Zhang Liyuan v. Luu Hung Viet Derrick

HCB4776/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 4776 OF 2011

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BETWEEN

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AND

HCSD31/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO. 31 OF 2011

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BETWEEN

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(Heard Together)

Before : Hon Barma J in Court

Date of Hearing : 8 February 2012

Date of Judgment : 8 February 2012

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J U D G M E N T

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1.This is the hearing of two matters, the first being a bankruptcy petition issued by the creditor in these proceedings, Mr Zhang Liyuan, against the debtor, Mr Luu Hung Viet Derrick, in respect of a debt allegedly due by the debtor to the creditor of some HK$61,203,560.87.

2.The petition is based on a statutory demand which was served on the debtor on 29 April 2011.  The petition itself was presented on 1 August 2011. 

3.Subsequent to the presentation of the petition the debtor applied out of time to set aside the statutory demand which had been served on him on the ground that it was confusing and had thereby caused prejudice to him by leaving him in a situation which he did not and could not know the exact amount owed by him to the creditor.

4.The application to set aside the statutory demand out of time was not immediately dealt with as the parties agreed by a consent order that both the petition and the application to set the statutory demand aside out of time should be dealt with at the same time, taking the view that the issues that would be raised in both applications were substantially the same.

5.It is in those circumstances that both the petition and the application to set aside the statutory demand out of time have come before me today.

6.The debt on which the petition is based arises out of a judgment in High Court Action No. 644 of 2010, in which the petitioner was the plaintiff and the debtor the defendant.  In those proceedings the petitioner claimed the sum of HK$43 million from the debtor.

7.Those proceedings were commenced on 10 May 2010.  Just under a month after their commencement, on 9 June 2010, the parties entered into a consent order in the form of a Tomlin order which in effect obliged the debtor to pay the full amount claimed of HK$43 million plus interest thereon as from 6 May 2009 at a rate of 24 per cent per annum.

8.Provision was made for the settlement of the $43 million principal of the judgment by the transfer of a certain number of shares in a company that is now known as Wai Chun Mining Industry Group Company Limited (“Wai Chun”), and the payment of a certain further amount of cash to top up the payment to an agreed value of HK$43 million.

9.It appears that the debtor did not comply with the terms of this first consent order and in the event a second consent order was subsequently entered into on 8 December 2010, which in essence reiterated the terms of the first consent order, albeit with some variation as to the details in relation to the transfer of shares and the amount that was to be paid in addition to the shares to be transferred.

10.This second consent order was also not complied with and as a result the petitioner applied, as he was entitled to do under the terms of the consent order, to obtain a formal judgment against the debtor of the amount in respect of the claim. 

11.That application came on for hearing before Master K Lo on 15 February 2011.  Prior to the hearing, the debtor had put in an affirmation in which he made various points in opposition to the entering of judgment against him.  One point in particular is of relevance for present purposes – that is the debtor’s allegation that an amount of HK$8.12 million of the principal of the debt had, in fact, been satisfied by the transfer by him to a plaintiff in other proceedings (who was not the petitioner) of a certain number of shares in Wai Chun. 

12.The exact nature of the debtor’s case on this is somewhat complicated but it involves the proposition that HCA 664 of 2010 (in which the judgment debt that is the subject of the petition arose) and the other set of proceedings, HCA 1962 of 2010, in both of which the debtor was a defendant, proceedings were in some way related and that the plaintiffs in the two sets of proceedings were in fact nominees for a Mr Lam, who had entered into a stock lending arrangement with the debtor.  It is suggested that the effected payment by transfer of shares in order to settle HCA 1962 of 2010 was to be taken into account so as to simultaneously reduce the amount of the judgment in HCA 644 of 2010 by the amount of HK$8.12 million.

13.Notwithstanding this argument Master K Lo made an order giving judgment for the creditor of HK$43 million.  It seems to me, therefore, that the position must be that the debtor’s argument as to the payment of HK$8.12 million was rejected by the master and judgment for the full amount was accordingly entered against him.

14.Thereafter, there was no appeal against this order.  Instead, there were two further consent orders that were made with a view to trying to settle the payment due under the judgment but neither of these resulted in anything and ultimately the statutory demand was served on 29 April 2011. 

15.The statutory demand states that the debt was incurred on 15 February 2011, which is the date of the judgment granted by Master K Lo.  In the column for description of the debt, the debt is described as a judgment for the petitioner against the debtor on default on the part of the debtor in performing his obligations or discharging his liability in accordance with the schedule to the consent order dated 8 December 2010 under HCA 664 of 2010.

