RE JORA SISI OMAR

HCB 8127/2016

[2019] HKCFI 2234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8127 OF 2016

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J U D G M E N T

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I. Introduction

1.  There is before this court an amended bankruptcy petition (“Petition”) by Madam Jora Harmidar Omar (“Petitioner”) against Madam Jora Sisi Omar (“Debtor”) first presented on 15 November 2016 and, after the amendment, re-filed on 13 December 2017.  The Petition was originally based on the non-compliance with a statutory demand dated 18 January 2016 (“1^st statutory demand”) for the taxed costs of HK$203,665.10 together with interest.  After a minor typo was discovered and hence a reduction of $10 was made to the sum stated in the allocatur as explained below, a statutory demand dated 6 November 2017 (“2^nd statutory demand”) for the taxed costs of HK$203,655.10 together with interest (“Debt”) was served on the Debtor and the Petition is now based on the non-compliance with this statutory demand.

2.  There is also before this court a summons by the Debtor filed on 16 March 2018 for an Order for stay under section 104 of the Bankruptcy Ordinance, Cap 6 (“BO”) and the inherent jurisdiction of the Court (“Stay Summons”).

II. Background

3.  The Debt is founded on an Order for costs dated 25 March 2013 granted by Poon J (as he then was) in HCAP 19 of 2011, an action between the Debtor as plaintiff and the Petitioner as defendant, by which the Debtor was ordered to pay forthwith the costs of the 3 summonses before the learned Judge to the Petitioner, to be taxed if not agreed (“Costs Order”). The 3 summonses were:

(1) the Debtor’s application for summary disposal of the action pursuant to Order 14 and Order 14A of the Rules of the High Court;

(2) the Debtor’s application to strike out parts of the defence and counterclaim;

(3) the Petitioner’s application to strike out parts of the statement of claim and the reply to defence to counterclaim.

4.  As stated in his Lordship’s Decision dated 25 March 2013, Poon J dismissed (1) as “wholly misconceived”, dismissed (2) as “entirely misconceived” and allowed (3).  Costs followed the event.

5.  On 6 June 2013, the Debtor applied for a stay of execution of Poon J’s Decision.  That application was dismissed by the learned Judge on 30 October 2013.  As far as this court is aware, there was no appeal by the Debtor against Poon J’s substantive Decision or the Costs Order.

6.  On 26 May 2014, the Petitioner’s bill of costs was taxed by Master M Wong.  After 2 reviews which were dismissed by Master M Wong and DHCJ Kent Yee on 24 October 2014 and 18 May 2015 respectively and an application to DHCJ Kent Yee for leave to appeal which was also dismissed on 10 November 2015, an allocatur for the sum of $203,665.10 was finally issued on 17 December 2015 (“allocatur”).  

7.  The Debtor applied to the Court of Appeal for leave to appeal against DHCJ Kent Yee’s decision of 18 May 2015 dismissing her application for a further review.  On 19 August 2016, the Court of Appeal refused to grant leave to the Debtor.  In the Judgment of Barma JA, giving the decision of the Court, the learned Judge said this:

“10. We have given careful consideration to the plaintiff’s application, and have reviewed her extensive notice of appeal (which runs to some 26 pages), her summons for leave to appeal and affirmation in support, and her two further letters to the court containing further submissions. It is quite clear from those documents that the plaintiff’s stance is as it was before the Deputy Judge – that the bill of costs should have been disallowed by the Master in its entirety, because of the allegedly improper conduct of the defendant which the plaintiff says resulted in the judgment and order of Poon J against her.

11. This argument has no reasonable prospects of success. The Deputy Judge was quite right to hold that it was not open to the plaintiff to seek to have the judgment and order of Poon J effectively set aside in this way. No appeal having been brought against that judgment, it remains in effect, together with the costs order made. The plaintiff, having adopted this all or nothing approach, raised no specific objections to particular items allowed by the Master in the taxation, and there was therefore no proper basis for the application for review before the Master, or for further review before the Deputy Judge. The plaintiff’s application for leave to appeal is therefore dismissed.

