鄧錦祥 v. 鄭鄧錦容

CACV 370/2019

[2020] HKCA 297

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 370 OF 2019

(ON APPEAL FROM HCSD 20/2019)

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J U D G M E N T

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Hon Chu JA (giving the Judgment of the Court):

1.  This is the applicant’s appeal against the judgment of Deputy High Court Judge Liu (“the Judge”) given on 16 July 2019[1] dismissing his application to set aside a statutory demand dated 15 April 2019 (“the Statutory Demand”) served on him by the respondent and authorizing the respondent to present a bankruptcy petition against him together with costs summarily assessed at $30,000.

2.  The appeal was initially listed for hearing on 13 May 2020.  Having regard to public health situation occasioned by COVID-19 and with the parties’ consent, this Court directed on 15 April 2020 that the appeal be determined on the papers filed in this appeal and the parties’ written submissions.

The statutory demand

3.  The Statutory Demand was served on the applicant by the respondent’s solicitors under a covering letter dated 15 April 2019.[2] It requires the applicant to pay an aggregate sum of $466,296.25 (“the Debt”), which is made up of:

(1)  Taxed costs in the total sum of $314,845.67 under an Allocatur dated 8 June 2017 together with interest thereon up to the date of the Statutory Demand; and

(2)  Costs summarily assessed in the sum of $10,600 under an order dated 9 March 2017 together with interest thereon up to the date of the Statutory Demand.[3]

4.  These costs were ordered in HCMP 147/2008.  The circumstances leading to the costs orders and other proceedings relevant to the applicant’s grounds for setting aside the Statutory Demand can be briefly stated as below.

HCMP 147/2008

5.  The applicant and the respondent are the son and daughter of Tang Chung Sau, deceased (“Father”) and Cheung Yuk Ying, deceased (“Mother”).  Father died intestate on 15 July 1998 leaving behind a sizable estate.

6.  In 2000, the applicant, the respondent and Mother jointly commenced a probate action against Ng Mei Kun and Tang Ieng Kit in HCAP 3/2000.  The action was resolved by a consent order dated 7 November 2003,[4] under which the parties agreed, inter alia, that letters of administration of Father’s estate may be granted to Mother, if entitled thereto.[5]   

7.  On 1 December 2004, letters of administration of Father’s estate were granted to Mother and the applicant under Grant No. HCAG 011792/2003 (“the Grant”).[6]  

8.  In 2008, the respondent commenced HCMP 147/2008 against the applicant and Mother pursuant to Order 85 rule 1 of the Rules of the High Court, Cap. 4A for the production of account and an administration of Father’s estate, or alternatively an order for payment into court of money held by the applicant and Mother as administrators of Father’s estate.  An order for account was made by a Master in November 2008.

9.  Mother died on 3 October 2011.  The applicant was appointed to represent the estate of Mother and in that capacity became the 2^nd defendant in HCMP 147/2008.

10.  On 21 November 2012, the respondent applied by summons for the appointment of a professional accountant to replace the applicant (personally and as personal representative of Mother’s estate) as the administrator of Father’s estate.

11.  On 26 August 2013, Deputy High Court Judge Simon Leung (“DHCJ Leung”) granted the respondent’s application.  He ordered the removal of the applicant (personally and as personal representative of Mother’s estate) as the administrator of Father’s estate, and gave the applicant 14 days to make proposals on who to be appointed as the new administrator(s).  He further ordered the applicant to personally pay the costs of the respondent’s application (“the 1^st Costs Order”).[7]

12.  On 9 September 2013, the applicant (personally and as personal representative of Mother’s estate) lodged an appeal against DHCJ Leung’s judgment under CACV 185/2013. On the same day, he applied by summons in HCMP 147/2008 for a stay of DHCJ Leung’s judgment pending appeal.  On 17 September 2013, the applicant issued a second summons applying for an order that he (personally and as personal representative of Mother’s estate) may have interim capacity to act as the administrator of Father’s estate pending the final determination of the appeal. 

13.  On 10 October 2013[8], DHCJ Leung dismissed both summonses, and appointed Mr David Yen of Ernst & Young as the new administrator of Father’s estate.  He also ordered the applicant to pay the respondent the costs of the two summonses (“the 2^nd Costs Order”).[9]    

14.  On 23 December 2015, the Court of Appeal dismissed the applicant’s appeal against DHCJ Leung’s judgment of 26 August 2013 with costs.[10]

15.  The taxation of the respondent’s costs pursuant to the 1^st and 2^nd Costs Orders was heard before Master Chow on 17 November 2016.  After a review of taxation heard on 18 January 2017, the respondent’s costs under the two costs orders were taxed and certified at $314,845.67 by an Allocator dated 8 June 2017.[11]  These taxed costs together with the interest accrued thereon form the first part of the Debt (see §3(1) above).      

16.  On 8 February 2017, Master Chow handed down her reasons for the decision on the review of taxation, in which she ordered the applicant to personally pay the respondent’s costs of the review to be summarily assessed.[12] On 9 March 2017, Master Chow assessed the costs payable by the applicant at $10,600 (“the 3^rd Costs Order”).[13]  This, together with the interest accrued thereon, form the second part of the Debt (see §3(2) above).

