JORA SISI OMAR v. JORA HARMIDAR OMAR

CACV 209/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 209 OF 2016

(ON APPEAL FROM HCSD NO. 3 OF 2016)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Cheung JA (giving the Judgment of the Court) :

I. The appeal

1.1  This is the applicant’s appeal against the judgment of Godfrey Lam J who dismissed her application to set aside a statutory demand served upon her on 22 January 2016 by the respondent.

1.2  The Judge further ordered costs of the application to be paid by the applicant to the respondent and the respondent was authorized to present a bankruptcy petition after the expiry of seven days from the date of the order.

1.3  The statutory demand was based on a costs order made on 25 March 2013 against the applicant in HCAP 19/2011 which is the probate proceedings between the applicant and the respondent.

II.  The probate proceedings

2.1  In the probate proceedings, the applicant claimed that she was the lawful daughter of Mr Abdool Kadar Omar (‘the deceased’) who died on 5 December 1977.  The deceased was a civil servant and a member of the United Co‑operative Building Society Limited (‘the Society’) which held a property in Sai Wan Ho Street (‘the property’).  The deceased had the exclusive right to possession of a unit in the property. 

2.2  The Judge summarised the issues in the probate proceedings as follows.

2.3  The deceased was an Islam.  He and Madam Harmidar Ng Yuk (‘Madam Ng’) were married at a mosque in Hong Kong on 19 April 1944.

2.4  The respondent was the adopted daughter of the deceased and Madam Ng by an adoption order of the High Court dated 19 April 1960 pursuant to the Adoption Ordinance (Cap. 290).

2.5  From around 1954 onwards, the deceased had a relationship with one Madam Wong Miu Mee.  Three children were born of this relationship, one of whom is the applicant.  The applicant has been living at the property since 1960. 

2.6  Pursuant to a nomination made by the deceased in 1960 in accordance with the Co‑operative Societies Ordinance, Cap. 33 (‘CSO’) and the by-laws of the Society, Madam Ng succeeded to the membership of the deceased with the Society after his death and was so registered on 2 January 1978.  In 1979, Madam Ng in turn nominated the respondent as her beneficial successor to membership with the Society.

2.7  The Society was dissolved on 12 March 1998 and Madam Ng passed away intestate on 25 April 1998.  The liquidator of the Society appointed under section 41 of the CSO has not taken any step to dispose of the interest in the property owing to the dispute between the parties.

2.8   The applicant’s claim in the probate proceedings appears to be that the marriage between the deceased and Madam Ng was invalid and the adoption of the respondent was also invalid.  The nomination of the respondent as successor to membership of the Society was as a result also invalid.  The applicant further says that the respondent has emigrated to and lived in Canada since 1973 and did not satisfy the live‑in requirement under CSO to be a member of the Society.

2.9   In the probate proceedings the applicant seeks the following reliefs :

‘1) A declaration that the 1944 Islamic marriage of the deceased is invalid.

2)  A declaration that the 1960 adoption of the respondent is invalid.

3)  An order that the respondent do pay all the costs that have been unnecessarily incurred in the liquidator’s office.

4)   An order that the grant of letters of administration of the estate of the deceased would be issued to the [applicant].

5)   A declaration that the three natural children of the deceased, namely Andy, the [applicant] and Lucy are legitimate and they have entitlement under his grant.

6)   The cost of this probate action.’

III.  Events leading to the making of the costs order

3.1  The background leading to the service of the statutory demand on the applicant is set out in the judgment below which I will respectfully adopt. 

3.2  On 28 September 2012, the applicant applied by summons for summary disposal of the probate proceedings pursuant to the Rules of the High Court (‘RHC’), Orders 14 and 14A.  On 5 October 2012, the respondent applied by summons to strike out certain parts of the applicant’s statement of claim and reply and defence to counterclaim.  On 30 October 2012, the applicant also applied by summons to strike out certain parts of the respondent’s defence and counterclaim.

