RE MAN MUI MUI

HCB 6656/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6656 OF 2009

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HCB 6660/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6660 OF 2009

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D E C I S I O N

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1.  The present dispute arose out of the applications of Madam Man and Miss Cheung to annul their respective bankruptcy order. The applications have been dealt with together as they are related and involve the same Petitioner.

2.  On 3 March 2010, I annulled the bankruptcy orders after hearing Madam Man, Miss Cheung and the Official Receiver (“OR”) on the ground that the orders ought not to have been made.  I adjourned the question of costs for further consideration as I wanted to hear the explanation of the Petitioner (who was absent at the hearing) on some apparent irregularities.

3.  On 14 May 2010, I decided not to order costs against the Petitioner after hearing the explanation.  The Petitioner, Madam Man and Miss Cheung then agreed that there should be no order as to costs as between them, and an order to that effect was made. 

4.  By consent of all the parties, I further awarded costs (except the costs of 14 May 2010) to the OR and directed such costs to be deducted first from the deposit paid by the Petitioner and then out of the assets of Madam Man and Miss Cheung in the hands of the OR.

5.  The remaining dispute is between Madam Man and Miss Cheung on the one hand and the OR on the other hand as to the quantum of the OR’s costs.  The Petitioner has indicated that it does not wish to take part in the argument.

6.  In Madam Man’s case, the OR wants to charge:

(1) a sum of $17,664.27, being fees and charges chargeable under the Bankruptcy (Fees & Percentages) Order, Cap.6C (“Cap.6C”) for acting as trustee to administer Madam Man’s property; and

(2) a sum of $5,000, being costs of Madam Man’s annulment application.

7.  From the correspondences exchanged between Madam Man and the OR, one can appreciate that the sum of $17,664.27 is made up of:

Fees and charges under item 11 in Table B of the Schedule to Cap.6C (“Table B”)	$12,150.00
Fees and charges under item 18 in Table A of the Schedule to Cap.6C (“Table A”)	$710.00
Estimated costs for advertising and gazetting of notice of annulment	$3,600.00
Miscellaneous expenses	$1,204.27
Total:	$17,664.27

8.  As I understand him, Mr. Poon (the solicitor representing Madam Man) has put forward 3 grounds of objection:

(1)  The minimum charge under item 11 in Table B should cover the costs for the annulment application.

(2)  By reason of the minimum charge under item 11 in Table B, the OR is not entitled to charge additionally for miscellaneous expenses at $1,204.27.

(3)  The total costs of the OR in Madam Man’s and Miss Cheung’s cases, exceeding $45,000, is excessive and inequitable in the circumstances.

9.  I do not agree with his first objection.

10.  Section 37 of the Bankruptcy Ordinance, Cap.6, provides that:

“ (1) The assets remaining after payment of the expenses properly incurred in preserving, getting in or realizing any of the assets of the bankrupt shall, subject to any order of the court, first be liable to the following payments, which shall be made in the following order of priority, namely-

(a) the fees, charges and percentages prescribed in the Bankruptcy (Fees and Percentages) Order (Cap 6 sub. leg. C) and payable to the Official Receiver, and costs, charges and expenses incurred or authorized by, the Official Receiver, whether acting as trustee or otherwise, including the costs of any person properly employed by him;…” [emphasis added]

11.  Thus, the Ordinance draws a distinction between fees, charges and percentages payable to the OR under Cap.6C on the one hand and costs, charges and expenses incurred or authorized by the OR on the other hand.

12.  In Lam Kam Sing v Trustee of the Estate of the Bankrupt [1989] 2 HKC 352, Jones J explained the distinction in this way:

“Having considered the various provisions, it is clear that the legislature intended that the Official Receiver should be entitled to charge for his fees and expenses under the Bankruptcy (Fees and Percentages) Order. I accept that this work is to be treated separately from, the Official Receiver's work in the litigation when either the party and party or common fund basis for taxation will apply.”

13.  Likewise, Kwan J (as she then was) expressed in有關債務人甘煥芍事宜, unreported, HCB 6776/2005 that:

“在《破產（費用及百分率）令》附表列舉的費用，與破產管理署在訴訟過程所做的工作而招致的費用，有所不同。後者是經過訟費評定的程序評定，以對訟當事人（party & party basis）或共同基金（common fund basis）為基準評定。前者是根據上述附屬法例附表制定的比率收費，破產管理署是有權按照法例訂明的比率收費（Lam Kam Sing v The Trustee of the Estate & Bankrupt & Another [1989] 2 HKC 352）。”

14.  Section 114(1) of the Ordinance provides that:

“The Chief Justice may, with the approval of the Legislative Council, by order prescribe a scale of fees and percentages to be charged for or in respect of proceedings under this Ordinance.”

And Cap.6C is the product of that section.

15.  Para.3 of Cap.6C provides that:

“The fees and percentages to be charged for proceedings in bankruptcy shall be those set out in the Schedule and shall be taken in the office of the Official Receiver or in the Registry of the High Court as the case may require.”