HCA 795/2019

17.  On 6 May 2019, the applicant commenced HCA 795/2019 against the respondent and her solicitors.[14] The applicant claimed that the respondent acted in breach of the Grant in bringing HCMP 147/2008 knowing that the Grant has bequeathed upon the applicant and Mother the properties in Father’s estate.  The applicant also claimed that the respondent and her solicitors wrongfully threatened to bring bankruptcy proceedings against the applicant for the costs ordered in HCMP 147/2008.  The applicant sought to overturn the judgment and orders made in HCMP 147/2008 as well as damages in the event DHCJ Leung’s order of 10 October 2013 was declared invalid.

18.  On 19 July 2019, Master Chow struck out the action.  The applicant’s appeal was dismissed by Deputy High Court Judge Paul Lam SC on 11 December 2019.  The applicant’s appeal to the Court of Appeal under CACV 593/2019 is pending.  

Application to set aside the Statutory Demand

19.  On 7 May 2019, the applicant commenced HCSD 20/2019 to set aside the Statutory Demand.  He disputed the Debt on the grounds that: (1) the commencement of HCMP 147/2008 and the orders made by DHCJ Leung in the action were contrary to the Grant; (2) as a result of a deed of settlement dated 28 December 2015 and a consent summons filed in HCA 1520 /2014, a full and final settlement had been reached which absolves the applicant’s liability under the 1^st to 3^rd Costs Orders; and (3) the applicant has commenced HCA 795/2019.

The Judge’s decision

20.  The Judge’s reasons for dismissing the application are encapsulated in §§6 to 8 of the judgment:

“6.  I must say that [the applicant’s] application is devoid of any merit. HCAG11792/2003 is the subject matter in [HCMP 147/2008], and the court has decided to remove [the applicant] as the administrator of the estate of [Father]. The judgments in [HCMP 147/2008] have been affirmed by the Court of Appeal. [The applicant’s] attempt to set aside those judgments by commencing another set of proceedings is an abuse of process of the court and is bound to fail.

7.  The debt set out in the [Statutory Demand] is based upon the costs orders made in [HCMP 147/2008]. It is trite that where a statutory demand is based on a judgment or an order (including a taxed costs order), although the court has the jurisdiction to go behind the judgment or order to see whether there is good consideration for the debt in question, the court would not do so without sufficient reason. A sufficient reason means, for example, there is evidence showing fraud or collusion or a miscarriage of justice.2 Here, there is simply no reason why the court should go behind the costs orders made in [HCMP 147/2008] to question the debt.

8.  [The applicant] alleges that there is a settlement agreement between him and the new administrator of the estate of [Father]. The applicant however confirms that [the respondent] has not signed the agreement. In these circumstances, the alleged settlement agreement is irrelevant.

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2 Hong Kong Civil Procedure 2019, Volume 2, §11/39.”   

The appeal

21.  The applicant lodged a Notice of Appeal on 12 August 2019 to appeal the Judge’s judgment.[15] He also lodged a written submission in support of his appeal.

22.  The grounds of appeal relied on by the applicant can be summarized as follows:

(1)  The respondent has no right to bring HCMP 147/2008.  The judgment and orders of 26 August 2013 and 10 October 2013, including the 1st and 2nd Costs Orders, have no factual and legal basis.  The respondent failed to disclose in HCMP 147/2008 that: (a) the properties covered by the Grant were bequeathed upon the applicant and Mother; and (b) Mother’s entitlement to the Grant stemmed from the consent order in HCAP 3/2000, which ordered that she became the Administrator of Father’s estate to receive the properties covered by the Grant. 

(2)  The applicant’s liability to pay the several costs orders that comprise the Debt has been settled by the deed of settlement dated 28 December 2015 and the consent summons filed in HCA 1520/2014.  $15 million had been paid in full and final settlement of all matters relating to compensation between him and the respondent.  The respondent should have asked the new administrator, David Yen, to pay the costs that constitute the Debt out of Father’s estate.

(3)  The applicant has commenced HCA 795/2019 to claim against the respondent and to put right the wrongs done in HCMP 147/2008.  He is appealing the striking out of the action to the Court of Appeal in CACV 593/2019

(respectively the 1^st, 2^nd and 3^rd grounds of appeal).    

Reasons for our decision

23.  The Debt, which forms the subject matter of the Statutory Demand stems from the 1^st to 3^rd Costs Orders made in HCMP 147/2008.  These costs orders are valid and subsisting at the time of the issue of the Statutory Demand.  They remain valid as of today.   

24.  Under rule 48(5)(b) of the Bankruptcy Rules, Cap. 6A, a statutory demand may be set aside if the debt is disputed on grounds that appear to the court to be substantial.  The burden is on a debtor to show that there is a genuine triable issue that the debt is disputed on substantial as opposed to trivial or frivolous grounds. 

