RE LEE MING CHEUNG

HCB 607/2019

[2020] HKCFI 297

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 607 OF 2019

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D E C I S I O N

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1.  This was an application by Lee Ming Cheung (“the applicant”) by summons dated 8 November 2019 for an order that the bankruptcy petition against him be adjourned or stayed pending the determination of his appeal from the Decision of DHCJ William Wong SC of 25 October 2019 (“the Decision”) dismissing his application to set aside the statutory demand dated 16 August 2018. At the conclusion of the hearing, the decision was reserved which I now give.

Background

2.  The statutory demand was issued by Mok Ka Po (“the respondent”) in respect of investment proceeds of HK$4,676,284.31 (“the debt”).

3.  The applicant had been a friend of the respondent’s late father since the mid-1990s and had often invested in stocks on his behalf.  Through her late father, the respondent became acquainted with the applicant and in 2006 the respondent started entrusting monies to the applicant to invest on her behalf.

4.  According to the description given in the statutory demand:

(i)  the respondent has, since 2006, entrusted her money to the applicant for investment in the Hong Kong stock market;

(ii)  on 9 February 2018 the applicant was instructed to liquidate the portfolio and to repay the total value of the invested stocks and accrued dividends as of the closing price on 21 February 2018;

(iii)  the total value of invested stocks and accrued dividends as at that date was HK$4,716,284.31;

(iv)  the applicant had on various dates through WhatsApp messages acknowledged and promised to repay the same;

(v)  in response to the respondent’s solicitors demand letter of 14 May 2018, on 2 June 2018 the respondent received a cheque in the sum of HK$200,000 as partial payment which upon presentation was dishonoured;

(vi)  despite repeated requests and demands the applicant has failed to pay the sum of HK$4,716,284.31 to the respondent other than a partial payment of HK$40,000 made on 31 March 2012; and

(vii)  the debt represents the sum remaining outstanding.

5.  The respondent presented a petition on 29 January 2019 based on the statutory demand which remained unsatisfied.

6.  On 15 March 2019, the applicant applied out of time to set aside the statutory demand in HCSD 11/2019 on various grounds including the following: there was no proper service of the statutory demand on the applicant and that the debt was not a liquidated sum capable of founding the statutory demand. He also filed a notice of intention to oppose the petition.

7.  The setting aside application was heard on 23 July 2019 and dismissed by the judge on 25 October 2019 on the grounds that (i) the application was taken out of time, and (ii) there was no bona fide dispute as to the debt on substantial grounds nor any good reason to set aside the statutory demand.

8.  The applicant filed his notice of appeal on 4 November 2019 and an application for a stay on 8 November 2019.

9.  It is common ground that

(i)  the court has jurisdiction to stay a bankruptcy proceeding under section 104 of Bankruptcy Ordinance, Cap 4 (“the Ordinance”);

(ii)  the mere fact that there is a pending appeal is not a sufficient ground: the applicant must show that the appeal is bona fide and the grounds of appeal are sufficiently arguable: Re Lee Chi Ho, HCB 8571/2016, 22 August 2017 at §21;

(iii)  after demonstrating the existence of an arguable appeal, the applicant must provide additional reasons as to why a stay is justified such as the demonstration of the appeal being rendered nugatory without a stay: Star Play Development Limited v Bess Fashion Management Limited [2017] 5 HKC 84 at §9(8).

10.  At the hearing, the applicant’s grounds of appeal put forward were that the judge erred in holding that (a) there was proper service of the statutory demand and that the applicant was aware of the statutory demand; and (b) the debt was a liquidated sum capable of founding the statutory demand.

Merits of the appeal

(A) No proper service of the statutory demand

11.  The evidence before the judge as to service is set out in §§12-16 of the Decision and summarised below.

12.  The respondent’s solicitors ONC Lawyers (“ONC”) made various attempts to effect service of the statutory demand at his last known address (“the premises”).

(i)  On 16 August 2018, ONC’s clerk Chan Wing Sun (“CWS”) was stopped by the caretaker from going into the premises or making any enquiries with the neighbours as to the applicant’s whereabouts. CWS was told by the caretaker that she did not know the applicant and had no the way to trace him.

(ii)  An appointment letter enclosing a copy of the statutory demand was sent to the applicant on 20 August 2018 by prepaid ordinary requesting an appointment with the applicant for personal service on 27 August 2018 at the premises and should the applicant so wish, he should contact ONC to arrange an appointment convenient to him.

