Re Chu Jiaru

HCB 8394/2020

[2023] HKCFI 1177

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8394 OF 2020

____________________

____________________

_____________________________

DECISION ON COSTS

_____________________________

1.On 10 March 2023, I dismissed the Bankrupt’s summons dated 13 September 2021 seeking the annulment of a bankruptcy order made against her (“Decision”).[1] I directed that written submissions be filed on costs and that I would deal with the matter by way of paper disposal, unless otherwise directed. This is my decision.

2.To recap, I decided that the Bankrupt had demonstrated that there was a bona fide dispute of the underlying debt on substantial grounds.  This brought the case within the scope of section 33(1)(a) of the Bankruptcy Ordinance (Cap 6).  However, I was not satisfied that I should exercise my discretion in favour of the annulment sought by the Bankrupt.   

3.On the summons seeking annulment, the Petitioner submits that the Bankrupt should pay the Petitioner and the Trustees the costs of and occasioned by the application.  In response, the Bankrupt submits that she should only be liable to pay 30% of the Petitioner’s costs on the basis that the Petitioner failed on the “merits” ground: Decision §§59-86. 

4.I have borne in mind, and do not repeat, the established post-CJR principles on costs set out in Ko Hon Yue v Chiu Pik Yuk [2018] HKFCI 1973 at §§15-16 per Chu JA and Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd (CACV 192/2014) at §25 per Lam VP. 

5.The Petitioner was the successful party on the annulment application.  Accordingly, the starting point is that costs should follow the event.  However, the Bankrupt did prevail in demonstrating that there was a bona fide dispute of the underlying debt on substantial grounds: she prevailed on the major points relied on, though not on each and every one. 

6.It should be clear from the Decision that the merits ground involved a substantial amount of factual and expert evidence, and was the subject of comprehensive written and oral argument.  I do not agree with the Petitioner that it was so intertwined with the arguments on discretion to make an issue-based costs order inappropriate. That argument is unsound.  On discretion, the Petitioner relied on three separate points which were unrelated to the issue of the merits of the dispute regarding the underlying debt: Decision §89.  It was on those grounds which the Petitioner won.   

7.In my view, there should be a meaningful reduction in the costs payable to the Petitioner to reflect the fact that the Petitioner was unable to show that there was no bona fide dispute on substantial grounds.  At the same time, however, the Petitioner is correct to point out that the Bankrupt’s conduct in the bankruptcy was found to be unsatisfactory.  I do not intend to rehearse the detailed findings, but in short, this was in relation to her evasive approach towards service, her failure to comply a sworn Statement of Affairs, and her approach towards disclosure of assets.  I do not accept the Bankrupt’s argument that her conduct in the bankruptcy should not be a material consideration in the determination of the proper costs order.

8.In my mind, a suitable costs order should reflect both the Bankrupt’s success on the merits ground, and also mark disapproval over her conduct in the bankruptcy.  Viewing the matter in the round, and balancing the various competing considerations, I take the view that the Petitioner should be entitled to 75% of its costs of the annulment summons.  To be clear, I would have made a greater reduction but for my findings regarding the Bankrupt’s conduct in the bankruptcy.         

9.On the Petitioner’s summons dated 10 January 2022 for leave to adduce new evidence, I do not intend to rehearse the respective arguments.  It would be disproportionate for me to do so.  It suffices to say that I have duly considered the points raised by both sides and I consider that the fair order is that there should no order as to costs on this summons. 

10.The Petitioner next submits that any costs ordered against the Bankrupt should be paid by her personally, and not out of her estate, and that the costs should be summarily assessed and payable within 14 days.  The basis for personal liability is that the prospect of there being a surplus in the estate after all her creditors are paid is remote, and if the costs were paid from the estate, those costs would effectively be borne by the creditors, including the Petitioner.  To avoid this situation from arising, the Bankrupt should be made to bear her costs personally: Re Yip Wan Fung [2021] HKCFI 3610 at §§121-122. 

