XCHRX YIP CHAK LAM v. CHEKIANG FIRST BANK LTD.

HCSD14/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

(UNDER BANKRUPTCY ORDINANCE)
NO.14 OF 2000

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D E C I S I O N

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1. In these two sets of proceedings, which were heard together, the applicants apply to set aside the Statutory Demands served on them on 11 April 2000. After hearing submissions from counsel, I dismissed both applications and gave oral reasons for so doing. I now reduce the reasons into writing.

Background

2. The two applicants are husband and wife. By a mortgage created on 20 March 1997, the respondent bank granted a loan in favour of the applicants secured by a residential property and a carparking space in Hong Kong Parkview, 88 Tai Tam Reservoir Road, Hong Kong ("the Property") owned by the husband, Mr Yip Chak Lam ("Mr Yip"). Sometime in mid 1999, the applicants failed to keep up with the mortgage payments. On 27 September 1999, the respondent commenced mortgage action under HCMP5942/1999 against the applicants to recover the Property together with the outstanding loan and interest.

3. On 9 December 1999, judgment was granted in favour of the respondent for possession of the Property and for the outstanding sum of $10,302,969.29 together with interest and costs ("the Judgment Debt"). On 15 January 2000, Mr Yip contracted to sell the Property and the sale was completed on 17 March 2000. The sale proceeds in the sum of $10,100,000 was paid to the respondent, thereby reducing the Judgment Debt to $534,091.93 together with daily interest of $167.54 (subject to fluctuation). On 10 April 2000, the respondent issued Statutory Demands against the applicants and they were served on 11 April 2000. On 18 May 2000, the applicants applied to set aside the Statutory Demands.

Extension of time

4. The applications to set aside the Statutory Demands were made outside the 18 days' period prescribed under rule 47(2) of the Bankruptcy Rules, Cap.6 ("the Rules"). This point was acknowledged by the applicants' counsel at the first hearing on 25 May 2000. The respondent also raised objection to this in the affirmation of Mr Mak Kam Sing ("Mr Mak"). Notwithstanding this, no application has been made to the Court for leave to make the applications out of time and the matter remains at large up to the full hearing on 3 November 2000.

5. At the full hearing, counsel for the respondent submitted that the Court should exercise its discretion against the granting of leave. Counsel for the applicants, however, argued that the matter had implicitly been dealt with in favour of the applicants as a result of no objection from the respondent and the Court's order setting the applications down for hearing. I do not agree. The respondent has, as pointed out, raised an objection at the outset. Secondly, it is incumbent upon the applicants to seek and obtain leave from the Court to proceed out of time. It is not uncommon for the arguments on extension of time to be dealt with and heard together with the substantive application since the merits of the application is a relevant factor in deciding whether the application should be allowed to proceed out of time. Accordingly, the mere fact that the applications are listed for arguments is no indication that the Court had implicitly granted leave or that the issue about the applications being late had been resolved in the applicants' favour. The respondent is entitled to raise this as one of the grounds in opposition to the applications.

6. There is no doubt that the Court has a discretion to allow applications to be made out of time. The relevant considerations for the exercise of the discretion are the reasons for the delay and the merits of the application. Counsel for the respondent is entirely correct in observing that no reason for the delay has been offered in the affirmations of the applicants. It is apparent from the affirmations that the applicants received the Statutory Demands in good time and that they had had the benefit of legal advice before the 18 days' time limit expired. The inaction therefore requires an explanation. The absence of good reasons for the delay is not necessarily fatal to the applicants because the Court must also have regard to the merits of their applications. It is against this background that I now turn to deal with the grounds for the setting aside applications.

Grounds for Setting Aside the Statutory Demand

7. Rule 48(5)(b) of the Rules provides that the court may set aside a statutory demand if the debt is disputed on grounds which appear to the court to be substantial. It is common ground that the applicants have to demonstrate by evidence that there is a genuine triable issue : Practice Note (Bankruptcy : Statutory Demand : Setting Aside) [1987] 1 WLR 119 para.4, Re Maydwell [1999] 3 HKLRD 325, 334G-335A.

8. In the present case, the debt on which the Statutory Demands are based is the balance of a judgment sum. Accordingly the existence and the validity of the debt cannot be a subject matter of dispute in that this Court cannot go behind the judgment. The only question that calls for determination is the applicants' liability to satisfy the Judgment Debt.

