RE LAU WILLIAM JOHN

HCB 4198/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4198 OF 2014

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D E C I S I O N

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Introduction

1.  This is an application by Mr Lau William John (“Debtor”) by summons dated 20 April 2016 (“Summons”) for an order under s 83 of the Bankruptcy Ordinance, Cap 6 (“Ordinance”) that the decision of the Joint and Several Trustees of the Debtor’s property (“Trustees”) “be reversed or modified in the matter of assignment of the right of action to the Debtor in his application for legal aid assistance to continue with HCA 517/2014” (“Application”).

2.  As it is unclear from the Summons which decision of the Trustees the Debtor sought to reverse or modify, inquiries were made with him at the call‑over hearing on 10 May 2016 and it would appear that the decision in issue was the one set out in the Trustees’ letter to the Debtor dated 17 November 2015 (“Trustees’17 November Letter”).  That letter was written in response to an earlier letter dated 10 November 2015 (“Debtor’s 10 November Letter”) from the Debtor to the Trustees.  For ease of reference, the two letters are set out below.

3.  The Debtor’s 10 November Letter reads:

“Dear Mr Briscoe

Re: HCB 4198/2014, HCA 517/2014 & LAA 566/2015

The hearing of my Appeal against Decision of the Director of Legal Aid, LAA 566/2015, took place on 9^th October 2015.

The Master hearing the Appeal made reference to your letter to the Director of Legal Aid dated 5^th June 2015, a copy of which is attached, and commented that although your letter stated that you do not object to my pursuing HCA 517/2014, you have not assigned the right of action to me as you have never been asked to do so. He adjourned the hearing sine die pending your assignment to me the right of action.

I find it odd that you claimed “you have never been asked to do” despite of my repeated requests for your written consent to pursue the case. Notwithstanding that, I now request you to assign the right of action back to me within 7 days from the date of this letter.

Enough time has been wasted."

4.  The Trustees’ 17 November Letter reads:

“I refer to your letter dated 10 November 2015.

The trustees have not assigned the right of action in relation to the proceedings no. HCA 517/2014 (“Action”) to anyone because no one has in the past requested such an assignment. Since you now ask, I am prepared to assign to you the right of action subject to, but not limited to, the following conditions :‑

1. As part of the consideration, you will pay 50% of any net proceeds to your estate in bankruptcy if you are successful; and

2. That you undertake to indemnify the trustees personally in relation to any adverse or other costs awarded against them following the assignment of the Action;

3. You will be responsible for all the legal costs associated with the preparation of the assignment documentation of the above‑mentioned right of action. We have made informal enquiries with two law firms and believe these costs to be between HK$25,000 to HK$50,000, excluding expenses.

The trustees will apply to Court for sanction to assign the claim to you if the trustees are advised to do so by their legal advisers, as and when one is appointed.”

5.  Notwithstanding the above, the Debtor apparently disagreed and said in his 5^th affidavit dated 22 July 2016 at para 7 that “I just wanted to be able to appear at the legal aid hearings".

6.  At the substantive hearing, this court again sought to clarify with the Debtor which decision(s) of the Trustees he was seeking to reverse or modify.  In answer, the Debtor referred this court to a letter dated 5 June 2015 (“Trustees’ 5 June Letter”) from the Trustees to the Director of Legal Aid, as well as the Trustees’ 17 November Letter aforesaid.  The Trustees’ 5 June Letter was written in reply to an earlier letter of the same date from the Legal Aid Department to the OR (“Legal Aid’s 5 June Letter”).  Again, for ease of reference, the two letters are set out below.

7.  The Legal Aid’s 5 June Letter reads:

“We received a legal aid application from the bankrupt to continue HCA 517/2014. HCA 517/2014 was commenced by the bankrupt on 26/3/2014 prior to his bankruptcy and he is the Plaintiff in the action.

To enable us to consider the application, please advise if the Official Receiver has assigned or given consent to the bankrupt to issue and/or continue HCA 517/2014 under the Bankruptcy Ordinance.  If consent has been given, kindly provide us with copy of the relevant confirmation/consent for our consideration.”

8.  The Trustees’ 5 June Letter reads:

“I refer to your letter dated 5 June 2015 addressed to the Official Receiver’s Office regarding proceedings no. HCA517/2014.

The trustees have not assigned the right of action, nor have they been asked to do so.

There are no funds in the estate and accordingly the trustees are unable to pursue the action. The Debtor has been informed of this.

If the Debtor wishes to pursue the matter the trustees will not object.” (emphasis added)

9.  In view of the above, it is finally clear that the Debtor is challenging the “decisions” made by the Trustees in the Trustees’ 5 June and 17 November Letters.

