RE CHIU CHIT

HCB 402/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 402 OF 2012

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J U D G M E N T

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1.  This was the hearing of a bankruptcy petition presented on 20 January 2012 by the Bank of China (Hong Kong) Limited (“the Creditor”) against Ms Chiu Chit (“the Debtor”). The petition is based on two allocaturs under which a number of costs orders made in favour of the Creditor against the Debtor were taxed. One allocatur was dated 17 June 2011, and was in the sum of HK$602,338.66. It related to costs orders made by Her Honour Judge Mimmie Chan (as she then was) against the Debtor arising out of an unsuccessful District Court action brought by the Debtor against the Creditor (DCCJ 4041/2007) and two unsuccessful applications by the Debtor to the District Court for leave to appeal against judgments given by the judge in those proceedings. The other allocatur (which was in fact given earlier than the first mentioned one) was dated 31 January 2011, and was in the sum of HK$132,770.33. It related to the costs of the Debtor’s unsuccessful applications to the Court of Appeal for leave to appeal against the judgments in DCCJ 4041/2007 (these were HCMP 2234/2009 and HCMP 584/2010 respectively).

2.  According to the petition, a statutory demand seeking payment of these sums and accrued interest was issued on 6 September 2011, and was eventually served on the Debtor by way of substituted service on 29 September 2011.  As at 30 September 2011, the total amount of the debt (inclusive of accrued interest up to that date, and giving credit for a small amount of HK$3,176.59 recovered under a garnishee order) was HK$828,910.76. Interest continued to accrue on the principal amounts mentioned above at judgment rate from 1 October 2011 onwards.

3.  The background to the debt can be briefly summarised as follows:-

(1)   On 4 July 2007, the Debtor visited a branch of the Creditor to make a remittance of US$25,000.00 by telegraphic transfer.  The purpose of the remittance was to send funds to a United States brokerage company called TD Ameritrade Inc (“TDA”) with which the Debtor maintained a margin account for the purpose of trading in United States securities.  Although the Debtor informed the Creditor’s staff handling the remittance application that the funds needed to be remitted urgently, she did not make known the particular purpose of the remittance.

(2)   Unfortunately, the remittance failed.  The reason for this appears to have been because of the way the remittance application form was formatted by the Creditor and filled in by the Debtor.  It seems that although the Debtor correctly identified the beneficiary’s bank as the First National Bank of Omaha (“FNB”) (which was TDA’s bank), instead of identifying TDA as the beneficiary of the transfer and stating its account number with FNB, she identified herself as the beneficiary and gave, as the beneficiary’s account number, the number of her own trading account with TDA.  She did, however, include details of TDA’s account number with FNB elsewhere in the form, in a section which the Creditor said was intended for with instructions as to how charges associated with the remittance should be dealt with.

(3)   As a result of the failure of the remittance, the Debtor’s account with TDA fell below the margin requirements imposed by TDA, and the Debtor’s position with TDA was closed out, resulting in the crystallisation of what had previously been paper losses to the Debtor.

(4)   Being dissatisfied with the services provided by the Creditor, the Debtor instituted DCCJ 4041/2007 against the Creditor, alleging that the failure of the remittance had been due to a breach of contract by, or the negligence of, the Creditor.  The damages sought by the Debtor were US$72,519.31, made up of losses incurred as a result of the closing out of her account with TDA and the loss of profits that the Debtor said would have been made in future had her account with TDA not been closed out.  There were also claims for the cost of the remittance (US$38.50) and loss of interest on the remittance amount (US$2.71).

(5)   The proceedings were tried in two parts.  The first part of the trial took place between 20 and 23 July 2009, and resulted in a judgment dated 21 August 2009 in which Judge Chan held that while the Creditor had not been in breach of contract, it had been negligent in the execution of the Debtor’s instructions.  However, the judge also found that the Debtor was partly to blame because of her identification of herself as the beneficiary of the transfer instead of TDA, and the provision of her own account number with TDA instead of TDA’s account number with FNB as the beneficiary’s account number, and held that responsibility should be apportioned as to 30% to the Creditor and as to 70% to the Debtor.  She therefore ordered that the Creditor should pay the Debtor 30% of the damages suffered by the Debtor, such damages to be assessed at a subsequent hearing.

