RE WAN PO JUN MARY PAULINE

HCB 144/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 144 OF 2011

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JUDGMENT

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Background

1.  This is a creditor’s petition based on the debtor’s failure to comply with a statutory demand dated 9 July 2010 for a debt of $24,343.30. 

2.  The debtor (“Debtor”) was the cohabitee of the father (“Deceased”) of the creditor (“Creditor”).  The Deceased was a person of substantial wealth.  He died of stomach cancer on 11 April 2008.  By his will dated 18 October 2007, the Deceased appointed the Creditor as the sole executrix and trustee of his estate which he left to his two natural children, namely the Creditor and her brother, to the exclusion of the Debtor.

3.  The Debtor filed a Caveat with the Probate Registry disputing the validity of the will.  As a result, the Creditor had to take out probate proceedings against the Debtor in HCAP 19 of 2008.  The Debtor’s defence and counterclaim was struck out.  Her appeal to the Court of Appeal in CACV 208 of 2009 was dismissed.  Her application to the Court of Appeal for leave to appeal to the Court of Final Appeal was also dismissed.  She is now applying for leave to appeal from the Court of Final Appeal.  These six proceedings resulted in three costs orders in the total sum of $124,800 against the Debtor with three other costs orders awaiting taxation.

4.  The Debtor also commenced two other actions against the estate, namely HCA 1478 of 2009 and HCA 10 of 2010.  In HCA 1478 of 2009, she claimed, inter alia, a half share in the estate of the Deceased, damages for the Deceased’s breach of promise to marry her, repayment    of money, maintenance under the Inheritance (Provision for Family and Dependants) Ordinance (“IPFDO”) and injunction restraining the Creditor from disposing of the estate of the Deceased.  The Debtor’s claim for the Deceased’s breach of promise to marry her was struck out by Yam J.  As at the date of this hearing, there were five sets proceedings involved under HCA 1478 of 2009 which resulted in three costs orders in the total sum of $23,645 against the Debtor with two other costs orders awaiting taxation.  The assessed costs formed the subject matter of the petitioning debt in this bankruptcy proceeding.

5.  In HCA 10 of 2010, the Debtor sought an injunction to restrain the Creditor and her solicitors from issuing notice to quit requiring her to vacate her matrimonial home which belonged to the estate.  Her action was struck out by a master with costs to the Creditor’s solicitors but with no order as to costs as between the Creditor and Debtor.  The Debtor’s appeal to the Court of First Instance was dismissed by Deputy High Court Judge L Chan on 25 October 2010.  The Debtor’s appeal to the Court of Appeal is now pending.  Three costs orders in the total sum of $75,956 were awarded against her.

6.  Recently, the Debtor was granted legal aid to pursue her application for maintenance under IPFDO in HCMP 1919 of 2010.  That application is still pending.

7.  The Debtor lost in the above three actions which were either commenced by her or necessitated by her conduct.  She was ordered to pay assessed costs totalling $149,645 to the Creditor and $74,756 to the Creditor’s solicitors with five other costs orders yet to be assessed.

Grounds of opposition

8.  The grounds of opposition particularized in the Debtor’s Notice of Opposition filed 11 February 2011 are:

(1)   the petition is premature;

(2)   no statutory demand had been served on the Debtor and no notice of statutory demand   had been advertised in any local newspaper;

(3)   no order for immediate payment of the assessed costs had been made because other proceedings between the parties are still pending;

(4)   the Debtor is entitled to maintenance under the IPFDO; and

(5)   the Debtor’s rights and interest would be jeopardized and extinguished by a bankruptcy order made at this early stage.

The Debtor exhibited some of the pleadings in the above-mentioned actions and argued that she had a good claim against the estate.  She submitted  that the petition should be adjourned sine die pending the outcome and conclusion of the above-mentioned actions.

The law and the issues

9.  The law of bankruptcy is relatively simple and straight- forward.  Under section 4(1) of the Bankruptcy Ordinance, Cap. 6, there  are certain conditions to be satisfied in respect of the debtor before a petition may be presented against him.  One of those conditions is that the debtor must be domiciled in Hong Kong.  There is no dispute that the Debtor is so domiciled.

