FIRST ASIA FINANCE LTD v. TSOI TIN KWAN FANNY

CACV 149/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 149 OF 2015

(ON APPEAL FROM HCA NO 1070 OF 2011)

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AND

CACV 150/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 150 OF 2015

(ON APPEAL FROM HCA NO 1774 OF 2011)

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DECISION ON COSTS

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Hon Lam VP (giving the Decision on Costs of the Court):

1.  On 18 May 2017, we dismissed the appeals for want of prosecution. We invited submissions on costs. Since then we have read the submissions and further submissions from the Official Receiver as well as the respondents in the appeals. Their respective positions are as follows: the respondents asked for an order of costs in their favour against the estate of Tsoi Tin Kwan Fanny subject to leave to be sought from the bankruptcy court to proceed with taxation; on the other hand, the Official Receiver submitted that there should be no order as to costs for the appeals.

2.  By way of recap, these appeals were dismissed for want of prosecution because the appellant Tsoi was made a bankrupt on 23 January 2017 and the Official Receiver (as the trustee of bankruptcy) indicated that she would not adopt the appeals, nor would she assign the causes of action pertaining the appeals to Tsoi.  The appeals were brought by Tsoi on 29 June 2015, before her bankruptcy. 

3.  Some costs were incurred by the respondents in the appeal before the dismissal of the same.  Understandably, the respondents sought an order for costs in their favour.  Given that Tsoi is now bankrupt, it may be doubtful if an order for costs would generate any actual recovery of costs for the respondents.  However, it would be a relevant matter for the bankruptcy court to consider before granting leave for taxation proceedings under Section 12(1) of the Bankruptcy Ordinance.  At this stage, we are only concerned to see if a costs order should be made as a matter of principle. 

4.  If we make an order for costs and leave is granted for taxation, the taxed costs would become a provable debt in the bankruptcy: see Lo Shing Kin v Sy Chin Mong Stephen [2015] 2 HKC 30 applying In re Nortel GmbH [2014] AC 209, overturning the effect of Re Kenworth Engineering Ltd [2005] 2 HKLRD 97.  Insofar as there are net assets and distribution of dividends in the administration of the estate of the bankrupt, the trustee would have to take account of the taxed costs in making a distribution.  Of course, if there is no asset for distribution, the liability for costs would be released upon the discharge of the bankrupt in accordance with Section 32(2) and (7) of the Bankruptcy Ordinance.    

5.  On the other hand, if we decline to make an order for costs, the respondents would have no right to recover their costs at all even assuming that there are net assets for distribution to the bankrupt’s creditors.  Is there any reason why we should deprive the respondents of this opportunity?

6.  The Official Receiver relied on three cases to support her position that there should be no order as to costs in these appeals.  With respect, we do not find firm support for such a position in these cases.

7.  The earliest case is Warder v Saunders (1882) 10 QBD 115.  There was an appeal against a decision to stay an action after the plaintiff had been adjudicated bankrupt.  The stay was until further order with no order as to costs.  The plaintiff appealed.  The appeal was dismissed with costs.  There was not much discussion as to whether the defendant should have their costs below.  However, it did not appear that the defendant had asked for the same.  As far as the appeal was concerned, the defendant did get the costs of the appeal. 

8.  Two points can be made.  First, the case actually showed that the court can order costs against a bankrupt who brought or continued with proceedings after bankruptcy since the court ordered the plaintiff to bear the costs of the appeal.  Second, that case concerned stay of proceedings at first instance level (where no substantive decision had been made on the merits).  Here we are concerned with an appeal where Tsoi had already lost in the court below.  And we dismissed the appeal instead of staying the same.

9.  The second case relied on by the Official Receiver is Farnham v Milward & Co [1895] 2 Ch 730.  It was a first instance decision.  The action (originally brought before bankruptcy by the committee of the plaintiff who was found to be a lunatic) was stayed when the trustee in bankruptcy declined to prosecute the same.  The main issue debated was whether it was correct to add the trustee as defendant and proceeded with the action in order to avoid the plaintiff being sued twice.  There was also discussion on the implication of sanction for the action by the Master of Lunacy, an issue not concerning us.  The court held that the action should be stayed when the trustee refused to be a plaintiff.  Whilst the court did not order costs in the circumstances of that case (which is readily understandable as the plaintiff had succeeded in obtaining an order for account against the defendant before the adjudication of bankruptcy), there was no discussion on whether costs could have been ordered as a matter of principle.

10.  The third case is a decision of a deputy judge in the District Court in Thomas Vincent v Cheung Lai Shuen DCPI 2230 of 2014, 5 April 2017. Again it was a decision to stay the action when the trustee in bankruptcy refused to prosecute the same.  On the question of costs of the defendants, they had all along acted in person and did not ask for costs.  Without much discussion, the court simply made no order as to costs.

11.  We cannot derive from these authorities a general proposition that the court will make no order as to costs when an appeal is dismissed after the trustee in bankruptcy of the appellant refused to proceed with the appeal.  In a recent case in Lee Chick Choi v Best Spirits Co Ltd CACV 25 of 2015, 22 June 2017, this Court had actually granted an order for costs in similar circumstances.

12.  As a matter of principle, we do not see any justification for not giving costs to a respondent when the appeal was dismissed for want of prosecution due to the refusal of the trustee to prosecute the same.  As held by Tang PJ in Lo Shing Kin v Sy Chin Mong Stephen, supra, the liability for such costs arose out of an obligation which arose before the commencement of bankruptcy.  But for the bankruptcy of Tsoi, the Respondents should be entitled to an order for costs when the appeals were dismissed for want of prosecution.  With the bankruptcy of Tsoi, the Respondents’ entitlement to such an order should not be diminished though they would, like other creditors, be subject to the bankruptcy regime in respect of distribution of dividends for provable debts.  We see no justification in principle for going further to have a general rule that no order for costs should be made at all in these circumstances.  Of course, in many cases the opposite party may not find it worthwhile to seek a taxation given the costs involved to obtain leave under Section 12(1) and in taxation proceedings itself.  But that is a matter for them in terms of practicality.

13.  For these reasons, we order Tsoi to pay the costs of the Respondents in these appeals, such costs are to be taxed if leave to do so is obtained from the bankruptcy court.

14.  We make no order as to costs between the Official Receiver and the Respondents.