RE MAI XI HONG

HCB 550/1996

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 550 OF 1996

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D E C I S I O N

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1.  This is an application by Mr Mai Xi Hong (“Mr Mai”) seeking the review and variation of an order which I made on 17 December 2004 dismissing his application for annulment of an adjudication order which had been made against him on 26 November 1996.

2.  The background to Mr Mai’s earlier application and the reasons for my decision on that occasion are set out in my written judgment of 17 December 2004. 

3.  Briefly, the adjudication order against Mr Mai was based on a bankruptcy petition presented against him on 31 July 1996.  The petition was, in turn, based on his failure to comply with a bankruptcy notice issued on 13 May 1996 and served on him on 9 July 1996.  That bankruptcy notice was based on a default judgment obtained against Mr Mai on 8 March 1996 in the sum of HK$216,821, in an action commenced on 13 February 1996 against Mr Mai and a company in which he was interested, Mai Lok Investments Limited (“Mai Lok”), in respect of cheques in that amount provided by each of them to a company called Superwealth Development Limited (“Superwealth”) which was the Plaintiff in the action and Petitioner in the bankruptcy proceedings, such cheques having been provided in about June or July 1995.

4.  Mr Mai’s case is that he admits having provided a cheque in that amount to Superwealth.  He says that it was issued in order to pay a debt of Mai Lok and that it was dishonoured due to insufficiency of funds in his bank account.  He says, however, that shortly after the cheque was dishonoured, he agreed with a Mr Wong representing Superwealth that if he paid or procured the payment of the sum of HK$70,000 to Superwealth, the remaining balance of the debt due from Mai Lok would be waived in its entirety.  Mr Mai says he thereupon procured another company in which he had an interest called Mak’s Holdings Limited (“Mak’s Holdings”) to pay the sum of HK$70,000 to Superwealth pursuant to the alleged agreement.  As I observed in my earlier judgment, there does appear to be evidence that such a payment was made by Mak’s Holdings to Superwealth on or about 8 August 1995. 

5.  At the last hearing, Mr Mai’s position was that as a consequence of such payment, the default judgment entered against him by Superwealth was irregular and liable to set aside as of right because it was for too much, the true position being that either nothing was owing from him to Superwealth or, at most, a lesser sum of HK$146,821 odd was owing from him at the time that the default judgment was entered against him.

6.  In my earlier judgment, I held that the default judgment was not irregular and, in paragraphs 15 to 21 of that judgment, I considered the authorities cited to me by Mr Griffiths SC, who appeared for Mr Mai on that occasion, and concluded that a judgment could not be said to be irregular simply because it failed to take account of a payment allegedly made before the issue of the writ in the action.  I went on in paragraphs 22 to 26 of my judgment to say that in the light of the available evidence at that stage, I was not, in any event, satisfied that there had been an undisputed payment made prior to the issue of the writ, which had to be taken into account by Superwealth. 

7.  At this hearing, Mr Mai supported his application for review by submitting further evidence from himself, and the solicitor acting for him at the time of the action in which the default judgment was obtained, with a view to establishing that the payment made by Mak’s Holdings was indeed made in partial or total satisfaction of the debt on which the claim against himself and Mai Lok was based, and that Superwealth could not have thought that it had a good claim for the whole of the HK$216,000 odd in respect of which it entered judgment.

8.  Today, Miss Eu SC appearing for Mr Mai submitted that in the light of this evidence, it was clear that Superwealth’s claim against Mai had been overstated at least to the extent of HK$70,000 and that the judgment against him was therefore irregular.  As a fallback position, she submitted that even if the judgment were, contrary to her first submission, a regular judgment, Mr Mai had at least a strongly arguable defence to the claim against him either in whole or in part.  In consequence, Miss Eu submitted , the default judgment would have been liable to be set aside on the merits had an application to do so been made.  In these circumstances, she submitted that the adjudication order should not have been made against Mr Mai and that it should therefore be annulled. 

9.  Miss Cheung for the Official Receiver submitted that I should limit my consideration of the application to the question of whether or not the new evidence put forward would lead to the conclusion that the earlier default judgment was, in fact, regular.  She drew my attention to the observations of Chadwick LJ in Mond & another v Hammond Suddards (a firm) [2000] Ch. 40 at 49D-F, where he said:-

“… But, although I would hold that, as a matter of jurisdiction, the power to review conferred by [the English equivalent of s.98 of the Bankruptcy Ordinance] is unfettered, it is, of course, a power which is to be exercised judicially.  It would, in my view, be inappropriate – save in the most exceptional circumstances – for a judge to exercise that power in order to substitute his own decision for that of another judge of co-ordinate jurisdiction reached on the same material after a full consideration of the arguments.  The power to review is not to be used in order to hear an appeal against a judge of co-ordinate jurisdiction.  The exercise of the power should be confined, as a matter of discretion, to cases in which there has been some change in circumstances (which may, perhaps, include the consideration of material which was not previously before the court) since the original order was made:  see the observations of Millett J in In re a Debtor (No. 32-SD-1991) [1993] 1 WLR 314, 318-319.”

