YEE PUI PUI ANNA v. LAM MEI LIN & Another DCMP 1377/2007

S’s words:-

From the decisions of the Privy Council in Chong Kai Tai Ringo & Another v. Lee Gee Kee & Another [1977] HKLRD 461 and Edward Wong Finance Co. Ltd v. Johnson Stokes & Master (a firm) [1984] 1 A.C. 296, it has been decided that a party to a sale and purchase agreement of land is entitled to require formal completion unless there is agreement to the contrary. Such is still our law up to today.

Paragraph 12 of the Law Society's circular 91/82 issued on 28 December 1982 reads that "it will be assumed that completion will take place by way of undertaking unless the solicitors concerned notified the other side in good time that standard undertakings will not apply and that formal completion is required". The circulars of Law Society, as in many other occasions dealing with the same issue or others, are still not the law or any strict regulations requiring all legal practitioners to follow. In no doubt, such is expected.

Personally, it is difficult to blame the Defendant in this case. The Plaintiff from the very first beginning insisted for formal completion. We have no idea why the Plaintiff or her solicitors decided the same. In some situations, there may be unusual circumstances supporting a purchaser’s solicitors requiring the same. However, in many other occasions, purchasers’ solicitors are used to rely on formal completion as a tactics.

The judgment itself did not tell us know whether there was any other reason(s) the purchaser’s solicitors insisting for formal completion. If there was no such special circumstances, it would definitely be a bad example (but update) for the solicitors of the purchasers in future to insist on asking for formal completion. Split cheques may also be another weapon for the solicitors of the purchasers.

Besides, it is difficult (but not impossible certainly) to arrange the mortgagee to have the release/discharge be executed in escrow or invite their representatives to attend the office of the vendor’s solicitors. That is a practical issue one may have to consider.

Maybe we have to advise the estate property agencies to re-draft their respective provisional agreement for sale and purchase to include completion by way of undertaking and a vendor can require a purchaser to split the cheques for payment(s).

--- quote from judgment ---

Date of handing down Judgment : 20 September 2007

This is the Plaintiff’s application by Originating Summons for declarations that the Defendants were in breach of an agreement for the sale and purchase of a property by failing to complete on the contractual completion date, that the Plaintiff is entitled to terminate the agreement by reason of the wrongful breach on the part of the Defendants, and that the Plaintiff is entitled to a refund of the deposits paid by them under the agreement.

The parties were therefore unable to agree on the terms of the formal agreement for sale and purchase, and none was eventually signed.

On 19 April 2007, the Plaintiff's solicitors sent a draft assignment of the Property to the Defendants' solicitors for approval, and asked for the specific time for the formal completion of the sale and purchase on 20 April 2007. On the same day, in response to the letter of 19 April 2007 from the Plaintiff's solicitors, the Defendants' solicitors wrote to say that the draft assignment was approved without amendments, and asked for the draft of the "Undertaking Letter" from the Plaintiff’s solicitors for their approval, to comply with the Law Society's Circular No. 3/92. The Defendants' solicitors also reminded the Plaintiff that completion was scheduled to take place at or before 5 p.m. on 20 April 2007, and asked for payment of the sum of HK $1,287,000 by three split cheques (HK $942,275.81 in favour of the mortgagee, HK $340,729.19 in favour of the Defendants, and HK $4,000 in favour of the Defendants’ solicitors). This letter was faxed at 5:13pm on 19 April 2007.

On the evidence, it is not disputed that the Plaintiff attended the offices of the Defendants' solicitors with her legal representatives at 3:55 p.m. on 20 April 2007. They brought with them the approved assignment and a cashier order in the sum of HK $1,287,000 which was issued in favor of the Defendants, and asked for completion to take place. They were informed by the Defendants' solicitors that the Defendants were not in their office, and that the Defendants had never accepted formal completion to be held on that day. According to the evidence of the Defendants, the Plaintiff's solicitor, Mr. Tang, produced to Mr. Tsang, the legal executive of the Defendants' solicitors handling the transaction, a cashier order for payment of the balance of the purchase price. Having noted that the sum of HK $1,287,000 was not made payable in accordance with the split cheque instructions given by the Defendants' solicitors, Mr. Tsang informed Mr. Tang that there was "no basis for formal completion". The Plaintiffs and Mr. Tang then left.

