FRED LEE v. PANG LAI FAI WILLY

HCB 9850/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 9850 OF 2002

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REASONS FOR DECISION

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The application for review

1. By his letter dated 30 October 2007, the trustee takes out this application to review my decisions handed down on 9 October 2007, in which I disallowed his costs from the bankruptcy estate, pursuant to section 98(1) of the Bankruptcy Ordinance.

2. The trustee now asks me to vary my order to the extent that he is not entitled to recover his costs of and occasioned in the hearing for directions before Master Hui on 6 March 2007 only, which was an application for the interim order. In essence, he is asking me to allow his costs for taking out the application and the hearing before me.

Grounds of review

3. His reasons for his application are: (1) the bankrupt had borrowed from the institutions when he was insolvent and that he had made misrepresentation in the application for the loan, which amount to unsatisfactory conduct under section 30A(4) of the Bankruptcy Ordinance; (2) evidence from the bankrupt showed that he had signed the form without confirming all the details in the JCG application form; and (3) in the test case, Judge Kwan ordered that the trustee was not entitled to recover his costs of and occasioned in respect of the hearing before her out of the bankrupt’s estate. Similarly, the order should only disallow his costs of and occasioned in carrying out the investigation into the circumstances in which the alleged misrepresentations were made in the loan application forms.

Guiding principles

4. Costs are in the discretion of the Court and the Court has to take into consideration all the circumstances of the matter before making the order. This is particularly so for the trustee in light of the decisions of Judge Kwan in Lee Fred (Trustee in Bankruptcy of the Property of Leung Chin Yeung) v Leung Chin Yeung & Ors [2007] 1 HKC 164.  At page 182I of her judgment, the learned Judge said:

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It is important to bear in mind that bankruptcy proceedings are not private litigation between individual parties.  There is a wider public interest involved in the proper administration of the bankrupt’s estate in accordance with bankruptcy law (Official Receiver & Trustee in Bankruptcy of Chan Wing Hing & Anr v. Chan Wing Hing & Anr., supra.  at 700J to 701B).  In deciding whether to exercise his statutory power to object to automatic discharge, the trustee has a “quasi-judicial” obligation to discharge and this is performance of a public duty for the public welfare.  Hence, if his application to object should turn out to be unsuccessful, unless his decision in making the application is unreasonable in some respect, he should not be responsible to pay the bankrupt’s costs like an ordinary unsuccessful litigant (Re Campbell, ex parte Official Trustee (1987) 72 ALR 251). ”

5. In the above case, the learned Judge ruled that the trustee should not act too readily in deciding to object to automatic discharge and he should not use conditional discharge as leverage for continued contribution to the estate. [183H-184C]

6. The learned Judge disallowed the trustee’s costs from the estate for the reason that the trustee had failed to discharge his quasi-judicial obligation as she said at 191E:

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It does not appear to me he has properly discharged his quasi-judicial obligation in reaching a decision whether it is appropriate in each case to object to automatic discharge.  In these circumstances, I think it would be appropriate to deprive the trustee of his costs from the estates of the bankrupts.  I order that the trustee is not entitled to recover his costs of and occasioned in this hearing out of the bankrupt’s estate in each case.”

Grounds considered

7. In response to the grounds (1) and (2), I do not intend to repeat what I had said in paragraphs 15, 16 and 17 of my Decisions handed down on 9 October 2007. Suffice it to say, the trustee had withdrawn his application against the bankrupt. I gave my reason in paragraph 25 of the Decision:

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It can be seen quite obviously that the trustee in this application has failed to discharged his duties of making proper or reasonable investigations before he took out his application to object the bankrupt’s discharge of bankruptcy. In the circumstances, I followed the decisions of Kwan J. in Leung Chin Yeung’s case mentioned above as I did in Lai Wai Hung’s case and I disallow the trustee’s costs, including the costs for today’s hearing, from the estate.”

8. Judge Kwan referred the consent summons and the joint application for discharge on conditions back to the Master, for him to consider the merits of both applications in each case with the guidance in her judgment. [185F] The trustee appealed and the matter was heard in the Appeal Case No. CACV 32 of 2007. The Court of Appeal has dismissed the trustee’s appeal in its judgment dated 11 October 2007. As the matter had not been finalized, the learned Judge made the order for costs for the hearing before her only.

9. The trustee now invites me to adopt a truncated approach in the assessment of his conducts in the application and only disallow his costs for his failure of making investigations into the issue of misrepresentation. I disagree to adopt this approach. I consider that it is only fair to take a global view of the matter, taking into account of all relevant factors in deciding the issue of costs. Judge Kwan has given her reasons clearly for disallowing the trustee’s costs from the estate. Her main reason is that the trustee has failed to discharge his quasi-judicial obligation, which is the performance of a public duty for the public welfare. [para. 4 supra]

10. It is quite obvious that the trustee did not bother to make any investigations into the matter before making his decision to make out an application to object the bankrupt’s discharge. This, the trustee does not dispute. The bankrupt should be discharged from bankruptcy on 12 September 2006 had there not been the trustee’s application. The trustee had applied for an interim order to prolong the period of bankruptcy of the bankrupt. As a result of the trustee’s application to object the discharge, the bankruptcy order was only discharged on 9 October 2007. The bankrupt has to bear the blemish of bankruptcy 13 months longer. The trustee now tries to argue that although he did not make investigations into the matters before he took out an application to object discharge, there are ultimately some grounds from the materials that he had produced to the court so that he could justifiably take out the application anyway and he should be entitled to his costs from the estate.

11. I do not think that I can accept the trustee’s argument. His conduct is tantamount to charging people without investigation with a hope that there might be some evidence to convict the defendants at the end of the day. Judge Lam in Fred Lee v Liu Man Hoo HCB11719 of 2002, unreported has criticized the trustee for throwing the raw materials to court without proper investigation in his application for objecting discharge. One may ask the rhetorical question whether the trustee was discharging his quasi-judicial obligations under those circumstances. What has he done for the public welfare in this application? He has not assisted this court. On the contrary, he has caused a flood of similar cases to clog the courts’ diaries, causing delay to other court users. He did not withdraw his application after Judge Kwan’s judgment. He only withdrew his application at the hearing on 6 October 2007 before me. He has prolonged the bankruptcy order of the bankrupt unnecessarily. Now he asks for his costs for so doing from the estate. I do not think this court should encourage the trustee to continue to discharge his duties in this fashion. It is only fair to do the opposite.

Conclusion

12. I decline the trustee’s request to vary my costs order. I also disallow the trustee’s costs for this application from the estate.