10.  Miss Eu submitted that the power to review or vary an order under section 98 of our Bankruptcy Ordinance was not so limited or so confined.  In support of her submission, she relied on well-known passages from Williams and Muir Hunter on Bankruptcy and the decision of the Hong Kong Court of Appeal in Wing Lung Bank Limited v Ho Shiu Sun [1986] 1 HKLR 1134.  Although the observations of Chadwick LJ were, I think, obiter, they appear to be grounded in good sense.  That said, however, at the hearing today I permitted Miss Eu to address me on the question of the regularity of the judgment, having regard to the fact that the payment that was said to have been made so as to reduce the amount of that judgment, was made before the judgment.  I did so on the basis that if Miss Eu was able to persuade me that my earlier judgment was wrong in principle or my earlier conclusions were incorrect, it would be unsatisfactory for that state of affairs to be allowed to continue, particularly having regard to the consequences for Mr Mai of such an outcome. 

11.  I have carefully considered the submissions of Miss Eu on this point.  However, I am afraid that I remain of the view that the default judgment against Mr Mai obtained on 8 March 1996 was and remains a regular judgment.  The reasons for my conclusion are those which I expressed in my earlier judgment at paragraphs 15 to 21.

12.  Miss Eu submitted that it was unsatisfactory and unjust that a default judgment should be regarded as irregular where a defendant made a payment after issue of a writ so as to reduce the amount claimed but not where the payment was made at an earlier stage prior to the issue of the writ.  It seems to me, however, that the answer to that submission is to be found in the reasons which I gave on 17 December 2004. 

13.  As I said then, it seems to me that in bringing a claim against a party, a plaintiff is necessarily asserting a right to be paid the amount that is stated in his statement of claim.  If there is a dispute as to that amount, in my view, that is a matter of defence.  The difference between the two situations is that where a payment is made after the issue of the writ which is indisputably linked to the claim, that must reduce the claim which the plaintiff asserts that it has and therefore must be taken into account.  Where a claim is allegedly made before the issue of the writ, it seems to me that the question of whether or not that payment was made and, if so, what effect it has on the Plaintiff’s claim is properly a matter of defence.  If this were not the case, almost any case in which a default judgment was obtained in respect of a liquidated sum, it would be open to a defendant to have that judgment set aside almost as of right simply by asserting (and perhaps putting forward some evidence to support the assertion) that it had made a partial payment prior to the issue of the writ. 

14.  I therefore remain of the view that the default judgment entered against Mr Mai in March 1996 was a regular judgment, but I do not think that that is the end of the matter.  I would accept that if Mr Mai were able to show that default judgment would have been set aside and that there were good reasons for his failure to have made the application to set aside the default judgment or otherwise contest the bankruptcy proceedings at the time that they were brought, it might be open to the court nonetheless to take that into account in considering whether or not to annul the adjudication order against Mr Mai. 

15.  So far as this is concerned, I should say at the outset that I do not think that the additional evidence that has been put forward by Mr Mai, taken from the files of the solicitors whom he then instructed, as to various conversations between his solicitor’s clerk and his opposite number with the Plaintiff’s solicitors, take matters much further. 

16.  It seems to me on consideration of those attendance notes that, at best, they show that there were perhaps negotiations between the two firms of solicitors for an overall settlement which appear, at the end of the day, to have come to nothing.  This is, I think, made clear by an attendance note in which Mr Mai’s solicitor’s clerk asked his principal to obtain Mr  Mai’s instructions as to what appears to have been a proposal that a certain amount should be paid by two instalments in order to dispose of the entire claim against Mr Mai. 

17.  I do not think that these notes can be regarded as clearly indicating an acceptance or an unequivocal acceptance by the Plaintiff’s solicitors that the claim by Superwealth was excessive. 

18.  Miss Eu, however, submitted that even if that were right, there were two arguable defences in respect of the entire claim against Mr Mai.  She submitted first that there was an arguable defence based on total failure of consideration in that there was no consideration pleaded in respect of the cheque on which the claim was based.  She submitted secondly, that even if there were consideration for the cheque, the payment by Mak’s Holdings, a third party, of HK$70,000 would have the effect of discharging the entire obligation owed by Mr Mai under the cheque.