Formal completion or completion by undertakings

On the authority of the decisions of the Privy Council in Chong Kai Tai Ringo & Another v. Lee Gee Kee & Another [1977] HKLRD 461 and Edward Wong Finance Co. Ltd v. Johnson Stokes & Master ( a firm) [1984] 1 A.C. 296, it is clear that a party to a sale and purchase agreement of land is entitled to require formal completion unless there is agreement to the contrary. Paragraph 12 of the Law Society's circular 91/82 issued on 28 December 1982 reads that "it will be assumed that completion will take place by way of undertaking unless the solicitors concerned notified the other side in good time that standard undertakings will not apply and that formal completion is required". Notwithstanding that, the Privy Council decisions have well established that save for cases where the contract provides expressly to the contrary, a purchaser is entitled to refuse to pay the purchase price due on completion except against delivery to him of the duly executed assignment and, where the vendor has mortgaged the property, also the duly executed release or discharge of the mortgage. The obligations of the purchaser to pay and the vendor to complete by giving an executed assignment are to be carried out simultaneously unless there was an express or implied term to the contrary.

Chong Kai Tai's case makes it clear that "the question is not whether the circumstances require the implication of a term that payment and completion were to be simultaneous, but whether the circumstances require the implication of a term that there would be a departure from the normal rule that they would be simultaneous" (Chong Kai Tai v. Lee Gee Kee [1997] HKLRD 461, 467G-H). Since it is the Plaintiff's right to require formal completion, whether formal completion is necessary or reasonable is not relevant.

It is clear from the decision of Recorder Edward Chan, S.C. in Cheng Jui Lung Kris v. Perfect Best Ltd. HCA 1347 of 1998 that the rights of a purchaser under the contract to formal completion cannot be varied by the Law Society circular which requires three working days’ notice to be given "as a matter of professional courtesy" before formal completion. In the light of the clear authorities binding this court, I am not persuaded that a term has to be implied in the Agreement that reasonable notification for formal completion has to be given before the Plaintiff can insist on her right to formal completion. In any event, the Plaintiff's solicitors had indicated on 20 March 2007 that the Plaintiff wished to have formal completion. On that basis, the Plaintiff had given reasonable and adequate notice.

Whether proper tender of payment

The decision of the Court of Final Appeal in Kensland Realty Ltd. v. Whale View Investment Ltd. (FACV No. 10 of 2001) deals with, inter alia, a term being implied into an agreement for the sale and purchase of land, where the land is subject to an existing mortgage, for split payment, and the time to be implied for giving split payment instructions. However, that decision relates to completion of such an agreement by way of undertaking, and is not directly applicable to the facts of the present case.

Counsel for the Defendants relied on the decision of the Court of Final Appeal in Ma So So v. Chin Yuk Lun [2004] 3 HKLRD 294, and the observation made by Ribeiro PJ that the vendors in the case "were contractually entitled" to require the balance of the purchase monies to be split. However, the parties in the case of Ma So So had signed a formal sale and purchase agreement, with the standard provision to which I referred in paragraph 27 above which confers on the vendor the right to require the purchaser to split the payment of the purchase price or any part thereof in accordance with the split cheque instructions given by the vendor. There is no such formal agreement signed in the present case to give the "contractual entitlement " to the Defendants. Nor does the Agreement confer such a right on the Defendants. In the absence of any agreement to make "split payment" of the purchase price, the Plaintiff is not in breach by virtue of her failure to comply with the request of the Defendants' solicitors to make payment by split cheques.

I am satisfied, on the evidence, that the conduct of the Defendants and their solicitors on 20 April 2007 had made it plain that the Defendants were not prepared to complete the sale and purchase at the scheduled time, notwithstanding the Plaintiff's ability and readiness to proceed, and that the Plaintiff is entitled to treat the Defendants' conduct as a repudiation of the Agreement.