(iii)  When CWS attended the premises to keep the appointment, he was again stopped by the caretaker from entering and from making any enquiries.

(iv)  The appointment letter had not been returned to ONC.

13.  Various attempts were then made by CWS to contact the applicant by phone at the mobile number 9199 4003 supplied by the respondent to ONC to arrange personal service:

(i)  CWS made a call on 5 September 2018. Although the applicant answered the call he said he was not available to accept service then.

(ii)  CWS made another call on 10 September 2018. Again the applicant answered the call stating that he was not then available but would be available after 11 September.

(iii)  On 11 September 2018 when CWS called again, the applicant said that he would go to ONC’s office on 24 September 2018 to accept service of the statutory demand. However, the applicant did not keep the appointment.

14.  ONC then arranged to effect service by advertising a notice of the statutory demand in Chinese in the Hong Kong Economic Journal on 26 September 2018 and posting the same by ordinary post to the applicant at the premises.

15.  Because the applicant denied receiving the 3 telephone calls set out in §13 above (“the calls”), on 26 July 2019, the judge gave directions for the respondent to file documentary evidence in relation to the calls and for the applicant to file a reply affirmation.

16.  Pursuant to those directions the respondent filed 3 affirmations:

(i)  an affidavit dated 8 August 2019 from the senior partner of ONC confirming that on checking with Hong Kong Telecommunications Limited, the latter confirmed that only call records of the previous 90 days from 1 August 2019 were kept;

(ii)  CWS’ affirmation of 8 August 2019 producing his contemporaneous attendance note of the  calls;

(iii)  the affirmation of Chan Chun Him (a trainee solicitor who witnessed the calls) exhibiting contemporaneous emails (referencing the calls, what he heard CWS say on each occasion and what CWS reported to him then as having been said by the applicant) sent to ONC’s senior partner, its litigation manager and other ONC staff.

17.  The applicant filed a 3^rd affirmation on 15 August 2019 in reply. Other than continuing to deny receiving the calls, no other evidence was proffered.

18.  On the basis of the evidence adduced, the judge was satisfied that while personal service was unsuccessful, the respondent had done all that was reasonable for the purpose of bringing the statutory demand to the applicant’s attention. He concluded that the applicant had notice of the existence of the statutory demand.

19.  The applicant’s case is that rule 46 (2) of the Bankruptcy Rules had not been complied with because not all reasonable steps had been taken by the respondent given the relationship that existed between the applicant and respondent.

20.  The applicant explained that the parties had been friends for a long time and their families knew each other; they communicated frequently by telephone and WhatsApp messages; exchanged emails over the years and had common friends. They had met on 5 March and again on 2 June 2018 (respectively 5 months and 2 months prior to the date of the statutory demand).

21.  In §23 of his written submissions (which, seemingly, replicated §25 of his earlier written submissions for the setting aside application), the applicant stated the steps that the respondent should have taken but failed to take. Those steps are set out in §20 of the Decision:

“ 25. The following reasonable steps should have been taken but were not taken:-

25.1. the Respondent should have called, messaged (by WhatsApp messages or otherwise) or emailed the Applicant informing him of the existence of the Statutory Demand, or even attaching a copy of the Statutory Demand as an attachment;

25.2. the Respondent should have enquired with the Applicant his latest residential address by the aforesaid means;

25.3. the Respondent should have enquired with their common friends or the Applicant’s family members as to the Applicant’s latest residential address;

25.4. the Respondent should have attempted to serve the Statutory Demand at the Applicant’s work places; and

25.5.   the Respondent should have asked the Applicant out so that personal service could be effected during such meeting.”

22.  At the hearing, Mr Chen, counsel for the applicant, emphasised that the respondent should have used electronic means of communication to bring the statutory demand to the applicant’s notice. He further submitted that having regard to the fact that the cheque for HK$200,000 referred to in §4(v) above was not the applicant’s personal cheque but was a cheque issued from the account of one of his businesses, namely, Ming Kee Design and Decoration (“Ming Kee”), a business registration search should have been carried out and that would have revealed Ming Kee’s address which is the applicant’s current address[1].

23.  The judge gave his reasons for rejecting those submissions and further, accepted the respondent’s submissions that it was clear from the correspondence between the parties that their relationship had already broken down before the statutory demand was issued (see §§21-22 of the Decision).

24.  The applicant does not deny that the number called was his mobile number and there is no evidence to suggest that at the time of the calls the applicant did not have access to his telephone or could not have answered those calls. 