12. Moreover, we are satisfied that the proposed appeal is totally without merit, and therefore make an order pursuant to RHC Order 59 rule 2A(8) that no party may request that this determination be reconsidered at an oral hearing.” (emphasis added)

8.  Meanwhile, as the Debtor failed to pay the taxed costs, the Petitioner issued the 1^st statutory demand on 18 January 2016 and served it on the Debtor a few days later.  

9.  On 3 February 2016, the Debtor applied to set aside the 1^st statutory demand in HCSD 3 of 2016.  The application was heard before G Lam J on 7 September 2016.

10.  On 30 September 2016, the application was dismissed by G Lam J and the Petitioner was authorized to present a bankruptcy petition after the expiry of 7 days.  At paragraph 21 of his Judgment, the learned Judge summarised the 4 grounds relied upon by the Debtor as follows:

(1) The debt underlying the statutory demand was disputed on substantial ground, on the basis that (i) Poon J was misled into coming to his decision; (ii) the taxation and its review were disputed; (iii) Poon J’s Decision was obtained by the respondent by fraud (“1^st Ground”).

(2) The applicant had a counterclaim in the probate proceedings that exceeded the debt in the 1^st statutory demand (“2^nd Ground”).

(3) The setting aside of the 1^st statutory demand was in the interests of justice (“3^rd Ground”).

(4) There were special circumstances and good cause within the meaning of rule 204 of the Bankruptcy Rules, Cap 6A (“BR”) (“4^th Ground”).

11.  All 4 grounds were carefully considered by G Lam J in his Judgment.  The relevant parts of the Judgment dealing with the merits of the 4 grounds are reproduced below for ease of reference:

“24. It is further to be noted that the court, in an application to set aside a statutory demand, is not exercising any appellate jurisdiction or review role that would enable it to consider the merits of the underlying judgment; see Sin Wai Ping v International Bank of Asia Limited (unrep, HCSD 27/2002, 6 Feb 2004), per Chu J (as she then was).

25. It is therefore not necessary to go into each of the allegations the applicant has made at §§10-17 of her skeleton argument. All of them concern the merits of the applicant’s application for summary judgment and striking out, which had already been determined by Poon J. For the reasons stated above, the court will not go behind the Costs Order in this application to set aside the statutory demand.

26. I should say that, in any event, based on the materials I have seen, there does not appear to be any ground for seeking to set aside the Costs Order for fraud or other similar reasons. The applicant’s allegations of ‘fraud’ or ‘misleading’ statements consist mainly in her contentions that the pleas and arguments raised by the respondent were unarguable. With respect, they do not seem to me to constitute ‘fraud’ for the purpose of setting aside a judgment for fraud.

27. For these reasons, the 1^st Ground must fail.

28. As to the 2^nd Ground, the applicant at §43 of her affirmation of 13 May 2016 stated that:

‘My challenge has requested for compensation under O 62, R 32C(3)(b).  In dealing with the claimant’s ongoing pettifoggery, I have to put many things on hold and suffer loss in an ongoing basis.  My total loss is very hard to quantify but in terms of cents and dollars alone it definitely exceed the unjust amount being claimed by the claimants.’ [Emphasis in the original]

…

30. In her skeleton argument the applicant also relied on Order 62 rule 7 which provides:

‘(1) Where in any cause or matter any thing is done or omission is made improperly or unnecessarily by or on behalf of a party, the Court may direct that any costs to that party in respect of it shall not be allowed to him and that any costs occasioned by it to other parties shall be paid by him to them.’

31. The applicant did not particularise the alleged ‘pettifoggery’ or quantify her loss in any of her affirmation and affidavit. It was not shown what rules, practice direction or order of the court that the respondent had allegedly violated or what improper or unreasonable conduct the respondent has committed. Nor did the applicant apply to Poon J at the time for an order depriving the respondent of costs under RHC Order 62 rule 7 or 32C.

32. The applicant has already canvassed similar arguments as to the alleged improper conduct of the respondent at the taxation reviews before Master M Wong[1] and Deputy Judge Kent Yee[2] and also in the application for leave to appeal before the Court of Appeal.[3] Her arguments were rejected on each occasion because they amounted to challenges to the Costs Order, which should only properly have been made by way of appeal against that order.

