RE WANG HUIMIN

HCB 6848/2019

[2022] HKCFI 2271

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6848 OF 2019

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DECISION ON COSTS

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Introduction

1.  By Amended Summons dated 2 August 2021 (“Amended Summons”) filed on behalf of Madam Wang Huimin (“Madam Wang”) 2 applications came before this court on 4 November 2021:

(1) Madam Wang’s application for annulment of the Bankruptcy Order made against her on 3 February 2021 in her absence (“Annulment Application”).

(2) Madam Wang’s application for a general stay, alternatively, a “limited” stay of execution of the Bankruptcy Order[1] pending the determination of the Annulment Application (“Stay Applications”). The Stay Applications were not pursued at the 4 November 2021 hearing, as indicated in Mr Yu SC’s skeleton submissions filed for the hearing.

2.  The grounds in support of the Annulment Application were that the Bankruptcy Order ought not to have been made since:

(1) The only jurisdictional basis of the Petition, amended by Order dated 14 October 2020 (“Amended Petition”), was that Madam Wang had carried on business in Hong Kong during the period of 3 years ending with the date of the presentation of the Petition on 6 November 2019 (“Relevant Period”)[2]. This is not borne out by the evidence.

(2) Service of the Amended Petition on Madam Wang, pursuant to an Order for Substituted Service dated 21 December 2020 by Master Hui, was invalid in that there had been serious material non-disclosure and misstatements in the Petitioner’s evidence in support of the application for it such that the Order should be set aside.

3.  The Annulment Application was opposed by the Petitioner and Milestone F&B I Limited (“Milestone”), a supporting creditor. The Annulment Application was also opposed by the Trustees in Bankruptcy of Madam Wang (“Trustees”) until the eleventh hour when, in the middle of the hearing and during his submissions, Mr Ho, for the Trustees, withdrew their opposition and opted to remain neutral instead. The Petitioner, Milestone and the Trustees have all filed lengthy affirmation evidence in opposition. All of them have also filed written submissions arguing why the Annulment Application should be dismissed.

4.  By Judgment dated 29 November 2021 (“Judgment”), the Annulment Application was allowed by this court on both grounds. The reasons are set out in full in the Judgment. Suffice it to say that this court was not satisfied (i) that there was jurisdiction to make the Bankruptcy Order under section 4(1)(c)(ii) BO or (ii) with the proof of service of the Amended Petition under section 9(2) BO since the Order for Substituted Service was wrongly obtained by reason of material non-disclosure and should be set aside. At paragraph 98, this court ordered that, in the absence of agreement within 14 days, the parties were directed to obtain a hearing date before this court for argument on costs.

5.  Since handing down of the Judgment, Madam Wang has issued inter alia a summons dated 14 December 2021 for costs (“Costs Summons”). In the Costs Summons, solicitors for Madam Wang apply not just for costs of the Annulment Application and the Stay Applications against the Petitioner, the Trustees and Milestone, but also costs of some other applications not heard by this court and are beyond what this court has directed at paragraph 98 of the Judgment. Those costs will have to be dealt with on other occasions by the appropriate Judge(s) assigned to deal with the applications in question.

6.  This decision is solely concerned with the costs of the Amended Summons.

Costs vs the Petitioner

7.  The Amended Summons consisted of 2 parts: the Annulment Application which was granted by this court and the Stay Applications which were not pursued and hence no time was spent by any parties on them at the hearing[3]. Regarding the Stay Applications, the costs are likely to be minimal as compared with the costs of the Annulment Application.

8.  In the Costs Summons, Madam Wang seeks an Order that the Petitioner, the Trustees and Milestone shall jointly and severally bear her costs of the Amended Summons, including all costs previously reserved, on an indemnity basis with certificate for three counsel. Upon enquiry by this court, what happened was that Madam Wang was represented by Mr Yu SC and Ms Sharon Yuen at the first hearing before Master Hui on 30 July 2021 and by Mr Yu SC and Mr Michael Lok at the substantive hearing before this Court on 4 November 2021. In these circumstances, Mr Yu SC very properly accepted that there should be certificate for two counsel only.

