Chan Sui Ting v. Yeung Shu Lam, Wilson

HCB113/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 113 OF 2004

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Before : Hon Yam J in Court

Date of Hearing : 18 September 2006

Date of Judgment : 24 November 2006

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JUDGMENT

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1.We all know what is “a storm in a tea cup”.  This, in my view, is such a case here.

2.Having said that, I have not minimised the importance of fame and shame for a solicitor when he was allegedly defamed in his professional capacity.  This will be clear in the following story.

The story

3.The Petitioner herein (“Mr Yeung”) has been a practicing solicitor.  The Debtor herein (“Mr Chan”) owed Mr Yeung by way of costs taxed at $125,000 odd in “HCA”284/2002.  That is still an on-going defamation action wherein Mr Yeung is the plaintiff and Mr Chan is the defendant.  That case arose in the following manner.

4.In the year 2000, Mr Chan was a client of Mr Yeung in a conveyancingmatter.  It is not clear from the Statement of Claim in the HCA what is the direct relevance of this fact apart from the indirect inference that Mr Yeung had been known to Mr Chan before the allegedly libellous publication.

5.In a letter dated 16 January 2002 Mr Chan wrote to the Law Society and alleged that Mr Yeung charged his friend $20,000 at a time when Mr Yeung was suspended from practice.  The sum was paid by way of 2 cheques paid in favour of Mr Yeung, purportedly at his request, instead of the firm of solicitors with which Mr Yeung was then associated.  The sum was purportedly for obtaining documents but Mr Chan said in the aforesaid letter that Mr Yeung had cheated and misled Mr Chan and his friend.

6.Apparently Mr Yeung was associated with his previous firm which had been taken over by the Law Society.  However he himself was allowed to commence his own practice under his own name : Wilson Yeung & Co. since 17 April 2000.

7.In the HCA Mr Yeung also pleaded that Mr Chan’s letter was published with ulterior and malicious motive.

8.Mr Chan in his defence pleaded in effect justification, though it is not clear whether it is a qualified or an absolute one.  From the general denial in the defence, the allegation of malice was disputed.

9.Mr Yeung then requested further and better particulars of the defence.  This included how Mr Chan said he had been “cheated” by Mr Yeung.

10.Mr Chan replied that Mr Yeung had acted previously for one Madam Lam in 2 High Court actions but he demanded $20,000 from her for the return of the documents therefor.  Mr Chan was told by another named solicitor of another named firm that the Law Society had taken over the firm with which Mr Yeung had previously been associated and further that Madam Lam was entitled to the return of any documents without payment.

11.Thereafter what followed is what I would describe as a procedural saga as follows :

(i)      10 September 2002—Mr Yeung obtained an unless order from Master Levy that Mr Chan should comply with an earlier discovery order and to verify the list by affidavit and in default, his defence would be struck out and judgment would be entered for the plaintiff.

(ii)     16 September 2002—the aforesaid order was filed and on 17 September 2002—a list of documents was filed by Mr Chan’s solicitors (who is the same firm acting for him now before me).  However, his handling solicitor had, according to him, inadvertently forgotten to verify the same by an affidavit.

(iii)     10 January 2003—Mr Yeung by a summons sought a further and better list of documents to be verified also by affidavit.  The order was made by Master Woolley on 23 January 2003.

(iv)    29 January 2003—another summons was issued seeking final judgment against Mr Chan on his non-compliance with the previous unless order of Master Levy of 10 September 2002.  However this summons was said to be returnable on Friday 7 February 2002 at 9:30 in the forenoon.

(v)     7 February 2003—Master Bharwaney heard the summons in the absence of Mr Chan’s solicitors and made the following order as endorsed on the summons : “confirmation of service. O.I.T.”.  The affirmation of service was filed apparently after the hearing at 11:15 a.m. on the same day.  But the same is endorsed at the top “For hearing before the Master on 7^th January 2003 at 9:30 a.m.” which would only add to the confusion of the actual date of hearing.