33. The applicant also submitted in her skeleton argument that:

‘the court has inherent jurisdiction to crystallize the unjust demand and order payment be made at the end of this probate action by way of ‘setting off’...’ [emphasis in the original]

34. In an appropriate case, the court can make an interlocutory order of costs ‘in any event’ which means that the costs awarded will only be payable at the conclusion of the action. … What is important for present purposes, however, is that in the Costs Order, Poon J specifically ordered costs to be paid by the applicant ‘forthwith’.  The applicant submitted that it would be unjust to require her to pay a substantial sum of costs now and that everything should be settled by way of set-off at the end of the Probate Proceedings.  It seems to me the argument is misconceived. This court has no jurisdiction on this application to make an order to vary the way costs have been ordered to be paid in the Probate Proceedings.  Nor can it be correct in principle to adjourn the present application pending the outcome of the Probate Proceedings.

35. The applicant has placed reliance on rule 204 of the Bankruptcy Rules, which provides:

‘The court may, under special circumstances and for good cause shown, extend or abridge the time appointed by these rules or fixed by any order of the court for doing any act or taking any proceeding.’

36.       … Clearly rule 204 is intended to deal with the conduct of bankruptcy proceedings.  It would be a misreading of the rule for the applicant to think that it empowers this court, in an application such as the present one, to vary the time fixed by any court order in any other proceedings, including the time for payment of costs fixed by Poon J’s Costs Order in the Probate Proceedings.

37. To the extent that the applicant seeks to rely on her main claim in the Probate Proceedings as a set-off or counterclaim to the statutory demand, it seems to me the respondent is correct in submitting that the applicant’s claim in the Probate Proceedings is not one for monetary relief and there is nothing in the claim that can be used for set-off.  Nor is there any concrete basis to suggest that the statutory demand should be set aside because the applicant may potentially obtain a costs order in her favour at the end of the Probate Proceedings.

38. For these reasons I am not satisfied that the applicant has shown any substantial ground for any set-off or cross-claim that exceeds the sum of $249,134.52 specified in the statutory demand.

39. As to the 3^rd Ground, the applicant raised several matters in support at §44 of her affirmation made on 13 May 2016.  Those matters refer again to the respondent’s alleged ‘pettifoggery’ and ‘costs fiddle’ in obtaining the Costs Order and the decision of 25 March 2013.  For reasons already stated above, this Court will not go behind the Costs Order at this stage and this ground also must fail.

40. As to the 4^th Ground, I have dealt with rule 204 above.  In any event, the matters raised by the applicant in support of this ground are essentially a repetition of those raised for the other grounds.  For the reasons above, this ground must similarly fail.

VI.  Conclusion

41. There is nothing to justify not giving effect to the Costs Order at this stage of the proceedings.  The applicant has failed to show substantial grounds for a set-off or cross-claim or other reasons that justify the setting aside of the statutory demand. …” (emphasis added)

12.  As stated earlier, on 15 November 2016, the Petitioner presented the Petition against the Debtor. 

13.  On 12 May 2017, the sum in the allocatur, after discovery of the typo, was slightly reduced to $203,655.10 by Order of Master M Wong.

14.  On 13 September 2017, the Court of Appeal dismissed the Debtor’s appeal against the judgment of G Lam J in CACV 209 of 2016. 

15.  As a result of the slight amendment to the sum stated in the allocatur, the Petitioner issued the 2^nd statutory demand and served it on the Debtor on 7 November 2017.  Subsequently, the Petition was amended and served on the Debtor on 18 December 2017.

III. Deliberation

16.  This court shall first remind itself of the applicable legal principles.

17.  In order to successfully oppose the Petition, a debtor has to show a bona fide dispute on substantial grounds, by sufficiently precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one: Re Tam Mei Kam unrep, HCB 3777/2011, 25 April 2012, Barma J (as he then was); Re Yuen Mun Wa (a debtor)[2012] 5 HKLRD 108 (Recorder A Chan SC, as he then was); Re Chan Hon Kwong unrep, HCB 6548 of 2016, 27 April 2017, Ng J.