9.  On 9 June 2022, the Petitioner wrote to this court, stating that he took a neutral stance and asked to be excused from this hearing. Since the Petitioner does not bother to come forward to contest any part of the costs of the Amended Summons, it seems to this court appropriate that such costs should be borne by the Petitioner.

10.  As for taxation on an indemnity basis, an award of indemnity costs is not confined to cases brought with an ulterior motive, or for an improper purpose, or where there was some deception or underhand conduct of the losing party - the overall requirement is that taxation on an indemnity basis must be “appropriate”: Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at [16] - [17].

11.  For reasons set out in paragraphs 68 to 94 of the Judgment, this court found that the Petitioner was guilty of serious non-disclosure and misstatements in obtaining the Order for Substituted Service. To put it mildly, this is the kind of underhand conduct which renders indemnity costs “appropriate”. To mark the court’s disapproval of the Petitioner’s conduct, the costs against the Petitioner shall be on an indemnity basis.

12.  Lastly, Mr Yu SC seeks an order that for the avoidance of doubt, the costs to be borne by the Petitioner shall include the costs of the hearing on 23 June 2022. The justification given by Mr Yu SC was that while the Petitioner said he was neutral, he had not actually conceded costs. So Mr Yu SC still had to come to Court in order to get a costs order against him. This court agrees.

13.  To conclude, this court orders that “costs of and occasioned by the Amended Summons dated 2 August 2021 be to Madam Wang, including all costs previously reserved, if any, to be taxed if not agreed on an indemnity basis and paid by the Petitioner forthwith, certificate for two counsel. For the avoidance of doubt, such costs shall include the costs of the hearing on 23 June 2022.”

Costs vs Milestone and the Trustees

14.  Mr Yu SC submits that whilst Milestone and the Trustees may not have the same degree of culpability as the Petitioner in relation to the obtaining of the Substituted Service Order, they have vehemently opposed the Amended Summons effectively until the end. They should bear the costs of it.

15.  The Trustees have filed a total of 4 affirmations and Milestone has filed a 17-page affirmation of Yunli Lou in opposition. Rather surprisingly, although Milestone was not responsible for the invalid service of the Amended Petition on Madam Wang, it had devoted a section in the affirmation of Yunli Lou purporting to counter the “Irregular Service” point run by Madam Wang which even exceeded in length of the section on whether Madam Wang had carried on business in Hong Kong. Further, both parties have filed extensive skeleton submissions for the substantive hearing in opposition to the Annulment Application and, in the case of Milestone, also the Stay Applications, notwithstanding Mr Yu SC had stated in his submissions that the same would not be pursued. The Trustees’ written submissions consisted of 21 pages while Milestone’s written submissions consisted of 44 pages plus 2 Annexes totaling 12 pages: cf the Petitioner’s 13 pages of submissions dealing only with the Annulment Application.

16.  The stance taken by the Trustees is particularly intriguing. The Trustees are there to administer the estate of Madam Wang on the basis that the Bankruptcy Order is valid, and they may properly bring any matter to the attention of the Court given their power to investigate Madam Wang’s affairs. But the Trustees should not be concerned with the disputes between the Petitioner and Madam Wang as to the validity of the Bankruptcy Order. Hence, taking a neutral stance was the only reasonable and sensible course for the Trustees to take. They were reminded of this by Mr Yu SC’s reply submissions filed before the 4 November 2021 hearing. Yet, it was only upon this court’s query of their opposition at the hearing that Counsel for the Trustees took instructions from his instructing solicitors and then opted to remain neutral.

17.  In Ms Lam SC’s skeleton submissions, Milestone submits its primary position as follows:

(1) To deprive Madam Wang of all or at least part (30%) of her costs of and occasioned by the Annulment Application.

(2) To deprive Madam Wang of all costs of her Stay Applications, including the Amendment Summons (relating to scope of the Stay Applications) and part (50%) of the costs for the first hearing on 30 July 2021 (which was fixed for both the Annulment Application and the Stay applications).

(3) To award Milestone its costs of and occasioned by the Stay Applications, including part (50%) of the costs for the first hearing on 30 July 2021, with certificate for counsel, to be taxed if not agreed.

(4) As regards any portion of Madam Wang’s costs of the Annulment Application allowed, to make no order as between Madam Wang and Milestone.

