RE TANG HONG YUEN ANDY

HCB19585/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.19585 OF 2003

TANG HONG YUEN ANDY v.

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DECISION ON COSTS

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1. In this petition, the petitioner relies on a statutory demand for a debt of HK$100,000. The statutory demand was issued on 3 September 2003. The petition was issued on 4 November 2003 and served on 18 November 2003.

2. The petitioner was a director and shareholder of Wellco Engineering Limited ("Wellco").

3. The debtor traded in the name of Andy Engineering Company.

4. On 27 June 2003, the debtor obtained judgment against Wellco in the sum of $392,208.39 in DCCJ3021/2003. A demand for payment of the judgment debt was made on the debtor's behalf on 3 July 2003. The judgment has not been satisfied.

5. The petitioner relies on a borrowing note dated 27 November 2001. It is in Chinese, signed by the petitioner and the debtor and witnessed. The note stated that the loan was made "...此款項根據梁意祥君屬下公司之業務而借出. ....", thus the loan was for the purpose of Wellco's business.

6. The debtor responded to the statutory demand by a Chinese letter dated 5 September 2003 in which he denied indebtedness. By the same letter, he requested evidence of the alleged indebtedness.

7. On 5 September 2003, Cham & Co., acting for the petitioner, responded, enclosing a copy of the loan agreement and a copy of a cheque for $100,000 from the petitioner to the debtor dated 26 November 2001.

8. By a document of the same date, namely 5 September 2003, the debtor responded, denying the indebtedness. He stated that the loan had been deducted from a payment due from Wellco to the debtor in the sum of $163,415.68. In the same letter, he also asked the petitioner to check the cheque dated 25 January 2002 from Wellco to the debtor's company. This was the cheque no.705479 for $13,415.68.

9. On 14 November 2003, Ko & Chow, solicitors acting for the debtor, wrote to Cham & Co. stating :

" We are instructed to put on record that our client has repeatedly informed your Mr. Jerry Chan that our client does not owed your client the alleged sum of HK$100,000.00 or at all.

We are instructed to inform that your client may take whatever actions as your client may be advised by you. Any of your client's unreasonable action shall be contested vigorously and our client shall seek costs against your client."

10. By the debtor's affirmation of 19 December 2003, he produced a copy of a receipt issued by his company to Wellco dated 25 January 2004. That receipt, on the face of it, was to acknowledge receipt of the sum of $163,415.68 and referred to a cheque no.705479. It is not disputed by the petitioner that the cheque no.705479 was for $13,415.68 only. Nor is it denied by the petitioner that it was a cheque which was co-signed by him. This provided strong support for the debtor's case that he was not indebted to the petitioner.

11. In the petitioner's 3rd Affirmation which was filed on 16 February 2004, he had this to say :

".... The HK$13,415.68 was an advance payment made by Wellco to Andy. The story that the HK$13,415.68 was a payment by Wellco to settle the amount owed to Andy and that there was a set-off arrangement between such amount and the HK$163,415.68 was a pack of lie. ...."

12. However, although there have been numerous references to payment allegedly made to the debtor's company and allegation of pre-payment, there has been no plausible explanation why in the receipt given by Andy Engineering Co. on 25 January 2002 acknowledging receipt of $163,415.68 there was a reference to this cheque no.705479. Nor why if the $13,415.68 was an advance payment as alleged by the petitioner, it should be stated in the receipt.

13. The petitioner accepted that there was a substantial dispute over the indebtedness. By a summons dated 6 July 2004, the petitioner applied, inter alia, for an order that the petition be dismissed and that the hearing fixed for 21 July 2004 be vacated. That summons was heard by me on 13 July 2004. At that hearing, I made an order dismissing the petition but adjourning the argument for costs to today, to 3 August 2004. The debtor asked for costs on an indemnity basis. The matter was adjourned to enable the petitioner to file evidence.

14. Mr Ivan Cheung, on behalf of the petitioner, has submitted that not only should costs not be awarded on an indemnity basis, the petitioner should only pay part of the costs because, according to him, the respondent had wasted costs. First, the debtor ought to have applied to set aside the statutory demand, and if the debtor had succeeded, then there would have been no petition. Secondly, the respondent had filed a total of three affirmations, the content of some of the later ones corrected mistakes which were made in the earlier ones.

15. I do not believe this is a case where the respondent should be made to pay, or be deprived of, any part of the costs of the petition. It is quite clear, from the affirmations filed on behalf of the petitioners, four prior to the dismissal of the petition and one, the 5th one, in relation to the hearing on costs, that throughout the petitioner was trying to maintain that there was no genuine dispute over the debt of $100,000. In that, I think he has failed dismally. Indeed, it should have been obvious to him that there was a bona fide dispute on the debt when, as early as 5 September, the petitioner was asked to check the cheque dated 25 January 2002, which was the cheque for $13,415.68. In relation to his allegation that there has been overpayment or advance payment made to the debtor's company, that is of course counterbalanced by the fact that there is at the moment an outstanding judgment obtained against Wellco by the debtor, and not vice versa.

16. This petition has hung over the head of the debtor for eight months. It is commonsense that a pending bankruptcy petition is prejudicial to a businessman. I believe that the petition was taken out and pursued oppressively against the debtor. Even in the 5th Affirmation, the petitioner sought to impute the business integrity of the debtor. When asked about the fact that the petitioner had co-signed the cheque for $13,415.68 and must have known the nature of that payment, Mr Cheung submitted that according to the petitioner, he did not fully appreciate the nature of the payment, and that if there was a voucher in support of that payment, he either did not read it or did not appreciate it. I believe on such state of knowledge, the petitioner was not in a position to allege, as he did in his 3rd Affirmation quoted above, that the $13,415.68 was paid to the debtor's company as an advance payment.

17. Mr Cheung has submitted that it is only in an exceptional case that costs on an indemnity basis should be awarded. The principles for awarding costs on an indemnity basis are well-known.

18. As the Court of Appeal stated in Choy Yee Chun (the Representative of the Estate of Chan Pui Yiu) v. Bond Star Development Limited [1997] HKLRD 1327, a taxation of the successful party's costs on an indemnity basis could be ordered where the proceedings were scandalous or vexatious, or have been initiated or prosecuted maliciously, or for an ulterior motive, or in any oppressive manner. However, the discretion was not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be appropriate. See Hong Kong Civil Procedure, 62/APP/12.

19. I believe that in the circumstances of this case, the presentation of the petition was scandalous and vexatious. The continued prosecution of the petition until July reinforced my view that the presentation of the petition was both scandalous and oppressive. It required little imagination for the petitioner to know that the mere presentation of the petition was likely to damage the reputation of the debtor as well as his business.

20. I order costs against the petitioner on an indemnity basis.