12.One subsequent matter was on appeal to Reyes J from a Master (which I shall deal with in a moment) and thereafter to the Court of Appeal before Rogers VP, and Le Pichon JA.  The Vice-President, in this respect said (at paragraphs 11 to 13 in CACV391/2004, 24 February 2005 unreported) :

“11.   It would thus appear that Master Bharwaney, when hearing this summons, did consider the question of whether the 1^st defendant had been properly served.  It can only be presumed from the endorsement and the subsequent filing of the affirmation of service that he was assured that service had been effected and that the affirmation was thereafter filed.  However, the first matter which must be recognised is that when entering judgment in default it is still necessary for the court to consider whether judgment should be entered.  In this case the master had before him a summons wherein the return date was incorrectly stated.  He had an application which was based upon an alleged failure to comply with an order which on the face of the matter had been complied with at least to the extent that the action could proceed.  There was no evidence before the master that any request had been made, still less in writing, for the provision of a confirmatory affidavit.  On that basis alone it would have been appropriate for the court to consider whether the order to strike out the defence and enter judgment in favour of the plaintiff was the correct order or whether the court should have simply made an order that an affidavit should have been provided.

12.   However that is not the most important matter.  As already noted, Master Woolley had, in a summons returnable on 23 January 2003 made an order for a further and better list to be verified on affidavit.  There are two things which follow from that.  In the first place, no such order would have been appropriate unless there were grounds for asserting that the first list of documents was not complete.  If that were the case it would be pointless for any affidavit verifying the first list to be made because it would be an affidavit which would state that the list was complete when it was the plaintiff’s own averment that the list was not complete.  In the second place any failure to comply with the provision of the affidavit in compliance with the order made the previous September seems to me to have been overtaken by the order made by Master Woolley.  By proceeding with the action and by proceeding to demand further discovery the plaintiff has progressed well beyond the original discovery order and any failure to comply with it must be taken to have been taken into account by Master Woolley when he made the subsequent order.  In the light of that it appears to me that the issuance of the summons on 29 January 2003 seeking judgment on the basis of the default in filing the affidavit should have been doomed to failure from the start.  That is also the view expressed by Reyes J.

13.   Coupled with that the Master was not only faced with a summons with the wrong date but an absence of the defendant’s solicitors in an action where there was an obvious defence of privilege.  It is unnecessary in this appeal to decide whether that defence is one of absolute privilege or qualified privilege.  Even on the assumption it was only qualified privilege the question of malice was something which would clearly have to be investigated.  The plaintiff might have been able to show malice, but bar the bald reference to it in the pleading, there was insufficient material on the face of the pleading to show malice.  It would have been appropriate as the judge suggested that the 1^st defendant’s solicitors should have been contacted to make inquiries as to why they were not at court.  That would have been all the more appropriate in the circumstances where it would appear that the 1^st defendant’s interests were probably not being properly looked after: it would have been appropriate for the court to raise the question of privilege with the 1^st defendant’s solicitors.  In those circumstances I have no hesitation in saying that the judge below came to the correct conclusion that the sanction of the unless order should not have been executed by the entering of the judgment by the master.”

13.But then, as aforesaid, judgment was entered on 7 Februrary 2003.  On the same day, this fact was communicated by Mr Yeung to Mr Chan’s solicitors by fax.

14.Thereafter nothing happened for nearly 10 months until Mr Yeung applied to tax the costs of the HCA and the procedure proceeded as follows :

