RE LI TAT KONG

HCB 741/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 741 OF 1995

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JUDGMENT ON COSTS

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1. This is an application by the Official Receiver, seeking a variation of the costs order nisi which I made on 23 December 2002, when handing down judgement in relation to an application by the Official Receiver seeking the committal of Mr Li Tat Kong ("Mr Li") for contempt of court on the basis of alleged breaches by Mr Li of certain of the duties imposed on him by the Bankruptcy Ordinance, Cap. 6 ("the Ordinance").

2. In my judgment, I declined to find Mr Li guilty of any contempt of court, for the reasons which are there explained, and made a cost order nisi requiring the Official Receiver to pay to Mr Li the costs of the unsuccessful application for his committal.

3. Today, Miss Chan, who appears for the Official Receiver, has submitted that I should vary that costs order nisi in two respects. First, she has asked me to deal with the costs of the earlier public examination of Mr Li. These costs were reserved by Master Ho at the end of the public examination, as it had been the Official Receiver's intention to have those costs dealt with by the judge hearing the application for committal. These costs were not dealt with in the cost order nisi which I made. Secondly, Miss Chan submitted that the costs order nisi which I made in relation to the application for committal should be varied so that there should be no order as to the costs of that application. Mr Smith, appearing on behalf of Mr Li, opposed both of these applications. In relation to the costs of the public examination, he submitted that it was premature to make any order as to costs at this stage, since there was a possibility that the public examination might be resumed at some later date, and that it would be preferable to deal with the costs of it as a whole at the end of the examination, when all of the evidence would be before the court. In relation to the costs of the application for committal, he submitted that there was no reason why costs should not follow the event, since the application had been made on the initiative of the Official Receiver, but had failed.

4. I shall deal first with the costs of the public examination. As to this, Miss Chan submitted that I have jurisdiction to deal with such costs, pursuant to section 100(1) of the Ordinance, which provides:

"Subject to the provisions of this Ordinance and to general rules, the costs of and incidental to any proceeding in court under this Ordinance shall be in the discretion of the court."

She submitted that it was clear from Re Strand, ex parte The Board of Trade (1883) 13 QBD 492 that a public examination was a "proceeding in court" within the meaning of section 100(1), but that neither section 19 of the unamended Ordinance (which applied to Mr Li's bankruptcy, as I explained in my earlier judgment) nor rule 83 of the Bankruptcy Rules ("the Rules") gave any guidance as to the manner in which the discretion conferred by section 100(1) should be exercised. However, she pointed out that the authorities appear to show that the costs of the public examination are usually borne by the estate and referred me to the Strand case, and to para. 7-030 of Fletcher, The Law of Insolvency (3rd edition).

5. In this case, however, Miss Chan submitted that I should depart from the usual course, and order that the costs of the public examination be borne by Mr Li personally. In support of this submission, she relied on a number of matters. The first was that Mr Li's estate in bankruptcy has no assets, so that an order for payment of the costs of the public examination out of the estate would leave the Official Receiver out of pocket in relation to those costs. She accepted that the Official Receiver would not have to fund the costs entirely, since there was a partial indemnity in relation to certain disbursements which were incurred (in respect of counsel's fees and the costs of a shorthand writer) from the creditor of Mr Li. However, she made the point that the indemnity did not cover all of those costs, since the public examination took much longer than originally anticipated. Second, Miss Chan submitted that the public examination was a matter which the Official Receiver had to carry out, in the exercise of his functions under the Ordinance, particularly in the light of the observations as to the areas of Mr Li's affairs which required examination made by Le Pichon J (as she then was) in the course of determining the Official Receiver's objection to Mr Li's automatic discharge (see Re Li Tat Kong [2000] 3 HKC 360 at 372G-380E). Finally, Miss Chan submitted that the public examination that has been conducted has proven to be a largely futile exercise, as a result of the inconsistent, contradictory and evasive answers which Mr Li gave in the course of it. Thus, she said, the costs so far incurred in relation to the public examination have been largely wasted. Miss Chan reminded me of the observations of Master Ho at the end of the public examination as to the quality of Mr Li's answers on a number of aspects of his examination, and also drew my attention to my own views as to the quality of his evidence at that examination, which I expressed in the course of my earlier judgment.

