RE WONG YU CHO ROLLY

HCB 7588/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7588 OF 2012

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AND

HCSD 23/2012

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 23 OF 2012

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BETWEEN

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(Heard Together)

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J U D G M E N T

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1.  There are two matters before the court: there is a bankruptcy petition presented by the petitioner Ling Dai Hong (“Ling”) against the debtor Wong Yu Cho Rolly (“Wong”) (HCB 7588/2012) and an application by the debtor (being the applicant in HCSD 23/2012) to set aside the petitioner’s statutory demand dated 29 May 2012. The petitioner is the respondent in HCSD 23/2012. At the conclusion of the hearing, judgment was reserved.

I.  Procedural history

2.  Both the petition and the application stem from HCA 1007/2011. That was an action by Ling against Wong for the repayment of a loan of $1 million advanced to Wong in September 2009.

3.  Ling is ‘the petitioner’ in HCB 7588, ‘the plaintiff’ in HCA 1007 and ‘the respondent’ in HCSD 23.  Wong is ‘the debtor’ in HCB 7588, ‘the defendant’ in HCA 1007 and ‘the applicant’ in HCSD 23.

HCA 1007

4.  Ling obtained an order for summary judgment from Master Ng on 30 March 2012 (“the March order”). At the hearing before the Master, Wong was legally represented.  At that stage, not only had a defence and counterclaim been filed to which Ling had replied, there was an application to the Master for leave to amend the defence and counterclaim.

5.  On 29 May 2012, a statutory demand based on the March order was issued and, after various attempts to effect service at his known addresses in Hong Kong, it was eventually served on Wong on 10 July 2012.

6.  On 13 July 2012, almost 3½ months after the date of the March order, Wong (acting in person) filed a notice of appeal to a judge in chambers.

7.  That appeal came before Mimmie Chan J on 23 August 2012.  The judge considered that not only was the appeal made out of time, but also that Wong’s claims were “riddled with inconsistencies” and were “not probable or believable”.  She dismissed Wong’s appeal (“the August order”).

8.  On 5 September 2012 Wong filed a second notice of appeal to a judge in chambers from the March order.

9.  Two days later, on 7 September 2012, Wong lodged a notice of appeal to the Court of Appeal (CACV 198/2012) to set aside the August order.  

10.  On 26 October 2012, Ling took out a summons for security for costs of Wong’s appeal to the Court of Appeal.

11.  On 2 November 2012, Sakhrani DHCJ struck out Wong’s second appeal to a judge in chambers for abuse of process.

12.  On 5 December 2012 Chu JA, inter alia, ordered Wong to pay security for costs of the appeal in CACV 198/2012.   The security ordered was paid on 4 February 2013.

13.  The appeal to be heard by the Court of Appeal on 14 March 2013 is Wong’s appeal from Chu JA’s order relating to the payment of security for costs and not the substantive appeal from the August order.  No date has yet been fixed for the hearing of the substantive appeal.

HCSD 23

14.  As already noted, on 29 May 2012, a statutory demand based on the March order was issued and eventually served on Wong on 10 July 2012.

15.  On 13 July 2012, apart from filing a summons to appeal the March order, Wong also took out an application (HCSD 23) to set aside the statutory demand.

16.  On 18 September 2012 Ling issued a summons:

(1)  to dismiss Wong’s setting aside application in HCSD 23; and

(2)  for leave to issue a bankruptcy petition and for substituted service.

17.  A week later, Wong took out a summons (under HCSD 23 only) to stay the March order.

18.  At the first hearing of HCSD 23 on 27 September 2012, Barma J dismissed Wong’s summons for a stay and adjourned Wong’s application to set aside the statutory demand and Ling’s application to dismiss Wong’s application with directions.

HCB 7588

19.  On 11 October 2012 Ling obtained a garnishee order to show cause.  After it was returned unsatisfied, Ling issued the petition in HCB 7588 on 15 November 2012 which was personally served on Wong the following day.  Wong applied on 28 November 2012, inter alia, to strike out the petition.

20.  On 14 January 2013 Anthony Chan J ordered that HCB 7588 and HCSD 23 be heard together.

II.  The application to set aside the statutory demand: HCSD 23

21.  Wong put forward three grounds in support of his application:

(1)   there was no proper service of the documents on him;

(2)  as his appeal in CACV 198/2011 has not been heard, pending the determination of that appeal, the statutory demand was premature and/or the setting aside application should be deferred pending that determination; and

(3)  he has a valid counterclaim against Ling and therefore satisfies the requirements in rule 48(5)(a) and (b) of the Bankruptcy Rules.

(1) Service of the statutory demand

22.  Wong complained that the statutory demand had not been properly served on him.  The steps taken by Ling’s solicitors WK To & Co (WKT) to effect service on Wong is set out a length in §§9‑23 of the affirmation dated 18 September 2012 of Chun Tsz Him Kenny, an assistant solicitor of that firm.  It is stated in §24 that Wong attended WKT’s office on 10 July 2012 and collected the statutory demand.  A copy of the demand collected by him showing his signature in acknowledgement is exhibited.  In those circumstances, it is obvious that this ground is entirely devoid of merit.

