LO CHUN CHEONG v. AU WAI MING

CACV167/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 167 OF 2015

(ON APPEAL FROM HCB NO 7306 OF 2014)

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JUDGMENT

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Hon Cheung JA:

1.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

2.  This is an appeal by Au Wai Ming (“the appellant”) from a Bankruptcy Order made against him by Ng J on 10 July 2015. 

Background  

3.  A year earlier, on 7 July 2014 a judgment in default of defence in DCCJ2050/2014 (“the District Court judgment”) was obtained by Lo Chun Cheong (“the respondent”) against the appellant.  The judgment was for $461,291 with interest at 8% from date of writ to date of judgment, and $6,500 fixed costs (“the judgment debt”). 

4.1.   Pursuant to the judgment debt, a Statutory Demand was served on the appellant personally on 27 August 2014.  He did not apply to set it aside.

4.2.   On 26 September 2014, a bankruptcy petition was presented.  It was served personally on the appellant on 14 October 2014. 

4.3.   On 5 January 2015, the appellant filed an affirmation opposing the petition.  He disputed the debt.  In his affirmation he said:

-   he had known the respondent since 2005 through the renting of a flat;

-   he had only introduced the respondent to the manager of a restaurant which he (the appellant) had owned before 2004;

-   he later learnt that a large number of wines were sent to the restaurant on consignment terms;

-   he did not hear anything about the wines and it was only later that the respondent told him that 20% of the wines had been sold and “he had to retreat all wines which I believe still in the restaurant”;

-   he had nothing to do with the wines sold.

The appellant should have put forward this/these alleged defence(s) in the District Court action, but he had not done so.

4.4. The respondent filed an affirmation in reply answering the appellant’s affirmation.

5.1.   As the bankruptcy petition was based on the judgment debt, the hearing of the petition was adjourned to enable the appellant to apply to set aside the District Court judgment.

5.2.   On 9 February 2015, the appellant attended the District Court in person, filing a summons for an order to set aside the judgment.  He made an affirmation before a commissioner of oaths in the court building.

5.3.   On 13 February 2015, the respondent filed an affirmation in opposition to the appellant’s summons.

5.4.   The hearing of the appellant’s summons to set aside the District Court judgment took place on 16 February 2015.  However the appellant did not appear.  Accordingly Master SP Yip dismissed his summons with costs.

6.1.   On 2 March 2015, the bankruptcy petition was restored for hearing before Ng J.  It was set down for hearing at 9:30 a.m.  The appellant did not appear when the case was called.  According to the transcriber’s record, the judge commenced the hearing at 9:44 a.m. and made a bankruptcy order against the appellant at the conclusion of the proceedings at 9:54 a.m.

6.2.   On the same day, the appellant wrote to the judge’s clerk alleging that he had arrived in court at 9:45 a.m. but had been told the hearing had finished. 

6.3.   That allegation does not appear to be consistent with the transcript, but be that as it may, the judge restored the hearing of the bankruptcy petition, which then took place on 9 July 2015.

Ng J’s Judgment

7.1.   The learned judge set out the relevant legal principles governing petitions for bankruptcy based on judgment debts in paras. 5-6 of his Judgment which I will not repeat here.  The judge emphasized that passage in Re Tam Mei Kam unrep. CACV87/2012, 8 May 2013 (para. 27) which deals with a situation where the judgment debtor has failed in an application to set aside a judgment.  In that situation, it would be most unlikely that the judgment debtor could nevertheless rebut the prima facie presumption of indebtedness, unless he could satisfy the court that he could impugn the judgment of the court deciding the setting aside.  

7.2.   The judge noted that the statutory demand had not been set aside.  He further considered the appellant’s affirmations and was not satisfied that the appellant had shown a bona fide dispute on substantial grounds.  The judge also found that the appellant had failed to show fraud, collusion or miscarriage of justice in the obtaining of the District Court judgment or in the decision dismissing the application to set it aside.  

7.3.   Accordingly the judge granted the usual bankruptcy order with costs.

Appeal

8.  The appellant appealed.  The only ground stated in the notice of appeal was “not the truth”.

Attempt to adduce fresh evidence

9.1.   Before the hearing of the appeal, the appellant lodged with the court a “new evidence bundle”.  This was improper as he had not filed a summons for leave to adduce fresh evidence on appeal.

