Re Lau Mei Sze Cinderella

[ENGLISH TRANSLATION - 英譯本]

CACV 344/2023, [2025] HKCA 89

[2023] HKCFI 2435

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 344 OF 2023

(ON APPEAL FROM HCB NO. 3249 OF 2022)

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J U D G M E N T

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Hon Chu VP (giving the judgment of the Court):

Preamble

1.On 16 August 2022, the Court of First Instance of the High Court made a bankruptcy order against the bankrupt (“Ms Lau”) on a bankruptcy petition sought by the petitioner, Hong Kong Baptist Hospital (“the hospital”). Ms Lau issued a summons on 10 October 2022, applying to annul the bankruptcy order. Having heard the case, Ms Rachel Lam, SC, Recorder of the High Court (“the judge”) issued a judgment on 29 September 2023 refusing Ms Lau’s application. Ms Lau now appeals against the judge’s decision.

Background of the case

2.Ms Lau’s mother, Madam Lau Yung Sau Yee (“the mother”), was admitted to the hospital from 3 to 27 November 2020, during which she received medical services provided by the hospital incurring medical expenses of HK$659,129. When the mother was discharged from the hospital on 27 November 2022, HK$499,556 was still outstanding.

3.On the same day, Ms Lau signed a Letter of Indemnity (the “First Letter of Indemnity”) to the hospital in respect of the outstanding fees, confirming that the billed fees and outstanding fees were true and correct. At the same time, in consideration of the hospital and the doctors concerned respectively withholding immediate legal proceedings to recover the outstanding fees from the mother, Ms Lau also promised to pay the outstanding fees to the hospital by six instalments and made the following three undertakings:

“(2) If I fail to pay the outstanding fees in the manner as stated above, the hospital and/or the attending doctor and/or other doctors may immediately commence legal proceedings against me to recover the total outstanding fees together with the legal costs and expenses incurred in such proceedings;

(3) If I pay by instalments, the payments shall first be used to settle the hospital fees until they are fully paid, and the subsequent payments shall be used to settle the doctor’s fees. If there are more than one doctor’s fees, the payments shall be allocated to each doctor in proportion to their respective amounts; and

(4) I shall indemnify the hospital, the attending doctor and other doctors respectively for the necessary costs and expenses for and in connection with the recovery of the outstanding fees.”

4.On 11 December 2020, Ms Lau signed another Letter of Indemnity (the “Second Letter of Indemnity”) to the hospital, which varied the arrangement for the first instalment but otherwise contained the same terms as the First Letter of Indemnity (including the undertakings in items (2) to (4) above).

5.As Ms Lau failed to pay the outstanding fees in accordance with the two Letters of Indemnity, the hospital commenced the action in DCCJ 4329/2021 in the District Court to recover the outstanding fees from her. On 17 May 2022, the master of the District Court heard the hospital’s application for summary judgment, ruled in favour of the hospital, and ordered that Ms Lau pay the hospital HK$469,556 together with interest and costs of HK$185,000, in the total amount of over HK$600,000.

6.On 19 May 2022, the hospital issued a statutory demand to Ms Lau demanding repayment of the above judgment debt. Ms Lau did not apply to annul the statutory demand, nor did she make any repayment in accordance with the statutory demand. The hospital therefore filed a bankruptcy petition (HCB 3249/2022) on 15 June 2022.

7.The hearing of the bankruptcy petition was held on 16 August 2022. Although the hospital had previously served a notice of hearing on Ms Lau, she did not attend the hearing. The master of the High Court made a bankruptcy order in her absence.

8.On 10 October 2022, in the bankruptcy action, Ms Lau filed a summons to apply for the annulment of the bankruptcy order.

The decision of the judge

9.The judge considered the applicable legal provisions and case law on the annulment of bankruptcy orders and made the following findings based on the analysis in paragraphs 15 to 19 of the judgment:

(1)  The course of events and legal proceedings did not involve any fraud, collusion or miscarriage of justice.

(2)  There was no strong prima facie evidence to show that Ms Lau had a genuine and cogent ground to dispute the debt in question.

(3)  Ms Lau’s absence from the hearing on 16 August 2022 cannot serve as an argument to annul the bankruptcy order. She had not given a plausible explanation for her absence either.

(4)  Even if Ms Lau had attended the hearing and stated all the grounds on which she relied, she would have been declared bankrupt because the hospital had established a prima facie case that the debt had not been discharged and Ms Lau had not adduced any evidence to challenge her liability to pay the debt.

10.The judge therefore considered that Ms Lau’s application was unfounded and refused her application to annul the bankruptcy order.

Grounds of appeal

11.On 27 October 2023, Ms Lau lodged this appeal against the decision of the judge.

12.The grounds of appeal set out in the notice of appeal and in the written and oral submissions of Ms Lau can be summarized as follows (“Ground of Appeal (1)” to “Ground of Appeal (5)” respectively):

(1)  When the hospital filed the bankruptcy petition, the judgment of the District Court’s decision made on 17 May 2022 had not been issued. After the judgment was issued on 23 June 2022, Ms Lau notified the Official Receiver’s Office of her appeal in a letter on 29 June, but received no response. In the circumstances, there was a plausible explanation for Ms Lau’s absence from the hearing on 16 August. However, the court made a bankruptcy order against her in her absence.