(vi)	27 November 2003—taxation before a taxing Master in which Mr Chan’s solicitor also attended and costs were taxed at $125,493 and the allocatur thereof was signed on 2 December 2003.
(vii)	8 December 2003—only by then which is some 10 months later Mr Chan through his solicitor (who had attended the previous taxation) applied to set aside the aforesaid judgment.
(viii)	21 April 2004—the application to set aside was heard before Master Levy who then adjourned the hearing.
(ix)	11 June 2004—at the resumed hearing Master Levy dismissed the setting aside application and further ordered Mr Chan’s solicitors to bear costs personally for those costs thrown away by the adjournment on an indemnity basis.
(x)	15 June 2004—Mr Chan filed a Notice of Appeal against the aforesaid order of Master Levy.  This was originally scheduled to be heard on 6 October 2004.
(xi)	9 July 2004—the wasted costs was taxed at $83,329.33 and within 14 days thereafter Mr Chan’s solicitors lodged their application for review.  However the allocatur (i.e. “the 2nd allocatur”) was signed on 21 July 2004.
(xii)	13 September 2004—the aforesaid taxation review as heard before Master De Souza and the same was dismissed by him on the ground that the 2nd allocatur had been issued.  (However as aforesaid Mr Chan’s solicitors had already applied within 14 days allowed for review of the taxation).
(xiii)	2 October 2004—a consent summons was filed and later on made an order of the court on 4 October 2004 that the hearing of the appeal of Mr Chan (which included the appeal of Mr Chan’s solicitors in respect of their bearing costs personally) would be adjourned sine die with liberty to restore.  Thereafter Mr Chan has never pursued this appeal.  By then Mr Chan was already a bankrupt and the summons was signed by the Official Receiver for Mr Chan.
(xiv)	15 November 2004—Mr Chan’s solicitors appeared before Reyes J on their application to be joined as an additional party as Mr Chan’s aforesaid appeal had not been pursued by the Official Receiver.  Mr Yeung instructed counsel to object to the application.  Reyes J allowed the application and they became the 2nd defendant therein.
(xv)	16 November 2004—Mr Chan’s solicitors immediately applied to appeal out of time against the part of Master Levy’s order making them personally liable for costs thrown away and against Master de Souza’s dismissal of their application to review the taxation of those costs.
(xvi)	7 December 2004—Reyes J allowed the appeal of Mr Chan’s solicitors from the aforesaid orders of :
	(a)	Master Levy on 11 June 2004 in so far it made Mr Chan’s solicitors personally liable for the aforesaid costs thrown away;
	(b)	Master De Souza on 13 September 2004 and set aside the aforesaid 2nd allocatur and ordered Mr Yeung to repay all sums received from Mr Chan’s solicitors; and
	(c)	ordered Mr Yeung to pay the costs of the appeal.
(xvii)	24 February 2005—Mr Yeung appealed against Reyes J’s aforesaid judgment but the Court of Appeal as aforesaid dismissed his appeal with costs.  (In that appeal hearing, each side was represented by a senior and a junior counsel.)

15.In respect of the setting aside of the judgment the Vice-President further said as follows :

“15.   The application to set aside the judgment is a matter which has given rise to this appeal.  When the application came on before Master Levy on 21 April 2004 the focus of the discussion was upon whether the 1^st defendant’s failure to provide an affidavit in support of the list of documents filed pursuant to Master Levy’s order of 2 September 2002 had been properly explained.  As Reyes J pointed out at page 29C of the transcript of the hearing, counsel appearing on behalf of the 1^st defendant applied for an adjournment because the master had indicated that there had been a “total lack of explanation being proffered by the defendant” and had made it clear that unless such explanation were provided judgment would be given against the 1^st defendant.

16.   As Reyes J also said that adjournment was unnecessary.  It should have been clear that the judgment fell to be set aside on the basis which has already been explained.  Again, as Reyes J held, once it has been decided that the adjournment was unnecessary it then becomes quite clear that it was wrong to visit the costs of that adjournment on the party that had to apply for it, still less should the costs of the adjournment be visited upon the solicitors.

