RE CHAN CHI LOI

HCB 8632/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 8632 OF 2006

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REASON FOR DECISION

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The application

1.  This is the debtor’s application to annul the bankruptcy order made against him on 13 July 2007.  The debtor argued that the bankruptcy order ought not to have been made because he was clearly solvent at the time when the bankruptcy order was made.

2.  The debtor recognised that even if it could be established that the bankruptcy order ought not to have been made, the court still retains a discretion as to whether the bankruptcy order should be annulled.  It was argued that the discretion should be exercised in his favour because:

(a) There was a defect in the statutory demand;

(b) He has now repaid almost all the debt and he is able to satisfy the remaining debts;

(c) He was not legally represented in the Petition hearing.

Solvency of the Debtor

3.  The first issue is whether the bankruptcy order ought not to have been made by the court on 13 July 2007.  Unless the answer to this issue is “yes”, there is no need for the court to consider the other issues raised by the debtor.

4.  For the purpose of this application, the debtor has produced new evidence to show that at the time of the bankruptcy order, he had the ability to pay all his debts.  His counsel argued that: “Such evidence was not placed before the learned Judge in the petition hearing…  Had this fact been known to the Court, there was a good chance that the bankruptcy order would be refused.”  (paragraphs 16 and 17 of the Debtor’s skeleton arguments)

5.  It was also argued on behalf of the debtor that “in an annulment application, the court may consider grounds that the debtor did not raise but could have raised.  Further, the court may consider new evidence not adduced before the court when the bankruptcy order was made.”  (paragraph 6(a) of the debtor’s skeleton arguments)

6.  I accept what the debtor’s counsel asserted to be correct.  A bankrupt or debtor should be able to argue points which have not been made in the bankruptcy proceedings.  However, the difficulty of the debtor herein is not that the argument was not raised at the hearing of the bankruptcy petition in 2007.  His difficulty is that this is already his second application which is made pursuant to section 33(1)(a) of the Bankruptcy Ordinance. 

7.  The debtor made his first application for annulment in early 2009 which was dismissed by Chu J (as her Ladyship then was).  It is apparent that the debtor must be well aware back in as early as 2007 of the existence of the ground which he is now relying on when the petition itself was heard because the debtor stated in paragraphs 20 to 21 of his affirmation filed in support of this application that:

“During the [petition] hearing, I did not adduce sufficient evidence about my financial position. I only mentioned my interest in the Tung Chung flat and the $100,000 paid into Court as security for costs. I simply thought that the irregularity provided a complete answer to the petition. I did not think that whether or not I was able to repay the debts should be an issue. If I have been properly advised, I would have adduced evidence to show that I was able to repay the debts, in order to avoid the bankruptcy order…”

8.  It is therefore clear that the matters which are now relied on by the debtor were known to him well before he made his first annulment application.

9.  Further, as Mr Tsui for the petitioner pointed out, the debtor had relied on the assertion that he had the ability to pay his debts when he made the application for stay of execution of the bankruptcy order in August 2007. This may be seen in paragraph 9(1) of Chu J’s Judgment handed down on 10 September 2007 which stated that:

“綜合陳先生的誓章和陳詞，他的申請理由可歸納如下：

(1) 債權人持有的抵押品的價值超過他所欠的債項。此外，他持有的資產的價值，足以償付欠債權人的債項。因此法庭不應頒下破產令…”

10.  In my judgment, the argument which the debtor would like to rely on herein should clearly have been raised in the previous annulment application. However, the debtor did not raise it before Chu J in 2009.  Neither did he raise it when he appealed to the Court of Appeal and the Court of Final Appeal against Chu J’s decision not to extend time for him to appeal against her Ladyship’s Decision on the annulment application out of time.  According to the principle of res judicata, the debtor should not be allowed to raise this argument on his ability to pay in this application again, as it would amount to abuse of process of the court.

11.  The case authorities cited by the debtor’s counsel cannot assist him because in none of those cases was there any previous annulment application in respect of which the appeal process had been exhausted.

12.  Mr Wong for the debtor submitted that the wider sense of res judicata (also known as Henderson v Henderson abuse of process) should not apply to bankruptcy proceedings.  He went as far as to submit that even if this application is dismissed by reason of the debtor’s failure to produce adequate evidence in support of his case, he is entitled to make yet another annulment application so that the necessary evidence may be adduced.  With respect, this highlights the flaw in his submissions.  The creditor petitioner should not be vexed twice (not to say more times) by way of annulment applications.  In my view, section 33 of the Bankruptcy Ordinance has given the debtor a second chance to argue on the bankruptcy order, but that should be the only extra chance.  The section does not give the debtor any permission to make annulment applications over and over again.  In the circumstances of the present case, given that the debtor clearly knew about his ability to pay at the time when the first application for annulment was made, I am of the view that it amounts to abuse of process of the court for the debtor to make a second application for annulment herein, even though the debtor was acting in person previously. The public and private interest demand that there should be a finality in the matter.  I do not think the petitioner should be placed in a much worse position merely by reason of the fact that the person that he was dealing with was not legally represented.  This is unfair to the petitioner.  I agree that on occasions the court tends to be a little more lenient to those litigants who are acting in person, but that does not mean that the court should lean backwards to assist these litigants.  The prime consideration of the court is doing justice between the parties.