11.On behalf of the Bankrupt, it was submitted that there is no inflexible rule that whenever a bankrupt does not succeed on an annulment application, the costs must be borne by the bankrupt personally rather than by his estate.  Re James Henry Ting [2021] HKCFI 1704 was cited as an example.  Moreover, it was said that the Defendant had a clear interest and good justification for issuing the annulment proceedings.  

12.On the issue of personal liability for costs, I agree with the Petitioner’s submissions.  I believe that it would be unfair to the creditors if I made an order that costs should be borne by the Bankrupt’s estate.  Moreover, I bear in mind that the Bankrupt was not successful on the discretionary grounds that would affect the estate as a whole.     

13.In support of summary assessment of costs, the Petitioner has submitted a statement of costs seeking $2,274,389.37.

14.The Bankrupt submits that taxation is more appropriate, and without prejudice to that position, submitted a list of objections.  Her position is that no more than $1,524,724.28 should be allowed on summary assessment.  Without listing them in detail, her major objections include the hourly rates charged by the Petitioner’s solicitors were high, and certain items were either excessive or duplicative.

15.Due to my familiarity with the issues and background of this case, I believe that this is an appropriate case for summary assessment.  I appreciate that the quantum involved is higher compared to what is normally sought on summary assessments.  However, I consider that I am in a position to conduct the assessment.  In my mind, proceeding to taxation would only lead to further time and costs being spent unnecessarily.

16.Since this is not a taxation, I do not propose to go into specific items or amounts.  Adopting a broad-brush approach, and having regard to the objections raised, I would proceed on the basis that the Petitioner should be entitled to $1,800,000 under its statement of costs.  The amount actually payable will have to be adjusted since I have decided that the Petitioner should be entitled to only 75% of its costs on the annulment summons. 

17.The Petitioner also sought an order that the Trustees’ costs of the annulment and new evidence summons should first be paid out of the Bankrupt’s estate, but that the Bankrupt will personally reimburse all such costs after all her unsecured creditors have been fully repaid or upon her discharge from bankruptcy, whenever earlier.

18.The Bankrupt objected to this on the basis that the Petitioner has no right to claim any costs on behalf of the Trustees.  After an enquiry from the Court, the Petitioner’s solicitors responded that the Trustees confirmed that they sought the orders indicated by the Petitioner. 

19.I take the view the Trustee’s costs were incurred in the administration of the Bankrupt’s estate, and their assistance was of considerable importance in the resolution of the application.  I am of the view that the order sought is appropriate, and I am fortified in my conclusion given that a similar order was made in Re Yip Wan Fung at §123.     

20.Lastly, the Petitioner seeks an order that in the event that the Bankrupt fails to pay the costs ordered by this court, then the Petitioner shall be at liberty to apply for a disclosure order with respect to the identity of the Bankrupt’s funders in this litigation, and a non-party costs order.  In my view, this order serves no purpose since the Petitioner can, if so advised, make an appropriate application at a later stage.  I decline it.   

21.I make the following orders:

(1)  The Bankrupt shall pay 75% of the Petitioner’s costs (including all costs reserved) of and occasioned by the Bankrupt’s summons dated 13 September 2021.  These costs are summarily assessed at HK$1,350,000 (being 75% of HK$1,800,000). 

(2)  The Bankrupt shall pay the Trustees’ costs (including all costs reserved) of and occasioned by the Bankrupt’s summons dated 13 September 2021 and the Petitioner’s summons dated 10 January 2022.  These costs shall be first paid out from the Bankrupt’s estate, but the Bankrupt shall reimburse all such costs after all her unsecured creditors have been fully repaid or upon her discharge from bankruptcy, whichever is earlier.

(3)  As between the Petitioner and Bankrupt, there is no order as to costs on the Petitioner’s summons dated 10 January 2022.

22.For the costs of the present application, since neither party has been wholly successful, I take the view that it is only fair that there shall be no order as to costs.  I so order.