Re Mai Xi Hong
Read the full judgment text of HCB 550/1996 on BabelCite. This HCB judgment was delivered on 17 December 2004.
1. This is an application by Mr Mai Xi Hong, also known as Mak Sik Hung (“the Applicant”), by Summons dated 3 August 2004 to annul the adjudication order made against him on 26 November 1996, pursuant to section 33 of the Bankruptcy Ordinance. As the Applicant was adjudicated bankrupt in 1996, before the coming into effect of amendments to section 33 of the Ordinance on 1 April 1998, his application is to be determined by reference to the provisions of the Ordinance in force during 1996, when t
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HCB 550/1996 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE IN BANKRUPTCY PROCEEDINGS NO. 550 OF 1996 ____________
____________ Before: Hon Barma J in Court Date of Hearing: 29 October 2004 Date of Handing Down Judgment: 17 December 2004 _______________ J U D G M E N T _______________ The Application 1.This is an application by Mr Mai Xi Hong, also known as Mak Sik Hung (“the Applicant”), by Summons dated 3 August 2004 to annul the adjudication order made against him on 26 November 1996, pursuant to section 33 of the Bankruptcy Ordinance. As the Applicant was adjudicated bankrupt in 1996, before the coming into effect of amendments to section 33 of the Ordinance on 1 April 1998, his application is to be determined by reference to the provisions of the Ordinance in force during 1996, when the material events leading to his bankruptcy occurred. References in this judgment to “the Ordinance” are references to the Bankruptcy Ordinance as it stood in 1996. 2.Although the petition was not among the papers with which I was provided, I was given to understand that the adjudication order was made on the basis of a petition presented by Superwealth Development Limited (“Superwealth”) which alleged that the Applicant had committed an act of bankruptcy by failing to make payment of a judgment debt owed by the Applicant to Superwealth, pursuant to a default judgment obtained by Superwealth against the Applicant on 8 March 1996, despite the service of a bankruptcy notice requiring him to pay it. 3.Before me, Mr Griffiths S.C. appearing for the Applicant contended that the default judgment on the strength of which the bankruptcy notice had been issued was irregular, as it was for a sum in excess of what was actually due from the Applicant to Superwealth at the time that it was entered. He submitted further that on the evidence put forward by the Applicant, Superwealth had been guilty of fraud or an abuse of process in entering the default judgment which it did, as it knew that the judgment was for more than was actually due. Mr Griffiths went on to submit that in consequence, the bankruptcy notice issued on the basis of that judgment was invalid, and that the Applicant should not have been adjudicated bankrupt for failing to comply with it. 4.Superwealth did not appear at the hearing. However, the Official Receiver was represented at the hearing, and opposed the making of the order sought. Ms Cheung, appearing for the Official Receiver, submitted that the evidence adduced by the Applicant did not show that the default judgment against him was irregular, still less that Superwealth was guilty of any fraud or abuse of process in obtaining it. She submitted further that the default judgment, even if irregular, remained effective unless and until it was set aside, and that as no application to set it aside had ever (even now) been made, the bankruptcy notice issued on the strength of it was valid. Finally, she suggested that even if I were satisfied that the judgment was for too great a sum, the bankruptcy notice would not be invalidated, having regard to the terms of proviso (b) to section 4 of the Ordinance. The Background 5.According to the Applicant, in about mid 1995, Superwealth was owed some HK$604,658 by one of his family companies, Mai Lok Investment (Holdings) Limited (“Mai Lok”), in respect of outstanding invoices arising out of business dealings between Superwealth and Mai Lok. On about 22 May 1995, Superwealth and Mai Lok entered into an agreement for this amount to be settled in three instalments, the last of which, in the sum of HK$216,821, was to be paid by way of a post dated cheque before 18 July 2000. The Applicant says that after this agreement was made, there were further discussions between himself and a representative of Superwealth, as a result of which Superwealth agreed to waive the remaining balance if the Applicant paid or procured the payment of HK$70,000, and that he therefore arranged for HK$70,000 to be paid on 8 August 1995 to Superwealth by another family company, Mak’s (Holdings) Limited (“Mak’s Holdings”), by way of a cash cheque which was paid into Superwealth’s bank account. The Applicant did not obtain a receipt for this payment. However, it is clear from the evidence before me that a cash cheque issued by Mak’s Holdings for HK$70,000 was in fact paid into a bank account of Superwealth on that date. 6.The Applicant says that notwithstanding this payment, Superwealth brought a claim (HCA 1871 of 1996) against him claiming HK$216,821. It is not clear from the evidence before me when these proceedings were brought, or what the basis of the claim against the Applicant was. I was, however, informed by Ms Cheung in the course of her submissions that the claim was based on a dishonoured cheque. 