FORTUNE RETAIL HOLDINGS (BEIJING) LTD., EX PARTE

HCB1168/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY NO.1168 OF 1998

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J U D G M E N T

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1. This is a bankruptcy petition filed by Fortune Retail Holdings (Beijing) Limited for a bankruptcy order against Yu Tat Yum, Robert ("the Debtor").

2. The petition is based on a judgment debt obtained on 2 April 1998. A writ of summons was issued against the Debtor on 5 March 1998. There is no evidence that he was unaware of the writ. On 2 April, he failed to appear at the hearing and judgment in default was obtained. Approximately three weeks later, the Debtor entered into a Deed of Settlement ("the Deed") with the Petitioner. The Deed recited the default judgment obtained in the sum of RMB8 million, together with interest, and contained an express acknowledgement by the Debtor of that debt. The Deed was in fact an agreement to accept the amount due by way of instalments.

3. On the same day, the Debtor signed a statement acknowledging that of the RMB8 million, RMB2.5 million had been kept by him, the balance having been paid by him or his related company to third parties. The Debtor also signed a letter stating that although he had been advised to seek independent legal advice before signing the Deed, he did not consider it necessary to do so.

4. Subsequently, on 1 August, a sum of RMB2 million was paid to the Petitioner being part of the judgment debt. The balance of RMB6 million remains outstanding. On 28 August, a statutory demand was prepared by the Petitioner's solicitors, but their attempts to effect personal service were unsuccessful. Further statutory demands were prepared and attempts were made to serve the Debtor. Eventually an order for substituted service was obtained and service by way of advertisement was effected on 18 September. On 27 October, the bankruptcy petition was presented. Again, personal service of the petition was unsuccessful and an order for substituted service was obtained.

5. When the matter came before the Master on 30 December, the Debtor had sent in a written notice of objection to the petition and attended that appointment. At the hearing before the Master, the Debtor evinced an intention of applying to set aside the default judgment. The matter was then adjourned for hearing before me on 4 January.

6. At the first hearing of the petition, the court gave directions for the filing of evidence and essentially gave the Debtor an opportunity to implement his stated intention of retaining legal representation and to set aside the statutory demand. Since that date, there have been two further hearings. The Debtor failed not only to retain legal representation, but also failed to take any steps whatsoever to set aside the statutory demands. On each occasion, he sought time to put in documents which he asserted were pertinent to this matter but being documents within the PRC, he needed time to obtain them and to get them authenticated.

7. At the last hearing on 1 February, I gave directions that the statement filed by the Debtor be sworn by him and that documents that he had with him in court ought to be provided to the Petitioner. The Debtor failed to comply with those directions.

8. There is no doubt that as a matter of law, when hearing a bankruptcy petition, the court has jurisdiction to go behind a judgment and to determine whether there is good consideration for the debt in question. See Re Onslow, ex parte Kibble (1875) LR 10 Ch 373, 376-7, 378; Re Beauchamp [1904] 1 KB 572, 580-581. However, the court would not normally go behind a judgment unless there is sufficient reason to do so. See Re Flatau, ex parte Scotch Whisky Distillers Ltd. (1888) QBD 83, 85-86. In the present case, the debtor does not appear to have made out any reasons at all for the court to go behind the judgment.

- First, after judgment was entered against him, the Debtor clearly acknowledged the judgment debt. This is evidenced by the Deed and the other documents referred to earlier. He has never attempted to challenge the validity of the Deed and one does ask, rhetorically, that if he did have a genuine or bona fide defence, why did he execute the Deed ?

- Second, the Debtor had knowledge of the action and yet he allowed judgment to be entered. There is evidence to the effect that the Debtor was not in Hong Kong on 2 April when judgment was entered, but there is no explanation whatsoever as to why he did not seek an appropriate adjournment or put in a defence.

- Third, the Debtor was well aware of the need to apply to set aside the judgment. Despite the very many opportunities given to him by the court, to date he has failed to take any steps to have the judgment set aside.

- Fourth, the Debtor has repeatedly failed to comply with the directions of this court. The fact that he failed to appear today reinforces the view that he really has no substantive defence.

9. On 4 February, he filed a short statement in Chinese and exhibited a number of documents, the relevance of which is not apparent. He has not sought to put forward any coherent account of why the petition should not go forward. In all the circumstances, the Debtor has shown no reason why a bankruptcy order ought not be made against him. Accordingly, I will make such an order on the Petitioner's petition. The Debtor is adjudged bankrupt and the Petitioner is to be entitled to the costs of the petition.