16.In the third column (for the amount due as at the date of the demand) it is stated that the amount due is HK$43 million, plus interest thereon calculated from 6 May 2009 to 15 February 2011 at the rate of 24 per cent per annum and thereafter at the judgment rate until payment and costs assessed at HK$56,830, that having been the amount of costs assessed on a gross sum basis by Master K Lo and referred to in her order.  Having stated this, the entry in this column goes on give credit for “partial payment of costs in the sum of HK$40,000 on 24 March 2011 and interest in the sum of $60,000 on 6 April 2011.”  There is then stated a total for the amount of the debt – being the amount which I have indicated at the beginning of this judgment of $61,203,560.87.

17.Before me, Mr Brian Wong, who appears for the debtor, has taken three broad points.

18.First, he suggests that the debtor had demonstrated the existence of a dispute in relation to the amount claimed in relation to the HK$8.12 million which he says had been paid in effect by the transfer of shares to the plaintiff in HCA 1962 of 2010.  He therefore says that there is a bona fide dispute of substance in relation to this amount of the debt.

19.Second, he suggests that in the alternative the statutory demand is defective and ought to be set aside, or alternatively that no bankruptcy order should be made on the strength of it because it was so lacking in clarity that the debtor was prejudiced as a result of the confusion caused by it.  In this respect the complaint relates to the way in which the amount of the debt is set out.  It is said that the information provided does not enable the debtor to be able to ascertain with clarity the amount of the debt that is said to be owing by him to the petitioner.  This, it is said, prejudiced the debtor because it had made it impossible for him to obtain assistance from friends or associates to raise the funds necessary to pay the debt.  In other words, what the debtor is saying is that but for the alleged uncertainty or lack of clarity in the statutory demand he would have taken steps to and would have been able to satisfy the debt that is properly due from him to the creditor.

20.Finally, if both of those points go against him, Mr Wong suggests that, in the light of the fact that the debtor had indicated his intention to pay the debt, a period of time should be allowed for him to pay the debt after its correct balance had been ascertained.  He suggests that after ascertainment of the balance of the debt a period of some four months should be allowed to enable to debtor to make the necessary arrangements for payment.

21.Mr Chain, who appears for the creditor, suggests that there is no substance to any of these points.  So far as the first point is concerned – the allegation that there is a bona fide dispute of substance in relation to some HK$8.12 million of the principal amount of the debt – Mr Chain says that there are at least three answers to this point.

22.The point on which he places greatest reliance is the judgment of Master K Lo for the sum of $43 million entered after having considered the debtor’s affirmation in which he raises precisely this defence.  Mr Chain suggests that in those circumstances the matter is res judicata, as the matter has been raised and rejected by the court as reflected in the judgment of Master K Lo and that it is now too late for the debtor to try to reopen this point and that he is not entitled to do so.

23.I think this must be right.  It is quite clear from the evidence and indeed the debtor’s own evidence, which included as an exhibit his affirmation placed before Master K Lo, that this precise point as to the HK$8.12 million was raised as a ground for resisting the entering of judgment in the full amount of HK$43 million.  This point has clearly been rejected as judgment has been entered for the full amount.

24.I would add that on the basis of the material that the debtor has put forward in relation to the circumstances in which this credit is said to arise, it is in any event a case that is difficult to fully understand and is difficult to give credence to because it involves the proposition that a payment to a different plaintiff in an entirely different set of proceedings should somehow be regarded as amounting to a payment to the petitioner in his own action in respect of an apparently different debt.

25.Although Mr Wong has urged on me the allegation concerning Mr Lam, who is said to have been the person behind both sets of proceedings, it has to be said that there is very little in the way of documentary evidence that would lend any support to the debtor’s case on this point and even if I had considered that the matter was one that could have been raised at this stage in the light of the judgment that had been entered, I would have been of the view that it was lacking in substance and was not such as would give rise to a bona fide dispute of substance such as to justify the court in refusing to make a bankruptcy order and requiring instead that the matter be dealt with by bringing proceedings in the ordinary way.

26.Apart from the res judicata point it seems to me that there are two further points that can be made which, I think, give considerable support to the view that this is not a defence or argument that has any real substance to it. 

