2014

RE TAM MEI KAM

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95211-EN-2014-10-13

RE TAM MEI KAM

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CACV 39/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 39 OF 2014

(ON APPEAL FROM HCB NO. 3777 OF 2011)

________________________

Re: TAM MEI KAM

________________________

Before: Hon Cheung and Chu JJA and Barnes J in Court

Date of Written Submissions: 11, 23 and 25 September 2014

Date of Judgment: 13 October 2014

________________________

JUDGMENT

________________________

Hon Chu JA giving the Judgment of the Court:

Introduction

1. By judgment handed down on 11 August 2014 (“the Judgment”), this court (Chu JA and Barnes J): (1) dismissed Madam Tam’s appeal against the decision of Kwan JA given on 4 July 2014 ordering her to provide $307,000 as security for the costs of her appeal against the decision of L Chan J; (b) ordered that she provides by 15 September 2014 further security in the sum of $50,000 on account of the costs of the appeal against Kwan JA’s decision; and (c) extended the time for providing the security ordered by Kwan JA to 15 September 2014.

2. By an Application filed on 19 August 2014, Madam Tam applies for leave to appeal to the Court of Final Appeal against the Judgment. By a summons filed on 11 September 2014, Madam Tam further applies to extend the time for complying with Kwan JA’s order as varied to after the final disposal of her application for leave to appeal to the Court of Final Appeal. Both applications are opposed by Madam Tam’s trustees in bankruptcy (“the Trustees”).

3. The parties have no objection to the application for leave being disposed of on paper. Following the Court’s directions, they had lodged and served their written submissions on the application and also on the application to extend time, which is to be considered together with the application for leave to appeal.

Application for leave to appeal

4. Although it has not been clearly specified in the Application, it will appear that Madam Tam makes her application for leave to appeal under section 22(1)(b) of Hong Kong Court of Final Appeal Ordinance Cap. 484,which provides:

“(1) An appeal shall lie to the Court –
…
(b) at the discretion of the Court of Appeal or the Court, from any other judgment of the Court of Appeal in any civil cause or matter, whether final or interlocutory, if, in the opinion of the Court of Appeal or the Court, as the case may be, the question involved in the appeal is one which, by reason of its great general or public importance, or otherwise, ought to be submitted to the Court for decision”.

5. Madam Tam raises three grounds in support of her intended appeal to the Court of Final Appeal:

(1) The appeal involves questions of great general or public importance, namely,
“(a) Whether the Court of Appeal in an application for Security for Costs when faced with a necessity to form a view on the true statutory construction of a particular piece of statue, which uses plain, unambiguous and unequivocal language, is obliged to form a definite view, or merely a purported preliminary view, of the true statutory construction of the piece of statue, when due administration of justice and the interest of justice is at stake?” (“Question 1”)
“(b) Whether the Court of Appeal in determining a particular conduct of a holder of public office is abusive or not, should only look at whether such conduct ought to be committed at all, rather than to conclude no abuse only on the wrong basis that such conduct be lawfully carried out, the Court would share the same conclusion, i.e. the sole basis to determine abuse or not ought to be any lawful basis to do the act complained?” (“Question 2”)
(2) Leave to appeal ought to be granted under the “or otherwise” limb because there has been miscarriage of justice and that substantial and grave injustice has been done to her in that:
“(a) There is a sum of HK$2M odd at stake, determinative merely and solely on the true statutory construction of s.43(1) of Cap. 6. To shut out an appeal purely on a straightforward point of law on the basis of unjustified Security for Costs would be grossly unjust.
(b) The conduct of the Trustee in Bankruptcy is plainly and clearly prima facie questionable. To shut out an appeal against such questionable conduct on the basis of Security for Costs would be grossly unjust.”
(3) Having regard to the overall circumstances of the case, justice requires that leave to appeal be granted.

6. Dealing with the first ground of appeal, we do not accept that either Question 1 or Question 2 carries any great and general public importance. With regard to Question 1, the principles governing application for security for costs of appeal are well settled. In Chung Kau v. Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650, 656D-G, Ma CJHC (as The Chief Justice then was) set out the relevant principles and said, inter alia,:

“(3) On a consideration of the merits of the appeal,while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the court should form some sort of preliminary, even instinctive, view. Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor. Thus, an appeal which is very strong would often be a very good reason not to order security. The converse of course also applies. A hopeless appeal may even by itself justify an order for security. However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered. This is of course on the assumption that a factor such as impecuniosity has already been demonstrated.” (emphasis added)

7. We are further of the view that Question 1 is not reasonably arguable. Firstly, given that security for costs application is an interlocutory application, it is not the occasion for the parties to rehearse their arguments on the appeal in great details. Accordingly, it is only appropriate that the Court should refrain from engaging in detailed assessment of the merits of the appeal. It also follows that the Court needs not and should not express a conclusive view on the merits of the appeal.

8. Secondly, as pointed out in the Trustees’ written submission, the approach advocated by Question 1 is incompatible with the underlying objectives of the Civil Justice Reform as set out in Order 1A rule 1 of The Rules of the High Court, Cap. 4A, in particular, the emphasis on costs effectiveness, proportionality and procedural economy.

9. Thirdly, insofar as Question 1 seeks to suggest that different consideration or approach should apply to an appeal involving statutory construction, the written submission of Madam Tam has not set out the reason or basis for it. There is only a bare statement that the true construction of section 43E(1) of Cap.6 is a very straightforward matter and the Court ought to form a definite view on it. In any event, this Court has indicated in the Judgment that in our preliminary view, the judge’s construction of the section is right and we do not find any strong merits in Madam Tam’s challenge to it.

10. As for Question 2, this is based on a misreading of the Judgment: see paragraphs 33 to 35. We did not accept there are merits in Madam Tam’s complaint that the Trustees’ behaved abusively in making a new assessment of Madam Tam’s reasonable needs after the Official Receiver had already done an assessment. This is because the Trustees are under an obligation to maximise the estate in bankruptcy for the benefit of the creditors and they are not bound by the Official Receiver’s assessment of Madam Tam’s reasonable needs or proposal on the amount of monthly payment to be made to her. Although in the Judgment we had observed that the Trustees’ re-assessment proved to be justified in light of the judge’s decision, this does not form the legal reasoning underlying our view that the complaint of abusive conduct has no merits.