(5) To order Madam Wang to personally bear the costs of the Official Receiver and the costs and expenses of the Trustees in Bankruptcy.

(6) To award Milestone its costs of and occasioned by the hearing on 23 June 2022, with certificate for counsel, to be taxed if not agreed.

18.  In the alternative, in terms of costs as between Madam Wang and Milestone ie sub-paragraphs (2) to (4) above, to order that Milestone is only liable for 15% of Madam Wang’s costs of the substantive hearing on 4 November 2021, with certificate for two counsel, to be taxed on a party and party basis if not agreed.

19.  With respect to Ms Lam SC, Milestone’s primary and alternative positions are unnecessarily cumbersome and their logic is difficult to grasp. In particular, Milestone even purports to put forward a position regarding the costs of the Official Receiver and the costs and expenses of the Trustees which are of no concern to it.

20.  First, as far as the Annulment Application is concerned, Madam Wang is the successful party and Milestone is the losing one. If so, why should Madam Wang be deprived of all or part of her costs or why should there be no order as between Madam Wang and Milestone? Milestone’s opposition to the Annulment Application has significantly increased Madam Wang’s costs in the litigation and this court’s time in evaluating Milestone’s opposition. In fact, this court has spent more time considering Milestone’s submissions than the Petitioner’s.

21.  Second, Milestone has sided with the Petitioner at the 4 November 2021 hearing in arguing that (i) Madam Wang had in fact carried on business in Hong Kong during the period of 3 years ending with the date of the presentation of the Petition and (ii) the invalid service complaint by Madam Wang is “clearly superficial and disingenuous”. Milestone, like the Petitioner, had lost on both arguments.

22.  Third, regarding the Amendment Summons dated 14 July 2021 heard before Master Hui on 30 July 2021, the learned Master, while granting leave to amend, had already ordered costs of the Amendment Summons be to the Petitioner, the Trustees and Milestone and summarily assessed them at $1,040 each. What is the justification for this court to revisit that costs order?

23.  Fourth, regarding the costs of the hearing on 30 July 2021 before Master Hui, as that hearing was concerned with multiple applications (amendments to the Annulment/Stay Summons, filing of evidence in relation to the Amendment Summons, and the so-called Inquiry Summons) Ms Lam SC has failed to provide any justification for depriving 50% of Madam Wang’s costs or to award 50% of the costs to Milestone.

24.  Lastly, there are only 2 sets of costs in issue ie costs of the Annulment Application and costs of the Stay Applications, as acknowledged in Ms Lam SC’s submissions. Each of them can and should be dealt with individually and leave the assessment to the taxing master in the absence of agreement among the parties.

25.  The reasons put forward by Ms Lam SC in support of Milestone’s position on costs are summarized in paragraph 4 of her skeleton submissions:

“(1) There are two sets of costs in issue, namely (i) the costs of the Annulment Application; and (ii) the costs of Madam Wang’s abandoned stay applications. In addressing these costs, it is respectfully submitted that the parties’ conduct and the procedural history leading up to the substantive hearing are relevant:

(a) Madam Wang brought the bankruptcy proceedings upon herself. She had foresight and actual knowledge of the bankruptcy proceedings but stood by throughout. …

(b) She refused to cooperate with the Trustees and comply with her statutory obligations under the BO. …

(c) She further abandoned her stay applications (which were improperly formulated in the first place) last-minute before the first hearing (30 July 2021) and again in the substantive hearing (4 November 2021), objectively to avoid compliance with the above statutory obligations which is a usual condition of a stay. …

(d) Although the Bankruptcy Order ought not to have been made, the Petitioner alone is to be blamed for the jurisdictional error and serving it under an Order for Substituted Service obtained through material non-disclosure. Milestone never participated in that part of the bankruptcy proceedings and bears no responsibility …

(e) Milestone’s limited participation thereafter was purely to advance legal submissions to oppose the Annulment Application. The opposition was detailed but only by reference to (i) facts filed by the Petitioner and Trustees for the carrying on business in Hong Kong or note debate; and (ii) Madam Wang’s conduct and the interests of the general body of creditors which are relevant to Court’s discretion to annul. …

(2) Having regard to the conduct of the parties, Madam Wang should be deprived of all or part of her costs despite being the successful party in the Annulment Application. She should also be deprived of costs of the abandoned stay applications and further, Milestone should be entitled to its costs of and occasioned by her abandoned stay applications.