(2)  Ms Lau filed a Notice of Appeal in DCCJ 4329/2021 on 13 July 2022, which complied with the time limit for appeal. Ms Lau’s appeal hearing was subsequently vacated and she was told that she could do nothing unless the bankruptcy was discharged. The hospital used the bankruptcy petition to prevent her from exercising her right to appeal.

(3)  Ms Lau only signed Letters of Indemnity, not guarantee. She only signed on behalf of her mother, and there was no reason for her to be held responsible for her mother’s medical expenses. Furthermore, there was no way for her to confirm what medical services her mother had received. The notion of “a daughter repaying her mother’s debt” was incompatible with the tenets of judicial justice.

(4)  The two Letters of Indemnity did not explicitly state that they were guarantees, and the hospital deliberately concealed and failed to disclose this. Had Ms Lau known that she was acting as a guarantor, she would not have signed them. Ms Lau did not sign the First Letter of Indemnity voluntarily, and felt coerced and had no choice but to sign it in order to leave. She signed the Second Letter of Indemnity only after the hospital sent her numerous letters.

(5)  Ms Lau has been troubled by this incident for many years. Her accounts have all been frozen and she has no salary nor income. The hospital should compensate her, the amount to be assessed by the court on her behalf.

The reasons for this Court’s decision

(1)  Applicable legal principles

13.Section 33(1) of the Bankruptcy Ordinance (Cap. 6) provides as follows:

“The court may annul a bankruptcy order if it at any time appears to the court that—

(a) on any grounds existing at the time the order was made, the order ought not to have been made; or

(b) to the extent required by the rules, the provable debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court.”

14.The circumstances described in section 33(1)(b) do not exist in this case. As for section 33(1)(a), as set out in paragraph 12 of the judgment of the judge, the Court of Appeal established the following legal principle in Kam Hung Cheung v Bank of China (Hong Kong) Limited [2009] 3 HKLRD 588:

“22. The relevant decided cases show that, in considering whether to exercise the power under section 33(1)(a), the court should first consider whether there were any grounds on which a bankruptcy order ought not to have been made at the material time when it was made. If the court does not think that such grounds existed, it cannot invoke section 33(1)(a) to annul the bankruptcy order. If the court thinks that such grounds existed, it still has to consider whether it should exercise the discretion to annul the bankruptcy order: see Society of Lloyds v. Waters [2001] BPIR 698, 704G-H, and also Artman v. Artman [1996] BPIR 511, 513-514, and Askew v. Peter Dominic Ltd [1997] BPIR 163, p.164.

23. In exercising its discretion under section 33(1), the court has to carefully consider the interests of the creditor, the debtor and the public, and a bankruptcy order will only be annulled under exceptional circumstances.

24. Furthermore, the person applying to annul a bankruptcy order bears the burden of proving that when the order was made there were grounds on which the order ought not to have been made: see OBE Insurance (Hong Kong) Ltd v. Chan Wai Man William, HCB 187/2000.

25. If a bankrupt disputes the debt on which a bankruptcy order is based, he must adduce cogent prima facie evidence to show that the dispute is supported by genuine and good reasons. Where the debt which forms the basis of a bankruptcy order is a judgment debt, the court will normally not reconsider any dispute on the debt, see paragraph 24 of the judgment in Re Kwong Ngai Ping, HCB 9447/2003.

26. Furthermore, where a bankruptcy order has been made in the absence of the bankrupt, or where the underlying judgment in favour of the creditor has been obtained by reason of the bankrupt’s failure to give Notice of Intention to Defend, then the bankrupt must provide reasonable and credible explanations for his absence or failure to give Notice of Intention to Defend: Re Luk Tsun Yin [2000] 1 HKC 774, 777, and Re Ng Chi Wo, HCB 2819/2003.”

15.The judge also correctly pointed out in paragraph 13 of the judgment that the court hearing a bankruptcy petition would look into the propriety of a judgment in another civil action only where there was solid evidence of the existence of fraud, collusion or miscarriage of justice in respect of that judgment: See Leung Ngai Hang v Bank of China (Hong Kong) Ltd (CACV 217/2006; 14 June 2007) para. 8(1); applied in Re Lee Pui Chun (HCB 2363/2016; 14 November 2016) para. 10.

(2)  Grounds of appeal (3) and (4)

16.We shall first deal with grounds of appeal (3) and (4). In short, Ms Lau disputed her liability under the First and Second Letters of Indemnity and contended that she should not be held liable for her mother’s medical expenses. We consider that Ms Lau’s arguments are untenable for the following reasons:

(1)  The hospital prevailed in DCCJ 4329/2021 and is a judgment creditor. The judgment is valid as at today, irrespective of the appeal lodged by Ms Lau against it. According to established legal principles, the judge generally does not question the correctness of the decision when dealing with the annulment of the bankruptcy order, and will not reconsider the dispute over the judgment debt.

