CHEUNG SUN LAM v. LAI KAM MAN AND OTHERS

CACV 148/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 148 OF 2011

(ON APPEAL FROM HCSD NO. 41 OF 2010)

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REASONS FOR JUDGMENT
and
JUDGMENT ON COSTS

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Hon Lam JA (giving the reasons for judgment and judgment on costs of the Court):

1.  In this appeal, the Appellant sought to set aside a statutory demand dated 29 October 2010 [“the Demand”] served on behalf of the Respondents. His application was dismissed by Barma J (“the Judge”) on 11 July 2011. He appealed against that decision.  In the meantime, the 9^th Respondent presented a bankruptcy petition against him based on the Demand in HCB 5225 of 2011.  The hearing of the petition was adjourned pending the outcome of this appeal.

2.  After hearing submissions from the parties, on 20 February 2013, we dismissed the appeal.  Here are the reasons for our judgment.

3.  The background pertaining to the application was adequately set out in the judgment of Barma J of 11 July 2011. I can quote from paras 2 and 3 of that judgment,

“2. The statutory demand called for payment of a total amount of HK$1,448,296, which was made up as follows:-

(1) HK$548,240 in respect of costs that were taxed and allowed under an Allocatur dated 19 June 2008 in respect of proceedings in CACV 252/2004 (“the First Allocatur”);

(2) HK$284,088 by way of interest on the amount allowed under the First Allocatur, covering the period between 23 March 2005 (the date of the costs order taxed by the First Allocatur) and 28 October 2010 (the day before the statutory demand was issued);

(3) HK$203,579 in respect of costs that were taxed and allowed under an Allocatur (Bill No. 2) dated 24 August 2009, also in respect of CACV 252/2004 (“the Second Allocatur”);

(4) HK$64,699 by way of interest on the amount allowed under the Second Allocatur, covering the period between 3 April 2007 (the date of the costs order taxed by the Second Allocatur) and 28 October 2010;

(5) HK$271,860 in respect of costs that were taxed and allowed under an Allocatur (Bill No.1) also dated 24 August 2009, in respect of different proceedings, namely CACV 281/2007 (“the Third Allocatur”); and

(6) HK$75,830 by way of interest on the amount allowed under the Third Allocatur, covering the period between 13 August 2007 (the date of the costs order taxed by the Third Allocatur) and 28 October 2010.

It also demanded payment of interest on the sums mentioned in subparagraphs (1), (3) and (5) above at judgment rate thereafter until payment was made.

3. The proceedings underlying the three bills of costs that resulted in the issue of these Allocaturs related to the affairs of an organization called the Tsung Tsin Association (“the Association”), of which the Debtor and the Respondents were members. The Respondents were election commissioners of the Association, against whom the Debtor had brought proceedings in 2003 (HCMP 4389/2003) seeking injunctive relief in respect of an election of the Association’s executive and supervisory committee held in June 2003 (although there were 21 election commissioners of the Assocation, it seems that the Debtor only brought proceedings against the 12 Respondents). The Debtor was unsuccessful in an application for summary judgement in those proceedings, and an appeal therefrom (CACV 252/2004), and also in various applications relating to the taxation of the costs of CACV 252/2004 (which gave rise to CACV 281/2007).”

4.  Amongst the 12 Respondents, the 10^th and 12^th Respondents had indicated that they did not support the enforcement of the costs order against the Appellant and had not authorized the Demand to be issued on their behalf. Further, the 10^th Respondent appeared in person before Barma J and the learned judge set out her position and the stance adopted by counsel for the Appellant regarding her contention at para 6 of the judgment,

“6. The 10^th Respondent appeared in person. She supported the application, saying that she did not agree that it should have been brought, having regard to an alleged agreement that she said had been made between the Debtor and the 1^st Respondent. When Mr Chung was asked whether he wished to rely on this additional ground, which would necessitate the filing of further evidence by his client (for which leave would be necessary) and which might result in an adjournment of the hearing, he indicated that he was content to make his application on the basis of the material before the court, and did not wish to rely on this further ground. The hearing therefore proceeded on this basis.”