(6)   The assessment of damages took place on 19 and 20 January 2010.  In a judgment dated 27 January 2010, Judge Chan held that the damages claimed in respect of the losses on closing out of the Debtor’s account with TDA and the future loss of profit were too remote to be recovered, whether in contract or in tort.  She also held that as the Creditor had subsequently effected a further remittance at no charge, the claim in respect of the bank charges also failed.  She accepted, however, that damages should be awarded in respect of the loss of interest on the remittance, but as the Debtor was only entitled to recover 30% of her damages, such damages only amounted to US$0.81.

(7)   In the light of the fact that the Debtor had ultimately recovered virtually nothing from the proceedings, Judge Chan awarded the entire costs of the action to the Creditor.  The Debtor sought leave to appeal against both judgments of Judge Chan (the application in respect of the judgment on liability had been made prior to the assessment of damages, but was made out of time).  Both applications for leave were dismissed by Judge Chan, on 27 October 2009 and 11 March 2010 respectively.  In each case, costs of the application for leave were awarded against the Debtor.  These three costs orders formed the basis of the allocatur dated 17 June 2011.

(8)   Having failed to obtain leave to appeal from Judge Chan, the Debtor sought leave to appeal from the Court of Appeal.  In HCMP 2234/2009, she sought leave to appeal against the judgment on liability, while in HCMP 584/2010, she sought leave to appeal against the judgment on quantum.  These applications were eventually heard together on 25 June 2010. The Court of Appeal (Tang VP and Cheung JA) considered the arguments advanced by the Debtor on both liability and quantum, and concluded that they had no reasonable prospects of success, for the reasons given in the decision of the court dated 5 July 2010.  Accordingly, leave to appeal was refused, and the Debtor’s applications for leave were dismissed with costs.  It was this costs order that formed the basis of the allocatur dated 31 January 2011.

(9)   Thereafter, the Debtor unsuccessfully sought to appeal to the Court of Final Appeal.  Her application for leave was refused by the Court of Appeal by its decision of 5 November 2010.  An application for leave made to the Court of Final Appeal was dismissed by that court on 22 August 2011, pursuant to rule 7(2) of the Hong Kong Court of Final Appeal Rules, Cap 484.

4.  On the Debtor having exhausted all avenues for appeal against the judgments of Chan J, the Creditor issued the statutory demand, and thereafter presented the petition.

5.  The first hearing of the petition took place before me on 28 March 2012.  Prior to the hearing, the Debtor had filed two affirmations, both dated 17 March 2012, in opposition to the petition.

6.  In the first of these, she submitted a declaration in which she stated that she was not indebted to the Creditor because she had not borrowed any money from it, although she appeared to acknowledge that there had been costs orders made against her.  She also stated that she, and the chairman of a clansmen’s association of which she was a member, had written to senior officers of the Creditor to complain about its pursuit of the Debtor in respect of the costs orders.  These letters were also exhibited to this affirmation, and did little more than to rehearse the arguments that the Debtor had advanced in respect of her claim against the Creditor in DCCJ 4041/2007.

7.  In the Debtor’s second affirmation of 17 March 2012, she exhibited a document which contained her grounds of objection, together with certain other documents which she said showed that similar instructions given to her by other banks had resulted in funds being successfully remitted.  The grounds of objection set out, in greater detail than the annexures to the first affirmation had done, the Debtor’s case in respect of DCCJ 4041/2007.  She also complained of Judge Chan’s refusal to permit her to adduce in evidence the documents concerning the remittances which she said she had made successfully through other banks, and criticised various aspects of Judge Chan’s judgment on liability.  She also stated that she had no funds with which to meet the costs orders, and that making her bankrupt would not result in any recovery for the Creditor, so that there was no point in making a bankruptcy order against her.

