RE TAM MEI KAM

HCB 3777/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 3777 OF 2011

HCMP 2981/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2981 OF 2004

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D E C I S I O N

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1.  There are 4 applications. The first one is made by HSBC International Trustee Ltd. (“HSBC”) in HCMP 2981/2004 (“the maintenance proceedings”) on 26 August 2013 for an order to pay the applicant, Madam Tam accrued maintenance and future monthly maintenance.

2.  The second one is made by Madam Tam’s trustees in bankruptcy (“the trustees”) in HCB 3777/2011 (“the bankruptcy proceedings”) on 2 September 2013 for an income payments order under section 43E of the Bankruptcy Ordinance, Cap 6 (“IPO”).  By this application, the trustees seek to claim for Madam Tam’s estate the bulk of the accrued maintenance and a substantial part of the monthly maintenance until the discharge of her bankruptcy.

3.  The third application is Madam Tam’s notice of motion in the bankruptcy proceedings and dated 12 November 2013 to strike out the trustees’ application for IPO, remove the trustees and for payment of the accrued maintenance.  The application for payment should be made in the maintenance proceedings and I would consider it in the context of such proceedings.

4.  The fourth application is a summons dated 19 November 2013 also made by Madam Tam and in the maintenance proceedings for payment of the accrued maintenance and monthly maintenance.

5.  I will deal with the application by HSBC for an order to make payment first.  The part of the Madam Tam’s notice of motion to strike out the application for IPO will follow.  I will then deal with the trustees’ application for IPO and Madam Tam’s application for payments together. Finally, I will deal with the remaining part of Madam Tam’s motion for removal of the trustees.

Background

6.  The late Madam Mui Yim Fong, an accomplished artist by her will left her estate to a discretionary trust and appointed HSBC as the sole executor of her will and trustee of the trust.

7.  A Cheung J (as he then was) made an order on 20 November 2007 in the maintenance proceedings directing HSBC to pay out of Madam Mui’s estate a monthly sum of HK$120,000 to Madam Tam for her maintenance.  The monthly sum was increased to HK$140,000 from 1 March 2012 by agreement between HSBC and Madam Tam to counter inflation.  

8.  The payment of the monthly sum was then suspended by order of Poon J on 26 June 2012 because of insufficient liquid assets in Madam Mui’s estate. Whilst Poon J’s order is in force, Madam Tam has no entitlement to and cannot demand HSBC to pay her any maintenance as ordered by A Cheung J as varied by her agreement with HSBC. 

9.  The liquidity of Madam Mui’s estate improved significantly in the latter part of August 2013.  HSBC on 26 August 2013 applied by letter for an order that it may pay Madam Tam the maintenance that should have been paid but for Poon J’s order and also resume the future maintenance payment on a monthly basis.

10.  Following the application by HSBC and before any order for payment was made, the trustees applied on 2 September 2013 for an IPO.  As a result, no order was made to release the accrued maintenance and monthly maintenance to Madam Tam pending the determination of the trustee’s application.  In the meantime, Madam Tam was paid HK$20,245 per month to cover her domestic needs with the actual amount payable to be determined in the IPO application.  That has been the case for 5 months from October 2013 to February 2014.  Hence, the accrued maintenance has been growing since 26 August 2013 when HSBC applied for an order to pay maintenance.

11.  On 11 October 2013, I made an order allowing the trustees to join as the 5th respondent in the maintenance proceedings. 

Adjustments for inflation, interest and extra item

12.  Since the amount of accrued maintenance as calculated by HSBC is on the basis of HK$140,000 per month, I therefore suggested that there be an adjustment to counter the inflation since 1 March 2012.  I further proposed that interest at 8% per annum be paid for 1 year on part of the accrued maintenance.  HSBC then advised that as a result of the adjustment for inflation and accrual of interest, the amount of accrued maintenance now stands at HK$2,132,175 and the monthly maintenance is adjusted to HK$152,000.