6. As I understood Mr Smith's position, he did not dispute that there was jurisdiction to make an order as to the costs of the public examination in bankruptcy proceedings. However, as I have noted, Mr Smith's first submission as to the costs of the public examination was that it was premature to deal with them at this point, since the examination, having been adjourned sine die, might still be resumed, and also because it would be better to deal with the costs at the end of the day, when it had been concluded and a view could be taken of the overall position in relation to it. In response to this submission, Miss Chan said that unless there was good reason to think that Mr Li was likely to be any more cooperative and forthcoming than he has been so far, the likelihood was that there would not be any further examination. Moreover, she pointed out that there was no impediment to a costs order being made prior to the conclusion of a particular proceeding (see Hong Kong Civil Procedure Vol. 1 para. 62/3/3).

7. Mr Smith went on to submit that if I were minded to deal with the costs of the public examination, there was no good reason for departing from the usual practice of ordering such costs to be borne out of the estate. He submitted that the lack of assets in the estate was irrelevant, particularly if there was an indemnity or funding from a creditor. He also disputed that the public examination had been futile, since it could be restored and continued. As to Mr Li's performance, Mr Smith submitted that it should be borne in mind that Mr Li was unrepresented (representation not being permitted under the Rules), and that some of the points taken against him were of questionable validity.

8. In support of his argument that some points taken were of questionable validity, Mr Smith referred me to an allegation concerning the existence of bank accounts which had allegedly been suppressed by Mr Li, cross-examination on which led to his imprisonment for a period of six weeks. However, this episode was something which occurred in an earlier examination of Mr Li by a judgment creditor, prior to his bankruptcy. Finally, Mr Smith suggested that it made little sense to make a costs order in relation to a public examination against the bankrupt himself, since he, ex hypothesi, would have no funds with which to meet the order.

9. In my view, if it would be appropriate to make a costs order against Mr Li personally, the fact that he is the bankrupt would not prevent me from doing so. As Miss Chan pointed out, similar orders for costs have been made in the course of his bankruptcy in the context of other applications and appeals. As Miss Chan also pointed out, to my mind rightly, any order made against Mr Li after he was adjudicated bankrupt would not be one which would be met out of his estate as it stood at the time of his being adjudicated bankrupt. I therefore agree with Miss Chan that I have jurisdiction to make an order for costs against Mr Li.

10. So far as the question of whether or not I should make such an order at this stage is concerned, I do not consider that there is any impediment to my doing so, should this be the appropriate course to take. While it is possible that the public examination may be resumed at some later stage (although this may, in the light of what Miss Chan has said, be doubtful), it seems to me that if I am of the view that costs have been wasted in the conduct of the public examination so far, it would be appropriate to deal with them now, rather than require a further hearing to be held at additional cost and expense at a later date.

11. I therefore turn to consider whether or not it would be appropriate for me to make an order against Mr Li personally, at this stage. I should say first that I do not consider that the fact that the estate may have no assets is a particularly strong factor in favour of departing from the usual order, whether or not the Official Receiver has any alternative source of funds. While it is fair to say that the Official Receiver, in conducting the public examination, is carrying out a public duty, and that in this case, the necessity for a public examination was pointed out by the courts, it seems to me it would not be fair to order the costs of such an examination to be borne by a bankrupt who has been cooperative, or whose behaviour has been exemplary, simply because there are no assets available to prevent the costs having to come out of the public purse.

12. That said, however, it seems to me that in the present case, Mr Li's answers at the public examination were such as to make it clear that the exercise has been largely futile. As I pointed out in my earlier judgment, there are a considerable number of areas in relation to which Mr Li's answers left much to be desired (see paragraphs 41, 50, 53, 58, 60, 65, 68 and 82 of my earlier judgment). As Ms Chan pointed out, Master Ho was also of the view that Mr Li had been evasive in answering questions which had been put to him. While I concluded that he had not been guilty of a contempt of court, I made it clear, I think, that his performance at the public examination had been far from satisfactory, even allowing for the fact that he was not legally represented.

13. In these circumstances, I think that it is open to me to order at this stage that the costs of the public examination be borne by Mr Li personally, and that it would be appropriate to do so. Although Miss Chan also suggested that I should order that such costs should be paid on a common fund basis, so as to avoid the Official Receiver being out of pocket, I have come to the view that it would suffice for such costs to be paid on a party and party basis, having regard to the fact that some costs would have had to be incurred in any event, and also to the fact that there was, as Miss Chan accepted, a partial funding by one of the creditors.

