RE LEE PAK WAI t/a EDWIN E&M ENGINEERING CO

HCB 1524/2018

[2018] HKCFI 2142

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1524 OF 2018

________________________

________________________

________________________________________

REASONS FOR JUDGMENT

________________________________________

Introduction

1.  This is the substantive hearing of a bankruptcy petition presented by Paul Y (E&M) Contractors Limited (the “Petitioner”) on 16 March 2018 and amended on 19 April 2018 (the “Amended Petition”) against Lee Pak Wai trading as Edwin E&M Engineering Company (the “Debtor”).

2.  After hearing the Petitioner and the Official Receiver (with the Debtor being absent), I made the usual bankruptcy order with costs to be paid by the Debtor to the Petitioner, to be taxed if not agreed.  I now give reasons for my judgment.

3.  The petitioning debt is a sum of HK$17,769,288.22 (the “Debt”) awarded against the Debtor in favour of the Petitioner under an arbitral award dated 21 November 2017 (the “Award”) made in an arbitration between the same parties before a single arbitrator (the “Arbitration”).

4.  The statutory demand demanding for the payment of the Debt was issued on 18 December 2017 (the “Statutory Demand”).  According to the evidence by the Petitioner, the Statutory Demand was personally served on the Debtor by one Mr Mak Wai Hung Otto (“Mr Mak”) on 19 December 2017 at a restaurant located in Kwun Tong known as “The Graces” (the “Restaurant”).

5.  The Debtor opposes the Amended Petition on two main grounds.

6.  First, the Debtor denies that the Statutory Demand was servedon him on 19 December 2017.  Whilst the Debtor accepts that he did meetMr Mak on that day, he claims that the meeting was to discuss “whether theparties could reach amicable settlement in respect of the disputes relating to [the Arbitration]”, and that Mr Mak did not serve the Statutory Demand on him, nor did Mr Mak mention anything about the publication of the Award in the Arbitration.

7.  Second, the Debtor claims that he was not aware of the Award until the Amended Petition was served on him on 20 April 2018; and that he only had a copy of the Award from the Petitioner’s solicitors on 4 May 2018. The Debtor contends that he is not liable for the Debt, which is based on the Award, on the ground that he was unable to present his case in the Arbitration.

8.  I will deal with each of these grounds in turn. However, before that, I wish to address a procedural issue arising from the absence of the Debtor at the hearing.

Absence of the Debtor at the hearing

9.  Before the hearing began, the Debtor’s wife, Madam Fong Sze Fun (“Madam Fong”), submitted to this Court documents showing that the Debtor had been admitted to St Paul’s Hospital since 4 September 2018, ie one day before the scheduled hearing.

10.  According to those documents, the “provisional diagnosis/‌clinical findings” is that the Debtor is suffering or appears to be suffering “epigastric pain and constipation”.

11.  Mr Chung, solicitor advocate for the Petitioner, made the observation that this is just part of the Debtor’s delaying tactics and that the Debtor had previously used medical reasons to delay the process in the Arbitration.

12.  I asked Madam Fong whether she had any instruction from theDebtor to make any submission at the hearing. Madam Fong responded by saying that she had no such instruction.  In the circumstances, it remained for me to decide whether it would be appropriate to proceed with the hearing of the Amended Petition in the absence of the Debtor.

13.  Rule 69 of the Bankruptcy Rules (Cap 6A) provides that:

“ If the debtor does not appear at the hearing, the court may on hearing the petitioning creditor and the Official Receiver either dismiss the petition or make a bankruptcy order on such proof of the statements in the petition and of the amount of assets and liabilities as the court thinks sufficient.”

14.  Since the attendance of the Official Receiver at the hearing was excused by the Order made by Mr Justice Ng on 21 May 2018, I decided to adjourn the hearing for about an hour so as to enable the Official Receiver’s representative to appear before me to assist me in this matter.

