NG KIN SIU v. GENTLE SOAR LTD

HCSD 26/2021

[2024] HKCFI 589

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 26 OF 2021

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DECISION

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1.  By an application dated 10 June 2021, the Applicant (“Mr Ng”) applied to set aside a statutory demand dated 5 May 2021 (“statutory demand”) issued by the Respondent (“GSL”) for the sum of HK$52 million (“Debt”).

2.  The Debt arose out of a Chinese promissory note dated 21 October 2019 issued to GSL (“Promissory Note”) whereby Mr Ng agreed, confirmed and undertook to repay HK$52 million to GSL upon demand. After the issue of the Promissory Note, on 23 October and 24 October 2019, GSL advanced 2 sums of HK$50 million and HK$2 million to the bank account of Bonus Rich Limited (“Bonus Rich”), a company wholly owned by Mr Ng, as designated by him. It is not in dispute that Bonus Rich received a total of HK$52 million from GSL. It is also not in dispute that the Promissory Note was personally signed by Mr Ng and that he did not repay GSL any part of the HK$52 million pursuant to the Promissory Note.

3.  By a Judgment dated 12 May 2022 (“Judgment”), this Court dismissed the setting aside application. By Order of the same date, GSL was authorised, inter alia, to present a bankruptcy petition against Mr Ng (“Order”).

4.  On 24 May 2022, it was ordered by consent (“Consent Order”) that execution of the Order be stayed upon, inter alia, Mr Ng’s undertaking to pay the HK$52 million into Court. Mr Ng duly did so on 12 July 2022. The sum was paid into Court to hold off the contemplated bankruptcy proceedings against Mr Ng and to enable him to appeal against the Judgment and the Order in the meantime.

5.  On 27 June 2023, Mr Ng’s appeal was heard and dismissed by the Court of Appeal.

6.  By summons dated 18 July 2023 (“Summons”), GSL applied under RHC O 22A r 1(1) for the payment out of (i) the principal sum of HK$52 million paid into Court by Mr Ng and (ii) all interest accrued and accruing thereon.

7.  At the call-over hearing on 11 September 2023, the HK$52 million was by consent ordered to be paid out to GSL in settlement of the Promissory Note, subject to argument on interest as per para 2 (“2^nd Consent Order”). At para 2, it was provided that:

“2. The Payment Out Summons (limited to the issue of whether interest accrued and accruing on the said sum of HK$52,000,000 shall be paid out to the Respondent) be adjourned to a date to be fixed for substantive argument with 3 hours reserved in consultation with counsel’s diaries.”

8.  The only question before this Court is whether the interest accrued and accruing on the sum since it has been paid into Court (“Interest”) should be paid out to GSL or to Mr Ng. The amount of Interest was about HK$2.3 million at the time of the hearing.

9.  The principles governing the Court’s powers under RHC O 22A r 1(1) are well-established:

(1)  The court has wide powers and an unfettered discretion over money paid into court to achieve justice between the parties on the facts and in the circumstances of the case.

(2)  It is always necessary to consider the purpose of the initial payment into court, and where the applicant for release of the payment is in principle entitled to the money, then the respondent must demonstrate good reasons to justify why the court should retain the money instead of releasing it.

Lehman & Co Management Ltd v Effiscient Ltd [2021] HKCA 1657 at [7]

10.  In Re Sy Chin Mong Stephen unrep, HCB 1772/2009, 9 March 2009, Poon J (as Poon CJHC then was) was dealing with a debtor’s application to stay the bankruptcy proceedings commenced by the creditor pending appeal, after the debtor’s application to set aside the statutory demand was dismissed. The learned Judge dismissed the stay application on the ground that the debtor’s appeal had no reasonable prospects of success. But even assuming the debtor had an arguable appeal, the learned Judge observed at [12] that:

“…I think the fairest way to proceed is to impose a condition of stay requiring the applicant to pay into court a sum of money as security for the respondent’s claim. It would address the applicant’s concern that he will not be able to recover his payment if he wins the appeal later. It would also provide sufficient security for the respondent’s claim so that if the applicant’s appeal fails the respondent may resort to the payment into court without ado.” (emphasis added)

11.  By the same token, in the present case, the purpose of the payment in is reasonably clear even though it was not imposed by this Court but by consent: it was by nature a kind of security for the Debt owed to GSL should Mr Ng’s appeal be unsuccessful, in which event GSL could “resort to the payment into court without ado.”

