Re Lau Nga Yee Christine

HCB 3486/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 3486 OF 2002

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Re: LAU NGA YEE CHRISTINE

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Before: Hon Reyes J in Chambers

Date of Hearing: 17 September 2004

Date of Decision: 17 September 2004

Date of Reasons for Decision: 30 September 2004

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REASONS  FOR  DECISION

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I.  Introduction

1.The Official Receiver (“the OR”), as Ms Lau’s trustee-in-bankruptcy, seeks an order that $59,529 of monthly income be paid to the bankrupt’s estate for distribution among creditors.  This income payments order is sought under Bankruptcy Ordinance (Cap. 6) (“BO”) s. 43E.

2.BO s. 43E(2) prohibits the court from making an income payments order which would reduce a bankrupt’s income to below “what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family”.

3.Ms Lau says that, after rigorous scrutiny of her family’s finances, she can only afford monthly contributions of $10,059, and even then with much hardship.  The OR disputes this.  Specifically, the OR contends that the following monthly expenditures claimed by Ms Lau are not reasonable domestic needs:-

(1)     $44,106 for the college education of 2 children in Australia;

(2)     $3,000 for a part-time domestic helper;

(3)     $200 for emergency taxi fare;

(4)     $5,000 for Ms Lau’s parents; and,

(5)     $2,900 for job-related personal expenses.

4.The issue is therefore whether those 5 items are reasonable expenses.

II.  Background

5.Ms Lau is a pharmacist employed by the Hospital Authority.  Since May 2004 she has been earning $98,427 per month.  That will be reduced to $95,372 per month from January 2005.  Ms Lau’s husband resigned from the police in 1999.  He has since been unemployed.  Ms Lau’s children study in Australia.

6.Ms Lau filed a bankruptcy petition on 26 February 2002.  Her husband made a similar petition at about the same time.  Husband and wife were adjudged bankrupt on 2 May 2002.

7.The total of creditors’ claims against Ms Lau is $4,944,848.79.  That includes $1,507,657 jointly due from Ms Lau and her husband to the chargees of a Tseung Kwan O property.  The husband owes $701,098.52 in unsecured debt in addition to the joint obligation just mentioned. 

8.As of May 2004, $352,518 has been realised for distribution among Ms Lau’s creditors.  That sum has come from contributions paid by Ms Lau since May 2002.

9.Between May 2002 and April 2003 Ms Lau paid monthly contributions of $22,674 into her estate. 

10.Ms Lau then asked to reduce her monthly contribution as a result of a salary cut, a rise in the value of the Australian dollar and the start of her youngest child’s education in Australia.  Between June and December 2003 Ms Lau thus paid 10 instalments of $10,028. 

11.In December 2003 Ms Lau asked for a suspension of payments until May 2004.  She made this request due to her need to pay tax, a further rise in the Australian dollar, and another reduction (3%) in salary.  The OR rejected her request, but allowed a 3-month moratorium.  The OR also asked Ms Lau to pay $5,117 pending a review in May 2004 of her income and expenses.  Ms Lau accordingly paid 2 instalments of $5,117 in April and May 2004.

12.In April 2004 Ms Lau proposed to pay $2,908 per month from May 2004 to April 2005.  The OR rejected this as too low.  Ms Lau increased her offer in May 2004 to $7,349.  She was able to do this on the basis that the eldest of her 3 children would not pursue further post-graduate studies in Australia.  The OR rejected the offer as still too low.  Ms Lau made a final offer of $10,059 on 18 May 2004.  The OR also rejected this.

13.It will be noticed that the 5 disputed items amount to only $55,206, a sum less than the contribution of $59,529 proposed by the OR.  The latter figure arises because the OR feels that $35,843 of Ms Lau’s future salary of $95,372 is enough to cover her reasonable expenses.  $59,529 is the difference between $95,372 and $35,843.  But the matter was presented and argued before me on the basis of the reasonableness or otherwise of the 5 disputed items.  I have therefore considered the OR’s application along that line.

III.  Discussion

A.  Expense for overseas education

14.Ms Lau has 3 children: Cheryl (aged 22), Dominic (aged 20) and Philomena (aged 19).  Cheryl and Dominic were studying in Australia prior to Ms Lau’s bankruptcy.  Philomena did not start studies in Australia until September 2003. 

15.Cheryl’s course will end in July 2004.  Ms Lau does not now make a claim for her maintenance. 

