NEXT MAGAZINE PUBLISHING LTD v. PAUL KI PING KI

HCB 2621/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY

NO. 2621 OF 2006

____________________

____________________

____________________

J U D G M E N T

____________________

1. This is a bankruptcy petition presented by Next Magazine Publishing Ltd (“Next”) against Paul Ki Ping-ki (“Dr Ki”).  It is based on an allocatur dated 16 November 2005 in respect of the costs of an unsuccessful appeal by Dr Ki to the Court of Appeal in Civil Appeal No. 33 of 2004.  The principal amount of the debt is $58,461.  Up to 1 February 2006, a further sum of $5,738.74 had accrued by way of interest on the principal amount, giving a total as at 1 February 2006 of $64,199.72.  Further interest accrues at the judgment rate on the principal amount from 2 February 2006 onwards. 

2. Dr Ki has filed an affirmation in opposition to this petition.  In that affirmation, he disputes liability and says that he has been awarded damages of HK$200,100.00 against Next in libel proceedings which he commenced against Next in 1996.  That libel action was High Court Action No. 11533 of 1996.  Dr Ki says that he has never been paid the amount of HK$200,100.00 by Next.  It would therefore seem that he wishes to set off the costs which have been awarded against him in the Court of Appeal proceedings against such damages. 

3. The background to these proceedings is as follows.  There is a considerable history of litigation between Dr Ki and Next.  It started in 1994 when Dr Ki sued Next for defamation.  That was in High Court Action No. 8071 of 1994.  This action, however, was unsuccessful, and it was dismissed in June 1996.  When the action was dismissed, a costs order was made against Dr Ki requiring him to pay the costs of the action to Next. 

4. In October 1996, Dr Ki sued Next again in respect of a different alleged libel.  This action was High Court Action No. 11533 of 1996 in which, as I have said, Dr Ki was successful and was awarded some HK$200,100.00 by way of damages in December 1998.  Dr Ki was also awarded his costs of the action but, as he acted in person, it does not seem that any sum of costs was actually assessed in his favour. 

5. Meanwhile, before the judgment in his favour in December 1998, Dr Ki had the costs which he was required to pay Next in respect of the first libel action assessed against him.  In May 1997, Next obtained an allocatur in the amount of HK$906,185.40 in respect of its costs of the first defamation action.  Dr Ki did not pay these costs and, as a result, a bankruptcy notice was served against him and a bankruptcy petition filed against him in September 1997. 

6. A receiving order was made on that petition in December 1997, after which Next filed a proof of debt in Dr Ki’s bankruptcy in April 1998.  The amount of the proof of debt was slightly over HK$1 million, taking into account interest which had accrued on the amount of the costs which were the subject of the allocatur.  It appears that Next was the only creditor to file a proof of debt in Dr Ki’s bankruptcy. 

7. After Dr Ki was awarded his damages in the second defamation action in December 1998, the question arose as to whether those damages had to be paid by Next to him by actually effecting payment of that amount or whether Next’s liability to Dr Ki in respect of the damages for the second action could be set off against the debt owing by Dr Ki to Next in respect of the costs of the first defamation action.  There was some correspondence between those representing Next and the Official Receiver, who was Dr Ki’s trustee in bankruptcy, on this subject with the Official Receiver expressing the view that the damages payable to Dr Ki did not form part of his estate in bankruptcy which vested in the Official Receiver as his trustee.  But, notwithstanding this, the question still remained whether there could be a set-off as between Dr Ki personally, as distinct from his estate in bankruptcy, and Next. 

8. In March 1999, Dr Ki issued a summons seeking an order that Next pay him the damages which had been awarded against him in the second defamation action.  That application came before Master Chu, as she then was, and the outcome was that Next was ordered to amend its proof of debt in Dr Ki’s bankruptcy by deducting from the amount proved for the sum of HK$200,100.00, plus interest at the judgment rate from the date of judgment to the date of the amendment of the proof, such amount to be deducted from the amount claimed in the proof.  Next amended its proof of debt in accordance with that order. 

9. Dr Ki then applied, some months later, for leave to appeal against the decision of Master Chu.  Because of his delay in appealing, it was necessary for him to obtain leave to appeal and an extension of time from the High Court.  His application came before Yuen J, as she then was, but she refused to grant an extension of time for appealing. 