11. Turning to the second ground of appeal, it is trite that the granting of leave to appeal under the “or otherwise” limb is an exceptional course, and the threshold requirement for invoking the Court’s discretion under this limb is a high one: Chao Keh Lung v. Don Xia (2004) 7 HKCFAR 260, 263 at para. 9.

12. The particulars in support of this ground of appeal are in essence repetitions of Madam Tam’s arguments on the construction of section 43E(1) of Bankruptcy Ordinance and the Trustees’ conduct. It is argued that to shut out her appeal would be a miscarriage of justice and would cause grave and substantial injustice to her. As said in the Judgment, these arguments lack merits. There is no basis for granting leave under the “or otherwise” limb.

13. There is also no merit in the third ground of appeal, which is not an independent ground.

14. For the above reasons, Madam Tam’s application does not come within section 22(1)(b) and ought to be dismissed.

Application for extension of time

15. On the application for extension of time, the time for complying with Kwan JA’s order as varied and this Court’s order dated 11 August 2014 has lapsed on 15 September 2014. The Trustees do not appear to object to extending the time for Madam Tam to provide the security. We will therefore extend the time to 14 days from the date of this judgment.

16. The Trustees are contented with an order that their costs of the Application and the summons be costs in the appeal. We so order.

Disposition

17. Accordingly, we make the following orders:

(1) The Application filed on 19 August 2014 is dismissed.
(2) The summons filed on 11 September 2014 is dismissed.
(3) The Trustees’ costs of the Application and of the summons be costs in the appeal.
(4) The time for complying with: (a) paragraph 1 of the order dated 4 July 2014 (as varied by the order dated 11 August 2014); and (b) paragraph 4 of the order dated 11 August 2014 is extended to 14 days from the date of this judgment.

(Peter Cheung)	(Carlye Chu)	(Judianna Barnes)
Justice of Appeal	Justice of Appeal	Justice of Appeal

Mr Hew Yang-Wahn, instructed by ONC Lawyers, for the trustees in bankruptcy

Madam Tam Mei Kam (Appellant) unrepresented.

94332-EN-2014-08-11

RE TAM MEI KAM

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CACV 39/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 39 OF 2014

(ON APPEAL FROM HCB NO. 3777 OF 2011)

________________________

Re: TAM MEI KAM

________________________

Before: Hon Chu JA and Barnes J in Court

Date of Hearing: 7 August 2014

Date of Judgment: 11 August 2014

________________________

JUDGMENT

________________________

Hon Chu JA giving the Judgment of the Court:

Background

1. This is Madam Tam’s appeal against the decision of Kwan JA given on 4 July 2014 ordering her to provide security for costs on appeal.

2. The background leading to this appeal can be briefly stated as follows.

3. Madam Tam was adjudged bankrupt on 25 April 2012.

4. Madam Tam’s deceased daughter, Madam Mui Yim Fong, had by her will left her entire estate (“the Mui estate”) to an offshore discretionary trust known as the Karen Trust and appointed HSBC as the trustee of the Karen Trust and the sole executor of her will. By an order made in HCMP 2981/2004 on 20 November 2007 (“the Maintenance Order”), HSBC was directed to pay out of the Mui estate a monthly sum as specified for the maintenance of Madam Tam. By an order dated 26 June 2012 (“the Suspension Order”), the monthly payment was suspended due to insufficient liquid assets in the Mui estate. The liquidity of the Mui estate improved significantly in August 2013 and HSBC was in a position to resume payment. There is an accrued maintenance payable to Madam Tam of about $2 million.

5. On 2 September 2013, Madam Tam’s trustees in bankruptcy (“the Trustees”) applied for an income payments order (“IPO”) under section 43E of the Bankruptcy Ordinance, Cap. 6 in respect of the accrued maintenance and future monthly maintenance payable to Madam Tam. On 12 November 2013, Madam Tam applied to strike out the IPO application, to remove the Trustees from office and for payment to her of the accrued maintenance.

6. The applications were heard by L Chan J. By his decision handed down on 21 February 2014 (“21 February 2014 Decision”), the judge dismissed Madam Tam’s application to strike out the Trustees’ application and to remove them from their office. He made an IPO, the effect of which is that Madam Tam would receive: (i) $157,276 out of the accrued maintenance; and (ii) $48,000 a month out of the monthly interim maintenance.

7. On 27 February 2014, Madam Tam brought the present appeal, which is against the 21 February 2014 Decision.

8. On 5 May 2014, the Trustees applied for security for costs of the appeal on the basis that Madam Tam is impecunious and it is likely that they would encounter difficulty, undue expense and delay in enforcing a costs order against her.

9. Kwan JA heard the application on 4 July 2014 and ordered Madam Tam to provide security for costs on appeal in the amount of $307,500 within 56 days of the order.

10. On 11 July 2014, Madam Tam issued a summons seeking to appeal against Kwan JA’s order pursuant to Order 59 rule 14(12) of the Rules of the High Court, Cap. 4A. In support of her appeal, Madam Tam had made an affirmation and also lodged a written submission.

The applicable legal principles

11. Under Order 59 rule 10(5) of the Rules of the High Court, Cap. 4A, the Court of Appeal may, in special circumstances, order that security shall be given for the costs of an appeal as may be just.

12. It is settled practice to require security for costs to be given by an appellant who would be unable through impecuniosity to pay the costs of the appeal, if unsuccessful. Security for costs may also be ordered upon proof that the respondent will be likely to encounter undue delay or put to undue expense in enforcing any order for costs in the appeal. The court, however, has a discretion and is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security for costs be provided. But once a case of impecuniosity or some other factor such as difficulty or expense in enforcing a costs order is demonstrated, it is generally up to the appellant to demonstrate countervailing factors militating against an order being made: See Chung Kau v. Hong Kong Housing Authority & Others [2004] 2 HKLRD 650 and Hong Kong Civil Procedure 2014 Vol.1 paras.59/10/26 & 59/10/27.