9.2.   In any event, even assuming that a summons had been filed, it is clear from well-established case law (Ladd v Marshall[1954] 1 WLR 1489) that where there has been a hearing on the merits (the hearing before Ng J), fresh evidence will generally not be admitted on appeal unless all three of the following conditions are satisfied:

(1)   it must be shown that the evidence could not have been obtained with reasonable diligence for use at the hearing;

(2)   the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3)   the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible though it need not be incontrovertible.

9.3.   The “new evidence bundle” consisted of:

(1)   a document entitled “affidavit”, although it appears to be an exhibit marked “A” in an affirmation (not before this court) of the appellant affirmed before a commissioner of oaths on 14 July 2015;

(2)   a name card of the managing director of the restaurant group referred to in the appellant’s affirmation opposing the petition¹;

(3)   two medical certificates of a hospital dated 10 April 2014 and 12 April 2014 respectively, certifying that the appellant was hospitalized from 29 March 2014 to 12 April 2014, and was recommended sick leave from 29 March 2014 to 29 April 2014.

Discussion

10.  I shall deal with the “new evidence bundle” first.

11.1.   As for (1), the document entitled “affidavit” repeated the matters set out in the appellant’s affirmation opposing the petition, with the exception that in the earlier affirmation, he said he had known the respondent since 2005 through the renting of a flat, but in this document, he said the respondent “was a complete stranger to me”.  Be that as it may, this evidence could have been adduced before the judge at the hearing of the petition.  Accordingly Condition 1 of Ladd v Marshall is not satisfied.   

11.2.   As for (2), there was no explanation in the affirmation as to why the appellant could not have obtained the name card for use before the judge.  In any event, the name card by itself is of no importance.  Accordingly Conditions 1 and 2 of Ladd v Marshall are not satisfied.

11.3.   As for (3), the appellant submitted that the medical certificates were to show why he did not attend the hearing of the setting aside summons in the District Court on 16 February 2015.  Again there was no explanation on affirmation as to why he could not have obtained them for use before the judge since these certificates had been in existence since April 2014, about 15 months before the hearing in July 2015.  In any event, they are of no importance as they do not justify or explain his failure to attend the District Court hearing to set aside the default judgment in February 2015, some 10 months after the expiration of the sick leave period certified in the certificates.  The appellant was clearly mobile by February 2015, as he had attended the District Court in person to file his summons and affirmation the week before the hearing on 16 February 2015.   Accordingly Conditions 1 and 2 of Ladd v Marshall are also not satisfied.

11.4.   For all these reasons, I would have refused leave to adduce the “new evidence” even assuming the appellant had filed a summons.

12.  I shall now come to the appeal proper.  It is well-established that the making of a bankruptcy order is within the exercise of the judge’s discretion, and that an appellate court would not lightly interfere with the exercise of discretion unless the judge had erred in law, or was under a misapprehension of material facts, or had failed to take relevant matters into account, or had taken irrelevant matters into account, or that the decision was “plainly wrong”.

13.  I do not see any of those circumstances in the present case.  The judge applied the principles set out in Tam Mei Kam. Whilst it is true that the summons to set aside the default judgment was not dismissed on the merits, but was dismissed because the appellant failed to attend, it is clear that the appellant had chosen not to attend for there was no medical or other evidence before us deposing to his inability to attend the hearing on 16 February 2015.  Whatever the reason for his not putting forward a defence in the first place before the default judgment was obtained in 2014, he had the opportunityto put forward his defence in his application to set aside the District Court judgment in 2015, but he chose not to do so.  It is clear that he was simply trying to delay the hearing of the bankruptcy petition.

Order

14.  I would dismiss the appeal with costs.

Hon Kwan JA:

15.  I agree with the judgment of Yuen JA. 

CACV 167/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 167 OF 2015

(ON APPEAL FROM HCB NO 7306 OF 2014)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Cheung JA:

1.  I agree with the reasons for judgment of Yuen JA in respect of the application for security for costs of the appeal, and her decision in respect of the summary assessment of costs for the application for security.

Hon Yuen JA:

2.  This is an application by Lo Chun Cheong (“the Creditor”) for security for costs of an appeal lodged by Au Wai Ming (“the Debtor”) from a Bankruptcy Order.  At the conclusion of the hearing on 2 October 2015, we gave judgment on the application ordering that the Debtor pay $65,000 as security for the costs of the appeal.  My reasons appear below. 