10. In her decision of 2 May 2000, Yuen J held that the delay on Dr Ki’s part was substantial and that there had not been any reasonable excuse offered for it so that an extension of time should only be granted if he could demonstrate real prospects of success in his proposed appeal.  Yuen J held that the proposed appeal had no real prospects of success.  Her reasoning can be summarised as follows:  Dr Ki could only claim actual payment from Next if there was no bankruptcy set-off available to Next by reason of section 35 of the Bankruptcy Ordinance (Cap. 6).  Yuen J held that the costs owing to Next in respect of the costs of the first action, and the damages payable by it in respect of the second action, were mutual dealings within the meaning of section 35 which were capable of being set off against each other under that section, notwithstanding that the amount of the damages might otherwise be payable to Dr Ki personally rather than to his estate in bankruptcy and notwithstanding that the liability for damages was, at the time of the making of the receiving order against Dr Ki, a contingent liability in an unascertained amount because the cause of action had arisen prior to the making of the receiving order. 

11. Her detailed reasoning, which I do not propose to set out in full here, appears at pages 7 to 12 of her written decision of 2 May 2000.  Her conclusion (at the bottom of page 11) was that there could be a set-off by Next of Dr Ki’s award of damages under the second action against the amount that he owed Next under the first action.  In other words, Next was entitled to file a proof of debt for the net balance. 

12. Dr Ki appealed against Yuen J’s decision to the Court of Appeal.  This was Civil Appeal No. 33 of 2004, out of which the allocatur which is the basis of this petition arises.  His appeal was dismissed.  Woo VP dealt with the merits of the appeal in the following terms at page 8 of his judgment (which was the judgment of the court) given on 13 July 2000.  He said this:

“While Yuen J held that there was no substantial prejudice [arising out of the delay in bringing the application] suffered by Next or anyone else as Next was the only proving creditor in the bankruptcy of Dr Ki, she held that there was no merit in Dr Ki’s proposed appeal against the Registrar’s order.  Section 35 of the Bankruptcy Ordinance (Cap. 6) governs set-offs in bankruptcy.  After citing that section, the judge referred to authorities on the meaning of mutual dealings as provided in the section.  She came to the view and, we think, correctly, that Next was entitled to set off the taxed costs against the damages awarded in favour of Dr Ki.  She therefore concluded, again correctly, that Dr Ki had failed to show a real prospect of success on the merits of the appeal in order for the court to exercise its discretion to extend time for him to appeal against the Registrar’s order, particularly in the light of such a lengthy delay.”

13. With respect, I entirely agree with and accept the reasoning given by Yuen J and I too am of the view that the damages payable by Next in respect of the second defamation action were capable of being set off against the costs payable to it in respect of the first defamation action.  In any event, the effect of Registrar Chu’s order, which stands, is that Next has, as I have indicated, subsequently amended its proof of debt in the manner in which it was held to be entitled to do.  The effect of this is that Next has, by deducting the sum of $200,100 plus accrued interest from the amount of its proof of debt in Dr Ki’s bankruptcy, thereby given credit for the sum of $200,100 to Dr Ki.  That being the case, the award of damages against Next in the second action has been satisfied and is no longer owing to Dr Ki, having been extinguished once it was set off by the amendment to Next’s proof of debt in Dr Ki’s earlier bankruptcy.  That amount, therefore, is no longer available to Dr Ki as a debt owing to him, and is not available to him as a means of defending the present bankruptcy petition. 

14. Dr Ki submitted at the hearing today that damages for injury to reputation were personal in nature and had to be paid.  This view appears to be based on the Official Receiver’s view, expressed in the earlier correspondence to which I have referred, to the effect that damages for libel did not form part of Dr Ki’s estate in bankruptcy.  However, the position here is that the damages, although not part of the estate in bankruptcy, can nonetheless be set off against Dr Ki’s liability to Next and have been set off against that liability.  He has, therefore, in effect, been paid the damages by way of the setoff and reduction of the proof of debt.  “Paid” in this context, clearly means settled as opposed to actual payment in cash or in some other form of funds.  That being so, I cannot see that there is any set-off that could operate in Dr Ki’s favour so as to reduce or extinguish the amount of the debt on which this petition is based. 

15. In the circumstances, I can see no alternative but to make the usual bankruptcy order with costs against Dr Ki.