13. In deciding whether to order security for costs of an appeal, the court takes into account the fact that the appellant has already had the issue concerned determined in the court below, and it is prima facie an injustice to a respondent to allow an appeal to the Court of Appeal to proceed without security for costs being furnished in circumstances where the respondent will be unable to enforce against the appellant any order for costs made by the Court of Appeal: Hong Kong Civil Procedure 2014 Vol.1 para.59/10/25.

Kwan JA’s decision

14. In coming to the decision to order security for costs on appeal, Kwan JA first observed that the current surplus in Madam Tam’s bankruptcy estate is insufficient to satisfy the outstanding debt owed to Madam Tam’s creditors, and that if Madam Tam was to fail in her appeal resulting in an adverse costs order against her estate in bankruptcy, this would further deplete the assets of the estate to the prejudice of her creditors. Kwan JA next had regard to the Trustees’ obligation under the common law[1] and section 84 of the Bankruptcy Ordinance to administer the estate in such a manner as to maximise the return from estate assets and thereby to maximise satisfaction of creditors’ claims and any possible surplus for the bankrupt.

15. Kwan JA then considered the various contentions raised by Madam Tam on her apparent impecuniosity. Firstly, with regard to her assertion that her impecuniosity was not of her making in that but for the 21 February 2014 Decision, she would have the use of the $2 million accrued maintenance and would be able to meet any liability for costs in the appeal, Kwan JA held that it was a circular argument.

16. Secondly, Kwan JA rejected the arguments that the Trustees had only given vague and unclear replies to the judge on the value of the Mui estate and the claims to the Mui estate, and on the total amount of the outstanding debt, legal costs and other amounts due from Madam Tam’s estate to her creditors and the Trustees. Kwan JA also rejected the argument that the Trustees had never been genuinely worried about Madam Tam’s impecuniosity.

17. Thirdly, Kwan JA did not accept Madam Tam’s assertions that there will be an early discharge of her bankruptcy and/or that there is possibility of funds forthcoming. With regard to Madam Tam’s contention that she has validly terminated the Karen Trust by notice to HSBC in May 2014 so that she and her four grandchildren are now absolutely entitled to the full benefits of the trust, Kwan JA considered it clearly was not a straightforward matter, and the matter will most likely have to be litigated upon such that it will take time for the dispute to be resolved.

18. Kwan JA thus concluded that special circumstances have been made out for security for costs to be provided on appeal in that Madam Tam is impecunious and that there is a real risk any costs liability imposed on her in this appeal would further deplete the bankruptcy estate.

19. Next, Kwan JA considered the merits of the appeal. Upon a preliminary assessment of the grounds of appeal, Kwan JA was of the view that they have no strong merits and therefore do not constitute countervailing factors for the court to exercise discretion not to order security for costs on appeal. She was further of the view that it is just that Madam Tam should not be allowed to embark on the appeal without providing security, so as not to further prejudice the interests of her creditors.

The appeal against Kwan JA’s order

20. Madam Tam appeals against the order for security on the grounds that: (1) Kwan JA erred in law in her earlier decision in Koo Shing Sun v. Hung Wing San Tony (unreported) CACV241/2012, 11/04/2013, and in applying the case to the Trustees’ application herein; and (2) Kwan JA’s reasoning for rejecting Madam Tam’s contentions are flawed.

21. In Mok Pak Keung v. Wong Ip Ming (unreported) CACV 78/2000, 8 September 2000 at para.7, Rogers Acting CJHC held that:

“When the appeal is thus brought to the Court of Appeal on appeal from a decision of a single judge, what the Court of Appeal is doing is reviewing on appeal the exercise of discretion by the single judge. In my view the same rules apply in that respect as apply to the Court of Appeal in other cases when it is reviewing the exercise of a discretion by a judge. They can be summarised that the Court of Appeal will not interfere with the exercise of a discretion unless it is satisfied that the judge had applied wrong principles of law or had given a wholly erroneous weight to some matters or failed to take into account some other matters or indeed if the judgment was plainly wrong.”

See alsoMak Shiu Tong v. Yue Kwok Ying & Anor (2004) 7 HKCFAR 228, 240 at §30; and Tang Wai Cho v. Tan Wai Leung (unreported) CACV289/2011, 18 October 2013 at §16. With these principles in mind, we turn to consider the grounds raised by Madam Tam.

Koo Shing Sun v. Hung Wing San Tony

22. In paragraph 34 of the Reasons for Decision handed down on 10 July 2014, when dealing with the amount of security to be ordered, Kwan JA referred to Koo Shing Sun v. Hung Wing San Tony and held that:

“[T]here is no good reason why the costs of an application for security for costs should not be included in the amount to be provided as security, as costs of the appeal should embrace the whole process, including applications in the appeal court incidental to the appeal. The choice is between ordering costs of the application for security to be paid in any event (in which case these estimated costs would be included in the security to be provided), or ordering such costs to be paid by the paying party forthwith.”

23. Kwan JA considered it was appropriate to include the estimated costs of the Trustees’ application for security in the security to be provided, instead of ordering Madam Tam to pay the costs of the application forthwith. Although Madam Tam suggests that this is an error in law, she has not elaborated on it. We see no basis for the argument. We also do not see why, as matter of legal principle, Koo Shing Sunv. Hung Wing San Tony is distinguishable or inapplicable to the present case.

Madam Tam’s impecuniosity

24. Madam Tam also argues that the reasoning in paragraphs 17, 19, 27 to 30 and 32 of Kwan JA’s Reasons for Decision are flawed. Paragraph 17 relates to Madam Tam’s assertion that her impecuniosity was the result of her being wrongly deprived of the $2 million accrued maintenance. Kwan JA rejected this argument as being circular because the judge had held that the bulk of the accrued maintenance constituted her income for which an IPO was made. Since she is challenging the correctness of the judge’s decision on this, if she fails and the judge’s decision is upheld, she will not be able to resort to the accrued maintenance in meeting an adverse costs order against her. In our view, this must be right.

