RE AU WAI MING

HCB 7306/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7306 OF 2014

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

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

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

JUDGMENT

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

1.  This is a bankruptcy Petition (“Petition”) brought by Mr Lo Chun Cheong (“Petitioner”) against Mr Au Wai Ming (“Debtor”) on 26 September 2014. The Petition is opposed by the Debtor.

2.  The Petition is based on the Debtor’s non-compliance with a Statutory Demand dated 23 July 2014 (“Statutory Demand”) for the sum of HK$473,553.98 (“Debt”). The Statutory Demand was personally served on the Debtor on 27 August 2014 at the office of the Petitioner’s solicitors. The Petition was also personally served on the Debtor on 14 October 2014 at the office of the Petitioner’s solicitors.

3.  The Statutory Demand is founded on a judgment dated 7 July 2014 in DCCJ 2050 of 2014 in favour of the Petitioner against the Debtor (“Judgment”). The Petitioner’s claim was for the price of goods (“wines”) sold and delivered to the Debtor. The Debtor applied to the District Court on 9 February 2015 to set aside the Judgment. He failed to attend the hearing of his application and it was dismissed on 16 February 2015. There was no application to set aside the Statutory Demand.

4.  In order to successfully oppose the Petition, a debtor has to show a bona fide defence to the alleged debt 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: ICS Computer Distribution Ltd. [1996] 1 HKLR 181; Re Tam Mei Kam unrep.; HCB 3777 of 2011; 25 April 2012; Barma J (as he then was); Re Yuen Mun Wa (a debtor)[2012] 5 HKLRD 108.

5.  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: Dawodu v American Express Bank [2001] BPIR 983; Re Tam Mei Kam unrep.; CACV87 of 2012; 8 May 2013; Cheung, Yuen & Lam JJA.

6.  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 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…

…

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. 

…

27. Where the judgment debtor has already failed in his application to set aside the judgment …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 … on the grounds discussed in the paragraph above.”  (emphasis added)

7.  It is indisputable that the Debt is a judgment debt immediately payable and unsecured. It is also indisputable that at least 3 weeks have elapsed since the Statutory Demand was served and it has been neither complied with nor set aside.

8.  This court has carefully considered the Debtor’s affirmation dated 5 January 2015 (“Au 1”). In Au 1, he asserted he had nothing to do with the wines, period. This court has also carefully considered the Debtor’s affirmation dated 10 April 2015 (“Au 2”). In Au 2, he substantially repeated what he said in his first affirmation. On the basis of the two affirmations, this court cannot be satisfied that the Debtor has shown a bona fide dispute to the Debt on substantial grounds. Nor can he show “fraud, collusion or miscarriage of justice” in impugning the Judgment or the decision dismissing his application to set it aside.

9.  In these circumstances, this court is satisfied that the Petition is well-founded and the Petitioner is entitled to a bankruptcy order against the Debtor.

10.  There will be a usual bankruptcy order against Mr Au Wai Ming and an order nisi that costs be to the Petitioner, to be taxed if not agreed.