13.  There is however another sum claimed by Madam Tam that needs consideration.  Madam Tam says that she had to pay HK$54,000 as legal costs and interest to her landlord pursuant to possession proceedings brought by her landlord against her for her failure to pay rent.  She could not pay rent because the monthly maintenance was suspended and she had no resources to pay.  As a result of her resisting the possession proceedings, she was able to remain in the premises until the expiry of the tenancy.  But in doing so, she incurred this extraordinary expenditure of HK$54,000.  I think it was reasonable for her to have incurred this expenditure as it would have been more difficult for her to rent new premises and arrange a removal at the time when the monthly maintenance was suspended.  I therefore order that this sum be included in the accrued maintenance.  Subject to the order that I will make on the IPO application, I will order HSBC to pay accrued maintenance and monthly maintenance as indicated above.

Motion to strike out the IPO application

14.  Madam Tam’s motion states the ground for striking out the IPO application as the trustee’s dishonesty, recklessness and gross incompetence in taking out the IPO application and that the IPO application is without proper regard to the clear wording of section 43E of the Bankruptcy Ordinance.  Madam Tam filed a 4th affirmation in the bankruptcy proceedings to support the motion, but has not given any evidence therein to support the application to strike out the IPO application.  Her written submissions filed on 19 November 2013 and 8 February 2014 also do not argue why the IPO application should be struck out.

15.  Section 43E of the Bankruptcy Ordinance provides:

“(1) The court may, on the application of the trustee, make an order (an income payments order) claiming for the bankrupt’s estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.

(2) The court shall not make an income payments order the effect of which would be to reduce the income of the bankrupt below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family.

(3) An income payments order shall, in respect of any payment of income to which it is to apply, either-

(a) require the bankrupt to pay the trustee an amount equal to so much of that payment as is claimed by the order; or

(b) require the person making the payment to pay so much of it as is so claimed to the trustee, instead of to the bankrupt.

(4) Where the court makes an income payments order it may, if it thinks fit, discharge or vary any attachment of earnings order that is for the time being in force to secure payments by the bankrupt.

(5) Sums received by the trustee under an income payments order form part of the bankrupt's estate.

(6) For the purposes of this section the income of the bankrupt comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment.” (Emphasis supplied)

16.  It is the purpose of section 43E that income in excess of the bankrupt’s reasonable domestic needs should be paid to the trustee to benefit the bankrupt’s estate (Kilvert v Flackett [1998] BPIR 721 at 723F to H).  Since Madam Tam will be receiving substantial income from HSBC, I see no reason why the trustees should not apply for an IPO.  The application to strike out the IPO application has no merit and I dismiss it.

The IPO application

17.  Madam Tam submits that the words “during the period for which the order is in force” in section 43E(1) qualify and limit the words “income which is from time to time made to him or which he from time to time becomes entitled” in section 43E(6) so that the words “from time to time” should mean “during the period for which the order is in force”.

18.  Madam Tam further submits that her entitlement to the accrued maintenance is sourced from the order of A Cheung J dated 20 November 2007 which is merely suspended and not discharged by the order of Poon J dated 26 June 2012.  She asserts that there is no question on HSBC’s liability to pay her the same.  She further says that she has been entitled to this payment before there is any IPO.  Hence, the IPO, which only covers income that she is entitled to during the period when it is in force, does not cover the accrued maintenance.  The accrued maintenance is therefore payable to her in total.  I have already said above that whilst Poon J’s order of suspension is in place, Madam Tam has no entitlement to payment of maintenance under the order of A Cheung J.  I therefore disagree with these submissions of Madam Tam.

19.  Madam Tam also said in her 3rd and 4th affirmations that the IPO should not cover any maintenance that she was entitled to prior to the trustees taking out the IPO application or alternatively any maintenance payable to her prior to her bankruptcy.  She further submits that if the court should consider that the IPO should cover the accrued maintenance, then money covering her domestic needs during the period when the accrued maintenance was accruing should be taken out of the accrued maintenance and paid to her.

20.  The trustees however submit that income should comprise all payments in the nature of income from time to time made to Madam Tam or to which she becomes entitled to from time to time and is not limited to income that she is entitled to during the period when the IPO is in force.  Mr Hew, counsel for the trustees, submits that the words “income which is from time to time made to him or to which he from time to time becomes entitled” in section 43E(6) should not be qualified by the words “during the period for which the order is in force” in section 43E(1).

