CHENG WAI KIN v. SONG CONGYING

HCSD 11/2018

[2021] HKCFI 2438

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 11 OF 2018

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REASONS FOR DECISION

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A.  INTRODUCTION

1.  This was the respondent’s application for stay of execution of the costs order made by this court dated 19 March 2019 (“Costs Order”)  pending determination of the proceedings in HCA 1625/2019 (“High Court Action”)  or until further order of the court: see Summons dated 28 August 2020 (“Summons”).

2.  At the end of the hearing I ordered that:

(1)  The Costs Order be stayed upon the condition that the entire sum of HK$818,459.00 be paid into court pending the handing down of the final judgment of the High Court Action within 14 days; and

(2)  Liberty to the applicant to apply to vary the condition.

3.  Reasons for my Decision were reserved, which I now give.

4.  In a nutshell, the respondent’s position was as follows:

(1)  The respondent has a liquidated claim against the applicant for the sum of RMB3.43 million pending in the High Court Action;

(2)  If the respondent succeeds in the High Court Action, she would be entitled to set off the whole of the costs payable under the Costs Order (taxed at HK$650,686.70)  against the sum of RMB3.43 million;

(3)  A stay would not cause any prejudice to the applicant, when the entire sum covered by the Costs Order plus interest is paid into court as a condition of the stay; and

(4)  Unless the stay is granted, the applicant will proceed with bankruptcy proceedings against the respondent.  It would plainly be an abuse of process for the applicant to do so, in light of the respondent’s willingness to make payment into court.

B.  MATERIAL BACKGROUND

5.  The material facts relating to these proceedings are set out in paragraphs 1 to 17 of the Judgment of this court dated 19 March 2019 (the “Judgment”).

6.  It is undisputed that the respondent and the applicant (either in their own capacities or as agents)  entered into a transaction on 12 October 2017 (“Transaction”)  for the exchange of RMB3.43 million into HK$4 million: Judgment §§10-12.

7.  It is also undisputed that the respondent (or a company owned by the respondent)  transferred RMB3.43 million to accounts nominated by the applicant, but to date the applicant has not transferred HK$4 million to the respondent: Judgment §§13-14.

8.  Accordingly, the respondent served a statutory demand dated 19 March 2018 (“SD”)  on the applicant for payment of HK$4 million: Judgment §§1-2.

9.  This court granted the applicant’s application to set aside the SD on the basis that there was a bona fide dispute as to whether the respondent and the applicant had entered into the Transaction in their own capacities or as agents: Judgment §§23, 28, 37.

10.  This court further made a costs order nisi (which has since become absolute)  (ie the aforementioned Costs Order)  for the respondent to pay the applicant’s costs of his application: Judgment §§39-40.

11.  By an allocator dated 11 May 2020, Deputy Registrar SP Yip certified the sum due pursuant to the Costs Order as being HK$650,686.70.

12.  On 26 March 2019, the respondent commenced the High Court Action to claim the sum of RMB3.43 million (ie the sum paid by the respondent to the applicant under the Transaction)  or its Hong Kong Dollar equivalent on the grounds of breach of contract and/or unjust enrichment.

13.  However, notwithstanding the pending claim by the respondent against the applicant in the High Court Action, the applicant has by his solicitors indicated that he intends “to proceed with … bankruptcy proceedings against [the respondent] without further notice”: letter from Robertsons dated 8 July 2020.  To this end, he has purported to serve statutory demands on the respondent in respect of the sum of HK$650,686.70.

C.  GOOD REASONS FOR A STAY

14.  The respondent submitted that the execution of the Costs Order should be stayed pending determination of the High Court Action, because the respondent was entitled to set off the Costs Order against her claim under the High Court Action:

(1)  An equitable set-off is available where “the claim and cross-claim, even if not arising from the same transaction, are so closely connected that it would be inequitable for one claim to be enforced without credit being given for the other”: Delco Participation BV v Chiho Environmental Group Ltd [2020] 5 HKLRD 712 at §34 per Kwan VP.

(2)  The Costs Order arose from the setting aside of the respondent’s SD in respect of the sum claimed in the High Court Action. Plainly, the Costs Order is so closely connected with the respondent’s claim in the High Court Action that it would be inequitable for the Costs Order to be enforced without credit being given for the High Court Action.

(3)  Equitable set-off may be given effect after judgment by way of a stay of execution: Derham on the Law of Set-off (4^th ed)  at §2.96.

15.  In Tsui Po Hing v SK Kaken Co Ltd (unrep, HCCL 42/2004, 27 April 2010), Stone J granted a stay of execution in similar circumstances:

(1)  In that case, the party against whom a costs order had been made sought a stay of execution on the basis that he had brought a counterclaim in a collateral action against the parties who were seeking to enforce the costs order against him by way of bankruptcy proceedings: §§15, 43.  Stone J granted the stay: §44.

(2)  The present case is similar to Tsui Po Hing in that if the respondent succeeds in her claim against the applicant in the High Court Action, “then not only will [s]he not be in debit to [the applicant] in terms of the taxed costs as now assessed …, but, to the contrary, [s]he will be well in credit and it will be [s]he who is owed a substantial sum by [the applicant]”: Tsui Po Hing at §15.

16.  As mentioned, the respondent was willing to pay the full amount due under the Costs Order into court (with interest up to a notional date of the trial of the High Court Action).  Indeed, the respondent had repeatedly indicated her proposal that the Costs Order be stayed on the condition of payment into court.

17.  In light of this, I agree it would in fact be an abuse of process for the applicant to continue to seek to bankrupt the respondent:

(1)  Given the respondent’s willingness to secure the debt by payment into court, there can be no dispute that the respondent is able to pay her debts.  In this regard, section 6A of the Bankruptcy Ordinance (Cap 6)  provides that “the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either (a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as the statutory demand)  in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor …” (emphasis added).

(2)  Therefore, it would be an abuse of process for the applicant to insist on bringing bankruptcy process against the respondent (as the applicant intends to do), knowing full well that the respondent has the ability to pay: Bio-Chem Technology (HK)  Ltd v Rich Leaf International (HK)  Ltd[2019] 2 HKLRD 1087 at §22 per ST Poon J.

18.  No prejudice would be caused to the applicant if the stay was granted:

(1)  If the court orders a stay on condition of payment into court, “the delay to the defendants is ameliorated by the certainty that there is a sum of money in court that they can look to”: 廈門新景地集團有限公司 v Eton Properties Ltd (unrep, HCCL 13/2011, 2 December 2013)  at §10 per Bharwaney J.

(2)  On the applicant’s own case, the applicant and his currency exchange business were in healthy financial condition and have no financial difficulty.  Given that the applicant was not in urgent need of money, no prejudice would be caused to the applicant by the delay.

D.  CONCLUSION

19.  For the above reasons, I exercised my discretion to stay the Costs Order upon the condition that the aforesaid sum of HK$818,459.00 (which included interest calculated up to 1 June 2022)  be paid into court pending the resolution of HCA 1625/2019 (ie the High Court Action as defined hereinabove).