FRED LEE and CHOW WAI LAN, CHRISTINE, trustee of the property of LAI WAI HUNG, a bankrupt v. LAI WAI HUNG HCB 14977/2002

S’s words:-

Subsequent to the case of FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt v. LIU MAN HOO HCB 11719/2002, the same Trustee lost another case. However, the most important impact is that, it was ordered by the Court that the Trustee has to bear the costs of the application personally. Will that similar costs order come again in the future?

It is the right time for all trustee to review at what circumstances an application should/should not be made.

Certainly, I have got the thought of how to make better evidence on behalf of the trustees to support such kind of applications.

--- quote from judgment ---

Coram : Before Master Lung in Court

Date of Decision : 12 September 2007

According to the affirmation of the trustee, no creditor has complained to the trustee to initiate this application. This is purely the decision of the trustee himself.

The trustee originally relied on two grounds in support of his application under section 30A(4)(d) of the Bankruptcy Ordinance for his application, namely that the bankrupt had made excessive borrowings, knowing that he might not be able to repay and that he had made misrepresentations to JCG and SHK banks for loans. The trustee now abandons his ground of excessive borrowing in light of the judgment of Kwan J. in Lee Yuk Man’s case [2007] 1 HKC164. He only relies on the remaining ground of misrepresentation alone. The trustee has no other complaints against the bankrupt.

The Trustee has put forth no evidence to rebut the bankrupt’s evidence. I therefore accept the bankrupt’s evidence. I specifically ask Mr. Gopaoco how this court should draw the necessary inference under the evidence before me that the bankrupt had the intention of make misrepresentations to the banks at the material time. Mr. Gopaoco submits he was unable to invite this court to draw such inference.

I take into consideration of the judgment of Kwan J. in Lee Yuk Man’s case, in which the judge found that the approach and mechanism adopted by the trustee were flawed in that the trustee had acted too readily in deciding to take out this application without any investigations into the matter before taking out the application [183H]. In this case, the period of bankruptcy of the bankrupt has been prolonged unnecessary. Since the trustee has failed to discharge his quasi-judicial obligation properly, the trustee is not entitled to recover his costs of and occasioned by this application out of the bankrupt’s estate, following the approach of the learned Judge in Lee Yuk Man’s case [191D-F]. I further order that the bankrupt shall have costs of this application, including all costs reserved in the meantime, such costs are to be taxed, if not agreed. The question of whether such costs should be paid by the Trustee personally or out of the estate has been discussed before me by those the representing the respective parties. I consider that the costs of this application should not be borne by the creditors, as according to the Trustee, they did not initiate this application. I find that the Trustee has failed to discharge his duties of making reasonable investigations into the facts of this case before taking out this application. As such, I consider that the Trustee has to bear the costs of this application personally.

FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt v. LIU MAN HOO HCB 11719/2002 (3)

S’s words:-
The Judge also in this case talked about his view when an application for the objection should be made.
In no doubt, his view was also supported by his view that the discharge of bankruptcy is in his view a rehabilitation rather than any further punishment to a bankrupt.
The application definitely would affect the bankrupt from discharge immediately. Before this judgment being made, as soon as an application was filed, it would be expected that the application would be adjourned for arguments and also for the parties to file their respective affirmations. And at the time for the call-over hearing, an interim order would be granted. That caused a de facto suspension of the automatic discharge.

That could be used as an abuse by the trustee.

That would be unfair to a bankrupt for applications without merit but could only be dismissed after the final determination of the summons.

Without the necessity to consider the post-bankruptcy conduct, it is right for the Judge to comment that it would not be necessary for the trustee to make the application only at the time near the end of the 4 years’ period.

Therefore, it is right for the Judge to suggest that the trustee should conduct interview to investigate the conduct of the bankrupt’s pre-bankruptcy conduct. With such interview and investigation, the trustee would have the preliminary view as to whether to apply for any suspension of the automatic discharge. The trustee would not be required to wait and even with applications before the Court, it is possible for the Court to decide whether any suspension orders are required to be made before or shortly after the 4 years’ period.