10.  Section 6 requires that the petition must be presented in respect of one or more debts owed by the debtor to the petitioning creditor.  Section 6(2) specifies the requirements as to the debt in respect of which the petition is presented.  In essence, these are:

(1)   the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds $10,000 or a prescribed amount;

(2)   the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured;

(3)   the debt, or each of the debts, is one which  the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay; and

(4)   there is no outstanding application to set aside a statutory demand served under section 6A  in respect of the debt or any of the debts.

11.  The debts were the assessed costs ordered to be paid under HCA 1478 of 2009.  They were liquidated sums exceeding the prescribed amount.  There is no dispute that the debts were not paid and not secured. The Debtor is now 60 years old.  She is unemployed and is receiving monthly social gratuity in the sum of $1,540.  She admitted in her affirmation that she could not pay the debts.  As a gesture of good faith, she offered to pay $100 a month.  It would take twenty years to pay the petitioning debt. That is wholly unrealistic.  Obviously, the debts are ones which the Debtor appears to be unable to pay and to have no reasonable prospect of being able to pay. Subject to the Debtor’s dispute that the statutory demand had not been served on her and that the debts   are not immediately payable, the requirements under section 6 for presentation of the petition are satisfied and a bankruptcy order may be made.  However, the court retains a residual discretion not to make a bankruptcy order despite that the requirements under section 6 are all satisfied.

12.  Thus, the issues are:

(1)   whether the debts are immediately payable;

(2)   whether a statutory demand had been served on the Debtor; and

(3)   if it had, whether in the light of the pending actions the Court should exercise discretion not to make the bankruptcy order.

Whether the debts are immediately payable

13.  The Debtor argued that the costs were not immediately payable because the court had never made any orders for immediate payment of such costs.  She submitted that such costs should be settled at the conclusion of all the proceedings and a number of proceedings were still pending.

14.  Such arguments are only to be rejected.  Unless otherwise ordered, the costs, once taxed, are immediately payable.  That the action has not been finally disposed of or that there are other actions outstanding between the parties as such do not prevent the party to whom such costs  are payable from enforcing payment by taking out bankruptcy proceedings.  

Service of the statutory demand

15.  According to the affirmation of the process server of the Creditor’s solicitors filed on 10 January 2011, at the direction of his employer, he served the statutory demand personally on the Debtor at 4:33 pm on 9 July 2010 on the ground floor, Pacific Place, Queensway, Hong Kong. The bankruptcy petition was presented on 10 January 2011.

16.  In her Notice of Opposition, the Debtor alleged that prior to the presentation of the petition no statutory demand had been served on her and no notice of statutory demand had been advertised in any local newspaper.  Despite that the circumstances of the personal service of the statutory demand was clearly stated in the petition, the Debtor gave no particulars to dispute the alleged personal service.  It was a bare denial.  In her affirmation filed in support of her opposition filed on 24 March 2011, the Debtor mentioned nothing to dispute the personal service on her of    the statutory demand.  The Debtor’s allegation had no conviction.  Had   she given more particulars, I might have ordered the process server to attend court for cross-examination. 

17.  On the other hand, on the very date of the service of the statutory demand, the Debtor attended the hearing of the summons of  the Creditor and her solicitors to strike out the Debtor’s application for injunction order in HCA 10 of 2010.  It is only convenient for the Creditor and her well prepared legal team to take the occasion to serve the statutory demand on the Debtor in Pacific Place at 4:33 pm after the hearing of their striking out summons.  There was no reason for  the Creditor’s solicitors to collude with the process server to concoct service of the statutory demand.  I have no doubt that the Debtor had     been duly served with the statutory demand.  As the statutory demand    was served personally on the Debtor, there was no need for substituted service or advertisement of the statutory demand.  There is no dispute    that the Debtor had not made any application to set aside the statutory demand.  The requirements under section 6 of the Bankruptcy Ordnance are satisfied.

Discretion not to make the bankruptcy order

18.  The thrust of the Debtor’s argument is that the Deceased’s will was a forgery or made under undue influence.  The Deceased had promised to marry her.  She was the de facto wife of the Deceased and step-mother  of the Creditor.  She had contributed to the family expenses, lent money    to the Deceased and was promised a gift of the property which used to      be her matrimonial home with the Deceased.  She is entitled to the maintenance under IPFDO.  In short, she had a good claim against the estate.  However, knowing that a date was being fixed for her application for leave to appeal to the Court of Final Appeal against the Court of Appeal’s decision in CACV 208 of 2009, the Creditor commenced bankruptcy proceedings not only to frustrate her appeal to the Court of Final Appeal but also all her other claims under HCA 1478 of 2009 and HCMP 1919 of 2010.

