KATE GASKELL RICHDALE v. EUGENE OH JAE-HOON

HCB 5869/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY NO. 5869 OF 2006

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D E C I S I O N

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1. This is a bankruptcy petition presented by Ms Kate Gaskell Richdale against Mr Eugene Oh Jae-hoon.  Mr Oh is a solicitor who was involved in litigation with Ms Richdale in the course of which Ms Richdale obtained an order for costs in her favour on 25 March 2003.  By the order, Ms Richdale was awarded costs of HK$52,000.00 – no doubt on a gross sum basis – to be paid by Mr Oh within 30 days.  However, no payment was forthcoming from Mr Oh. 

2. On 23 December 2004, nearly one year and nine months later, when payment still was not forthcoming, Ms Richdale caused to be issued a statutory demand which was advertised Hong Kong Standard newspaper, having had earlier caused to be issued a statutory demand which she had unsuccessfully attempted to have served on Mr Oh.

3. The statutory demand of 23 December 2004 was for the sum of HK$58,872.55 – this was made up of the HK$52,000.00 costs awarded to Ms Richdale, plus a further sum of HK$6,862.55 in respect of interest at the judgment rate which had accrued on the award of costs since the date on which it was made. 

4. The advertisement evidently came to the attention of Mr Oh because he took out an application to set aside the statutory demand –HCSD 1 of 2005 – on 6 January 2005.  That application was heard by Deputy Judge Gill, who dismissed it on 30 June 2005.  Thereafter, the time for Mr Oh to satisfy the statutory demand resumed running, but he did not make any payment.  Instead, he appealed to the Court of Appeal against Deputy Judge Gill's decision.  That appeal came to nothing because Mr Oh failed to comply with an order of Tang JA, made on 13 September 2005, requiring him to provide security for the costs of the appeal in the sum of $100,000.00 to be paid into court on or before 4 October 2005.  As a result, his appeal was dismissed on 4 October 2005.

5. Notwithstanding that, Mr Oh took no steps whatsoever to effect settlement of the costs order and accrued interest thereon.  Eventually, on 19 July 2006, slightly over nine months after the dismissal of Mr Oh’s appeal, Ms Richdale obtained leave to present and file this petition.  The petition was filed on 25 July 2006 and served on the Official Receiver that day.  Thereafter, Ms Richdale made a number of attempts to effect personal service of the petition on Mr Oh, but was unsuccessful in doing so.  She therefore applied for an order for substituted service against Mr Oh, which she obtained on 1 September 2006.

6. Ms Richdale then served the petition in accordance with the order for substituted service by serving it on the firm of which Mr Oh was formerly a partner and appears, on the face of it, now to be a consultant.  On 6 September 2006, Mr Oh belatedly paid the sum of HK$58,872.55 (the amount of the statutory demand which had been issued in December 2004) by way of a cashier's order. 

7. At that point, Ms Richdale’s solicitors wrote to Mr Oh informing him that he was, in fact, still indebted to her for further interest that had accrued on the HK$52,000.00 since 23 December 2004.  That amounted to some HK$8,178.15 as at 5 September 2006 and is no doubt a slightly larger sum as at today.  It was indicated that Ms Richdale was willing to discontinue the bankruptcy petition if Mr Oh paid her the balance of accrued interest, made payment of the Official Receiver's costs which, up to that point, amounted to HK$4,100.00, and paid her costs that had been incurred in relation to these proceedings. 

8. Mr Oh did not respond to that suggestion.  Instead, he made a payment into court.  The payment into court was for the sum of HK$18,000.00.  That was said to cover the additional interest of HK$8,178.15, the HK$4,100.00 payable to the Official Receiver in respect of his costs, with the balance of slightly under HK$6,000.00 representing what was described as the fixed costs of these proceedings. 

9. The payment in was, however, stated to be subject to various conditions which appeared to involve Ms Richdale having to wait until the outcome of an appeal that Mr Oh has lodged (in other proceedings) with the Court of Final Appeal, in respect of which a leave application is to be heard later this week.  From the terms of the notice of payment in, it would appear that the payment is not intended to be released to Ms Richdale until such time as that appeal is finally disposed of, either by leave to appeal not being granted or, if leave is granted, when the final outcome of the appeal is known.  That appeal relates to the striking out of a claim by Mr Oh against Ms Richdale for malicious prosecution. 

10. I should also note that the notice of payment in made it clear that the balance of the payment in, beyond the additional interest and the costs of the Official Receiver, was paid in without any admission of liability and without prejudice to Mr Oh's contention that he should not have to pay any costs of the bankruptcy proceedings to Ms Richdale.  Unsurprisingly, Ms Richdale was not satisfied with that payment in and has proceeded to come to court today on the hearing of her petition.  She accepts that as the amount now outstanding in respect of interest is below the minimum of HK$10,000 required for the presentation of a bankruptcy petition, the petition has to be dismissed.  However, she says that she should be awarded the costs of these proceedings and that Mr Oh should be ordered to pay the costs of the Official Receiver as well.

11. Mr Oh has resisted an order for costs being made against him.  In submissions filed on his behalf, it is suggested that Ms Richdale has acted wholly unreasonably in pursuing these proceedings and continuing to contest his entitlement to have the petition dismissed after he had made full payment of the debt.  Mr Oh says that the fact that he had made full payment of the debt shows that he was able to pay the debt and thus not unable to pay the debt.  It therefore followed, said Mr Oh, that the petition was bound to fail since it would not have been possible for Ms Richdale petitioner to show that he was unable to pay the debt on which the petition was based. 