3.  Further, upon obtaining the judgment above, the Creditor’s counsel asked for summary assessment of the costs of the summons for security.  We gave the Debtor 7 days to respond in writing but he has not responded on this matter. My assessment appears below.

Background

4.  After a hearing on 9 July 2015, Ng J handed down a judgment the next day and made a Bankruptcy Order against the Debtor. 

Default Judgment in District Court action

5.  The petition for bankruptcy was based on a debt in the sum of $461,291 with interest for which the Creditor obtained judgment in default in DCCJ 2050/2014 (“the District Court action”) on 7 July 2014.  The Creditor’s claim was for the price of goods (a large quantity of wines) sold and delivered to the Debtor from 20 February to 20 August 2008.  

Statutory Demand

6.  Pursuant to the judgment in the District Court action, a statutory demand dated 23 July 2014 was served on the Debtor personally on 27 August 2014.  He did not seek to set aside the statutory demand. 

Petition for Bankruptcy

7.  On 26 September 2014 a petition for bankruptcy was duly presented to the High Court.  It was served on the Debtor personally on 14 October 2014.

8.  On 5 January 2015 the Debtor filed an affirmation in opposition to the petition disputing the debt. He alleged that the wines had not been sold to him personally, and that he had only introduced the Creditor to the manager of the restaurant to which the wines were sold.

9.  This affirmation was answered by the Creditor’s affirmation filed on 29 January 2015.

Application to set aside the Default Judgment

10.  As the petition was based on the judgment debt in the District Court action, the Debtor issued a summons in the District Court on 9 February 2015 seeking to set aside the default judgment.  The ground he gave was that he had not received the writ of summons in the District Court action.

11.  The Creditor filed a number of affirmations in opposition, including one from Li Hon Ki, a process server, filed on 13 February 2015 who deposed that:

(1) the writ in the District Court action had been served in May 2014 by registered post at the Debtor’s last known address, being 24-28 Yik Yam Street, Ground Floor, Happy Valley;

(2) the writ had not been returned through the dead letter service; and

(3) three months later, in August 2014 he (the process server) attended the same address for the purpose of serving the statutory demand, and contact was duly made with the Debtor through a person present at the address.

12.  The Debtor did not file any affirmation in reply.

13.  It would be noted that 24-28 Yik Yam Street was the address given by the Debtor himself in his affirmation filed on 5 January 2015 in the bankruptcy proceedings, although he gave another address along the same street in a later affirmation. 

14.  The Debtor failed to attend the hearing of his summons to set aside the Default Judgment on 16 February 2015.  Master S P Yip duly dismissed his summons with costs summarily assessed at $5,000 and ordered to be payable forthwith.  

Ng J’s Judgment

15.  In the bankruptcy proceedings the Debtor filed an affirmation on 10 April 2015 alleging again that he was not the buyer of the wines. 

16.  As mentioned above, the petition was heard on 9 July 2015.  For reasons given in Ng J’s written judgment handed down on 10 July 2015, the learned judge was not satisfied that the Debtor had shown a bona fide dispute to the debt on substantial grounds. Nor had the Debtor shown any “fraud, collusion or miscarriage of justice” in impugning the default judgment or the decision dismissing his application to set it aside.

Application to set aside Master Yip’s order

17.  Shortly thereafter, on 14 July 2015 the Debtor issued a summons in the District Court for “leave to set aside the order of Master S P Yip dated 16/2/15”. Apparently no affirmation in support was filed. 

Notice of Appeal

18.  Two days later on 16 July 2015 the Debtor served a Notice of Appeal against the Bankruptcy Order. The only ground read: “not the truth”. 

Application for security for costs of appeal

19.  On 20 August 2015 the Creditor issued a summons for security for costs of the appeal.  This was supported by the affidavit of Lee Ying Biu Andrew, the Creditor’s solicitor.  

20.  The Creditor’s application is made on the ground of the Debtor’s impecuniosity, which is generally recognized as a “special circumstance” under Order 59 rule 10(5) of the Rules of the High Court.

21.  The Debtor did not file any affirmation in opposition to the summons.  On 8 October 2015 (after judgment had been given on 2 October 2015), he wrote to the court indicating that he could pay $25,000 as security for costs.   

Principles

22.  The relevant principles governing applications for security for costs of an appeal have been summarized by the Court of Appeal in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650, at 656.  The principles are well-known and are as follows.