25.  It is a well established principle of law that in an application to set aside a statutory demand based on a judgment or order, the court will not go behind the judgment or order to examine, for example, whether the judgment or order should have been made or the merits of the dispute giving rise to the costs order: see the Court of Appeal’s judgment in Cheung Sun Lam v. Lai Kam Man & Ors (unreported) CACV 148/2011, 18 March 2013 at §§36 to 38, and Leung So Hung Siem v Carson Wen (unreported) CACV 357/2018 [2019] HKCA 678 at §18.

26.  In contending that the respondent has no right to bring HCMP 147/2008 and that there is no factual and legal basis to support DHCJ Leung’s judgment and orders, including the 1^st and 2^nd Costs Orders, the applicant is effectively challenging the validity of the judgment and orders made in HCMP 147/2008 and asking the Court to go behind the 1^st to 3^rd Costs Orders to examine the merits of the orders.  The law does not permit the applicant to do so especially when the Court of Appeal has dismissed his appeal against DHCJ Leung’s judgment.  The Court of Appeal has also rejected the applicant’s argument that under the Grant, the applicant and Mother are the beneficiaries of Father’s estate, an argument that the applicant had repeated before the Judge and in this appeal[16].  In §§21 to 25 of the judgment,[17] Yuen JA held that the properties in Father’s estate were transferred to the applicant and Mother in their capacities as administrators of Father’s estate; the transfer did not confer beneficial interest on the applicant and Mother; and the properties in Father’s estate did not become the properties of the applicant and Mother.

27.  In the circumstances, the 1^st ground of appeal cannot stand.

28.  For the same reason, the fact that the applicant has commenced HCA 795/2019 to dispute the respondent’s entitlement to bring HCMP 147/2008 and the validity of the judgment and orders made in the action will not constitute viable ground to set aside the Statutory Demand.  Further, as the Judge pointed out,[18] it is an abuse of the process of the court to bring another set of proceedings to overturn the judgment and orders in HCMP 147/2008 after the appeal was dismissed by the Court of Appeal.

29.  The 3^rd ground of appeal therefore also fails.

30.  As for the 2^nd ground of appeal, the evidence before the Court, including the new evidence he adduced in this appeal with the consent of the respondent, does not support the applicant’s contention that his liability under the 1^st to 3^rd Costs Orders has been settled by the deed of settlement dated 28 December 2015 and/or was evidenced by the consent summons filed in HCA 1520/2014.

31.  The deed of settlement was entered into between David Yen, the new administrator of Father’s estate and the six defendants in HCA 1520/2014, including the applicant (in his personal capacity and in his capacity as the executor of Mother’s estate), as well as two beneficiaries of Mother’s estate.[19]  It is an agreement in full and final settlement with regard to HCA 1520/2014, HCMP 2165/2015, Father’s estate and four plots of land (“the Lands”) belonging to Father’s estate that had been sold by the applicant and Mother.[20]  Clause 1 of the deed provides that the applicant and three other parties to the deed shall pay a sum of $15 million to David Yen, as administrator of Father’s estate, in full and final settlement of the latter’s claims in respect of: (i) HCA 1520/2014; (ii) the Lands; and (iii) Father’s estate.[21]  Clause 9 further provides that upon receipt of the settlement sum, David Yen, through his solicitors, would produce a consent summons for the permanent withdrawal and discontinuance of HCA 1520/2014.[22]

32.  The respondent is not a party to the deed of settlement.  Neither is she a party to HCA 1520/2014.  She is not bound by the deed of settlement or the consent summons filed in HCA 1520/2014.  Importantly, the 1^st to 3^rd Costs Orders are not among the subject matter of compromise under the deed of settlement.

33.  It follows that the execution of the deed of settlement, the signing of the consent summons in HCA 1520/2014, and the payment of the $15 million settlement sum cannot have the effect of absolving the applicant’s liability under the 1^st to 3^rd Costs Orders.  The applicant’s contention that there has been a full and final settlement of the 1^st to 3^rd Costs Orders is plainly not made out.

34.  Moreover, the 1^st to 3^rd Costs Orders were made against the applicant personally and not in his capacity as the administrator of Father’s estate. The costs were awarded to the respondent personally and not on behalf of Father’s estate.  In the circumstances, the applicant’s argument that the respondent should have sought payment of the costs out of Father’s estate is untenable.

35.  Accordingly, the 2^nd ground of appeal also fails.

Disposition

36.  For the reasons set out above, the Judge was correct to dismiss the applicant’s application.  Accordingly, we dismiss the appeal. 

37.  Applying the usual rule of costs follow the event, we also make an order that the applicant pays the respondent the costs of this appeal, to be taxed if not agreed. 

38.  The respondent asks that the costs be awarded on indemnity basis as the appeal is wholly devoid of merits.  It is also said that the applicant pursued the appeal out of an ulterior or improper motive.  However, no particulars were given. While we agree that the appeal is unmeritorious, we do not consider the applicant’s pursuit and conduct of the appeal should call for an award of indemnity costs.  We order that the respondent’s costs be taxed on party-and-party basis.