25. Paragraph 19 relates to Madam Tam’s argument that the Trustees should have no worry about her being impecunious, having regard to the value of the Mui estate and the fact that Madam Tam could ask HSBC to pay off her debt and to discharge her bankruptcy since she is the biggest beneficiary of the Mui estate. Kwan JA, after considering the replies given by the Trustees to the judge on the value of and claims to the Mui estate, disagreed that they were vague or unclear. It was further pointed out that the fact that the judge had suggested that Madam Tam could ask HSBC to pay off her debt did not mean that the Trustees should not be concerned about a real risk of an adverse costs order against Madam Tam would further deplete the assets of the bankruptcy estate. We agree.

26. Paragraphs 27 and 28 concern Madam Tam’s assertion that she had validly terminated the Karen Trust by the notice she served on HSBC in May 2014 and that her bankruptcy will be discharged from the assets of the trust. In reply to this argument, the Trustees had referred to HSBC’s reply that there was no basis on which Madam Tam would be entitled to terminate the trust. The Trustees also identified several legal difficulties faced by Madam Tam, including the fact that she had previously challenged unsuccessfully the validity of her daughter’s will and of the Karen Trust and if the matter were to be re-litigated, she would have to overcome the hurdle that what she now contends is not an abuse of process; that the Karen Trust was established under the laws of Cayman Islands and its terms provided that the laws of the Cayman Islands and the Courts of the Cayman Islands shall be the initial law of the trust and the initial forum governing the administration of the trust; and further that there are substantial doubts in the merits of Madam Tam’s construction of clause 31 of the trust and her assertion that there had been contravention of clause 31 and also non-compliance with formalities by HSBC on the execution of a deed of appointment to appoint additional beneficiaries.

27. In light of the submissions advanced by the Trustees, Kwan JA concluded that if Madam Tam should persist in pursuing her assertion that the Karen Trust had been validly terminated, legal proceedings will most likely have to be instituted and it would take time for the dispute to be resolved. In our view, Kwan JA is clearly right. It is unrealistic to suggest that Madam Tam’s bankruptcy will soon be discharged with funds from the assets of the trust.

Merits of the appeal against L Chan J’s decision

28. Paragraphs 29, 30 and 32 concern the merits of Madam Tam’s appeal against the judge’s decision to make an IPO and to refuse to remove the Trustees. Madam Tam has raised a number of grounds in the Notice of Appeal. In her written submissions in this appeal, Madam Tam has identified two principal grounds of the appeal, namely, (1) the judge erred in his construction of section 43E(1) of the Bankruptcy Ordinance; and (2) the judge had failed to deal with the “abusive” conduct of the Trustees. Madam Tam submitted that Kwan JA had failed to form a preliminary view on these issues and had not explained why she did not think there were strong merits in the appeal.

29. Before the judge, Madam Tam had argued that the words “during the period for which the order is in force” in section 43E(1) of the Bankruptcy Ordinance[2] qualify and limit the words “income which is from time to time made to him or which he from time to time becomes entitled” in section 43E(6)[3] so that the words “from time to time” in section 43E(6) should mean “during the period for which the order is in force”. She further argued that the source of the accrued maintenance is the Maintenance Order, hence she had become entitled to this payment before there was any IPO and the accrued maintenance therefore fell outside the scope of the IPO, which could only cover income that she is entitled to during the period when it is in force. Accordingly, it is her contention that the $2 million accrued maintenance belongs to her and has not vested in the Trustees.

30. The judge rejected the argument. He held that the Suspension Order had suspended Madam Tam’s entitlement to payment under the Maintenance Order so that she had no entitlement to maintenance during the time when the Suspension Order was in place. The judge further held that the words “during the period for which the order is in force” in section 43E(6) refer to the period during which the IPO can be enforced and not the period during which the bankrupt is entitled to or in receipt of payment. He concluded that “an IPO can certainly be made to claim income that the bankrupt has received or is entitled to receive during his bankruptcy regardless of whether the entitlement to receive had commenced (but not satisfied) before his bankruptcy.”[4]

31. It is Madam Tam’s argument that the judge’s approach to the construction of section 43E is wrong in that he only referred to the authorities and had ignored her analysis and arguments. She also prays in aid the Chinese version of section 43E[5].

32. As Kwan JA rightly observed, in dealing with an application for security, it is neither necessary nor desirable to embark upon a detailed examination of the arguments in the appeal: see Chung Kau v. Hong Kong Housing Authority & Ors at 656D-G. The court needs only make a preliminary assessment of the strength of the grounds of appeal. We have considered the Chinese and English wordings in section 43(1) and (6), the reasoning of the judge and the authorities referred to in the 21 February 2014 Decision on this issue. We share Kwan JA’s preliminary view that there are no strong merits in the challenge to the judge’s construction of the section.

33. Another of Madam Tam’s principal ground of appeal is that the judge had ignored the “abusive” conduct of the Trustees in making another assessment of her reasonable domestic needs in June 2012 when the Official Receiver had already done an assessment in May 2012.

34. As can be seen from the Table in paragraph 31 of the 21 February 2014 Decision, the amount of Madam’s reasonable domestic needs as assessed by the Trustees ($50,245) was approximately two-thirds of that assessed by the Official Receiver ($75,246). The difference lies in the amount of utility bills, whether Madam Tam should employ one or two domestic helpers and whether there should be allowance for tonic food and acupuncture. The judge had conducted a careful examination of the two assessments alongside with the proposal made by Madam Tam ($91,746) and assessed the monthly reasonable domestic needs of Madam Tam at $48,000, after allowing for inflation.

35. That the Trustees are under an obligation to maximise the estate in bankruptcy for the benefit of Madam Tam’s creditors is trite. In discharging their obligations, they are not bound by earlier proposal or assessment on the monthly payment for Madam Tam, even though it was made by the Official Receiver. Their re-assessment or reduced proposal proves to be justified in light of the judge’s decision. It is also pertinent to note that in two of the items (water bill and food), the Trustees’ assessment is higher than that of the Official Receiver. The complaint that the Trustees acted grossly unreasonably and not in good faith in undertaking another assessment of Madam Tam’s reasonable domestic needs has no merits.