7.The Applicant says that on being served with the writ in these proceedings, he instructed his then solicitors to dispute the amount claimed (but not to dispute liability altogether, because he thought it would be difficult to establish the agreement waiving payment of the balance in the absence of a receipt or written agreement). His solicitors wrote to Superwealth’s solicitors on 14 March 1996, evidently unaware that judgment in default for the full amount of the claim, plus interest and costs, had been entered some six days earlier, stating that their client (i.e. the Applicant) had paid HK$70,000 to Superwealth, and that this amount should be deducted from the amount claimed and the Statement of Claim amended accordingly. In fact, as I have noted, a payment of HK$70,000 had been made not by the Applicant but by Mak’s Holdings on 8 August 1995. There is no evidence of any such payment having been made by the Applicant himself. 8.On 19 March 1996, Superwealth’s solicitors replied, declining to make any amendment, and enquiring whether the Applicant’s solicitors had instructions to act for him in bankruptcy proceedings to be instituted in the near future. 9.The Applicant says that there was then a telephone conversation between litigation clerks in the two firms, in which the litigation clerk of Superwealth’s solicitors acknowledged that the HK$70,000 had been paid. In support of this, there was exhibited an attendance note, apparently made by his then solicitors’ litigation clerk, which recorded that certain calculations (showing the amount of the claim, a deduction of HK$70,000 and an addition of HK$15,000 apparently in respect of costs and interest) had been confirmed by his opposite number. There was also a notation alongside the net amount (HK$161,821) which appears to read “10/4/95 payment”. 10.On 9 May 1996, Superwealth applied for a bankruptcy notice against the Applicant. The Applicant’s then solicitors eventually became aware of the default judgment, and on 28 May 1996 wrote again to Superwealth’s solicitors, stating again that the Applicant had paid HK$70,000 and asking that the default judgment be amended, failing which an application to set it aside was threatened. The next day, 29 May 1996, Superwealth’s solicitors replied, stating that Superwealth would not agree to amend the judgment. Despite this, no application to set aside the default judgment was ever made. 11.It would seem that the bankruptcy notice was served on the Applicant at some point after its issue, and that having gone unpaid, a bankruptcy petition was presented by Superwealth on 31 July 1996, supported by an affirmation dated 30 July 1996, affirming that the Applicant was indebted to Superwealth in the amount of HK$216,831. Thereafter, as the Applicant did not appear in the bankruptcy proceedings, a receiving order was made against him, followed by the adjudication order of 26 November 1996. The Applicant says that he was unaware of the making of the receiving and adjudication orders, as he had by then changed his address. The Applicant does not, however, appear to say that he was unaware of the bankruptcy notice or the petition. At any rate, Mr Griffiths did not suggest that these had not been duly served on the Applicant. The issues 12.By his application, the Applicant seeks the annulment of the adjudication order made against him pursuant to section 33 of the Ordinance, which provided, so far as material:-
13.It is clear that the Applicant is “a person interested” so as to be entitled to make the application. Apart from the fact that he is the subject of the adjudication order, it also appears that he has been charged with some 14 offences under the Ordinance, all of which involve acts done by him while he was an undischarged bankrupt. I was informed by Mr Griffths that his trial in respect of these charges (and one other charge under the Crimes Ordinance (Cap. 200)) is due to take place in January 2005. In considering this application, I bear in mind that the onus is on the Applicant to show that he ought not to have been adjudged bankrupt. 14.As I see it, the following issues arise for consideration:-
Was the default judgment irregular? 15.I shall deal first with the question of whether the default judgment obtained by Superwealth against the Applicant was irregular. The Rules of the High Court (“RHC”) permit a plaintiff who brings a claim against a defendant to enter judgment against the defendant where he fails to give notice of intention to defend. The procedure in relation to default judgments, and the means by which they may be set aside, is set out in RHC Order 13. RHC Order 13 rule 1(1) provides, in the case of a liquidated claim, that:-
