RE CHOY WAI BOR

HCB 8565/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 8565 OF 2001

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J U D G M E N T

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1. This is a petition for bankruptcy based on a judgment debt obtained by the petitioner, S Y Chan Ltd., against the debtor, Choy Wai Bor, in High Court Action No. 1731 of 2000 on 26 June 2001 in the sum of HK$6 million with interest at the judgment rate from 8 April 1999 until payment. The claim was in respect of a dishonoured cheque. The statutory demand was issued on 10 September 2001 and served on the debtor personally the same day, claiming an amount due of HK$7,718,722.19 as at the date of the demand. The petition herein, presented on 8 October 2001, was served on the debtor personally on 17 October 2001.

2. Two broad grounds were relied on by the debtor in opposing the petition. Firstly, it was contended that the debtor has a defence to the petitioner's claim on the dishonoured cheque. He has lodged an appeal to the Court of Appeal against the summary judgment in the High Court Action and his appeal is a bona fide appeal in the sense that the grounds of appeal are not unarguable. Secondly, it was alleged that the debtor has a genuine cross claim which is not less than the petitioning debt. The debtor seeks an order to dismiss the petition, alternatively, to stay the bankruptcy proceedings pending the determination of his appeal to the Court of Appeal and/or his counterclaim against the petitioner and others.

3. Regarding the pending appeal, the petitioner's position was as follows. Firstly, the bankruptcy court should not go behind the judgment; secondly, the pending appeal has not been taken seriously by the debtor or pursued with due diligence; thirdly, the appeal is not a bona fide appeal; and fourthly, if the court were minded to stay the bankruptcy proceedings, a stay should only be granted on condition that the debtor is to provide full security for payment of the judgment debt of HK$6 million.

4. In respect of the alleged cross claim, the petitioner has raised a preliminary point of res judicata in that the debtor had earlier raised the matter of a cross claim in his application to set aside the statutory demand, which was dismissed by Yuen J (as she then was) on 3 October 2001 without a hearing under rule 48(1) of the Bankruptcy Rules, Cap. 6A, "for want of grounds and as there has been no stay of execution". It was submitted that the debtor was precluded from raising the same point in the bankruptcy petition, as this would be res judicata and an abuse of the process of the court. In the alternative, if it should be held that res judicata does not apply in this instance, the petitioner contended that there is no genuine cross claim.

5. On the issue relating to res judicata in the context of bankruptcy proceedings, as there are conflicting decisions in England on this, I have invited submissions from the Official Receiver.

6. The background matters not in dispute may be set out as follows.

The background

7. In 1997, the debtor and Chan Sai Ying agreed to develop jointly a property at Nos. 23 to 25, Centre Street, Sai Ying Poon, Hong Kong and to that end to buy out the other shareholders of Manhattan Charm Limited ("Manhattan Charm"), the registered owner of the property.

8. On 23 July 1997, a loan agreement ("the Loan Agreement") was made between (1) McCall International (95) Limited ("McCall") and Antrix Limited ("Antrix") as the borrowers, (2) the petitioner as the lender, and (3) the debtor and Chan Sai Ying as the guarantors. Clause 1 provided that in consideration of the petitioner advancing HK$16 million to the borrowers, the borrowers jointly and severally agreed to repay the loan to the petitioner within one year with interest at the stipulated rate payable monthly in arrears. Clause 5 provided that on the instruction of the borrowers, the petitioner was to pay HK$10 million of the loan to McCall and the balance to Antrix. By clause 3, the debtor and Chan Sai Ying jointly and severally agreed with the petitioner to make good any default of the borrowers in the payment of the loan and interest thereon. McCall was a company controlled by Chan Sai Ying and Antrix was a company controlled by the debtor. The monies advanced to these companies were to assist them to buy out the other shareholders of Manhattan Charm.

9. On 6 August 1997, of the ten issued shares of Manhattan Charm, five were held by McCall and five were held by Antrix.

10. On 4 August 1998, a loan deed ("the Loan Deed") was made between (1) Manhattan Charm as the borrower, (2) the petitioner as the lender, and (3) the debtor and Chan Sai Ying as the guarantors. Clause 1 provided that in consideration of the petitioner advancing HK$12 million to Manhattan Charm, the latter agreed to repay the loan by 31 March 1999 with interest at the stipulated rate payable monthly in arrears. By clause 3, the debtor and Chan Sai Ying jointly agreed with the petitioner to make good any default of Manhattan Charm in the payment of the loan and interest, provided that the liability of each of them should be limited to one half of the loan plus one half of the interest and expenses.