18.  Where an issue has been properly ventilated at the stage of an application to set aside a statutory demand, and has been determined by the court at that hearing, a res judicata operates to preclude a debtor from raising, at the hearing of the petition, the same argument which has been determined against him, in the absence of any change of circumstances: Re Choy Wai Bor unrep, HCB 8565/2001, 28 May 2002, Kwan J (as she then was); Re Sy Chin Mong Stephen unrep, HCB 5784/2013, 9 May 2014, Ng J.

19.  Unless a material change of circumstances has occurred since the dismissal of the application to set aside the statutory demand, all that the petitioning creditor has to do at the hearing of the bankruptcy petition is to show that he has made a statutory demand and that the amount of the debt has neither been paid nor secured nor compounded for: Brillouet v Hachette Magazine Ltd [1996] BPIR 518, 520, cited with approval by Kwan J (as she then was) in Re Choy Wai Bor, supra.

20.  Where the underlying debt is based on a judgment, the court hearing the bankruptcy petition will treat the judgment as prima facie evidence that the judgment debtor is indebted to the judgment creditor.   In appropriate circumstances, the court may “go behind” the judgment — what is normally required is some “fraud”, “collusion” or “miscarriage of justice” which impinges on the validity of the judgment, the latter phrase being clearly capable of wide application according to the particular circumstances of the case: Dawodu v American Express Bank [2001] BPIR 983; Re Tam Mei Kam unrep, CACV 87/2012, 8 May 2013, Cheung, Yuen & Lam JJA.

21.  In Re Tam Mei Kam, supra, Yuen JA set out the principles to be applied where a petition is based on a judgment debt or court order at [22.1]-[27] as follows:

“22.1 The bankruptcy court will treat a judgment for a sum of money as prima facie evidence that the judgment debtor is indebted to the judgment creditor for that sum.

22.2 As prima facie evidence of indebtedness, it may be rebutted and that is what is meant by ‘going behind’ the judgment. It is important to understand the rationale for this approach. First, bankruptcy affects an individual’s legal status. Secondly and importantly in this context, the bankruptcy court’s exercise of the power and/or duty to inquire into a judgment is necessary to protect a debtor’s real creditors from collusive judgments entered into by the debtor in order to initiate a bankruptcy and thereby reduce the funds available for his real creditors.

…

23. In other words, the reason why a bankruptcy court is not conclusively bound by a judgment debt is so that (in appropriate circumstances) it can inquire whether there was actually bona fide consideration for it. Of course apart from opposing creditors at the petition seeking to impugn the judgment debt, the judgment debtor himself can also seek to do so, especially if the judgment had been obtained by default. See Fletcher, The Law of Insolvency, 4^th ed p 163 para 6–116:

‘One justification for the existence of this power is that a debtor might connive with others to allow a number of bogus default judgments to be entered against himself by his ‘allies’, who could rescue some of his estate on his behalf by later proving for the debts in the bankruptcy. But the far more usual occasion for invoking this doctrine is when it is the debtor who will otherwise suffer injustice, and this is particularly capable of occurring when the judgment was obtained by a compromise of action or by default. A default judgment, by its very nature, involves a one-sided presentation of the facts which may lack objectivity and may even be inaccurate or unfair …’

However that is not to say that in every case the bankruptcy court should exercise its powers of inquiry simply for a judgment debtor to get a second bite of the cherry and conduct parallel proceedings to review a judgment which he has lost or to avoid its execution.

24. The rationale discussed above should guide the approach to be taken by the bankruptcy court when a judgment debtor opposes a petition on the ground that he challenges the judgment debt.

25.1 If the judgment debtor has lodged either an application to set aside the judgment (in a case where the judgment did not require a decision on the merits) or an appeal, the bankruptcy court may stay the hearing of the petition to await the result of the application or appeal.