12.  Similarly, in Shandong Chenming Paper Holdings Ltd v Arjowiggins HKK 2 Ltd (2022) 25 HKCFAR 98 where a sum was paid into court pursuant to an undertaking to do so in order to secure the adjournment of a winding-up petition against a foreign company, Fok and Lam PJJ observed at [89] that:

“89…. The sum was paid into court pursuant to an undertaking to do so in order to secure the adjournment of the winding-up petition, which adjournment was effective upon compliance with the undertaking. The payment in was calculated on the basis of the amounts claimed in the statutory demand, which was not otherwise disputed. But for the payment in, the hearing of the petition would have proceeded on the basis of an undisputed debt and the deemed insolvency of the appellant arising from its failure or refusal to meet the statutory demand. For present purposes, it is now too late to challenge the underlying indebtedness…”

13.  In these circumstances, upon the dismissal of the company’s appeal, the CFA ordered that the sum paid into Court, together with the interest accrued thereon, be paid out to the respondent: see [91] of the CFA Judgment.

14.  It seems to this court that, notwithstanding Mr Dawes SC’s submission to the contrary, Shandong Chenming is an authority for the proposition that, where a sum of money, calculated by reference to the amount of the debt owed by a company, is paid into Court as security to obtain a stay or adjournment of winding proceedings pending appeal, the whole of the sum so paid in, together with accrued interest, should be paid out to the respondent who is successful in resisting the appeal.

15.  It should be noted that in Shandong Chenming, the amount paid into court already included an interest element: see [14] of the CFA Judgment. Thus, on a proper reading, the “accrued interest” mentioned in [91] of the CFA Judgment must have referred to interest accrued while the payment remained in Court. Mr Dawes SC’s point that “Interest on the money in court rightly belonged to HKK2 – because the principal sum (indeed together with interest) was not sufficient to cover Chenming’s total liability. There was still liability for which the interest would have served as security” was not used by the CFA in ordering the “accrued interest” should also be paid out to Chenming.

16.  Mr Dawes SC in his skeleton submits inter alia that Mr Ng’s indebtedness to GSL is only HK$52 million, being the Debt due on the Promissory Note. The Promissory Note does not carry interest. Nor is interest included in the statutory demand. Thus once the HK$52 million was paid out to GSL, Mr Ng’s liability was discharged in its entirety. There is nothing left for the Interest to secure, and thus no basis to pay it to GSL. Mr Dawes SC further submits that GSL not being entitled to interest on the Debt is down to its own choice of pursuing bankruptcy proceedings as opposed to a Writ action. There is no basis for GSL to complain that it was kept out of funds since GSL itself agreed to the Consent Order. Delay in receiving payment was part of the agreement.

17.  This court does not accept Mr Dawes SC’s submission.

18.  First, in the present case, at the time of the Consent Order, the parties’ legal advisers must have known or must be taken to know that money paid into Court carried interest and that the whole sum, including accrued interest, would be paid out after the determination of Mr Ng’s appeal, at the Court’s discretion in light of inter alia the outcome of the appeal. No one suggests the accrued interest should remain in the High Court indefinitely. Thus, it must have been the parties’ intention that if GSL was entitled to resort to the HK$52 million upon the dismissal of the appeal, which is not disputed, they must also be taken to have intended that GSL should also be entitled to resort to the interest so accrued.

19.  Second, the HK$52 million was not paid to GSL after the Judgment which ruled at [21] that Mr Ng did not have a defence of substance, when it should have been, and was not available for GSL to use. Mr Ho SC submits and this court agrees that the payment in consists of 2 components. They are (i) Mr Ng’s unequivocal election to pay HK$52 million in return for GSL delaying the immediate presentation of a bankruptcy petition, but this court should add the words “or to take any other action”[1] (“Component 1”), and (ii) payment of the said sum to GSL was delayed owing to the pending appeal (“Component 2”). Instead, the sum was paid into Court as a neutral forum where the money would be safe in the interim. The fact is that the payment which Mr Ng was willing to make under Component 1 was withheld and kept away from GSL pending the determination of the appeal. In other words, GSL’s receipt of the sum was delayed as a consequence of Component 2. The Appeal has now been dismissed. Mr Ng must bear the consequence of occasioning a delay, which is now known to be unjustified by reason of the dismissal of his appeal. Putting it in another way, between the parties on the facts and in the circumstances of this case, justice demands that GSL be entitled to be compensated in terms of the interest accrued and accruing on the sum since it was paid into Court.

20.  For these reasons, despite Mr Dawes SC’s gallant effort, the point must be decided in favour of GSL. In the exercise of this court’s discretion, there shall be an Order that GSL is entitled to interest accrued and accruing on the HK$52 million since the sum was paid into Court.

21.  There shall also be an order nisi that Costs of and occasioned by the Summons, including all costs reserved, be to GSL, with certificate for 1 Senior Counsel, to be summarily assessed on paper if not agreed and paid by Mr Ng forthwith.