25.  Given the contemporaneous evidence adduced concerning the calls, absent any evidence from the applicant other than his denial of ever having received the calls, I do not consider that the appeal on this ground is remotely arguable.  

(B) The claim was not for a liquidated sum

26.  The applicant contended before the judge that the respondent’s claim could not found a statutory demand or a bankruptcy petition as it was not a liquidated claim but one against the applicant as trustee for breach of trust. In those circumstances, the appropriate remedy lies in an account.

27.  The judge’s reasons for rejecting the submission that the petitioning debt was not a debt or a liquidated claim can be found in §41 of the Decision: 

“… the relevant sum was actually admitted by the Applicant to be presently due and owing. The Applicant has proposed at least three different repayment plans of the Petitioning Debt and repeatedly represented to the Respondent that he had already transferred money to her for the purpose of repayment of the Petitioning Debt”

28.  The judge also took into consideration the fact that the cheque of HK$200,000 (see §4(v) above) was given by the applicant in part payment of the petitioning debt.

29.  The applicant submitted that Barnett v Creggy [2017] PNLR 4 and Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 cited and relied on by the judge offer no support for the proposition that the respondent’s claim being one for breach of trust could constitute a liquidated claim.

30.  The relevant passage from the judgment of Sales LJ in the Barnett case (at §43 Decision) reads:

“45. In my opinion, the basic rule in a trust case where trust monies have been improperly paid away by the trustee is sufficiently analogous to a claim at common law for a fixed sum of money as to be capable of being described as a ‘liquidated pecuniary claim’ for the purposes of s. 29(5)(a). It is a claim which is restitutionary in nature (in the sense of being designed to restore the trust fund), albeit capable of being defeated if the defendant trustee can show that no loss was caused. In a similar way, a restitutionary claim for a certain sum of money as money had and received arising under the common law of unjust enrichment on the grounds that it was paid by mistake or pursuant to an unjustified claim for tax can properly be described as a claim for a ‘liquidated pecuniary claim’ within s.29(5)(a) …”

31.  The applicant submitted that the judge’s reliance on that passage was misplaced because Barnett was a case relating to the application of the Limitation Act 1980. Reference was then made to Grande Holdings Limited [2015] 1 HKLRD 755 (at §10) to show that the Limitation Ordinance uses broader language and extends to claims other than debt. It was submitted that as the observations made in the Barnett case were not made or decided in the context of insolvency, they were of no assistance and the judge was wrong to derive support from them. It was said that a debt and a claim are not interchangeable terms because a claim remains to be proved. 

32.  The Grande Holdings case was concerned with the meaning of “unliquidated debt” for the purposes of rule 125 of the Companies (Winding-up) Rules (Cap 32H, Sub.Leg). A more pertinent passage from that decision would have been §9 which set out §6/2/4 of HKCP 2010. The same note appears in current edition (see §6/2/4 of HKCP 2020):

“A liquidated demand is in the nature of the debt, i.e. a specific sum of money due and payable under or by virtue of the contract. Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic. If the ascertainment of a sum of money, even though it be specified or named as a definite figure, requires investigation beyond mere calculation, then the sum is not a ‘debt or liquidated demand’, but constitutes ‘damages’ (see Bright Islands Corp v Chao [2002] 2 HKLRD 97 (CA)).”

33.  The relevance of the passage from the judgment of Sales LJ concerns the nature of a claim to recover trust property. He found such a claim to be restitutionary in nature, to restore the trust fund to what it should be. In that regard it is no different from a claim at common law for a fixed sum of money provided the amount is a sum certain capable of precise quantification by arithmetical calculation. 

34.  That approach is entirely consistent with the passage from HKCP 2020 set out in §32 above.

35.  As regards the Libertarian case, the applicant sought to distinguish it the basis that, unlike the present case, it was a case where the order was made after there had been a trial.

36.  The submissions that have been advanced overlook the judge’s reason for rejecting the applicant’s submission, namely, the applicant’s own admission and acknowledgment that the sum was due and payable: see §26 above. The judge found that the petitioning debt was a claim for investment proceeds held on trust and that those proceeds were capable of being ascertained as a mere matter of arithmetic, based on the market data of the relevant shares: §48 of the Decision.

37.  For those reasons, the second ground advanced is also not arguable.

Conclusion

38.  As the applicant has failed to demonstrate that the appeal is arguable, there is no basis for this court to exercise its discretion to stay the petition.

39.  Accordingly, the applicant’s summons is dismissed with costs to the respondent, to be taxed if not agreed, with certificate for counsel.