21.  Mr Hew referred to Supperstone v Lloyd’s Names Association Working Party & Ors [1999] BPIR 832 at 836C to G, 836H to 837E, 837G to H and 840C to 841A where Evans Lombe J, when considering section 310 of the Insolvency Act 1986 (the part which is similar to our section 43E), was of the view that “from time to time” meant “at any time”.

22.  Mr Hew also referred to Raithatha v Williamson [2012] 1 WLR 3559 where Deputy High Court Judge Bernard Livesey, QC decided in para 19 of the judgment that an IPO can be made in respect of income that has already been made to the bankrupt prior to the making of the IPO.  However, this decision was made on section 310(6) of the Insolvency Act 1986 as amended and there is no similar provision in our section 43E.

23.  Having considered the wording of section 43E, I disagree with Madam Tam’s submission that the income referred to in section 43E(6) should only mean income that the bankrupt is entitled to “from time to time during the period for which the order is in force”.  The words “during the period for which the order is in force” refer to the period during which the IPO can be enforced and not the period during which the bankrupt is entitled to or in receipt of payment.

24.  However, even the words “from time to time” may mean “at any time”, it cannot be without limit.  An IPO certainly should not be made in respect of income that the bankrupt only becomes entitled to after his discharge from bankruptcy.  It also should not claim income that has been paid to the bankrupt before his bankruptcy.  If the bankrupt should still be in possession of the whole or part of such income upon his bankruptcy, such income or the remaining part will vest unto his trustee in bankruptcy as part of his estate as defined in section 43 of the Ordinance.  However, an IPO can certainly be made to claim income that the bankrupt has received or is entitled to receive during his bankruptcy regardless of whether the entitlement to receive had commenced (but not satisfied) before his bankruptcy.

The accrued maintenance

25.  The accrued maintenance was not paid because payment was suspended by Poon J on 26 June 2012.  The suspension of payment likewise suspended Madam Tam’s entitlement to payment and she has no right to enforce the payment when the suspension is in place.  She will only be entitled to payment upon an order being made for payment in the maintenance proceedings.  The IPO, if now made, can certainly claim payment of this entitlement direct to the trustees.

26.  Madam Tam has submitted that if I should order payment of the accrued maintenance to the trustees, I should deduct from the same her reasonable domestic needs for the period during which the same accrued.  However, I do not think I am in a position to do so save for the period from October 2013 onwards when she was paid HK$20,245 per month pending the consideration of the IPO application.  The reason being that the reasonable domestic needs should be current needs or the needs at the time when the IPO is made and not before.  Furthermore, two sums of HK$260,000 and HK$353,200 had been ordered to be paid to her in May and September 2013 respectively and HK$20,000 per month had also been ordered to be paid to her for the months of June, July and August 2013 to cover her rental and household needs.

Reasonable domestic needs

27.  Before I can decide how much of the accrued maintenance should be paid to the trustees, I have to consider Madam Tam’s reasonable domestic needs since October 2013 so that I can tell what adjustment, if any, I have to make to the monthly sum of HK$20,245 already paid to her since October 2013.

28.  The Official Receiver conducted a review of Madam Tam’s reasonable domestic needs at the end of May 2012 and came to the view that Madam Tam needed HK$75,246 per month to satisfy her needs.

29.  Madam Tam in the present application adopted the official receiver’s suggestion but added HK$500 for water charge and HK$16,000 for salary to his legal adviser/personal assistant making a total of HK$91,746 per month.

30.  The trustees do not agree with either the official receiver’s proposal or that of Madam Tam.  They assessed Madam Tam’s reasonable domestic needs at HK$50,245 per month and reducing to HK$40,245 from 21 February 2014 onwards.  The reason for the reduction being the expiry of her tenancy at HK$30,000 per month on 19 January 2014.  The trustees are of the view that the rental for her new tenancy should be no more than HK$20,000 per month.  However, rental at HK$30,000 has already been paid to her existing landlord to cover the period from 20 January 2014 to 19 February 2014.  Hence, the lower rental at HK$20,000 would only commence from 20 February 2014.