8.  At the hearing on 28 March 2011, I gave directions for the Creditor to file evidence in reply, and ordered that no further evidence should be filed without the leave of the court.  Notwithstanding this, the Debtor filed two further affirmations dated 31 March and 2 April 2012. Although the Creditor objected to these further affirmations being relied upon, I allowed them to be referred to de bene esse.  The affirmation of 31 March 2012 reiterated that the Debtor had not borrowed any money from the Creditor, and submitted that she should not be punished for her “mistakes” by being made bankrupt.  She also exhibited letters written to the court and others, in which she again repeated her contentions in the District Court action, this time alleging that the Creditor had colluded with the judge to obtain judgment against her, when it was (according to her) the Creditor who had been in the wrong.  The affirmation of 2 April 2012 appears only to correct what were said to be typographical errors in some of the annexures to the 31 March 2012 affirmation.

9.  At the hearing, the Creditor was represented by Ms Pang, while the Debtor appeared in person.

10.  The Debtor sought to rely on a further affirmation filed on 11 September 2012, in which she exhibited many of the documents already exhibited to her earlier affirmations, along with further correspondence between herself and various parties, such as replies to the letters she had written on 31 March 2012, and further letters of complaint to the Chief District Judge and Chief Executive.  I have also had regard to these matters on a de bene esse basis, as they do not add significantly to the points made by the Debtor in her earlier affirmations, and again do little more than to restate her case advanced unsuccessfully in the District Court proceedings.

11.  The Debtor made submissions along the lines foreshadowed in her affirmations, complaining that the judgment on liability was wrong, particularly as certain relevant evidence had been excluded by the judge, and reiterating that she did not owe the Creditor any money, never having borrowed anything from it.  She also submitted that no bankruptcy order should be made against her, as it would serve no useful purpose.

12. Apart from these points, the Debtor also made a number of further submissions at the hearing, as follows:-

(1)   She said that she was taking steps to have the situation rectified and had not exhausted all avenues open to her, and submitted that she should not be made bankrupt while this was ongoing.  She indicated that these steps included complaints to the Judiciary and Chief Executive (to which it would seem replies had already been received which did not take the matter further), and that she would thereafter wish to take steps to bring the matter to the Central Government authorities on the Mainland.

(2)   She also questioned the powers of attorney relied upon by the Creditor in the verifying affirmation supporting the Petition, saying that she considered that they were very wide, and did not authorise these proceedings.

(3)   Finally, she said that she did not agree with the amount of costs awarded against her under the allocaturs.

13.  It is well established that in order to resist the making of a bankruptcy order, the Debtor must demonstrate, by sufficiently precise evidence, that there is a bona fide dispute in relation to the debt or debts on which the petition is based.

14.  Dealing first with the argument that the judgments entered against her were wrong, it must be borne in mind that the debts on which the petition is based are costs orders made against the Debtor following a trial, and applications for leave to appeal, that were fully argued, with the Debtor having taken part in the hearings at every stage.  Where a bankruptcy petition is based on a judgment debt (as is the case here), it is not the function of the bankruptcy court to look into the underlying merits of the judgment entered against the Debtor.  It is only in exceptional cases, where it can be demonstrated that the judgment against the Debtor has been tainted by fraud, or otherwise involves a clear miscarriage of justice, that the bankruptcy court will go behind that other judgment.

15.  Here, the Debtor has put forward no evidence which would come close to suggesting that any of the judgments on which the costs orders were based were tainted by fraud, or that there had otherwise been a miscarriage of justice.  The bare assertion, made in the letters exhibited to the Debtor’s 31 March 2012 affirmation, that the Creditor had colluded with the trial judge, is wholly lacking in particularity and is unsupported by any evidence.

16.  Further, the complaint that certain evidence was excluded by the trial judge does not assist the Debtor, since this was a matter that (if it was an error) could and should have been raised in the context of the applications for leave to appeal, in which the Debtor’s arguments were given full consideration by the Court of Appeal.  The Debtor has had every opportunity to ventilate her arguments, but has exhausted all avenues of appeal.  It is not open to her to re-hash those arguments in the context of these proceedings.