17.   I should mention that Reyes J, in the court below, took into account a number of factors including the fact that a proper explanation for the 2^nd defendant’s not appearing at the hearing before Master Bharwaney had not been given.  Mr Chan SC who appeared on behalf of the plaintiff on this appeal argued that the judge had wrongly addressed the question of the failure to provide discovery in paragraphs 42 to 44 of the judgment in so far as he only looked at the aspect on the basis of the relevant party failing to give discovery of documents which were in that party’s favour.  However, what the judge was there considering was whether a peremptory order should have been made, i.e. one which provided that if there had been a failure to comply with the order which was made there would have been an automatic strike out of that party’s pleading and judgment against that party.  It is unnecessary to consider the full aspect of peremptory orders.  It is sufficient to say that it is highly unusual for a peremptory order to be made on the first application for an order of, for example, discovery.  When a court makes a peremptory order providing for judgment for failure to be observe the order, the court is necessarily put in a position where it has to consider whether each and every instance of failure, no matter what respect, should attract that penalty.  Reyes J was simply giving examples where in some cases it may not be appropriate even if full discovery has not be given for a defaulting party’s pleading to be struck out and judgment to be given against it.  In this case, if there were any failure to give discovery, it would, as far as can be determined, be a failure to give discovery of documents which were in the 1^st defendant’s favour or at any rate documents which went to support the 1^st defendant’s pleading in the further and better particulars.  In those circumstances the penalties suggested by Reyes J would be appropriate.  Furthermore if full discovery has in fact been given and the only failure was a failure to provide a confirmatory affidavit it would, it seems to me, be wholly out of proportion to enter judgment against that party without giving that party a further opportunity to file the affidavit, albeit the costs of any such application would have to be borne by the party in default.”

16.In the judgment of Reyes J on 7 December 2004 he has helpfully added the following :

“104.	It will be readily apparent that the reasoning in this Judgment casts serious doubt on the validity of one or more of the following:-
	(1)	the interlocutory judgment;
	(2)	Master Levy's orders of 21 April and 11 June 2004, insofar as those rejected Chan's application to set aside the interlocutory judgment;
	(3)	the 1st allocatur which was based on the interlocutory judgment; and,
	(4)	the bankruptcy order against Chan based on non-payment of the taxed costs evidenced by the 1st allocatur.”

17.In spite of the aforesaid judgments of Reyes J and the Court of Appeal Mr Chan had not applied to set aside the judgment entered on 7 February 2003 until 20 July 2006.  Master Hui heard the summons on 17 August 2006 and set aside the judgment eventually and made no order as to costs.  In the meantime there were these bankruptcy proceedings commenced by Mr Yeung against Mr Chan.

The Bankruptcy Proceedings herein

18.That bankruptcy petition against Chan was of course filed by Mr Yeung, much earlier on 6 January 2004.

19.In the first hearing on 21 June 2004, Lam J was informed that the application to set aside judgment was dismissed (i.e. Master Levy’s order of 11 June 2004 as aforesaid) and the appeal therefrom should be heard in October.  (In fact it was only the appeal of Mr Chan’s solicitors.) Lam J enquired as to why no application was made by Mr Chan for a stay of execution of the judgment entered, whereupon Ms Gwilt, counsel for Mr Chan applied for an adjournment for such an application and undertook to make the same within the next 2 days.  Accordingly the matter was adjourned for 7 days.

20.Seven days later on 28 June 2004, the bankruptcy matter first came before me.  I was told the application for stay of execution in HCA284/2002 was taken out with a call-over date on 6 July 2004 for 15 minutes only.  Both sides indicated they would not file any further affidavit.  That hearing of stay of execution together with the hearing of the petition were adjourned for argument.

21.On 30 July 2004, both matters (stay of execution and the petition) came before Deputy High Court Judge K.Y. Chan as aforesaid.  He heard the application for stay of execution first and decided against Mr Chan for a stay.  Thereafter he heard the petition and made the bankruptcy order, on the ground that since there was no stay of execution and the fact that Mr Chan had appealed against the order dismissing the setting aside of the judgments would not operate as a stay of execution.

22.On 9 November 2004, Mr Chan appeared in person before me (since he was there and then an adjudged bankrupt) on his application to rescind/annul the Bankruptcy Order on the ground that he was willing to pay the debt.  However he could not pay the total debt but only part of it.  Mr Chan at least by then must have realised that he could not continue on to be an estate agent while he was adjudged bankrupt.

