FRED LEE, trustee of the property CACV 30/2007, CACV 31/2007 and CACV 32/2007

S’s words:-

These three appeals were commented an appeal that should never have been brought.
More important, the Trustees in those three cases were required to pay for the costs of the appeal on INDEMNITY BASIS.

Further, with the support of the Court of Appeal, the judgment of Her Honourable Madam Justice Kwan on 9th January 2007 will be good guidelines for the trustees to decide whether to make objections.

As I have mentioned in other posts in this site, I do expect that we will have more cases in the future that the trustes could make much better objections. The incentive to make objections has been explained by these appeals that in each order in favour of the trustee, the like amount of the trustee’s costs may be in the region of $30,000.00.

--- quote from judgment ---

Date of Handing Down Reasons for Judgment: 23 October 2007

These were appeals from an order of Kwan J given on 9 January 2007 whereby the judge ordered that the 3 summons issued by the trustee in bankruptcy of three bankrupts be adjourned to the master and that, similarly, the joint applications for discharge made by the bankrupts and the trustee should likewise be adjourned back to the master to consider the merits of both applications with the guidance of the decision of 9 January 2007. The judge disallowed the trustee from recovering out of the bankrupts’ estates his costs of and occasioned in the hearing of 20 December 2006 before the judge.

The trustee in bankruptcy appealed the orders remitting the matter back to the master. He sought an order in each case that the summons issued by himself objecting to the automatic discharge of the bankrupts be allowed and he sought to appeal as to costs.

This court was concerned, for reasons which will emerge, that these appeals were incompetent in view of the stance taken on behalf of the trustee in the court below. Nevertheless, the court heard the matter on a de bene esse basis. The court considered that not only were there no grounds for appeal but the appeals should never have been brought. The appeals were therefore dismissed. The costs of the appeals of both the Official Receiver and the respondent to CACV 30 of 2007, who was represented in this court by counsel, were ordered to be paid by the trustee on an indemnity basis. The trustee was not to recoup the costs of the appeals from the estates. Furthermore, in view of the fact that the trustee conceded that he did not wish the interim suspension of the automatic discharge under section 30A(1) and (2) of the Bankruptcy Ordinance Cap. 6 (“the Ordinance”) to continue, those orders were discharged.

The manner in which these applications have come before the court justifiably led to the concern that the decision to abandon the opposition to the automatic discharge was taken solely on the basis that there would be some further contribution, albeit in some of the cases of almost negligible interest to the creditors, and a substantial contribution to the trustee’s costs of bringing the application to object to the automatic discharge. On that aspect, it might be observed that this court was told in the course of argument that 37 conditional discharge orders have already been made with the consent of the trustee. If each order provided for a like amount of $30,000 the total would come to $1,110,000. If similar consent orders were to be made in the 438 other cases in which the trustee has filed objection to automatic discharge, the amount involved would come to more than $13 million.

In those circumstances there is no question in my mind that these appeals should never have been brought. On that basis the appeals as to costs would have required leave; that had not been sought or obtained. Furthermore, it was not argued that the orders as to costs were not within the discretion of the court. In my view, the judge was correct in coming to the conclusion that the applications under section 30A(9) were joint applications by the trustee and the bankrupts. The circumstances of the volte face in originally applying that the periods for automatic discharge should cease to run and then seeking to withdraw the applications were not explained to the court. In the light of that I consider that the judge made the correct order in depriving the trustee of the costs of the hearing before her.

In this context I agree with the observations of the learned judge in her judgment – see [2007] 1 HKC 164 at 183H-184C – that “the trustee should not act too readily in deciding to object to automatic discharge”, that “the discretion to object should be exercised with caution” and that “an order of continued contribution to the estate as a condition to discharge should be made with restraint and circumspection”.