KO SIN YUN v. CHAN CHUEN

HCB 4824/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY

NO. 4824 OF 2005

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R U L I N G

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1. The petition in this case is based on a judgment debt that arose under a default judgment obtained by the petitioner, the judgment creditor, against the debtor who was the defendant in proceedings in the District Court.  It appears that the writ in the District Court action was served personally on the debtor but, notwithstanding this, the debtor took no steps to enter an appearance in those proceedings and suffered default judgment to be entered against him.  Default judgment having been entered, no steps were taken to set it aside. 

2. A statutory demand was then served on the strength of the District Court judgment.  That too was apparently served personally on the judgment debtor but no steps were taken to institute proceedings for the setting aside of the statutory demand on the grounds that there was a dispute as to the underlying debt. 

3. It was not until well after the petition was served and, indeed, the matter had come on for hearing on not less than two occasions that the debtor first appears to have put forward his defence to these proceedings.  The defence was, in effect, that he had effectively repaid the alleged debt and that certain payments that the creditor says were payments of interest and not principal were, in fact, payments of principal. 

4. The debtor belatedly took out an application to have the District Court judgment set aside contending that service was irregular and also that he had a meritorious defence to the claim.  The District Court judge hearing the application set aside the default judgment but, in doing so, ruled in an oral ruling (of which I have not been supplied a transcript but both counsel appearing before me are agreed as to this) that service was regular but that there was disclosed a defence on the merits which justified the setting aside of the default judgment.

5. In those circumstances, the plaintiff in the District Court proceedings - the petitioner here - quite properly accepts that the judgment having been set aside, the petition must either be withdrawn or dismissed and has asked for leave to withdraw the petition.  The petitioner also accepts that it should bear the costs that the Official Receive has incurred which, I understand, are in the sum of $8,900 up to today and leave those, I suppose, to be dealt with as a matter of costs as between itself and the debtor in these proceedings. 

6. The petitioner, therefore, had asked for leave to withdraw the proceedings on terms that it bears the Official Receiver’s costs in the sum of $8,900 but asks for an order that the debtor be ordered to pay its costs to it.  The debtor opposes that order for costs and suggests that it should instead be the petitioner who should bear the costs of these proceedings and should be ordered to pay the debtor the costs incurred by the debtor in resisting these proceedings. 

7. Mr Li, who appeared for the debtor, very fairly accepted that he could not dispute that service had been validly effected, or regularly effected, in the light of the District Court judge’s decision on this matter and he did not pursue the matter before me.  He said, however, that there had been defects in the statement of claim which (as it seemed to me) related to the question of when the alleged loan was made and as to the status of the various repayments that have been made, according to the debtor, since the time the loan was first made.

8. With respect to Mr Li, it seems to me that those were matters of defence which ought to have been put forward in the District Court proceedings.  The fact remains that the District Court proceedings having been validly served by personal service, there can be little dispute but that the debtor was aware of those proceedings.  Being aware of those proceedings, he failed to take any steps to defend them and has not put forward any explanation for his failure to do so. 

9. In those circumstances, it does not seem to me that he has demonstrated any good reason for his failure to defend those proceedings and the situation, therefore, is in my view very similar to that which obtained in the case of Re Lanagan Brothers Limited cited to me by Mr Ngai who appears for the petitioner today.  In that case a default judgment had been entered against the company and the only material difference between that case and this is that in the Lanagan case, the company accepted that it was to blame for allowing the default judgment to be entered against it. 

10. In this case, although the debtor has not accepted that he was at fault in allowing the judgment to be entered against him, he has put forward no material before me which would justify me in finding coming to any conclusion other than he had himself and no one else to blame for the judgment being entered against him in the first place.  That being so, it seems to me that the appropriate order for costs would be that, as the petition had been perfectly properly presented on the basis of an apparently regular judgment and the creditor has acted with propriety in seeking to have it withdrawn as soon as the underlying judgment debt was set aside, the appropriate order to make as to costs in the exercise of my discretion would be to order that the costs of these proceedings be borne by the debtor and paid to the petitioner, such costs to be taxed on a party-and-party basis if not agreed. 

11. I will therefore order that leave be given to the petitioner to withdraw the petition; that the Official Receiver’s costs assessed at $8,900 be borne by the petitioner and be deducted from his deposit with the Official Receiver but that the petitioner is to have his costs including the costs payable by him to the Official Receiver to be recovered from the debtor, such costs to be taxed on a party-and-party basis if not agreed.