RE WAN PO JUN MARY PAULINE

HCB 144/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 144 OF 2011

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REASONS FOR DECISION

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Introduction

1.  This is the Bankruptcy’s application by summons dated 4 February 2013 to replace the Trustee‑in‑Bankruptcy (“Trustee”) or to have the conduct of four sets of legal proceedings in HCA 1478/2009, HCA 1682/2010 and HCA 1689/2010 and HCMP 1919/2010 released to her.  On 26 February 2013, I dismissed her application.  Hereunder are the reasons for my decision.

Background

2.  The Bankrupt was the long time cohabitee of the father (“Deceased”) of the petitioning creditor (“Petitioner”) before he passed away in 2008.  By his will dated 18 October 2007, the Deceased left everything to the Petitioner and her brother, to the exclusion of the Bankrupt and appointed the Bankrupt as the sole executrix and trustee of his estate.

3.  The Bankrupt filed a Caveat with the Probate Registry disputing the validity of the Deceased’s will.  The Petitioner commenced proceeding in HCAP 19/2008 and struck out the Bankrupt’s defence and counterclaim.  In CACV 208/2009, the Court of Appeal dismissed the Petitioner’s appeal and refused her application for leave to appeal to the Court of Final Appeal.  She then applied for leave from the Court of Final Appeal to appeal.

4.  The Bankrupt commenced six actions against the estate of the Deceased resulting in various costs orders having been made against her in favour of the estate, some of which have already been taxed in the total amount of $24,343.30.  In addition to suing the estate of the Deceased, she also commenced two actions in HCA 1682/2010 and HCA 1689/2010 against a common business associate of the Deceased and herself, Lo Kai Kwong (“Lo”).

5.  On 11 April 2011, I made a bankruptcy order against the Bankrupt for failing to satisfy those taxed costs.  She appealed in CACV 78/2011, but her appeal was dismissed by the Court of Appeal on 29 March 2012.  The Trustees were duly appointed on 28 June 2011.

6.  On 16 March 2012, the Bankrupt applied to have her claims in HCA 1682/2010 and HCA 1689/2010 released to her for further conduct of the litigation.  Her application was dismissed by me on 23 March 2012.

7.  On 4 February 2013, the Bankrupt made the present application, seeking either to remove the Trustees who refused to proceed with the four actions or to have the conduct of the litigation in those four actions released to her.  In gist, the grounds for her application are that she has meritorious claims in those four actions and that the Trustees’ refusal to continue the conduct of those actions on her behalf or to release those actions to her was absurd and unreasonable.

The applicable legal principle

8.  There are two legal principles which are applicable to the present situation.  First, the Bankrupt’s application is made pursuant to section 83 of the Bankruptcy Ordinance, which allows a bankrupt aggrieved by any act or decision of the trustee to apply to the court for relief.  The court has jurisdiction to confirm, reverse or modify the act or decision complained of and make such order in the premises as it thinks just.  It is well settled principle that such jurisdiction will have to be cautiously exercised.  It would be inappropriate and unjust for the court to interfere with the trustees’ decision unless it is shown that the trustees’ act or decision was perverse or clearly wrong.  In other words, the court would only interfere if the trustees’ act or decision was utterly unreasonable and absurd that no reasonable trustee would have so acted: See for example, Re Chung Kau, HCB 581/2003.

9.  Second, as trustees‑in‑bankruptcy would be exposed to costs if they proceed or give consent to a bankrupt to proceed with an action in their names, the practice evolved that they would not do so unless satisfied that the action is meritorious and there is sufficient funding or indemnity to cover costs, including adverse costs, in the event that the claim under the action fails.  This practice of prudence has in time become a principle cast in stone and is authoritatively stated by Bokhary PJ in Dr Vincent Kay LoIp v Dr Andrew Kee Suan Koh, FAMV 8/2001, 24 April 2001, unreported:

“Even assuming that it can sometimes be appropriate to permit a bankrupt to proceed in his trustee in bankruptcy’s name when his trustee in bankruptcy does not favour an appeal, and whatever may be the true legal analysis as to with whom any right of appeal lies, such permission could only be given on condition of a full and effective indemnity. We agree with the Court of Appeal on the point that what the judge ordered does not amount to such an indemnity.”

Thus, a trustee‑in‑bankruptcy will not proceed with an action unless he is satisfied that the action is meritorious and that funds are available to meet the costs.  Likewise, he will not give consent to a bankrupt to proceed unless satisfied that the action is meritorious and that funds are available to meet the costs or that the bankrupt furnishes an indemnity of costs.

The four actions

10.  In HCA 1478/2009, the Bankrupt claimed damages for the Deceased’s breach of promise to marry her, repayment of a sum of $3.5 million, a half share in the estate of the Deceased and maintenance under the Inheritance (Provision for Family and Dependants) Ordinance (“IPFDO”).  Her claim for breach of promise to marry her was struck out by Yam J, but the other claims under that action were on-going at the time of the making of the bankruptcy order.

11.  In HCMP 1919/2010, the Bankrupt applied for maintenance under the IPFDO.  She had claimed similar relief under HCA 1478/2009.  She has been granted legal aid to prosecute this claim.  The Trustees accept that this action is a chose in action which falls outside the definition of “property” in section 2 of the Bankruptcy Ordinance, being a claim which is “personal” to the Bankrupt.  I agree with the Trustees’ position.  Like a defamation claim, a spouse’s or a cohabitee’s right to be maintained by the other member of that union is a right which relates to his or her person, not to his or her property.  That right of action is not vested in the Trustees.  Hence, the Trustees do not have the right to conduct that action nor was it open to the Trustees to release it to the Bankrupt.  Indeed, in dismissing the Bankrupt’s appeal against the bankruptcy order in CACV 78/2011, Cheung CJHC said at paragraph 13:

“ In relation to the claim for financial provision under the Ordinance, it is a “personal” claim of the bankrupt, unaffected by her bankruptcy.  The bankrupt has already got legal aid for making the claim, and so far as I can see, the prosecution of her claim has not been affected by the bankruptcy order at all.”