11. Also on 4 August 1998, a deed of assignment ("the Deed of Assignment") was made between Antrix as the assignor and the petitioner as the assignee in which it was recited that Manhattan Charm was indebted to Antrix in the sum of HK$6 million being part of the loans by Antrix to Manhattan Charm and Antrix had agreed with the petitioner to assign the debt owed by Manhattan Charm to the petitioner at the price of HK$6 million. The Deed provided that Antrix assigned to the petitioner the debt owed by Manhattan Charm for the consideration of HK$6 million and Antrix confirmed that thereafter it had no right to claim against Manhattan Charm in respect of the debt. Notice in writing of the assignment of the debt was given by the debtor on behalf of Antrix to the petitioner on the same day.

12. It was the petitioner's case in the High Court Action that Manhattan Charm had failed to repay to the petitioner the loan of HK$12 million and the debtor was liable as a guarantor to make good the default to the extent of half of the liabilities under the Loan Deed. It was to discharge this obligation that the debtor delivered to the petitioner in January 1999 his cheque dated 8 April 1999 for the amount of HK$6 million and it was dishonoured when presented for payment. The writ on the dishonoured cheque was issued on 17 February 2000.

13. The petitioner applied for summary judgment in the High Court Action. On 26 June 2001, Recorder Kwok, SC allowed an appeal from the Master's decision giving unconditional leave to defend and ordered final judgment be entered in favour of the petitioner in the terms that I have set out earlier (see S Y Chan Ltd. v. Choy Wai Bor [2001] 3 HKLRD 145). In summary, it was held by the Recorder that based on a long line of authorities, the debtor could not adduce extrinsic oral evidence to contradict the written terms of the cheque and the transfer of the cheque was not a "conditional delivery" under section 21(2)(b) of the Bills of Exchange Ordinance, Cap. 19.

14. On 28 July 2001, the debtor filed a Notice of Appeal against that decision. The statutory demand was served on him on 10 September 2001 and he applied to set aside the demand on 28 September 2001. His application was dismissed by Yuen J on paper on 4 October 2001, as I have mentioned earlier. The petition was presented on 8 October 2001. On the same day, the debtor issued a summons in the High Court Action seeking a stay of execution of the judgment pending his appeal in CACV No. 1792 of 2001. On 19 October 2001, his solicitors wrote to the petitioner's solicitors stating that in view of the fact that the petition has been presented, the debtor considered it was no longer necessary to apply for a stay of execution of the judgment. I fail to see why that should be the case. Be that as it may, by consent, the debtor was given leave to withdraw his summons for stay of execution pending appeal on 22 October 2001.

15. No steps were taken by the debtor to obtain a date for the hearing of his appeal. On 8 January 2002, the Registrar of Civil Appeals wrote to the debtor's solicitors stating that they had not complied with the Practice Directions in that they had not given an estimated length of the appeal, nor had they complied with the requirements showing why it was impracticable to instruct other counsel when they sought a hearing date on the ground of their counsel's convenience. The debtor's solicitors did not provide an estimate of the length of the appeal until three months later, three days before the hearing of the petition and no hearing date of the appeal had been given when I heard the petition.

If the bankruptcy court should go behind the judgment

16. I propose first to deal with the submission, made by Mr Alan Leong, SC on behalf of the petitioner, that where a statutory demand is based on a judgment, the bankruptcy court will not go behind the judgment 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. In support of this, he cited Re Malcolm Maydwell, ex parte WFM Motors Pty Ltd., HCSD 5 and 13 of 1998 and HCB 964 of 1998, 15 January 1999; Re a debtor (no. 657/SD/91), ex parte Inland Revenue Commissioners v. The debtor [1993] BCLC 180; and Practice Note (Bankruptcy: Statutory Demand: Setting Aside)(No. 1/87) [1987] 1 WLR 119.

