CHOY BING WING v. OFFICIAL RECEIVER

HCB 242/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 242 OF 1992

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DECISION

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1. This is an application by the Applicant to vary a costs order nisi against him that was made on 15 February 2001 upon the dismissal of his Notice of Motion issued under s.84 of the Bankruptcy Ordinance that there be an inquiry into the conduct of the Respondent in relation to the sale of the Bankrupt's shares in a company called Alljean Investment Ltd.

2. The application to vary the costs order nisi was made by way of summons dated 5 March 2001 and it was not apparent on the face of the summons what the Applicant's grounds were. There was no affirmation in support. It transpired at the hearing that the Applicant's contention was that this court had no jurisdiction to order costs against him.

Applicant's contention

3. The Applicant's contention was that s.84 BO provided that in the event of any complaint being made to the court by any creditor, the court shall inquire into the matter and take such action as it shall deem expedient. The Applicant says that therefore the hearing of the Notice of Motion were not "proceedings" and he likens his position to that of a complainant to the Police, or the Independent Commission Against Corruption, or the Equal Opportunities Commission. Therefore, he says, he could not and ought not to have been ordered to bear the costs of the hearing of the Notice of Motion.

4. The Applicant's contention raises an interesting question on the interpretation of s.84 BO, enacted at the same time as s.83 BO.

Origins of s.83 and s.84 Bankruptcy Ordinance

5. The reference note to s.83 BO shows that it was based on s.80 of the English Bankruptcy Act 1914, and that s.84 BO was based on s.81 of the same Act. However, when the sections in the Act and the Ordinance are compared, it is clear that when s.84 of the BO was enacted in Hong Kong, important changes were made which have ramifications on the course open to a creditor when he is dissatisfied with a trustee in bankruptcy, which in turn has costs implications.

Section 80 Bankruptcy Act

6. Section 80 of the Bankruptcy Act provided:

"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."

7. Pausing here, it is noted that this section deals with the situation where (i) there was an "act or decision" of the trustee in bankruptcy and (ii) any person, e.g. a creditor or the bankrupt, is aggrieved by that act or decision complained of.

8. The aggrieved person can then apply to the Court directly, and the Court considers the act or decision in question and makes an order on it.

9. It is clear from the English cases that where the applicant, whether he is the bankrupt (as in In re a Debtor ex p. The Debtor v Dodwell [1949] 1 Ch 236) or a creditor ( as in Ex p Lloyds (1882) 47 L.T. 64, Leon v York-o-matic Ltd [1966] 1 WLR 1450, 1454) fails in the application, the courts have never doubted that they have jurisdiction to order costs against him, and they have in practice exercised that jurisdiction against a failed applicant.

Section 81 Bankruptcy Act

10. Section 81 of the Act provided a different route for a dissatisfied creditor in different circumstances. It provided:

"(1) The Board of Trade shall take cognizance of the conduct of trustees, and, in the event of any trustee not faithfully performing his duties, and duly observing all the requirements imposed on him by statute, rules or otherwise, with respect to the performance of his duties, or in the event of any complaint being made to the Board by any creditor in regard thereto, the Board shall inquire into the matter and take such action thereon as may be deemed expedient.

(2) The Board may at any time require any trustee to answer any inquiry made by them in relation to any bankruptcy in which the trustee is engaged, and may, if the Board thinks fit, apply to the court to examine on oath the trustee or any other person concerning the bankruptcy.

(3) The Board may also direct a local investigation to be made of the books and vouchers of the trustee" [my emphasis]

11. The first thing to be noted in this section is that the jurisdiction to inquire into the trustee's "conduct" is vested in the Board of Trade, not the Court.

12. Secondly, the Board's jurisdiction to inquire is engaged in two possible situations:-

(a) where a trustee has not performed his duties and observed the requirements imposed by those duties ("Situation A"), or

(b) a complaint is made by a creditor ("Situation B").

13. In this respect, it is to be noted that under the Bankruptcy Act 1914, the Board of Trade had a wide range of powers and duties. For instance, under s.92 BA, it is to be provided with the accounts of trustees in bankruptcy. Accordingly, the Board could itself become aware of a failure on the part of a trustee, i.e. Situation A.

14. Alternatively, an inquiry would also be launched in Situation B if a complaint were made by a creditor, although not by anyone else.

15. Thirdly, the Board must inquire into the matter if a complaint were made by a creditor, but it would be able to decide for itself how far the inquiry needed to go. Sections 81(2) and (3) set out the powers of the Board in the process of making its inquiry.

Separate routes

16. It would thus be seen that in the Bankruptcy Act 1914, sections 80 and 81 were completely different routes (available to different persons), one involving the Court in a judicial procedure (s.80) and the other involving the Board of Trade in an administrative procedure (s.81).

17. A complaining creditor choosing to proceed along the s.80 route would be at risk as to costs if his complaint failed, but one choosing to proceed along the s.81 route would not, because no judicial proceedings are involved, only the Board's administrative acts. There might be some costs incurred if the Board decided to apply to the Court under s.81(2) for an order to examine the trustee on oath, but even then, the complaining creditor would not be at risk, because the decision to apply to Court would be the Board's, not his.

Hong Kong position

18. The Hong Kong position, although modelled on the Bankruptcy Act, is however quite different because of changes made in Hong Kong to s.81 of the Bankruptcy Act.

Section 83 Bankruptcy Ordinance

19. Section 83 is word for word the same as s.80 BA. Thus, anyone (including a creditor) who is dissatisfied by any particular "act or decision" of the trustee in bankruptcy can apply to the Court to reverse or modify it. A failed applicant would risk having to bear the costs of the application.