3.3  On 25 March 2013, Poon J (as he then was) gave his decision on the three summonses.  He

1)  struck out parts of the applicant’s statement of claim and reply and defence to counterclaim;

2)   dismissed the applicant’s summons for summary judgment and summons to strike out parts of the defence and counterclaim; and

3)  ordered the applicant to pay forthwith the costs of the three summonses including all costs reserved to be taxed if not agreed (the ‘Costs Order’).

3.4  The Costs Order is the basis of the statutory demand that forms the subject matter of the present application.

3.5  On 6 June 2013, the applicant applied for a stay of execution of Poon J’s decision pending determination of the applicant’s application for leave to appeal to the Court of Appeal and, if leave was granted, pending the determination of the appeal.  This application was dismissed by Poon J on 30 October 2013.  There has been no appeal against Poon J’s decision on 25 March 2013 including the Costs Order.  

3.6  On 26 May 2014, a taxation hearing took place before Master M Wong.  On 6 June 2014, the applicant filed a summons to review the taxation pursuant to RHC Order 62, rule 33.  The application to review was dismissed by Master M Wong on 24 October 2014.

3.7  On 4 November 2014, the applicant filed a summons for a further review of the taxation before a judge pursuant to RHC Order 62, rule 35.  This application was dismissed by Deputy High Court Judge Kent Yee on 18 May 2015.

3.8  On 28 August 2015, the applicant applied for leave to appeal against the order of Deputy Judge Yee.  Leave was refused by the Deputy Judge on 10 November 2015.

3.9  The applicant then renewed her application for leave to appeal against the order of Deputy Judge Yee before the Court of Appeal, which was dismissed on the basis of written submissions on 19 August 2016 (Jora Sisi Omar v Jora Harmidar Omar (unrep, HCMP 3129/2015, 19 August 2016).

3.10  Meanwhile, on 17 December 2015, an allocatur for a sum of $203,665.10 in relation to the Costs Order was sealed by the court.

3.11  On 22 January 2016, the respondent served on the applicant a statutory demand for $249,134.52 on the basis of the allocatur and the Costs Order.

3.12  On 3 February 2016, the applicant filed the present application to set aside the statutory demand.

IV.  Grounds relied upon in the Court below

4.  The Judge summarised the four grounds relied upon by the applicant in seeking to set aside the statutory demand as follows :

1)  The debt underlying the statutory demand is disputed on substantial ground, on the basis that (i) Poon J was misled in coming to his decision; (ii) the taxation and its review is disputed; (iii) Poon J’s decision was obtained by the respondent by fraud (the ‘1^st Ground’);

2)  The applicant has a counterclaim in the probate proceedings that exceeds the debt in the statutory demand (the ‘2^nd Ground’);

3)  The setting aside of the statutory demand is in the interests of justice (the ‘3^rd Ground’); and

4)  There are special circumstances and good cause within the meaning of rule 204 of the Bankruptcy Rules, Cap 6A (the ‘4^th Ground’).

V.   The issues in this appeal

5.1  In this appeal the applicant focused her challenge on the Judge’s decision on two of the grounds, namely, the 2^nd ground and the 3^rd ground. She argued, first, she has a substantial set‑off to the debt under rule 48(5)(a) of the Bankruptcy Rules (Cap. 6, Sub.Leg A) and second, she argued that the interest of justice requires the statutory demand to be set aside under rule 48(5)(d) of the Bankruptcy Rules. 

1)  Set-off

5.2  In respect of the first challenge, a number of grounds were raised by the applicant before the Judge, however the ground now relevant to this appeal is in respect of the applicant’s argument that she could rely on her claim in the probate proceedings as a set-off or counterclaim to the statutory demand.  This is how the Judge dealt with this matter. 

‘ 37. To the extent that the applicant seeks to rely on her main claim in the Probate Proceedings as a set‑off or counterclaim to the statutory demand, it seems to me the respondent is correct in submitting that the applicant’s claim in the Probate Proceedings is not one for monetary relief and there is nothing in the claim that can be used for set-off. Nor is there any concrete basis to suggest that the statutory demand should be set aside because the applicant may potentially obtain a costs order in her favour at the end of the Probate Proceedings.

