RE LEE CHEE HO, JULEUS (aka LEE, JULEUS)

HCB 8571/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 8571 OF 2016

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REASONS FOR JUDGMENT

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1.  This is a bankruptcy petition. In the hearing on 15 August 2017, I made the usual bankruptcy against the Debtor. I now give my reasons.

Background

2.  A Statutory Demand dated 1 June 2016 (“the Statutory Demand”) was issued against the Debtor on the basis of a debt which arose from the costs assessed in the total sum of $1,303,208 (together with interest accrued) under an Allocatur in HCA 186/2010 in which the court entered judgment against the Debtor in favour of Wang Bing Qi (“Wang”), having struck out the Debtor’s Re-Re-Amended Defence and Counterclaim.

3.  The Debtor’s application to set aside the Statutory Demand was heard and dismissed by Ng J on 16 November 2016 (“Ng J’s Decision”). The court also ordered that the Petitioner be authorised to present a bankruptcy petition against the Debtor.

4.  On 5 December 2016, the Petitioner (who is the widow of Wang and also the sole executrix of his estate) filed the present bankruptcy petition (“the Petition”).

5.  On 14 December 2016, the Petitioner filed a Notice of Appeal against Ng J’s Decision.  The grounds of appeal boil down to merely one issue, namely whether the Petitioner has elected for damages as opposed to specific performance.  This point has been dealt with and determined in Ng J’s Decision (see §§13-16).

6.  The Petition was first heard by L Chan J on 6 March 2017.  At that hearing, the Debtor applied for an adjournment of the Petition on the basis of the pending appeal (“the Appeal”) against Ng J’s Decision.  The court then gives directions for the Debtor to file evidence to show cause against the Petition.

7.  In his affirmation filed on 9 May 2017, the Debtor, without any summons filed in advance or at the same time, asked for a general and unconditional stay of the bankruptcy proceedings pending the Appeal (“the Stay Application”).  Apart from that, the Debtor did not adduce any further evidence to oppose the Petition.

8.  On 28 April 2017, the Court of Appeal ordered the Debtor to pay security for costs of the Appeal.  The Court of Appeal, in the decision on security for costs, expressed the view that the Appeal “is a rather weak one”.

9.  The Petition then came before me in the hearing on 15 August 2017.

Merits of the Stay Application and the Petition

10.  I agree with Mr Khaw, SC, that there is no merit in the Stay Application and the bankruptcy order should be made against the Debtor.

11.  Firstly, a refusal to set aside a statutory demand (i.e. Ng J’s Decision in the present case) would very often in substance determine in a summary way the substantive rights of the debtor.  In particular, it precludes the debtor from relying on the same grounds for opposing the bankruptcy petition unless there is a change of circumstances.  In practice, it means that the debtor will often have no defence to the petition after an application to set aside a statutory demands fails (see: Chan Yuk Lun v Chun Ying Chit [2015] 1 HKC 316, at 320 §11).  In the present case, as mentioned above, the Debtor’s evidence in the Petition relates to the Stay Application only and he has failed to raise any defence which has not been canvassed in Ng J’s Decision.

12.  Secondly, the court should proceed to make a bankruptcy order if the debtor fails to satisfy the court that he has a reasonable prospect of succeeding in the application to set aside the underlying judgment or an appeal therefrom (see: Re Tam Mei Kam, CACV 87/2012, unrep, 8 May 2013, per Yuen JA at §25.2).  Here, in his 4 pages of Notice of Appeal, the Debtor only seeks to re-run his argument on the issue of election which has been clearly rejected by the court.  As stated in Ng J’s Decision in §13:-

“In this court’s view, the simple answer to [the Debtor’s] so-called cross-claim is that it was he who was held to have been in breach in the first place. After [the Petitioner’s] striking out application succeeded, [the Petitioner] obtained judgment against [the Debtor] and had been given the choice of specific performance or damages in lieu. He was not required to and did not make any election at the time of the judgment. Subsequently, he elected damages in lieu. In two letters dated 1 December 2014 and 18 February 2015, [the Petitioner’s] solicitors had made the election for him, making it clear to [the Debtor’s] solicitors that [the Petitioner] was no longer obliged to perform (or accept [the Debtor’s] purported performance of) the Agreement. Further, at paragraph 9 of [the Petitioner’s] defence in HCA 3105/2015, it was again made abundantly clear that he had elected damages in lieu of specific performance for [the Debtor’s] breach of Agreement. While [the Petitioner] had not yet gone back to the court in HCA 186/2010 to seek assessment of damages, his intention was clear.”