(2)  Appeal pending in CACV 198/2012

23.  As appears from the chronology set out above, the appeal to be heard on 14 March 2013 is from the order for security for costs made by Chu JA.  As regards the substantive appeal from the August order which dismissed Wong’s appeal, no steps have been taken to fix a date for that appeal notwithstanding the fact that the notice of appeal was issued almost six months ago even allowing for the fact that the proceedings were stayed during the 60‑day period (between 5 December 2012 and 4 February 2013) granted for the payment of security.

24.  Wong (who appeared in person) professed that being a layman he had no appreciation of the difference between appealing the security for costs order and the substantive appeal and, in any event, he blamed the court staff for not making this clear when he lodged his appeal.  While some latitude may be given to litigants in person on matters of procedure, the fact is that Wong has not taken any steps to fix a date for the hearing of the appeal he filed on 7 September 2012.  The fact that there was a hearing before Chu JA was as a result of Ling’s application for security for costs and not because of any step taken by Wong to prosecute his appeal.  I will return to this topic later when considering, for the purposes of the petition, whether Wong has pursued his appeal with due diligence.

25.  Paragraph 3 of the UK Practice Note (Bankruptcy: Statutory Demand: Setting Side) (No 1 of 87) [1987] 1 WLR 119:

“Where the statutory demand is based on a judgment or order, the court will not at [the stage of the application to set aside the statutory demand], go behind the judgment or order and inquire into the validity of the debt nor, as a general rule, will it adjourn the application to await the result of an application to set aside the judgment or order.”

26.  The rationale is explained in Choy Wai Bor, ex parte S Y Chan Ltd, HCB 8565/2001, unreported, 28 May 2002, at §§17 and 22.  The statutory demand is a mechanism intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified.  Where a judgment has been obtained, that would be a very difficult hurdle for the debtor to surmount.

27.  While there is no parallel direction in Hong Kong, the English practice has been endorsed and consistently followed: see Hong Kong Civil Procedure 2013, Vol 2, p 642, §I1/39 and the cases there cited.  This practice is relevant to both the second and third grounds on which Wong relies.

28.  So far as the point as to the pending appeal is concerned, the fact that Wong has lodged an appeal does not detract from the fact that Wong is bound by the March and August orders.  There is no order staying either of those orders.  In fact, Barma J had dismissed Wong’s application for a stay.  An adjournment of the setting aside application pending the outcome of the appeal would be contrary to the accepted practice.  As no good reason has been shown as to why the accepted practice should not apply in the present case, I do not consider the existence of a pending appeal as sufficient reason for adjourning this application.

(3)  The counterclaim

29.  As already explained above, it is the well-established practice in Hong Kong that the court will not re‑visit the issue of the appropriateness or otherwise of the judgment at the setting aside stage and I decline to do so.

Order

30.  Given that none of the three matters relied on has either substance or merit, I have no hesitation in dismissing the application to set aside the statutory demand and I so order.  I also make an order nisi of costs in favour of the respondent.

III.  The petition: HCB 7588

31.  The petition is founded on the statutory demand.  It is common ground that there has been no satisfaction of the sum stated in the demand.  Wong’s resistance to the petition is mainly on the ground that he has a genuine and serious counterclaim.

The counterclaim

32.  It is evident from the papers filed by Wong that the counterclaim asserted is the same counterclaim as that made before the Master.  In summary, Wong’s case is that the $1 million was not a loan from Ling but a deposit for a statue of Buddha costing $8 million (“the Ming Buddha”) that Ling had selected from Wong’s collection and that the balance of $7 million was still outstanding and payable by Ling.  It is the subject matter of HCA 2075/2012 an action he has recently launched claiming $7 million from Ling.

33.  The Master addressed this alleged sale and purchase agreement which Wong relied on in defence to Ling’s claim for repayment of the loan of $1 million and considered whether that defence was credible.  That matter is dealt with in §§102‑130 of the Master’s judgment in which she meticulously assessed the credibility of the defence in the context of the documentary evidence and affirmations before the court.

34.  Wong’s main complaint is that it was wrong for the Master to have come to a determination without hearing oral evidence.  But the application before the Master was an application for summary judgment.  At that stage, Wong was legally represented.  As appears from §103 of the judgment, counsel appeared for Wong opposed the application arguing that there were triable issues that necessitated a trial.  It is evident from the papers filed by Wong for the setting aside application that he is running the same arguments that had not found favour with either Master Ng or Mimmie Chan J.