17. In the relevant part of the judgment in Re Malcolm Maydwell, Le Pichon J (as she then was) was concerned with an application to set aside a statutory demand. It was in that context that the judge referred to the aforesaid Practice Note in England governing applications to set aside a statutory demand. Paragraph 3 of the Practice Note (this has become paragraph 12.3 of the Practice Direction Insolvency Proceedings which came into force in April 1999) provided that 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. Reference was also made to Re a Debtor (No. 657/SD/91), supra., which applied the Practice Note. Although there is no direction to this effect in Hong Kong, the judge approved of it and stated, "that practice is obviously sound and ought to be followed." Indeed, this would seem to be the approach adopted by Yuen J when she dismissed the debtor's application to set aside the statutory demand in October 2001 without a hearing, notwithstanding there was at that time a pending appeal against the judgment of the Recorder. To my knowledge, this practice of not inquiring into the validity of a judgment at the stage of setting aside the statutory demand has been adopted in other instances in Hong Kong.

18. It is clear that the authorities cited by Mr Leong do not provide support for the proposition that at the stage of the hearing of the petition, the court should not go behind a judgment and inquire into the validity of the debt where the statutory demand is based on a judgment debt. Indeed, if the court should adopt the practice of not inquiring into the validity of a judgment debt at the stage of setting aside the statutory demand, this issue may only be contested at the hearing of the petition. There are also clear authorities on the power and duty of a bankruptcy court to go behind a judgment on which the petition is based in appropriate circumstances upon good cause being shown (see, for instance, Re Onslow, ex parte Kibble (1875) LR 10 Ch. App. 373; Re Flatau, ex parte Scotch Whiskey Distillers Ltd. (1889) 22 QBD 83; McCourt and Siequien v. Baron Meats Ltd [1997] BPIR 114).

19. I should also mention that Mr Leong has not advanced any argument based on res judicata (whether in the narrow or wider sense) as regards the debtor's attack on the validity of the judgment, notwithstanding that the debtor had raised this issue on his application to set aside the statutory demand. I think this is correct. Res judicata could not have applied in this instance, given the practice of the court of not inquiring into the validity of the judgment at the stage of setting aside the statutory demand.

20. I wish also to say that whereas in England there is this provision in the Practice Direction Insolvency Proceedings stipulating that the court will not inquire into the validity of a judgment when hearing an application to set aside a statutory demand and such a direction does have the force of law, in Hong Kong this is but a matter of practice. I would endorse this as good practice with a sound basis in law and my reasons are as follows.

21. Firstly, the court is given a wide discretion under rule 48(4) on the hearing of an application to set aside a statutory demand. This rule provides that "on the hearing of the application, the court shall consider the evidence then available to it, and may either summarily determine the application or adjourn it, giving such directions as it thinks appropriate". The phrase that reads "the evidence then available to it" would appear to indicate that the court does have a discretion to dismiss an application to set aside a statutory demand on the incomplete evidence before it, without adjourning it for full evidence (see Platts v. Western Trust and Savings Ltd. [1996] BPIR 329, English Court of Appeal). As Sir Christopher Slade had stated in Platts (in a different context not concerning the validity of a judgment), whether a point should be determined before a petition is allowed to be presented would depend on the particular circumstances, if justice would best be served by resolving the matter on the application to set aside the statutory demand.

22. Secondly, the mechanism to set aside a statutory demand is intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified. An analogy may be drawn to the instance where an injunction is granted to restrain a winding-up petition where the company is able to establish prima facie that a petition would be bound to fail and is an abuse of the process of the court. Where a judgment is obtained against the debtor, it may be difficult, to say the least, for the debtor to establish that the statutory demand for the judgment debt is demonstrably unjustified or that there is prima facie ground showing that a petition would be bound to fail. As in the case of an injunction to restrain a winding-up petition, the setting aside of a statutory demand or the adjournment of an application to set aside a statutory demand may also affect other creditors, as the presentation of the bankruptcy petition will be postponed. This brings me to the third reason.

23. It is apparent from the statutory scheme relating to a statutory demand that there is the need for speed in disposing of an application to set aside a demand. The debtor is allowed a limited time within which to make that application. The court is given power to dismiss the application without giving notice to the creditor and starting with the date on which the application is dismissed, the time limited for compliance with the demand runs again. If the debtor is allowed on the hearing of an application to set aside the demand to challenge the validity of a judgment, either by relying on an appeal he has brought against the judgment or an application to set aside a default judgment, it would take time for this to be resolved if this is to be conclusively resolved in other proceedings. Instead of adjourning the application to set aside the demand pending the outcome of such other proceedings, the creditor should be allowed to proceed with the presentation of a petition, leaving it to the debtor to challenge the judgment debt at the stage of the hearing of the petition.

