RE CHEUNG YUK SHING

HCB 8437/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 8437 OF 2007

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

1.  This was the hearing of a bankruptcy petition presented by Spokesman Enterprises Limited (“the Petitioner”) against Mr Cheung Yuk Shing (“the Debtor”) on 10 August 2007.  The petition was based on a debt of HK$620,201.66, together with interest on the sum of HK$523,963.01 at the judgment rate from 11 August 2007 until payment.  The debt arose out of a number of costs orders obtained by the Petitioner against the Debtor in HCA 3764/2003, CACV 398/2004, HSCD 32/2005 and HCB6193/2006, all of which have been taxed.  The total amount of the taxed costs was HK$523,963.01, and the balance of the debt on which the petition was based represented interest on such costs at judgment rate from the dates of the respective allocaturs down to the date of presentation of the petition.

2.  The Debtor does not deny that he is liable to pay such costs to the Petitioner.  However, his case is that he has a cross-claim against the Petitioner or parties related to it in the amount of HK$3,700,000, which is the subject matter of existing proceedings, namely HCA 3764/2003 between the Petitioner and the Debtor, and HCA 1218/2004 between the Debtor and two individuals, Mr Tang Hoi Ip and Mr Tang Man Wai (whom I shall refer to collectively as “the Tangs”).  Those proceedings are due to be tried in early September 2008, at a trial which has been set down for a five day hearing.

3.  It is well established that in order to avoid the making of a bankruptcy order, it is necessary for a debtor to establish the existence of a bona fide dispute of substance in respect of the debt, or the existence of a bona fide and substantial cross-claim against the Petitioner, the amount of which exceeds the amount of the debt on which the petition is based.

4.  The Debtor’s position is that the cross-claim which he has raised in the two actions to which I have referred is bona fide and has substance, and that the petition should therefore be dismissed, or at the very least stayed pending the resolution of those actions, which will occur within the next few months.

5.  HCA 3764/2003 is an action by the Petitioner against the Debtor.  It relates to certain property in Yuen Long, which was let by the Petitioner to the Debtor for a term of two years from January 2002 at a monthly rental of HK$150,000 per month.  According to the Petitioner, the Debtor had failed to pay rent since April 2003.  The Petitioner therefore claimed to be entitled to terminate the tenancy, and claimed against the Debtor for possession of the property, mesne profits pending delivery of vacant possession, and arrears of rent up to the date of termination of the tenancy.

6.  The Debtor sought to defend this action on various bases.  For present purposes, the only matter raised by way of defence that is relevant is an allegation by the Debtor that between April 1997 and March 2003, he had overpaid the Petitioner and/or the Tangs sums of HK$50,000 per month, for a period of 72 months, totalling HK$3,600,000.  In addition, he says that an amount of HK$100,000 was overpaid by way of rental deposit, which has been retained by the Petitioner or the Tangs.

7.  The property in question was, it seems, owned not by the Petitioner, but by Mr Tang Hoi Ip.  It seems that at various times, he entrusted the Petitioner to deal with the property on his behalf.

8.  The Petitioner and the Tangs do not deny having received the monthly payments totalling HK$3,600,000.  However, they say that these sums were not payments of rent, but were in fact payments of agency fees which the Petitioner had agreed to pay to Mr Tang Man Wai, for certain services in connection with the property.  It appears to be common ground, however, that over a period of 6 years, the Petitioner was provided with receipts issued by Mr Tang Man Wai, which recorded the receipt of the sum of HK$50,000 per month, describing the payments as “rent”.  Somewhat surprisingly, these receipts, although mentioned in the Debtors’ affirmation in opposition to the Petition, were not exhibited.  However, as I have noted, the parties are in agreement that the sums in question were received, that receipts were issued, and that the receipts described the payments being made as “rent”.

9.  The Petitioner says that there is in fact no bona fide dispute of substance that exists.  It says that:-

(1) The payments were agency fees, payable under an agency agreement entered into by the Debtor (in the name of a sole proprietorship called Kam Shing Motor Trading Co., of which he was the proprietor, and which was also the tenant under the tenancy agreement that was the subject matter of HCA 3764/2003).  The Petitioner’s case, as I understood it, was that the agency agreement was made with Mr Tang Man Wai, under whose signature the receipts were issued.

(2) The tenancy agreement was entered into by the Petitioner pursuant to a power of attorney granted to it by Mr Tang Hoi Ip, under which it was authorised to deal with the premises which were the subject of the tenancy.

(3) The issue of the receipts under the signature of Mr Tang Man Wai was a clear indication that the monies paid were paid not to the Petitioner, but to Mr Tang Man Wai, who was the party to the agency agreement.  The Debtor therefore had no claim against the Petitioner for the return of those monies.