13.  As mentioned above, the Court of Appeal in the decision on security for costs made the following observations on the merits of the pending Appeal:-

“We have considered the reasons why Ng J dismissed the [Debtor’s] application to set aside the statutory demand. Since the Court will hear the appeal in due course, we only need to briefly indicate our preliminary view on its merits for the purpose of disposing of the present application. As the matter now stands before us, we think the appeal is a rather weak one. It certainly does not militate against the ordering of security for costs of the appeal against the [Debtor].”

14.  In his Affirmation filed in support of the Stay Application, the Debtor has not dealt with the question about the merits of the Appeal. 

15.  I have perused the 2 letters dated 1 December 2014 and 18 February 2015 and the Petitioner’s Defence in HCA 3015/2015 in some details, and I agree with the decision of Ng J that the Petitioner had made it clear to the Debtor that she had elected damages in lieu of specific performance.  In such case, there is simply no basis to support the Debtor’s cross-claim.  I also agree with the observations made by the Court of Appeal about the merits of the Appeal.

16.  In the circumstances and in view of the principle stated by the Court of Appeal in Re Tam Mei Kam (above), the Stay Application should be dismissed purely on the basis that the Appeal is devoid of merits.  As there is an existing judgment refusing the application to set aside the Statutory Demand, I proceed to make a bankruptcy order against the Debtor.

17.  This would have been sufficient to dispose of the Petition.  But for the sake of completeness, I would also deal with the question as to whether there is any other good reason to justify the Stay Application.

18.  The mere fact that the Debtor is likely to be subject to a bankruptcy order in the absence of a stay would not render the Appeal nugatory.  In fact, even in the case where a bankruptcy order has been granted, the court is reluctant to grant any general stay (under s.104 of the Bankruptcy Ordinance (Cap 6)) pending an appeal against the order, having regard to the prejudice which may be caused to the creditors and the administration of the estate of the bankruptcy (see: Re David C Buxbaum, HCB 7637/2004, unrep, 16 September 2005, Kwan J (as she then was) at §§14 and 15; Re Zulifqar Ali, HCB 6146/2011, unrep, 15 October 2013, Ng J at §§11-12; and Re Tsang Wing Lam, HCB 1203/2013, unrep, 3 December 2013, Au J at §4).

19.  Mr Babani, counsel for the Debtor, submits that the Petitioner is the only creditor in the present case.  However, such allegation is not backed up by evidence and so the court cannot assume that the Petitioner is the only creditor.  Even if that is the case, there may be prejudice caused to the Petitioner by the delayed administration of the estate.

20.  The Debtor also alleges that if he is adjudged bankrupt, “his firm will not be able to operate and existing clients would be adversely affected as my firm and I would no longer be able to provide auditing services to my clients and they would have to hire new auditors”.

21.  It is well-established that if a debtor’s reason for a stay pending appeal is that the levying of execution would have a serious deleterious effect on him, the court will require good and cogent evidence, such as production of documentary proof, in support of such a contention (see: Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 §9, Ma J (as he then was); and Leo Innotech (Holding) Ltd v Lee Shung Chi, HCA 474/2015, unrep, 13 October 2016, §4).

22.  I accept Mr Khaw’s submission that this is only a bare assertion which is not supported by any particulars, not to mention any documentary evidence.  There is simply no particulars or evidence from the Debtor regarding the volume of his practice or even an approximate number of his clients which may be affected by the cessation of his practice (if it occurs at all).

23.  For the above reasons, the Debtor has failed to show any reason to oppose the Petition.  I therefore made the usual bankruptcy order against the Debtor with costs.