36. In conclusion, we see no basis for departing from Kwan JA’s decision to order security for costs on appeal to be provided by Madam Tam. Accordingly, the summons is dismissed.

Costs of this application

37. The normal rule is that costs should follow the event. Applying Koo Shing Sun v. Hung Wing San Tony & Another, the Trustees ask that their costs of the application be made costs of the appeal and that Madam Tam be ordered to provide additional security to cover their costs of this application, which are estimated to be $68,000. We agree this is an appropriate way to deal with the costs of the application. We however consider that the quantum of the additional security should be set at $50,000. Given that a little over 5 weeks have lapsed since Kwan JA’s order, we are of the view that a further 35 days from the date of this Judgment (to expire by 15 September 2014) should be given to Madam Tam to provide the security ordered by Kwan JA and the additional security that we now order.

Disposition

38. Accordingly, we make the following orders:

(1) The summons filed on 11 July 2014 is dismissed.
(2) The costs of the application be costs in the appeal.
(3) The time for complying with paragraph 1 of the order dated 4 July 2014 is extended to 15 September 2014.
(4) Madam Tam shall on or before 15 September 2014 give additional security for the Trustees’ costs of the appeal in the sum of $50,000 by making lodgement in court of the said sum by cash or bankers draft, and until such lodgement is made and notice thereof given to the Registrar of High Court and the solicitors for the Trustees (such notice to be given on the same day as the lodgement is made), all proceedings in this appeal are to be stayed.
(5) In default of Madam Tam making such lodgement as aforesaid within the time specified, or within such further time as the court may for special reasons allow, this appeal do (upon the solicitors for the Trustees certifying such default to the Registrar of High Court) stand dismissed out of this court without further order.
(6) In the event this appeal is dismissed in circumstances as provided for above, Madam Tam shall pay the Trustees their costs occasioned by this appeal, to be taxed if not agreed.

(Carlye Chu)	(Judianna Barnes)
Justice of Appeal	Judge of Court of First Instance

Mr Hew Yang-Wahn, instructed by ONC Lawyers, for the trustees in bankruptcy

Madam Tam Mei Kam (Appellant) appeared in person.

[1]Moore v Macks [2007] FCA 509 at §§15 to 24; Dubow v Official Receiver & Another [2013] FCA 709 at §§32 to 46.

[2] Section 43E(1) reads: “The court may, on the application of the trustee, make an order (an income payments order) claiming for the bankrupt's estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.”

[3] Section 43E(6) reads: “For the purposes of this section the income of the bankrupt comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office or employment.”

[4] Paragraph 24 of the Decision dated 21 February 2014.

[5] The Chinese version of section 43E(1) and (6) read:

“(1) 法院可因應受託人的申請而作出一項命令(收入付款令)，為破產人的產業申索在該命令有效的期間並屬該命令指明款額的該破產人的收入。
(6) 就本條而言，破產人的收入包括不時向他作出的或他不時有權收取的屬收入性質的每項付款，包括就經營任何業務或就任何職位或受僱工作而收取的任何付款。”

93841-EN-2014-07-10

RE TAM MEI KAM

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CACV 39/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 39 OF 2014

(ON APPEAL FROM HCB NO. 3777 OF 2011)

________________________

Re: TAM MEI KAM

________________________

Before: Hon Kwan JA in Chambers

Date of Hearing: 4 July 2014

Date of Decision: 4 July 2014

Date of Reasons for Decision: 10 July 2014

________________________

REASONS FOR DECISION

________________________

1. This is an application for security for costs on appeal taken out by the trustees in bankruptcy (“the Trustees”) of the estate of Madam Tam Mei Kam, who was adjudged bankrupt on 25 April 2012.

2. The judgment being the subject of Madam Tam’s appeal was given by L Chan J on 21 February 2014, in which the judge dealt with inter alia the Trustees’ application for an income payments order (“IPO”) under section 43E of the Bankruptcy Ordinance, Cap 6 in respect of accrued maintenance and future monthly maintenance payable to Madam Tam, and Madam Tam’s application to strike out the Trustees’ said application, to remove the Trustees from their office and for payment to her of the accrued maintenance.

3. The maintenance payable to Madam Tam was payable from the estate of her deceased daughter Madam Mui Yim Fong by HSBC International Trustee Limited (“HSBC”). By her will, Madam Mui left her entire estate (“the Mui estate”) to an offshore discretionary trust known as the Karen Trust and appointed HSBC the trustee of the Karen Trust and the sole executor of her will. By an order made in HCMP 2981/2004 on 20 November 2007, HSBC was directed to pay out of the Mui estate a monthly sum as specified for the maintenance of Madam Tam. The monthly payment was suspended by an order of 26 June 2012 due to insufficient liquid assets in the Mui estate. HSBC was in a position to resume payment when the liquidity of the Mui estate improved significantly in August 2013. Hence, there was accrued maintenance payable to Madam Tam of about $2 million.

4. By his judgment, the judge dismissed Madam Tam’s application to strike out the Trustees’ application and to remove them from their office. He made an IPO and directed HSBC (a) to take $104,000 per month out of Madam Tam’s income (being the monthly interim maintenance payable from the Mui estate to Madam Tam) for the period from 21 March 2014 until the date of discharge of the bankruptcy order or further order; (b) to deduct $2,063,899 out of the accrued interim maintenance, being income of Madam Tam payable from the Mui estate to her for the period prior to 21 March 2014; and (c) to pay the sums deducted in (a) and (b) to the Trustees.

5. The effect of the IPO made by the judge is that Madam Tam would receive from the Mui estate (a) part of the accrued maintenance at $157,276; and (b) $48,000 a month, being the balance of the monthly interim maintenance currently assessed at $152,000, to satisfy her reasonable domestic needs as assessed by the judge.