27.The first is that the debtor, in fact, entered into consent orders under which he was obliged to pay the creditor $43 million.  While it might be said that the first of the two consent orders entered after the issue of the writ in HCA 644 of 2010 came before the supposed payment of HK$8.12 million by the transfer of shares in Wai Chun to the plaintiff in HCA 1962 of 2010, it cannot be gainsaid that the second consent order was entered into some months after that event, the transfer of shares having taken place on 17 June 2010.  The second consent order, however, was entered into on 8 December 2010, nearly six months later. 

28.Notwithstanding the alleged partial payment the second consent order made no reference to it at all and under it the debtor undertook to pay the full sum of HK$43 million in the manner there provided.  Moreover, following the entry of the judgment by Master Lo, no attempt having been made to appeal the order, there were two further consent orders entered into, both of which proceeded on the basis that the debt owed by the debtor to the creditor was of a principal amount of HK$43 million. 

29.Taking all of those matters into account it seems to me that it is quite clear that the defence of part payment and the allegation that there is a genuine dispute as to the HK$8.12 million is one that cannot be sustained.  I am quite satisfied that there is no substance whatsoever to the suggestion that there had been a part payment of HK$8.12 million.

30.In any event, even if there had been some substance to that argument, it seems to me that this would not have availed the debtor in his attempts to resist the making of a bankruptcy order since even if credit were given for that amount the principal amount of the debt alone would still amount to some $34.88 million, well in excess of the amount required to sustain a bankruptcy petition.

31.It therefore seems to me that there is no realistic prospect of establishing a bona fide dispute of substance in relation to this point and I accordingly reject it.

32.I move on to the second point that has been made by Mr Wong.  In fairness, this was the point that he focused on both in his written submissions and in his submissions before me today.  It relates to the suggestion that the statutory demand was defective in that it was lacking in clarity and was likely to confuse the debtor as to the amount that he was being asked to pay and the amount of the debt alleged to be due from him.

33.With respect, I am unable to accept that submission.  There are two aspects to it. The first is whether or not the statutory demand was in fact so lacking in clarity as to potentially prejudice the debtor.  In my view it was not. 

34.Mr Wong very fairly drew my attention to the English authority of Re A Debtor [1989], 1 WLR 271, a decision of the English Court of Appeal in which a similar point was run.  However, in that case the English Court of Appeal held that notwithstanding a number of errors in the statutory demand, including the fact that the initial amount of the debt was wrongly stated, and although the demand might have been confusing to the extent that it might have been said that the debtor would have had some difficulty, although it would not necessarily have been impossible for him to calculate the amount of the debt that he was said owe to the creditor, the approach taken by the English Court of Appeal was to ask whether or not the defects caused prejudice to the debtor.

35.In essence the court held that if the debtor was unable to show from his own evidence that first, he had been prejudiced, and second, that had it not been for the confusion he would have been in a position to take steps to pay the statutory demand due so as to avoid the presentation of a bankruptcy petition, it could not be said that the statutory demand had, due to its defects, caused any prejudice to the debtor.  In other words, unless the debtor could show that he would have been in a position to and would have paid the amount of the debt due had he known what it was, it could not be said that the confusion that might otherwise have been caused to him would have caused him any real prejudice since he would not have done or would not have been able to do anything about it in any event.

36.In the present case it seems to me that, although the information contained in the statutory demand is not contained in precisely the correct columns as they are meant to be, according to the notes for creditors set out on the right–hand side of the statutory demand form, the information provided was sufficient for the debtor to be able to calculate the liability alleged against him and more importantly to be able to identify any respects in which he might dispute that liability.

37.The statutory demand clearly states that the principal amount of the judgment debt is HK$43 million.  It goes on to give the period during which interest is to be calculated at the stated rate of 24 per cent.  It is, in my view, not a matter of any difficulty for the debtor to be able to calculate, given that information, the amount of interest accruing during that period of time. 

38.Thereafter it is stated that interest continues to accrue on the principal amount at the judgment rate until payment.  Given that payment had not been effected at the date of the statutory demand and given the fact that the judgment rate is a matter of public record, there is no reason, in my view, why the debtor would not have been able to calculate the amount of interest accruing from the date of judgment to the date of the statutory demand by reference to the principal amount and the judgment rate applicable from time to time.

39.In addition, the sum of HK$56,000-odd is claimed in respect of costs.  That is clear enough.  It is not suggested in the statutory demand that any amount of interest should accrue on that amount.