17.  In any event, it is to be noted that all of the Debtor’s complaints go to the question of the extent to which the Creditor should have been found to have been negligent, and to which she could properly have been found to be partly to blame for the remittance having failed.  The documents which she said had been excluded went only to this point.  But even if it had been held that the Creditor was wholly to blame for the failure of the remittance, the position would still have been that the only item of damage for which the Debtor could recover was the US$2.71 of lost interest, all other items of damage having been ruled by the judge (with whom the Court of Appeal agreed) to have been too remote.  In these circumstances, the Debtor would still have failed to obtain any meaningful recovery, and the costs orders made would have been the same.

18.  The Debtor’s statement that she has never borrowed any money from the Creditor does not assist her – the debts here are not said to arise from any loan, but from the costs orders made against the Debtor on her failure to achieve any meaningful recovery from the Creditor in her claim against it.  In such circumstances, the Creditor was to be regarded as the successful party in that litigation, and in accordance with the usual principles applicable to the award of costs, was entitled to have its costs of defending the proceedings paid by the Debtor, who was the unsuccessful party. Those costs, once quantified, were a debt owed by the Debtor to the Creditor, who was entitled to seek to recover them by way of bankruptcy proceedings if necessary.

19.  The Debtor’s suggestion that a bankruptcy order against her would serve no purpose is not one that can assist her either. Indeed, the fact that she is, on her own admission, unable to pay her debt to the Creditor is good reason for the making of a bankruptcy order.

20.  As to the Debtor’s further points raised in the course of her submissions, these can be dealt with quite briefly:-

(1)   As to her suggestion that no order should be made against her because she was taking other steps to rectify the position, or challenge the judgment, this is not a matter that can justify not making a bankruptcy order if that would otherwise be the appropriate course to take.  As I have observed, the Debtor has exhausted all avenues of appeal against the judgment of the trial judge, and there are no further legal proceedings by way of appeal that can be taken in that respect.  In those circumstances, there is no basis for further delaying the making of a bankruptcy order.

(2)   As to the powers of attorney, there is nothing in this point. The powers of attorney and deeds of delegation were executed so as to authorise the bringing of proceedings.  There is nothing to suggest that there was any irregularity or invalidity in relation to any of them, and on their face, they appear to authorise the presentation of the petition in this case (see, for example, clause 3 of the first power of attorney exhibited).

(3)   As to the suggestion that the Debtor disputes the amount of the costs awarded against her, this was not a matter that had been raised in any of her affirmations, and there was no evidence as to what, if any, steps had been taken by her in this regard.  I was informed by Ms Pang that the Debtor had in fact filed objections to the bills of costs lodged by the Creditor, had participated in the taxation process, and had unsuccessfully sought first to stay, and then to review, the taxations.  If that is right, there is no merit in the Debtor’s point.  Even if that were not the case, the fact is that she is now well out of time for mounting any challenge to the outcome of the taxations.  This point therefore does not assist the Debtor either.

21.  For all of these reasons, I do not consider that the Debtor has demonstrated any basis for resisting the making of a bankruptcy order against her, and I shall therefore make the usual bankruptcy order, with costs, against the Debtor.

22.  So far as costs are concerned, the Creditor seeks a gross sum assessment of its costs, and has provided a statement of such costs. Having considered that statement, and heard the Debtor’s submissions as to it, I have come to the view that, while the charging rates used are in line with the amounts allowed on taxation for practitioners of the seniority indicated, the amount of time claimed for is on the high side, for what was, on any view, a very straightforward bankruptcy petition.  There appears to have been an element of duplication of work as between the various fee earners involved, without any clear explanation of why as many as four different fee earners should have been involved in these proceedings.  In my view, the appropriate amount of costs to be recovered is as follows:-

(1)   In respect of Manual Work, a total sum of HK$2,500;

(2)   In respect of Communications, HK$12,000 for communications with the client (the extent of which appears to be on the high side), HK$4,000 for communications with the Debtor, and a total of HK$2,000 for communications with the court and the Official Receiver, giving a total of HK$18,000 for this heading;

(3)   In respect of Professional Work, the amount of time spent on each item is on the high side, and I would allow a total of HK$20,000; and

(4)   In respect of Disbursements, the full amount claimed of HK$14,375.

This gives a total of HK$54,875, and I accordingly assess the Creditor’s costs of this petition in that amount.