RE CHAK KAK

HCB1789 / 2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.1789 OF 2010

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REASONS   FOR   JUDGMENT

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A.  Introduction

1.  This is the hearing of the Petition presented by Pacrim International Capital Inc (“Pacrim”) to bankrupt Mr Chak (“Mr Chak”) on the basis of 3 underlying debts totalling the amount of HK$95,032.97 as at 4 March 2010.   

2.  The 3 debts arose from 3 sets of costs order made in favour of Pacrim against Mr Chak in relation to previous proceedings brought by Mr Chak (and some others) against Pacrim.  I will explain them more later in this Judgment.

3.  Mr Chak, who appears in person, opposes the Petition saying that there are genuine disputes on these debts.

4.  At the end of the hearing, I granted the usual bankruptcy order with costs against Mr Chak, with reasons to be handed down. 

5.  The following are my reasons.

B.  Background

6.  Pacrim is a company listed on the Toronto Stock Exchange.

7.  Mr Chak (and others) are holders of convertible preference shares (“CP Shares”) issued by Pacrim, with a face value of CAD$1.00 each. 

8.  Notices of redemption had been issued by Pacrim in October 2003 seeking to redeem the CP shares at a value of CAD$0.01 per share. 

9.  Mr Chak and the other holders refused the redemption at such a value, contending that Pacrim had to redeem them at least at CAD$1.00 per share.

10.  For that purpose, Mr Chak and 4 others (including one Mr Yuen) brought an action in Hong Kong under HCA 1250 of 2006 against Pacrim.  Each of these plaintiffs sought judgment against Pacrim for CAD$60,000.00 (as the value of the 60,000 CP Shares each of them held) with interest.

11.  Under this action, Master J Wong made an order (“Master Wong’s Costs Order”) dated 23 September 2008 requiring Mr Chak to pay costs in the sum of HK$59,625.00.  

12.  Later, after trial, Yam J found in favour of Mr Chak and the other plaintiffs and gave judgment against Pacrim^[1].

13.  Pacrim appealed against Yam J’s Order to the Court of Appeal under CACV 366/2007.   On 4 June 2008, the Court of Appeal unanimously allowed the appeal, set aside the judgment against Pacrim and dismissed the plaintiffs’ claim^[2].  It further ordered the plaintiffs to pay Pacrim’s costs in the appeal (“the CACV 366/2007 Costs Order”) and below^[3]. 

14.  In June 2009, Mr Chak brought a new action under HCA 1413/2009 against Mr Lam Kwok Hung and Pacrim in relation to the CP shares.  Mr Lam is a director of Pacrim.   Apparently, Mr Chak’s claim under HCA 1413/2009 involved similar facts and background as in HCA 1250/2006, but was premised on an allegation of misrepresentation. 

15.  Upon hearing the application by Pacrim and Mr Lam [4], on 2 November 2009, Master Lung made an order dismissing Mr Chak’s claim.  The learned Master further ordered Mr Chak to pay Pacrim and Mr Lam’s costs, summarily assessed at HK$25,000.00 without any apportionment between them, to be paid within 14 days thereof (“Master Lung’s Costs Order”). 

16.  Mr Chak appealed against Master Lung’s decision to Chung J.  At the hearing of the appeal on 15 December 2009, Mr Chak confirmed that he would no longer pursue any appeal or claim against Pacrim, but maintained his appeal against Mr Lam.   Chung J eventually in his written judgment dated 7 January 2010 dismissed Mr Chak’s appeal and ordered Mr Chak to pay Mr Lam’s costs of the appeal, assessed at HK$14,000.00.  

17.  Pacrim says in relation to the CACV 366/2007 Costs Order, the Registrar issued an allocatur (“the Allocatur”) on 21 September 2009 assessed and taxed the costs as against Mr Chak in the sum of HK$51,994.00.   Mr Chak has not made any payment of this.

18.  On 23 October 2009, Pacrim served a statutory demand on Mr Chak for the repayment of a total sum of HK$120,357.74 which comprised of HK$59,625.00 (under Master Wong’s Costs Order), HK$51,994.00 (under the CACV 366/2007 Costs Order and pursuant to the Allocatur) and HK$25,000.00 under Master Lung’s Costs Order, together with the interest accrued thereon.

