LIN PAI CHING v. STAR RAINBOW INVESTMENTS LTD

HCSD14/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 14 OF 2010

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BETWEEN

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JUDGMENT

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1.  This is the applicant’s application to set aside a statutory demand dated 23 March 2010 served on her by the respondent.

The debt

2.  The statutory demand is in respect of a judgment debt that arises out of an order made in HCA 2410 of 2009 on 2 March 2010.  By that order, the applicant was to pay the respondent the costs of her application for leave to appeal, assessed at HK$234,180.  It is not in dispute that the debt has not been paid.

The application

3.  On 14 April 2010, the applicant issued the present application to set aside the statutory demand.  The ground of the application is that the applicant is entitled to set off the judgment debt against a sum of $4.55 million, which the applicant claims is due from the respondent to her.

4.  Upon being served with the present application and the applicant’s affirmation in support, the respondent filed an affirmation of Miao Tai Wai David (“the respondent’s affirmation) on 14 June 2010 to oppose the application.  At the direction hearing on 18 June 2010, on the applicant’s request, leave was granted to her to file and serve an affirmation in reply within 21 days (expiring on 9 July 2010) and the application was adjourned to a date to be fixed for arguments.

5.  On 29 June 2010, the application was fixed for hearing on 16 July 2010.  Although the applicant was absent at the appointment to fix date, the court sent out Notice of Hearing to her on 30 June 2010. 

6.  On 5 July 2010, the applicant faxed a letter to the court requesting for a further 14 days to file her affirmation.  In order not to jeopardise the hearing date of 16 July 2010, I only granted the applicant an extension up to 13 July 2010. On 13 July 2010, however, the applicant wrote again to the court requesting to adjourn the hearing so as to accommodate her person and family commitments.  By letter dated 14 July 2010, the applicant further indicated she would return from Taiwan to Hong Kong after three weeks and she would need another two weeks to prepare her affirmation.  The respondent opposed the adjournment and made submissions on it by letter dated 15 July 2010.  Considering it was the applicant’s application for adjournment, I granted the adjournment and refixed the hearing to 18 August 2010.  The time for the applicant to file and serve her affirmation in reply was further extended to 9 August 2010.

7.  On 9 August 2010, the applicant wrote again to the court stating that as the respondent’s affirmation was in English and contained legal terms, she had to apply for legal aid.  She asked to extend the time for filing her affirmation to after she had obtained legal aid.  On 10 August 2010, I made an Unless Order that unless the applicant filed and served her affirmation by 4 pm on 13 August 2010, the applicant shall not entitled to adduce affirmation in reply to the respondent’s affirmation.  The order was communicated to the applicant by fax in the morning of 10 August 2010.

8.  On 12 August 2010, the applicant faxed a letter to the court stating it was because she required time to obtain assistance on dealing with the respondent’s affirmation that she had to apply for legal aid.  The court replied by letter on the same day, pointing out that the applicant should act in accordance with the Unless Order.

The legal aid stay

9.  The applicant had in fact by then already applied for legal aid.  On 11 August 2010, the Director of Legal Aid filed a Memorandum giving notice of the applicant’s application for legal aid.  In accordance with section 15 of Legal Aid Ordinance and Regulation 7A of the Legal Aid Regulations, there is an automatic stay of the proceedings herein for 42 days. 

10.  At the hearing on 18 August 2010, upon the respondent’s application, I ordered that the statutory stay be lifted and gave oral reasons for the decision.  In short, I am of the view that the legal aid application is a last attempt by the applicant to defer the hearing.  Having regard to the history of the proceedings herein as outlined above, it is clear that the applicant has been trying to defer the substantive hearing of her application.  At the same time, despite several requests for extension of time to file her reply affirmation, the applicant never indicated she had difficulties understanding and dealing with the respondent’s affirmation.  It was as late as 9 August 2010 that this was raised for the first time.  Since 14 June 2010 when she was served with the respondent’s affirmation, there was ample time and opportunity for the applicant to consider and tackle the respondent’s affirmation.  There was however no or no satisfactory explanation as to why the applicant did not apply for legal aid until shortly before the substantive hearing.  In the circumstances, the irresistible inference is that the legal aid application was an attempt to force upon the court an adjournment of the hearing.

11.  In coming to that view, I also noted that the applicant had in other related proceedings also made late legal aid applications hoping to bring about adjournment of hearing: see the Decisions of Harris J on 29 January and 24 May 2010 in HCCW 721 of 2009. 

12.  Harris J had also observed in his Decisions that the applicant, despite acting in person, had access to legal assistance.  Her brother-in-law, who is a practising solicitor, has been heavily involved in litigations concerning the property at 11 Changsha Street, Kowloon.  HCA2410 of 2009 (under which the debt herein arose) is one of these litigations.  The applicant had also informed Harris J she had legal assistance from another solicitor.

13.  In conclusion, I am of the view that the legal aid application was made for the collateral purpose of deferring the hearing and that it is neither unjust nor prejudicial to the applicant to lift the legal aid stay.