12. It appears to me that this argument is entirely misconceived.  The petition is based on an unpaid debt in the form of the order for costs.  A statutory demand was served in relation to the debt.  The statutory demand was the subject of an unsuccessful attempt to set it aside.  After the failure of the attempt to set it aside and the dismissal of the appeal from the decision of Deputy Judge Gill, no steps whatsoever were taken by Mr Oh to pay the debt for a period of some nine months before the petition was presented.  Even after the petition was presented, nothing was done to effect payment until Ms Richdale finally succeeded in obtaining an order for substituted service. 

13. It is quite clear that the effect of sections 6 and 6A of the Bankruptcy Ordinance (Cap. 6) is that where a statutory demand is served and is not set aside, failure to pay in response to it will result in the debtor being deemed to be unable to pay the debt alleged against him.  Once that happens, it is perfectly in order for a petitioner to present a bankruptcy petition.  If a debtor thereafter makes payment, that does not show that he was in a position that he was able to pay the debt as at the date of the petition.  A statutory demand having been issued and not responded to, he would be deemed by virtue of section 6A to be unable to pay his debts.  Therefore, as at the date of the issuance of the petition, the petitioner would be entitled to obtain a bankruptcy order against the debtor.  The fact that the debtor thereafter belatedly makes payment, does not, in my view, alter this fact.  Even if it did, it seems to me that the position would be that the petitioner has had to bring the proceedings in order to obtain payment of the debt owed.  In those circumstances, simple fairness dictates that the petitioner should be entitled to the costs of the proceedings. 

14. Ms Richdale has indicated in her solicitor's letter of 11 September that she was prepared to accept payment of her costs by Mr Oh and thereupon to have the petition against him dismissed.  Mr Oh did not see fit to agree to this entirely reasonable suggestion.  Instead, he has insisted that there was no basis on which he should be ordered to pay Ms Richdale’s costs and has continued to persist in this stance until today. 

15. In his submissions, it is suggested that it is unreasonable for a petitioner to insist on payment of its costs as the basis on which a petition should be dismissed when full payment had been made.  That proceeds on a misreading, in my view, of the judgment of Ribeiro J (as he then was) in the case of Cheung Wah v The China State Bank Limited, unreported, HCB 659 of 1999, in which he held that where a debtor offered to pay the entire amount of a debt claimed under bankruptcy petition, it was unreasonable for the petitioning creditor to refuse to accept that offer unless the debtor further agreed to pay a stated sum by way of costs which, in the circumstances of the case, appeared to be excessive and unreasonable.

16. All that that case establishes is that where a debtor accepts liability to pay and makes a reasonable proposal of settlement, the petition is liable to be dismissed if the petitioner does not accept that reasonable proposal.  In particular, if a petitioner insists on payment of a specified sum of costs which it may not actually be entitled to on taxation, it will be unreasonable for the petitioner to reject an offer to pay the debt in full plus taxed costs. 

17. In this case, Mr Oh has not accepted any obligation whatsoever to pay costs to Ms Richdale.  In those circumstances, I fail to see how it can be in any way unreasonable for her to come to court and to seek, along with the dismissal of her petition (since the debt has now been paid), that she should also be awarded her costs of these proceedings. 

18. In these circumstances, it seems to me that the position is quite clear.  While the petition should be dismissed because there is now no longer a debt of sufficient size to support the petition, it is clear that as Mr Oh has only seen fit to pay Ms Richdale well after the petition was presented and only after an order for substituted service of the petition was obtained, it is entirely reasonable for Ms Richdale to ask for the costs of the petition to be awarded to her. 

19. As Mr Oh has refused to accept this – and it is his refusal to accept his liability to pay such costs that has necessitated this hearing - I have no difficulty in concluding that the appropriate order to make today would be that the petition that is presently before me should be dismissed but that the petitioner should be awarded the entire costs of the petition proceedings including the costs of today to be paid by Mr Oh, such costs to be taxed on a party-and-party basis if not agreed. 

20. As far as the Official Receiver's costs are concerned, Miss Cheung has indicated that those are now in the amount of HK$5,300.00 and I shall order that those costs, too, are to be borne by Mr Oh.  I will make an order that the Official Receiver's costs are to be deducted, in the first instance, from the deposit provided by Ms Richdale to the Official Receiver but that such costs shall be recoverable by her from Mr Oh. 

21. In relation to the money that has been paid into court, no doubt if Mr Oh were to ask for the money to be paid out, Ms Richdale would probably wish to have recourse to it to settle payments that are due to her, not least the additional interest.  I do not see any reason why that should not be permitted, so as far as the payment into court is concerned, I will allow it to be paid out to Ms Richdale to cover, first, the additional interest that is owing to her up to 6 September 2006, secondly, to cover the HK$5,300.00 that will have been deducted from her deposit with the Official Receiver; and, as far as the balance is concerned, it can either remain in court or it can be held by her solicitors, petitioners or by the parties solicitors jointly, pending taxation of the costs that Ms Richdale petitioner has incurred in these proceedings, subject to her undertaking to refund any surplus that there may be in the event that the taxed costs do not exhaust the balance of the amount payable.