A v. R

Edited as directed by Mr. Recorder Eugene Fung SC
on 16 November 2022

HCSD 24/2022

[2022] HKCFI 3390

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 24 OF 2022

________________

________________

Before: Mr Recorder Eugene Fung SC in Chambers (Not Open to Public)

Date of Hearing: 2 November 2022

Date of Decision: 11 November 2022

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DECISION

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1.As at 23 June 2022, the applicant owed to the respondent a total sum of HK$1,992,405 pursuant to various court orders for assessed costs and various allocaturs. After giving credit of $1,195,441.21, the respondent issued a statutory demand (“Statutory Demand”) for $796,963.79 on 23 June 2022. On 8 July 2022, the applicant applied to set aside the Statutory Demand. This is the applicant’s application to set aside the Statutory Demand.

A.  THE RELEVANT BACKGROUND

2.The applicant is the daughter of the respondent. By the judgment handed down on 30 September 2016 in HCA ____/____, the applicant was ordered to (1) account to the respondent for the sale proceeds of certain properties, and (2) pay to the respondent the sums found to be due on the taking of accounts.

3.Thereafter, various costs orders had been made in favour of the respondent against the applicant, including (1) the costs order dated 28 February 2018 in HCMP ____/____ for $150,000 as assessed costs, (2) the costs order dated 20 July 2018 in HCA ____/____ for $19,700, (3) the allocatur dated 20 August 2018 in HCA ____/____ for $1,427,167, (4) the costs order dated 9 April 2019 in HCA ____/____ for $9,100 as assessed costs, (5) the costs order dated 28 December 2020 in HCA ____/____ for $1,040 as assessed costs, (6) the costs order dated 15 January 2021 in HCA ____/____ for $50,000 as assessed costs, (7) the allocatur dated 7 September 2021 in HCA ____/____ for $158,121, and (8) the allocatur dated 7 September 2021 in HCA ____/____ for $177,277. The total sum owing by the applicant to the respondent from the above orders was $1,992,405.

4.In the meantime, the respondent received a sum of $1,195,441.21 as a result of him obtaining a charging order over a property of the applicant which had been sold.

5.On 23 June 2022, the respondent issued the Statutory Demand to the applicant for the sum of $796,963.79, having deducted $1,195,441.21 from the total sum of $1,992,405 owing under the various court orders.

6.On 8 July 2022, the applicant applied to set aside the Statutory Demand.

B.  WHETHER STATUTORY DEMAND SHOULD BE SET ASIDE

7.In the prescribed application form, the applicant stated that the grounds to set aside the Statutory Demand were set out in the affidavit which accompanied the application. The applicant’s affirmation which supported the application was dated 7 July 2022, in which only one ground was advanced by the applicant. In that affirmation, the applicant contended that the Statutory Demand was not served on her personally pursuant to RHC Order 10 rules 1(1) and 5(2), and was therefore not valid. Nonetheless, she acknowledged that the Statutory Demand was delivered by registered post to her residential address on 28 June 2022.

8.A creditor is not required to effect personal service of a statutory demand on the debtor.

(1)  Generally speaking, the Bankruptcy Ordinance (Cap 6) and the Bankruptcy Rules (Cap 6A) provide a code governing the bankruptcy proceedings and procedures. The provisions in the Rules of the High Court (Cap 4A) may apply to bankruptcy proceedings but only when the same may be applicable and not inconsistent with the provisions of the Bankruptcy Ordinance or the Bankruptcy Rules. See Ling Wai Hoi v Jetland Global Investments Ltd [2022] HKCA 1457 at §66 (Chu JA); section 99(1) of Bankruptcy Ordinance (Cap 6); RHC Order 1, rule 2(1).

(2)  Rules 44 to 49 of the Bankruptcy Rules set out the procedure for issuing, serving and challenging a statutory demand: Ling Wai Hoi (above) §63. In particular,

(a)  rule 46 provides:

“(1) Rule 49 has effect as regards service of the statutory demand, and proof of that service by affidavit to be filed with a bankruptcy petition.

(2) The creditor shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to cause personal service of the demand to be effected.

(3) Where the statutory demand is for payment of a sum due under a judgment or order of any court and the creditor knows, or believes with reasonable cause—

(a) that the debtor has absconded or is keeping out of the way with a view to avoiding service; and

(b) there is no real prospect of the sum due being recovered by execution or other process,

the demand may be advertised in one or more newspapers; and the time limited for compliance with the demand runs from the date of the advertisement’s appearance or (as the case may be) its first appearance.”

(b)  rule 49 relevantly provides:

“(1) Where under section 6A of the Ordinance the petition must have been preceded by a statutory demand, there must be filed in court, with the petition, an affidavit proving service of the demand.

(2) Every affidavit must have exhibited to it a copy of the demand as served.

(3) Subject to subrule (4), if the statutory demand has been served personally on the debtor, the affidavit must be made by the person who effected that service.

(4) If service of the statutory demand (however effected) has been acknowledged in writing either by the debtor himself, or by some person stating himself in the acknowledgment to be authorized to accept service on the debtor’s behalf, the affidavit must be made either by the creditor or by a person acting on his behalf, and the acknowledgment of service must be exhibited to the affidavit.

(5) If neither subrule (3) nor (4) applies, the affidavit must be made by a person having direct personal knowledge of the means adopted for serving the statutory demand, and must—

(a) give particulars of the steps which have been taken with a view to serving the demand personally;

(b) state the means whereby (those steps having been ineffective) it was sought to bring the demand to the debtor’s attention; and

(c) specify a date by which, to the best of the knowledge, information and belief of the person making the affidavit, the demand will have come to the debtor’s attention.

