Re: WONG YAU CHEONG, Debtor and Ex-parte: KUNG KWOK WAI DAVID also known as DAVID KUNG, Petitioning Creditor

HCB1464/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS

NO.1464 OF 2000

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J U D G M E N T

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1. This is a petition for bankruptcy founded on a judgment debt obtained against the debtor, Mr Wong Yau Cheong in High Court Action No.14187 of 1999. Judgment was given on the application of the petitioner for summary judgment by the then Acting Registrar, Mr C. Chan, on 16 February 2000. It was ordered that the debtor was to deliver up vacant possession of the premises known as No.24 Leighton Road, 8th Floor, Hong Kong let to him by the petitioner under a verbal agreement made with the petitioner's predecessor-in-title. The debtor was ordered to pay arrears of rent from 1 March 1996 to 31 January 1999 in the total sum of HK$233,738.75, and mesne profits in the sum of HK$40,069.50 from 1 September 1999 to 29 February 2000 and thereafter at the rate of HK$6,678.25 a month from 1 March 2000 until the delivery up of vacant possession to the petitioner. It was further ordered that the debtor should be entitled to relief against forfeiture by paying into court all the arrears of rent, mesne profits and the fixed costs of the action on or before 12 April 2000. Other than the mesne profits in the sum of HK$40,069.50 from 1 September 1999 to 29 February 2000, the debtor did not make any payment of the arrears of rent of HK$233,738.75 or mesne profits as from 1 March 2000. A statutory demand for the outstanding sums was issued by the petitioner's solicitors on 13 April 2000 and served personally on the debtor the same day. On 9 May 2000, the petition for bankruptcy was filed and this was served personally on the debtor on 13 May 2000. Also on 13 May 2000, the debtor vacated the premises let to him. He has not, to date, made any payments of the sums he was ordered to pay, nor has he made any offer to secure or compound for the judgment debt in respect of which the petition was presented.

2. The petitioning creditor, Mr David Kung Kwok Wai was represented by Miss Gekko Lan in this hearing. The debtor appeared in person, as he had done throughout these proceedings as well as in the earlier proceedings which resulted in the summary judgment.

3. The debtor has filed three affirmations in the bankruptcy proceedings. He has also filed three affirmations in the previous High Court Action and a defence. All these documents are in English. The debtor told me that he prepared all the documents himself without any assistance, and I have no reason to disbelieve him on this. When he appeared before me, he chose to give his evidence and make submissions in Cantonese and the other side's evidence and submissions were interpreted to him by the court interpreter. I am satisfied from the documents the debtor has prepared and filed in court, as well as the letters he had written to various people and exhibited to his affirmations that the debtor has a reasonably good command of English. I note also from the debtor's letter paper that he holds eight professional and academic qualifications. Apart from being a Fellow of the Chartered Institute of Secretaries and a Fellow of the Association of International Accountants, the debtor has also obtained qualifications in marketing, business and credit management. In the documents the debtor has filed in court, he has cited cases and referred to the provisions of various ordinances. I find that he is a person of intelligence and is keenly aware of his rights and will not be slow to act to protect his own interest.

4. The background facts and matters may be given as follows.

5. The debtor had been a tenant of the premises for over 30 years. The petitioner, Mr Kung, became the registered owner of the premises in September 1996. The premises used to be owned first by Mr Kung's father and later by his mother. On 27 January 1996, the solicitors who were acting for the then registered owner of the premises served a notice to quit on the debtor requiring him to deliver up possession of the premises on 29 February 1996 on the ground that the landlord had intention to rebuild. In a "without prejudice" letter dated 12 February 1996, the solicitors offered compensation to the debtor in the sum of HK$442,500.00 on condition that the debtor was to move out of the premises on or before 29 February 1996. That offer was not accepted by the debtor. From 1 March 1996 to 31 January 1999, the debtor sent a cheque to the petitioner's solicitors every month in payment of rent. They were all returned by the petitioner's solicitors with a statement that the tenancy had been terminated by the notice to quit. On 1 August 1996, the debtor wrote to the petitioner's solicitors regarding the return of the cheques for payment of rent and he denied that the tenancy had been terminated by the notice to quit. In the last paragraph of that letter, the debtor stated as follows :

"In view of this outcome of event, we can only regard the return of our monthly rental cheques for the period under review and for any foreseeable period in the future as ex gratia consideration from the part of your clients, the purported landlord herein, and such consideration shall have no recourse for future demand even if repdiated [repudiated] in the future. For this act, we do express our appreciation."