5.  The 10^th Respondent also appeared in person in this appeal. She informed the court that she maintained her position and she felt it would not be fair to dismiss the appeal.  However, she had not filed any notice of appeal against the judgment of Barma J.  Nor had she ever filed any affirmation in this matter.  As explained to her in the course of the hearing,

(a)     This court cannot treat what she said from the Bar table as evidence;

(b)     Generally speaking, an appeal hearing is not the occasion for a person to give evidence;

(c)     The Appellant represented himself in the appeal (and his counsel represented him at the hearing below) and counsel for the Appellant had indicated to Barma J that the Appellant would not rely on any oral settlement agreement as claimed by her;

(d)     She could only speak on her own behalf and, in the absence of any affirmation made by her, it is not her role to act as a gratuitous witness for the Appellant in this appeal when making submissions from the Bar table.    

6.  The 7^th and 8^th Respondents had passed away.  The personal representative of the estate of the 7^th Respondent had authorized the solicitors acting for the other respondents to act.  Thus, before Barma J, the application of the Appellant was resisted by the 1^st to 4^th, 6^th, 7^th, 9^th and 11^th Respondents.

7.  Before the hearing of the appeal, the 2^nd Respondent had also passed away.  The executor of his estate authorized the solicitors to act in the appeal.  Strictly speaking, parties should apply for carry-on orders pursuant to Order 15 Rule 6A in respect of the estates of the deceased respondents.  However, no point was taken during the course of the appeal with regard to such procedural requirement.  In any event, it should not affect the position as between the Appellant and the other respondents and the determination of the appeal should not be delayed any further.  

8.  As far as surviving respondents were concerned, the 1^st, 3^rd, 4^th, 6^th, 9^th and 11^th Respondents resisted the appeal and Mr Koo represented them.

Application for admission of fresh evidence

9.  By a summons dated 5 February 2013, the Appellant sought to adduce new evidence for the purpose of this appeal.  He set out his grounds for the application at Annex 1 to the summons as follows,

“The court of Appeal will allow fresh/new evidence contained in my Skeleton Arguments, Appeal Bundles to be adduced at the appeal.

The grounds in support of my submission being:

1. Tsung Tsin Association’s secretary had refused to provide me the Association’s record such as minutes of meetings, annual returns and auditors’ reports etc and I could only retrieve part and not all of the above information useful for my set aside application myself with great difficulty and reasonable diligence.

2. A lot of the further/new evidence would prove that the 8 Respondents’ assertion that Tsung Tsin Association’s payment to Messrs. Peter Mo & Co’s legal cost was an advance is not true and this would probably have an important influence on the result of the case.

3. The evidence of Miss Cheung Fei-fun (the 10^th Respondent) which had been in my favour was not considered in the set aside application. Further/new evidence provided would substantiate Miss Cheung Fei-fun’s evidence.

4.      A large portion of the further/new evidence had been Tsung Tsin Association’s record and would be probably considered as truthful.”

10.  In his affirmation of 5 February 2013, the Appellant said that the new evidence would support his appeal in proving that the payment by Tsung Tsin Association [“the Association”] to the solicitors was not an advance and would substantiate the evidence of the 10^th Respondent.

11.  As mentioned, no evidence had been filed by the 10^th Respondent and counsel for the Appellant at the court below had disavowed any reliance being placed on the 10^th Respondent’s claim of oral settlement agreement. Though the Appellant sought to retract from that position at the hearing before us, for reasons set out below, we did not permit him to do so.

12.  It is well established that this court will not admit fresh evidence on an appeal unless the party who wishes to do so satisfies the criteria in Ladd v Marshall [1954] 1 WLR 1489,

(a)     The evidence could not have been obtained for use at the trial with reasonable diligence;

(b)     The evidence would, or might, if believed, have an important influence on the outcome, though not necessarily decisive; and

(c)     The evidence would probably be accepted as truthful.

13.  In the present case, we did not think the new evidence put forward by the Appellant could have any bearing on the outcome of this appeal.  As such, condition (b) above was not met.  As explained below, we could not permit him to rely on the point based on the alleged oral settlement agreement in this appeal.  Thus, evidence relating to that point was irrelevant.  As regards the evidence on the payment of the legal costs by the Association, as elaborated below, that could not help him in the appeal.

14.  We were also not satisfied that the new evidence could not have been obtained for use at the hearing before Barma J if the Appellant had exercised reasonable diligence.  The mere assertions in Annex 1 to his summons was inadequate in explaining why he (with legal representation in the court below) could not have obtained such documents by subpoena or discovery.

15.  We therefore refused to admit the new evidence and his summons was dismissed.

New point: the alleged oral settlement agreement

16.  The Appellant tried to run a case based on the alleged oral settlement agreement in this appeal.  As mentioned, it was a point which his counsel specifically declined to run when Barma J, upon hearing the submissions of the 10^th Respondent, asked him about the stance of the Appellant.