Res judicata in bankruptcy proceedings

24. Next, I consider the preliminary point taken by Mr Leong that as the debtor had unsuccessfully raised the issue that he has a genuine cross claim in his application to set aside the statutory demand, he should be precluded from raising this again on the hearing of the petition because of res judicata.

25. It is pertinent to reiterate that the application to set aside aside the statutory demand was dismissed by Yuen J without holding a hearing, as the court is empowered to do under rule 48(1) of Cap. 6A. On this ground alone, the authorities cited by Mr Leong can be distinguished. I have no doubt that res judicata does not apply in this instance where the decision of Yuen J was reached without a hearing inter partes and the arguments for the debtor were not fully ventilated before the judge. As submissions have been made to me on the conflicting authorities whether a decision reached on an application to set aside a statutory demand could provide a basis for invoking res judicata on the hearing of the petition, I should give my views on this matter.

26. I would start with the decision of Brillouet v. Hachette Magazine Ltd., in which Leggatt LJ refused leave to appeal against an order of Vinelott J dismissing the debtor's appeal against a bankruptcy order. The decision of Vinelott J and the decision on appeal were given in 1991 but they were only reported in 1996 at [1996] BPIR 519. Vinelott J dealt with the operation of res judicata to preclude the debtor from raising at the petition an argument decided against him in an application to set aside the statutory demand in this way:

"There may be rare cases in which it can be said that a debt claimed in a statutory demand against which there had been an unsuccessful attempt to set it aside and which has not been paid or secured or compounded for is not payable at the date of the petition, for instance, if as a result of legislation it were to become unenforceable between those two dates. But unless there is some change of circumstance of that kind it seems to me that all that the petitioning creditor is required to do is to show that he has made a statutory demand, and that the amount of the debt has neither been paid nor secured nor compounded for. The debtor cannot go back and reargue the very grounds on which he unsuccessfully sought to have the statutory demand set aside."

27. This statement was approved by Leggatt LJ on appeal and by a subsequent Court of Appeal in Turner v. Royal Bank of Scotland [2000] BPIR 683. Leggatt LJ rejected the argument that section 375(1) of the Insolvency Act 1986 (the equivalent provision in the local legislation is section 98(1) of Cap. 6, which provides that a bankruptcy court may review, rescind or vary any order made by it in the exercise of that jurisdiction) would have any effect of overriding the operation of res judicata by giving to a person aggrieved by an order in bankruptcy "an opportunity for reiterating arguments that he has earlier presented or, alternatively, has had the opportunity of presenting." In Turner, Chadwick LJ referred to sections 271(1) and (3) of the Insolvency Act 1986 (equivalent to our sections 6D(1) and (3)) and stated that these provisions "give a flavour of the issues which the Court is to be concerned on the hearing of the petition", hence "questions as to the existence of the debt at the date of the presentation of the petition, and any cross-claim, are intended to be dealt with on an application to set aside the statutory demand - that is to say, before the petition is presented." He did not think at the hearing of the petition, "the Court is required to revisit the arguments which have already been advanced on the hearing of the application to set aside the statutory demand; and which have already been rejected at that hearing". He emphasised that "it will require some change of circumstance between the unsuccessful attempt to set aside the statutory demand and the hearing of the petition", before the court (on the hearing of the petition) can be asked to go into the question which has already been determined at the hearing of the statutory demand. "To hold otherwise would be to encourage a waste of court time, and a waste of the parties' money; and would defeat the obvious purpose of the statutory scheme."

28. I turn to consider the authority which is contrary to the above decisions of the English Court of Appeal. This is the decision of Evans-Lombe J in Eberhardt & Co. Ltd. v. Mair [1995] 1 WLR 1180. In that case, the petitioning creditor appealed from the decision of a district judge to adjourn the petition, contending that a bankruptcy order should have been made as the grounds for opposing the petition were identical to those raised in the application to set aside the statutory demand and they had been rejected by the court after a full hearing. In dismissing the appeal, the judge referred to the established power of the bankruptcy court to inquire into the consideration for the petitioning debt even to the extent of going behind judgments and he had this to say at 1187B to C:

"It seems to me that just as the bankruptcy court would, in an appropriate case, go behind a judgment for the petitioning debt so it would go behind any issue estoppel resulting from a judgment in the proceedings themselves. It follows, it seems to me, that no issue estoppel can be finally binding on a court of bankruptcy at the point when that court comes to consider whether to make a bankruptcy order."

