RE SY CHIN MONG, STEPHEN

HCB1772/2009 & HCSD31/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO.1772 OF 2009

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Re:  SY CHIN MONG STEPHEN

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AND

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO.31 OF 2006

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(Heard Together)

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D E C I S I O N

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1.  Before the court today are two applications brought by the applicant.

2.  The first is the application to stay the order that I made on 13 January 2009 (“the Order”), dismissing his application to set aside the statutory demand and authorizing the respondent to present a bankruptcy petition, pending appeal.  This application is misconceived because the Order had been already executed when the respondent presented the petition on 10 February 2009.  I will dismiss it with costs.

3.  The second application is to stay the bankruptcy proceedings pending appeal against the Order.  I am told that a date will be fixed for the hearing of the appeal today.

4.  Under section 104 of the Bankruptcy Ordinance, Cap.6, the court may, for sufficient reason, stay the bankruptcy proceedings.  What amounts to a sufficient reason must depend on the circumstances of the case.

5.  Here, the applicant seeks to argue that he has a meritorious appeal against the Order.  Mr Chan, SC, advanced effectively two main points in support.  First, he argued that I had applied the out-dated test when rejecting the applicant’s case on equitable set off.  See paragraphs 25 to 26 of the Decision that I handed down on 13 January 2009 (“the Decision”).  He cited Bim Kemi v Blackburn [2001] 2 Lloyd’s Rep 93 and submitted that the right test should be (a) whether the cross-claim flows out of and is inseparably connected with the dealings and transactions which give rise to the claim and (b) whether it would be manifestly just to allow a set-off.

6.  Mr Liu, for the respondent, referred me to Pacific Century Insurance Company Limited (formerly known as Top Glory Insurance Company (Bermuda) Limited) v Cheng Hon Chung, Court of Appeal, unreported, 27 December 2002, where Ma JA (as he then was) accepted as a general statement of the nature of an equitable set off being :

“where a cross-claim for a sum of money is so closely connected with a claim that it goes to impeach the plaintiff’s title to be paid and raises an equity in the defendant, making it unfair that he should pay the plaintiff without deduction, the general rule is that the defendant may deduct with impunity the amount of the cross-claim, or raise it by way of equitable defence when sued.”

7.  These two authorities were not cited to me at the hearing on 16 December 2008 for the application to set aside the statutory demand.  The general statement quoted and accepted by the Court of Appeal in Pacific Century was accordingly not referred to in the Decision.  However, when properly understood, what I applied in the Decision is in substance the same test.  And as I had said in paragraph 26, the debt the respondent allegedly owed to B.T. China arose out of the Agreement while the judgment debt the applicant owed to the respondent arose out of the Order of Reyes J.  I was therefore unable to accept that there was a close connection between the two that would trigger the application of the equitable set off.

8.  So I do not think in the appeal based on the point about the equitable set off is arguable with a reasonable prospect of success.

9.  The second point raised by Mr Chan is on “payment in kind”.  It is basically a rehearsal of the same argument advanced before which had, for the reasons stated in the Decision, been rejected.  Having considered the matter again, I am still unable to see any substance in this point.

10.  For these reasons, despite the eloquent submissions of Mr Chan, I am not convinced that the applicant has an arguable appeal with a reasonable prospect of success.  For this reason alone, the application for stay of the bankruptcy proceedings must fail.

11.  For completeness, I will deal with the other two additional points raised on the applicant’s behalf.  First, it is argued that the appeal will be rendered nugatory if there is no stay of the bankruptcy proceedings and the applicant is forced to pay the judgment debt.  For it is highly unlikely that he will be able to recover the same from the respondent, a Mainland company, even if he succeeds in the appeal later.

12.  However, the mere fact that an appeal will be rendered nugatory is not sufficient if the applicant does not have an arguable appeal.  Further, even if he does, I think the fairest way to proceed is to impose a condition of stay requiring the applicant to pay into court a sum of money as security for the respondent’s claim.  It would address the applicant’s concern that he will not be able to recover his payment if he wins the appeal later.  It would also provide sufficient security for the respondent’s claim so that if the applicant’s appeal fails the respondent may resort to the payment into court without ado.

13.  The second additional point is that the applicant is the chairman of a listed company.  The bankruptcy proceedings will seriously affect his reputation and cause irreparable damage to that listed company.  That may well be the case but that alone, in the absence of an arguable appeal, is insufficient.

14.  This application for stay of the bankruptcy proceedings is dismissed.