Reasons for decision on the application

14.  I turn now to the merits of the application to set aside the statutory demand. 

15.  The applicant’s case rests on a Provisional Agreement for the sale and purchase of the property at No.11 Changsha Street, Kowloon (“the Property”).  The Provisional Agreement was made between Labour Buildings Limited (now in liquidation) (“LBL”) as the vendor and the respondent as the purchaser.  China States Limited (“China States”) and the applicant are also signatories to the agreement. The applicant’s case is that under the Provisional Agreement, the respondent was obliged to grant a five-year lease of the Property to the applicant.  In accordance with the terms of the Provisional Agreement, the respondent had deducted from the purchase price a sum of $4.55 million as one month’ rental and rental deposit.  The applicant claims that the respondent has refused to grant the lease, but at the same time had kept the $4.55 million.  The applicant therefore says she is entitled to a set-off that will extinguish the debt she owed to the respondent.

16.  There are a number of fundamental difficulties and fallacies in the applicant’s case.  First, the sale and purchase of the Property was between LBL and the respondent.  Although the applicant and China States had signed the Provisional Agreement, neither of them is a party to the sale and purchase of the Property.   As far as the purchase price is concerned, the applicant has no personal right or entitlement to it.  Therefore, even assuming the respondent is not entitled to deduct or withhold the $4.55 million, since it is part of the purchase price, the sum should be paid over to the vendor (i.e. LBL) and not the applicant personally. 

17.  Second, the applicant claims that the Provisional Agreement had provided that after five years, the respondent has to pay over this sum of $4.55 million to her and/or China States.  There is however nothing to this effect in the Provisional Agreement.  Under the Provisional Agreement, the only provisions dealing with this sum of $4.55 million are clause 9(c) and 9(d), which state that $3.9 million and $650,000 (being the rental deposit and one month rent for the lease to be granted by the respondent) are to be deducted from the purchase price.  The entire Provisional Agreement is silent on what should be done about the $4.55 million deducted from the purchase price.  Presumably, had the lease been granted and executed, $650,000 would be applied towards the payment of one-month rent whereas the balance of $3.9 million would become the rental deposit under the lease and fall to be dealt with in accordance with the terms in the lease.  The upshot is there is no provision in the Provisional Agreement to the effect that the $4.55 million were to be paid over to the applicant or China States, whether after the end of the five-year lease or in the event no lease was executed.                  

18.  Third, the applicant asserts that the respondent is obliged under the Provisional Agreement to grant a five-year lease to her.  This is not borne out by the Provisional Agreement at all.  As I had held in HCA 2410 of 2009, clause 9 only obliged LBL to procure China States to enter into a lease with the respondent in the form stipulated by the respondent; it is silent as to whether the respondent was under a duty to grant a lease to China States.  In any event, even if the respondent were obliged to grant a five-year lease, the lease would be granted to China States and not to the applicant.  This point is plainly recognised by LBL and China States in that in the draft lease they furnished to the respondent in December 2009, the tenant was China States and the applicant had signed on behalf of China States.

19.  Fourth, the applicant stresses that she is the authorised attorney of China States. However, given that she and China States are two separate legal entities, the fact that she is an authorised attorney will not confer upon her any personal entitlements to the rights enjoyed by China States.  The applicant further refers to clause 8(b) of the Provisional Agreement, which requires her as the authorised attorney of China States to vacate or discharge the registration of a charging order against the Property.  She appears to suggest that because she had incurred the debt by reason of her capacity as the authorised attorney of China States in that HCA2410/2009 was to enforce the obligation under clause 8(b) of the Provisional Agreement, she should be entitled to draw on any rights or entitlements China States may have in the $4.55 million or under the Provisional Agreement.  This line of thinking or argument is wholly misconceived.  In law and in fact, China States and the applicant are two separate entities with separate and distinct rights and obligations.  In addition, as mentioned above, China States has no right to receive from the respondent the $4.55 million or part of it, whether under the Provisional Agreement or as a matter of legal analysis.

20.  Fifth, the applicant has raised the issue that it was the respondent who refused to enter into a five-year lease.  She also said in her submissions that she had been told by the respondent’s staff to put the draft lease sent by the respondent’s solicitors to one side and to concentrate on the completion of the sale of the Property.  Mr Lee for the respondent is correct to point out that what the applicant said in submissions is not evidence.  What is more important is that the issue of whether it was China States or the respondent who refused to enter into a lease is irrelevant to the present application.  In considering the applicant’s case of a set-off, what is most pertinent is whether the applicant personally has any right or entitlement to the $4.55 million so that it can be set-off against the judgment debt in question.

Conclusion

21.  For the reasons above, the applicant has failed to make out her case that there is any sum due from the respondent to her which she may set-off against the debt mentioned in the statutory demand.  The application to set aside the statutory demand has no merit and is dismissed.  The respondent is at liberty to issue a bankruptcy petition against the applicant after 21 days from the date of this order.  

22.  Applying the normal rule of costs follow event, there is an order nisi that the costs of these proceedings be paid by the applicant to the respondent to be summarily assessed.  For the purpose of the assessment, the respondent shall within 7 days after the costs order nisi becomes absolute, lodge with the court and serve on the applicant a statement of costs for summary assessment.  The applicant may within 14 days thereafter, lodge with the court and serve on the respondent her comments on the statement of costs.  Within 7 days thereafter, the respondent shall lodge with the court and serve on the applicant its responses to the applicant’s comments (if any).