XCHRX RE: CHAN CHUN HEI DAVID and EX PARTE: CHAN KAM TSUEN WALTER

HCB 2610/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS NO. 2610 OF 2001

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REASONS FOR DECISION

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1. This is an application taken out by the debtor for security for costs to be provided by the petitioning creditor who is resident abroad. The provision relied on was r.55 of the Bankruptcy Rules which is as follows:

"A petitioning creditor who is resident out of the jurisdiction, or whose estate is vested in a trustee under any law relating to bankruptcy, or against whom a petition is pending under the Ordinance, or who has made default in payment of any costs ordered by any court to be paid by him to the debtor, may be ordered to give security for costs to the debtor."

2. It was accepted by Mr James Thomson, who appeared for the debtor, that the court does have a discretion whether or not to order security for costs under r.55. This is similar to the situation where an application for security for costs is made under the Rules of the High Court, O.23 r.1 in that it is accepted that there is no longer an inflexible or rigid rule that a plaintiff resident abroad should provide security for costs and that the court may order security if, having regard to all the circumstances of a case, the court thinks it just to do so. Mr Thomson also accepted that one of the matters that the court might take into account is the petitioner's prospects of success in the petition for bankruptcy against the debtor.

3. The background matters giving rise to the petition may be set out as follows.

4. The petitioner and the debtor are brothers. On 19 June 1998, Hartmann J gave judgment in favour of the petitioner against the debtor in High Court Action No. 12972 of 1995 which was consolidated with High Court Action No. 1678 of 1997 in the sum of US$100,000.00 with interest thereon as stipulated. The debtor did not pay the judgment debt. Interest on the judgment sum calculated up to 30 July 2000 amounted to HK$368,672.69. The petitioner was awarded costs in the proceedings and the taxed costs and interest thereon up to 30 July 2000 came up to HK$829,887.05. Thus, the total amount of the judgment debt, interest thereon, taxed costs and interest on taxed costs came up to HK$1,978,559.74.

5. As the debtor failed to make payment of any part of the debt, the petitioner applied for and obtained charging orders over these properties of the debtor:

(1) 22nd Floor, Rich Building;

(2) Flat A, 9th Floor, Way Man Court, Nos. 50 and 52 Village Road, Hong Kong ("The Way Man Property");

(3) Flat B, 19th Floor, Fullham Court, No. 5, Tong Shui Road, Hong Kong;

(4) Car parking spaces Nos. 1 and 2 on 4th Floor, Elegance Tower, No. 64 Village Road, Hong Kong.

6. The property in Rich Building was sold and net proceeds of HK$787,125.00 were realised to satisfy in part the petitioner's debt, reducing the balance outstanding to HK$1,191,434.74. No payment has been made by the debtor to satisfy any part of this outstanding balance.

7. The petitioner served a statutory demand on the debtor by post on 20 October 2000 and by advertisement in a newspaper on 7 November 2000. On 23 April 2001, the petitioner filed his petition for bankruptcy against the debtor and this was served on the debtor personally on 15 June 2001. The application for security for costs by the debtor was taken out on 13 July 2001.

8. In the amended petition, which was filed on 4 September 2001, the petitioner stated that in the event of a bankruptcy order being made against the debtor, he is willing to give up his security over all the other properties for which he has obtained a charging order as mentioned above as well as his security over an index-linked savings certificate for ￡5,125.00 in England registered in the debtor's name.

9. The debtor has filed affidavits in opposition of the petition. I understand that a further affirmation is to be filed exhibiting a valuation report that the debtor's solicitors have obtained in respect of the Way Man Property, which is worth more than the debt in the amended petition. It has no material bearing on my assessment of the prospects of success of the petitioner in these proceedings. In his affidavits, the debtor asserted that he has "assets greater than his indebtedness". He stated that the petitioner has obtained charging orders on his landed properties in Hong Kong as mentioned above, that the property at Fullham Court has a heavy overdraft charged on it to a bank leaving an equity of about HK$300,000.00, and that the two car parking spaces in Elegance Tower are "highly unsaleable". The only ground for opposing the petition, as confirmed by Mr Thomson, is that the debtor has brought proceedings against the executrix of his mother's estate in HCA No. 16978 of 1999 seeking a declaration that the notice of severance executed by his mother who severed her joint tenancy with the debtor over the Way Man Property was invalid. If he should succeed, the debtor would own the entire property under the doctrine of survivorship and he would then sell the Way Man Property to discharge the debt owed to the petitioner. Apart from the claim for a declaration in respect of the Way Man Property, the debtor has made a claim against his mother's executrix of about HK$1.2 million being monies he had allegedly paid on behalf of his mother.

10. The debtor's action against his mother's executrix was tried before me in June 2001 and judgment has been reserved. Mr Thomson submitted that once there is a judgment in the debtor's favour, the debtor will be solvent. Alternatively, he invited the court to adjourn his application for security for costs until after judgment is given in HCA No. 16978 of 1999.

11. I am quite unable to see why the petitioner should wait until the outcome of the judgment of the debtor against the executrix. He has obtained a judgment against the debtor since June 1998. It is a debt for a liquidated sum presently owing to the petitioner and on the available evidence, there is apparent inability to pay. I am satisfied that the petitioner has good prospects of success on his petition and it is inappropriate in the circumstances to order him to pay security for costs notwithstanding that he is resident in England.

12. For the above reasons, I have made an order at the hearing dismissing the debtor's application for security for costs and I have awarded costs of the application to the petitioner in any event.