XCHRX RE IP LAI FAN

HCSD10/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND
NO.10 OF 2000

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D E C I S I O N

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1. This is an application to set aside a statutory demand served on the applicant on 10 April 2000. The hearing was initially scheduled for 3 November 2000 but was adjourned to 3 January 2001 and eventually to 17 May 2001 as a result of two applications for legal aid made by the debtor applicant.

Background

2. The debt in question arose out of a judgment granted in HCA13759/98 ("the Judgment") in favour of the respondent herein, Bank of Communications, against the applicant and her brother Ip Lam On ("Mr Ip").

3. The background leading to the issue of the statutory demand, briefly stated, is as follows.

4. On 30 August 1995, the respondent granted general banking facilities to two companies called Richwin Holdings Ltd ("Richwin") and Onglory Development Ltd ("Onglory") secured respectively by a 1st and a 2nd Legal Charge over 15 properties provided by various parties. By a Deed of Guarantee also dated 30 August 1995, the applicant and her brother jointly and severally guaranteed the indebtedness and liabilities of Richwin. On the same day, Mr Ip also executed a guarantee in respect of the indebtedness and liabilities of Onglory. Richwin has defaulted in its obligations to make payments to the respondent since July 1996. So has Onglory since November 1996. Four out of the 15 properties charged were therefore sold by the respondent to discharge part of the outstanding indebtedness.

5. The respondent also instituted mortgage action under HCMP3924/1998 in respect of the remaining 11 properties. Judgment was granted on 25 November 1998 in favour of the respondent. The respondent's case is that there had been difficulties in obtaining vacant possession of the properties both prior to and subsequent to the making of the judgment so that possession of all the charged properties was only obtained in April 2000. On the other hand, the bank also instituted HCA13759/1998 against the applicant and Mr Ip relying on the Deeds of Guarantee executed by them and the Judgment was entered on 14 December 1998 under Order 14, rule 1 of the Rules of the High Court. The applicant's liability under the Judgment was $15,334,307.96 together with interest and costs on indemnity basis. As no payment was made to satisfy the Judgment, the respondent issued the statutory demand in question on 17 March 2000 and it was served on the applicant on 10 April 2000. A statutory demand had also been issued against Mr Ip and the application to set it aside was refused by Deputy Judge Woolley on 3 January 2001 under HCSD11/2001.

6. The statutory demand in question was issued for $14,718,166.72, which had already given credit for the amounts recovered from the sale of the four properties mentioned above. Since then, some of the other properties had also been sold, as a result of which the applicant's liability was reduced to $12,366,650.62 as at 28 December 2000.

The application for adjournment

7. At the commencement of this hearing, Mr Chow for the applicant applied for an adjournment on the basis that the applicant is applying for leave to appeal against the Judgment out of time and the hearing is scheduled for 5 July 2001. Miss Law for the respondent opposed the adjournment.

8. In exercise of my discretion, I refuse the application for adjournment. My reasons are twofold. Firstly, while I was not shown the Notice of Appeal, I was told that it was only filed yesterday and the ground relied upon for the appeal was that the applicant was misled into executing the Deed of Guarantee on which the Judgment is found. In the present application, the applicant has made no challenge to the validity of the Judgment or of the Deed of Guarantee in either her application or the supporting affirmation. It is to be noted that in making the application and affirmation, the applicant was legally represented. For one thing, the applicant is bound by her application and affirmation. Her pending appeal is therefore strictly speaking irrelevant. Not only that, it is difficult to understand why such a fundamental challenge was only made so late in the day. This brings me to the second reason for refusing the adjournment. In HCA13759/1998, the applicant had given notice of intention to defend through a firm of solicitors. No defence was however filed. Summary judgment was eventually entered some three months later. More than two years later, the applicant now wishes to appeal against the Judgment. That is rather extraordinary. Any challenge to the validity of the Deed of Guarantee would be apparent to any legal representative advising the applicant. It is most unusual that there was no attempt to do so until the day before the second adjourned hearing of the application to set aside the statutory demand. It is not to be forgotten that the applicant had had the benefit of two different firms of solicitors since being served with the Writ in HCA13759/1998. In my view, one cannot help agreeing with Miss Law when she submitted that this belated appeal is but an attempt to delay these proceedings, knowing full well that there is no merit in her present application, a matter which I shall come to shortly. Mr Chow submitted that the adjournment should be allowed as there would not be any irremediable prejudice to the respondent. I hesitate to agree, even though the respondent has not pointed to any form of actual prejudice. It is trite that because of the "relation back" principle, the date of presentation of bankruptcy petition is of material significance when the official receiver comes to collect the assets of a bankrupt. It is therefore essential that any application to set aside a statutory demand should be proceeded with diligently and disposed of expeditiously. In this case, the application has been delayed for more than a year. Any further delay, unless for very cogent reasons, should not be allowed. Accordingly, the application for adjournment is refused.

