RE CHEUNG YAN t/a WAH CHEONG

HCB 8407/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCYPROCEEDINGS NO. 8407 OF 2008

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

1.  This was the hearing of a bankruptcy petition presented on 14 October 2008 by Yue Lung Sea Products Trading Company Limited and Yue Loong Ho Limited (“the petitioners”) against Mr Cheung Yan.  The petition is based on a costs order made by me on 24 June 2005, by which Mr Cheung was ordered to pay the costs of proceedings which he had unsuccessfully brought against the petitioners.

2.  The debt alleged in the petition to be outstanding is some HK$750,988.68, representing HK$39,775.00 in respect of unpaid costs, and HK$711,213.68 in respect of interest on the total amount of costs awarded in the sum of HK$2,567,199.36, plus a further amount of HK$85,600 in respect of the fees of a law costs draftsman engaged for the purposes of the taxation of such costs.

3.  The petition is resisted by Mr Cheung.  He disputes the debt, saying that he had in fact reached a settlement with the petitioners (through their solicitors) as to the amount payable and had paid to the petitioners the full amount which was agreed in settlement of the costs order against him.

4.  The relevant background can be briefly stated as follows:-

(1) Although Mr Cheung was legally represented in the proceedings in which the costs order was made, he did not have legal representation when dealing with the taxation of the costs claimed by the petitioners.

(2) On 24 October 2007, Master Levy made an interim costs order, ordering him to pay interim costs of HK$2,286,102.57.

(3) On 31 December 2007, the petitioners issued a Writ of Fieri Facias against Mr Cheung.

(4) On 20 February 2007, Mr Cheung paid a sum of HK$2,367,624.90 to the petitioners following the execution of the Writ of Fieri Facias.

(5) On 5 May 2008, there was a taxation hearing before Master Mary Yuen.  At that hearing, the Master taxed the petitioners’ costs at HK$2,567,199.36, and also allowed the fees of the law costs draftsman employed by the petitioners in the amount of HK$85,600.

(6) On 26 May 2008, an Allocatur was issued in respect of the taxed costs.

(7) On 2 June 2008, the Debtor paid to the petitioners a sum of HK$245,399.46.

5.  The total costs awarded were therefore HK$2,652,799.36 (the total of the sums mentioned in paragraph 4(5) above), while the total amount paid by Mr Cheung was HK$2,613,024.36 (the total of the sums mentioned in paragraphs 4(4) and 4(7) above).  The shortfall was therefore HK$39,775.  This does not take into account interest on the costs, which accrued from the date of the costs order.  The petitioners’ calculation of the amount of interest resulted in a further sum of $711,213.68 being said to be due.

6.  When Mr Cheung made the first payment of HK$2,367,624.90, he appears to have regarded it as being in full payment of the interim costs order, together with an amount of HK$79,651.30 for interest and the balance being referable to the costs of execution of the Writ of Fieri Facias, these amounts being set out on a sheet of paper which Mr Cheung says was given to him by the bailiff when executing the Writ.  However, the petitioners simply treated the whole amount as being a partial payment on account of the legal costs that would eventually be recovered.

7.  Mr Cheung’s position was that the further sum of HK$245,399.46 that he paid on 2 June 2008 was paid in full and final settlement of his liabilities under the costs order.  He said after having paid the first payment, he was told that there was still an outstanding amount, and that he accordingly attended a hearing on 2 June 2008.  He says that he was not represented at that hearing, but that at the hearing, he met the solicitors acting for the petitioners (who also represented them in the taxation proceedings), and had some discussions with them, as a result of which he was told that the petitioners would be willing to accept a smaller amount than would be recoverable in full if he were prepared to make a further one off payment.  He says that he was told that if he paid the sum of HK$245,399.46 (which he says was proposed by the petitioner’s solicitors), that would be accepted in full and final settlement of his liability under the costs order.  He exhibited a copy of the receipt for the payment of the first sum, on which he says he wrote this figure, together with the date 30 May 2008.

8.  In fact, there had been no hearing on 2 June 2008.  The hearing before Master Mary Yuen had taken place some four weeks earlier, on 5 May 2008.  When this was pointed out in the petitioners’ evidence in reply, Mr Cheung filed a further affirmation, explaining that he had made a mistake as to the date, attributing it to confusion on his part.  He said he had mixed up the date of payment with the date of the hearing.  That apart, he reiterated his case as to the alleged settlement.

9.  To complete the picture, it should be noted that on 3 June 2008, the day after the second payment was made, the petitioners’ solicitors wrote to Mr Cheung to demand payment of the outstanding balance of the costs, plus interest, which they stated was just over HK$751,000.  Mr Cheung did not respond to this letter.  Thereafter a statutory demand was served on Mr Cheung on 8 August 2008.  This, too, went unanswered.  However, it seems that this prompted Mr Cheung to instruct solicitors, who wrote to the petitioners’ solicitors on 22 September 2008, asking for a breakdown of the sum claimed, and the relevant orders and correspondence.  Subsequently, on 5 November 2008, they wrote again, having received the information sought on 29 October 2008 (after the petition was presented), and indicated that Mr Cheung’s position was that a settlement had been agreed, and that there was no basis for the petition to have been brought against Mr Cheung.

