FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt HCB 11719/2002

S’s words:-

The Trustee tried to make an application to vary the costs order regarding the Decision of the Court on 14th September 2007. In fact, as the Judge did have commented, “this is an application that should not have been brought in the first place.”

The quasi-judicial function of the trustees should be properly exercised, or otherwise, we may still have some cases that the Judge(s)/Master(s) may comment that such an application should not have been made at all.

Different Judge(s) and Master(s) have rightly pointed out the quasi-judicial obligation on the part of the trustees. Thus, the trustees should not raise applications for suspension as a norm but should take such necessary investigations beforehand.

In order to protect the interests of the creditors, we should not discourage the trustees to make applications, or otherwise, the trustees may choose to make no application at all even in suitable situations.

So, I wish I could have the chance to read more judgments that the trustees do have made investigations and submit applications with sufficient reasons. Some guidelines of the Court have already been given. It is the right time for the trustees to prepare their cases (including investigations) well. I further wish that we would not have the chance to read further judgments with groundless applications being put before the Court, but unforuntately, I cast some doubts thereon.

--- quote from judgment ---

Date of Decision on Costs : 13 November 2007

I made a costs order nisi in Para.87 of my Reasons for Decision of 14 September 2007. The Trustee applied for a variation of the order. At the hearing on 5 November 2007, I was invited by the Trustee to vary the costs order to no order as to costs.

The main plank of the Trustee’s argument is the finding by this court that the Bankrupt’s conduct before the commencement of the bankruptcy has been unsatisfactory and thus a case under Section 30A (4)(d) was established. Mr Chan submitted that in such circumstances, the Trustee was not at fault in the exercise of his judgment in applying for suspension. He also suggested that in these circumstances, the Bankrupt should not be regarded as the successful party in the application.

It is further submitted that though the court ultimately decided that there should not be any suspension, it was more in the nature of a grant of indulgence to the Bankrupt in the exercise of the discretion by the court.

Mr Chan also argued that given the quasi-judicial role of the Trustee, the normal rule of costs following event can be displaced more easily.

On the other hand, Mr Lam for the Bankrupt argued that the normal rule should apply and unless an exception under Ritter v Godfrey [1920] 2 KB 47 can be established, the Bankrupt should get his costs. In the present case, counsel submitted that none of the exceptions applies. It was an application that should never have been brought in the first place. Mr Lam also contended that the Trustee had not been acting reasonably.

Hence, I am of the view that the normal rule should equally be applicable to this type of proceedings. But that is subject to the principle laid down in Ritter v Godfrey.

As regards the third exception in Ritter v Godfrey, Atkin LJ said at p.61 that it “extends to cases where the facts complained of, though they do not give the plaintiff a cause of action, disclose a wrong to the public by which I understand some criminal or quasi criminal misconduct, e.g. fraud or crime or preparation of for a fraud or crime, or possibly some act of serious oppression.” I do not think the unsatisfactory conducts which I found to be established against the Bankrupt come anywhere near to this category.

Thus, I will answer the first question by holding that there is no good reason for depriving the Bankrupt of his costs in resisting the application in the present case.

Turning to the incidence of such costs, it could either fall on the Trustee or the estate. Rule 32A(3) of the Bankruptcy Rules gives limited protection to a trustee regarding personal liability for costs. However, it does not apply here since the application was made by the Trustee instead of he being made a party to proceedings issued by other parties.

There cannot be any doubt that the court does have the power to order costs against a trustee personally if the circumstances warrant such sanction. On the other hand, such power should be exercised with circumspection when a trustee is performing his ‘quasi-judicial’ function properly.

In the appeal in Leung Chin Yeung CACV 32 of 2007, 23 October 2007, the Court of Appeal upheld the decision of Kwan J. Further, the Court of Appeal took the view that the appeal should never have been brought and ordered the trustee to pay the costs of the Official Receiver and the respondent on indemnity basis and not to recoup the costs of the appeal from the estate.

In the present case, I regret to say that the Trustee had adopted a fundamentally flawed approach towards this application. As I said in my Reasons for Decision, the Trustee did not make any meaningful investigation before he decided to launch the application. Further, the Trustee took the misconceived view that he was only concerned with establishing a ground of objection under Section 30A(4) and failed to address his mind to the more important issue, viz. whether the circumstances as a whole warrant an application for suspension being made. This amounts to a serious failure on his part to carry out his quasi-judicial function properly.

Mr Chan submitted that the Trustee did not have the benefit of the recent case law on the subject when the application was made. I do not regard this as a good excuse for the Trustee’s failings mentioned above. It is not too much for the court to expect a reasonably competent trustee to carry out proper investigation on all relevant matters before making an application. Unless this has been done, it is difficult to see how a trustee can make a proper and responsible decision on whether it is appropriate to make an application for suspension.

Further, the decision of Kwan J in Leung Chin Yeung should have alerted the Trustee to reconsider his approach to this application. Unfortunately, the Trustee chose to press on with a flimsy application.

Looking the matter in the round, I am of the view that no reasonable trustee carrying out his quasi-judicial function could have concluded on the materials available that he should launch an application for suspension if he took a balanced and impartial attitude towards the matter. This is an application that should not have been brought in the first place.

In my judgment, the Trustee had acted unreasonably in the application and the incidence of costs should not fall upon the creditors. I therefore vary my costs order nisi by ordering the Trustee to pay for the costs of the Bankrupt in the application including the costs of the hearing on the question of costs personally and the Trustee shall not recoup his costs from the estate.