19.  As to the former of these arguments, I do not think that the criticism of the statement of claim is justified.  The statement of claim pleaded the cheque and its dishonour.  It does not seem to me that it is necessary, in a claim based on a dishonoured cheque to plead that the cheque was in fact supported by consideration.  This is normally a matter for the defendant to plead by way of defence if he wishes to defend the claim.

20.  As to the latter argument, the only evidence in support of it would appear to be Mr Mai’s statement in his affirmation to the effect that there was an agreement between himself and Mr Wong of Superwealth that the payment by Mak’s Holdings should discharge the entire obligation whether owed by Mai Lok or Mr Mai himself.  However, this case is not one that was suggested at the time that the proceedings were ongoing.  It is, indeed, contradicted by the correspondence from Mr Mai’s then solicitors to those acting for Superwealth in which it was suggested that, at best, HK$70,000 should be deducted from the amount claimed without any suggestion that there was a defence to the entire claim.

21.  It seems to me that, at best, these two defences put forward might be said to be arguable, but I would not put it very much higher than that.

22.  Miss Eu would appear, however, to be on stronger ground in submitting that, on the evidence available, there may well have been a pro tanto discharge of Mr Mai’s liability under his cheque to the extent of HK$70,000 as a result of the payment by Mak’s Holdings.  Even if this is right, however, that would leave a substantial balance still owing by Mr Mai to Superwealth and would, I think, at best have led to leave to defend being given as to part of the claim. 

23.  In those circumstances, it seems to me that the position is essentially this:  at the time the adjudication order was made, there was a bankruptcy notice and petition which appear to have been properly served (Mr Mai does not suggest in his evidence that there was any question as to service), coupled with a failure on Mr Mai’s part to take any steps to have either the default judgment set aside or to contest the bankruptcy proceedings.

24.  In this situation, the position would appear to me to be rather different from that which obtained in Re Luk Tsun Yin [2000] 1 HKC 774, where Le Pichon J, as she then was, held that the court could annul a bankruptcy order or adjudication order on the basis that a regular default judgment was liable to be set aside.  In that case, Madam Le Pichon J was satisfied that there was a strongly arguable case for disputing the underlying debt and it is clear from the context that the defence in that case would have gone to the entirety of the debt on which the petition was based.  Le Pichon J was also satisfied in that case that there was a satisfactory explanation for the failure of the debtor to have taken steps either to contest the proceedings or to seek to set aside the default judgment or to contest the bankruptcy proceedings against him.

25.  In this case, Mr Mai has put forward evidence in paragraph 11 of his affirmation of 6 January 2005 to seek to explain his failure to take any steps at the time either to set aside the default judgment or to contest the bankruptcy proceedings.  In essence, he says that as a result of his discussions and ultimately the failure on his part to receive either the receiving order or adjudication order made against him, he thought that the matter had been dropped by Superwealth and that there was nothing further to be done.  But, with respect, this does not appear to me to be a satisfactory explanation.  It is quite clear that Mr Mai was well aware of the action against him.  This is clear from the fact that he instructed solicitors and that he gave instructions to them, as evidenced by certain correspondence which was exhibited to his affirmation, to indicate that he was disputing, at least in part, the claim made by Superwealth against him.  It would appear equally to be the case that Mr Mai was aware of the bankruptcy notice and the petition against him.  There is certainly no suggestion that these were not properly served on him and, in those circumstances, it is difficult to see that Mr Mai could have been under any misapprehension as to the attitude or the approach being taken by Superwealth.  The fact that he instructed solicitors to deal with the action itself and appears to have continued to have had dealings with those solicitors throughout 1996, it appearing that the solicitors had opened a file in relation to the High Court action involving himself and Mai Lok as late at December 1996 suggests that Mr Mai must have been well aware of the actions that were being taken against him by Superwealth. 

26.  In these circumstances, I do not regard the explanation which Mr Mai puts forward in his affirmation of 6 January 2005 as being a convincing explanation or providing any good reason for his failure to have taken any steps to challenge the default judgment or to challenge the bankruptcy proceedings against him.

27.  It therefore seems to me that the adjudication order was correctly made at the time that it was made.  I am far from satisfied that that it should not have been made, and I decline to vary the order made at the last hearing. 

28.  I therefore dismiss Mr Mai’s application for review or variation of the order of 17 December 2004, and will now hear the parties as to costs.