17.  The Appellant said his counsel did not consult him before answering the Judge.  However, he agreed that he was present in court at that hearing.  He was aware of what the 10^th Respondent said and there was a short adjournment to give him the opportunity to consider with his counsel about the implication of such statement by the 10^th Respondent.

18.  Further, the point was not new to him at the hearing below. He told this court that he was aware of this agreement though he thought he had evidential difficulties in proving it.  Thus, he made a deliberate decision not to raise it in his application to set aside the Demand.  He thought the position would be different with the confirmation of the 10^th Respondent. 

19.  Had that been the case, it would indeed be surprising that he had not instructed his counsel to take the point during that short adjournment.  It would also be surprising that the Appellant did not even put forward this as one of the grounds of appeal in his Notice of Appeal filed herein.

20.  The point is fact-sensitive.  If it were to be entertained, the Respondents must be given the opportunity to respond in terms of filing of further evidence.  In Flywin v Strong & Associates [2002] 2 HKLRD 485, the Court of Final Appeal reiterated the principle that the court shall not entertain a new point in an appeal unless it is satisfied that it has before it all the facts bearing upon the new contention and no satisfactory explanation could have been offered by those whose conduct is impugned if an opportunity had been afforded to do so in the witness box.  Bokhary PJ said at para 38,

“…Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.”

21.  In the present context, the alleged oral settlement agreement was disputed.  Had the point been taken at the court below, it is clear from the transcript that Barma J would have directed affirmations to be filed and, if necessary, there might be cross-examination of the witnesses.  That course was not taken because counsel then appearing for the Appellant declined to take the point.   

22.  In such circumstances, it would be wrong in principle as well as unfair to allow the Appellant to advance the point.  The Appellant was bound by the decision of his counsel.

New point: service of the Demand

23.  Another new point which the Appellant tried to advance was the validity of the mode of service of the Demand.  Again it was not a point relied upon below.  It was not raised in the First Affirmation of the Appellant.  Though there was a reference to service at para 7 in the Second Affirmation of the Appellant, he did not contest the validity of service. Counsel for the Appellant did not take such a point before Barma J.  Neither was the mode of service a point raised in his Notice of Appeal.

24.  Again, a challenge with regard to service could be fact-sensitive.

25.  Insofar as the Appellant advanced his challenge without disputing the fact that the Demand was given to him at the premises of the Association on 29 October 2010, it is a challenge without any merits.  As held by Pichon JA in David Buxbaum v Samuel-Rozenbaum CACV 141 of 2005, 10 May 2006, para 26,

“There is nothing in the rules that makes acceptance or physical receipt of the document by the debtor a condition to the validity of the process.”

26.  We therefore also refused leave to rely on this new point.

The grounds of appeal in the Notice of Appeal

27.  In his Notice of Appeal, three grounds were put forward by the Appellant,

(a)     Since at least 3 Respondents (7^th, 10^th and 12^th Respondents) did not authorize the Demand to be served, the Demand was not valid;

(b)     There is no legal requirement that the Appellant should set aside the costs orders and the allocaturs before he could apply for setting aside the Demand;

(c)     The legal fees of the solicitors were paid by the Association and they were not paid as an advance. The Association did not seek repayment from the Respondents.

28.  None of these grounds has any merit.

29.  Since the liabilities under the costs orders and allocaturs were owed to the Respondents jointly and severally (see Mahmood v Penrose [2005] BPIR 170 and Re Chan Chi Loi HCB 8632 of 2006, 13 July 2007), any one of the respondents could make the Demand even if the others did not wish to do so.   

30.  In the present case, at the hearing before the Judge, the 1^st to 4^th, 6^th, 7^th, 9^th and 11^th Respondents sought to uphold the Demand. Thus, as Yuen JA said at the hearing, we were not dealing with a case where the issue and service of the Demand was not authorized by any respondent.

31.  The question was whether the fact that some respondents did not authorize the issue or service of the Demand rendered the whole Demand invalid such that even those respondents who authorized its issuance could not rely on it.