9. For the applicants, it is contended that the Judgment Debt had been extinguished by reason of an oral agreement made in November 1999 between Mr Yip and Mr Mak for and on behalf of the respondent. The applicants' case is that sometime in November 1999, after several discussions and negotiations, the respondent offered to accept a fixed sum of $10,084,000 in full and final settlement of the applicants' liabilities, and this oral offer was accepted by the applicants. At the time of the making and acceptance of the offer, Mr Yip had secured a purchaser who was prepared to purchase the Property at $9.98 million. The sum of $10,084,000 in fact represents the purchase price of $9.98 million and two months' outstanding interest. The sale however did not go through. Eventually, Mr Yip secured another offer and the Property was sold for $10.1 million. Since the entire sale proceeds had been paid over to the respondent, the applicants say that they had performed their part under the settlement agreement made in November 1999 such that their liabilities to the respondent had been extinguished.

10. The respondent denied the alleged settlement agreement. The respondent's case is that upon the indication from the applicants that they had secured an offer to buy the Property at $9.98 million and their request to waive the interest on the outstanding mortgage loan, the respondent on 21 December 1999 offered to accept $9.98 million and to waive the interest partially provided that the applicants paid $124,000 forthwith, that the sale and purchase agreement be concluded by 31 December 1999 and that completion should take place by 29 February 2000. These terms were, however, not accepted by the applicants and no agreement for settlement was reached. Hence after receiving the proceeds of sale in the sum of $10.1 million, the respondent proceeded to recover the balance of the Judgment Debt by issuing the Statutory Demands.

Genuine Triable Issues?

11. It is evident from the affirmations filed by the applicants and the respondent that there are disputes of facts between the parties. That however does not necessarily mean that the applicants have discharged their burden. They will still have to show that the disputes on the facts give rise to genuine triable issues. Where, for instance, the evidence suggests that the applicants' account of the facts is incapable of belief, or that notwithstanding the factual disputes, the applicants' case is bound to fail in law, there will be no genuine triable issues.

12. Having regard to all the evidence before this Court, I am of the view that the applicants' case is plainly incredible and incapable of belief. In arriving at this conclusion, I am conscious of the fact that the Court should not embark upon a trial on the affirmations and that the deponents have not been subject to cross-examinations. Nevertheless when considering the applicants' case in the light of the documentary and other evidence and assessing its inherent probabilities, I am driven to the conclusion that it is not believable and cannot be acted upon.

13. Firstly, the sequence of events and the precise terms of the offer from the respondent are plainly contradicted by the documentary evidence before the Court, notably the Monthly Progress Reports of the respondent and two reports made by Mr Mak and Mr Mak's superior, Mr Dick Chan ("Mr Chan"). These reports show that it was 13 December 1999, after the respondent had obtained judgment in the mortgagee action, that Mr Yip indicated that he had a potential purchaser with an offer of $9.98 million, and requested for a waiver of all accrued interest, legal fee and estate agent commission. The request was turned down by Mr Mak. On the following day, Mr Yip revised his request by offering to pay two months' accrued interest, legal fee and estate agent commission on top of the $9.98 million sale proceeds. This revised request was submitted by Mr Mak to Mr Chan in writing on 15 December 1999. Mr Chan in turn made a written report on it to the senior management of the respondent on 16 December 1999. On 20 December 1999, the senior management gave written approval to waive part of the accrued interest on conditions that $124,000 be paid and completion to take place within two months and that the legal proceedings were to continue in the meantime until settlement. This was communicated to Mr Yip, but there was no positive response from him.

14. Counsel for the applicants took objection to these reports on two basis, namely, the Progress Reports were hearsay and that these are all internal documents or records of the respondent, which were not communicated to the applicants. Although the Progress Reports were complied by Mr Chan and a Mr Choi while it was Mr Mak who directly dealt with the applicants, Mr Mak had deposed in his affirmation as to the events recorded in the Progress Reports and thereby affirmed the truth of the matters stated therein. It is true that these reports are the internal documents of the respondent, but that in itself do not render these documents unreliable or inadmissible. They are both relevant and probative in that they show that the version of events given by Mr Mak in his affirmation is not a recent fabrication. Given the diametrically opposing versions related by Mr Yip and Mr Mak, there can be no room for misunderstanding and one of them must be untruthful. Looking at these various reports which were complied as early as November and December 1999, Mr Mak would be saying one thing to his superiors, but another thing, which is totally different, to the applicants ever since November 1999, if the applicants' version were to be believed. These reports would also suggest that there was a pre-meditated plan and calculating move on Mr Mak's part to put two different versions to the respondent and the applicants. The unavoidable question then is why would a bank officer do that and what benefit did he stand to gain? At any rate, it is almost certain that the matter would become exposed, unless Mr Mak were to personally pay up the amount which he represented to Mr Yip to have been waived by the respondent. On this analysis, the inescapable conclusion is that the applicants' version is plainly improbable and unsustainable.

