LAM LAI WAH SUSANNA v. PACIFIC CENTURY INSURANCE CO. LTD.

HCB2664/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDING NO.2664 OF 2002

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D E C I S I O N

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1) This is an application by the debtor for leave to appeal against the costs order that I made on 9 July 2002. On that occasion, I annulled the bankruptcy order, set aside the bankruptcy petition and the statutory demand against her with no order as to costs.

2) The crux of the matter is whether or not awarding costs in favour of the debtor, that is, applying the principle of costs following the event, would be a breach of the indemnity principle concerning costs.

3) The principle can be seen in the White Book at page A94 at paragraph 62/APP/2 :

"An overriding principle in all taxations in the parties is the indemnity principle. An order for costs between the parties allow the receiving party to claim from the paying party only an indemnity in respect of costs recovered by the order. Receiving parties cannot therefore recover sum in excess of their liability to their own solicitors.

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Where the costs are paid by a third party such as an employer insurance company, motoring organization or trading union, provided the client is also responsible for the costs, the indemnity principle is not breached. In other words, if the client is not personally responsible for the costs, then it would be wrong in principle to make an order of costs in favour of the client, but if the client together with a third party funding the litigation is also responsible for the costs, then an order of costs in his favour will not be a breach of the indemnity principle."

4) The question of whether or not the above principle is breached in this case arose in this way. The solicitors for the petitioner were concerned about the costs that the debtor had incurred in connection with these proceedings as before the amendment of the bankruptcy order she remained a bankrupt. They therefore wrote a letter to the debtor's solicitors raising concern about this. And at the hearing before me on 9 July when submissions were made on the question of costs, Mr Cheung, counsel for the debtor, had drawn my attention to that letter, in particular this paragraph :

"Further, if the bankrupt's application for annulling the said bankruptcy order is dismissed, our client should recover the costs from the bankrupt."

The debtor's solicitor wrote back on 29 June 2002, where it was stated that :

"Our costs and disbursements in respect of the respondent's annulment application are paid by her boyfriend. Her boyfriend will not demand Miss Lam to repay him the said costs and disbursements."

5) It should be borne in mind that the correspondence started by the petitioner's solicitors when they were concerned about the debtor's liability to pay the costs in connection with these proceedings, and it was in response to that concern that the letter dated 29 June 2002 was written. There the solicitors acting for the debtor put in clear terms that the costs and disbursement of the application were to be met by the debtor's boyfriend.

6) I think the conclusion that one can reasonably draw, and I so draw, from the correspondence is that the debtor herself is not personally liable for the costs in connection with these proceedings. In other words, it would be a breach of the indemnity principle if an order for costs would at the end of the day be made in her favour when she herself was not personally liable for those costs.

7) In the circumstances I do not see any reasonable prospect of success of the appeal and I would therefore dismiss the application. If the debtor is not satisfied with my decision, she can always make an application to the Court of Appeal for leave.