19.  Then, Mr Chak made a partial payment of HK$53,273.00 on 23 October 2009 under Master Wong’s Costs Order.   That however did not discharge the entire sum demanded under the statutory demand.

20.  On 5 March 2010, Pacrim presented the present Petition for bankruptcy against Mr Chak based on a debt of HK$95,032.97 as at 4 March 2010.  This debt represents the outstanding sum under the statutory demand, after deducting the partial payment of HK$53,273.00, together with interest accruing upto to 4 March 2010.

21.  As I mentioned above, Mr Chak now challenges this debt of HK$95,032.97.

C.  Grounds to oppose the Petition

22.  Mr Chak raises 3 principal grounds to dispute the debt.  I will deal with each of them in turn.

C1.    The liability for HK$51,994.00 under the CACV 366/2007 Costs Order

23.  First, Mr Chak says in relation to the HK$51,994.00 under the CACV 366/2007 Costs Order, he is not liable to pay for the following reasons:

(1)  The costs order is a joint and several costs order where he and Mr Yuen (and the other plaintiffs) are jointly and severally liable to pay.

(2)  It not disputed that Mr Yuen has paid HK$47,122.00 to Pacrim for its costs under CACV 366/2007. 

(3)  In the circumstances, Pacrim could not and should not ask Mr Chak to pay the entire HK$51,994.00 as there would be double accounting.

24.  Although accepting that the CACV 366/2007 Costs Order is prima facie a joint and several costs order, Mr Hariman for Pacrim submits that there is no merit in Mr Chak’s challenge since:

(1)  The Allocatur of HK$51,994.00 was issued specifically in relation to Mr Chak’s own liability for the costs incurred under CACV 366/2007. That is the taxed costs specific to Mr Chak’s own liability. 

(2)  On the other hand, Mr Yuen’s payment of HK$47,122.00 was in relation to his own liability for costs which was separately assessed and taxed as shown in another allocatur (“the Other Allocatur”) dated 3 August 2009.

(3)  There is therefore no double accounting.

25.  Given the state of the evidence as presented before me, I am prepared to accept that there is a genuine dispute raised as to whether there is double accounting in relation to Mr Chak’s liability to pay the HK$51,994.00 as his portion for Pacrim’s costs under CACV 366/2007.  I come to this conclusion because:

(1)  As accepted by Mr Hariman, the CACV 366/2007 Costs Order is a joint and several costs order insofar as the plaintiffs are concerned.  In the circumstances, as a starting position, all the plaintiffs (including Mr Chak and Mr Yuen) are all jointly and severally liable for the same and one set of costs.

(2)  For the present purpose, the burden then is on Pacrim to show that, for taxation purpose, it had somehow submitted to the Court separate and apportioned bills of costs for each of these plaintiffs (or at least for Mr Chak and Mr Yuen) under the said same set of costs and that separate and different allocatur was then issued against each of these plaintiffs.

(3)  Notwithstanding Mr Chak’s contention in his opposing affirmation that there is double accounting, Pacrim has not filed any reply evidence to show that  such separate and apportioned bill of costs had been submitted for taxation.

(4)  Although it is correct that it is expressly stated on the Allocatur that it is in relation to Mr Chak, the Other Allocatur of HK$47,122.00 does not so expressly provide that that is issued in relation to specifically Mr Yuen only. 

(5)  Further, the Allocatur is entitled “Allocatur (2)” (訟費評定證 書 – 訟費單2), while the Other Allocatur is entitled “Allocatur (3)” (“訟費單3”).  It is thus at least clear that there should be another Allocatur (1).  Whether there are also other allocaturs I simply do not know but could not rule this out.  Again Pacrim has not filed in the evidence a copy of Allocatur (1) and any evidence to explain why there are these different numbered allocaturs.

(6)  Given the lack of those evidence set out in (3) and (5) above, Pacrim has not shown to my satisfaction that there had been separate and apportioned taxation of its costs under CACV 366/2007 vis-à-vis each of the plaintiffs and that the HK$51,994.00 represents Mr Chak’s separate and own liability for costs.

(7)  It is therefore arguable that there is double accounting as alleged by Mr Chak insofar as this part of the debt is concerned.

