RE MIAN MOHAMMAD MAHMOOD

HCB 3782/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 3782 OF 2008

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Re: MIAN MOHAMMAD MAHMOOD, the Debtor

Ex-Parte: BUTT, AZIZ AKBAR, the Creditor

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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 9 May 2008 by Mr Aziz Akbar Butt (“the Petitioner”) against Mr Mian Mohammad Mahmood (“the Debtor”). The petition is based on the Debtor’s failure to comply with a statutory demand claiming payment of sums of HK$300,000 and US$20,000.

2.   Both the Petitioner and the Debtor are of Pakistani origin. The Petitioner is a businessman, with interests and directorships in a number of companies. One aspect of his business involves immigration consultancy, providing such consultancy services to Pakistanis in Hong Kong. According to the Petitioner, he first met the Debtor in about 2003, when he was approached by the Debtor through a mutual acquaintance as the Debtor wished to seek his assistance to apply for residency in Hong Kong. The Debtor was at that time carrying on a business of selling mobile telephones. The Petitioner says that thereafter, he and the Debtor became good friends.

3.   So far as the sum of US$20,000 is concerned, the Petitioner says that this was a loan which he made to the Debtor in 2004, at the Debtor’s request, as the Debtor was experiencing financial difficulties. The Petitioner says that he agreed to make the loan out of friendship, but having regard to the fact that the amount was not insubstantial, it was recorded in writing, in a document signed by both parties on 18 November 2004. The Petitioner says that he withdrew US$20,000 from his bank account in cash the following day, which he handed over to the Debtor. The fact of the withdrawal is recorded in the Petitioner’s bank statement, although there is no evidence of the receipt of the money by the Debtor on or around 19 November 2004. The Petitioner says that although the Debtor promised to repay the loan a month later, he never did so.

4.   As for the sum of HK$300,000, the Petitioner says that this arose from a business venture between himself and the Debtor. He says that in about October 2006, the Debtor approached him, suggesting that they should do business together in relation to the sale of mobile phones, and asked him to invest in his business. The Petitioner says that he did so, but later discovered that the Debtor had failed properly to account to him for the profits of the business. According to the Petitioner, following a discussion between the Petitioner and the Debtor on 7 March 2007, the Debtor agreed to pay the Petitioner HK$340,000 in instalments, signing an undertaking to that effect the same day. He also provided a number of postdated cheques signed by his wife to the Petitioner – but although the first two of such cheques for a total of HK$40,000 were honoured, the rest were not, leaving a balance of HK$300,000 outstanding.

5.   The Debtor disputes the debts, although he acknowledges that he failed to take steps to set aside the statutory demand. He says, however, that he never received it, and that it was not served on him personally (see paragraph 34 of his second affirmation).

6.   The Debtor says that he does not in fact owe the Petitioner any money. He says that it was in fact the Petitioner who demanded money from him, in the following circumstances. The Debtor says that when he first approached the Petitioner for assistance in relation to his immigration status (for which he paid the Petitioner), he disclosed to the Petitioner that he had overstayed his visa in the past. Thereafter, when the Debtor’s business began to prosper, the Petitioner began to harass him, threatening to disclose his previous overstaying of his visa to the authorities, and to cause him to be deported, thus losing his right to stay in Hong Kong and do business here. The Debtor says that faced with these threats, he gave the Petitioner mobile phones and amounts of cash from time to time.

7.   The Debtor says that in about November 2004, the Petitioner approached him with similar demands again, but asked for a much larger amount of money – US$20,000. The Debtor said that although he could not afford to pay that amount, he was pressed by the Petitioner to sign the document of 18 November 2004, which purported to record a loan from the Petitioner to him in that amount. He says that he did so for fear that the Petitioner would otherwise report him to the authorities, and denies ever receiving the amount of US$20,000 from the Petitioner, whether the next day or thereafter.

8.   The Debtor says that thereafter, he continued to pay money to the Petitioner (in smaller amounts) from time to time, when pressed by the Petitioner to do so. He says that the Petitioner continued to threaten to report him to the immigration authorities.

9.   In relation to the HK$300,000, the Debtor says that in early 2007, the Petitioner began contacting the Debtor’s wife, and threatening her also. He says that in early March 2007, he was told by his wife that the Petitioner had come to their home with another man and made her sign a number of cheques in his favour, for about HK$340,000 in total, and had told her to tell the Debtor to go and meet him. When he did, he was told to sign various documents which he says he was not given a chance to read. These included the document that is now relied on by the Petitioner.

10.   After this, the Debtor says that he was approached by other men, who also made threats against him and his family, which he reported to the police. Thereafter, he says, he told the Petitioner that he would not pay him anything more, and allowed the cheques which were still outstanding to be dishonoured.

11.   The Debtor says that later that year, when he went to the Immigration Department to apply for a new passport and to extend his visa, he was arrested for having overstayed in 1993, and was subsequently convicted and given a suspended sentence. He believes that the Petitioner informed the Immigration Department about his past overstaying.

12.   Thereafter, he was served with the petition on 10 July 2008 – this was, he says, the first time he was aware of the statutory demand as well. He then sought legal advice, and having already been charged and convicted in respect of his overstaying, decided to report the alleged blackmail by the Petitioner to the police.