(4) The notation “rent” on the receipts was due to a simple clerical error by Mr Tang Man Wai’s secretary.

10.  The Petitioner also places heavy reliance on what it says were decisions by Deputy Judge To and the Court of Appeal in HCA 3764/2003 and CACV 398/2004 which the Petitioner says are to the effect that the Debtor’s claim against the Petitioner was unmeritorious, and would not succeed.

11.  It certainly appears from the judgments in those two cases that Deputy Judge To at first instance and Rogers VP (with whom Sakhrani J agreed) on appeal were unconvinced by the Debtor’s claim that he had overpaid, or made advance payments of, rent to the Petitioner.  However, I think it is necessary to note the context in which those observations were made.

12.  This was that the Petitioner had taken out an application for summary judgment in HCA 3764/2003.  That application sought judgment in respect of both the claim for possession, and the claim for rental in arrears.  When the matter was first heard, Master Au-Yeung gave judgment for the Petitioner on its claim for possession, together with mesne profits until delivery up of vacant possession.  However, she granted the Debtor unconditional leave to defend as to the claim for rental in arrears.  The Debtor appealed to the Court of First Instance.  His appeal was heard by Deputy Judge To, who dismissed the appeal.  The Petitioner did not cross-appeal against the grant of unconditional leave to defend the claim for rental in arrears.  On further appeal to the Court of Appeal, the Debtor was again unsuccessful, and although the Petitioner lodged a cross-appeal in respect of the grant of unconditional leave to defend the claim for rental in arrears, it did not pursue that cross-appeal, which was accordingly dismissed.

13.  Thus, the question of the defence to the claim for rental in arrears was not in fact something which was before either Deputy Judge To, or the Court of Appeal.  Coupled with the fact that both of those courts had only affidavit evidence before them, it seems to me that the views that they expressed, although expressed in apparently uncompromising terms, could only have been provisional views, reached on the basis of the documents, such as they were, without the opportunity to hear the witnesses who might be called to give evidence at a trial.

14.  Against this, the Debtor has pointed to some features of the dispute which would seem to call for some explanation.  These are as follows:-

(1) The agency agreement (the authenticity of which is disputed by the Debtor) is undated and does not identify the agent appointed under it.  Mr Tang Man Wai’s claim to be the agent appointed under it is not something which has yet been tested.

(2) The receipts for the additional HK$50,000 monthly payments described themselves as being in respect of “rent”.  The assertion on affidavit by Mr Tang Man Wai’s secretary that this was a mistake on her part was, likewise, one which was untested.  The mistake was one which was surprising, in that it was not an isolated mistake, but one which was made on a regular basis, every month for 72 months.

15.  The Debtor also pointed out that the fact that the receipts were signed by Mr Tang Man Wai rather than by or expressly on behalf of the Company was not a matter that was in any way conclusive, but rather depended on the outcome of the dispute as to the nature of the payment.  If it was, as the Debtor contended, a payment of rent, then, given that the landlord was the Petitioner, the receipt must have been issued on behalf of the Petitioner, even if this was left unstated.  It therefore did not follow that the payments were necessarily received by Mr Tang Wai Man, rather than the Petitioner.

16.  It seems to me that whatever might be one’s view as to the strength or weakness of the Debtor’s position, having regard to these matters, it is one that should not be dismissed out of hand.  The matters identified by the Debtor do, I think, call for some explanation.  Although an explanation has been proffered, it is at this stage untested, and will not be tested until the matter has gone to trial.

17.  I think it also fair to note, as the Debtor pointed out, that despite having applied for summary judgment in respect of the arrears of rental, the Petitioner did not seek to pursue that application on appeal after it had failed before Master Au-Yeung.

18.  In saying this, I do not ignore the fact that there are some unsatisfactory features of the Debtor’s case as well, and am not suggesting that the Debtor will, or even will be likely to, succeed at the end of the day.  All that I am able to say at this stage is that I do not think that this dispute is one that can be decided solely on the basis of affirmation evidence.

19.  In the circumstances, therefore, I am not prepared to make a bankruptcy order against the Debtor at this stage.  However, having regard to the fact that the trial of the two actions is due to take place in the near future, I think that the appropriate course would be for me to stay the petition until after the outcome of the trial, rather than to dismiss it outright.

20.  So far as costs are concerned, as the Debtor has succeeded in resisting the making of a bankruptcy order against him at this stage, I shall make an order nisi that the costs of this hearing are to be paid by the Petitioner to the Debtor, to be taxed on the party and party basis if not agreed.  However, I shall not make any order in relation to the petition generally, or in respect of previously reserved costs, as these should be dealt with when the petition is eventually disposed of after the trial of the two actions.