Section 84 Bankruptcy Ordinance

20. Section 84 BO is different from s.81 BA. The changes are shown below:-

"(1) The Board of Trade court shall take cognizance of the conduct of trustees who shall act in a fiduciary capacity and deal with property under their control honestly, in good faith, with proper skill and competence and in a reasonable manner, and, in the event of any trustee not faithfully performing his duties, and duly observing all the requirements imposed on him by statute Ordinance, rules or otherwise, with respect to the performance of his duties, or in the event of any complaint being made to the Board court by any creditor, the Official Receiver, the bankrupt or any other person in regard thereto by notice duly served on the trustee at least 8 clear days before the date of hearing, the Board court shall inquire into the matter and take such action thereon as may be deemed expedient.

(1A) Without limiting the generality of the duties imposed on a trustee by subsection (1), in realizing the assets of a bankrupt's estate, it shall be the duty of a trustee to take all reasonable care to realize the best price reasonably obtainable in the circumstances.

(2) The Board court may either of its own motion or on the application of the Official Receiver at any time require any trustee to answer any inquiry made by them it or him in relation to any bankruptcy in which the trustee is engaged, and may if the Board thinks fit, apply to the court to examine on oath the trustee or any other person concerning the bankruptcy.

(3) The Board court may also direct an local investigation to be made of the books and vouchers of the trustee.

(4) Where on an application under this section the court is satisfied --

(a) that the trustee has misapplied or retained or become accountable for any money or other property comprised in the bankrupt's estate; or

(b) that a bankrupt's estate has suffered any loss in consequence of any misfeasance or breach of the fiduciary or other duty by a trustee in the carrying out of his functions,

the court may order the trustee, for the benefit of the estate, to repay, restore or account for money or other property (together with interest at such rate as the court thinks just) or, as the case may require, to pay such sum by way of compensation in respect of the misfeasance or breach of fiduciary or other duty as the court thinks just, and liability under this section is without prejudice to any liability arising apart from this section."

21. Subsection (4) is based upon s.304 Insolvency Act 1986, but even without reference to that subsection, the changes to s.81 BA are substantive.

Complaint under s.84 turned into legal proceedings

22. First, the Board of Trade in the United Kingdom is replaced, not by an administrative official of the government here, but by the Court.

23. Secondly, the complaint can be made by any of the same persons as in s.83 (with the addition of the Official Receiver) whereas in the English scheme, only a creditor can complain to the Board of Trade. This extends the scope and thus the number of persons who would be eligible to make a complaint against a trustee.

24. Thirdly, the complaint is made by way of service of a notice on the trustee at least 8 clear days before the date of hearing. Thus, there is no "vetting" process that the Court itself can perform upon receiving the complaint, whatever its nature or whatever its grounds. The court has no discretion to decide not to hold a hearing.

25. In my view, it is clear from the above changes that in so modifying s.81 BA, the legislature here has turned a complaint from what was originally an administrative procedure in England undertaken by a government arm into legal proceedings undertaken in Court.

Court has jurisdiction to award costs against complainant applicant

26. All legal proceedings in court have costs implications unless there is clear language to the contrary. There is nothing express in s.84 that exempts a complainant applicant from the risk of having to bear costs. The fact that the word "complaint" is used in s.84 does not imply any exemption from costs, because the same word (in "act or decision complained of") is used in s.83 (i.e. s.80 BA) and costs orders have been made in the English cases under that section.

27. Further, it cannot be said that such a complaint is no different from a complaint to the police or to the ICAC. In those situations, as indeed in the case of a complaint to the Board of Trade under s.81 BA, the authority can consider the complaint, and take such action (or refrain from taking any action) as it deems expedient depending on the nature or gravity of the complaint. If, for instance, the complaint is trivial, the trustee need not be troubled at all and would therefore not incur costs.

28. That is not the situation with a complaint under s.84 BO. A hearing is definite and assumed. The trustee is served with the notice, so it cannot be an ex parte hearing. All inter partes hearings have costs implications for both parties, and so it would be surprising if the court hearing it had no jurisdiction to award costs.

29. I should add as a matter of completeness that the reference in s.84(2) to the Court on its own motion or the Official Receiver requiring any trustee to answer any inquiry would cater for Situation A, i.e. where the Court becomes aware of a trustee's failure to perform his duties, e.g. the regular provision of trustee's accounts, and acts either directly or through the Official Receiver. It would not be apposite to a complaint by a creditor under Situation B, because as noted above, the complainant serves the trustee with notice of the hearing at the very beginning of the complaint process.

30. Moreover, it cannot be said that construed as above, s.84 would then be no different from s.83. Section 83 deals with specific "acts or decisions" which would be confirmed, reversed or modified. Section 84 deals with "conduct" which would include a more amorphous course or state of affairs.

31. It is therefore clear from the true construction of s.84 that the court has jurisdiction to award costs against a complainant applicant. It would be surprising if that were not so, because the scope of persons who can complain under s.84 is unrestricted and a hearing is unavoidable, whatever the grounds of the complaint. It cannot be right that a trustee would invariably have to bear the costs personally, or that the estate would have to do so.

Discretion

32. Finally, rule 32A Bankruptcy Rules provides that the general rule is that the costs of an application to the court which is opposed shall follow the event. Nothing that has been said has persuaded me to deviate from the general rule. It may be that the applicant was not aware that there would be costs implications in an application under s.84 BO, as he thought it would be similar to a complaint to the police or the ICAC. However, that is not sufficient ground to warrant a different order as to costs.

33. Accordingly, I would order that the order nisi be made absolute. As for the costs of the application to vary, I would give an order nisi that they follow the event, i.e. that the applicant bear the costs.