13.  For this reason alone, the debtor’s application should be dismissed.

14.  However, for the sake of completeness, I would also add this.  In my view, even if the new evidence was placed before Chu J (as her Ladyship then was), the result would have been the same.  In the Judgment, her Ladyship had this to say:

“ 33. 債務人引述上訴法庭法官張澤祐在處理上訴訟費保證金申請的判案書以支持他有能力償付債項。該判案書在2004 年1 月20 日作出，第3 段提及債務人在1998 年不獲續約後沒有再工作，但他收到約95 萬元的公積金以及備有儲蓄。他和妻子亦共同持有一個約值230 萬元的物業。張法官因而認為不可以說債務人是沒有經濟能力(impecunious)。

34. 張法官的判案書誠然反映了債務人在2004 年初的經濟狀況，但不能直接顯示他目前是否有能力全數償付呈請所涉的債項。

  35.     更重要的是《破產條例》第 6A(1)(a) 條訂明，如債權人向債務人送達《法定要求償債書》，而債務人在21 天內沒有遵從償債書的要求，亦沒有要求把償債書作廢，則該名債務人會被視為第 6(2)(c) 條所指屬看似無能力償付有關債項的。按第6A(1)(a) 條，本案的債務人明顯屬看似無能力償付破產呈請所述的債項。”

15.  It is therefore clear that Chu J, in any event, would have made the bankruptcy order against the debtor by relying on section 6A(1)(a) of the Bankruptcy Ordinance which her Ladyship was entirely entitled to do. 

16.  It is also factually incorrect for the debtor’s counsel to submit in paragraph 21 of his skeleton arguments that:

“It is submitted that having considered the evidence of D’s solvency, the Court ought to have dismissed the petition, or at least adjourned it to allow time for D to pay, given the fact that D was clearly able to repay his debts. It follows that, on the balance of probability, the bankruptcy order ought not to have been made.”

17.  With respect, counsel has failed to note that according to paragraph 12(6) of Chu J’s Judgment on the petition, one of the grounds of opposition raised by the debtor was that:

“債務人正就HCA540/2006案陳健强特委法官的判決進行上訴，上訴法庭已排期本年9 月12 日聆訊。債務人應可在有上訴結果後才考慮是否支付各項訟費令。”

18.  It can be seen that no matter whether the debtor had the ability to pay at the time of the bankruptcy order, the fact is that he refused to pay the petitioner in full at the material time.  As far as the costs in HCA 540/2006 were concerned, he would only consider whether he would pay when the result of the appeal was known.  With this clear attitude, whether there was any evidence on solvency in existence was neither here nor there in the present case. 

19.  I also disagree with the debtor’s submission that Chu J. ought to have adjourned the petition to a later date so that the debtor could consider whether he should pay when the result of his appeal was known.  This is contrary to the well-known principle adopted by the bankruptcy court that the petitioner may base a bankruptcy petition on a judgment even if an appeal against the said judgment is pending, unless a stay of execution of the judgment has been granted.

20.  In fact, this point has also been dealt with by Lam J (as his Lordship then was) when he delivered his judgment in the Court of Appeal on the debtor’s appeal against the bankruptcy order made by Chu J.  His Lordship had this to say:

“債務人似乎認為他提出要求相關債務在HCA540/2006的上訴處理完畢後才了結為一合理的要約，鑑於他聲稱他有足夠的資產支付該等債項，法庭不應判他破產。本庭認為在本案中債務人這論點不能成立，因為正如上述分析，債務人沒有任何事實或法理基礎延誤他償還該等債項的時間。而且，就他聲稱他有足夠資產償還債項，在原訟庭聆訊破產案件時，債務人並沒有提出確實及可信賴的證據來支持他的聲稱。”(at paragraph 38 of the Judgment dated 17 January 2008, reported as [2008] 2 HKLRD 444)

21.  It can be seen that the Court of Appeal’s decision is two-fold.  Firstly, it was held that the debtor had no basis to delay the time for payment. Secondly, in any event, he had not provided sufficient evidence in support of his ability to pay.

22.  In other words, it was the decision of the Court of Appeal that even if there were adequate evidence to show the debtor’s ability to pay, his argument that he could delay payment until after the appeal of HCA 540/2006 was rejected. His argument that the bankruptcy order should not have been made was not accepted by the Court of Appeal.

23.  As a result, it is my view that the debtor’s application herein has to be dismissed anyway, no matter whether the principle of res judicata is applicable or not.

24.  Without disrespect to the industry of counsel, since I have dismissed the debtor’s annulment application, there is no need for me to, and I would not, deal with the debtor’s arguments on the exercise of discretion and consequential orders.

[submissions on costs]

Costs

25.  Costs should follow the event.  I therefore order that the debtor should pay the costs of the Official Receiver and the petitioner, with certificate for counsel.  This is a suitable case for such costs be summarily assessed pursuant to Order 62 rule 9A(1)(a).  I order that the debtor do pay the costs of the Official Receiver summarily assessed at $48,000 and costs of the petitioner summarily assessed at $120,000.  Payment should be made within 14 days.