DR PAUL KI PING-KI AND ANOTHERv. NEXT MAGAZINE PUBLISHING LTD. AND OTHERS

HCA 11533/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A11533 OF 1996

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DECISION

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1. This is an application by the 1st Plaintiff ("Dr Ki") for leave to appeal out of time an order of the Registrar. The order of the Registrar was made in the following circumstances.

Factual background

2. In 1994, Dr Ki sued a number of parties for defamation. The parties sued were Next Magazine Publishing Ltd ("Next") and persons and companies associated with that publication (for present purposes, no distinction has been made between Next and the persons or entities associated with it). This action was HCA No. 8071 of 1994 ("the 1st defamation action").

3. In June 1996, this action was dismissed with an order that costs be paid by Dr Ki to Next.

4. In October 1996, Dr Ki sued Next again in respect of another article. This action was HCA No. 11533 of 1996 ("the 2nd defamation action").

5. In May 1997, the allocatur for the sum of $906,185.40 as costs payable by Dr Ki to Next for the 1st defamation action was filed. This was amended in July.

6. In July 1997, Dr Ki not having made payment, Next served a Bankruptcy Notice on him and in September 1997, a Petition was presented for his bankruptcy. In December 1997, a receiving order was made against Dr Ki. In April 1998, Next filed its Proof of Debt. (The Court was informed that Next is the only creditor who has filed a proof of debt).

7. Meanwhile, Dr Ki proceeded with his 2nd defamation action and this time he succeeded. In December 1998, the jury awarded him $200,100 as damages for defamation. (An order for costs - not assessed as yet - was also made in his favour, although he did not have legal representation).

8. The result of the above events is that although Next had proved a debt of $1,060,882.66 in the bankruptcy (being the costs payable by Dr Ki for the 1st defamation action plus interest), Next was also indebted to Dr Ki in the sum of $200,100.

9. The question then arose as to whether there could be a set-off. The position of the trustee in bankruptcy (the Official Receiver) was that in view of the personal nature of the tort of defamation, the damages awarded to Dr Ki in the 2nd action did not form part of the property vested in the trustee in bankruptcy.

10. The issue then was whether there could be a set-off as between Dr Ki personally and Next. On 19 March 1999, Dr Ki issued a summons for an order that Next pay him the damages of $200,100. In effect, the Registrar was being asked to determine whether Next could set-off the damages, or whether Dr Ki could enforce the judgment giving him that award.

11. The Registrar's order was that "[Next] do within 7 days amend the proof of debt filed with the Official Receiver by deducting from the amount the sum of HK$200,100.00 together with interest thereon at judgment rate from 3 December 1998 [the date of the judgment in the 2nd defamation action] until the date of the Amended Proof of Debt".

12. Although couched in mandatory terms requiring Next to amend its proof of debt, the effect of the order was that Next could set-off its liability to pay Dr Ki's damages in the 2nd defamation action against its entitlement to costs from Dr Ki in the 1st defamation action. Pursuant to that order, Next filed an Amended Proof of Debt in the reduced amount on 20 May 1999.

Delay and reasons given

13. The time prescribed by the Rules of the High Court to appeal a decision of a master is 5 working days from the date of the order. Consequently, the time for appealing the Registrar's order made on 13 May 1999 expired on 19 May 1999.

14. The present application for leave to appeal out of time was issued on 15 March 2000. This is a delay of nearly 10 months.

15. The reason for the delay given by the 1st Plaintiff in his Affirmation in support of the application was that he had been confused by the Registrar's order. He supplemented this in his oral submission on 13 April 2000 by saying that he had been distracted by another case in which he was involved sometime in May 1999.

Principles in considering discretion whether to grant extension of time

16. In considering whether to grant an extension of time for appealing the Registrar's decision, the Court has to undertake a balancing exercise. Factors to be weighed include:-

(1) the length of the delay;

(2) the explanation for the delay;

(3) the extent of any prejudice to the respondent;

(4) the merits of the appeal.

Length of delay

17. In the present case, the length of the delay is substantial. Set against a time limit imposed by the Rules of Court of 5 days for lodging an appeal, a delay of 10 months is, on any view, a most substantial delay.

Explanation for delay

18. The explanation for the delay is quite unacceptable. If Dr Ki was confused by the Registrar's order which he says seemed to him to be inconsistent with the judgment in the present action in his favour and the position of the trustee in bankruptcy, all the more reason why he should have prosecuted an appeal with alacrity. It is also unacceptable to say that he was "distracted" by another action - especially when the delay is as substantial as 10 months. Nothing further is revealed about this "distraction" - no explanation has been given as to why he revived this matter for appeal after such a lengthy period of inactivity.

Prejudice to respondent

19. As far as any prejudice is concerned, there is no evidence that there has been any substantial or irremediable prejudice caused to the Respondent, save the inherent prejudice of an additional period of uncertainty and delay (Chiu Sin-chung v Angela Yu Yan Yan [1993] 1 HKLR 225, 229).

20. Although Mr Richard Khaw, counsel for Next, stressed the finality of the Order and that fact that Next had acted upon it by amending its Proof of Debt on 20 May 1999 (a day after the appeal period had expired without any appeal being lodged by Dr Ki), Mr Khaw has accepted fairly that there is nothing which prevents Next "re-amending" its Proof by putting the amount back up to the "pre-set-off" figure.

21. The Amended Proof of Debt has not been admitted or rejected yet by the trustee in bankruptcy. There has been no indication from the trustee in bankruptcy of any intention to declare a dividend. There are no other creditors who may be affected by any changes. In these circumstances, the prejudice suffered is not as great as would be expected from an appeal being lodged after so great a delay.