26.  On the other hand, despite my conclusion above, it is clear that even taking Mr Chak’s challenge to the highest, he cannot dispute that he is liable for HK$4,872.00 (HK$51,994.00 – HK$47,122.00) under this part of the debt.   

C2.    The liability for HK$25,000.00 under Master Lung’s Costs Order

27.  I can deal with this quickly.

28.  Mr Chak says that as he had indicated to Chung J at the hearing of his appeal against Master Lung’s dismissal of his claim under HCA 1413/2009 that he decided not to pursue any claim against Pacrim, Chung J had ordered that the costs order against him by Master Lung in favour of Pacrim was also set aside or that he was no longer liable thereunder.

29.  There is no merit in this contention.  On a fair reading of Chung J’s decision, it is clear to me that that the learned Judge has not set aside Master Lung’s Costs Order.   I set out the relevant parts of Chung J’s judgment as follows:

“2.  原告人在2009年6月16日針對兩被告人提出本訴訟。他前曾在2006年針對本訴訟的第二被告人（’Pacrim’）提出訴訟（HCA 1250/2006），該訴訟其後被上訴法庭撤銷（CACV 366/2007）。

3.   原告人在提出本上訴後，在他的上訴陳詞大綱中表示，撤回針對Pacrim的申索。故此，本上訴祗涉及，原告人針對第一被告人（’D1’）[i.e., Mr Lam] 的申索。

…

14. 此外，在與訟雙方同意下，本席亦批予許可，撤回原告人針對Pacrim的申索（見前第3段）。Pacrim不擬就訟費提出申請，故本席不就原告人與Pacrim間的訟費，作出訟費命令。

15. 與訟雙方就本上訴所涉的訟費，呈交各自的書面陳述。

16. 經審閱相關陳述後，本席判定，本上訴所涉訟費，應由原告人付予D1。本席亦評定，訟費數額為 $14,000（即從訟費清單中的 $22,000，共扣減 $8,000）。”

30.  Given that Mr Chak did not pursue any appeal against Master Lung’s order to dismiss his claim against Pacrim, but only appealed against that order vis-à-vis his claim against Mr Lam, what the learned Judge did in dismissing Mr Chak’s appeal was to order costs of the appeal against Mr Chak relating only to Mr Lam.  Chung J however did not seek to set aside Master Lung’s Costs Order or ordered (as contended by Mr Chak) that Mr Chak was not liable thereunder insofar as Pacrim’s costs was concerned.

31.  Mr Chak has therefore failed to show any genuine dispute over his liability to pay this HK$25,000.00 under Master Lung’s Costs Order.

C3.    Set-off of the debt against the value of the CP Shares held by Mr Chak

32.  Mr Chak also submits that the value of the CP shares (which Pacrim would have to pay him when redeeming them) held by him would far exceed the debt. He further says that the proper valuation of the CP shares would depend on a litigation he has initiated in Canada, as there has not been any proper determination of the same and he does not accept Pacrim’s offer to redeem the shares at CAD$0.01.

33.  Mr Hariman however says the CAD$0.01 represents a proper valuation of the value of those shares, which is supported by evidence and accepted by the Court of Appeal.   There are therefore no substance and merit in Mr Chak’s contention.

34.  I agree with Mr Hariman the Court of Appeal in allowing the appeal under HCA 1250/2006 accepted that the CAD$0.01 valuation was supported by evidence and not contradicted.  I quote the relevant parts of the Court of Appeal’s judgment as follows:

“3.  Notices of the redemption had been issued by the defendant on 27 October 2003, stating that the CP shares were being redeemed at a value of CN$0.01 per share.  According to the defendant, they had received in August 2003 an independent valuation of the CP shares from Global Merger & Acquisition Finance Inc which assessed their value as ‘nominal from a financial point of view’.

…

40. We have heard no submission on Canadian law but it does not seem improbable that any such power must be exercised bona fide.  The power to fix the redemption price:

‘4.4    … as the board of directors in its absolute and unfettered discretion deems appropriate.’

does not seem to me to permit an arbitrary price to be given.  Here, as noted, the redemption price was supported by a valuation.  There was no suggestion that the valuation was wrong.  It follows that in certain circumstance it might make good commercial sense for the defendant to exercise its power under section 4.3.” (emphasis added)

35.  Further, although it is Mr Chak’s own case for the present purpose that the shares worth a lot more than CAD$0.01, other than a mere assertion, Mr Chak has not provided any valuation report to support it.