23.Mr Yeung appeared as a solicitor of Messrs Wilson Yeung & Co. for the petitioner, i.e. he himself.  He opposed the application unless Mr Chan could pay the debt in full.  The matter was therefore adjourned for 28 days to 9:30 a.m. on 7 December 2004.

24.On 7 December 2004 at 9:30 a.m. the matter came before Sakhrani J whereupon Mr Chan asked for a further adjournment of 45 days.  After hearing arguments, Sakhrani J adjourned the matter for at least 21 days.

25.It was only at 2:15 p.m. that same day on 7 December 2004 that Reyes J handed down his judgment in HCA208/2002 as aforesaid after allowing Mr Chan’s solicitors to be joined as the 2^nd defendant therein on 15 November 2004 and hearing counsel’s arguments on 24 November 2004.  Thus Mr Chan did not have the benefit of Reyes J’s judgment when the bankruptcy matter came before Sakhrani J.

26.As aforesaid Reyes J’s judgment was taken on appeal by Mr Yeung on 15 February 2005 before the Court of Appeal (Rogers VP and Le Pichon JA) and was dismissed.  The Reasons for Judgment was handed down on 24 February 2005.

27.Thereafter Mr Chan applied for Legal Aid on 12 March 2005 in the bankruptcy proceedings only as no legal aid would be provided in a defamation action.  In July 2005 Mr Chan was eventually granted with legal aid.  He then applied in November 2005 (which is different from his previous application to rescind/annul the Bankruptcy Order by payment of the outstanding debt) for the following orders, namely :

(1)     to set aside the Bankruptcy Order of 30 July 2004;

(2)     the Petition to be withdrawn;

(3)     there be no order as to costs of the Petition and this application as between the Petitioner Mr Yeung and the Debtor Mr Chan; and

(4)     the costs of this Petitioner be paid out of the deposit (which was paid by Mr Yeung).

In order to minimise the costs of attendance by lawyer, Mr Chan’s lawyer further asked for an order that for :

(5)    “the pronouncement of this Order pursuant to this summons shall be fixed by the Court and the attendance of the parties be dispensed with.”

This application was fixed to be heard before me on 2 December 2005.

28.However, just one day before the hearing, Mr Yeung filed an affirmation on 1 December 2005.  He went at lengths as to the background of why he commenced the High Court action and why he pleaded malice on the part of Mr Chan.  This is of course an issue to be tried in the HCA.

29.He further submitted that the costs of the bankruptcy proceedings, including the costs of the official receiver, should be paid by Mr Chan for the following reasons :

(1)     After the judgment of Master Bharwaney on 7 February 2003, Mr Chan did not apply to set aside that judgment until 10 months later, on 8 December 2003.

(2)     In the meantime, Mr Yeung had already applied to have the costs taxed and Mr Chan’s solicitors, upon instructions of Mr Chan, raised objections to the plaintiff’s bill of costs and participated in the taxation of Mr Yeung’s bill.  After the taxation on 27 November 2003 the first allocatur was signed on 2 December 2003.  In other words, even up to that stage Mr Chan had not applied to set aside Master Bharwaney’s judgment entered 10 months earlier until six days later.

(3)     Mr Yeung’s petition was filed on 6 January 2004 on the strength of a valid first allocatur after Mr Chan did not pay the sum taxed and a statutory demand had already been served on Mr Chan.

(4)     The first hearing of the bankruptcy proceedings was, as aforesaid, on 28 June 2004 before Lam J and, that was after Master Levy had dismissed Mr Chan’s application to set aside the judgment and ordered Mr Chan’s solicitors to bear costs personally for the adjournment on 11 June 2004.

(5)     When the Bankruptcy Order was made on 30 July 2004 the application to stay the execution of the judgment was also dismissed.  Mr Chan had not even proceeded to appeal against the Order of Master Levy of 28 June 2004.

(6)     It was only after Mr Chan’s solicitors appeal to Reyes J and the hearing before the Court of Appeal (judgments were handed on 7 December 2004 and 24 February 2005 respectively), that Mr Chan relied on the same and applied to set aside the Bankruptcy Order on the ground that the judgment should be set aside.