16.  Table B sets out the fees and charges of the OR.  Of particular relevance for present purpose are the following items:

“ 1. On payments made by the Official Receiver into the Official Receiver in Bankruptcy Account, whether acting as interim trustee or trustee to administer a debtor's or bankrupt's property … after deducting any sums paid to secured creditors in respect of their securities, and not being monies received and spent in carrying on the business of a debtor or bankrupt, a charge of 10%.

…

8. Travelling, keeping possession and other reasonable expenses of Official Receiver–theamount disbursed.

…

10. Where the Official Receiver performs any special duties not provided for under the other paragraphs of this Table – such amount as the court, on the application of the Official Receiver, may consider reasonable.

11. Notwithstanding the fees and charges prescribed in the foregoing paragraphs but subject to the availability of funds, where the Official Receiver acts as trustee to administer a bankrupt's property, the total fees and charges under this Table shall not be less than $12,150.”

17.  I agree with Miss Lam (who represents the OR) that the “fees, charges and percentages” prescribed in Cap.6C relate to work carried out by the OR in connection with his duties in the administration of a bankrupt’s affairs as opposed to litigation.  Similar submission was advanced by the OR in Lam Kam Sing (at 353B).

18.  Generally speaking, it is not part of the duty of the OR (see section 78(1) of the Ordinance) or the OR as trustee of a bankrupt’s estate (see section 86B(1) of the Ordinance) to deal with annulment applications.  In my view, the OR is entitled to charge separately for the annulment application which is in the nature of litigation not covered by Cap.6C. 

19.  The costs of and incidental to Madam Man’s annulment application then fall within the general discretion of the court under section 100 of the Ordinance. By consent, I have already granted such costs to the OR on 14 May 2010.

20.  For these reasons, I am of the view that the OR is entitled to charge separately for the annulment application.

21.  The second objection relates to whether the OR is entitled to charge miscellaneous expenses on top of the minimum charge under item 11 of Table B. 

22.  Mr. Poon’s point is that given the minimum charge of $12,150 levied by the OR, the OR is not entitled to charge more unless the OR has demonstrated that his total fees and charges have exceeded that amount.

23.  At the hearing on 11 August 2010, Miss Lam indicated that the fees and charges of the OR under Table B in respect of Madam Man’s case had exceeded $12,150 although she did not then have the necessary breakdown with her.  By consent, I directed the OR to provide me with a breakdown afterwards.  I have since received a breakdown from the OR (which has been copied to Mr. Poon). The time costs of the OR come to $13,720.83, which has exceeded the minimum charge under item 11 in Table B.

24.  The OR has also provided a breakdown of his miscellaneous expenses of $1,204.27.  These were transportation charges, land searches and registration fee, and the charges for gazetting and advertising notice of the bankruptcy order chargeable under item 8 in Table B. 

25.  The OR is apparently content with charging the minimum charge under item 11 of Table B.  As it has been demonstrated that the minimum charge has been exceeded, the OR may charge additionally for his miscellaneous expenses of $1,204.27.

26.  I shall deal with Mr. Poon’s third objection below in relation to both Madam Man’s case and Miss Cheung’s case together. 

27.  Turning now to Miss Cheung’s case, the OR proposes to charge:

(1)  a sum of $17,460, being fees and charges chargeable under Cap.6C for acting as trustee to administer Miss Cheung’s property; and

(2)  a sum of $5,000, being costs of the annulment application.

28.  Again, a breakdown of the sum of $17,460 can be discerned from the correspondence:

Fees and charges under item 11 in Table B of the Schedule to Cap.6C (“Table B”)	$12,150
Fees and charges under item 18 in Table A of the Schedule to Cap.6C (“Table A”)	$710
Estimated costs for advertising and gazetting notice of annulment	$3,600
Miscellaneous expenses	$1,000
Total:	$17,460

29.  Mr. Poon has raised similar objections:

(1)  The fees and charges under item 11 of Cap.6C should cover the OR’s costs for the annulment application.

(2)  There is no justification for the OR charging additionally for the miscellaneous expenses of $1,000.

(3)  The total amount charged by the OR is excessive and inequitable in the circumstances.

30.  I have dealt with the first objection above in relation to Madam Man’s case.  My ruling should apply mutatis mutandis to Miss Cheung.

31.  In relation to the second objection, the OR has also provided a breakdown of his time costs and expenses in relation to Miss Cheung’s case after the hearing.  The total time costs come to $15,320.78, which exceeds the minimum charge under item 11 of Table B.  The total expenses for transportation charges, land searches and land registration fees and the charges for gazetting and advertising notice of bankruptcy order come to $1,079.27.  The OR is apparently content to only charge for the minimum charge at $12,150 and miscellaneous expenses at $1,000.  I am satisfied that he is entitled to do so.

32.  Mr. Poon’s third objection relates to the total costs of the OR in both cases.  It is said that the total amount is excessive and inequitable because:

(1)  The work done by the OR in these proceedings was limited, as Madam Man and Miss Cheung had promptly applied for annulment.