(3) Further or alternatively, even if the Court were to award Madam Wang any or all of her costs, Milestone should not be jointly and severally liable for any or all of the costs of the Annulment Application, including costs of the Official Receiver and/or Trustees in Bankruptcy even though it participated in the subsequent Annulment Application proceedings.”

26.  In this court’s view, the most sensible approach to costs is to deal with the costs of the Annulment Application and the costs of the Stay Applications separately.

27.  As far as the costs of the Annulment Application are concerned, in this court’s view, none of the reasons put forward by Ms Lam SC justify a departure from the starting point position that costs should follow the event:

(1) Bringing the bankruptcy proceedings upon herself, as to which this court is not in a position to adjudicate at this hearing, is a matter between Madam Wang and the Petitioner. Obviously, the Petitioner does not think that is the case - otherwise, it would not have stayed neutral.

(2) Refusal to cooperate with the Trustees, as to which this court is also not in a position to adjudicate, does not concern Milestone directly. Certainly, it has nothing to do with the validity or otherwise of the Bankruptcy Order which preceded the appointment of the Trustees. If the point has to be taken seriously, it should be taken by the Trustees.

(3) Milestone’s participation in the Annulment Application cannot possibly be described as “limited”. In this court’s view, its opposition to the Annulment Application was even more vehement than that of the Petitioner.

(4) While the Petitioner is to blame for making the jurisdictional error and the invalid service of the Amended Petition, this court is concerned with the costs consequences of the Annulment Application, in which Milestone (alongside with the Petitioner and the Trustees) fully participated. The Petitioner’s culpability concerning the invalid service of the Amended Petition is already reflected in an order for indemnity costs.

28.  Milestone (as well as the Trustees) had sided with the Petitioner on the Annulment Application and lost. As Mr Yu SC put it, they had to bear the costs consequences of their action.

29.  However, this court does not agree that Milestone (or the Trustees) should bear indemnity costs - in view of the fact that they were not responsible for Petitioner’s serious non-disclosure and misstatements in obtaining the Order for Substituted Service (albeit Milestone has tried hard to support the Petitioner’s position).

30.  To conclude, the costs order against Milestone in respect of the Annulment Application should simply be “costs of and occasioned by the Annulment Application be to Madam Wang, to be taxed on party and party basis if not agreed, and paid by Milestone forthwith, certificate for 2 Counsel.”

31.  Costs of the Stay Applications should be treated differently, notwithstanding Mr Yu SC’s submission that they should go hand in hand with the costs of the Annulment Application. The general stay application was in the original summons dated 10 May 2021 while the “limited” stay application was added by amendment to the Amended Summons. Both Stay Applications were supposed to last pending the determination of the Annulment Application so one would have expected Madam Wang to pursue them to their completion prior to the hearing on 4 November 2021 when this court heard the Annulment Application. Otherwise, there is no point in having a stay at all. Instead, Madam Wang waited until shortly before 4 November 2021 to indicate, through Mr Yu’s submissions, that she would not pursue them.

32.  The long and short of it is that Madam Wang has seen fit to make the Stay Applications but decided not to pursue them. Whether one describes this backtracking as the necessity of the Stay Applications having fallen away or whether Madam Wang has simply abandoned them is merely a matter of semantics. What happened is that Madam Wang has made the Stay Applications but did not succeed in obtaining any Stay Orders.

33.  In these circumstances, the proper order should be “Milestone shall have the costs of and occasioned by the Stay Applications, to be taxed if not agreed, and paid by Madam Wang forthwith, certificate for counsel.” What those costs entail are a matter for the taxing master in the absence of agreement but, as this court has noted before, they are likely to be minimal by comparison with the Annulment Application.