(7)     By then no application to set aside the judgment had been made until 20 July 2006 and the same was set aside by consent on 17 August 2006.  Thus Mr Chan had been dilatory in all his applications.

30.Before I consider the aforesaid submissions of Mr Yeung, I shall now proceed to deal with the usual order of costs when a Bankruptcy Order is set aside.

The Usual Order of costs

31.The usual order of costs when a bankruptcy order is annulled or discharged on the ground that the underlining debt is gone, is that the petitioner should pay the debtor costs.

32.In the case of Re : Ng Chi Wo, HCB2819/2003 (unreported, 29 July 2001, per Deputy High Court Judge Poon) an application was made to annul a bankruptcy order on the ground that, inter alia, the default judgment on which the statutory demand and bankruptcy petition were based was irregular because there had been no effective service of them on the bankrupt.  Deputy Judge Poon held that this service of the writ in the proceedings in which the default judgment had been obtained was defective (though the service of both the statutory demand and the petition was good).  Deputy Judge Poon decided that the default judgment was irregular on the ground that the purported service of the writ of summons was defective as it was served through the letterbox at an address at which the bankrupt had never resided and therefore the presumption of service under Order 10, rule 1(2) had been rebutted by the bankrupt.

33.It was further submitted by counsel for the petitioner that the court should also consider the merits of the bankrupt’s defence and when there was no defence to the claim against him, the court should not annul the bankruptcy order.   In rejecting this submission, Deputy Judge Poon said (at paragraph 39) :

“I am unable to accede to this request.  In my view, as a matter of principle, it would be wrong to allow the bankruptcy order to stand when the Default Judgment which gave rise to the judgment debt is liable to be set aside and will be set aside upon application on the ground of irregularity.  The substratum of the judgment debt that triggered the bankruptcy proceedings has collapsed.  Without this proper and necessary base, all the subsequent steps taken in prosecuting the bankruptcy proceedings can no longer stand.”

34.It should be noted here that in our case the interlocutory judgment obtained by Mr Yeung was also irregular in that the summons was wrongly dated to a year before.  Further, Mr Yeung had earlier taken out another summons before Master Woolley on 23 January 2003 for a further and better list of Mr Chan’s documents.  Thus, there is no point in enforcing the original order that Mr Chan should verify his original list of documents by an affidavit.

35.Ms Gwilt, counsel for Mr Chan, also relied on the case of Mai Xi Hong, HCB550/1996 (17 December 2004 unreported), in which Barma J said at paragraph 31 that :

“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.”

36.One of the risks is that the petitioner would have to pay the costs thrown away in the bankruptcy proceedings when the Bankruptcy Order is annulled or otherwise set aside.

37.However, the fact of the case of Mai is relevant in my consideration.  Barma J in fact refused to annul the Adjudication Order.  This was made nearly eight years ago on 26 November 1996.  Then the bankrupt applied to annul the Adjudication Order and again pursuant to section 33 of the Bankruptcy Ordinance.  He adduced evidence that the default judgment obtained was irregular in that either the debt had been satisfied by a settlement agreement or the judgment had entered for more than the actual debt due and owing.  By then, the petitioning creditor could not be found and did not appear at the hearing on the debtor’s application.

38.The court was informed by the Official Receiver that the claim was based on a dishonoured cheque.  When judgment in default was obtained against the debtor he was unaware of the same but he instructed his solicitors to raise there and then one and only one point and that was he had paid a sum of $70,000 earlier to the creditor and therefore the amount claimed should be amended in the statement of claim.  The evidence adduced only showed that another person Mak’s Holdings paid that amount earlier.

39.When the debtor was aware of the default judgment, he again asked the creditor to amend the default judgment to a lesser sum threatening that an application would be made to set aside the judgment.  The creditor’s solicitors refused to amend the judgment.  Despite this, no application to set aside default judgment was ever made.