19.  I shall first deal with the Debtor’s complaint about the Creditor’s ulterior motive in frustrating her appeal to the Court of Final Appeal.  It should be noted that not until after the Court of Appeal refused the Debtor’s leave to appeal to the Court of Final Appeal on 7 March 2011 would the question of the Debtor’s application for leave to appeal to the Court of Final Appeal arise.  However, as early as 9 July 2010, the Creditor had caused her solicitors to serve the statutory demand on the Debtor and presented the bankruptcy petition on 10 January 2011.  Though it is highly likely that a bankruptcy order, if made, may have the effect of frustrating the Debtor’s appeal to the Court of Final Appeal, on the above chronology the Debtor’s argument of ulterior motive on the part of the Creditor simply could not be sustained. 

20.  If a bankruptcy order is made against the Debtor, she may    not have the liberty to conduct the various actions against the estate at her own free will.  Her right to take legal action shall be vested in the Official Receiver as the provisional trustee of her property.  Usually, the Official Receiver will not institute legal proceedings unless satisfied   of the merit of the case and indemnified of the legal costs. 

21.  In HCAP 19 of 2008, she has taken up proceedings to beyond the Court of Appeal.  Her application for leave to appeal to the Court of Final Appeal is now pending.  In view of her repeated defeats, it is unlikely that the Official Receiver would take over her proceedings in the Court of Final Appeal or permit her to continue if leave to appeal is granted.  To that extent, she would suffer prejudice if a bankruptcy order is made.  However, the likelihood that she would suffer real  prejudice must be assessed in the light of the fact that her defence and counterclaim had been adjudicated to be unmeritorious by both the Court  of First Instance and the Court of Appeal.

22.  Her application for an injunction order in HCA 10 of 2009  had been dismissed by a master and her appeal was dismissed by the   Court of First Instance.  That effectively was the end of that action.  She has not put up a proprietary claim in respect of the matrimonial home.

23.  In HCA 1478 of 2009, the Debtor sought the following relief:

(1)   an account for various bank accounts of the Deceased;

(2)   a half-share in the Deceased’s estate;

(3)   repayment of $3,500,000 given to the Deceased to defray domestic and household expenses during her cohabitation with the Deceased when he was in financial difficulties and short of cash flow;

(4)   maintenance under IPFDO;

(5)   damages for the Deceased’s breach of promise to marry her;

(6)   interim payment under IPFDO;

(7)   injunction order restraining the Creditor from disposing of the estate of the Deceased;

(8)   appointment of receiver to handle the estate of the Deceased pending the outcome and conclusion of those proceedings;

(9)   further and/or other relief; and

(10) costs.

24.  It is immediately apparent that most of the Debtor’s claims have been dealt with in the other actions.  Items (1), (2), (7) and (8) have been effectively disposed of in HCAP 19 of 2008.  Her claim  for half share of the estate of the Deceased and related relief was effectively lost with the Court of Appeal refusing her leave to appeal to   the Court of Final Appeal in CACV 208 of 2009.  Her claim for the Deceased’s breach of promise to marry her was dismissed by Yam J in HCA 1478 of 2009.  She did not appeal against that dismissal and in   any event such a claim is obviously unsustainable in law.  Her claims for financial provision and interim maintenance under items (4) and (6) were withdrawn.  Those claims are being pursued under HCMP 1919 of 2010, in respect of which she has been given legal aid which would  most likely be continued even if a bankruptcy order is made.  Items (9) and (10) in respect of other relief and costs relevant to the remaining  claims will be dealt with in the remaining proceedings.  The only outstanding item is item (3), which is her claim for repayment of $3,500,000 pleaded in paragraph 7(2) of her statement of claim in HCA 1478 of 2009.