34.  What is said in relation to Milestone’s costs of the Annulment Application and the Stay Applications applies mutatis mutandis to the Trustees. Their primary position on costs ie either Madam Wang or the Petitioner shall bear the Trustees’ costs in respect of the Amended Summons is untenable, in so far as Madam Wang is concerned. They had sided with the Petitioner on the Annulment Application until the very end and their last minute backtracking has, in this court’s view, no effect on their liability for costs thereof. By the time of their backtracking, all the costs of Madam Wang in relation to the Annulment Application have been incurred.

35.  The authority cited by Mr Ho in his submissions viz Butterworth v Soutter [2000] BPIR 582 does not assist the Trustees at all. First, that case was concerned with the trustees’ costs incurred in the bankruptcy in the event the bankruptcy order was annulled, rather than the trustees’ costs incurred in an annulment application. There is no suggestion by Mr Ho that the trustees in that case had sided with the petitioner in relation to any annulment application. In fact, the annulment of the bankruptcy order was reached by agreement between the petitioner and the bankrupt in that case. Second, Neuberger J (as he then was) was of the view that the starting point is that the petitioner should bear the trustees’ costs if the annulment application was made on the ground that the bankruptcy order ought not to have been made in the first place.

36.  Mr Ho submitted that the Trustees had acted reasonably in opposing the Stay Applications because Madam Wang had throughout been most uncooperative and that in opposing the Stay Applications, the Trustees also saw fit to oppose the Annulment Application because the Stay Applications were premised on the Annulment Application. This is a complete non sequitur and must be rejected. The merits of the Annulment Application did not depend on the merits of the Stay Applications and vice versa since the considerations are not the same. One can conceivably take the position that the Stay Applications should be opposed while remaining neutral on the Annulment Application. The Trustees, having been legally advised by a reputable firm, must be able to separately decide whether to oppose the Annulment Application and the Stay Applications, instead of lumping the two together. The Trustees have lost in their opposition to the Annulment Application and should bear the costs consequences of their action.

37.  However, for reasons similar to the case of Milestone, this court does not agree that the Trustees should bear indemnity costs. The costs order against the Trustees should therefore be the same as that of Milestone ie “costs of and occasioned by the Annulment Application be to Madam Wang, to be taxed on party and party basis if not agreed, and paid by the Trustees personally forthwith, certificate for 2 Counsel.”

38.  As for the costs of and occasioned by the Stay Applications, for reasons already given in relation to Milestone, it seems to this court that the same costs order should be made in favour of the Trustees ie “the Trustees shall have the costs of and occasioned by the Stay Applications, to be taxed if not agreed, and paid by Madam Wang forthwith, certificate for counsel.”

39.  In order to simplify matters, this court hereby directs that Madam Wang’s costs of and occasioned by the Annulment Application should be set off against Milestone’s and the Trustees’ costs of and occasioned by the Stay Applications.

40.  As to whether the Petitioner, Milestone and the Trustees should bear the costs of Madam Wang’s Annulment Application jointly and severally, this court does not see any real advantage in ordering 1 set of costs against 3 parties jointly and severally, given that their costs liability will be taxed on different scales. For the sake of simplicity, there shall be 3 separate costs orders against the Petitioner, Milestone and the Trustees. As acknowledged by Mr Yu SC at the hearing, the effect would be the same for his client. How the 3 parties would see fit to seek contribution from each other after having paid Madam Wang’s costs is a matter for them.

41.  Lastly, regarding the liability for the Official Receiver’s costs of $5,000 in the Annulment Application, in their letter to this court dated 3 May 2022, the Official Receiver indicated it had received $6,200 from Madam Wang and the excess of $1,200 would be refunded to her in due course. As the Official Receiver has not come forward to seek those costs against the Petitioner, Milestone or the Trustees, and as Mr Yu SC, in his usual pragmatism, was content to leave it as suggested by the Official Receiver, this court will make no order in relation to the Official Receiver’s $5,000 costs.

Disposition and costs order nisi

42.  The costs orders for the Annulment Application and the costs orders for the Stay Applications will be in terms as indicated above in this Judgment.

43.  As for the costs of this hearing, since Madam Wang has been substantially but not completely successful, it seems to this court that as far as Milestone and the Trustees are concerned, Madam Wang should have 85% of her costs against Milestone and the Trustees, to be taxed if not agreed on party and party basis, and paid by them forthwith, certificate for two counsel.