6. On 11 November 1997, the debtor again wrote to the petitioner's solicitors asking that the petitioner be approached and that the debtor was to be advised of the petitioner's reason for not presenting the debtor's cheques for payment of rent. It would appear to be the case that the petitioner's solicitors did not reply to the debtor's letters in August 1996 and November 1997.

7. On 31 December 1996, the petitioner filed a notice of application in the Lands Tribunal to recover possession on the ground of an intention to rebuild and sought mesne profits as from 1 March 1996, when the petitioner declined to accept rent from the debtor. The application was opposed by the debtor. Apparently, no progress was made in the proceedings in the Lands Tribunal. It was not until 16 July 1999 that the petitioner's solicitors wrote to the debtor notifying the debtor of the petitioner's intention to discontinue the Lands Tribunal proceedings and demanding payment of arrears of rent for 41 months from March 1996 to July 1999. The debtor replied by letter dated 28 July 1999 refusing to give consent for the discontinuance of proceedings in the Lands Tribunal and complaining of leakages in the premises, the lack of flushing water for the toilet, and the suspension of the lift. In July 1999, the petitioner's solicitors presented six cheques tendered by the debtor in payment of rent for the period of February 1999 to July 1999 as well as the cheque for the rent in August 1999. The writ in the High Court Action was issued on 2 September 1999 on the ground that the debtor had failed or refused to pay rent for the period from March 1996 to January 1999. The petitioner claimed possession of the premises, arrears of rent in the sum of HK$233,738.75, and mesne profits from 1 September 1999 until delivery up of vacant possession.

8. After the writ was issued, the debtor continued to send a cheque to the petitioner's solicitors every month in payment of rent from September 1999 up to the hearing of the application for summary judgment in February 2000. The petitioner's solicitors retained the six cheques and did not present them for payment for fear of jeopardizing the petitioner's position as no order for interim payment had been made by the court. These cheques were presented for payment shortly after judgment was obtained and in this way the petitioner received payment of mesne profits from September 1999 to February 2000 in the sum of HK$40,069.50. The debtor filed his defence on 28 September 1999 and on the same date, the petitioner applied for summary judgment.

9. The debtor raised a number of points in opposing summary judgment, most of which he repeated in this court. I propose to deal with them first before I come to the additional matters he raised to oppose a bankruptcy order.

10. Firstly, the debtor said he had not failed to pay rent as he had tendered a cheque to the petitioner's solicitors every month for the period in question. It was the petitioner who had refused to accept rent alleging that the tenancy had been terminated. As he had informed the petitioner's solicitors by letter dated 1 August 1996, he had treated the return of the cheques to him as ex gratia payment from the petitioner and the petitioner should have no right to demand for this sum in future. The debtor also put the petitioner to strict proof of his intention to re-develop and build a hotel with the owners of the adjoining properties. I should mention that the petitioner had abandoned his plan to re-develop for some time due to the downturn in economy in the latter part of 1997.

11. The Acting Registrar rightly rejected these arguments put forward by the debtor. The debtor had remained in occupation of the premises throughout the period in question. He was liable to pay rent or mesne profits for his use and occupation of the premises. The petitioner had not waived his right to payment and the unilateral notification by the debtor in his letter dated 1 August 1996 purporting to treat the return of cheques as ex gratia payment had no effect in law. The petitioner's alleged intention to rebuild and his abandonment of that intention had no relevance to the debtor's liability to pay for his use and occupation of the premises during the period in question.