However, at the time of the call-over hearing, Master may then be required to form a preliminary view immediately through the evidence before him/her but yet before a full hearing.

Would the judgment be a guideline for the future application of objection on the part of the trustee?

--- quote from judgment ---

Before : Hon Lam J in Court
Date of Handing Down Reasons for Decision : 14 September 2007

The interim orders and the timing of the application

Before I leave this case, I wish to comment on the practice regarding the grant of interim orders and the timing of the application by the Trustee.

It is important that a trustee and the court should appreciate that it is particularly devastating for a bankrupt to learn for the first time during the last few months of the usual 4 years period that there would be an application to suspend the automatic discharge based on pre-bankruptcy conducts notwithstanding that his post-bankruptcy conducts were more than satisfactory.

Because of the timing of the application and adjournment of the matter pending the outcome of the test case heard by Kwan J, this application was not heard until the end of August 2007. Though I dismissed the application immediately after the hearing, there has already been a de facto suspension of the automatic discharge for more than 10 months.

In Li Tat Kong HCB 741 of 1995, 2 June 2000, Le Pichon J (as she then was) held that the court’s jurisdiction to suspend the automatic discharge was engaged upon the issuance of the summons by the trustee and interim order suspending the automatic discharge pending the final determination of the summons can be made.

It is inherently unfair to a bankrupt if the automatic discharge is suspended due to a late unmeritorious application by a trustee. It is also an abuse of process if a trustee does not conduct any proper investigation during the four years period and leaves it to the last minute to seek to inquire into the affairs of a bankrupt and ask for suspension based on ground (b) under Section 30A(4). Thus in Frost v Sheahan (2005) 3 ABC (NS) 288 at p.301-2, Lander J said,

“ …in some cases, the failure to identify those assets and income may be the fault of the trustee. In those circumstances, it may not be appropriate to continue the administration of the estate if the trustee has not discharged his or her obligations in a diligent manner …”

As explained above, a trustee should have conducted a proper investigation before he can properly decide whether to make an objection. This should include interviewing the bankrupt and ascertaining from him whatever explanations he might have as regards the possible allegations that might be raised against him. It follows that the court is entitled to expect that an application to object would be supported by reasonably comprehensive evidence filed by the trustee. At the call-over hearing, I think the court should form a provisional view on the merit of the application. If the court were of the view that there is a lack of real prospect of achieving any suspension, it should seriously considering dismissing the application if an interim order would have the effect of granting a de facto suspension, particularly if there is no good explanation for the late application.

The Trustee contended that it was reasonable for him to wait until the last moment before he filed an application because he had to take into account of post-bankruptcy conducts. I accept that there could be cases where the reliance on post-bankruptcy conducts entails a late decision to be made regarding the raising of objections. But I do not think this applies to the majority of the cases. Take the facts of the present case as an example, the Trustee should have investigated upon the pre-bankruptcy conducts soon after the filing of the proof of debts. As regards the evidence regarding the misconceived ground (a), it was based on the stable employment of Liu. Bearing in mind the extent of co-operation of Liu since his bankruptcy, there was no indication that the Trustee would need to rely on post-bankruptcy unsatisfactory conducts. I do not see any reason why the Trustee could not take out an application at the end of the third year. If necessary, the Trustee can file supplemental evidence setting out additional grounds if there were developments subsequent to the filing of the original application that are material.

For most cases, by the end of the third year, with reasonable diligence and proper skill and competence, the trustee should have a good idea whether the bankrupt had been co-operative in the post-bankruptcy stage and whether there are pre-bankruptcy unsatisfactory conducts. The trustee should also be able to assess by then whether a discharge of the bankrupt at the end of the usual four years period would prejudice the administration of the estate. I do not think it is too onerous to expect a trustee to make a decision on whether to raise an objection shortly thereafter in a usual case. After all, in the timescale of a four years relevant period, it must be reasonable to expect the trustee to complete most of his investigation into the affairs of a co-operative bankrupt by that stage.

FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt v. LIU MAN HOO HCB 11719/2002 (2)

S’s words:
Apart from the interpretation of Section 30A(4)(a),the Judge further commented that the Trustee should carry out the necessary investigation to inform himself of all relevant facts before he could make a responsible and proper decision on whether to raise his objection based on Section 30A(4)(d) (the 2nd grounds of objection of the Trustee). With no doubt, the Trustee in this case did not even conduct any interview with the bankrupt for his pre-bankruptcy conducts.

That 2nd grounds of objection goes to the unsatisfactory conducts of a bankrupt. The Judge finally decided that the bankrupt’s pre-bankruptcy conducts were unsatisfactory. However, it is quite difficult to understand why the Judge has to take the role to investigate the same but not for the Trustee to hold investigations to ensure the same beforehand.

Further, even though the bankrupt was ruled with pre-bankruptcy conducts, the Judge refused to exercise its discretion. The Judge ruled that the pre-bankruptcy conducts should be so serious. Bearing in mind that there was no interview with the bankrupt in relation to his pre-bankruptcy conducts, it is expected that it would be too difficult to conclude that “the unsatisfactory pre-bankruptcy conducts were so serious that it would be difficult for a bankrupt to escape suspension altogether”

The issue of interim order will be mentioned in another post.

--- quote from judgment ---

Before : Hon Lam J in Court
Date of Handing Down Reasons for Decision : 14 September 2007

(continue)

Further, a trustee should carry out the necessary investigation to inform himself of all relevant facts before he could make a responsible and proper decision on whether it is appropriate to object in the circumstances of the case in question. I find it astonishing that in the present case, the Trustee had not even conducted any interview with Liu regarding his pre-bankruptcy conducts before he decided to raise an objection based on Section 30A(4)(d).

...

Unsatisfactory conducts
In Lee Fred v Leung Chin Yeung [2007] 1 HKC 164, all the counsel agreed that it connotes a broad and low jurisdictional threshold (see Para.44).

In Para.45, Kwan J made the following observation regarding excessive borrowing,

“ In a case involving excessive credit in which loans were obtained when the debtor should have known he would not be able to repay, where the bankrupt has been co-operative with the trustee and made voluntary contributions to the estate, and provided there is no other misconduct, I am inclined to think that the pre-bankruptcy conduct is not such as to warrant suspension of the running of the relevant period.”

I agree with Deputy Judge A To that in that paragraph, Kwan J was dealing with how the discretion should be exercised as opposed to whether excessive borrowing can constitute unsatisfactory conduct under Section 30A(4)(d).

In Fred Lee v Tong Yuk Kin HCB 22870 of 2002, 20 June 2007, Deputy Judge A To made reference to the law under the old Bankruptcy Ordinance and took the view that in general, the matters set out in Section 30(4) under the old ordinance could be regarded as examples of unsatisfactory pre-bankruptcy conducts (para.14). The protection of the integrity of the automatic discharge system and the prevention of abuse of the bankruptcy regime were identified as the rationale for taking pre-bankruptcy conducts into account (paras.15 and 16). The acid test formulated by the learned judge is as follows (para.17),

“ Ultimately, the question of whether the conduct is unsatisfactory is whether the conduct is one which the society is prepared to condone without expressing disapproval. This question is to be answered by the reasonable man’s test. This hypothetical reasonable man has to bear in mind the overriding purpose of rehabilitation. He has to take into account whether the debt is a business debt or consumer credit and consider the reasons for which the debt was incurred, the amount of the debt as compared with the bankrupt’s means and station in life, the blameworthiness of the bankrupt and all the circumstances in which the debt arose. In addition, the reasonable man has to take into account human nature, its weakness, its readiness to indulge in extravagant spending and its readiness to engage in speculation and assumption of risk.”

This test was adopted and applied by Master Kwang in Fred Lee v Kwan Kwong Ning HCB 17846 of 2002, 20 August 2007.