29. The judge was not aware of the decision of Brillouet, which was not reported at the time. He had only drawn indirect support for his conclusion from that part of the decision of Sir Christopher Slade in Platts v. Western Trust & Savings Ltd., which I have cited earlier. The above dicta would also appear to be much wider than was necessary for his decision, which was based primarily on a finding that the adjournment of the petition was appropriate because the debtor was not anticipating a full hearing of the petition for good reason and he was thinking of obtaining further evidence for the hearing of the petition in subpoenaing a witness.

30. On the basis that an issue has been properly ventilated at the stage of the application to set aside the statutory demand, and has been determined by the court at that hearing, I see no reason why res judicata should not operate to preclude the debtor from raising, at the hearing of the petition, the same argument which has been determined against him, in the absence of any change of circumstance. I should also point out that in the cases cited to me in which res judicata was held to apply, Brillouet, Turner, and Hunt v. Peasegood (English Court of Appeal, unreported, 13 October 2000), the proceedings had a long and involved history and it was apparent that the debtor had taken full opportunity to challenge the existence of the debt on setting aside the statutory demand and the issues he raised had been fully canvassed and determined against him in the earlier hearing.

31. I reject the submission of Mr Bernard Mak, who appeared for the debtor, that the English authorities are not applicable to Hong Kong because there is no provision in the Insolvency Act 1986 similar to sections 9(3) and (5) of Cap. 6. These provisions are based on section 5 of the Bankruptcy Act 1914 and section 5 was repealed by the 1986 Act. It was contended by Mr Mak that the effect of sections 9(3) and (5) is that questions on the existence of the petitioning debt and any cross claim could be dealt with at the stage of the hearing of the petition whereas the position in England is that these questions could only be raised at the stage of the application to set aside the statutory demand. I do not think that is the effect of the statutory provisions in England, nor do I think that was what Chadwick LJ had decided in Turner, notwithstanding that he had stated in paragraphs 47 and 48 of the judgment that it was intended by sections 271(1) and (3) of the 1986 Act (the equivalent provisions in Cap. 6 are sections 6D(1) and (3)) that questions as to the existence of the debt and any cross claim should be dealt with on an application to set aside the statutory demand.

32. I also reject Mr Mak's submission based on In re Vitoria, ex parte Vitoria [1894] 2 QB 387. It was submitted by Mr Mak that on an application to set aside a statutory demand, all that was decided was whether a petition would be allowed to be presented, so there was no issue estoppel of any kind that could be invoked at the hearing of the petition. I do not accept this would be the only issue determined in an application to set aside a statutory demand. Besides, Re Vitoria was concerned with a different provision on the power of the court to make a receiving order under section 7 of the Bankruptcy Act 1883. What the Court of Appeal had said in that case, that res judicata did not operate in that situation with respect to the validity of the petitioning debt, would have little bearing on a different statutory scheme in the present bankruptcy legislation.

33. I prefer to leave open the question if res judicata in the wider sense should be applied in full rigour (namely that because an issue could have been taken in earlier proceedings, it follows that this should therefore have been litigated; the applicability of res judicata in the wider sense would appear to have been envisaged in the dictum of Leggatt LJ in Brillouet that I have quoted, and the Privy Council decision of Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] AC 581 would be binding on me) or whether a more flexible approach should be adopted with all the circumstances being taken into account to see if the facts are such as to amount to an abuse of process. In the recent decision of the House of Lords in Johnson v. Gore Wood & Co. [2001] 1 WLR 72 at 90, Lord Bingham has cautioned against applying res judicata in the wider sense in a dogmatic or mechanical way:

"The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceedings involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not."

34. I note that in Ray Chen v. Anita Wan Ching Lam & Anr., HCA No. 4582 of 2001, 9 May 2002, Ma J has likewise left open for argument whether the broad statements of principle in Yat Tung could be properly reconciled with other authorities from common law jurisdictions which he has reviewed in paragraphs 23 to 27 of his judgment.

35. I should also mention that I have considered the case of Re Li Wai Man [2000] 3 HKC 265 cited to me in which Yuen J refused to extend time for a second application to set aside a statutory demand to be made on the grounds that an alleged cross-claim had not been raised notwithstanding the opportunity to do so in a full hearing in the first application to set aside the demand and that the debtor had failed to make out special circumstances or good cause why the court should extend time under rule 204 of the Bankruptcy Rules. On the facts of that case, there would appear to be an abuse of process by the debtor in not raising the issue in the earlier proceedings, whether one was to apply the principles in Yat Tung in full rigour or whether the more flexible approach was to be adopted with regard to all the circumstances of the case.