13.   The Petitioner, not surprisingly, vehemently denies the allegations made by the Debtor. In further evidence filed by him, he refutes the allegations, suggesting that the Debtor’s case ought to be viewed with considerable scepticism for a number of reasons.

14.   At the hearing of the petition, the Petitioner was represented by Mr Chu. The Debtor, having by this time dispensed with legal representation, appeared in person. At the beginning of the hearing, the Debtor submitted a short statement of his position, to which were attached a number of documents. When the Petitioner objected to the introduction of new material at this late stage, and indicated that an adjournment would be sought to enable him to deal with it, the Debtor elected not to seek to adduce the further material.

15.   Apart from the lengthy affirmations filed by the Petitioner and the Debtor, the Petitioner had filed a number of affirmations from other witnesses, to the effect that the Debtor had admitted to them that he was indebted to (among others) the Petitioner.

16.   Mr Chu, for the Petitioner, submitted that the Debtor had failed to demonstrate the existence of a bona fide dispute of substance as to the sums claimed to be due to the Petitioner. He relied, in particular, on the following matters:-

(1) The debts were acknowledged in writing;

(2) The Petitioner had no knowledge that the Debtor had previously been guilty of overstaying in Hong Kong, and so could not have made the threats alleged;

(3) The Immigration Department would have had its own records of the Debtor’s overstaying, and would not need to have been tipped off about this by the Petitioner;

(4) The Debtor had failed promptly to report what would have been serious blackmailing or criminal intimidation to the police, casting doubt on whether or not the matters he alleged ever happened; and

(5) The allegations were unsupported by any documentary evidence disclosing any substantial dispute in relation to the debt.

17.   Mr Chu also submitted that the burden was on the Debtor to show, by evidence, that there was a genuine and substantial dispute about the debt – he drew my attention to the decision in Re Chu Wai Lun (unreported, HCB 9235/02, Deputy Judge Poon, 29 September 2003), where Deputy Judge Poon stated that making bare assertions, however serious they might sound, would not suffice. Mr Chu also relied on Ling Kam Chung v Cosmec Nominee Ltd (unreported, HCB 12052/03, Deputy Judge To, 25 August 2003) in support of an argument that it was no excuse for a layman to say that he was unaware of the need to apply to set aside a statutory demand, or of the consequences of failing to do so.

18.   In the present case, there is clearly a sharp divergence between the cases of the Petitioner and the Debtor. Apart from the documents signed by the Debtor, on which the Petitioner places heavy reliance, there is little documentary evidence available. Given the nature of the allegations, this is not, in my view, particularly surprising.

19.   For my part, I have some difficulty in seeing how the court can attempt to resolve the conflicting cases on the basis of the affirmation evidence alone. While I bear in mind the fact that the allegations of the Debtor involve allegations of serious wrongdoing by the Petitioner, the fact remains that the allegations are such as do not lend themselves to resolution without the court having an opportunity to see the witnesses and to see their evidence tested by cross-examination in the normal way. While the Debtor’s case may seem to be one which the court might be cautious about accepting, having regard to the seriousness of the allegations, I do not think that it is possible to simply dismiss them out of hand as being wholly incredible or incapable of belief. This is, of course, not to say that the Debtor would ultimately succeed in avoiding liability to the Petitioner, but only to say that this is something that should be established through proceedings in the usual way, and not through the more summary procedure adopted when dealing with bankruptcy petitions.

20.   So far as the written records of the debts are concerned, the Debtor has provided an explanation for his having signed the documents, the truth or falsity of which depends on the resolution of the underlying differences between the parties’ cases. The allegations themselves are not such as one would expect to be evidenced in documentary form. Similarly, he has provided an explanation for his failure to report the matter to the appropriate authorities promptly – namely, his fear that the Petitioner would report him to the immigration authorities. The Petitioner’s assertion that he was unaware of the Debtor having previously overstayed is contradicted by the Debtor, and is again a matter that does not lend itself to determination on the basis of affirmation evidence.

21.   So far as the Chu Wai Lun case is concerned, I do not find it of great assistance, as it appears that in that case, there were other compelling factors that led Deputy Judge Poon to reach the conclusion that he did (see paragraphs 10, 11 and 14 of the judgment). In the present case, the nature of the evidence is such that one would not expect it to be recorded in some form of documentation.

22.   As for the suggestion that the Debtor must bear the consequences of failing to seek to set aside the statutory demand, it seems to me to be relevant to bear in mind that the Debtor has said that he was unaware of it until the petition was served on him. Moreover, the consequence of failing to set it aside is not to prevent the Debtor from disputing the debt, but to deem him unable to pay his debts. Finally, it should be noted that in Ling Kam Chung, the statutory demand was based on a judgment debt, as to which there would be little scope for dispute – a situation quite different from that here, where there is no judgment (default or otherwise) in favour of the Petitioner.

23.   I am therefore of the view that the Debtor has done enough to raise a dispute of substance in relation to the debt, which cannot be resolved in the context of these proceedings, so that the appropriate course would be to dismiss the bankruptcy petition with an order nisi that the Petitioner is to pay the Debtor his costs, to be taxed on the party and party basis if not agreed. So far as the Official Receiver’s costs are concerned, these too are to be paid by the Petitioner, and may be deducted from the Petitioner’s deposit.