In the present case, the Trustee apparently did not conduct any meaningful investigation as regards how the debts of Liu came to be incurred. According to Mr Chan, the Trustee simply extracted the information from the documents filed for proof of debts and the statement of affairs to come to the view that objection should be made. In Lee Fred v Leung Chin Yeung [2007] 1 HKC 164 Kwan J referred to the practice of this trustee at para.35 and explained at para.38 why this practice is flawed. At para.38, Her Ladyship alluded to the fact that the Trustee has filed 150 objections out of 360 cases in which he was appointed during June 2002 to January 2003. I have not been told whether the present case is one of those 150 objections. But the Trustee was appointed within that period and the present objection was filed in September 2006. On 5 October 2006, the present application was adjourned pending the decision of Kwan J. in the three test cases. It was restored on 6 March 2007 after the judgment of Kwan J.

Having regard to the circumstances as a whole, though I do not think Liu intended to cause financial loss to his creditors, I am of the view that Liu’s pre-bankruptcy conducts were unsatisfactory.

Exercise of discretion
In my judgment, the court must take an overall view of the matter in the exercise of discretion. Whilst there are cases where the unsatisfactory pre-bankruptcy conducts were so serious that it would be difficult for a bankrupt to escape suspension altogether (see Para.17.42 of the Law Reform Commission Report), I am of the view that this case does not fall within such category.

In this connection, I respectfully concur with Lander J’s observations in the Federal Court of Australia in Frost v Sheahan (2005) 3 ABC (NS) 288 at p.294-5,

“ The purpose of the objection procedure is to provide the trustee with a power by which he can induce the bankrupt to act in accordance with the bankrupt’s obligations.
The trustee should not use the power for the purpose of punishing the bankrupt for acts taken by the bankrupt which cannot be rectified. Rather, the power should be used for the purpose of persuading the bankrupt to discharge the bankrupt’s duties under the Act.
It is a power, however, which must be used sparingly and for the purpose of protecting the interests of creditors and in generally advancing the administration of the estate of the bankrupt.
In a sense, it is a power of last resort when no other form of persuasion will assist to remind the bankrupt of the bankrupt’s obligations.”

FRED LEE, trustee of the property of LIU MAN HOO, a bankrupt v. LIU MAN HOO HCB 11719/2002 (1)

S’s words:-
I believe I have in some places made a comment as to whether a trustee should lodge his/her objections for an automatic discharge. The following is another case authority that the Judge did have commented seriously whether the trustee should make an objection.
However, there are some other issues being discussed in this case. Thus, I would try my best to use separate posts to discuss the same.

There was no dispute that the post-bankruptcy conducts of the bankrupt were satisfactory. Further, in fact, he repaid a lot during the four years.

In my personal view, the first grounds of objection by the Trustee was terrible:-

“That Liu is likely within 5 years of commencement of the bankruptcy to be able to make a significant contribution to his estate [Section 30A(4)(a)].”

If whenever a trustee could make good contribution to his estate in the 5th year (and in the 1st to 4th years as well), the Trustee could simply rely on such a ground to submit an objection with the intent to say that the bankrupt could repay more in the 5th year, it would be too discouraging for the bankrupt to try his best to make any repayment.

Fortunately, the Judge did have analysed so well to determine the true intention of the legislation, i.e., when one is repaying for the past 4 years, his discharge should not be suspended due to the fact that it is expected he can in the 5 year be able to make further signification contribution to his estate.

The Judge also commented if a trustee has adopted a practice of raising an objection under Section 30A(4)(a), such practice should be rectified.

--- quote from judgment ---

Before : Hon Lam J in Court
Date of Handing Down Reasons for Decision : 14 September 2007

A bankruptcy order was made against Mr Liu Man Hoo [“Liu”] on 10 October 2002. Since then, he had made reasonable efforts in making regular contributions to his estate for the purpose of repaying his creditors. The total amount of provable debts is $3,654,698. In the four years since the making of the bankruptcy order, Liu had contributed $1,442,011.05 to his estate. Several dividends were declared in favour of the creditors. Liu had been co-operative with the Trustee since his bankruptcy and full and frank disclosure has been given in respect of his affairs. The Trustee accepted that his post-bankruptcy conducts were satisfactory.