12. Before the Acting Registrar, the debtor raised two cross-claims to set off his liability for arrears of rent. One was for HK$173,014.50, being various expenses paid by the Mutual Aid Committee of the building at Nos.22 and 24 Leighton Road (and not by the debtor alone) for the upkeep of the building from March 1984 to August 1990. This head of claim is clearly time-barred. The other item was an amount of HK$9,319.00, being electricity charges paid by the debtor and two other tenants for the public facilities of the building from January 1997 to August 1998. This head of claim was also rejected by the Acting Registrar on the ground that under the Deed of Mutual Covenant, it was the manager of the building who had the duty to provide services in respect of the common parts. During the period in question, the manager was one Madam Li Kit Ling and this position was subsequently taken over by a management company known as Lo Fu Management Company. As the responsibility for making payment of these charges should rest with the manager, the debtor could not claim a set-off of these charges against the petitioner. In any event, the debtor's claim should only be one-third of the total of HK$9,319.00. There does not appear to me to be any good ground to go behind the decision of the Acting Registrar in rejecting the two cross-claims.

13. The last matter raised by the debtor in the High Court Action and repeated in these proceedings was a series of complaints alleging harassment on the part of the petitioner. It was alleged that the petitioner had failed or refused to keep the premises habitable and had withheld services in the building. These included leakage in the premises, the lack of flushing water to the toilet since the early 80s, the stoppage of refuse disposal from 1995 to 1998, and the suspension of the lift for 199 days. These matters had been dwelled upon at some length in the affirmations and the defence filed by the debtor in the High Court Action and in these proceedings. The petitioner has filed evidence rebutting the allegations in his affirmations in the High Court Action but not in these proceedings. It should be noted that the petitioner was and is living in one of the units in the building, so he would have suffered the same inconvenience as the other three tenants if there was stoppage or suspension of the public services to the building as alleged. Further, the building was completely renovated in 1998. The debtor had remained living in the premises all this time, notwithstanding that there was leakage in the premises shortly after he moved in 30 years ago and there was no flushing water since the early 80s. In my view, there is exaggeration in the complaints of harassment made by the debtor. I also have reservations whether some of these complaints are substantiated. If there should be a claim for unliquidated damages against the petitioner on the ground of harassment, I do not think the quantum of the claim would be anywhere near the amount of the judgment debt in the sum of HK$233,738.75. I do not propose to take into consideration the possible claim for unliquidated damages in considering whether a bankruptcy order should be made.

14. Additional matters were raised by the debtor in the bankruptcy proceedings in opposition. They were as follows.

15. It was alleged by the debtor that when he vacated the premises on 13 May 2000, he had to do so in a hurry and as a result he left behind various items of furniture, fixture and equipment including "an un-used laundry drying machine, a wall gas heater, combination cabinets, ground to ceiling cabinets, wall cabinets, side boards, desks, and beds, etc." The debtor submitted that an assessment should be put on the value of these items and their value should be set off against the judgment debt. I reject this submission. Firstly, it is apparent from the nature of the items enumerated by the debtor that they were the kind of fixtures that one would not expect a tenant to remove on vacating the premises. Secondly, the debtor admitted that he had never asked the petitioner or the petitioner's solicitors for permission to return to the premises to remove these items. In my judgment, the debtor had clearly abandoned the items he left behind. Thirdly, according to Mr Kung, whose evidence I accept, the items the debtor left behind were old, dilapidated and valueless and Mr Kung had to spend several thousand dollars to have them removed in September 2000.

16. The next matter raised by the debtor was an alleged agreement he reached with the petitioner's solicitor Ms Lily Fenn Kar Bak during the recess of the Order 14 hearing on 16 February 2000. This alleged agreement was raised for the first time in his third affirmation which he made the day before this hearing, and I allowed him to rely on this affirmation since he was acting in person. According to the debtor, the petitioner's solicitor had agreed with him that in the event the petitioner was to obtain judgment for the arrears of rent, the debtor would be allowed to pay the arrears by four equal monthly instalments. The petitioner's counsel was also present when the agreement was made. Ms Fenn then requested the debtor to confirm in writing the agreement reached and he did so by sending her a letter by fax that afternoon. When the debtor and the legal representatives of the petitioner returned to the court room and when judgment was given for the petitioner, the Acting Registrar ordered that the debtor should be entitled to relief against forfeiture by paying the judgment debt into court on or before 12 April 2000. The debtor did not inform the court that he had reached an agreement with the petitioner that would allow him four months to pay instead of only 55 days as ordered by the court. Nor did the petitioner's counsel raise this with the court.