If the debtor has pursued his appeal with due diligence

36. I turn to consider if the debtor has pursued his appeal from the judgment in the High Court Action with due diligence.

37. In In re a Debtor (No. 799 of 1994) [1995] 1 WLR 467, Harman J held that in deciding to exercise the power whether to adjudicate on a bankruptcy petition or to adjourn the petition pending an appeal from a judgment on which the petition was founded, the court must consider "whether the appeal was serious and whether the appeal was being taken seriously" (at 470G). He further stated that whether the appeal was being taken seriously is an appropriate test, even though this was not expressly or separately addressed in the earlier cases. This was what the judge said at 470H to 471A:

"... 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."

38. I respectfully agree with the above statements. This does not appear to be an onerous test as in the case before Harman J, there was some delay in the pursuit of the appeal but the judge did not consider the delay inexcusable or of inordinate length and held that there was no failure to prosecute the appeal with proper diligence.

39. In the present case, I understand from Mr Mak that the appeal was set down on the day when the Notice of Appeal was filed on 28 July 2001. Notwithstanding that, no steps were taken to obtain a hearing date. It was a very simple matter to provide an estimated length of hearing of the appeal in compliance with the Practice Direction, and to comply with the requirements showing why it was not practicable to instruct other counsel for the appeal, if the debtor should wish to obtain a hearing date in consultation with his counsel's diary. Further, despite the letter from the Registrar of Appeals to the debtor's solicitors dated 8 January 2002, the solicitors did not respond to this until 8 April 2002. I have had no explanation from the debtor or his solicitors on this delay, which was inordinate in all the circumstances. A possible reason was suggested by Mr Mak in his submission why the Practice Direction was not complied with. He said it might be because the petitioner had sought security for the costs of the appeal from the debtor after the Notice of Appeal was filed and it could be because the debtor was unable to provide security so there was no point in obtaining a hearing date for the appeal. I was not told if the debtor was subsequently in a position to provide security for costs when his solicitors sought a hearing date of the appeal in April 2002. If that was indeed the reason for the delay, I do not find the delay excusable.

40. For the above reason alone, I would refuse to adjourn the petition pending the determination of the appeal against the judgment in the High Court Action as the debtor has not pursued his appeal with proper diligence.

If the appeal is a bona fide appeal

41. Notwithstanding the above ruling, I go on to consider if the appeal is a bona fide appeal raising serious grounds of appeal worth considering, as arguments have been addressed to me. In so assessing the grounds of appeal advanced by the debtor, I do not treat this as a mini appeal. I look at the main points that would be advanced on appeal and ask whether they are unarguable.

42. The central point on appeal is whether the Recorder was right in ruling that parol evidence was inadmissible to contradict the written terms of the cheque. Mr Mak submitted that the judge had failed to appreciate the debtor's case, which was that there was no contract on the cheque. Further or in the alternative, there was no consideration for the cheque and parol evidence is admissible to show want of consideration for the cheque.

43. The judge was aware of the debtor's case that the contract which appeared on the face of the cheque was no contract at all. This was mentioned in paragraph 6 of the judgment. In the following paragraph, he set out the debtor's evidence in paragraphs 14 and 15 of the debtor's affirmation in which the debtor stated that he never expected the cheque to be presented at all. As pointed out by the judge, "there is no allegation that the [petitioner] agreed that it should not be presented at all". For this reason, he found the debtor's case indistinguishable from the three authorities referred to in paragraph 23 of the judgment wherein it was held that oral evidence was not admissible. It does not appear to me that this challenge to the decision can get off ground.

44. As for the alleged want of consideration, this was dealt with in paragraph 32 of the judgment and was rejected by the judge. I am unable to see how his reasoning could be faulted. There does not appear to me to be any valid basis for suggesting that the Loan Deed and the Deed of Assignment executed by the debtor were not legally binding or that he was not liable as a guarantor for the debt of Manhattan Charm to the petitioner in the sum of HK$6 million.

45. I am not persuaded that the debtor has raised any ground of appeal that is worth considering.

Whether there is a genuine cross claim

46. As I have held that res judicata does not operate in this instance, I need to consider whether the debtor has raised a genuine cross claim of not less than HK$6 million.

