RE PRAKASH HIRANAND BHARWANI

HCB 7180/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7180 OF 2013

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J U D G M E N T

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1. The issue before this court today is who should bear the costs of the petition which has been dismissed by consent.

2. The background to these proceedings is as follows. 

3. The debts in question were said to be owed by the debtor to Ms Jessica Park and Mr Timothy Darton.  By two Notices of Assignment, the alleged debts were assigned in favour of the petitioner.  The Notices of Assignment were sent to the debtor by email on 6 and 7 March 2013.

4. On 21 August 2013, the petitioner issued two statutory demands and personally served them on the defendant at his last known residential address. There was no application to set aside the statutory demands and accordingly, the petitioner proceeded to present the petition on 7 October 2013.

5. The debtor filed his notice of intention to oppose the petition on 13 November 2013 but he failed to comply with rule 68 of the Bankruptcy Rules in that he had failed to state his grounds of opposition.

6. The petition was amended in the meantime and shortly before a hearing before the Master, the defendant filed and served his affirmation in opposition on 13 January 2014.  In the affirmation, what the debtor said essentially was that the sums allegedly due to Ms Park and Mr Darton were their investment in the mobile phone and iPad business of a BVI company, namely Marash Limited.  Hence their claims, if any, should be made against Marash Limited and not against the debtor as such.

7. The amended petition went before the Master on 15 January 2014. The learned Master adjourned it to this court for directions.  On 20 January 2014, this court gave directions for the future conduct of the petition.

8. Meanwhile, the petitioner said he took the view that the debtor’s affirmation was false, but since there were disputed questions of facts which required viva voce evidence, the bankruptcy court was not the appropriate forum for resolving whether the debt was due from the debtor.  Rather, it ought to be resolved by ordinary civil litigation. 

9. So, on 17 January 2014, the petitioner’s solicitors sent a letter to the debtor’s solicitors offering to withdraw the petition on condition that the costs from the date of the statutory demands to 13 January 2014 be to the petitioner – 13 January 2014 was the date when the debtor filed and served his affirmation in opposition. 

10. On 20 January 2014, the debtor’s solicitors counter offered that the petition be dismissed with no order as to costs.  There were further correspondence between the parties, but they did not take the question of costs any further.

11. On 27 February 2014, this court made an order by consent that the creditor’s petition filed herein on 7 October 2013 and amended on 9 January 2014 be dismissed.  The costs of the proceedings, including the costs of and occasioned by this application for consent dismissal, be determined by a judge on a date to be fixed. 

12. Mr De Witt, for the petitioner, submits that notwithstanding the dismissal of the petition, this court should order costs against the debtor. He asks this court to take into account the debtor’s conduct both before and after the presentation of the petition.  As far as conduct before the petition is concerned, Mr De Witt relies on what he calls “the debtor’s complete silence” after receiving the Notices of Assignment and the statutory demands which were personally served on the debtor.  Given the debtor’s silence and failure to comply with the statutory demands, the petitioner was entitled to present a petition. As far as conduct after the petition is concerned, he relies on the defendant’s failure to comply with rule 68 of the Bankruptcy Rules in that the debtor failed to set out his grounds in opposition to the petition. 

13. Mr Fan, for the debtor, argues that the petitioner knew all along that the alleged debts were, in truth, investments in Marash Limited, no debts were due to the two assignors and the statutory demands should not have been issued in the first place.

14. Given the debtor’s opposition raises serious issues of fact which can only be tested in an ordinary civil action where there would be viva voce evidence and cross-examination, it is not appropriate for this court to adjudicate upon the merits of his case at this stage.  If so, what is left as being undisputed facts before this court are those stated by way of background to these proceedings as well as the debtor’s conduct.

15. Rule 79 of the Bankruptcy Rules provides that:

“(1) Subject to paragraphs (2), (3) and (4), the costs of all proceedings under the Bankruptcy Ordinance down to and including the making of the bankruptcy order shall be borne by the party prosecuting the same.

 (2)  The court may at any time order that the debtor shall pay the whole or any part of the costs.”

16. It is trite law that after the Civil Justice Reform, while the general rule is still that the costs should follow the event, in exercising its discretion as to costs, the court can take into account the underlying objectives set out in Order 1A rule 1 of the Rules of the High Court as well as the conduct of all parties. 

17. Looking at the matter this way, this court takes the view that since the petition has been properly presented on the basis of the statutory demands which have not been complied with or set aside, and given that the petitioner acted with propriety in offering to withdraw the petition very shortly after the debtor had filed his affidavit in opposition, the appropriate order to make is that the costs of these proceedings, including the costs of today, be borne by the debtor and paid to the petitioner, such costs to be taxed on a party‑and‑party basis if not agreed.