25.  Thus, what the Debtor would most likely lose as a result of   the bankruptcy order is the prospect of her claim for $3,500,000 under HCA 1478 of 2009 and possibly a claim for the matrimonial home which she had not pleaded either in HCA 1478 of 2009 or HCA 10 of 2010.  It is not possible for me to assess in this type of proceedings the strength or weakness of her claims.  But, somehow, I have to form some provisional view of the chances of her success in order to enable me to properly exercise my discretion whether to make the bankruptcy order.

26.  The basis of the Debtor’s claim for the matrimonial home and repayment are to be found in paragraphs 4 and 7(2) of her statement of claim in HCA 1478 of 2009.  In paragraphs 4 and 7(2), she pleaded:

“4.     In consideration of the Plaintiff devoting much time and loyalty to numerous companies solely and partly owned by the Deceased including lending money to them when the businesses were being run at a loss and/or were short of cash flow, the Deceased heartedly in return treated and recognized the Plaintiff as his consort companion and then promised to marry the Plaintiff which he had broken under influence of the Defendant and medicine as aforesaid and by conduct he had even purchased the property at Flat A, 42^nd Floor, Tower 1, Harbourfront Landmark (“the Property”) for the Plaintiff as a matrimonial home which the Plaintiff can use and occupy for the rest of her life and if sold, the Plaintiff would be given a lump sum or otherwise to name and to include the Plaintiff as a beneficiary in the Will.

7(2).      She as a Creditor is entitled to be repaid with the money she had previously given to the Deceased amounting totally to the sum of 3.5 million which would also include the money so paid to help the Deceased to defray domestic and house-hold expenditures during her long co-habitation with the Deceased who had been in financial difficulty and short of cash flow.”

27.  In respect of her claim for repayment of $3,500,000, the money was allegedly advanced to the Deceased over an unspecified   period and included domestic expenditure incurred during her cohabitation with the Deceased.  The claim is vague and in respect of part of the claim, the question of intention to enter into a binding contractual obligation to repay may arise.  In respect of her possible claim for the matrimonial home, the property was obviously purchased by the Deceased’s funds and held in the Deceased’s name.  There is no plea that the Debtor contributed part of the purchase-money for the property or that the  property was held by the Deceased on trust for the Debtor.  From the plea, it is not even clear what the Deceased’s intention was as regards the matrimonial home and the Debtor.  If the matrimonial home was a gift,  it was not perfected.  The Debtor has not even put forth a proprietary claim in respect of the matrimonial home in HCA 1478 of 2009.  I have a very dim view of her chances of success in these two claims.  If the bankruptcy order is made, the Official Receiver will be able to take full instruction from the Debtor and consider the chances of her success professionally.

28.  The Debtor has admitted that she has no money to pay her debts.  She said that she had no financial resources and had to live on a monthly social gratuity of $1,540.  Yet, she commenced three legal actions against the estate, incurring over $220,000 in costs with five more costs orders to be taxed and more costs to be incurred if the actions are to continue.  I have not lost sight of the fact that she was acting in person and might not have been properly advised in the conduct of her litigation.  However, her claims are repetitive.  Most of her claims were struck out which indicates that they were unmeritorious or even frivolous.  She appealed against each and every decision of the court, except for Yam J’s decision to strike out her claim for damages for the Deceased’s breach of promise to marry her.  These facts indicated a total lack of any sense of responsibility in her conduct of the litigation.  It is not the function of the court in bankruptcy to protect a litigant from frivolous and vexatious litigation.  However, the conduct of a debtor, who is unable to pay his debts and knowing he has no means to pay the costs of his opponent if he loses, in indulging himself in a series of litigation  over the same subject matter against his opponent with no good cause and thereby incurring costs of his opponent is certainly a factor which the court should take into account in deciding whether to exercise the discretion not to make a bankruptcy order against him.  If a debtor pleads a viable cause of action and conducts his litigation in a responsible manner, the court’s discretion may tilt in his favour.  Having regard to the fact of the present case and the course the litigation has taken, I do not think it appropriate to exercise my discretion in favour of the Debtor.  If a bankruptcy order is made, the Debtor’s claims will be assessed by the Official Receiver and conducted, if necessary, in a lawyerly manner and with a sense of proportionality and responsibility.

Conclusion

29.  Accordingly, I made the usual bankruptcy order with costs against the Debtor.  The Official Receiver’s costs shall be deducted from the deposit paid by the Creditor and recoverable from the estate of the Debtor.