XCHRX WONG WAI LIN LANA v. HEUNG WAH WING AND OTHERS

HCSD 27/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 27 OF 2000

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D E C I S I O N

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1. This is an application to set aside a statutory demand dated 20 May 2000. It was served on the Applicant debtor, Madam Wong Wai Lin Lana, by advertisement in two newspapers on 2 June 2000. The debt in the statutory demand arose out of a consent order dated 28 February 2000 made in respect of costs that should be paid by the Applicant to the three Respondents in the consolidated proceedings being High Court Action No. A8731 of 1993 and High Court Action No. A11746 of 1996 ("the consolidated action"). The amount of the costs the Applicant was ordered to pay was HK$650,000.00. There were two other items in the debt set out in the statutory demand being default interests and further default interests. The total sum as claimed in the statutory demand was HK$660,889.72.

2. The application to set aside the statutory demand was issued on 20 June 2000. Sometime in July 2000, the Applicant made payment of HK$160,889.72 to the Respondents reducing her indebtedness to exactly HK$500,000.00. She had applied to set side the statutory demand relying on rules 48(5)(a) and (d) of the Bankruptcy Rules. It is provided in rule 48(5)(a) that the court may grant the application to set aside the statutory demand if "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." It is the Applicant's case that she has a cross claim against one of the Respondents, Mr Heung Wah Wing, in High Court Action No. A5083 of 1992 for the sum of HK$500,000.00, which is the balance of the debt specified in the statutory demand. I should mention that under the consent order as to costs, the three Respondents are joint creditors.

3. It may be convenient to give a summary of the past litigation between the parties. In the consolidated action, the Applicant brought an action in trespass against the three Respondents in respect of a garden in a property at Marina Cove, Sai Kung. The Respondents counterclaimed for rectification of the sale and purchase agreement asserting title over the garden land in dispute. Judgment was given by Findlay J in June 1998 in which he found for the Respondents and gave judgment on the counterclaim. The Judge disbelieved the Applicant and her witness in that case.

4. HCA No. A5083 of 1992 was another action brought by the Applicant but against Mr Heung alone. The Applicant claimed in that action that by an agreement evidenced by a memorandum dated 20 February 1992 made between the parties, she had agreed to sell and Mr Heung had agreed to purchase all the fixtures, fittings and furniture of a property at Marina Cove at the price of HK$500,000.00. It is her case that she had delivered the fixtures, fittings and furniture in the property to Mr Heung but Mr Heung had failed to pay the agreed price of HK$500,000.00. Mr Heung's defence is that the Applicant did not deliver any of the fixtures, fittings and furniture to him pursuant to the agreement. Hence, he was not liable to pay her any part of the agreed sum of HK$500,000.00. The action was brought by the Applicant in July 1992. Mr Heung filed his amended defence in March 1995. The next step in the proceedings was taken in February 2000, when the Applicant filed a Notice to act in person. Four months later, her solicitors filed a Notice to act and gave a Notice of intention to proceed after one year's delay. The Applicant claimed in her second affirmation that she had difficulty in raising funds for legal costs and she had applied for legal aid to proceed with this action. However, her application for legal aid was made only in July 2000. There is no adequate explanation given to this court as to why there was a five-year delay. But that as it may, it would appear that discovery in that action had taken place and witness statements had been exchanged. The latest round of witness statement was served by Mr Heung on 10 October 2000. I was told that the Applicant intended to file and serve witness statements in reply to the latest witness statements of Mr Heung. On 20 September 2000, an order was made by the Listing Judge giving leave to set down the action for trial in the Running List within 42 days and directions were given for the filing of supplemental list of documents and the exchange of witness statements within a specified time table. Hence, it would appear that the action would come up for trial in the not too distant future.

5. It would appear from the summary I have given above that there is a dispute of fact as to whether the fixtures, furniture and fittings were delivered by the Applicant to Mr Heung. I do not think I can resolve this dispute as to fact on the affidavits at this stage, notwithstanding the submissions made to me by Mrs Dora Chan, who appeared on behalf of the Respondents in this application. The approach I adopt is the approach similar to the situation where there is a cross claim by a company in a winding-up situation. I have been referred by Mr Sammy Ho, who appeared on behalf of the Applicant, to three cases in this context: Re Finbo Engineering Company Limited [1998] 2 HKLRD 695; In re Bayoil S. A. [1999] 1 WLR 147; and In re Portman Provincial Cinemas Limited, decided in 1964 but reported as a note in [1999] 1 WLR 157. Where there is a genuine and serious cross claim which equals or exceeds the amount of the petition debt, the court would, in the absence of special circumstances, exercise its discretion to set aside the statutory demand.

6. I have been taken by Mrs Chan to the merits or rather lack of merits of the Applicant's cross claim in HCA No. A5083 of 1992. She has submitted that it is relevant to take into consideration that the Applicant was disbelieved by Findlay J in the consolidated action. She has also taken me to some of the documentary evidence relied on by Mr Heung, including the documents relating to the repayment of a loan of HK$300,000.00 made by Mr Heung to the Applicant. I was also referred to the witness statements given by two independent witnesses and the witness statement of a director of one of the Respondents, which supported the version given by Mr Heung. Am I able to say at this stage that there is really no substance in the Applicant's claim or that the evidence she is to give in the action for the cross claim is totally incredible? I am unable to come to that view at this stage. Adopting the words of Harman LJ in Re LHF Wools Limited [1970] Ch 27 at 36, although the cross claim may seem somewhat shadowy at this stage, there is just enough to make the principle work. I am not prepared to hold merely on the basis of affidavits and documents put before me that the Applicant's version in support of her cross claim is palpably untrue.

7. I turn to consider whether there are special circumstances which would warrant the exercise of the court's discretion against the Applicant. Mrs Chan has referred me to the chronology in HCA No. A5083 of 1992. There is undoubtedly delay on the part of the Applicant in pursuing that action, in particular the five-year gap between March 1995 and February 2000. It is regrettable that there has been this delay. However, I cannot disregard the fact that the action is finally moving now and that it is likely to come up for trial fairly soon. If, say, no action should be taken by the Applicant in setting down the action for trial, Mr Heung is at liberty to do so pursuant to the order given by the Listing Judge on 20 September 2000.

8. It was submitted to me that the order ordering the Applicant to pay costs to the Applicant was a consent order and that she did not at any time apply for a stay of execution on this order. It was argued that if the statutory demand was to be set aside, the Applicant would in effect have obtained a stay of execution of an order made by consent via the back door. I do not agree with this. The Respondents are not stopped from levying execution on the Applicant in any way. The setting aside of the statutory demand would merely mean that they cannot proceed with a petition for bankruptcy at this stage.

9. Mrs Chan has also relied on the difficulty in serving the Applicant with various court documents at various stages in the consolidated action and with the statutory demand. It was asserted that the Applicant was being deliberately elusive and that she had given a wrong address to mislead the process server. Even if I were to accept all this, I do not think this would constitute a special circumstance to justify the exercise of the court's discretion against the Applicant.

10. For the above reasons, I have come to the view that it is appropriate in this case to set aside the statutory demand and I do so. I will hear the parties as to costs.