KO SIN YUN v. CHAN CHUEN

HCB 4824/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY

NO. 4824 OF 2005

____________________

____________________

____________________

R U L I N G

____________________

1. This is an application for leave to appeal against a decision that I made as to the costs of a petition involving the petitioner and the debtor. 

2. At the hearing on 13 March 2006 when I gave my decision on costs, it was common ground between the parties that the petition should be withdrawn.  The only issue that arose for argument on that occasion was the question of costs.  The reason why the petition had to be withdrawn was that the judgment debt on which the petition was based had gone as a result of the judgment (which was a default judgment in the District Court) having been set aside by the District Court on the application of the debtor.  That application was only taken out after presentation of the petition and the decision of the District Court to set aside its earlier judgment was, of course, also given after the petition was presented. 

3. On that occasion, I came to the view that, although the District Court judgment had been set aside, and although submissions were made to me as to alleged deficiencies in the claim that had been put forward by the petitioner in the District Court proceedings, notwithstanding that there might have been deficiencies that had led to the judgment being set aside, any deficiencies that there were were properly matters to be raised by way of defence and that therefore the default judgment was a regular judgment, one which the creditor was entitled to enforce by taking out bankruptcy proceedings if he were minded to do so. 

4. There was no clear explanation for the debtor’s failure to take steps either to have contested the proceedings in the first place, or to have taken steps to have the default judgment set aside earlier, before the creditor expended time and money in presenting a bankruptcy petition against him. 

5. Mr Li, who appears before me today for the debtor, has drawn my attention to the case of Re Hon Sing Engineering Limited and has submitted that that is authority for the proposition that even where a petition is presented without fault on the part of the petitioner, if it is dismissed, the normal costs order will be that the costs should follow the event and that the petitioner should bear the costs involved in the petition proceedings. 

6. With respect, I am not sure that that is correct, in that in the Hon Sing case what had happened was that a person who claimed to be a creditor of the company had presented a winding-up petition against it.  However, the company disputed the debt on which the petition was based.  It was not a case in which there was a judgment debt.

7. In those circumstances, it seems to me that although the company may justifiably have thought that it had an undisputed debt, if it turned out to be wrong, the position would be no different from an action by a party who brings a claim which it considers to be justified but turns out ultimately not to be.  That seems to me to be a rather different situation to the one with which I was faced in which the creditor was proceeding on the basis of a judgment debt which, although obtained by default, had never been the subject of challenge until after the presentation of the petition.  In those circumstances, I do not think that the Hon Sing Engineering case is authority for the principle which Mr Li submits. 

8. Mr Li has also drawn my attention to the fact that an amended statement of claim in the District Court proceedings, which was prepared and served after the withdrawal of the petition, indicates that there may be more substantial problems standing in the petitioner’s way.  Again, that may be so, but it seems to me that that does not alter the basis on which I came to my decision as to costs on the last occasion.  It seems to me that while I should, of course, grant leave to appeal if I am satisfied that there is a possibility that I might have erred in the exercise of my discretion as to costs, I am afraid that on the materials which have been put before me both at the original hearing and today, I am not satisfied that that could be established. 

9. In the circumstances, I will dismiss this application and if Mr Chan wishes to take the matter further, he will have to apply to the Court of Appeal for leave. 

10. As far as today’s hearing is concerned, costs should follow the event.