The application to set aside

9. I now turn to deal with the main application. The applicant's main ground for setting aside the statutory demand is that the respondent, at the time of the issue of the statutory demand, was holding 11 properties as security, the value of which was more than sufficient to discharge the outstanding judgment sum, and that there was no mention of this in the statutory demand. The applicant also alleged that the respondent had previously agreed not to enforce the Judgment if the applicant would not oppose the application for judgment in HCA13759/1998.

10. Similar grounds had been raised by Mr Ip in his application to set aside the statutory demand, but was rejected by Deputy Judge Woolley : see the decision in HCSD11/2000. I respectfully agree with the Deputy Judge on the reasons he gave for so deciding, which can be summarized as follows.

11. Rule 48(5)(c) of the Bankruptcy Rules, Cap.6 provides that a statutory demand may be set aside if :

"(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the Court is satisfied that the value of the security equals or exceeds the full amount of the debt; ....."

In order to come within the ambit of Rule 48(5)(c), the applicant needs to show that the creditor holds some security provided by her over the debt in question and it is insufficient where the security is provided by third parties : In Re A Debtor [1989] 1 WLR 452 applied in Re Kwok Chok Yee [2000] 2 HKC 543 and Wong Ho Ming Kenneth v. The Honkong Chinese Bank Ltd, (unreported) HCSD17/1999. In the present case, it is common ground that none of the 15 properties covered by the legal charges and held by the respondent was property of the applicant. Accordingly, the applicant cannot avail herself of the provision of Rule 48(5)(c).

12. Even if the applicant can invoke Rule 48(5)(c), the valuation evidence before the court shows that the value of the remaining five properties was only $2,680,000, which was insufficient to cover the debt owed by the applicant. Although the applicant had suggested in her affirmation filed on 28 April 2000 in support of the applicant that the security held by the respondent worth $21,000,000, she has never produced any valuation report in support. The applicant has therefore failed in discharging her burden of showing that the value of the security equals or exceeds the debt. It was submitted that the respondent should have withheld any action until after all the properties are sold so as to ascertain the net liability of the applicant. The short answer to this is that the respondent is not obliged to do so. It is also for the applicant to show that her liability can be fully discharged upon the sale of all the remaining properties. Such evidence, however, is not forthcoming. As to the allegation that the respondent had promised not to enforce any judgment obtained in HCA13759/1998, I find it inherently difficult to believe. The evidence adduced does not explain why the respondent, being a bank, would wish to obtain a judgment against a customer which it has no intention to enforce. It simply defines commercial sense.

13. It is plain that the application has no merits and has to be dismissed. There is no reason why costs should not follow event and the respondent should have the costs of this application. It was argued that the respondent should not be awarded the costs of the first hearing on 3 November 2000 in that it had failed to have the legal aid stay lifted. At that hearing, Yuen J had reserved the costs to the judge hearing the application. The continuation of the stay has proved to be of no useful purpose. The applicant did not succeed in obtaining legal aid. There is also no merits in her setting aside application. The respondent should therefore have the costs of the hearing on 3 November 2000 as well.

Conclusion

14. The orders I make are as follows :

(1) The application is dismissed.

(2) The respondent may present a bankruptcy petition on or after 31 May 2001.

(3) The costs of this application, including that of 3 November 2000, be to the respondent against the applicant to be taxed if not agreed.