14. Turning to the question of the costs of the application for committal, Miss Chan submitted first that the usual order was that there should be no order as to costs. In support of this proposition, she referred me to Coward v. Stapleton [1953] 90 CLR 573 at 582, and Re Bramblevale Ltd [1970] 1 Ch 128 at 138. She submitted that this was consistent with both the principles on which a successful defendant may be deprived of costs, as set out in Ho Shu kwong v. Chiang Chun Yuan [2002] 3 HKLRD 419 at 427A-H, and with the principle that where the Official Receiver is discharging a statutory duty of a judicial or semi-judicial character, he should not be made liable for the costs personally in the absence of some impropriety. For the latter proposition, Miss Chan relied on Re Silver Valley Mines (1882) 21 Ch 381 at 386, Re John Tweddle & Co. Ltd [1910] 2 KB 697 at 703, Re Campbell (1987) 72 ALR 251 at 253 to 255 and De-Etco International v. Desirable Enterprise Co. Ltd [1993] 1 HKC 251 at 255.

15. Mr Smith submitted that while there were instances in which it would not be appropriate to order the Official Receiver to pay the costs of an application, this was not one of them, since the proceedings were clearly adversarial in nature, and that in that situation, costs should follow the event, in accordance with the general approach laid down in Rule 32A(2) of the Rules. That rule provides:

"(2) Unless the court otherwise directs, the costs of an application to the court which is opposed shall follow the event and shall be taxed as between party and party."

16. I note, however, that rule 32A(2) applies only where the court does not otherwise direct. It appears to me that in a situation to which the principle established by the Tweddle, Campbell and De-Etco cases apply, it may well be appropriate for the court to direct that the usual rule that ocsts should follow the event should not apply.

17. Is an application by the Official Receiver for the committal for contempt of a bankrupt, by reason of alleged breaches of the duties imposed on the bankrupt under the Ordinance, an adversarial process, or one which arises out of the discharge by the Official Receiver of duties of a judicial or semi-judicial character? In my view, it would seem tolerably clear that in considering whether or not a bankrupt has complied with the duties imposed on him by the Ordinance, and in considering whether or not an application should be made for his committal for contempt by reason of failure to comply with such duties, the Official Receiver is performing statutory duties which are imposed on him by the Ordinance. Although rule 83 of the Rules (assuming it to be intra vires, contrary to my conclusion in my earlier judgment) leaves open the possibility of the court moving to commit a bankrupt for contempt of its own motion, in the course of or following a public examination, the other provisions of the Ordinance giving rise to the power to commit would appear to contemplate an application for committal being brought by the Official Receiver. It therefore seems to me that in making such an application, the Official Receiver is acting in accordance with his duties under the scheme of the bankruptcy legislation. In my view, such an application is no more adversarial than the application made by the Official Trustee in the Campbell case to oppose the (it would seem automatic) discharge from bankruptcy of a bankrupt. Given that the investigation of the affairs of a bankrupt is a matter that has a distinct public interest element to it, it being in the public interest to establish the causes of the bankruptcy, it seems to me that a decision by the Official Receiver to bring committal proceedings with a view to furthering that public interest is a matter which can properly be considered to be the exercise of a statutory duty which is judicial or quasi judicial in nature, in the sense explained in the Campbell case.

18. Mr Smith suggested that such an approach would in effect give carte blanche to the Official Receiver to launch contempt applications without fear of the costs consequences. I do not think that this is right. The duty of the Official Receiver in this respect is one which has to be carried out with proper regard for the objectives of the bankruptcy legislation, and if a situation should arise in which the court was of the view that an application for committal had been improperly or unreasonably brought, I have no doubt that the court would feel free to visit such conduct with an appropriate order for costs.

19. In this case, it does not seem to me that it is possible to say that the Official Receiver has acted in a way which was improper or unreasonable, notwithstanding that the application for committal was ultimately unsuccessful. Although Mr Smith suggested that the Official Receiver could have sought sanction from the court or an indemnity from the creditors, I do not think that either of these courses would have been appropriate. There is no provision requiring that such sanction be obtained. Nor would it seem appropriate that the creditors should be asked to fund the costs of a committal application, which may have punitive elements in addition to the public policy aim of furthering the investigation of the bankrupts' affairs.

20. In these circumstances, I think that the application of the principle which Miss Chan has identified suggests that I was wrong to order the costs of the application to be paid by the Official Receiver, and I would therefore vary that order so that there will be no order as to costs.

21. I have also considered Miss Chan' s alternative submission, to the effect that in any event, Mr Li should be deprived of his costs in resisting the committal application. However, I do not think that I would have been minded to accede to this submission, since I do not think that there was anything in the conduct of Mr Li's defence of the application to justify such an order. Further, given that I found, in effect, that Mr Li had no case to answer on the contempt charges (he not having given evidence in his own defence), I do not think that it would be appropriate for me to deprive him of his costs on the basis that he had brought suspicion on himself. That is not, however, to say that the committal application was improperly or unreasonably made.