(2)  In any event, the nature of the First and Second Letters of Indemnity is not a guarantee, and Ms Lau is not a guarantor or guaranteeing her mother’s debts. Under the two Letters of Indemnity, Ms Lau agreed with the hospital that she would pay the outstanding medical expenses in six instalments in consideration of the hospital and the doctor concerned withholding legal action to recover the same from her mother. In other words, Ms Lau undertook to indemnify the hospital against any loss arising from the hospital’s failure to recover from her mother the outstanding charges. Therefore, under the two Letters of Indemnity, Ms Lau has accepted liability for the outstanding fees owed to the hospital, and so has assumed a primary and independent liability to the hospital; therefore, she bears the liability for the outstanding fees.

(3)  As a result, the submissions that Ms Lau was only signing on behalf of her mother, that she could not confirm what medical services her mother had received, that she was unwilling and would not act as a guarantor for her mother’s debts, that the hospital had concealed and misled her into signing the guarantees and that the notion of “a daughter repaying her mother’s debt” was incompatible with the tenets of judicial justice are all irrelevant. These submissions do not constitute valid defences to the hospital’s claim in DCCJ 4329/2021 or valid and cogent grounds for disputing the debt involved in the bankruptcy petition, nor do they constitute grounds for annulment of the bankruptcy order.

17.Grounds of appeal (3) and (4) are untenable.

(3)  Grounds of appeal (1) and (2)

18.As for grounds of appeal (1) and (2), Ms Lau mainly contended that she had a reasonable excuse for being absent from the hearing of the bankruptcy petition because she had lodged an appeal against the decision of DCCJ 4329/2021 at that time and had informed the Official Receiver’s Office of her appeal against the decision before the hearing.

19.First, we must point out that the decision of the District Court master in favour of the hospital was made on 17 May 2022, which took immediate effect. The hospital subsequently filed a sealed copy of the order of the decision on 23 June 2022. According to Order 58, rule 1(3) of the Rules of the District Court (Cap. 336H), an appeal against the decision must be made with a District Court judge within 14 days after the decision was made. Therefore, Ms Lau claimed that the written judgment of the decision made on 17 May 2022 was only issued on 23 June 2022 and that she filed an appeal within time are incorrect.

20.Secondly, it is a clear legal principle that the conduct of the appeal proceedings does not affect the validity of a decision that has taken effect. Moreover, it is undisputed that the court has never stayed the decision of 17 May 2022. Furthermore, although Ms Lau wrote to the Official Receiver’s Office to notify it of her intention to appeal against the decision, she did not indicate that she was unable or would not attend the bankruptcy petition hearing, nor did she request for an adjournment of the bankruptcy petition hearing. The Official Receiver never indicated that the hearing of the bankruptcy petition would not proceed. In the absence of a stay of execution of the decision, there was nothing wrong with the hospital enforcing the bankruptcy petition. The master was also justified in making the bankruptcy order in the absence of Ms Lau. Ms Lau’s failure to attend the hearing of the bankruptcy petition did not constitute a ground for annulling the bankruptcy order.

21.In addition, for the reasons discussed under grounds of appeal (3) and (4), Ms Lau had no genuine and cogent grounds to dispute the debt in the bankruptcy petition. Therefore, as the judge pointed out, even if she had attended the hearing and stated the grounds on which she would rely, she would inevitably be adjudged bankrupt.

22.Grounds of appeal (1) and (2) are untenable.

(4)  Ground of appeal (5)

23.For ground of appeal (5), the legal proceedings for the bankruptcy petition and the bankruptcy order would inevitably affect the financial arrangements or other aspects of the bankrupt. However, this is not a ground for annulling the bankruptcy order, and there is no situation in which compensation can be claimed from the petitioner. This ground of appeal is untenable.

(5)  Conclusion and costs

24.Based on the above analysis, none of Ms Lau’s grounds of appeal is tenable. The judge was correct in refusing her application to annul the bankruptcy order. This court dismisses her appeal.

25.As a matter of procedural practice, Ms Lau should pay the hospital’s costs for her unsuccessful appeal. The hospital requests that the costs be assessed on an indemnity basis. We consider that although Ms Lau’s grounds for appeal are weak, she has the right to appeal against the decision of the judge, and there are no other special circumstances in this case to justify an award of the costs on an indemnity basis. The hospital’s costs will be assessed on a party-and-party basis and be borne by Ms Lau’s bankruptcy estate.

Order

26.This court orders that:

(1)  the bankrupt’s appeal be dismissed;

(2)  the bankrupt do pay the petitioner’s costs on a party-and-party basis, to be taxed if not agreed, to be paid out of the bankrupt’s estate.

Mr Martin Lau, instructed by Wilkinson & Grist, for the petitioner.

The bankrupt appeared in person.

The Official Receiver, attendance excused.

Translated by the Court Language Section of the Judiciary and vetted by Ms Jenny Chung, Solicitor.