AU-YEUNG PING KI v. ASIAN OUTREACH INTERNATIONAL LTD

HCSD 6/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 6 OF 2005

JUDGMENT

Background

1.   This judgment deals with an argument on costs.  The application for setting aside the Statutory Demand has been concluded at the last hearing when the respondent did not raise any objection to it.  Despite the setting aside of the Statutory Demand, the respondent still asks for costs of the application.  The respondent’s argument is that the applicant has behaved unreasonably and escalated costs unnecessarily.  The Applicant on the other hand asks for costs to follow the event.

2.  The Statutory Demand was issued by the respondent’s solicitors on 4 March 2005.  It is in accordance with form no. 163 in the Schedule of the Bankruptcy (Forms) Rules, Cap. 6.  A blank form in Chinese was also provided for the applican’s reference.  The Demand provides at the end the following:

“If you dispute the demand in whole or in part you should-

§ contact the person or persons (or one of the persons) named in Part B immediately.

If you consider that you have grounds to have this notice set aside or if you do not receive a satisfactory written reply from the person or persons (or one of the persons) named in Part B before the expiration of 18 days after the service you should-

§ apply without delay to the Court of First Instance to have the notice said aside.”

3.  The respondent, after receiving the Demand, did not consider that it was rightly issued.  However, he did not contact the respondent’s solicitors named in the Demand to tell them his reasons.  He instead instructed his own solicitors and counsel with a view to set aside the demand. 

4.  He made an affirmation for the discharge on 21 March 2005 and filed on with this court on 22 March 2005.  By a letter of 24 March 2005, his solicitors notified the respondent solicitors about the application to set aside.  The respondent’s solicitors wrote his solicitors also on 24 March 2005 seeking the grounds thereof.  The relevant paragraphs read:

“We however note that your client has failed to contact us immediately when he disputes our client’s demand in whole or in part as required by the Statutory Demand.  Please therefore provide us with the grounds on which your client claims that the Statutory Demand should be set aside on or before 31 March 2005.  Alternatively, please let us have a copy of the affidavit/affirmation in support of your client’s application in HCSD No. 6 of 2005 by the same date.

We reserve our right to produce a copy of this letter to the Court on the issue of costs ”

5.  The applicant’s solicitors did not respond to this letter at all.  On 1 April 2005, the Court notified the applicant’s solicitors that there should be a hearing to determine the application.  On 11 April 2005, the applicant’s solicitors attempted to fix a date for the hearing of the application, but was told that the date should be fixed in the presence of both parties.  A telephone call was then made to the solicitor handling this matter for the respondent.  The solicitor replied that her firm might not have instructions to act for the respondent in the hearing but she enquired when the applicant’s affirmation would be given to the respondent. 

6.  A notice to act was then filed on 12 April 2005 by the respondent’s solicitors.  On the same day, they also made a search of the court file and copied the documents therein.  A call-over day was then fixed on 15 April 2005 and on the same day, the applicant’s solicitors served on the respondent’s solicitors a copy of the applicants affirmation in support of the application.

7.  On 28 April 2005, the applicant’s solicitors wrote the respondent’s solicitors and suggested some directions as well as adjourning the call-over hearing.  The respondent’s solicitors did not respond until 4 May 2005, which was the day before the hearing, and proposed that the Statutory Demand be withdrawn with no order as to costs.  The applicant did not find this acceptable and the Statutory Demand was set aside leaving behind the question of costs to be determined.

8.  Mr. Chong for the applicant knew that the applicant and had a strong case for the application.  He said there was no statutory rule which required the applicant to serve his grounds or his affirmation in response to the respondent’s request.  That may be the case, but the question is whether the applicant should have responded to a reasonable request and this impinges on his entitlement to costs of the application. 

9.  Mr. Chong further argued it was premature to serve the affirmation on the respondent’s solicitors before the court had indicated whether the application would deserve a hearing.  He said if the application should be dismissed without any hearing, his service of the affirmation on the respondent’s solicitors may incur costs to the disadvantage of the applicant.  I do not think that is a valid point.  The affirmation was supplied pursuant to an early request of the respondent and, if the application could not get beyond the ex parte stage, I do not see why the applicant should be liable to the respondent for costs incurred pursuant to the respondent’s request.  I also note that the applicant’s solicitors did not even demonstrate the professional courtesy of replying to this letter and advising the respondent’s solicitors the reason why they did not wish to provide the applicant’s affirmation at that early stage.

10.  Regardless of the merits of the above points, on 1 April 2005, the applicant was aware that he had gone past the ex parte stage, but his affirmation was still not served on the respondent’s solicitors on that day or shortly thereafter.  Mr Chong tried to explain that the time for provision of the affirmation as stated in the despondent’s letter referred to above had passed and the respondent’s solicitors had not repeat their request, hence the affirmation was not provided.  I find this argument absolutely devoid of merit.  There was no indication that the request of the respondent’s solicitors had lapsed.  Even though the time limit imposed had expired on 31st March 2005, 1 April 2005 was still the early stage of the application and if the respondent should see the merit of the application earlier, a lot of costs could have been saved.  But the request was still not entertained.

11.  I also note that the affidavit was still not served on 11 April 2005 when the request was repeated over the telephone.  It was only served on 15 April 2005 after the call-over date has been fixed.  The applicant’s explanation for the delay is to save costs, but I cannot see how costs would be inflated if the respondent’s request should be properly responded to an early stage.

12.  After considering the above matters, I come to the view that the delay of the applicant in responding to do plaintiff’s request for a copy of his affirmation or his grounds for setting aside the Statutory Demand has deprived the respondent an opportunity to accede to the application at an early stage and with a minimum exposure to costs.

13.  However, I also take the view that the respondent has taken to much time in proposing for the withdrawal of the Statutory Demand with no order as to costs.  Its solicitors had searched the court file and obtain a copy documents on 12 April 2005.  The proposal was only made on 4 May 2005.  I think it is unreasonable for the respondent to have taken more than 20 days to consider the grounds set out in the applicants affirmation and to come to a reasonable decision.  If the respondent should have come up with the proposal of withdrawing the Demand and a much earlier stage, it is very likely that there would not have been a need for the call-over hearing even if there should be an argument on costs.

14.  In the premises, I take the view that I should deny costs to both the applicant and the respondent up to 5 May 2005 when the call-over hearing took place because both parties stood in pari delicto.

15.  For costs from 6 May 2005, the position is different.  The respondent has on 6 May 2005 proposed that there be no order as to costs for the application.  In the light of my ruling above, it was a reasonable proposal.  Regrettably it was not taken up by the applicant.  Mr Chong agrees with me that if I should conclude that there should be no order as to costs up to the call-over hearing, then it was unreasonable for the applicant to have rejected the proposal on 6 May 2005 and the applicant should pay the cost thenceforth.

16.  I therefore order that there be no order as to costs of the application up to and including 5 May 2005 and the applicant do pay the respondent the costs from 6 May 2005 onwards.