  38.  For these reasons I am not satisfied that the applicant has shown any substantial ground for any set-off or cross-claim that exceeds the sum of $249,134.52 specified in the statutory demand.’

5.3  In this appeal the applicant’s argument on set‑off encompasses two limbs : First, there is a set‑off by reason of the costs order made in the probate proceedings in her favour against the respondent dated 1 March 2017.  Subsequent to the decision of the Judge on 30 September 2016, the respondent applied before Deputy Judge Yee for a determination of certain issues of law.  The Deputy Judge dismissed the application on 1 March 2017 and ordered the respondent to pay the applicant the costs of the application forthwith.   Second, she proposed to set off the costs order that she would receive after the trial of the probate proceedings.  

(1)  Set-off of the costs order of 1 March 2017

5.4  After the costs order of Poon J dated 25 March 2013, the applicant was granted legal aid in January 2014.  The 1 March 2017 costs order was made when she was represented by the Director of Legal Aid (‘the DLA’). This costs order has not been taxed.  An equitable set‑off is permissible for unliquidated claims (such as untaxed costs), but requires the cross‑claims to be between the same parties and to be sufficiently connected: Hong Kong Civil Procedure 2017, Volume 1, paragraph 18/17/2.

5.5  The question is whether the applicant can rely on the 1 March 2017 costs order to set off the earlier costs order of 25 March 2013, the reason being that the applicant was only granted legal aid in March 2014 after the making of the costs order on 25 March 2013.  Under the relevant provisions for Legal Aid Ordinance (‘LAO’) (Cap. 91), the recipient of the 1 March 2017 costs order is the DLA who has the first charge on this costs order.  In other words, the recipients of these two costs orders are not identical.

5.6  It is well established that mutuality is an essential ingredient of Bankruptcy Rule 48(5)(a) : Wong Wai Lin Lana v Heung Wah Wing [2001] 3 HKC 649, per Le Pichon JA at 654.  Mutuality in the present context means that the applicant must be the recipient of the 1 March 2017 costs order before she could rely on it to set off the costs order of 25 March 2013.   

5.7  Au-Yeung J in Tang Wai Leung v. Tang Wai Cho [2017] 2 HKLRD 695 considered the issue of whether or not set‑off of the costs between a legally aided person and a non aided person is permissible.  She summarised the statutory framework as follows. 

5.8  Under section 18A(1) of LAO, the DLA has a first charge on any property which is recovered or preserved for the aided person in the proceedings (‘the first charge provision’).  Under section 18A(3)(a), such property includes any sums recovered under an order for costs made in the legally aided person’s favour with respect to the proceedings.

5.9   Under section 18A(4) (‘the set‑off provision’) :

‘ The charge created by subsection (1) on any damages or costs shall not prevent a court or the Court of Final Appeal allowing them to be set‑off against other damages or costs in any case where a solicitor’s lien for costs would not prevent it.’

5.10  Section 19A provides as follows :

‘ (1) All moneys which may become payable to an aided person–

(a)  by virtue of an order, including an order of the Court of Final Appeal, made in connection with the proceedings to which his legal aid certificate relates;

...

shall be paid or repaid, as the case may be, to the Director unless the Director by notice in writing to the person responsible for payment and to the aided person directs otherwise. (“the payment provision”) (Emphasis added)

...

(4)   Only the Director shall be capable of giving a good discharge for moneys which may become payable to the Director under this section. (the discharge for moneys provision) (emphasis added)

(5)   In this section reference to an “aided person” (受助人) includes an aided person whose legal aid certificate has been revoked or discharged.”

5.11  Section 19B(1)(a)(i) provides that ‘upon receipt of all moneys paid to him pursuant to section 19 or 19A, the Director shall retain any sum paid by virtue of an order or agreement for costs made in the aided person’s favour.’