(6) The steps of which particulars are given for the purposes of subrule (5)(a) must be such as would have sufficed to justify an order for substituted service of a petition.

(7) If the affidavit specifies a date for the purposes of compliance with subrule (5)(c), then unless the court otherwise orders, that date is deemed for the purposes of these rules to have been the date on which the statutory demand was served on the debtor.

(8) Where the creditor has taken advantage of rule 46(3), the affidavit must be made either by the creditor himself or by a person having direct personal knowledge of the circumstances; and there must be specified in the affidavit—

(a) the means of the creditor’s knowledge or (as the case may be) belief required for the purposes of that rule; and

(b) the date or dates on which, and the newspaper in which, the statutory demand was advertised under that rule,

and there shall be exhibited to the affidavit a copy of any advertisement of the demand.”

(3)  It is plain from the above rules that it is unnecessary to effect personal service of a statutory demand on the debtor. The provisions relied upon by the applicant (namely RHC Order 10 rules 1 and 5) are generally concerned with the service of a writ, an originating summons, a notice of an originating motion and a petition, and are inapplicable to the service of a statutory demand.

9.Accordingly, the ground relied upon by the applicant to set aside the Statutory Demand must be rejected. Given that the applicant has already acknowledged that she had received the Statutory Demand on 28 June 2022, I am unable to see how its service on the applicant can be said to be defective.

10.In the applicant’s second affirmation (filed to respond to the affirmation filed on behalf of the respondent), she referred to three additional matters. I do not think that any of them would constitute a valid ground for setting aside the Statutory Demand.

11.First, the applicant asserted that the Statutory Demand is unclear by not listing her company (W Company Limited) as a judgment debtor. However, given that the purpose of the Statutory Demand is to demand the applicant as a debtor to pay the relevant debts, it is obviously unnecessary to mention the debt or the identity of other relevant debtors in it.

12.Second, the applicant mentioned the fact that she was in the process of appealing against another judgment in HCA ____/____ dated 29 July 2022 (“Accounts Judgment”) in which a High Court Master had ordered the applicant to account two sums of money to the respondent.

(1)  On 1 August 2022, the applicant filed a notice of appeal under CACV ____/____ to appeal against the Accounts Judgment. At the time of the substantive hearing of the application to set aside the Statutory Demand, the Court of Appeal was in the process of considering whether the applicant’s notice of appeal should be struck out. Further, her application to stay the execution of the Accounts Judgment was dismissed by Lisa Wong J on 26 September 2022. On 7 October 2022, the applicant applied for leave to appeal against Lisa Wong J’s decision to dismiss her stay application.

(2)  I am unable to see how any of these facts is relevant to her application to set aside the Statutory Demand. As mentioned above, the Statutory Demand was issued on the basis of various costs orders, none of which has been stayed or reversed.

(3)  The well-established practice of the Hong Kong courts is that where the statutory demand is based on a judgment or order, the courts will not at that stage go behind the judgment or order and inquire into the validity of the debt nor, as a general rule, will they adjourn the application to await the result of an application to set aside the judgment or order: Practice Note (Bankruptcy: Statutory Demand: Setting Aside) (No 1 of 1987) [1987] 1 WLR 119; Re Maydwell [1999] 3 HKLRD 325 at 334 (Le Pichon J); Re Choy Wai Bor (unreported, HCB 8565/2001, 28 May 2002) §20 (Kwan J); Leung Kwok Chun v Seavi Advent Asia Investments (IV) Ltd (unreported, HCSD 16/2016, 29 November 2016) §§22-26 (G Lam J).

(4)  As identified by Kwan J in §§22 and 23 of Re Choy Wai Bor (above), the reasons for the adoption of such a practice are that (1) “the mechanism to set aside a statutory demand is intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified” and (2) “there is the need for speed in disposing of an application to set aside a demand … [and instead] of adjourning the application to set aside the demand pending the outcome of [proceedings to challenge the validity of a judgment], the creditor should be allowed to proceed with the presentation of a petition, leaving it to the debtor to challenge the judgment debt at the stage of the hearing of the petition”.

(5)  In accordance with the well-established practice as mentioned above, it is inappropriate for me to go behind the various orders and inquire into the validity of the judgment debts. Even though she has asserted in her written materials and during the substantive hearing that the debts are disputed, the applicant has failed to produce any cogent materials or establish any substantial grounds to dispute the judgment debts.

13.Third, the applicant mentioned that she and her company would claim costs against the respondent. In her written submissions filed shortly before the hearing, she stated (at §6) that she “wants to, one day, recover or counterclaim any sum of money or debts from the [respondent] should the Court of Appeal reverses the ruling in favour of the [applicant] in CACV ____/____”. However, the Court of Appeal is in the process of deciding whether her notice of appeal in CACV ____/____ should be struck out, and it is inappropriate to assume in the current application to set aside the Statutory Demand that the Court of Appeal will make any order in her favour against the respondent.

C.  DISPOSITION

14.For the reasons given above, the application to set aside the Statutory Demand is dismissed.

15.At the conclusion of the hearing, the applicant indicated to the court that she would accept the principle that the losing party should bear the costs of the winning party in this application (ie that costs should follow the event). I therefore make an order that the costs of this application (including any reserved costs) be paid by the applicant to the respondent to be taxed if not agreed. The respondent’s own costs shall be taxed in accordance with Legal Aid Regulations.

16.Pursuant to rule 48(7) of the Bankruptcy Rules, I authorise the respondent to present a bankruptcy petition against the applicant forthwith. The respondent has sought an order for substituted service for the intended bankruptcy petition against the applicant. However, I think it is premature to decide whether such an order should be made and I decline to do so at this stage.

The applicant appeared in person

Mr Vincent Lam of Cedric & Co for the respondent