35.  To come within rule 48(5)(a) and/or (b) of the Bankruptcy Rules, the burden is on Wong to demonstrate that there is a genuine and serious counterclaim or set‑off or that the debt is disputed on grounds which appear to the court to be “substantial”. Simply lodging a counterclaim does not discharge this burden particularly when the court has twice rejected that very counterclaim.  It is to be noted that on appeal from Master Ng, after refusing the extension of time application, Mimmie Chan J went on to say this:

“2. Even if I should entertain the appeal out of time, for all the reasons given by Master Ng and set out in her Judgment of 30 March 2012, there are no triable issues and no arguable defence, and I would have entered judgment against the defendant on the Order 14 summons.”

36.  All the issues now raised have been fully canvassed, ventilated, considered and determined against Wong on two previous occasions.  In those circumstances, it is clear beyond peradventure that Wong has failed to discharge the burden required by rule 48(5).

The appeal: CACV 198/2012

37.  Whether or not there is substance in the counterclaim, in deciding whether to adjudicate on a bankruptcy petition or whether to adjourn the petition pending an appeal from the March order on which the petition is founded, a relevant factor is whether Wong has pursued his appeal with diligence.  After all, if the March order were to go, so must the petition since, ultimately, it is founded on the March order.

38.  As previously noted, after lodging his appeal, Wong has done very little to advance it.  See §§13 and 24 above. Critically, he has failed to fix a date for the hearing of the appeal.  In Choy Wai Bor (supra) at §37, Kwan J (as she then was) adopted the test stated by Harman J in In re a Debtor (No. 799 of 1994) [1995] 1 WLR 467 at 470G, namely, “whether the appeal was being taken seriously.”  Harman J further explained that (at 470H to 471A) as follows:

“... even if there be a point of substance on appeal, if the debtor seeking the adjournment of the bankruptcy hearing because of the appeal is not prosecuting his appeal with proper diligence, that is, taking it seriously, it can be said that he does not seem to think much of his appeal, and whatever the court may think of it, if the debtor is not prosecuting it seriously, the court should not allow the bankruptcy petition to be affected by it.”

39.  I agree that that test is applicable in considering whether the appeal has been prosecuted with diligence.  Where a debtor fails to do so, a court could reasonably reach the conclusion that the debtor is not serious in pursuing his appeal to overturn the judgment founding the petition.

40.  On the facts of the present case, there can be no doubt that Wong has not been diligent in prosecuting his appeal.  That is sufficient reason to refuse any adjournment of the petition.

Miscellaneous matters

41.  A number of matters arose at the hearing that should be mentioned.  First, Wong sought to suggest that he has assets.  In his written skeleton argument, he listed four sets of proceedings commenced by him against different parties claiming damages or compensation of over $22 million in the aggregate.

42.  One set of proceedings is a claim made in HCA 2075/2012 against Ling for $7 million for breach of agreement which concerns the alleged sale and purchase of the Ming Buddha.  Leaving that claim aside, the other three sets of proceedings were commenced in the years 2000, 2005 and 2011 respectively.  No details have been provided as to those proceedings and their current status.  Ling’s solicitors have conducted a search and it transpires that Wong is not even a party to the proceedings commenced in 2005.

43.  When asked to explain why the 2005 proceedings are relevant, Wong put forward the lame excuse that he must have made a mistake over the number assigned to the proceedings.  That aside, he was unable to give the court any further information concerning the other actions.  That is indeed surprising given that one set of proceedings seems somewhat stale, having been commenced as long ago as the year 2000.

44.  Wong contended that he does indeed have assets given that he still has the Ming Buddha which he maintained he is prevented from re‑selling because of the sale to Ling.  Even on the hypothesis that there is substance to his allegation of a sale and purchase agreement (which there is not), Wong would be under a duty to mitigate his loss by selling the Buddha and suing for any shortfall, if (as is his case), Ling is in breach.  If a debtor wishes to show that he has assets, the burden is on him to adduce sufficient evidence to demonstrate that.  That Wong has failed to discharge that burden is re‑inforced by what follows.

45.  The next matter concerns his indebtedness to the Inland Revenue.  Wong produced copies of Notices for Recovery of Tax under section 76(1) of the Inland Revenue Ordinance.  They had been sent by the Revenue to HSBC on 8 October 2012, and to the Bank of East Asia Ltd and Hang Sang Bank Ltd on 19 October 2012 in respect of Wong’s unpaid taxes exceeding $26 million. The indebtedness to the Revenue apparently had increased to over $28 million by 11 December 2012.

46.  Wong sought to submit that the fact that the Revenue has not seen fit to take steps to bankrupt him is a factor in his favour which the court should take into account.  It is unclear how that fact proves that he has assets.  Rather, it reinforces the fact that he is unable to meet his debts.

Order

47.  I have no hesitation in concluding that there is no merit in any of the matters Wong relies on in resisting a bankruptcy order.  Accordingly I order that the debtor be declared bankrupt.  I also make an order nisi of costs in favour of the petitioner.