6. Madam Tam issued a Notice of Appeal on 27 February 2014 against the decision of L Chan J. She sought to set aside the dismissal of her application to strike out the Trustees’ application for an IPO and to remove them from their office, the IPO and the costs order in the Trustees’ favour. Madam Tam has not sought to set a date for the hearing of her appeal.

7. The Trustees issued their summons for security for costs of this appeal on 5 May 2014, having sought security from Madam Tam by letter dated 1 April 2014 to no avail. According to the initial skeleton bill of costs, the Trustees’ solicitors estimated their costs of the appeal at $227,433 and the costs of the application for security for costs at $158,905, making a total of $386,338. The costs of the application for security for costs have been revised on the day before the hearing to $239,771, making a total of $467,204. They issued this application on the grounds that the appeal is lacking in merits, that Madam Tam is impecunious and it is likely they would encounter difficulty, undue expense and delay in enforcing a costs order against her, and that there are no or no sufficient countervailing factors which would militate against an order for security for costs.

8. At the conclusion of the hearing, I have made an order for security for costs on appeal and these are the reasons of my decision.

Impecuniosity of Madam Tam

9. Madam Tam is an undischarged bankrupt. Her bankruptcy arose out of her liability to pay the solicitors who acted for her in the litigation she brought to challenge the validity of her daughter’s will and the Karen Trust. As at 2 May 2014, the balance of the outstanding debt owed to her creditors from seven quantified proofs of debt received by the Trustees amounted to $9.3 million odd, not taking into account another creditor who has claimed an unspecified amount in respect of various unpaid costs orders. At the moment, the likelihood of a dividend being paid to the creditors depends entirely on the Trustees’ ability to continue to receive the income payments pursuant to the IPO. Other than the accrued and ongoing maintenance payments Madam Tam received from HSBC, it is not known that she has any source of income or any significant assets in her name.

10. The surplus in her bankruptcy estate is $2,030,376.60, made up of the credit balance in her bank accounts of $41,482.30 and maintenance payments from the Mui estate. If the Trustees should continue to receive $104,000 a month under the IPO until April 2016, when in the normal course of events the bankruptcy order would be discharged, the estimated surplus in the bankruptcy estate would amount to approximately $4.5 million. This has not taken into account the statutory fees payable out of the estate to the Official Receiver, the fees and disbursements of the Trustees for administering the estate, and the fees of the Trustees’ solicitors including the costs which were ordered by L Chan J to be paid out of the bankruptcy estate in respect of the Trustees’ application for an IPO and Madam Tam’s unsuccessful application. As mentioned earlier, the minimum outstanding debt owed to Madam Tam’s creditors amounted to $9.3 million odd.

11. If Madam Tam is to proceed with the appeal, in the event her appeal is dismissed, an adverse costs order would be made against her. If there are no funds from an independent source to meet her costs liability, it is inevitable that an order would be made for the costs of the Trustees in the appeal to be paid out of the bankruptcy estate. This would further deplete the assets of the estate to the prejudice of her creditors.

12. Mr Hew, the Trustees’ counsel, cited two authorities of the Federal Court of Australia (Moore v Macks [2007] FCA 509 at §§15 to 24; Dubow v Official Receiver & Anr [2013] FCA 709 at §§32 to 46) in which security for costs on appeal was ordered against an appellant who was bankrupt on the application of the trustee in bankruptcy who was the respondent in the appeal. In the latter case at §41, Collier J, after referring to section 19(1)(j) of the Bankruptcy Act 1966 (Cth) which requires the trustee to administer the estate as efficiently as possible by avoiding unnecessary expense, stressed that it is well settled that the trustee should administer the estate in such a manner as to maximise the return from estate assets and thereby to maximise satisfaction of creditors’ claims and any possible surplus for the bankrupt. He said “it is perfectly reasonable for the trustee to seek an order of security for costs in respect of litigation, where there is a real risk that an order for costs against the other party may not be enforceable, rather than first exhaust the assets of the estate”.

13. The same considerations should apply to a similar situation in Hong Kong. In administering the bankrupt’s estate, a trustee in bankruptcy is under similar obligations as section 84 of the Bankruptcy Ordinance provides that trustees are to deal with property under their control honestly, in good faith, with proper skill and competence and in a reasonable manner.

14. Subject to the discussion below on Madam Tam’s contentions about her apparent impecuniosity, it seems to me special circumstances are made out for security for costs to be provided under Order 59 rule 10(5) of the Rules of the High Court, in the absence of any sufficient countervailing factor.

15. Madam Tam raised the following contentions.

16. First, she asserted that the accrued maintenance of $2 million should have been paid to her but was not paid due to the error in the judgment of L Chan J and this judgment is the subject of her appeal. The impecuniosity alleged by the Trustees was not of her making. If she had not been wrongly deprived of $2 million, there would be no question of her not being able to meet any liability for costs in the appeal. This was the central theme of her oral submissions before this court.

17. This is just a circular argument, based on the contention that Madam Tam’s arguments before L Chan J should have been accepted instead of rejected, see Sunchase International Group (China) Ltd & Ors v Vincor Group of Companies (Investment) Ltd & Ors [2004] 1 HKLRD 731 at §6. I reject this argument. She cannot pray in aid the accrued maintenance for the purpose of providing security, as the bulk of the accrued maintenance was held by the judge to have constituted her income for which an IPO was made. She has challenged the correctness of the judge’s decision in the appeal. An order for security for costs is to provide protection to the Trustees in the event that her appeal is dismissed and she is ordered to pay the Trustees’ costs. If her appeal is dismissed and the judge’s decision upheld, she would have no right to use the accrued maintenance to meet her costs liability in the appeal.

18. Second, she alleged that the Trustees have never been genuinely worried about her being impecunious. She pointed to the inquiries made by L Chan J with the respective solicitors for HSBC and for the Trustees on 7 February 2014, before the hearing on 11 February, in which the judge asked HSBC and the Trustees to advise the court on the value of the Mui estate and the claims of all beneficiaries, dependents and creditors of the Mui estate in rough terms, and the total amount of the outstanding debt, legal costs and other amounts due from Madam Tam’s estate to her creditors and the Trustees. The Trustees however only made “vague and unclear” replies to the court. At the hearing on 11 February 2014, the judge told her in the presence of HSBC and the Trustees that since she is the biggest beneficiary of the Mui estate, he would suggest to her to ask HSBC to pay off her bankruptcy. Hence, the Trustees could never have any genuine worry about her impecuniosity.