25.2 However, the bankruptcy court need not do so in every case. It may refuse to stay the petition and may proceed to make a bankruptcy order if the judgment debtor fails to satisfy the court that he has a reasonable prospect of succeeding in the application to set aside or the appeal (Watts v London Borough of Newham [2009] EWHC 377 at [53]). Put another way, an application to set aside or an appeal falling short of that standard would not be a viable or bona fide one, and the judgment debtor would have failed to rebut the prima facie evidence of indebtedness. …

…

26.1 Where the judgment debtor has not lodged an application to set aside or an appeal by the time of the petition hearing but intends to do so (probably out of time), he must, in addition to satisfying the bankruptcy court of the reasonable prospects of success in his application or appeal, also provide a reasonable explanation why he has failed to act in time. If he can do so, the bankruptcy court may adjourn the hearing of the petition to enable him to commence an application to set aside or appeal, giving appropriate directions to ensure that it is conducted expeditiously, with liberty to apply so that either party may apply to restore or dismiss the petition as appropriate.

26.2 Where the judgment debtor is unlikely to be able to pursue an application to set aside or an appeal for procedural reasons eg where there has been gross and inexcusable delay, the bankruptcy court may consider his case to see if he can rebut the prima facie evidence of indebtedness. Before arriving at a decision, the bankruptcy court will consider the circumstances in which the judgment was obtained. At one end of the spectrum, the court may decide to dismiss the petition even if a regular judgment had been obtained in default, eg if service of a writ had been effected on the judgment debtor’s previous address and he can clearly establish a substantial defence. At the other side of the spectrum is a petition based on a judgment obtained after a full trial on the merits. In the latter situation, the general principle is that the bankruptcy court would inquire into such a judgment only if the judgment debtor can show fraud, collusion or miscarriage of justice, the latter term having been described as ‘something from which [the court] can conclude that had there been a properly conducted judicial process it would have been found, or very likely would have been found, that nothing was in fact due to the claimant’ (Dawodu v American Express [2001] BPIR 983 quoted in Watts at [48]).

27. Where the judgment debtor has already failed in his application to set aside the judgment or his appeal on substantive grounds at the time of the petition hearing, it would be most unlikely in that situation that the bankruptcy court would find that the judgment debtor could nevertheless rebut the prima facie evidence of indebtedness, unless he could satisfy the court that he could impugn the judgment of the court deciding the setting aside or appeal on the grounds discussed in the paragraph above.” (emphasis in original)

22.  The Court’s approach in dealing with an alleged cross-claim, in a corporate insolvency context, was neatly summarised by Barma J (as he then was) in Jade Union Investment Limited unrep, HCCW 400 of 2003, 5 March 2004 at [11]:

“In the context of set-offs or cross-claims, the court will look at the evidence adduced by the company and reach a conclusion as to whether the set-offs or cross-claims relied upon by the company have substance. If it is satisfied that such set-offs or cross-claims have substance, and exceed the amount of the debt on which the petition is based, the court will ordinarily dismiss or stay the petition. It is arguable that there may be a further requirement in relation to cross-claims that the company should have been unable previously to litigate them, but even if that is a requirement, it was not suggested that it arises for consideration in this case. …” (emphasis added)

23.  The same approach was adopted in bankruptcy proceedings: Re Shang Lili unrep, HCB 5329 of 2014, 25 January 2016, Ng J at [24]-[25].

24.  Unless otherwise ordered, costs once taxed are immediately payable.  The fact that there are other outstanding actions between the parties do not prevent the party to whom such costs are payable from enforcing payment by bankruptcy proceedings: Re Wan Po Jun Mary Pauline unrep, HCB 144/2011, 11 April 2011, To J at [14].

25.  This court has carefully considered the Debtor’s 4 affirmations. 

26.  In her 1^st affirmation dated 19 January 2018 (“D1^st”) in which she sought an extension of time of 15 weeks[4] under Rule 204 of BR, the Debtor asserted inter alia that the Costs Order was obtained by fraud and deception and that she had a right to claim compensation from the Petitioner for her loss of at least $1 million per year from 2011 to 2017.  2011 is of course the year in which proceedings in HCAP 19 of 2011 were commenced by the Debtor against the Petitioner. 