31.  The trustees have prepared a table setting out the three proposals of Madam Tam’s reasonable domestic needs as proposed by Madam Tam herself, the official receiver and the trustees.  I reproduce the table below:

ExpenditureItem	Amount now claimedby Bankrupt (HK$)	Amount Assessedby theOfficial Receiver (HK$)	Amount Assessedby Trustees (HK$)
Rent	30,000	30,000	30,000
			(from March 2014 – 20,000
Water	500	0	450
Electricity	4,825	4,825	2,400
Gas	2,691	2,691	400
Telephone(residentialplus fax)	700	700	700
Telephone(mobile)	500	500	500
Food	5,050	5,050	6,375
Salary todomestichelpers	7,480	7,480	3,920
Familymiscellaneousexpenditure	2,000	2,000	2,000
Cap-parkrelatedcharges	0	0	0
Entertainingfriends	0	0	0
Salarytolegaladviser/personal assistant	16,000	0	0
Tonicfoodandacupuncture	18,500	18,500	0
Travellingexpenses	3,500	3,500	3,500
Total	91,746	75,246	50,245
			(from March 2014 – 40,245)

32.  I now consider the items the amounts of which are in dispute.  I agree with Barma J (as he then was) that it is reasonable to expect Madam Tam as a bankrupt to make some adjustments to her lifestyle after her bankruptcy by economising on her expenditure whenever possible (Re Tam Mei Kam (a bankrupt) [2012] 4 HKLRD 345 at para 24).

33.  I also agreed that the needs of each bankrupt must be decided by reference to all the circumstances of the individual bankrupt (see ReRayatt (a bankrupt) [1998] BPIR 495 at 5001D to E and 501G to H and Re Lau Nga Yee Christine, HCB 3486/2002 by Reyes J dated 30 September 2004 at paras 32 and 34).

34.  Regarding rental, Madam Tam said at the hearing that she was negotiating for a new tenancy for premises with a usable floor area of about 1,000 to 1,100 sq ft.  However, I have on 6 January 2014 already directed that she should look for new premises with about 500 sq ft usable floor area only.

35.  For premises in the Happy Valley and Tai Hang areas with about 500 sq ft useable floor area, HK$20,000 per month should be a reasonable rental.  I would therefore accept the trustee’s suggestion that the reasonable rental for Madam Tam should be HK$20,000 per month from 20 February 2014 onwards.

36.  For water charge, Madam Tam claims HK$500 per month and the trustees assess it at HK$450 per month.  The consumption of water has seasonal variation and I accept Madam Tam’s claim of HK$500 per month.

37.  For electricity, the trustees’ assessment is based on bills and is therefore realistic.  I accept the assessment at HK$2,400 per month.

38.  For gas, I also accept the trustees’ assessment of HK$400 per month as it is based on bills.

39.  For food expenses, the trustees’ assessment is at HK$6,375 which is higher than Madam Tam’s proposal and I accept it as reasonable.

40.  For salary to the domestic helper, Madam Tam claims HK$7,480 for two helpers.  The trustees say that there should only be one helper and the current minimum salary is HK$3,920.  I agree with the trustees but round up the figure to HK$4,500 to cater for some miscellaneous expenses to be incurred for the helper like medical and employee insurance and air-tickets for home.

41.  Madam Tam also claims HK$18,500 for tonic food and acupuncture.  The trustees say that such is not a reasonable domestic need.  I am of the view that a claim for tonic food may not be a reasonable domestic need for a young and healthy bankrupt.  However, Madam Tam is already in her nineties.  Some tonic food is important to keep her in good health.  I assess her need at HK$3,000 per month.

42.  Finally, Madam Tam claims a sum of HK$16,000 as salary to her legal adviser/personal assistant.  The trustees object to it.  The first objection is that nothing is known about the credential of the legal adviser/personal assistant and there is no employment contract produced.  The further objection is that if Madam Tam had been assisted by legal professionals, there is nothing known about the fees and basis for the same.