“The relevant principles, in particular the treatment of impecuniosity as a special circumstance, are summarized in Hong Kong Civil Procedure 2004 vol. 1 at paragraphs 59/10/28 - 59/10/29. In this context, however, I would emphasize the following:

(1) The fact that an appellant is impecunious does not lead automatically to an order that security for costs must be provided. The court is entitled to consider other relevant factors such as the strength of the appeal to determine whether or not it would be just to order that security for costs be provided.

(2) That said, as a matter of practice, once an applicant for security can demonstrate that impecuniosity (or some other factor such as difficulty or expense in enforcing a costs order) exists, whilst the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made. A common countervailing factor to resist applications for security are the merits of an appeal.

(3) On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the court should form some sort of preliminary, even instinctive, view. Where the merits appear to go strongly one way or the other, this may, by itself, be a decisive factor. Thus, an appeal which is very strong would often be a very good reason not to order security. The converse of course also applies. A hopeless appeal may even by itself justify an order for security. However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which security will be ordered. This is of course on the assumption that a factor such as impecuniosity has already been demonstrated”.

Impecuniosity

23.  It is clear in this case that the appellant is impecunious.   He has been adjudicated bankrupt. 

24.  The fact that the Debtor is a bankrupt is in itself no bar to an order of security for costs of an appeal.  In para. 59/10/26 Hong Kong Civil Procedure 2015 vol. 1, p.1096, the position is set out as follows:

“... where an insolvent or impecunious appellant is not legally aided for the appeal, it is no bar to the award of security for costs by the Court of Appeal that he does not have the money and therefore the security order will have the effect of preventing him from pursuing his appeal; on the contrary that is inherent in most applications for security on the grounds of insolvency or impecuniosity”.

25.  Further it is well-established that

“where ... an appellant contends that security should not be awarded because it would prevent him pursuing his appeal, he has to satisfy the court not only that he is unable to furnish security for costs from his own resources, but also (and the onus of proof is on him on this issue) that he is unable to raise the money elsewhere” (para. 59/10/32 Hong Kong Civil Procedure 2015 vol. 1, p.1097).

Merits of the appeal

26.  As far as the merits of the appeal are concerned, the making of the Bankruptcy Order is an exercise of discretion.  It is well-established that an appellate court would not lightly interfere with a judge’s exercise of his discretion unless it can be shown that he had erred in principles of law, or had misapprehended material facts, or had failed to take relevant matters into account, or had taken irrelevant matters into account, or the exercise of his discretion was “plainly wrong”. 

27.  At the hearing before us, the Debtor repeated that he had nothing to do with the sale of the wines, but it is clear from the narrative of events above that he has failed to take the opportunities available to him previously to put forward his defence.  First, he failed to file a Defence in the District Court last year, and second, when he applied to set aside the default judgment this year, he did not turn up at the hearing. 

28.  The Debtor alleged at the hearing before us that he had had a traffic accident as a result of which he was immobilized.  However he has never asserted this on affirmation, nor produced any documentary evidence in support of this allegation.  Even if he had not realized when he appeared before Ng J that it was necessary to support this bare allegation with evidence, he must have realized that it was necessary to do so before coming to this court.  It is clear from documents in the court file that he has filed affirmations and exhibits in the past, so he obviously knows how to go about it. 

29.  Having considered Ng J’s Judgment and the documents before this court, I did not (at this stage) see any grounds for disturbing the exercise of his discretion.  Ng J had cited the correct principles of law.  Moreover it cannot be disputed that the petition was based on a judgment debt. Although it was a default judgment, the Debtor had his chance to persuade the District Court to set it aside but chose not to appear at the hearing.  In any event the only evidence before the court indicates that the writ in the District Court action was properly served. 

Estimate of costs of the appeal

30.  As for the estimated costs of the appeal, we considered the Creditor’s skeleton bill.  Making some reductions on certain items for the time estimated to be spent, we ordered a sum of $65,000 as security for the costs likely to be incurred for the proposed appeal.

Order for security of costs for the appeal

31.  We therefore made an order in terms of paras. 1-3 of the summons dated 20 August 2015 save that the sum of $65,000 was substituted for the sum of $79,600 in para. 1.

Summary assessment of costs for the application for security

32.  Having considered the statement of costs provided by the Creditor, I take the view that the Creditor’s costs of this summons should be assessed at $50,000, and I would order the Debtor to pay the Creditor this sum.