15.  The Official Receiver, represented by Ms Yuen, confirmed that she takes a neutral stance on the matter.  Having heard the Petitioner, and bearing in mind the background of this matter (as will be further elaborated below) and also the fact that the Debtor’s grounds of opposition are articulated and addressed in the evidence filed in the court, I was satisfied that I should exercise my discretion to proceed with the hearing of the Amended Petition in the absence of the Debtor.

Statutory demand not served?

16.  As pointed out above, there is no dispute that Mr Mak of the Petitioner did meet the Debtor on 19 December 2017.  The only dispute is whether the Statutory Demand was served on the Debtor on that occasion.

17.  Upon knowing that the Debtor denied service of the Statutory Demand on that occasion, Mr Mak put in his 2^nd Affirmation in which he produces two photographs showing his meeting with the Debtor at the Restaurant and the Statutory Demand that he had served on the Debtor on that occasion.

18.  I have no reason to doubt the evidence of Mr Mak.  As rightly pointed out by Mr Mak in his 2^nd Affirmation, it simply did not make any sense for him to meet the Debtor on that day to discuss settlement in relation to the disputes in the Arbitration (as so alleged by the Debtor), since the Petitioner by then had already obtained the Award.  Indeed, evenif there was any settlement discussion, it would make no sense for Mr Mak to withhold serving the Statutory Demand on the Debtor on that occasion.

19.  On the other hand, I have every reason to question the Debtor’s allegations. The Debtor alleges that he was not aware of the Statutory Demand and/or the Award until the Amended Petition was served on him on 20 April 2018.  However, the letter from the arbitrator dated 21 May 2018 confirms that the Award was in fact served on the Debtor under his covering letter on 27 November 2017, and the receipt of the Award was duly acknowledged by the Debtor by the fixing of his company chop (ie Edwin E&M Engineering Company) on the said covering letter. 

20.  For the above reasons, I am satisfied that the Statutory Demand was personally served on the Debtor on 19 December 2017, and have no hesitation in rejecting the Debtor’s first ground of opposition based on the alleged non-service of the Statutory Demand.

Debt in dispute?

21.  The Debtor’s second ground of opposition is that the Debt, which is based on the Award, is in dispute since he was unable to present his case in the Arbitration.

22.  At the hearing, Mr Chung on behalf of the Petitioner submitted that pursuant to Rule 69 of the Bankruptcy Rules (Cap 6A), the decision of the bankruptcy court to dismiss the Amended Petition or to make a bankruptcy order depends on whether there is sufficient proof of the statements in the Amended Petition.  As far as the second ground of opposition is concerned, it does not concern any of the statements of the Amended Petition.  It therefore follows that this is not a matter that this Court needs to consider under Rule 69 for the purpose of deciding whether to dismiss the Amended Petition or to grant a bankruptcy order.

23.  I tend to agree with Mr Chung’s submission. That said, out of abundance of caution, I will briefly address the Debtor’s second ground of opposition.

24.  In this regard, my attention was drawn to the decision of Re Tam Mei Kam (unrep., CACV 87/2012, 8 May 2013) in which the Court of Appeal (at paras 22 – 27) laid down guidance on the approach of the bankruptcy court in dealing with a petition presented on the basis of a judgment debt.  In short, the correct approach is as follows:

(1)   The bankruptcy court will treat a judgment for a sum of money as prima facie evidence that the judgment debtor is indebted to the judgment creditor.

(2)   Where the judgment debtor has not lodged an application to set aside by the time of the petition hearing, but intends to do so, he must, in addition to satisfying the bankruptcy court of the reasonable prospect of success in his application, also provide a reasonable explanation why he has failed to act in time.

(3)   Where the judgment debtor is unlikely to be able to pursue an application to set aside for procedural reasons, the bankruptcy court may consider his case to see if he can rebut the prima facie evidence of indebtedness.  In such a situation, where the judgment has been obtained after a full trial on the merits, the general principle is that the bankruptcy court would inquire into such judgment only if the judgment debtor can show fraud, collusion or miscarriage of justice.