Merits of the appeal

22. In considering whether to grant an extension of time for appealing, especially after a contested hearing in the court below, the merits of the appeal must be examined. In Chiu Sin-chung, at 228, Keith J (as he then was) held :-

"the greater the delay and the more inexcusable it is, the greater the merit required to overcome it. ... a litigant who seeks an extension of time to file a Notice of Appeal must show a real prospect of success on the merits if the delay is substantial and not wholly excusable. Even then, the delay and the reasons for it may still be such as to justify a refusal to extend the time".

23. In the present case, the delay is substantial and not excusable. Dr Ki must therefore show a "real prospect of success on the merits" to earn an extension. In the light of the matters below, I find that he has not satisfied this burden.

Section 35 Bankruptcy Ordinance

24. The issue is whether Dr Ki could claim to be paid the award of damages under the 2nd action without having to set it off against the amount that he owed Next under the 1st action.

25. He can only do so if Next is somehow precluded from applying s.35 of the Bankruptcy Ordinance. This section provides:-

"Where there have been mutual credits, mutual debts or other mutual dealings between a bankrupt against whom a bankruptcy order is made under this Ordinance and any other person proving or claiming to prove a debt under the bankruptcy order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings and the sum due from the one party shall be set off against any sum due from the other party and the balance of the account, and no more, shall be claimed or paid on either side respectively; but a person shall not be entitled under this section to claim the benefit of any set-off against the property of a bankrupt in any case where he had, at the time of giving credit to the bankrupt, notice that the petition had been presented."

26. So the question is whether the damages payable by Next under the 2nd defamation action could form part of "mutual debts" or "other mutual dealings" between Dr Ki and Next.

Wide meaning given to "mutual dealings"

27. The thrust of modern case law appears to be that a wide meaning is given to these words. This is part of the courts' approach to bankruptcy set-off (cf legal set-off) as a means to do substantial justice between the parties.

28. Mutual "dealings" do not have to arise out of contract. In Re D.H. Curtis (Builders) Ltd [1978] Ch 162, Brightman J (as he then was) held, after examining the relevant case law, that the word "mutual" in the context of s.31 Bankruptcy Act 1914 (equivalent to s.35 of the Bankruptcy Ordinance) connotes merely commensurable events. Any mutual demands capable of being proved in bankruptcy could be the subject matter of set-off whether or not arising out of contract. In D.H. Curtis, the court accepted that the Crown was entitled to set-off Customs and Excise repayments due against money owed by a company in liquidation to the Department of Health and Social Security and the Inland Revenue.

29. Applied to the present case, Next had (after the 1st defamation action) a demand against Dr Ki for about $1m., and Dr Ki had (after the 2nd defamation action) a demand against Next for $200,100 and interest. These were mutual demands encompassed within the term "mutual dealings" in s.35 of the Bankruptcy Ordinance.

Contingent liability sufficient

30. The fact that the 2nd defamation action had not yet been heard at the time of the receiving order does not affect the right to set-off. So long as Dr Ki's cause of action against Next had accrued at the time of the bankruptcy order, Next was contingently liable to Dr Ki and a set-off could apply. It matters not that it was only a contingent liability and the amount unascertainable then.

31. In Re Charge Card Services Ltd [1987] 1 Ch 150, Millett J (as he then was) held that there was no distinction between a liability the existence of which was still contingent at the date of the receiving order and a liability that was then certain but the amount unascertainable because its quantification depended on future events - both were contingent liabilities which could be set-off.

32. He held that the object of the section was to prevent injustice to a party from having to pay in full what it owed to the bankrupt whilst having to rest content with a dividend on what the bankrupt owed it. At 190 D-E, he held:-

"to disallow the set-off of a provable debt merely because it was still contingent at the date of the receiving order, where the contingency has since occurred and the liability which has arisen is exclusively referable to and has resulted in the natural course of events from a transaction between the same parties entered into before the receiving order, would in my judgment be productive of the very injustice the section [s.31] and its predecessors were designed to prevent".

33. This approach has been affirmed by the House of Lords in Stein v Blake [1996] 1 AC 243, 252.

34. Applied to the present case, at the date of the receiving order (3 December 1997), the article the subject-matter of the 2nd defamation action had already been published and indeed a writ had already been issued by Dr Ki against Next (on 10 October 1996) alleging that it was liable to him for damages for defamation. A contingent liability of Next to Dr Ki had arisen. The contingency has since occurred with the finding that Next was liable to Dr Ki for damages for defamation. The liability which has arisen is exclusively referable to and has resulted in the natural course of events from the acts of the parties before the receiving order.

35. In the circumstances, a set-off under s.35 can be applied. It is true that at the time Next put in its 1st Proof of Debt, no mention was made of the contingent liability, and it might have been more prudent for Next to have stated that contingent liability (cf Stein v Blake, 252H-253B for techniques relating to estimation of values of contingent claims).

36. But it matters not, at least in the present case, that that had not been done. No admission or rejection of the proof of debt (whether in the original or amended form) has yet been made by the trustee in bankruptcy. There has been no indication from him of any intention to declare a dividend. There are no other creditors who may be affected by any changes. The estate appears to be far from its winding-up stage.

Conclusion

37. The effect of the above is that there can be a set-off by Next of Dr Ki's award of damages under the 2nd action against the amount that he owed Next under the 1st action. In other words, Next is entitled to file a proof of debt of the net balance. The Registrar's decision was correct, although no order as such was necessary because there are no rules requiring leave to be obtained for amendment of proofs of debt.

38. In view of the above, Dr Ki has failed to show a "real prospect of success on the merits" to earn an extension of time for appeal, particularly in the light of such a lengthy delay.

Order

39. The application is dismissed and I would give an order nisi that the costs of the application (save the costs of the hearing on 13 April 2000, for which I have already made an order) be paid by the Applicant to the Respondents.