Paul Gavin Jenkins v. Lin Yan Jenny

HCB 5516/2018

[2019] HKCFI 1793

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5516 OF 2018

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J U D G M E N T

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1.By a petition dated 27 September 2018, the petitioner seeks a bankruptcy order against the respondent on the basis of a debt in the sum of $450,000 said to have arisen as a result of the provision of that sum to the respondent for the purposes of a purchase of a property in mainland China, which purpose fell through.

2.Relevantly, for today’s purposes, the debt was first pursued by the making of a statutory demand which the respondent challenged at a hearing dealt with by Mr Justice Godfrey Lam.  The challenge was unsuccessful.  The challenge is relevant because the opposition to the petition now put forward by the respondent is essentially on the same basis as was put forward to challenge the demand, at a time when the respondent was advised by and represented by solicitors and counsel.

3.The principles applicable on an application such as this are well settled and are not substantially in dispute between Mr Lai, who acts for the petitioner, and Mr Chu who acts for the respondent at this hearing.  Essentially, in order successfully to oppose a petition, a debtor has to show a bona fide dispute on substantial grounds by sufficiently precise evidence which is believable and must establish that he or she actually has a defence of substance, not just a fair probability of one.

4.Mr Chu did refer me to a number of authorities, which he confirmed in argument were essentially to identify that there may be some distinction between cases where the demand is predicated upon a prior judgment debt and cases where the demand arises without such a prior judgment.  But the essential principle must be the same.  So the question to be posed in this case is whether the respondent has shown a bona fide dispute on substantial grounds by sufficiently precise evidence which is believable, and has she established that she actually has a defence of substance, not just a fair probability of one, and I might add, not just the possibility of one.

5.It must also be correct that where an issue has been properly ventilated at the stage of the application to set aside the statutory demand and has been determined by the court at that hearing, there is no reason why the principle of res judicata should not operate to preclude the debtor from raising at the hearing of the petition the same argument which has been determined against him or her, in the absence of any change of circumstances.

6.I should say I also take into account the wisdom of Godfrey J in the Hutchvison Asia Limited case quoted by Mr Chu which reminds us that frequently cases which appear to be certainties, either to win or to lose, occasionally will result the opposite way when the matter is ventilated on the way to and at a trial.

7.In this case, it seems to me that whether one applies res judicata in its wider sense, in its full vigour or not, the matters now raised by the respondent are bound to fail insofar as it is suggested that what is being put forward now is different in some way from what was being put forward before Mr Justice Godfrey Lam.  It might be said to be an abuse of process not to have raised the precise complaint in the opposition to the statutory demand.

8.Mr Chu tells me that the third affidavit in particular of the respondent, if it is not to correct the two previous affidavits, then it is to ventilate her case more clearly and to put it in context.  But, at bottom, the case is really put on the basis that insofar as one of the points is concerned, the court is urged to take those matters into consideration. 

9.The two main points run on the challenge to the statutory demand were that the debt amount of $450,000 was a gift made by the petitioner to the respondent to cover her rent and all living expenses, and therefore that she was under no obligation to repay that gift; or alternatively, that if the sum was not a gift, then the respondent has a counterclaim because of a promise to pay a monthly allowance to her for various purposes.

10.It can be pointed out at once that there is no real dispute about the circumstances in which the $450,000 was first provided by the petitioner to the respondent.  I agree with Mr Justice Godfrey Lam that the petitioner’s case about the existence of the debt is supported by various contemporaneous evidence, including banking documents, the transaction documents and WhatsApp exchanges between the parties.

11.So far as the allegation of gift is concerned, that was fully ventilated before Mr Justice Godfrey Lam and he held that it gave rise to no bona fide dispute on the debt. 

12.Applying the res judicata principles in rigour or more flexibly, it does not matter, that is the end of the ability for the respondent to put forward that argument to oppose the petition.  But in any event, I would say that I find the allegations relating to gift to be wholly incredible.

13.As it happens, Mr Chu does not really run that argument with any vigour today, but instead concentrates on the other argument of the supposed counterclaim.  The first problem for the respondent in that respect is that that counterclaim was also run as an argument before Mr Justice Godfrey Lam.  Technically, there was a problem before him because it had not been raised in the original application to set aside the statutory demand but he nevertheless dealt with the point and found that it had no merit, being wholly imprecise and unparticularized, and even if that the alleged promises could be factually established, they would be gratuitous and not supported by consideration.  That point is expressly accepted by the respondent in her third affidavit for the purposes of this hearing where she acknowledges that she has been advised that her counterclaim may be put forward on a basis which is not enforceable as a contract albeit, as I say, she has urged the court to take the various discussions into consideration.

14.I think the principles of res judicata also bar the respondent from relying on this ground.  But in any event, it is a ground which has shifted and evolved in a way which only points to the lack of believability in the existence of a proper argument.

15.Therefore, it seems to me that the respondent has failed to satisfy the relevant test of establishing a bona fide dispute on substantial grounds, and there is therefore no reason not to make a bankruptcy order against her.  I should say that I have taken account of Mr Chu’s submissions that in the exercise of my discretion as to whether or not to make a bankruptcy order, should I be satisfied one would otherwise be appropriate, I might take into account that the petitioner may obtain no practical benefit from making the respondent bankrupt, and that she is apparently dividing her time between Hong Kong and the Mainland. 

16.Neither of those points persuade me that I should not make a bankruptcy order.  Indeed, until trustees are put into place and the relevant inquiries are made, it would seem to me to be premature to proceed on an assumption that making the respondent bankrupt would not be of real or significant benefit to her creditors, including the petitioner.

17.For those reasons, I therefore make a bankruptcy order in accordance with the petition.

(Discussion re costs)

18.Taking into account the relatively modest rate charged by Mr Robinson who is quite a senior practitioner in Hong Kong, and that today’s hearing has not lasted as long as it was fixed for, and taking some account of the point made by Mr Chu about the arguments within the statutory demand challenge hearing and the petition proceedings being significantly similar, but noting that that gives rise to the res judicata points which would require some research and presentation, it seems to me that most of the figures that are put forward here are justifiable.  Taking a relatively broad-brush approach, I think that the sum of $150,000 is the appropriate costs sum and I assess costs in that amount payable by the respondent to the petitioner.

Mr Lai Chun Ho, instructed by Bird & Bird, for the petitioner

Mr George Chu, instructed by Patrick Mak & Tse, for the respondent

Attendance of the Official Receiver was excused