YIU KA FUNG VINCENT t/a CONFIDENCE SERVICES CENTRE v. INFO VANTAGE LTD AND ANOTHER

CACV 96/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 96 OF 2014

(ON APPEAL FROM HCA NO 1066 OF 2013)

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DECISION
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Hon Zervos J (giving the Decision of the Court):

Introduction

1.  As we explained in our judgment dated 3 July 2015, the primary issue in this appeal was whether the 2^nd defendant could, at least arguably, contend that it was not a transferee under the Transfer of Business ( Protection of Creditors) Ordinance, Cap 43, (the Ordinance).  We held it could not and ordered that paragraphs 7 to 9 of the 2^nd defendant’s amended defence be struck out.  There was another issue, namely, whether the judge in the first instance was right to think that the alternative cases which the 2^nd defendant sought to advance could not properly be pleaded as inconsistent alternatives.  We held that the 2^nd defendant could plead the alternative cases.  As a result of this partial success by the 2^nd defendant, we made an order nisi that the plaintiff be awarded 50% of his costs on appeal and below. 

2.  On 6 July 2015, the 2^nd defendant requested that the order in our judgment not be sealed pending its intended application to set aside the part of our judgment striking out part of the 2^nd defendant’s defence.  Subsequently, the 2^nd defendant issued a summons dated 24 July 2015 seeking to set aside our judgment which strikes out its defence that it was not a transferee of the business of the 1^st defendant under the Ordinance. 

3.  In addition, there are also before us two applications by the plaintiff and the 2^nd defendant respectively applying for variation of our costs order nisi. 

Application to set aside

4.  It is necessary to state from the outset that this is not a proper or appropriate case to vary or set aside the Court’s order before it is sealed.  There are neither exceptional circumstances nor strong reasons, which are necessary criteria to invoke this jurisdiction: see Re Kennedy [2007] 5 HKC 75 at paragraph 4 per Yuen JA; Re Barrell Enterprises [1973] 1 WLR 19.  The 2^nd defendant is also not entitled to re-argue an issue that had already been argued at the hearing of the appeal (see paragraph 9 below).  In any event, as we will explain, we dismiss the application on its merits.

5.  To put this application in perspective, the plaintiff’s claim against the 2^nd defendant as appeared by the statement of claim is that the 2^nd defendant is a transferee of the 1^st defendant’s business under the Ordinance and that it is therefore jointly and severally liable for monies owed by the 1^st defendant to the plaintiff.  In response, the 2^nd defendant pleads in its defence that there is no detriment to the 1^st defendant’s creditors. 

6.  The 2^nd defendant now argues that our judgment should be set aside because we found the plaintiff had suffered detriment notwithstanding he had not pleaded this and the 2^nd defendant had not pleaded “any substantive defence” on detriment. 

7.  However, the issue of detriment to the 1^st defendant’s creditors has been raised by the 2^nd defendant in its own pleading, with a view to contending that it is not a transferee.  It is not open to the 2^nd defendant to now assert that it did not advance “any further substantive defence” in respect of the detriment issue. 

8.  The 2^nd defendant further asserts that because the plaintiff did not plead a case based on detriment it did not file any evidence to meet a case on detriment as it was not made. 

9.  As stated in our judgment, the 2^nd defendant had confirmed at the hearing of the appeal that the Court had all the evidence and material that it wished to put forward, save in relation to three discrete points which he mentioned at the hearing, none of which would take matters any further.  Accordingly, as we explained, we were in a position to make a determination as to whether or not the 2^nd defendant’s original defence was unsustainable.  We then dealt with the issue of detriment to the creditors, which Mr Douglas Clark, for the 2^nd defendant, asserted was a fundamental requirement in order to invoke the provisions of the Ordinance.  We concluded in paragraph 80 of our judgment that there was detriment to creditors of the 1^st defendant’s business when the 2^nd defendant set off a payment of the assets of the business of $430,000 against monies owed to the 2^nd defendant by the 1^st defendant when it took over the business.  This had the result that the 2^nd defendant treated itself as a preferred creditor over the other creditors.  The detriment issue is therefore a matter that was contested between the parties and the subject of counsel submissions at the appeal hearing.

10.  The 2^nd defendant has filed in support of the setting aside application an affidavit in an effort to provide evidence to support three new defences on the point of detriment.  The three defences as stated are:

“(a) The S.8 payment extinguished any detriment. By making this payment to the other creditors of D1, D2 was not preferred to other creditors.

(b) Creditors were paid or offered to be paid for their stock in hand. In a liquidation, it is unlikely they would have been paid for this stock.

(c) In a liquidation, creditors would most likely have received nothing if the assets were taken in by a liquidator and sold.”

11.  We agree with the submissions of Mr Lee Tung-ming, counsel for the plaintiff, that as the 2^nd defendant raised the issue of lack of detriment in its defence, it was for the 2^nd defendant to put in whatever evidence it considered appropriate to support such defence, especially in the circumstances where a striking out application had been made to the judge below. 

12.  We find no substance in the three purported new defences. In our view, the detriment to the creditors was obvious and these purported defences cannot negate the fact that an indebtedness owed by the 1^st defendant to the 2^nd defendant in the sum of $430,000 was discharged in favour of the 2^nd defendant by the set off, while the assets transferred for that sum could not be recovered by the other creditors of the 1^st defendant to discharge the 1^st defendant’s indebtedness to them.  At the time of the transfer and set off, no section 8 payment had been made, and the other creditors were unquestionably prejudiced by the transfer of the business to the 2^nd defendant and the set off.  The section 8 payment was only made after the institution of the proceedings.  It forms the subject of the 2^nd defendant’s remaining defence. 

Applications to vary costs order nisi

13.  The 2^nd defendant seeks an order that the costs below be to the 2^nd defendant and there be no order as to costs of the appeal.  The plaintiff seeks an order that the 2^nd defendant pay all the plaintiff’s costs of the appeal and below. 

14.  The 2^nd defendant’s application to vary the costs order nisi is dependent on the outcome of its application to set aside our judgment.  It follows from our rejection of the setting aside application that the application likewise fails. 

15.  As for the plaintiff’s application, we remain of the view that as the plaintiff was not wholly successful on the arguments run at the appeal, the costs order we made was appropriate. 

16.  The plaintiff also seeks his costs of the 2^nd defendant’s application to set aside on an indemnity basis.  We agree that costs should follow the event and the plaintiff should receive his costs, but we do not accept they should be on indemnity basis.   

Conclusion

17.  For the reasons given, the 2^nd defendant’s application to set aside our judgment is dismissed.  The respective applications by the plaintiff and the 2^nd defendant to vary the costs order nisi are also dismissed.  The costs order nisi shall be made absolute. 

18.  We further order that the 2^nd defendant pays the plaintiff’s costs on the application to set aside, to be taxed on party and party basis if not agreed, and there be no order for costs on the respective applications of the plaintiff and the 2^nd defendant to vary the costs order nisi.