40.The bankrupt is a subject of the Adjudication Order and he had been charged with some 14 offences under the Bankruptcy Ordinance, all of which involved acts done by him while he was an undischarged bankrupt.  The trial would take place in January 2005, i.e. a few months after the hearing before Brama J on 29 October 2004.

41.Brama J decided that the judgment obtained was regular since the debtor failed to give notice of his intention to defend the claim.  The fact that he has some valid defence to the whole amount of the claim or part of it is a matter for him to raise in his defence and after judgment is given in default to apply to set aside the judgment by raising merits of his defence.

42.The court also decided that the effect of payment was established on the evidence before it but the purpose of the payment by Mak’s Holdings was not.  Consequently Brama J refused the application to annul the Adjudication Order and ordered the debtor to pay the costs to the Official Receiver, the petitioning creditor being absent.  Thus Mr Sakhrani for the petitioner herein submitted that the observation of Barma J was only an obiter.

43.Lastly Ms Gwilt also relied on the case of Re : Cheung Pak Ming, HCB5451/2004, (1 February 2005 unreported).  Here Kwan J awarded costs of the bankruptcy proceedings to the judgment debtor on the ground that the judgment obtained in the District Court was irregular.  It should be noted here that the default judgment obtained was clearly irregular.  The petitioner was the landlord of the debtor.  The claim was for rental from 1 July 2001 to 7 September 2001 and mesne profits from 8 September 2001 to 26 February 2002 and other outstanding charges.  It is common ground that the debtor had at least vacated from the premises at the end of February 2002 although the debtor said he vacated from the premises at the expiration of the lease.  He and his family then lived in rented premises in Wan Chai and in July 2002 they had left Hong Kong for United Kingdom where they had since resided.  The Statement of Claim and the writ in the District Court was subsequently served at the suite premises and the creditor, being the landlord, must have known that the debtor has already vacated from the same at least after February 2002.  The writ was also served on the former registered address of the limited company of the debtor but the debtor was also sued on a disputed guarantee which the debtor said he had never signed.

44.The statutory demand for the judgment debt obtained was also served at the premises by way of substituted service.  There is therefor no reason why the creditor could say that it reasonably believed that service on such a last known address of the debtor would have come to his attention when the creditor knew the debtor had moved out of premises.  Kwan J has no doubt that all the services were irregular and therefore the irregular judgment would be liable to be set aside.

45.It should however been noted that there are certain salient features in that case which are relevant to our case.  They are heavily relied on by Mr Sakhrani, counsel for Mr Yeung before me.  The debtor in that case was aware of the District Court and the bankruptcy proceedings after the Bankruptcy Order was made on 11 August 2004 since he was informed by his bank on 31 August 2004 that his account was frozen by reason of the Bankruptcy Order.  Shortly afterwards, on 9 September 2004 he filed an affirmation in support of his application to set aside the default judgment.  The application to annul the Bankruptcy Order was made on 14 September 2004.  In other words the debtor had acted very promptly once he was aware of the judgment which was irregularly obtained and the Bankruptcy Order made against him.

Mr Chan’s dilatory conduct

46.However, in this case there are the following unusual features for which I consider that Mr Chan should be responsible, namely :

(1) Although the hearing before Master Bharwaney on 7 February 2003 was not attended by Mr Chan’s solicitors because the year of the hearing was wrongly stated as the year before (I was told that possibly the solicitors’ clerk filed the summons away thinking that it was an old summons of the previous year), Mr Chan’s solicitors were informed on the same day of the order made against their client Mr Chan.  Thereupon Mr Chan should have applied to set it aside or otherwise asked for a re-hearing of the summons for non-attendance once according to Order 32, rule 5(3) of the Rules of the High Court before the order made has not been perfected.  No such application was made as aforesaid until 10 months later.

(2) Instead Mr Chan’s solicitors participated in objecting to the bill of costs leading to the first allocatur dated 2 December 2003.

(3) Application to set aside was made only six days later, on 8 December 2003, and the matter was dismissed by Master Levy on 11 June 2004.

