit the mistake again.  It was for him to convince the court and the OR his acceptance of the inappropriateness of his contempt of court and his appreciation of the importance and necessity of complying with court orders (§§26 and 49 of the Decision).

26.  However, despite Mr Tang’s failings, the OR was not seeking to ban him from practice as an insolvency practitioner permanently or for a known period.  Mr Chain submitted orally that Mr Tang would be fit again if he should demonstrate sufficient remorse and provide evidence of reformation.  There is no requirement of any specific period of remorse or exhaustive evidence of reformation (§52 of the Decision). 

27.  Hence, Mr Tang’s unfitness is a matter of his attitude.  He was unfit not because of what he had done or failed to do as a trustee or liquidator, but because he had kept on arguing that he was wrongly found to be in contempt or had only committed a technical contempt.  The OR’s position is that he would be fit again as soon as he stopped arguing, agree that he was in the wrong and declare that he would comply with all court orders in future.  He can be fit as soon as he changes his attitude.  He can do so at any time by demonstrating sufficient remorse and providing evidence of reformation.  He can do so simply by wholeheartedly admitting his error in the contempt and that he was solely to blame and he would abide by all court orders fully and completely in future.  That is what the OR wants. 

28.  Mr Chain further submitted that the fact that Mr Tang was an experienced accountant specializing in insolvency work and had much experience as liquidator and trustee had aggravated the seriousness of his case, because he should be aware of the functions of those roles (§18 of the Decision).  I take it to mean that the same mistake if committed by someone not having the same experience and specialization would not be regarded as just as serious.  I doubt the logic of the reasoning as this is not a case of Mr Tang’s professional competence but of his character.

29.  The OR in the application further referred to Mr Tang’s failure to disclose his contempt to the court in Re JV Fitness Ltd.  But the OR had already advised him that from 4 November 2016 onwards, he would not be put forward as an appointment taker and insolvency practitioner of the Panel A Scheme.  His failure in making disclosure in Re JV Fitness Ltd was only revealed in the decision of Harris J given on 29 November 2017.  Hence, his failure to make disclosure in Re JV Fitness Ltd was not a reason for not putting him forward for the Panel A Scheme.  It was only used as an additional ground in support of the application.

30.  The OR further sought to buttress her decision to sanction Mr Tang by reference to his stubbornness and unnecessarily confrontational behaviour in court.  These are also matters only referred to in the application and not before.  The OR’s attempt to modify the definition of “stubbornness” in the Oxford Dictionary in the internet and to make it a more serious failing of Mr Tang is also unmeritorious (§20 of the Decision).

31.  The OR further submitted that in taking out the Summons, she was not pursuing a private right but was seeking to further a legitimate public interest of the due and proper administration of the bankruptcy cases.  In bringing the issue of Mr Tang’s fitness to the Court for determination, the OR was discharging her duties in discharge of her regulatory role of the bankruptcy regime and was acting in a quasi-judicial capacity in furthering a public interest in seeing the high standards expected from a trustee, who is an officer of the court, was maintained.  The OR submitted that, following Li Tat Kong, the proper costs order to be made here should be no order as to costs, and no costs should be ordered against the OR. 

32.  I fully appreciate that the OR was concerned about the public interest of the due and proper administration of the bankruptcy cases.  However, if there should be any professional disciplinary issue of any insolvency professional, the appropriate way to resolve it is to refer it to the relevant professional body.  That would be a proper discharge of the OR’s public duty.  I do not think it is for the OR to decide on such matter and then apply sanction against the professional in question.  What she did in relation to not putting him forward for the Panel A Scheme is a sanction.  The public may also mistakenly see the OR’s action against Mr Tang as her effort to sap Mr Tang’s stubborn will.  That is undesirable.

Decision

33.  I would follow Kwan J in Re Copyright Ltd and award costs on the principles usually applicable to civil litigation.  However, Mr Tang has spent a lot of effort on arguing his contempt in the application.  That caused some waste of time and resources for all parties concerned.  I would therefore vary the costs order nisi and order the OR to pay 50% costs to Mr Tang for the application and this application to vary the costs order nisi.  The costs are to be taxed.