16.In this case, Superwealth’s claim against the Applicant was for a liquidated demand, in the amount of HK$216,821, plus interest (which would not, pursuant to RHC Order 13 rule 1(2) prevent the claim from being one for a liquidated demand) and costs. On the failure of the Applicant to give notice of intention to defend the claim, Superwealth was entitled, as it did on 8 March 1996, to enter judgment for an amount up to the sum claimed by the writ (including interest) and for costs. 17.Where default judgment has been entered against a defendant, the defendant can apply to have the default judgment set aside pursuant to RHC Order 13 rule 9. However, in exercising its power to set aside a default judgment, the courts in Hong Kong have drawn a distinction between a judgment that was obtained irregularly, and one that was obtained regularly. Typical instances of a judgment irregularly obtained are those in which service of the writ was bad or ineffective, where the judgment has been entered prematurely, and those where judgment has been entered for too much. In such cases, it has traditionally been held that the defendant is entitled to have the judgment set aside as of right, without having to show that he has a defence on the merits to the claim against him. 18.In the present case, Mr Griffiths submits that as HK$70,000 had already been paid to Superwealth, the judgment for HK$216,821 entered against the Applicant was for too much, and therefore was irregular and liable to be set aside as of right. 19.As to this, I think it necessary first to look more closely at what is meant by entering judgment for too much, in the context of setting aside a default judgment on the ground of irregularity. RHC Order 13 rule 1(1) permits a plaintiff to enter judgment “for a sum not exceeding that claimed by the writ in respect of the demand and for costs”. The commentary to this rule at paragraph 13/1/2 of Hong Kong Civil Procedure 2004, Vol. 1, states that “the amount for which judgment is entered should be carefully limited to the amount actually due at that time, and credit should be given for payments made after action brought”. All of the authorities cited by Mr Griffiths to show that a judgment entered for too much was irregular, and thus liable to be set aside as of right, were cases in which the judgment was entered for too much having regard to payments which had been made after the issue of the writ. Thus, in Hughes v Justin [1894] 1 QB 667, a writ having been issued for a liquidated demand, the parties subsequently agreed that the matter should be settled on payment of an agreed sum, which was duly paid, in ignorance of the fact that the writ had been issued. The defendant did not enter an appearance, and the plaintiff signed judgment for the amount claimed plus costs, but sought to execute the judgment only in respect of costs. The judgment was set aside as being for too much, as the debt itself had been settled by the payment which was made, leaving only the costs outstanding. In Bolt & Nut Co. (Tipton) Ltd v Rowlands Nicholls & Co. Ltd [1964] 2 QB 10, a default judgment was held to be irregular when it failed to take account of the amount of a cheque which had been tendered and accepted after the issue of the writ, and which had not yet (but in due course was) cleared. In Muir v Jenks [1913] 2 KB 412, credit was not given for a payment made after issue of the writ, but before default judgment was entered. Moreover, in none of the cases was there any question but that the payments had been made, so as to reduce the amount of the plaintiff’s claim against the defendant. 20.In my view, these authorities establish only that a default judgment which is entered for an amount which fails to give credit for undisputed payments made after the issue of the writ is irregular. It seems to me that by issuing a writ claiming a liquidated sum, a plaintiff will necessarily be asserting that the defendant owes him the amount claimed. Where there are, after issue of the writ, payments made to the plaintiff in respect of his claim, it is entirely proper that credit should be given for them if default judgment is entered after such payments have been made. However, where no such payments are made, but the defendant simply contends that the amount claimed is more than is due (or where he asserts that no debt is due at all) that would seem to be a matter of defence, in relation to which (assuming the default judgment to have been otherwise regular) it will be necessary for the defendant to demonstrate some merits, and to persuade the court to exercise its discretion to set aside the default judgment against him. 21.In this case, the Applicant does not appear to suggest that the payment of HK$70,000 was made after the issue of the writ. His position is therefore that he has a defence (at least to the extent of this amount) to Superwealth’s claim. However, the Applicant having failed to give notice of his intention to defend the claim, Superwealth, as it was entitled to do under the RHC, entered judgment against him for the whole of its claim. That does not, in my view, make the judgment so entered one which was irregular. 