16.Dominic is attending a 4-year course at Monash University. That will end in December 2006 and will cost a total of about A$72,000. 

17.Philomena’s 9-month foundation course at Melbourne University ended in June 2004.  The course cost about A$15,949.  Upon that course’s completion, Philomena qualified for admission as an undergraduate at Melbourne University.  The OR previously allowed Ms Lau to claim expenses for Philomena’s foundation course in Australia.

18.In criticising Ms Lau’s claim for overseas education expenses, Ms Yiu for the OR opened with 2 startling propositions. 

19.Firstly, Ms Yiu submitted that in deciding whether to make an income payments order the Court should bear in mind that Ms Lau’s outstanding debt was “large”.  The larger the debt, the less ready (Ms Yiu suggested) the Court should be to regard a given expense as a “reasonable domestic need”.

20.I questioned the submission.  It seems to me that a person’s “reasonable domestic needs” should be the same whatever the size of his debt.  The mere fact that a large amount is due cannot somehow make a basic need less reasonable. 

21.I asked Ms Yiu for supporting authority.  She cited Re Rayatt(a bankrupt) [1998] BPIR 495.  But upon further probing by the Court, she conceded that Rayatt did not go so far as to support her first proposition.  I cautioned Ms Yiu against pushing an authority further than it could go, especially where an unrepresented litigant was on the other side.

22.Secondly, Ms Yiu suggested that in deciding whether to make an income payments order the Court should regard a bankrupt’s creditors as “prime beneficiaries”.  By this Ms Yiu seemed to mean that, far from maintaining an even-handed balance between the bankrupt’s needs and the demands of her creditors, the Court should treat the benefit of creditors as paramount.

23.This appeared to me to be an approach to BO s. 43E which was unjustified by the authorities.  It is the OR’s duty as trustee to maintain an even hand between the needs of creditor and bankrupt.  Whether or not the bankrupt appears in person without benefit of legal advisers, in presenting a case for an income payments order the OR must provide the Court with a fair, neutral account which sets out the pros and cons of the application from the standpoints of creditor and bankrupt.  I do not think that it is for the OR to adopt a partisan position and advocate the creditor’s view alone in such applications.

24.Ms Yiu sought to bolster her second proposition by recourse to statements such as the following in the Cork Committee’s Report onInsolvency Law and Practice (1982) Cmnd 8558 (at §232):-

“Insolvency proceedings are inherently of a collective nature; their prime beneficiary is the general body of the insolvent’s creditors, each of whom is affected, though clearly by no means necessarily to the same extent, by the common disaster.  If each such creditor is denied by law the right to pursue separate remedies against the insolvent and is obliged to rely on the outcome of collective proceedings, then his interest in those proceedings ought to be, so far as consistent with the claims of his fellow creditors, as fair and reasonable as circumstances will permit, to compensate him for the loss of his individual rights.”

25.All the Cork Committee is there saying is that, absent orderly insolvency proceedings, there will be a free-for-all where the creditor quickest off the mark to serve a writ and enforce a claim will benefit at the expense of creditors who are less swift.  For the latter, there will be little left to sue for once previous claims have exhausted the insolvent’s available funds. 

26.The law obviates such a messy and haphazard outcome by imposing a collective process to the benefit of all creditors.  That process has the result that creditors share pari passu in the bankrupt’s assets.

27.The passage does not support Ms Yiu’s proposition.  It does not deal with income payments orders.  It cannot affect the explicit stricture in BO s. 43(2) against orders which cut into the bankrupt’s reasonable needs.  It is not the purpose of income payments orders to turn bankrupts into the slaves of their creditors.

28.Ms Yiu’s essential contention was that the overseas education of Dominic and Philomena was not a reasonable expense for Ms Lau to claim. 

29.Ms Yiu submitted that in contrast to Re Rayatt there was no evidence from Ms Lau to show that Philomena’s mental state would be “hugely affected by the termination of her study in Australia”.  Since Philomena had only completed a foundation course, her university career had not truly begun and Ms Lau had “no legal duty to raise a mature child”.

30.As for Dominic, although he was in the midst of university study at the time of the bankruptcy order, he is now in his majority.  Ms Lau has no duty (Ms Yiu submitted) to provide for his tertiary education.

31.I disagree with Ms Yiu’s submissions. 