27.  In her 2^nd affirmation dated 16 March 2018 (“D2^nd”) in support of the Stay Summons, the Debtor reiterated her assertion that the Costs Order was obtained by fraud and deception and that she had a right to claim compensation from the Petitioner for her loss of at least $1 million per year from 2011 to 2017.  The Debtor also added that G Lam J and the Court of Appeal were misled in coming to their decisions on 30 September 2016 and 13 September 2017 respectively.

28.  In her 3^rd affirmation dated 13 April 2018 (“D3^rd”), the Debtor set out her objections to the Debt which she described as “unjust”, again reiterating her assertion that the Costs Order was obtained by fraud and deception and her right to claim compensation from the Petitioner.

29.  Lastly, in her 4^th affirmation dated 21 May 2018 (“D4^th”), the Debtor purported to reply to the 2 affirmations of Ms Kelly Ho, solicitor for the Petitioner.  The Debtor also asserted that the whole situation was unjust and that the statutory demand which G Lam J and the Court of Appeal did not set aside was also “unjust”. 

30.  This court has also carefully considered the Debtor’s 100 paragraphs of submissions (“Debtor’s submissions”).  In the Debtor’s submissions, she stated 3 purposes of her “application” viz (i) “Object the unjust debts”; (ii) “Seek relief from court”; and (iii) “Let the court know the facts”.  As far as (i) is concerned, the Debtor essentially repeated her assertion that the Debt was obtained by fraud and deception and that she has been challenging it since 25 March 2013 ie the date of the Costs Order.  As far as (ii) is concerned, the Debtor essentially repeated her claim for compensation from the Petitioner for her loss of at least $1 million per year.

31.  Having considered the contents of the 4 affirmations and the Debtor’s submissions, this court has come to the firm view that none of the “grounds” raised by the Debtor constitute a bona fide dispute to the Debt on substantial grounds.  The assertion that the Debt was obtained by “fraud and deception” is nothing but a bare assertion unsubstantiated by sufficiently precise evidence which is believable.  It should be noted that the substantive Decision of Poon J and the Costs Order on 25 March 2013 were not made by default in which case there might have been a one-sided presentation of the facts which might possibly be inaccurate or unfair.  In fact, both the Debtor in person and the Petitioner’s counsel attended the hearing on 12 March 2013 which led to the Decision in the Petitioner’s favour and costs simply followed the event. 

32.  Further, this court is not satisfied that the so-called claims for compensation for the Debtor’s loss have any substance or that their amounts will arguably exceed the Debt.  This is because no valid basis was put forward by the Debtor to substantiate her claims for compensation and no particulars were given as to how the $1 million per year were arrived at.  In any event, her claims for compensation were in substance put on the same basis as her 2^nd Ground for setting aside the 1^st statutory demand (albeit unquantified at that time but now quantified at $1 million per year) which had already been rejected by G Lam J at paragraph 38 of his Judgment quoted above.  Whether one applies the principle of res judicata in the strict sense or in the Henderson v Henderson sense, the Debtor is precluded from relying on her so-called claims for compensation in resisting the Petition.

IV. Stay Summons

33.  Section 104 of BO provides:

“The court may at any time, for sufficient reason, make an order staying the proceedings under a bankruptcy petition, either altogether or for a limited time, on such terms and subject to such conditions as the court may think just.” (emphasis added)

34.  Given this court’s view that the Debtor’s grounds for resisting the Petition have no substance, and given the Debtor’s grounds in support of the Stay Summons in D2^nd are also wholly unmeritorious, this court is not satisfied that there is sufficient reason under s 104 BO to stay the present proceedings.

V. Disposition

35.  For the above reasons, the Debtor’s opposition to the Petition fails and her Stay Summons is hereby dismissed.

36.  There shall be a usual bankruptcy order against Madam Jora Sisi Omar and an order nisi that costs be to the Petitioner, to be taxed if not agreed, and paid forthwith, with certificate for counsel.

37.  Lastly, this court wishes to thank Ms Yuen of the Official Receiver for her helpful assistance.