43.  However, these objections overlook the facts that Madam Tam is a senior citizen of over 90 years old and she does not speak a word of English.  She would have difficulty in presenting her case in these applications even in Chinese if without the help of others.  The fact that she has been assisted by someone conversant with the English language is obvious as all her applications, affirmations, submissions and letters are composed in fluent and clear English.  This assistance provided by the personal assistant to Madam Tam has not only assisted Madam Tam but facilitated the work of the court and all parties to these proceedings.  If Madam Tam were left to handle these applications all by herself, I doubt if she could have presented her case as it is.

44.  In the circumstances, I think I should order HSBC to make some extra payment as extraordinary expenses to Madam Tam for her to pay for such services.  But I would not order such payment on a regular basis. I would only consider such extraordinary expenses on the basis of need. Judging from the applications, the affirmations, submissions and letters written in the name of Madam Tam since 26 August 2013 when HSBC applied for order to pay maintenance, I consider a one-off payment of HK$35,000 as reasonable.  I will add this sum to the accrued maintenance to be paid by HSBC.

45.  I have thus assessed the total monthly sum to meet Madam Tam’s reasonable domestic needs at HK$43,875 with rental at HK$20,000 per month.

46.  The trustees agree that this sum should be adjusted upwards by 9% to counter inflation as the monthly maintenance at HK$140,000 has been adjusted likewise to HK$152,000.  The sum payable to Madam Tam per month from September 2013 onwards to cover her domestic needs should thus be HK$47,823.75.  I round it up to HK$48,000. 

The IPO for monthly maintenance

47.  In respect of the monthly maintenance in the maintenance proceedings, I order that HSBC do pay Madam Tam a sum of HK$48,000 per month on the first working day of each month which is not a Saturday to cover Madam Tam’s reasonable domestic needs for the monthly period commencing from the 21st day of that month and the first payment shall be made on 3 March 2014.

48.  For the balance of the monthly maintenance at HK$104,000, I order HSBC to pay the same to the trustees on the same day when payment is made to Madam Tam. 

49.  This order will continue until Madam Tam is discharged from her bankruptcy or further order. 

Accrued maintenance

50.  Regarding the accrued maintenance proceedings, it is at HK$2,132,175 after adjusting for inflation and interest but not include the two extraordinary items above-mentioned at HK$54,000 and HK$35,000.    

51.  The trustees say that they want HK$2,125,569 out of HK$2,132,175 after deducting HK$6,606 for Madam Tam to pay for a surgery to her pet dog. But this HK$2,125,569 is arrived at on the basis of giving Madam Tam only HK$20,245 per month to cover her domestic needs since October 2013.  The sum of HK$20,245 is subject to adjustment upon making the IPO.  Madam Tam’s monthly domestic needs are now assessed at HK$48,000 with rental at HK$20,000 per month.  Furthermore, a one-off payment should be made to Madam Tam from the accrued maintenance to cover her rental for the period of 20 February 2014 to 19 March 2014.  This sum should be adjusted upward by 9% to counter inflation.  The adjusted sum is HK$21,800 and should come out of the accrued maintenance of HK$2,132,175.

52.  The further sum to be paid Madam Tam for the period from October 2013 to February 2014 is the total sum payable to cover her domestic needs for this period less the sums paid or to be paid to her in respect of this period. It is calculated as follows:

(HK$53,875 (with rental at HK$30,000 per month) x 1.09 (to counter inflation) x 4 (months) + HK$48,000 (for February 2014)) – (HK$20,245 x 5 (months) + HK$21,800 (rental for 20/2/2014 to 19/3/2014) + HK$30,000 x 4 (rental paid to the landlord for 20/10/2013 to 19/2/2014))

= HK$282,895 – HK$243,025 = HK$39,870.

The sum payable to the trustees should thus be further reduced by HK$39,870 to HK$2,063,899.  The sum payable to Madam Tam should then be HK$2,132,175 + HK$54,000 + HK$35,000 – (HK$2,125,569 – HK$21,800 – HK$39,870) = HK$157,276.