32.The test is not whether there is a legal duty, but whether an expense is a reasonable domestic need.  Where a legal duty to contribute maintenance exists, that may point to the contribution being a reasonable need.  But it does not follow that, where there is no duty, an expense is unreasonable.

33.In principle the education of one’s children can constitute a “domestic need” of the bankrupt and her family.  The expense is “domestic” in the sense that the education of sons and daughters is a conventional incident of maintaining a family and home.  It is a “need” in the sense that, especially in Hong Kong, the education (including the tertiary education) of one’s offspring is regarded as an important parental and social responsibility, irrespective of any obligations imposed by the letter of the law.

34.The question is whether it is reasonable in the circumstances of this case for Ms Lau to claim for the expense of educating a 19 and 20-year old child in Australia.  I believe that it is.

35.In Hong Kong, university education is regarded as crucial to a child’s personal development and career prospects.  The Hong Kong Government strongly encourages the education of its youth in the interests of improving our society in general. 

36.It is wholly understandable and reasonable that a mother should want to ensure that her children are equipped with at least a college degree so as to deal with the challenges of modern life.  Armed with a college education, the children can more effectively contribute to society as a whole and to their parents’ well-being in particular, possibly including assisting in the discharge of the burden of debt on Ms Lau and her husband.

37.I am not persuaded by Ms Yiu’s point about the absence of affidavit evidence from Ms Lau to the effect that Dominic and Philomena will suffer psychological distress if their education abroad is curtailed.  It is self-evident that the disruption of one’s studies is bound to cause some distress and disorientation.  The child will be abandoning one’s course unfinished, in the middle of things, abruptly leaving the friends one has come to know, and starting all over again in some different endeavour.

38.I asked Ms Yiu what sort of affidavit evidence she thought Ms Lau ought to have produced to bolster her case.  Ms Yiu suggested that there should have been evidence from Hong Kong tertiary institutions to the effect that Dominic and Philomena could not be enrolled there.  This seemed to me an impractical suggestion.  I doubt that a university here would produce such a letter.

39.More fundamentally, university places in Hong Kong are limited.  Competition is intense.  Not everyone who is qualified and wishes to attend university can get a place here.  Dominic and Philomena having already secured places at Monash and Melbourne Universities respectively, both institutions well-known for the quality of their educational programmes, it does not make sense now to require them to disrupt their studies and return to Hong Kong.

40.Ms Yiu submitted that, if I regarded overseas education in this case as a reasonable need, a distinction should nonetheless be drawn between the situations of Dominic and Philomena.  The latter (Ms Yiu reasoned) had only completed a foundation course.  It should therefore be less disruptive if at the end of that course she were to quit Australia for Hong Kong.

41.I reject this argument.  I do not think that the distinction is valid.  Philomena, being younger, may (if anything) be the more emotionally vulnerable, if (contrary to her natural expectation of continuing at Melbourne University upon passing her foundation course) her studies in Australia were prematurely terminated.  Her effort in the foundation year would have gone to waste.

42.For the above reasons, I regard the claimed overseas education expense of $44,106 as a reasonable domestic need.

B.  Expense of part-time domestic helper

43.Ms Yiu submitted that this was a “luxurious expense”.

44.I asked Ms Lau why she needed a domestic helper.  Could not her husband, who was presently unemployed, attend to daily household chores?  Ms Lau replied that her husband did in fact do some domestic work.  That was why she was only making a claim for the expense of a part-time helper.  But, despite being out of job, her husband was still actively looking for employment and often had to leave home to follow up on leads. 

45.Ms Lau herself was obviously unable to do much domestic work since she had to attend to her job in order to earn the money to support her family and make her contributions.

46.It seems to me, in light of Ms Lau’s explanation, that the monthly expense of $3,000 for a part-time helper is not unreasonable.  I do not think that it constitutes a luxury in the circumstances.

C.  Emergency taxi fare

47.Ms Yiu argued that this was unreasonable as there was no evidence that Ms Lau needed to ride a taxi to work.

48.I asked Ms Lau what the purpose of taxi fare was.  What emergency did she have in mind?  Ms Lau explained that for about one week in every month she would be on duty call.  Wherever she might find herself, upon receiving a call from her employer, she would have to rush urgently to the most convenient hospital to prepare whatever prescription might be necessary to respond to an emergency.  Sometimes it may be a question of life and death, such as when a person suffers from a snake bite.  In those instances, there may be no time to waste and public transportation may just be too slow.