10.  The application is opposed by the Trustees.  Putting it simply, their stance is that they have all along consented to the Debtor pursuing in his personal capacity his legal aid appeal as well as HCA 517/2014 (“HCA 517”) against RSM Nelson Wheeler Consulting Limited (“RSM”).

Deliberation

11.  In order to understand the context in which the Trustees’ 5 June and 17 November Letters were written, it is necessary to have a fairly good grasp of the background of these proceedings and HCA 517.  For the present purpose, this court will summarize it as follows.

(i)   On 26 March 2014, the Debtor commenced proceedings against RSM in HCA 517. 

(ii)   On 29 April 2014, Smyth & Co, solicitors for RSM, issued a summons to strike out HCA 517.  The hearing was said to have been fixed for 3 June 2015. 

(iii)   On 20 August 2014, a bankruptcy order was made against the Debtor. The OR became the provisional trustee.

(iv)   On or about 5 September 2014, the Debtor applied for legal aid in relation to HCA 517 (“First Application”).  The First Application was rejected in December 2014 and the Debtor appealed.  The appeal was subsequently dismissed by the Court in March 2015.

(v)   On 31 October 2014, the first general meeting of creditors was held at the OR’s office.  At that meeting, the Trustees were duly appointed.

(vi)   On 17 December 2014, the Debtor issued a summons seeking to remove the Trustees and appoint the OR in their place.

(vii)   On or about 4 May 2015, the Debtor applied for legal aid again (“Second Application”).

(viii)   On 22 May 2015, Master Chow stayed the hearing of RSM’s striking out application by reason of the Second Application to a date not earlier than 17 June 2015.

(ix)   On 5 June 2015, the Legal Aid’s 5 June Letter and the Trustees’ 5 June Letter were respectively sent out.

(x)   On 9 June 2015, Smyth & Co informed the Debtor that the OR’s approval was required for him to proceed with HCA 517.  They also requested for a copy of the OR’s written consent, if any.

(xi)   On or about 12 June 2015, the Second Application was rejected.  The Debtor again appealed.  The appeal was scheduled to be heard on 9 October 2015.

(xii)   On 28 July 2015, the Trustees informed the Debtor of their views on funding arrangement for HCA 517:

“If you are aware of a third party who is interested in funding the litigation, would you please ask them to contact the trustees directly to discuss the matter.

In the event that no one is interested in funding the litigation, it is your decision whether you wish to continue pursuing the matter.” (emphasis added).

In the same letter, the Trustees also said:

“Please keep me informed of any developments in respect of your application for legal aid in proceedings no. HCA517/2014.”

(xiii)   On 27 August 2015, the Trustees reiterated their position to the Debtor concerning HCA 517 that “In the event that no one is interested in funding the litigation, it is your decision whether you wish to continue pursuing the matter.”  With regard to the Second Application, the Trustees also stated:

“As regards your legal aid application, the trustees do not object to you attending the appeal hearing in your own capacity should you wish to do so.” (emphasis added).

(xiv)   Also on 27 August 2015, the Trustees informed Smyth & Co in writing that:

“The Trustees do not object that the Debtor continue the proceedings HCA 517/2014 in his own capacity should he wish to do so.”.

(xv)   On 18 September 2015, this court heard the Debtor’s removal application.  Judgment was reserved.

(xvi)   On 9 October 2015, at the hearing of the Debtor’s legal aid appeal, the Master apparently referred to the Trustees’ 5 June Letter and adjourned the appeal sine die pending the Trustees’ assignment of the right of action in HCA 517 to the Debtor.

(xvii)   On 10 and 17 November 2015, the Trustees and the Debtor exchanged the Debtor’s 10 November Letter and the Trustees’ 17 November Letter.

(xviii)   On 2 March 2016, this court dismissed the Debtor’s application to remove the Trustees.  One of the grounds put forward by the Debtor and rejected by this court was that the Trustees had been evasive in answering the Debtor’s enquiries concerning HCA 517.  At [32]–[34] of the Decision, this court said:

“32. The Debtor’s next sub‑complaint of bad faith is that the Trustees have been evasive in giving him a straightforward answer to his request for consent to pursue various legal proceedings viz:

(1) His claim against RSM Nelson Wheeler Consulting Limited (“RSM Consulting”) in HCA 517/2014, including (i) his request for consent to attend at RSM Consulting’s application to strike out the claim and (ii) his request for consent to attend a hearing to appeal the refusal of legal aid in that action…

33. It is not at all clear to this court what a “straightforward” answer is supposed to mean. The fact that the Debtor subjectively considers the Trustees’ answer to be not “straightforward” is neither here nor there.