In the present case, the Trustee took out an application under Section 30A(3) on 11 September 2006. The grounds of objection relied on by the trustee were,

(a) That Liu is likely within 5 years of commencement of the bankruptcy to be able to make a significant contribution to his estate [Section 30A(4)(a)];
(b) That the conduct of Liu, in respect of the period before the commencement of the bankruptcy, has been unsatisfactory [Section 30A(4)(d)].

The grounds of objection have to be established to give the court a jurisdiction to order suspension. But after a ground is established, the court still has to exercise its discretion in accordance with the facts and circumstances of the case. This is clearly spelt out in Re Hui Hing Kwok [1999] 3 HKC 683; see also Fred Lee v Tong Yuk Kin HCB 22870 of 2002, 20 June 2007 Para.18.

The discretion should be exercised in line with the underlying spirit of our bankruptcy law. In Re Hui Hing Kwok [1999] 3 HKC 683, Le Pichon J (as she then was) referred to the purpose of the automatic discharge provision alluded to in para.17.16 of the Law Reform Commission’s Report on Bankruptcy and succinctly summed up the proper approach as follows,

“ Rehabilitation in the sense of enabling the bankrupt to resume a normal life in society is a key, if not the key, consideration. It should only be delayed by a bankrupt’s own failings.”

In Lee Fred v Leung Chin Yeung [2007] 1 HKC 164, Kwan J reiterated that an application to object to discharge is a serious matter and it should not be embarked upon lightly. At para.37, Her Ladyship cited a very helpful dicta of Smithers J in the Federal Court of Australia in Re Zion and it is worth highlighting the following,

“ In my view it is the policy of the law that bankruptcy should in most cases come to an end at three years … Public interest will require that a discharge be delayed or made conditional if the conduct revealed or the character of the bankrupt indicates that the return of the bankrupt to the commercial world in full freedom might involve the unacceptable risk to persons likely to be engaged in commercial relations with him in the future.”

Hence Kwan J also held that a trustee should exercise his judgment before deciding whether to object. At para.38(1), Kwan J pointed out that it is not appropriate to object merely because there is a ground which comes within one of the provisions in Section 30A(4). I respectfully agree. Insofar as a trustee has adopted a practice of raising an objection as of course when a ground can be framed under that subsection, such practice should be rectified.

I regret that based on what I was told at the hearing, the Trustee seems to have taken the stance that he was only concerned with presenting a case that falls within Section 30A(4) and it is left to the court to decide whether the discretion should be exercised against the bankrupt. That is clearly not the right approach. I hope it is an oversight on the part of the Trustee since he should have been fully aware of Kwan J’s observations. It is important for a trustee to appreciate that he is performing a public duty (Kwan J described it as ‘quasi-judicial’ obligation) and an application for suspension under Section 30A(3) will necessarily entail costs to be incurred. Apart from the grounds under Section 30A(4), a trustee should consider all other relevant circumstances in the case to see whether there is at least an arguable case that the court should exercise its discretion against the bankrupt.

Further, a trustee should carry out the necessary investigation to inform himself of all relevant facts before he could make a responsible and proper decision on whether it is appropriate to object in the circumstances of the case in question. I find it astonishing that in the present case, the Trustee had not even conducted any interview with Liu regarding his pre-bankruptcy conducts before he decided to raise an objection based on Section 30A(4)(d).

In Fred Lee v Tong Yuk Kin HCB 22870 of 2002, 20 June 2007, Deputy Judge A To expressed his agreement with the approach of Kwan J. His Lordship however added that the need to preserve commercial morality is also another important consideration underlying the bankruptcy regime. At para.20, the following observation was made,

“ I think conduct involving fraud or misrepresentation in applying for credit which contributed to bankruptcy would invariably result in an abuse of the bankruptcy regime. Save in exceptional cases, the court’s discretion should be exercised against bankrupts whose bankruptcy was related or contributed to by such conduct.”