(2)  More specifically:

(a)  In Madam Man’s case, the OR has only recovered $3,402.04 from Madam Man’s bank account.

(b)  In Miss Cheung’s case, there was no statement of affairs, preliminary questionnaire, or proof of debt. Nothing has been recovered. In Mr. Poon’s view, the OR has done nothing in his capacity as the trustee of Miss Cheung’s estate to justify even the minimum charge under item 11 in Table B.

(3)  In relation to the annulment applications, the OR was dealing with two identical applications and, by asking for $5,000 for each application, is duplicating his costs.

(4)  Allowing the OR to charge more than $45,000 in total will create hardship on Madam Man and Miss Cheung. Madam Man is an old lady in her 70s’ and Miss Cheung is only a teacher with limited resources.

33.  In my view, the fees and charges prescribed by Cap.6C and the costs of the annulment applications should be considered separately.

34.  There is no provision in the Ordinance empowering the OR to reduce or remit any fees prescribed by Cap.6C.  Such power rests with the Court by operation of section 114(2) of the Ordinance.

35.  So far, there has been no application under section 114(2).  I cannot treat the present dispute as if it were such an application as I (as Master) do not have jurisdiction to deal with such an application: see sections 99(3) and 99A of the Ordinance.

36.  In any event, Mr. Poon’s contention is contrary to section 114(3) and (5) which provide that:

“(3) The amount of any fees prescribed under this section shall not be limited by reference to the amount of administrative or other costs incurred or likely to be incurred by the Official Receiver in proceedings in bankruptcy or in any particular bankruptcy.

(5) No fee prescribed under this section shall be invalid by reason only of the amount of that fee.”

37.  In Wu Kwok Kwong v. Official Receiver, HCB 7690/2008, Barma J. rationalize the legislative scheme in the following way:

“I think that it is relevant to bear in mind that the scale fees are set on a basis that clearly does not carry with it any intention to correlate, even approximately, the time spent by the Official Receiver with the fees that are charged according to the scale. It seems to me that one reason for the existence of scale fees is to enable the Official Receiver to recover a sum to defray his costs, and, in cases where the scale fees produce an amount that is greater than that which would be charge on the basis of the time actually spent, to provide a surplus in the hands of the Official Receiver which may be used to defray his costs of administering other bankrupt estates in which there may be little or no recovery out of which his costs can be met.”

38.  In any event, the breakdowns provided after the hearing have confirmed that the OR had done work in relation to the bankruptcy of Madam Man and Miss Cheung and is therefore entitled to fees and charges in accordance with Cap.6C.

39.  Turning now to the costs of the annulment applications, this is subject to the discretion of the court under section 100 of the Ordinance.

40.  Miss Lam has annexed a statement of costs to her skeleton submission.  I am satisfied having perused the statement that the OR is justified in charging $5,000 for each application up to and including the hearing on 5 August 2010.  I do not think there is any duplication of costs, as the OR had to peruse 2 sets of papers, considered 2 sets of circumstances and filed a report in each case.  I fix the OR’s costs for each application at $5,000 under rule 32A(1)(b) in lieu of taxation.

41.  I therefore do not think there is any merit in the third objection.

Conclusion

42.  For the above reasons, I rule against Madam Man and Miss Cheung on all the objections taken by Mr. Poon on their behalf. 

43.  In summary, I agree with the OR that he should be entitled to:

(1)  in Madam Man’s case fees and charges under Cap.6C in the sum of $17,664.27 and costs of the annulment application in the sum of $5,000, totalling $22,664.27; and

(2)  in Miss Cheung’s case fees and charges under Cap.6C in the sum of $17,460 and costs of the annulment application in the sum of $5,000, totalling $22,460.

44.  As agreed by the parties, the above fees, charges and costs should be deducted in each case first from the Petitioner’s deposit and then from the asset of Madam Man and Miss Cheung, as the case may be, in the hands of the OR.  I agree with Miss Lam that and any shortfall will have to be met by Madam Man and Miss Cheung.

Costs of the hearing on 11 August 2010

45.  Costs normally follow the event. 

46.  One of the major concerns of Mr. Poon was whether the OR was entitled to charge more than the minimum charge under item 11 of Table B.  By a letter dated 14 May 2010, he had asked for a breakdown to confirm that the fees and charges of the OR had exceeded the minimum charge of $12,150 in both cases.  It appears that the OR had only provided the breakdowns after the hearing on 11 August 2010. 

47.  In those circumstances, I take the tentative view that Madam Man and Miss Cheung should pay half of the costs of the OR for the hearing on 11 August 2010.

48.  I take into account the fact that the objections taken in both cases are similar, and fix the OR’s total costs at $5,000 under rule 32A(1)(b) in lieu of taxation.

49.  I therefore make a costs order nisi that:

(1)  Madam Man should pay half of the OR’s costs for the hearing on 11 August 2010 at $1,250.

(2)  Miss Cheung should pay half of the OR’s costs for the hearing on 11 August 2010 at $1,250.