15. The applicants had referred to a taped conversation between Mr Yip and Mr Mak on 24 March 2000 and suggested that Mr Mak impliedly accepted that there had been an oral agreement between the parties. I am unable to agree to this. On the contrary, there are clear references by Mr Mak to the condition that a payment of $100,000 odd had to be made by the applicants. Mr Mak further explicitly refuted Mr Yip's suggestion of an agreement. This piece of telephone conversation in my view is supportive of the respondent's case rather than of the applicants'.

16. On the other hand, even accepting the affirmations of Mr Yip in their entirety, the oral agreement contains terms other than payment of $10,084,000 by the applicants. There are other conditions that the sale and purchase agreement had to be concluded by 31 December 1999 and that completion had to be by the end of February 2000. None of these other conditions had been fulfilled. These are not minor or peripheral terms in that the timing of the sale has a bearing on the amount of accrued interest and in turn on the amount which the respondent has to waive and absorb. What the applicants suggested, both in Mr Yip's affirmation and through counsel, is that the respondent had never indicated that it would resile or had resiled from the alleged oral agreement despite that the $9.98 million offer did not materialize and that the other conditions were not met. That being the case, the respondent is bound to discharge the applicants from further liabilities under the judgment upon the payment of the $10.1 million sale proceeds. Such an argument cannot be sustained. If indeed the parties had reached the alleged oral agreement, then the parties would be bound to perform in strict and full compliance with the terms thereunder. Part performance or any deviation in the performance, unless agreed to by the other party, is no performance. Accordingly when the applicants failed to have a sale and purchase agreement signed by 31 December 1999 and the completion by the end of February 2000, they had defaulted under the alleged oral agreement. The payment of the $10.1 million on 17 March 2000 and its acceptance, without more, cannot be assumed to be a reference to or performance under the alleged oral agreement. In this regard, it is important to note that a Deed of Release was executed by the parties upon this payment of $10.1 million. In this Deed of Release, the respondent expressly reserved its right under the applicants' covenant to repay contained in the mortgage. Counsel for the applicants argued that the Deed is no more than a formal document in standard terms. But the fact remains that the respondent had expressly reserved its rights to recover the balance of the Judgment Debt. It is therefore not open to the applicants to say that the respondent, by accepting $10.1 million, is obliged to discharge them from further liabilities under the Judgment Debt pursuant to the alleged oral agreement.

17. Furthermore, even accepting the applicants' case, it is unsustainable in law. The alleged oral agreement is in effect an agreement to accept part-payment in full settlement of the outstanding balance of the Judgment Debt, which is in the nature of a liquidated debt and is due and payable. In order that such an agreement is legally binding and enforceable, it has to be supported by accord and satisfaction : see Chitty on Contract (28th edition) Vol.1 paras.3-107 to 3-109 and Foakes v. Beer (1884) 11 QBD 221. There is plainly no consideration in the form of either benefit going to the respondent or detriment moving from the applicants. Counsel for the applicants argued that consideration existed in that in a volatile property market, it is both in the applicants' and respondent's interest that the security be realized as soon as possible and at the best possible price. The argument however overlooks the fact that under the mortgage, Mr Yip lost his right over the Property, including the right to sell or otherwise dispose of the Property, upon default. The respondent was granting him indulgence in not enforcing the order for possession and allowing him to sell the Property. The fact that Mr Yip endeavoured to and succeeded in finding a purchaser and selling the Property is no consideration at all.

18. As an alternative argument, the applicants also rely on the doctrine of estoppel. It is trite law that in order to invoke the doctrine, what the applicants have to show is that they had suffered detriment in reliance on the respondent's representation. Mr Yip had in his supporting affirmation referred to the fact that he had vacated the Property in October 1999, incurred expenses in decorating and furnishing the Property and turned away offers to rent the Property. As counsel for the respondent rightly pointed out, none of these can amount to detriment. All these acts were done after the applicants had defaulted in payments and after the mortgagee action had commenced. The applicants, as they well knew, had no prospect of successfully contesting the action and avoiding a judgment against them. It is therefore inevitable that they had to move out of the Property. Mr Yip would also have no right at all to let out the Property. As to improving the condition of the Property, that was clearly with a view to yielding a higher sale price, hence minimizing the loss suffered by the applicants upon a resale. With or without the alleged oral agreement, these are steps which Mr Yip, as any other mortgagors, would have done so as to abide by the terms of the mortgage and to protect his interest. They are no detriment. Neither are they steps carried out in reliance upon any representation by the respondent.

19. For the reasons aforesaid, the applicants' case is plainly unbelievable on the facts and unsustainable in law. There is no genuine triable issue. The applicants have failed to demonstrate that the debt is disputed on substantial ground. The applications are accordingly dismissed with costs to the respondent, to be taxed if not agreed.