10.  In the petitioners’ evidence in reply, the petitioners deny having agreed any settlement, and representatives of their solicitors filed affirmations confirming that there was no hearing on 2 June 2008, and that they did not agree any settlement with Mr Cheung.  No further affirmations were filed by the petitioners after Mr Cheung had filed his further affirmation in which he said that he had been mistaken as to the date of the hearing.

11.  It was common ground that in order to resist the making of a bankruptcy order against him, Mr Cheung must show, by sufficiently precise factual evidence, that there is a bona fide dispute of substance as to the debt on which the petition is based.

12.  Mr Ching, who appeared for Mr Cheung, submitted that Mr Cheung had satisfied these requirements.  He submitted that there was clearly a factual dispute as to the existence or otherwise of the settlement which Mr Cheung said had been made, and that this was not a matter that the court could or should attempt to resolve on the basis of the affirmations alone.

13.  He pointed also to the fact that the petitioners had not in terms denied the making of any agreement on 5 May 2008, their evidence being directed more to the absence of any hearing on 2 June 2008, as Mr Cheung had originally stated.

14.  He also suggested that the figure for the further payment, being in a particularly precise amount, was more likely to have been suggested by the petitioners or their legal advisers after having made some calculations, rather than by Mr Cheung, who was unrepresented, and that it would have been surprising that Mr Cheung would have left what would have been a small sum of HK$39,775 outstanding if there had been no settlement.

15.  Against this, Mr Lai, who appeared for the petitioners, suggested that the case that Mr Cheung was putting forward lacked precision and substance, and was merely an attempt to delay matters.  He made the following points:-

(1) Mr Cheung’s case was based on bare assertions, and was unsupported by any independent or verifiable evidence.  Further, the court was not obliged to accept his evidence if it was inherently implausible.

(2) It was clear from the petitioners’ evidence that there was a denial of any settlement whatsoever, and not just one that was allegedly reached on 2 June 2008.

(3) The change of story on the part of Mr Cheung as to the date of the hearing cast doubt on the veracity of his evidence, as it was incredible that he should have made such a fundamental error.

(4) It was unlikely that the petitioners or their solicitors would have agreed to a settlement during the taxation hearing, when the outcome was still uncertain, and still more unlikely that had a settlement been reached during the hearing that the Master would not have been informed of it – had she been, there would have been no reason for her to have made a decision as to the amount of costs to be allowed on the taxation.

(5) Mr Cheung did not respond to the letter of 3 June 2008, sent the day after he made the further payment, in which the petitioners demanded the balance of the taxed costs, plus a considerable sum by way of interest, by writing back and asserting the existence of a settlement.

(6) Nor did his solicitors do so, until some time after they first came on the scene.

16.  There is force in these points.  However, I have come to the conclusion that they do not go far enough to enable me to conclude that Mr Cheung’s case is lacking in substance.  The fact is that Mr Cheung had already made a substantial payment towards the costs claimed in February 2008, and it is not inherently implausible that the parties might have sought to bring matters to a close when they next came together at the taxation hearing.

17.  The fact is that Mr Cheung did make a further payment, in a rather exact amount, shortly after the taxation hearing.  The amount of the costs allowed on taxation had been fixed by the Master on 5 May 2008, and confirmed by the Allocatur of 26 May 2008.  The amount of interest was unknown (at least to Mr Cheung, and quite possibly also to the petitioners at that stage).  There seems to be little reason why he would have volunteered a payment on 2 June 2008, by which time he had not received any further information as to the amount of interest accruing, and less reason why he should have made a payment in a peculiarly precise amount.

18.  The absence of documentation, other than the handwritten notation that Mr Cheung says he made at the hearing, is not, I think, conclusive.  Had he been legally represented, one would certainly expect a record of any agreement to have been made, but it must be remembered that Mr Cheung was acting in person.  For the same reason, it is not, I think, appropriate to dismiss Mr Cheung’s case that he made a mistake as to the hearing date as being wholly unworthy of credit.

19.  As to the suggested inherent unlikelihood of the settlement having been reached but the taxation being allowed to proceed to a conclusion, it seems to me that what happened in the course of that hearing, and how things then transpired, are matters that can only be properly resolved after a court has had an opportunity to consider oral evidence from both sides.  The fact is that there is a distinct divergence between the factual situation posited by Mr Cheung, and that put forward by the petitioners, which is not capable of being resolved on the basis of the affirmation evidence alone.

20.  Further, given that Mr Cheung was unrepresented, I would hesitate to read too much into his failure to respond to the letter of 3 June 2008.  Nor do I think that the delay between the time when his solicitors first came on the scene, and when they advanced the case which he now advances is such as to require it to be rejected out of hand.  It was not unreasonable for them to have sought information from the petitioners so that they could have a full appreciation of the position before responding, and their response was made quite promptly, within about a week of receiving the information requested.

21.  I therefore think that Mr Cheung has done enough to show that there is a dispute of sufficient substance to make it inappropriate to make a bankruptcy order against him.  That is not, of course, to say that he will succeed in his case at the end of the day – he may well not do so.  Rather, it is to acknowledge that the dispute is one that cannot properly be resolved against him in these proceedings.

22.  In the circumstances, I think that the appropriate course to take would be to dismiss the petition, with an order nisi that the petitioners are to pay Mr Cheung his costs of these proceedings, to be taxed on the party and party basis if not agreed.