47. The cross claim was framed as an action in conspiracy, and it was alleged to have arisen in this way. In July 1999, Manhattan Charm entered into an agreement to sell its property at Centre Street to King Talent Development Ltd. ("King Talent") at HK$16 million. It was alleged by the debtor that the shares of King Talent were held by the nominees of Chan Sai Ying and the petitioner had provided the purchase price of the property for King Talent. Further, the sale at HK$16 million was at least HK$10 million below the market price. According to the debtor, he had agreed to the sale because the bank to which the property was mortgaged had pressed him to reduce the indebtedness of the group of companies controlled by him. Further, it was "understood" by him and Chan Sai Ying that King Talent would operate as the vehicle for the joint venture of both, in substitution of Manhattan Charm. It was agreed that Mr Chan would provide all the HK$16 million for the purchase of the property by King Talent and that ultimately, the ratio of their respective equity in the development would be changed from 50:50 to "about 60:40" and Mr Chan would account to the debtor his share of the profit to be derived from the redevelopment of the site by King Talent.

48. The debtor asserted that he has a cross claim against the petitioner, Chan Sai Ying, King Talent and the directors of King Talent as they had "conspired together to get the assets from Manhattan Charm and Antrix with the sole and predominant purpose to injure [him]". I should also mention that there was an allegation in the debtor's last affirmation that there was unjust enrichment on the part of the petitioner in arranging for the Loan Deed and the Deed of Assignment to be executed, which I shall deal with below. It is alleged that the above parties had "participated knowingly in a fraudulent and dishonest design against [the debtor]" and they are "liable to account to [him] as constructive trustees and be jointly and severally liable to exemplary damages to [him]". As the property was allegedly sold at an undervalue of HK$10 million and there was unjust enrichment of the petitioner for the assignment of Antrix to the petitioner of the loan owed by Manhattan Charm in the sum of HK$6 million, so the cross claim would have exceeded the petitioning debt of HK$6 million.

49. The alleged understanding that King Talent was to be the vehicle of the joint venture between Chan Sai Ying and the debtor was not contained or even mentioned in a single document, contemporaneous or otherwise, which is odd to say the least. There was no or no adequate explanation of the purpose behind the change of the company that was to hold the property. If the petitioner or Chan Sai Ying were willing to inject a further HK$16 million into the project to enable the debtor to reduce the indebtedness of his companies to his bank, this could be done without arranging for the property to be sold to King Talent at HK$16 million. As for the allegation that the sale was at an undervalue, there was evidence from the debtor that he had offered at about the same time to buy an adjacent site of a similar area, being No. 21 Centre Street, at HK$16.8 million.

50. The debtor's affirmation was wholly lacking in particulars in identifying who did what to injure whose interest and in what way the debtor had been affected. No particulars were given about the alleged combination or agreement for the conspiracy. There was but a bare allegation of an intent to injure as the sole or predominant purpose. Even if there were a sale of the property owned by Manhattan Charm at an undervalue of HK$10 million, this amount would not have been sufficient to cover the net current liabilities of Manhattan Charm, which stood at over HK$44 million as at 6 August 1997, according to an unaudited balance sheet produced by the debtor. There was no evidence that the debtor, as distinct from Manhattan Charm and Antrix, would have suffered loss of no less than HK$6 million. There was no evidence that King Talent had made any profit on the redevelopment.

51. Further, I am unable to see how there would be any unjust enrichment on the part of the petitioner. As I understand Mr Mak's submission, he contended that as the Loan Deed of 1998 had amounted to a novation of the Loan Agreement in 1997, it would have been unnecessary for Antrix to assign to the petitioner the debt owed by Manhattan Charm to Antrix. As the Deed of Assignment was also executed, this would mean that the petitioner could recover a total of HK$18 million from Manhattan Charm, HK$12 million under the Loan Deed and HK$6 million under the Deed of Assignment and it was unjustly enriched. I reject the argument that there was a novation of contract by the Loan Deed. Antrix was a party to the Loan Agreement of 1997 but it was not a party to the Loan Deed in 1998. The liabilities of the guarantors under the Loan Agreement and the Loan Deed were different. The amount of the loan was different in each instance, as was the term of repayment.

52. For the above reasons, I do not think the debtor has established that he has a genuine cross claim to the extent of not less than HK$6 million.

Orders

53. There being no merit in any of the grounds advanced by the debtor in opposing the petition, I make a bankruptcy order on the petition with an order nisi that the petitioner is to have the costs of the petition.