19. I have read the Trustees’ replies to the inquiries of the judge. I do not think the replies were in any way vague or unclear. The fact that the judge had made a suggestion that Madam Tam could ask HSBC to pay off her debt to obtain a discharge of her bankruptcy does not mean the Trustees should not be concerned there may be a real risk that an adverse costs order against Madam Tam would further deplete the assets of the bankruptcy estate.

20. Third, Madam Tam made yet another challenge to the Karen Trust, contending this time that she could validly terminate the trust and has done so by serving a notice to this effect on HSBC dated 16 May 2014. She asserted that she and her four grandchildren are absolutely entitled to the full benefits of the trust as the originally named beneficiaries of the trust, that the addition by HSBC of two beneficiaries – Lau Kai Eddie (“Eddie Lau”) on 20 June 2005 and New Horizon Buddhist Association Limited (“the Buddhist Association”) on 2 November 2005 – was defective due to the non-compliance of HSBC with formalities to make valid appointments by deed, and that in any event the appointment of the Buddhist Association as an additional beneficiary was in contravention of clause 31 of the trust deed. Hence, she and the four grandchildren are the only beneficiaries entitled absolutely to the benefits of the trust and as such they can validly terminate the trust and have done so by the notice of termination on 16 May 2012 signed by Madam Tam on her own behalf and on behalf of each of the grandchildren who are alleged to be of full age. She asserted that HSBC is obliged to wind up the Karen Trust and as the net cash position of the trust is very substantial, her bankruptcy will be discharged from the assets of the trust and there is no question of her being impecunious.

21. The Trustees have made inquiries with the solicitors of HSBC on 18 June 2014 about Madam Tam’s purported termination of the Karen Trust, which they learned for the first time when the notice of termination was exhibited to Madam Tam’s affirmation to oppose this application filed on 3 June 2014. HSBC’s solicitors replied on 20 June 2014 stating that HSBC does not consider there is any basis on which Madam Tam is entitled to terminate the trust as asserted and HSBC is in the course of preparing a reply to her directly. At the time of the hearing, it is not known if Madam Tam has received a substantive reply from HSBC.

22. The Trustees submitted there are a number of difficulties about the alleged entitlement to terminate the Karen Trust. They envisage that the purported termination would be resisted by HSBC, Eddie Lau and the Buddhist Association and legal proceedings to resolve this dispute may be long drawn out and an expensive process.

23. Madam Tam had challenged the validity of the will of her daughter and of the Karen Trust in HCAP 2/2004 which was heard and decided against her in June 2008. She appealed this judgment taking her appeal all the way to the Court of Final Appeal and this resulted in the final dismissal of her appeal in May 2011. Eddie Lau and the Buddhist Association were joined by Madam Tam as defendants in those proceedings. She did not raise the argument in those earlier proceedings that their deeds of appointment as additional beneficiaries were invalid for non-compliance with formalities (contending that the execution of the deeds of appointment was not witnessed, the two persons who signed as “authorised signatory” were not identified and the source of their authorisation was not made known) or in contravention of clause 31 of the trust deed. If Madam Tam were to advance this new argument in subsequent legal proceedings involving HSBC, Eddie Lau and/or the Buddhist Association, she would need to overcome the hurdle that this is not an abuse of process as this is an argument she could and should have raised in the earlier probate proceedings.

24. Furthermore, under the trust deed of the Karen Trust, which is established under the laws of the Cayman Islands, it is provided that the initial law of the trust shall be the laws of the Cayman Islands and that the Courts of the Cayman Islands shall be the initial forum for the administration of the trust, although the trustee may at any time declare by deed that from the date of such declaration the forum for the administration of the trust shall be the courts of any specified country, state or territory. Mr Hew submitted there is apparently a case that any dispute relating to Madam Tam’s purported entitlement to terminate the Karen Trust should be decided by the Courts of the Cayman Islands applying the laws of the Cayman Islands.

25. Mr Hew also cast doubt on the merits of the new argument of Madam Tam relating to the non-compliance with formalities and the contravention with clause 31 of the trust deed. He submitted that it is unlikely that HSBC would have failed to comply with the formalities on the execution of a deed of appointment laid down in its articles of association. And the reading of Madam Tam of clause 31 is not a reasonable construction of that provision or of the trust deed as a whole.

26. Madam Tam asserted that the Karen Trust can be validly terminated on the new argument advanced by her. She contended that HSBC should adopt a neutral stance on this, otherwise it would run the risk of being made personally liable for her costs. Further, Eddie Lau and the Buddhist Association may want to settle the dispute with her amicably and as quickly as possible in an economic way. She submitted that the proper forum to hear the dispute on her entitlement to terminate the Karen Trust should be the Courts of Hong Kong, on the proper construction of the relevant provision in the trust deed and applying the principles on the conflict of laws. As for the merits of her new argument, she submitted that the formal requirements on the execution of a deed could be overlooked easily, particularly by a big organisation like HSBC. She reiterated her interpretation of clause 31 of the trust deed that no beneficial interest was intended to be given to the Buddhist Association. She claimed there is no abuse of process, notwithstanding that she did not raise the new argument in the earlier probate proceedings.

27. It is not necessary for me to reach a definite view on the above rival contentions or to mention the many authorities cited by Mr Hew in this respect. Suffice it to say it is clearly not a straightforward matter for Madam Tam to successfully assert her claim that the Karen Trust has been validly terminated by the notice she served on HSBC dated 16 May 2014. Legal proceedings will most likely have to be instituted, if Madam Tam should persist in pursuing her new argument. And it would take time for this new dispute to be resolved.