As compared with Para.20, I think the approach set out in Para.21 of the judgment of Deputy Judge To is a more balanced one. His Lordship said,

“ It should take into consideration all the circumstances leading to the bankruptcy and not just the conduct complained of. It should consider the seriousness of the conduct, the bankrupt’s conduct after the commencement of bankruptcy, the degree of co-operation he has shown with the trustee during the relevant period and the effort he has contributed to repaying his debt. In an appropriate case, the court should consider the risk to the commercial community should the bankrupt be allowed to resume full commercial activity. The discretion to suspend the running of the relevant period should not be lightly exercised. But in its balancing exercise, the court should not allow the bankruptcy regime to be abused.”

At para.22 of his judgment, Deputy Judge A To made the important point that the purpose of suspension is rehabilitative and it should not to be used as a means of extracting more contribution from the bankrupt for distribution to his creditors. That must be correct insofar as pre-bankruptcy misconducts are concerned. However, regarding cases falling under Section 30A(4)(b),(c),(d) (in respect of post-bankruptcy misconducts), (e) and (h), the purpose of suspension may well be the facilitation of the proper administration of the estate.

Ability to make a significant contribution
Section 30A(4)(a) provides the following as a ground on which an objection can be made,

“ …that the bankrupt is likely within 5 years of the commencement of the bankruptcy to be able to made a significant contribution to his estate”.

In Re Maher (1985) 61 ALR 592, Woodward J had this to say regarding a trustee’s role in the materials placed before the court,

“ Clearly the trustee should not put forward irrelevant information, or intrude on the court’s functions, nor should he take a partisan approach to the application by only putting forward material unfavourable to the applicant and supporting the trustee’s opposition. However, the trustee is under a duty to ensure that the court has before it all material that will assist it in considering an application for discharge …”

Whilst it is right and proper that a trustee should use reasonable skill and care in procuring a proper contribution from a bankrupt to the estate during the usual four years period, I do not think it is the purpose of the objection mechanism under Section 30A to empower a trustee to extract more contributions by asking the court to suspend the automatic discharge on account of a likelihood of significant contribution in the succeeding years notwithstanding that contribution have already been made by a bankrupt to the best of his ability during the first four years. That would be incongruous with the professed objective of rehabilitation.

I believe Section 30A(4)(a) is there to catch those bankrupts who have the ability to make a significant contribution but who choose not to utilize such ability and fail to make a proper contribution during the usual four years period. Such bankrupts are at fault and those cases would warrant a consideration of suspension of the automatic discharge. This was what happened in McGoldrick v Official Trustee in Bankruptcy (1993) 119 ALR 253 where the Australian equivalent of our Section 30A(4)(a) was applied.

The key to the correct construction of Section 30A(4)(a) lies in its reference to the likelihood of the ability of the bankrupt to make a significant contribution within 5 years. If the purpose of the sub-section were to extend the bankruptcy period to facilitate a maximum recovery for the creditors by extracting more contributions in the fifth to eighth years, it needs not refer to the first four years. It would be enough for the legislation to provide under this ground,

“ That the bankrupt is likely to be able to make a significant contribution to his estate in the 4 years after the expiration of the relevant period provided for under sub-section (2) or any part thereof.”

I am of the view that it is a clear case calling for a purposive interpretation of Section 30A(4)(a). There are cogent reasons leading me to the conclusion that the list of objections under Section 30A(4) refers to cases where the bankrupt has been at fault. I do not believe Section 30A (4)(a) is there to enable a trustee to extract further contribution from a bankrupt for the benefit of the creditors when he has not been at fault during the usual 4 years period.

In the alternative, if I were somehow wrong on my construction of Section 30A(4)(a), I will hold that the court should place great weight on the due diligence on the part of a bankrupt in making contribution during the first 4 years in the exercise its discretion under Section 30A(3). If the only ground relied upon to object is that such a bankrupt could make further significant contribution in the years to come, in line with the guidance as regards the underlying policy of Section 30A(3), it is unlikely that the court would order any suspension at all.