PARK CHUL SOO v. SWEE KHENG BUILDING MATERIAL CO LTD

CACV 318/2018

[2019] HKCA 778

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 318 OF 2018

(ON APPEAL FROM APPLICATION TO SET ASIDE A

STATUTORY DEMAND NO 37 OF 2017)

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D E C I S I O N  O N  C O S T S

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Hon Yuen JA (giving the decision on costs of the Court):

Background

1.1  On 27 March 2019, we gave Judgment dismissing the appeal of the Applicant (“Mr Park”) from a judgment of Ng J dismissing his application to set aside a statutory demand (“the SD”) issued against him by the Respondent (“the Company”).

1.2  The demand was in the sum of $1,843,427.  It was supported by audit confirmations and financial statements signed by Mr Park.

2.  Mr Park applied to set aside the demand on two grounds:

(1)  the Company owed him “withheld” salaries in the sum of $1,580,000, so he had a counterclaim, set-off or cross demand for that sum under r.48(5)(a) Bankruptcy Rules (“BR”);

(2)  further, under r.48(5)(b) BR, he disputed a sum of $500,000 on the basis that there was an accounting error.  Although the Company had transferred this sum to him on 4 March 2015 which was booked as a loan to him, he alleged it was actually repayment for a loan he had made to it earlier.  Nevertheless, he had signed “on trust” audit confirmations and financial statements to the effect that he did owe the Company the said sum of $500,000.

3.  The application was dismissed by Ng J on 19 June 2018 with costs.  Mr Park appealed to this court.

Court of Appeal Judgment

4.1  In our Judgment, we explained[1] why in relation to the 1^st ground, on the contemporaneous documents, Mr Park had shown a sufficiently arguable case that he had only agreed that the Company could withhold his salaries in conjunction with that of Mr BY Lim, so that when Mr Lim later drew his salaries on the basis that the Company had shown a profit, Mr Park was also entitled to claim his withheld salaries.  However, the total withheld sum of $1,580,000 did not “equal or exceed” the debt specified in the SD and therefore did not satisfy r.48(5)(a) BR. 

4.2  As for the 2^nd ground, we explained in the Judgment[2] why Mr Park had failed to discharge the burden of showing a genuine triable issue regarding the nature of the payment of the said sum of $500,000.

4.3  Accordingly, even assuming that Mr Park was entitled to counterclaim, set-off or cross demand the alleged withheld salaries, the Company was still able to fulfill the requirement of s.6(2)(a) Bankruptcy Ordinance[3] by reason of the outstanding balance.

4.4  That being the case, the appeal was dismissed with an order nisi that Mr Park pay the costs of the appeal.

Applicant’s Summons to vary costs order nisi

5.  By a summons filed on 10 April 2019 (“the Summons”), Mr Park applied to vary the costs order nisi so that he need only pay 25% of the costs of the appeal and below.  His counsel Mr Toby Brown submitted that in view of Mr Park’s success on the 1^st ground, the net undisputed debt of $263,427 was only 15% of the debt claimed in the SD.

6.  In Mr Joseph Wong’s submissions on behalf of the Company in opposition, he emphasized that pursuant to r.48(5)(a) BR, it is only if Mr Park could raise a counterclaim, set-off or cross demand which “equals or exceeds” the debt specified in the SD that he could have it set aside.  A partial counterclaim, set-off or cross demand is not recognized under the statute.  He noted that Mr Park had not applied to set aside the SD on the basis of the residual discretion under r.48(5)(d) BR.  

7.  In Mr Brown’s reply submissions, he submitted that Mr Park “may now avoid” a bankruptcy order by paying off the “balance of debt” of $263,427, and after the payment, the debt specified in the SD would be reduced to an amount equal to the counterclaim, set-off or cross demand in the 1^st ground, and the SD should be set aside.  He argued that a party facing an SD would be placed in an unenviable position regarding costs because a creditor confident of one debt over $10,000 could then add any other debts even if the latter were shown to be unsuitable for the SD procedure.

Discussion

8.  The discrete issue before the court was whether the SD should be set aside.  Mr Park failed to achieve this both before the judge and before this court. Although he succeeded in raising an arguable case on the facts of the 1^st ground, the sum of the counterclaim, set-off or cross demand was not sufficient under r.48(5)(a) BR to set aside the SD.  He had not tendered the “balance of debt” at any stage before the costs were incurred.  We see no grounds to exercise our discretion to apportion the costs.

Order

9.  We would therefore make the following orders:

(1)  the Summons filed on 10 April 2019 is dismissed,

(2)  the order nisi of this court made on 27 March 2019 is hereby made absolute, and

(3)  the costs of the Summons be to the Respondent, summarily assessed pursuant to Order 62 rule 9A at $30,000.