17. The debtor's allegations were denied by Ms Fenn who gave evidence. Ms Fenn stated that there was merely a discussion with the debtor to allow him time to pay the arrears if there should be judgment during the recess of the hearing. She was certain that no agreement was reached with him. She also denied receiving the fax of the debtor dated 16 February 2000. It was because no agreement was reached with the debtor that the Acting Registrar gave the debtor 55 days to pay when he granted relief against forfeiture in his order. Ms Fenn emphasized that if there had been any form of agreement reached with the debtor, the petitioner's counsel would have informed the court about it and the agreement would have been made part of the court order.

18. The fax of the debtor to Ms Fenn dated 16 February 2000 was produced in evidence. This fax reads as follows :

"As compromised by a brief joint consultation this morning shortly before the Court decision on the action was given, we have agreed to a term of four (4) monthly payments of the rents owed (if any) under the action. I shall appreciate if you will confirm this in writing and advise the Court so as to enable incorporation in the Court Order for compliance. Your assistance and attention to this matter shall be much appreciated." (emphasis supplied)

19. The debtor is capable of choosing his words carefully. In my judgment, the wording in his fax gave him away. In his fax, he was asking Ms Fenn to confirm in writing the alleged agreement, he was not confirming in writing that agreement as he was asked by Ms Fenn to do as he has said in his testimony. Further, in that fax, he was requesting Ms Fenn to inform the court of the alleged agreement so that it could be incorporated in the court order. In his evidence, he was asked why he did not mention the alleged agreement to the court when the order was made and he said it was because he believed it was unnecessary to incorporate the agreement in the court order and he did not want to waste the court's time. That being the case, there was no or no cogent reason why he should request Ms Fenn shortly afterwards to have the alleged agreement incorporated in the court order. I do not think the debtor was telling the truth about this. I reject his evidence of an alleged agreement with Ms Fenn. Further, I do not believe counsel would have withheld the information from the court if there really was an agreement as alleged.

20. The debtor also raised in his last affirmation an argument that he could set off against the judgment debt the compensation he would have received if the plaintiff was to re-develop. He said that the compensation he would have received in that event would be HK$442,500.00, based on the letter of the solicitors dated 12 February 1996. As I have already mentioned, that offer was not accepted by the debtor. The intention to rebuild had been abandoned. The debtor is not entitled to compensation. His argument is wholly without merit.

21. The last additional matter raised by the debtor was his alleged ability to repay the judgment debt. In his first affirmation, the debtor stated that he owns a property in which he is residing. He claimed that if the petitioner's solicitors had not presented the six cheques they held immediately after judgment was given on 16 February 2000 without his notice (the six cheques were given for the rent from September 1999 to February 2000) thus rendering the debtor's account in overdraft without his knowledge, the debtor could easily have obtained a short term loan from further charge on the property. It is not clear if the debtor can raise the necessary funds on the security of his property. He further stated in his affirmation that he could also raise money with the credit cards he holds. No documents have been adduced by the debtor to show that he can raise the necessary funds, nor has he informed the court of any approach he had made to financial institutions with the view of raising money. In any event, he stated that he has not made and he will not make any proposal to the petitioner to pay off the judgment debt because he is taking the stance that the summary judgment should be "reviewed". This last argument raised by the debtor is also without merit. It is not good enough to assert that he is able to pay the debt without making any concrete proposal of repayment so that the court may be satisfied that there are good prospects of the debt being paid off within a reasonable time.

22. In all the circumstances, the only appropriate course is to make a bankruptcy order. I further order that the petitioner should have his costs.