Furthermore, Cheung CJHC continued in paragraph 17:

“On the facts of the present case, the judge’s approach cannot be faulted. In particular, it would appear that the bankrupt’s claims for $3.5 million and for an interest in the matrimonial home, and the estate’s claim for possession thereof, could all be dealt with under or together with the bankrupt’s claim for financial provision under the Ordinance (HCMP 1919/2010). The bankrupt has got legal aid for her claim for financial provision, which is not affected by her bankruptcy. It should be noted that under the Ordinance the court has power to order, amongst other things, the transfer of property. In considering how to exercise its power, the court will consider various matters including the applicant’s past contribution. The court’s view is shared by the trustees of bankruptcy, who, for obvious reasons, are leaving it to those representing the bankrupt in HCMP 1919/2010 to take the lead in applying for an order for consolidation or for other appropriate orders.”

Simply put, HCMP 1919/2010 remains the Bankrupt’s own property and at her own disposal.  It is up to the Bankrupt to do whatever she wants with or about that action; and she may even pursue the balance of her claims in HCA 1478/2009 under the umbrella of HCMP 1919/2010.

12.  The Trustees are in no position to proceed or to give consent to the Bankrupt to proceed with HCMP 1919/2010 in their names.  As for HCA 1478/2009, the Trustees consider the claims unmeritorious.  But, even assuming the Bankrupt has a meritorious claim, there are no funds available from her estate to meet the costs including adverse costs if she loses.  There is no reason why the Trustee should expose themselves by proceeding or giving consent to the Bankrupt to proceed with HCA 1478/2009 when she could, on her own, pursue the claims under the umbrella of HCMP 1919/2010.  The Trustees’ refusal to proceed or to give consent to the Bankrupt to proceed is absolutely reasonable and could not be challenged as absurd.  Any trustee would have done the same.  I can see no reason why I should exercise my discretion to reverse or modify the decision of the Trustees or have them replaced as any reasonable trustee would have done the same.  The sense of injustice felt by the Bankrupt arose out of her misunderstanding of the effect of the bankruptcy order against her and the judgment of Cheung CJHC when dismissing her appeal against my order.

13.  In HCA 1682/2010 and HCA 1689/2010, the Bankrupt claims against Lo on the basis of two declarations of trust that she is the beneficiary of certain shares in Newland Engineering Limited (“Newland”) and Kai Kee Company (“Kai Kee”) held in Lo’s name.  For reasons which will become apparent, I do not find it necessary to go into details about the disputes between the Bankrupt and Lo about the beneficial ownership of the shares in these companies.  In gist, the Bankrupt’s case is that Lo held the shares on her behalf as evidenced by the declarations of trust; while Lo’s case is that those declarations were made at the suggestion of the Bankrupt’s brother who handled his application for immigration to Canada for tax evasion purposes and were untrue.  The Bankrupt relies on her possession of the original declarations of trust and the doctrine of res ipsa loquitur but gave no account of how and why the legal interest in the shares came to be held by Lo.  On the other hand, Lo gave a detailed account of how he and the Deceased started Newland in 1977 and Kai Kee in 1997 and how he was lured into signing the two declarations.  The Bankrupt applied for legal aid to prosecute her claim, but her application was refused on 26 November 2002.  Having considered the merits, the Trustees and Official Receiver considered it not appropriate to proceed with these two actions.  The Trustees enquired if the Bankrupt was able to provide an indemnity of costs, but she could not.  In the circumstances, the Trustees refused to proceed with those two actions or to give consent to the Bankrupt to proceed in their names.

14.  The Bankrupt disagrees with the Trustees’ evaluation of the merits of her case.  She argues that if Lo has a meritorious defence, he would have filed one, but he did not but only relied on a draft defence.  She also produces the original declarations and evidence of payment of penalty for late stamping in support of her case.  She argues that the declarations were not prepared for immigration purposes as they were executed in July 1995 while Lo’s immigration papers were issued in August 1995.  It depends on the purpose of the declarations.  It is apparent that they could serve as part of a Canadian tax evasion device.  She also argues that if the declarations were for tax evasion purpose, it should have been for her to sign the declarations in Lo’s favour.  This is not possible as the shares were in Lo’s name to begin with. It is not for me to conduct a mini trial on affidavit evidence.  It is for the Bankrupt to satisfy the Trustees that she has a meritorious case.  In the light of the evidence, the Trustees’ decision that she did not is one which is open to the Trustees to make.  It seems that the Trustees also relied on the refusal of her legal aid application by the Director of Legal Aid.  In any event, even if the Bankrupt has a meritorious claim, she could not provide an indemnity of costs.  As in the case of HCA 1478/2009, there is no reason why the Trustees should expose themselves by proceeding or giving consent to the Bankrupt to proceed with the two actions.  For same reasons, the Trustees’ refusal to proceed or to give consent to the Bankrupt to proceed cannot be criticised as unreasonable or absurd.  Any trustee would have done the same.  I can see no reason why I should exercise my discretion to reverse or modify the decision of the Trustees or to have them replaced.

Conclusion

15.  For the above reasons, the Bankrupt’s application is dismissed.  Upon the consent of the Trustees, I make no order as to costs.