25.  I am aware that the above approach was laid down by the Court of Appeal in the context of a petition presented on the basis of a court judgment.  I, however, cannot see why the same approach should not be applied equally to a petition presented on the basis of an arbitral award.  Indeed, I would add that the bankruptcy court should be wary of inquiring into an arbitral award in view of the fact that the parties had by agreement submitted their disputes to arbitration.

26.  I have already found that the Award was duly served on the Debtor by the arbitrator on 27 November 2017. Pursuant to section 81 of the Arbitration Ordinance (Cap 609) (which incorporates Article 34 of the UNCITRAL Model Law), an application to set aside the Award should be made within three months after the receipt of the Award.  Thus, the Debtor should have made his application to set aside the Award based on his allegation of inability to present his case on or before 27 February 2018.  Indeed, even taking (but without accepting) the Debtor’s case to its highest, a copy of the Award was provided to him by the Petitioner’s solicitors on 4 May 2018.  Yet, despite his avowed intention to apply to set aside the Award “in due course”, no such application was made even up to the date of the hearing, ie 5 September 2018.  No explanation, let alone reasonable explanation, was ever offered by the Debtor to explain why he had failed to take out the setting aside application within time.

27.  In these circumstances, there was plainly no reason for this Court to adjourn the hearing of the Amended Petition to enable the Debtor to commence an application to set aside the Award.  More importantly, the absence of any application to set aside the Award and the absence of explanation for such inaction further cast serious doubts on the genuineness of the Debtor’s complaint of not being able to properly present his case in the Arbitration.

28.  In my judgment, there is no substance in the Debtor’s complaints in relation to the process in the Arbitration leading to the Award.  In his Affirmation, the Debtor complains that (a) he was debarred from adducing witness statements, (b) he was debarred from adducing expert reports, and (c) the Petitioner was allowed to adduce witness statements and amend the statement of claim at a late stage.  In support of the above complaints, the Debtor was highly selective in producing documents concerning the Arbitration and thereby gave this Court a rather distorted picture of the process.

29.  In answer to the Debtor’s complaints, the Petitioner has by the 2^nd Affirmation of Mr Mak produced detailed chronologies with full supporting documents[1] detailing the process leading to the arbitrator making the procedural orders in question.

30.  Without reciting those procedural steps which are described indetail in the 2^ndAffirmation of Mr Mak, I am satisfied that the arbitrator hadgiven fair and reasonable opportunities to the Debtor to make submissions before making those procedural orders in question.  Insofar as the Debtor chose to take up the opportunities to make submissions, the arbitrator had duly taken into account and addressed those submissions before making the relevant procedural orders.  Indeed, in relation to the complaint that the arbitrator allowed the Petitioner to adduce supplemental witness statementsand to amend the statement of claim at a late stage of the Arbitration, it was the Debtor who had not responded to the Petitioner’s applications despite being expressly asked by the arbitrator to do so.  Whilst the Debtor might be unhappy with the rulings of the arbitrator, the materials available plainly do not support his complaint that he was unable to present his case properly in the Arbitration.

31.  In the circumstances, even assuming (but without accepting) that I am required to consider the Debtor’s complaints concerning the process of the Arbitration in order to dispose of the matter before me, I amsatisfied that such complaints are entirely groundless and that the Debtor wasgiven fair and reasonable opportunities to present his case in the Arbitration, which led to the making of the Award.  Accordingly, I find that the Debt based on the Award is one which is due and owing, and that the Debtor has failed to repay the same to the Petitioner.

Disposal

32.  For the above reasons, I found it right to make the usual bankruptcy order.  Having heard the Petitioner and the Official Receiver, I also made a costs order that the costs of these proceedings be paid by the Debtor to the Petitioner, to be taxed if not agreed.