49.I asked Ms Lau whether or not the Hospital Authority reimbursed her for taxi rides to deal with emergency duty calls.  Ms Lau replied in the negative.

50.In light of Ms Lau’s explanation, I do not think that it can be suggested that $200 claimed for taxi fare is unreasonable.

D.  Support for Ms Lau’s parents

51.Ms Yiu submitted that $5,000 was extravagant, especially since Ms Lau had 2 siblings who could provide parental support.  The OR was prepared to countenance support of $2,000.

52.Ms Lau’s parents are both nearly 80 years old. 

53.Ms Lau’s brother is unemployed.  Her sister runs a business, but is struggling to make ends meet.  Her sister is unable to contribute regularly to their parents.

54.I do not think that it is realistic to expect Ms Lau’s brother or sister to provide much assistance to Ms Lau’s parents, given the straitened circumstances of the 2 siblings.

55.It seems eminently reasonable and proper for Ms Lau to claim $5,000 to support her parents in their twilight years.  It is difficult enough in Hong Kong today to survive on $5,000 a month.  I do not see that Ms Lau should be compelled to provide a lower level of support for her parents as the OR recommends.

E.  Job-related expenses

56.Ms Yiu submits that $2,900 is an unreasonable expense.

57.In a letter to the OR dated 9 May 2002 Ms Lau explained the need for this item as follows:-

“Job-related personal expenses is a necessity as I have to dress presentably to project a professional image in my line of duty as a Pharmacist in representing the Department at meetings with other professional staff either locally in the Hospital or at the Hospital Authority Headquarters.  Furthermore, regular delivery of educational talks to patient groups and other healthcare professionals also demands a well-groomed and smart appearance.”

58.The letter seems to me wholly to justify the expense claimed.

59.I would also observe the following.  The recent SARS outbreak has drawn society’s attention to the stresses and strains faced daily by Hong Kong’s medical workers.  The Court cannot be blind to such realities.  In the pressured atmosphere in which they work, it is not surprising, and indeed it is edifying, that for the purposes of maintaining their morale and that of their colleagues and patients, medical workers such as Ms Lau should wish at all times to project a well-groomed, professional appearance. 

60.Looked at in the round, I am unable to regard the sum of $2,900 for personal expenses related to good grooming as unreasonable.

IV.  Conclusion

61.The OR has failed on the 5 disputed iteMs  The OR’s application for an income payments order of $59,529 is consequently unsuccessful.  Ms Lau has prevailed.

62.Ms Lau appears in her supporting material to argue that, having allowed expenses similar to the 5 disputed items in the past, the OR is now estopped from denying their reasonableness.  I should make it clear that my conclusions are not premised on any notion of an estoppel.  It is unnecessary for me to consider such argument.

63.It is not usual for the Court to make a costs order against the OR.  However, the OR by its submissions having taken what seemed to me to be a partisan line against Ms Lau, I considered the possibility of a gross sum assessment in Ms Lau’s favour.

64.I asked Ms Lau how much she had spent in preparation for the hearing before me.  She gave a figure of $3,000.  I then turned to Ms Yiu for her comments.

65.At this point Ms Yiu in an apparent fit of temper, threw her papers onto the bar table and began to address the Court and Ms Lau in an irritated fashion.  I regret that such unjustifiable conduct occasioned strong words from the Court.  No tribunal is helped by submissions advanced in an angry manner.  This must especially be the case where litigants appear in person against a barrister.  I hope never to see such behaviour again from counsel.

66.In the event, having apologised to Ms Lau and the Court, Ms Yiu advanced only one argument against a gross sum assessment.  She essentially submitted that Ms Lau had brought these proceedings upon herself by originally suggesting a monthly contribution of only $2,908.

67.I did not see merit in Ms Yiu’s point.  Ms Lau’s final offer was $10,059.  That is what she will now in effect be contributing per month.  The OR, in contrast, insisted on an order for $59,529 and that has failed.  I saw no reason why costs should not follow the event and made a gross sum assessment of $3,000 against the OR.

68.I note finally that at the conclusion of the hearing I asked the parties whether there was any other matter for the Court.  Neither side invited me to make an income payments order for $10,059, the monthly amount which Ms Lau was prepared to pay.  Therefore, no such income payments order was made and the OR’s application stood completely dismissed.

Ms Elsie Yiu, instructed by the Official Receiver.

The bankrupt, in person, present.