(4)     In the meantime, bankruptcy proceedings has already been commenced on the first allocatur.  (In fact on 2 July 2004 Mr Yeung invited Mr Chan to bring forward the hearing date of 6 October 2004 in respect of the appeal against Master Levy’s aforesaid order to 30 July 2004 which was the substantive hearing of the bankruptcy petition.  For one reason or another, which is not clear from the evidence before me, this was not done.  If it were otherwise, Mr Chan could decide to pursue the appeal on 30 July 2004 which he could not do so after he was adjudged bankrupt.  By then such a decision could only be made with the consent of the Official Receiver for him.)

(5) In the end the appeal against Master Levy’s order of 21 June 2004 was only made by Mr Chan’s solicitors in respect of the part ordering Mr Chan’s solicitors to bear costs personally for the adjournment.

(6) It was only after the judgment of Reyes J on 7 December 2004 at 2:15 p.m. and the judgment of the Court of Appeal on 24 February 2005 and its judgment refusing leave to appeal to the Court of Final Appeal on 14 April 2005 that Mr Chan applied to set aside the Bankruptcy Order by an affirmation made some months later in November 2005.

(7) When the matter came before me on 2 December 2005, parties have seen some senses to the reality of matter.  In spite of the fact that the judgment had not yet been set aside both parties considered that the Bankruptcy Order could not stand in light of the judgments of Reyes J and the Court of Appeal.  Thus, the Bankruptcy Order was set aside but the question of costs was adjourned for argument to a day to be fixed since Mr Yeung made his belated effort to ask for costs from Mr Chan.

47.I consider that Mr Chan’s dilatory attitude has contributed to the bankruptcy proceedings and the order eventually made.  Even up to 2 December 2005 there was no application yet to set aside the judgment until 6 days later as aforesaid.  Eventually another summons was taken out on 20 July 2006 to be heard before Master Hui on 17 August 2006, on which day Master Hui eventually set aside the judgment of 7 February 2003 with no objection from Mr Yeung.  However, Mr Chan’s application for costs to be paid by Mr Yeung to Mr Chan was refused and there was no order as to the costs made.

48.What is the effect of Mr Chan’s dilatory conduct and manner?  It has at least lengthened the bankruptcy proceedings.  Mr Yeung in fact asked for all costs of the proceedings including those of the Official Receiver to be borne by Mr Chan.  Alternatively in respect of the Official Receiver costs, they should each bear half of the same.

49.However, I consider that after all, the substratum of the bankruptcy order has gone.  The aforesaid dilatory conduct of Mr Chan would only have the effect of minimising part of the costs which would not have incurred had he been acting with promptitude.  It would not have the effect of depriving his entitlement to any of the costs which would have been incurred anyway even if he had acted promptly.  It goes without saying that he should not be liable to pay Mr Yeung’s costs instead.

50.In the end, I consider that, on a broad-brush approach, Mr Yeung should not be penalised by paying the full costs of the bankruptcy proceedings.  Thus, I consider that the fair costs order is that Mr Yeung should only pay half of Mr Chan’s costs in the bankruptcy proceedings.

51.In respect of the official receiver’s costs, I consider that, again adopting a broad-brush approach to the matter, each party should contribute half of the official receiver’s costs.  In short Mr Chan should also be responsible for half of those costs which otherwise would not have incurred had he been acting with promptitude.

The Official Receiver’s application

52.In respect of the official receiver’s costs, there was an application to summarily assess such costs which amounted to $90,000 odd.  Mr Yeung opposed to such approach.  I have decided at the hearing that such cost should be taxed if not agreed since those items, which are quite numerous, should not be assessed summarily before me when Mr Yeung objected to a number of items stated therein.  Thus, the set of costs of the official receiver shall be taxed by a Taxing Master if not agreed by both Mr Yeung and Mr Chan.

Conclusion

Mr Sanjay A. Sakhrani, instructed by Messrs Wilson Yeung & Co., for the Petitioner

Ms Angela D. Gwilt, instructed by Messrs Quan & Co., for the Debtor

Ms Karen Cheung for Official Receiver