The IPO for accrued maintenance

53.  I therefore order that HSBC do pay Madam Tam part of the accrued maintenance at HK$157,276 and pay the balance at HK$2,063,899 to the trustees direct.

Application to remove the trustees

54.  I now due with Madam Tam’s application to remove the trustees.  Section 96(2) of the Bankruptcy Ordinance provides:

“(2) If the court is of opinion-

(a) that a trustee, other than the Official Receiver, is guilty of misconduct or fails to perform his duties under this Ordinance; or

…

the court may remove him from his office and appoint another person in his place.”

55.   Halsbury’s Laws of Hong Kong, para 45.247 refers to Edennote Ltd, Tottenham Hotspur plc v Ryman [1996] 2 BCLC 389 where the English Court of Appeal quashed an order for removal of trustees as the court will not lightly remove its own officer and will have regard to the impact of removal on his professional standing and reputation. 

56.   Muir Hunter on Personal Insolvency discusses the removal of trustees by the court at paras 3-834 to 3-835.  The author refers to Smedley v Brittain [2008] BPIR 219, where Registrar Nicholls considered that if the trustee has gone about his or her action effectively, honestly, reasonably, without misconduct or maladministration, the court must think carefully and long and hard before deciding to remove him or her and especially in the case of an application made by a debtor.  The test to be achieved by a debtor is a particularly high one.

57.   The Law of Insolvency by Ian Fletcher at para 7-069 also states that it was well established under the bankruptcy legislation prior to the Insolvency Act 1986 that it is only where the trustee is acting in a manner which is so unreasonable and absurd that no reasonable person would act or fail to act in that way including fraudulent conduct that the court would interfere.

58.   I agree with all these statements and bear them in mind in considering Madam Tam’s application for removal.

59.   Madam Tam’s grounds of the application as stated in her notice of motion are the following:

(1) The Joint Trustees have acted dishonestly and/or recklessly and/or grossly incompetently in taking out the IPO application dated 2 September 2013, without proper regard to the express, clear, unambiguous and unequivocal words of section 43E(1) of Cap 6 and the judgment of Barma J (now Barma JA) dated 18 July 2012, guilty of deliberate abuse of process of the Court;

(2) The Joint Trustees have been dishonest and/or reckless and/or grossly incompetent in making and filing the 4 Reports in support of the IPO application; with an ulterior motive to confuse, mislead and deceive the Court;

(3) The Joint Trustees have acted in ill-faith in diverting the true focus in an IPO application from the Court but driving intensively at irrelevant matters; and

(4) The Joint Trustees wilfully spent and wasted time and resources unnecessarily to the detriment of the estate and without regard to the interest of the bankrupt.

These accusations are repeated in paras 11 to 19 of her 4th affirmation in support of the application and are related to the making and advancing of the IPO application by the trustees.

60.  I am of the view that the trustees have conducted themselves properly in making and advancing the IPO application.  I do not think the trustees are guilty of any misconduct or have failed to perform their duties under the Ordinance.  This is also borne out by my order in favour of the application.  Madam Tam has failed to establish any of her grounds for removal.  I therefore dismiss her application.

Costs order nisi

61.  I make the following costs order nisi for these applications.  I order that the costs of the application by HSBC for payment order be paid by the estate of Madam Mui to all parties concerned to be taxed. I further order that the estate of Madam Tam do pay the trustees the costs of the application for IPO, the application to strike out the IPO application and the application to remove the trustees to be taxed.

(L. Chan) Judge of the Court of First Instance High Court

           

HCB 3777/2011

The bankrupt:  Tam Mei Kam, appeared in person

Mr Hew Yang-wahn, instructed by ONC Lawyers, for the trustees

The official receiver, excused from attendance

HCMP 2981/2004

The applicant: Tam Mei Kam, appeared in person

Mr Kevin So, of Clifford Chance, for the 1st respondent

Mr Hew Yang-wahn, instructed by ONC Lawyers, for the 5th respondent

The 3rd and 4th respondents, excused from attendance