34. On the evidence, the Trustees have already answered the request for consent. In correspondence dated 28 July and 27 August 2015, the Trustees informed the Debtor that that they had no objection for him to continue with HCA 517/2014 in the event that no creditor was willing to fund the litigation, which was what actually happened. Similarly, they indicated to the Debtor that they did not object to his attending his legal aid appeal in his personal capacity…”.

(xix)   On 20 April 2016, the Debtor issued the present summons.

12.  S 83 of the Ordinance reads:

“If the bankrupt or any of the creditors or any other person is aggrieved by any act or decision of the trustee, he may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order in the premises as it thinks just”.

13.  When an application is brought under s 83, it would be inappropriate for the court to interfere with the decision of the trustees unless it is shown that the decision is perverse or clearly wrong.  In other words, unless the trustees’ decision is utterly unreasonable and absurd and that no reasonable trustee would so act, the court would not interfere: Re Chung Kau, unrep, HCB 581/2003, 23 February 2004; DHCJ Jeremy Poon (as he then was) at [13].

14.  In light of that authority, this court is of the firm view that the present application by the Debtor is wholly misconceived.  Far from being perverse, clearly wrong, utterly unreasonable or absurd, it seems to this court that the Trustees have acted fairly and reasonably in responding to the Debtor in the way they did in their 5 June and 17 November Letters.

15.  In the Trustees’ 5 June Letter, they informed the Legal Aid Department that there were no funds in the bankruptcy estate and accordingly they were unable to pursue HCA 517.  But, “[I]f the Debtor wishes to pursue the matter [ie HCA 517], the trustees will not object.”  In this court’s view, there is nothing unfair or unreasonable about the Trustees’ response.  It is really up to the Legal Aid Department whether or not to grant legal aid to the Debtor, depending on inter alia the merits of the Debtor’s claim against RSM.  But as far as the Trustees’ are concerned, they had no objection to it and did not intend to stand in the Debtor’s way.

16.  On the evidence, the Trustees had never refused to consent to the Debtor pursuing in his personal capacity his legal aid appeal or HCA 517.  On the contrary, the Trustees had stated in correspondence on several occasions that (a) it was the Debtor’s own decision whether he wished to continue to pursue the two matters; and (b) the Trustees did not object to him attending any hearing concerning the two matters in his own capacity should he wish to do so.  There is nothing equivocal about the Trustees’ stance.  There is certainly nothing perverse, clearly wrong, utterly unreasonable or absurd about their stance.

17.  Further, in the Trustees’ 17 November Letter, they informed the Debtor they had not assigned the right of action in HCA 517 to anyone.  There is no suggestion or evidence from the Debtor that was an untrue statement of fact.  In any event, that statement was not a “decision” as such.  The Trustees then set out a number of conditions on which they were prepared to assign the right of action in HCA 517 to the Debtor, which could arguably be regarded as a decision, albeit the Trustees sought to argue otherwise.  This court has considered those conditions carefully.  This court cannot find fault with the Trustees in relation to any of the conditions suggested by them.

18.  From experience, trustees in bankruptcy, or liquidators for that matter, seldom, if at all, assign a right of action to anyone for free.  They also seldom if at all, assign a right of action to anyone without some protection on costs.  The trustees are vested with the property of a bankrupt which, by definition under s 2 of the Ordinance, includes “things in action”.  Whether or not the Debtor should pay to the bankruptcy estate 50% of the net proceeds to be recovered in HCA 517 if he were successful is a matter for negotiation between the Trustees and the Debtor.  The Trustees said it was merely a proposal for further discussion between them and the Debtor.  This court has no reason to doubt that.  In any event, whether or not the “50%” is negotiable is of little significance in the present case.  It is for the Trustees to administer the bankruptcy estate.  There is nothing perverse, clearly wrong, utterly unreasonable or absurd for the Trustees to suggest a figure of “50%” in return for the assignment of the right of action in HCA 517 to the Debtor himself.  Similarly, there is nothing perverse, clearly wrong, utterly unreasonable or absurd for the Trustees to seek protection on costs from the Debtor.  As for the other conditions set out in the Trustees’ 17 November Letter, they are in this court’s view also fair and reasonable.

Disposition and costs order nisi

19.  For the reasons stated above, this court finds the Application wholly without merits and will dismiss the Summons accordingly.

20.  The Summons is hereby dismissed.  There shall be an order nisi that costs of the Summons be paid by the Debtor personally to the Trustees to be summarily assessed on paper.

21.  The Trustees are directed to file and serve their statement of costs within 7 days from this Decision.  The Debtor is at liberty to file and serve his comment on the said statement within 7 days thereafter.  Costs will then be assessed on paper without further hearing.