36.  In the circumstances, I am not satisfied that Mr Chak has raised a genuine dispute that he could set-off and extinguish the debt under the statutory demand against the value of the CP shares.

C4.    The extent of the debt which cannot be disputed

37.  Given my above conclusions, I am satisfied that Mr Chak cannot genuinely dispute at least HK$36,224.00 (HK$6,352.00^[5] + HK$4,872.00^[6] + HK$25,000.00^[7]) of the debt under the statutory demand.

C5.    The exercise of discretion under s. 6D(3) of the Bankruptcy Ordinance – any reasonable offer to pay the undisputable debt

38.  In light of the Court’s indication at the hearing that there is at least a sum of HK$36,224.00 which cannot be disputed, Mr Chak makes an offer to repay this sum to Pacrim by instalments, initially at HK$1000.00 per month (thus over 26 months or so), which is later increased to HK$1,500.00 (over 24 months). 

39.  Pacrim rejects both offers. 

40.  Under s. 6D(3) of the Bankruptcy Ordinance (Cap 6) (“the BO”), the Court has a discretion to dismiss a petition if it is satisfied that the debtor has made an offer to compound for the debt, and where that offer has been unreasonably refused.  S. 6D(3) provides as follows:

 “(3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied-

(a)  that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented;

(b)     that the acceptance of that offer would have required the dismissal of the petition; and

(c)  that the offer has been unreasonably refused,

and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.”

41.  In construing what amounts to “the offer has been unreasonably refused”, Ribeiro J (as the learned PJ then was) observed in Cheung Wah v The China State Bank Ltd [1999] 4 HKC 185 at 190-192 that the rejected offer has to be one that no reasonable hypothetical creditor would have rejected it.   In explaining this, the learned judge said as follows:

“In this context, Mr Nasir has helpfully cited the decision of Timothy Lloyd QC sitting as a Deputy Judge of the English High Court in Re A Debtor(No 32 of 1993) [1995] 1 All ER 628.  That was a case involving section 271 (1) (3) of the Insolvency Act 1986 which is in all material respects the same as the relevant provisions of our section 6D.  The learned Deputy Judge there held (i) that the reasonableness or otherwise of the refusal was to be judged at the date of the hearing and (ii) that the test was:-

'...... whether a reasonable creditor, in the position of this petitioning creditor, and in the light of the actual history as disclosed to the court, would have accepted or refused the offer.'

He added:-

'However, I think it has to be borne in mind that there could be a range of reasonable positions on the part of the hypothetical reasonable creditors.  In order to conclude that the refusal was unreasonable, it seems to me that the court has to be satisfied that no reasonable hypothetical creditor would have refusedthe offer, and that the refusal of the offer was therefore beyond the range of possible reasonable actions in the context.’ ” (emphasis added)

42.  Applying this test, in my view, it is not unreasonable for Pacrim to reject Mr Chak’s offer, given:

(1)  The relatively small amount of the debt that cannot be disputed.

(2)  The relatively long period of the proposed repayment.

(3)  Mr Chak’s own indication at Court that he (and his wife) own a house in Canada that has a value of some CAD$600,000.00 subject to an outstanding mortgage of some CAD$200,000.00.

43.  I do not think Mr Chak’s offer is one that no reasonable hypothetical creditor would have refused.

44.  I therefore would not exercise my discretion under s 6D(3) of the BO to dismiss the Petition.

D.  Conclusion

45.  For the above reasons, I grant the usual order of bankruptcy against Mr Chak, with costs of the Petition to be taxed if not agreed, and be paid out of Mr Chak’s assets in bankruptcy.

[1] See: Reasons for Judgment dated 13 November 2007.

[2] Unrep judgment., CACV 366/2007, 4 June 2008, Tang VP, Cheung JA and Chu J.

[3] See para 46 of the Court of Appeal Judgment.

[4] Represented by the same firm of solicitors.

[5] The outstanding sum under Master Wong’s Costs Order after deducting the partial repayment.

[6] The part of the CACV 366/2007 Costs Order which cannot be disputed.

[7] The sum due under Master Lung’s Costs Order.