22.Even if it might be considered that a default judgment is irregular not only where it fails to give credit for amounts paid after the issue of the writ, but also where there have been undisputed payments made before issue of the writ which have the effect of reducing the plaintiff’s claim, it is far from clear to me that the payment of HK$70,000 to Superwealth by Mak’s Holdings could be said to have indisputably reduced Superwealth’s claim against the Applicant. Where the making of the payments, or their effect on the quantum of the debt claimed, is not undisputed, it seems to me that a default judgment entered for the full amount of the claim could not be said to be irregular, for the reasons explained in paragraph 20 above. 23.As I have noted, the Applicant did not see fit to explain the nature of the claim against him. Even taking account of what I was told by Ms Cheung for the Official Receiver, all that I was told was that Superwealth’s claim was based on a dishonoured cheque. It is well known that the defences available to a claim on a dishonoured cheque are limited, and it may well be that Superwealth did not consider that the payment of HK$70,000 to it by Mak’s Holdings was a matter which reduced the amount due from the Applicant to it. While the fact of payment would appear, on the evidence before me, to be established, the purpose of the payment by Mak’s Holdings is not. It is not immediately apparent why, where the Applicant has issued a cheque that was dishonoured, the payment by another entity to Superwealth should necessarily result in a reduction of the Applicant’s liability in respect of his dishonoured cheque. In these circumstances, I do not consider that the Applicant has established that the HK$70,000 had to be deducted from the claim against him, so that Superwealth was not entitled to enter judgment as it did for the full amount of its claim. For the reasons which I have sought to explain in paragraphs 20 and 22 above, it would not, in my view, be sufficient, for the purpose of establishing that the default judgment was irregular, to show that it was merely arguable that the payment reduced the Applicant’s liability. 24.Mr Griffiths relied upon the fact that in the two letters written by Superwealth’s solicitors to the Applicant’s then solicitors, there was no denial that the HK$70,000 had been paid, and submitted that this was a tacit acceptance by them that the amount had been paid, and was referable to the claim against the Applicant. However, in their letters, the Applicant’s then solicitors stated (incorrectly) that this sum had been paid to Superwealth by the Applicant. In those circumstances, it is not particularly surprising that no reference should have been made by Superwealth’s solicitors to the payment by Mak’s Holdings. More fundamentally, however, it seems to me that in declining to make any amendment to Superwealth’s Statement of Claim or to the judgment which it had obtained, Superwealth was making it clear to the Applicant that it did not accept that it was obliged to do so, and thus was not conceding that its claim (and the judgment obtained by it) was for too much. 25.The piece of evidence on which Mr Griffith’s placed most reliance was the attendance note of the Applicant’s then solicitors’ litigation clerk. However, the document is not as clear as the Applicant suggests when stating its effect in his evidence. It does not in terms acknowledge that there has been a reduction to the Applicant’s liability to Superwealth. It simply sets out a calculation which appears to contemplate the possibility of credit being given for a sum of HK$70,000. Moreover, the notation concerning payment raises further questions - the date of 10 April 1995 is well before the agreement for instalment payments which the Applicant says was made in May 1995. Having regard to the fact that the contents of this document are multiple hearsay, and also to the fact that the solicitors’ clerk did not himself give evidence as to the circumstances in which the note was taken (the Applicant relies only on what he was told by his former solicitor, who was not the author of the note, as to its effect), I do not think it appropriate to give the document the weight which would be necessary for it to be accepted as indisputable evidence that Superwealth’s claim against the Applicant was excessive to the extent of HK$70,000. 26.For these reasons, I do not consider that the Applicant has established that the default judgment entered against him by Superwealth on 8 March 1996 was irregular. That being so, the second and third issues which I have identified above would not appear to arise. However, in case I am wrong as to the conclusion which I have reached on the regularity or otherwise of the default judgment, I shall briefly state the views that I have come to on the other issues, having considered the submissions of the Applicant and the Official Receiver. Invalidity of bankruptcy notice founded on an irregular judgment 27.On the second issue, whether the bankruptcy notice issued on the basis of an irregular default judgment was invalid, Mr Griffiths relied on two authorities to suggest that it was. 28.The first was Muir v Jenks (supra). With respect, I do not think that Muir v Jenks is authority for this proposition. The question in that case was whether or not a default judgment which was entered for too much (having failed to take account of a payment made on behalf of the defendant after the issue of the writ) should be set aside, notwithstanding that a bankruptcy notice had been issued in which the correct amount due was stated. It appears that the plaintiff’s counsel in that case had been offered, but had declined, the opportunity to apply to amend or vary the judgment to state the correct amount due, apparently taking the view that it was not necessary to do so. All that the English Court of Appeal decided was that where the plaintiff admitted (as it did by issuing its bankruptcy notice for a lesser amount) that the amount for which default judgment had been entered was excessive, and did not seek to amend such judgment, then such judgment should be set aside as of right, on the ground that it was irregular. Nothing was said by the Court of Appeal as to the validity or otherwise of any bankruptcy proceedings, which were not, it seems, before it. All that Buckley LJ said about the bankruptcy notice was (at p.416 of the judgment) that “Under these circumstances the bankruptcy notice is founded upon a wrong judgment. What then is to be done?”, going on to consider whether the judgment ought to be set aside as of right, and concluding that it should be. I do not read his judgment as expressing any views, one way or another, as to the validity of a bankruptcy notice founded on an irregular default judgment. No doubt once the judgment were set aside, the bankruptcy notice would become invalid, but that would be because the judgment on which it was founded had been set aside. 29.However, Mr Griffiths also relied on the decision of Deputy Judge Poon in Ng Chi Wo v Aigun Export Ltd (unreported, CFI, HCB 2819 of 2003, 29 July 2004), in which an application was made under the present section 33 of the Ordinance to annul a bankruptcy order on the basis (inter alia) that the default judgment on which the statutory demand and bankruptcy petition were based was irregular because there had been no effective service of it on the bankrupt. Having held that service of the writ in the proceedings in which the default judgment had been obtained was defective, Deputy Judge Poon went on to deal with a submission by counsel for the petitioner that the merits of the bankrupt’s defence should be considered, since there was no point in annulling the bankruptcy order if the bankrupt had no defence to the claim against him. In rejecting this suggestion, Deputy Judge Poon had this to say (at paragraph 39 of his judgment):-
30.Ms Cheung submitted that this was not the correct approach, since the default judgment, although subsequently shown to have been irregular, remained valid until set aside. She therefore submitted that where no application to set aside had been made, it was proper for attempts to be made to enforce the judgment by bankruptcy proceedings if necessary and that any bankruptcy order made in consequence of such bankruptcy proceedings should be allowed to stand, since it would have been made on the basis of what was, as that stage, a valid judgment. 31.It seems to me that until the default judgment is set aside, it remains a valid judgment in respect of which a plaintiff is entitled to levy execution, although in doing so, he runs the risk that the judgment and any execution levied under it may be set aside if the default judgment is subsequently set aside. In those circumstances, it seems to me that a bankruptcy notice issued in respect of such a judgment is a valid one. 32.That said, however, it seems to me that the question of the validity of the bankruptcy notice is not determinative of an application under section 33 of the Ordinance, given the wide terms of that provision. All that is required is for the court to be satisfied that the adjudication order ought not to have been made. In those circumstances, even if the bankruptcy notice were, as I think, valid, the court would still be entitled to consider whether or not the adjudication order ought to have been made, in the light of the fact that the default judgment on which the bankruptcy notice and petition was based was irregular. 33.In my view, if the court considering the application for annulment is satisfied that the default judgment on which the bankruptcy petition is based would have been set aside by reason of irregularity, it would be open to the court to annul the adjudication order (now a bankruptcy order) made in the proceedings on the ground that it ought not to have been made. There would seem to be little point, in such a case, in requiring a separate application to be made in order to set aside the default judgment. 