28. As matters now stand, it simply cannot be said that there will be an early discharge of her bankruptcy order. Nor do I accept her contention there is possibility of funds forthcoming (whether by successful assertion that the Karen Trust is validly terminated, or by successful negotiation with HSBC, Eddie Lau and the Buddhist Association) within a relatively short time. I am satisfied she is impecunious, that there is a real risk any costs liability imposed on her in this appeal would further deplete the bankruptcy estate, and that special circumstances are made out for security for costs to be provided on appeal.

Merits of the appeal

29. If there are very strong merits in the grounds of appeal, that may constitute a sufficient countervailing factor for the court to exercise discretion not to order security for costs. However if the appeal could go either way, the appellant would need to show other countervailing factor to tilt the balance in his favour.

30. Madam Tam contended that her appeal would raise questions of great importance that are not easy to resolve and the Trustees’ application for security for costs is a trick to deny justice to her. In short, her grounds of appeal are that the judge had erred in construing section 43E(1) of the Bankruptcy Ordinance in that he had ignored the Chinese version of this provision. She complained that the judge had failed to take material facts into account in assessing her reasonable needs in making the IPO, and that the judge had failed to make findings on her complaints regarding the “abusive” conduct of the Trustees in refusing to remove them from their office.

31. It is not necessary or desirable to examine in detail her arguments on the appeal and the Trustees’ counter arguments. A preliminary assessment would suffice for present purpose.

32. I am satisfied that the grounds of appeal are not strong in merits. They do not therefore constitute countervailing factors for this court to exercise discretion not to order Madam Tam to provide security for costs on appeal. There are no aspects of public interest that weigh in the balance against granting security. There is no injustice in requiring her to provide security. To the contrary, it is entirely just that security should be ordered in this situation. She had pursued her applications before the judge and failed, resulting in a costs order which would be met out of her bankruptcy estate. She should not be allowed to embark on an appeal without providing security, so as not to further prejudice the interests of her creditors.

The amount of security

33. In the Trustees’ summons, they seek security for costs on appeal in the sum of $227,433, being the estimated costs of the appeal and the amount does not include the estimated costs of the application for security for costs, which come up to $158,905 according to the initial skeleton bill.

34. I have drawn the attention of both parties to Koo Shing Sun v Hung Wing San Tony & Anr, CACV 241/2012 & CACV 41/2013, 11 April 2013, at §§44 to 47. As I have stated in that case, there is no good reason why the costs of an application for security for costs should not be included in the amount to be provided as security, as costs of the appeal should embrace the whole process, including applications in the appeal court incidental to the appeal. The choice is between ordering costs of the application for security to be paid in any event (in which case these estimated costs would be included in the security to be provided), or ordering such costs to be paid by the paying party forthwith.

35. In this case, I think it appropriate to order that the estimated costs of the application for security should be included in the security to be provided, rather than ordering Madam Tam to pay such costs forthwith. In making an order that costs of the present application are to be paid in any event, I do not propose to order further that such costs are to be paid out of the bankruptcy estate of Madam Tam. If the Trustees should think it appropriate to apply for such an order nearing the time when costs are to be paid, they may then apply to the court.

36. Mr Hew asked this court to make a gross sum assessment of the costs of the application for security for costs. I do not think it appropriate to do so, as these costs are to be paid in any event and would form part of the costs of the appeal. The costs of the appeal should be taxed in one go, in the usual way, rather than on a piecemeal basis.

37. Madam Tam submitted that the quantum of the estimated costs in the initial skeleton bill should be reduced by half at least. She asked for three months to pay, claiming that there is possibility she may come into funds by reason of her successful assertion of termination of the Karen Trust or that she may successfully negotiate a settlement with HSBC, Eddie Lau and the Buddhist Association.

38. I have considered the revised skeleton bill claiming $239,771 in respect of the costs of the present application for security for costs. In comparison, the original estimate for such costs was $158,905. This is an increase of just over 50%. Counsel explained the increase was due to the points taken by Madam Tam in disputing her impecuniosity. Even if this should be taken into account, it seems to me that the revised estimated amount is excessive, both in terms of work done by solicitors ($130,769) and counsel’s fees ($105,000). I note that counsel’s fees for this application are even higher than the estimated fees of counsel on appeal. As for estimated costs of the appeal, I take into account that much work would appear to have been done already by the legal team of the Trustees in the application for security for costs, as confirmed by Mr Hew.

39. I would estimate reasonable costs for the application for security for costs at $130,000, made up of solicitors’ costs at $70,000 and counsel’s fees at $60,000, and costs of the appeal at $177,500, made up of solicitors’ costs at $100,000 and counsel’s fees at $77,500. The total amount of security to be provided is $307,500.

40. The time usually provided for giving security is 28 days. I see no reason to shorten this to 14 days as sought by the Trustees. Madam Tam sought three months to pay. Despite being sceptical if she would be able to successfully assert her entitlement to terminate the Karen Trust within a relatively short time or successfully negotiate a settlement as hoped for, I would allow her 56 days to pay.

Orders

41. I have made the following orders:

(1) Madam Tam do within 56 days hereof give security for the Trustees’ costs of the appeal in CACV 39/2014 in the sum of $307,500 by making lodgement in court of the said sum by cash or bankers draft, and until such lodgement be made and notice thereof given to the Registrar and to the solicitors for the Trustees (such notice to be given on the same day as the lodgement is made) all proceedings in the said appeal are to be stayed;
(2) in default of Madam Tam making such lodgement as aforesaid within the time specified, or within such further time as the court may for special reasons allow, the said appeal do (upon the solicitors for the Trustees certifying such default to the Registrar) stand dismissed out of this court without further order;
(3) in the event that the appeal is dismissed in the circumstances provided for above, Madam Tam do pay to the Trustees their costs occasioned by the said appeal, such costs to be taxed if not agreed; and
(4) the costs of this application be costs in the appeal.

(Susan Kwan)
Justice of Appeal

Mr Hew Yang Wahn, instructed by ONC Lawyers, for the trustees in bankruptcy

Madam Tam Mei Kam (Applicant/Appellant) appeared in person