5.12  Regulation 9(6A) of the Legal Aid Regulations (Cap.91, Sub.Leg. A) provides that :

‘ The Director has the right to enforce an order for costs in favour of an aided person made in proceedings for which the Director has issued a certificate, whether the certificate has been discharged or revoked, and the Director may bring proceedings in his official name in a court of competent jurisdiction to recover the costs ordered. (the enforcement provision)’

5.13  After reviewing the authorities in Hong Kong and in England, Au-Yeung J held that :

‘ 34. I note that the enforcement provision was added to the Regulations in 1995. According to the explanatory note in the Gazette, Reg 9A(6) is to make clear DLA’s right to recover costs where an order for costs is made in favour of a legally aided person. In my view, the starting point is that the enforcement provision, read with the payment to DLA provision, first charge provision and discharge provision make clear that DLA (and no one else) is beneficially entitled to an order for costs in favour of a legally aided person. The rationale is that DLA, having paid on behalf of the legally aided person, recoups as much as possible for the benefit of the legal aid fund: The Debtor v Law Society [(unrep., 1981 WL 695915, 9 February 1981)].’

5.14  We agree with Au-Yeung J’s view.  As the recipients of the costs orders are different, mutuality is therefore lacking for the set‑off to operate.

5.15  Au-Yeung J further held that in order to vary the position, there must be a written direction from the DLA under section 19A(1) or a court order on set-off under section 18A(4) of LAO. We note Au-Yeung J had mistakenly cited section 18A(1) and not section 18A(4) when she referred to the Court order on set-off.  The mistake does not affect her decision.

5.16  In this case, there is no written direction for variation from the DLA under section 19A(1) nor is there a court order under section 18A(4).  The making of any such Court order clearly requires the Court to hear representation from the DLA.

5.17  The applicant’s response to this argument on law is that :

‘ Legal aid is not free, her family home will be charged with the interest added and she has to bear the final substantial bad debts arising from the failure of the respondent in the probate proceedings.’

5.18  This cannot be a proper answer to the lack of mutuality.  Hence the applicant’s reliance on the 1 March 2017 order as a set‑off fails.

(2)  Prospective costs order

5.19  The applicant claims that the 1944 marriage between the deceased and Madam Ng was not a valid one and accordingly the 1979 nomination was also invalid.  She submitted that the respondent does not have the means to pay for the applicant’s costs of the probate proceedings.  She is 66 years of age and lives in Vancouver, Canada. She had worked as a part-time worker.  The probate proceedings had dragged on for five and a half years.  The respondent could only rely on three documents and three ‘incredible witness statements’.  On the other hand, the costs the applicant had incurred and will continue to incur will amount to more than $2.5 million and she should be entitled to compensation for at least $6.5 million for her time and efforts that had been wasted since the commencement of the probate proceedings.  On top of that DLA will charge her family home in respect of her contribution in the probate proceedings and interest will also be added on to the charge.  She relied on the costs and compensation that she may obtain to set off the debt due to the respondent under the statutory demand.

5.20  In our view it is premature to address the merits of the probate proceedings.  We agree with the Judge below that there is no concrete basis to suggest that the statutory demand should be set aside because the applicant may potentially obtain a costs order in her favour at the end of the probate proceedings. 

2)  Interest of justice

5.21  As to her challenge under rule 48(5)(d), her concern is that unless the statutory demand is set aside, the respondent will proceed to apply for a bankruptcy order against her and in the event that a bankruptcy order is made, the Official Receiver may not continue with the probate proceedings. 

5.22  Again, we are of the view it is premature to consider how the Official Receiver will react in relation to the probate proceedings, particularly now that the applicant is legally represented by the DLA in those proceedings.

5.23  We do not consider this is a sufficient ground to set aside the statutory demand.  

3)   Other matters

5.24 The applicant has provided a very lengthy notice of appeal and a number of lengthy written submissions (many of which were only provided at the hearing of the appeal).  Many of the points raised in these documents are repetitions.  Despite the fact that she said she would rely on the two grounds identified in paragraph 5.1, she still referred in her written submission to the 25 March 2013 costs order as being obtained by fraud and deception.  As correctly pointed out by the Judge below, the Court cannot go behind the Costs Order for the purpose of the setting aside application.

VI. Conclusion

6.  Accordingly, the appeal is dismissed with costs to the respondent.  Although the respondent is represented by two counsel, Mr Chong has not asked for certificate for two counsel.  We will not grant such certificate in any event.