32.  In our judgment, the answer to that question was no. The grounds for setting aside a statutory demand are set out in Rule 48(5) of the Bankruptcy Rules Cap 6.  It provides as follows,

“(5) The court may grant the application if-

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”

33.  The relevant limb, in the present context, is rule 48(5)(d). Based on a similar statutory regime in England, the English Court of Appeal held in In re a Debtor [1989] 1 WLR 271that a demand was valid notwithstanding there were errors in the form of the demand or over-statement of the amount of the debt in it.  Nicholls LJ said at p.276D,

“When therefore the rules provide … for the court to have a residual discretion to set aside a statutory demand, the circumstances which normally will be required before a court can be satisfied that the demand ‘ought’ to be set aside, are circumstances which would make it unjust for the statutory demand to give rise to [the consequence that the debtor is regarded as being unable to pay the debt in question … and founds the ability of the creditor to present a bankruptcy petition].”

34.  His Lordship further discussed the difference between the old law and the new law and the irrelevance of the old cases on setting aside bankruptcy notices in the new regime.  At p.277B, Nicholls LJ cited the judgment of Vinelott J in an earlier case,

“In upholding the registrar’s refusal to set aside the statutory demand, the judge made observations to the effect that one of the purposes of the new legislation was to avoid the technicalities which grew up around the bankruptcy law when framed as penal proceedings, and that it would be unfortunate if the new provisions were to become enmeshed in the technical objections which disfigured the old law.”

35.  On the facts of the present case, we failed to see how it could be unjust to allow the respondents who authorized the issuance of the Demand to rely on it.  Given that the liabilities of the Appellant for the costs orders were joint as well as several, there was no reason why the Demand should not be treated as one made by the Respondents severally as well as jointly.  It followed from this analysis that the unwillingness on the part of some respondents to pursue against the Appellant could not impugn the validity of the Demand as far as the other respondents were concerned. 

36.  As regards the second ground, the Judge said at para 14 of his judgment,

“14. However, the present position is that the costs orders, and the Allocaturs arising from them, remain in place, as no steps have been taken by the Debtor to seek to have them reopened or otherwise set aside. In these circumstances, it does not seem to me that the court can, or should, in the context of a hearing in relation to a statutory demand based on what are (on the face of them) regular orders of the court, go behind those orders. That this is the appropriate approach is clear from Re Maydwell [1999] 3 HKLRD 325 and Sin Wai Ping v International Bank of Asia (unreported, HCSD 27/2002, Chu J, 6 February 2004). In Re Maydwell, Le Pichon J (as she then was) endorsed the English practice under which the court would not, in an application to set aside a statutory demand, go behind a judgment on which the debt was based or inquire into the validity of the debt. In Sin Wai Ping, Chu J (as she then was) explained this on the basis that the court was not, in such circumstances, exercising any appellate or review role which would enable it to consider the merits of the judgement or order relied upon for the purpose of the statutory demand.”

37.  In our view, the Judge was correct in law in so saying. The legal position was clearly set out in the authorities cited by him.  In effect, a debtor cannot rely on a dispute regarding a judgment debt to challenge a statutory demand by reference to rule 48(5)(b).  However, he could still challenge the demand by reference to other grounds in that rule.

38.  This actually covered the third ground of appeal.  In an application to set aside the Demand, the court would not go behind the costs orders and the allocaturs to examine whether such orders should have been made even though the costs were paid by the Association.

39.  In any event, the payment of the costs by the Association was by itself a matter of little moment.  As the Judge pointed out at para 16 of his judgment, the relevant principles of law can be found in the judgment of Lam Lai Wah  Susanna v Pacific Century Insurance CACV 385 of 2002, 4 March 2003.

40.  What the Appellant needed to show was that there was an agreement made by the solicitors with the winning party, that under no circumstances would the winning party be liable to them for the costs.

41.  When he was asked to pinpoint the evidence of such an agreement, the Appellant could only refer to para 11 of the minutes of the 1 Dec 2003 meeting of the Association[1].  That minute only recorded the resolution on the part of the Association to pay the legal costs.  It said nothing about any agreement between the solicitors and the respondents.  It fell short of what is required in order to contend that the costs orders should not have been made or that the Allocaturs should not be issued.

42.  For these reasons, we dismissed the appeal.

Costs of the appeal

43.  The Appellant must pay the costs of Mr Koo’s clients in this appeal, including the costs of his summons of 5 February 2013, such costs to be taxed if not agreed.

44.  Mr Koo asked for costs on an indemnity basis on the ground that the appeal was entirely without merit and the Appellant should have consulted his lawyers before launching this appeal.  Though we agree that the appeal has no merit, we do not think this is a case where indemnity costs should be awarded. The costs should be taxed on party-to-party basis.