34.However, it should be borne in mind that the Court of Appeal held in Po Kwong Marble Factory Ltd v Wah Yee Decoration Company Ltd [1996] 4 HKC 157 that there is a residual discretion in the court refuse to set aside, or to impose terms when setting aside, a default judgment even if it is held to be irregular, if there are factors (unrelated to the merits of the claim) that make it appropriate to do so - for example (as in that case) where a defendant has contributed to a failure on the part of a plaintiff to effect good service, or (as suggested by Sears J at p.161B-E) where there has been substantial delay on the part of the defendant to take steps to have the default judgment set aside, even after he becomes aware of the writ. In this case, having regard to the fact that the Applicant would appear to have been aware of the writ, the default judgment, and the possibility of bankruptcy proceedings being taken against him, it seems to me that the wholly unexplained failure on his part to take steps to have the default judgment set aside (as he had threatened to do, through his then solicitors’ letter of 28 May 1996) might have led the court either to decline to set aside the default judgment, or to have imposed terms as a condition of doing so. In these circumstances, I am not be satisfied that the default judgment would necessarily have been set aside, and am not, therefore, satisfied that the adjudication order against the Applicant ought not to have been made. Thus, I would have dismissed this application for this reason also. Applicability of proviso (b) to section 4 of the Ordinance 35.So far as the third issue is concerned, had I been of the view that the consequence of the irregularity of the default judgment against the Applicant was that the bankruptcy notice issued against him was invalid, I would have held that it was not rescued by the terms of proviso (b) to section 4 of the Ordinance. Section 4 provides, so far as material:-
36.Mr Griffiths submitted that the use of the words “by reason only” in the proviso to section 4 was to avoid the defeat of an otherwise valid bankruptcy notice which overstated the amount due under the judgment. Ms Cheung, however, submitted that even if the judgment on the basis of which the bankruptcy notice was issued was irregular by reason of being for too much, the bankruptcy notice would nonetheless specify a sum which exceeded the amount actually due, so that the proviso would still come into operation. 37.Having regard to the fact that the bankruptcy notice is required, by the main part of section 4 to require payment of the judgment debt or sum ordered to be paid, it seems to me that where the proviso refers to amounts due, it must refer to amounts due under the judgment, so that the bankruptcy notice is not to be invalidated by reason only that it specifies as being due a sum greater than that actually due under the judgment. Where a judgment is irregular by reason of having been entered for too much, the bankruptcy notice would specify as being due an amount which exceeds the amount in fact due to the plaintiff, rather than the amount due under the judgment. Its invalidity would not therefore arise by reason (still less “by reason only”) of specifying as due an amount in excess of the amount due under the judgment, and the invalidity of the bankruptcy notice would not, therefore, be a matter which could be cured by the proviso. Effect of absence of opposition by the Petitioner 38.I turn next to consider the impact, if any, of the failure of Superwealth to appear and oppose this application. Mr Griffiths submitted, relying on Re Luk Tsun Yin [2000] 1 HKC 774, that the fact that the petitioner had decided not to oppose the application was a relevant circumstance for the court to take into account in exercising its discretion to annul an adjudication order under section 33 of the Ordinance. Although I would accept this as a general proposition, it should be pointed out that in Luk Tsun Yin the petitioner actually appeared at the hearing and made its position clear. In this case, Superwealth has not appeared, and has not expressly indicated that it supports, or at least does not oppose, the application. That being so, I do not think that too much weight can be placed on its failure to appear. 39.In any event, it seems to me that I should only make the order sought if I am satisfied that it would be appropriate to do so, and for the reasons which I have endeavoured to explain above, I am not satisfied that the default judgment was irregular, and in consequence do not consider that the adjudication order should be annulled, notwithstanding that Superwealth has not appeared to oppose this application. Fraud/abuse of process 40.Finally, I consider the suggestion that the adjudication order should be set aside on the grounds that it was obtained by fraud or an abuse of process. Where fraud or dishonesty is alleged, the facts must point clearly and unequivocally to fraud. For the reasons which I have explained in paragraphs 23 to 25 above, it does not seem to me that it can be said that in obtaining the default judgment as it did, Superwealth can be said to have acted fraudulently, or otherwise to have abused the process of the court. Conclusion 41.I therefore dismiss the application, and shall make an order nisi that the Applicant should pay the costs of the Official Receiver, to be taxed on the party and party basis if not agreed.
Ms Karen Cheung for the Official Receiver Mr John Griffiths, SC leading Mr Andrew Bullet, instructed by Messrs Marie Tsang, Dustin Chan & Co., for the Applicant (the Bankrupt) Respondent (Petitioning Creditor) absent |
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