40.Then there are two sums stated to have been received by way of partial payment: HK$40,000 in respect of costs and HK$60,000 in respect of interest, on the dates which I have mentioned.

41.If there was any matter that the debtor wished to dispute, whether as to the amount of the principal debt, or as to the amount of interest, or as to the amount or nature or date of the payment of the partial payments, it seems to me that the debtor had all of the material necessary within his own possession to be able, armed with the statutory demand and the information contained in it, to do his own calculations as to the amount of the debt due from him to the creditor and to see whether that tallied with the total amount asserted in the statutory demand of $61million-odd .  If it did not, it would be open to him to dispute the amount setting out his own calculations and that would be a matter that could have been adjudicated upon in due course.  However, the debtor did not do this. 

42.In those circumstances it seems to me that the statutory demand is clearly not so lacking in clarity as to be confusing to the debtor or so as to have made it impossible for him to do the calculations necessary to satisfy himself that the amount claimed was correctly calculated.  It also contained, as I have indicated, sufficient information to enable him to take any point he wished as to a dispute as to the liability to pay either the principal amount or the interest and to calculate the correct amounts that he said should have been payable.

43.In those circumstances it seems to me that this second point which Mr Wong has taken must also fail.  But it seems to me that it would also fail for another reason.  Even if, contrary to the views that I have expressed, the statutory demand was in some respects lacking in clarity, it seems to me that on the evidence before me it cannot be said that the debtor has been prejudiced by this. 

44.The debtor has not put forward any evidence of his ability to meet the amount of the statutory demand or some lesser amount which he may say he owes the creditor.  All that is said is that by reason of the alleged lack of clarity the debtor had been hampered in seeking to raise funds and has not been able to do so – but there is very little hard evidence of the sources from which the debtor would have raised such funds.  Reference is made to a Mr Yu, who provided the debtor with the shares which were used to effect the payment in respect of HCA 1962 of 2010.  It is said that Mr Yu had a further 140,000 shares in Wai Chun available to be used for the purpose of settling this debt. 

45.However, the debtor’s own evidence and own calculations indicate that the value of those shares is slightly under HK$30 million.  That falls well short of the HK$61 million that is claimed.  It also falls well short of the HK$43 million in principal, although, in any event, it would not seem to me to be right to ignore the amount of interest since the allegation of the debtor is not that the interest is not payable, but that its amount is not readily ascertainable by him.  On any view, the amount of interest accruing on HK$43 million for a period of one year and nine months, up to the date of judgment, at a rate of 24 per cent per annum would be a substantial amount of money – Mr Chain pointed out in the course of his submissions that this amounted to interest at the rate of $28,000-odd per day.

46.In those circumstances it seems to me that the possible availability of resources from which some $30 million-odd could be paid does not go anywhere near far enough to establish that the debtor would have been able to pay such amount as would have been indisputably due from him to the petitioner under the judgment that was entered against him.

47.In those circumstances, it seems to me that the debtor has not established that any prejudice had been caused to him by the alleged lack of clarity in the statutory demand – an alleged lack of clarity which I have in any event held to be unfounded. 

48.In those circumstances it seems to me that the second point that is taken by Mr Wong must also fail.

49.That leaves Mr Wong’s third point, which is a request that the bankruptcy order be suspended or withheld and time be given for the debtor to pay.  However, with respect, it seems to me that having regard to what I have already said, that the debtor has had a considerable period of time in which to effect payment of the amount that is due from him to the creditor.  The first consent order was entered into on 9 June 2010 in which he undertook to pay HK$43 million plus interest to the creditor.  By now, some one year and eight months has elapsed, and no payment of any sort has been made in respect of the claim in HCA 644 of 2010. 

50.In those circumstances it does not seem to me that I can give any credence to the debtor’s suggestion that if given time he will be in a position to pay the debt, and there is no reason why the petitioner should have to wait any longer to obtain the bankruptcy order which he seeks.

51.I therefore decline to exercise such discretion as I may have to postpone the making of the bankruptcy order and afford the debtor a further opportunity to try and pay the debt.

52.For all of those reasons I am satisfied that there is no substance in the disputes that have been raised by Mr Wong and the appropriate order to make would be to make the usual bankruptcy order with costs.  I shall therefore make that order on the petition, and it follows that the application to set aside the statutory demand out of time must also be dismissed with costs.

Mr Benjamin Chain, instructed by Leung & Associates, for the Petitioner (in HCB 4776/2011) and for the Respondent (in HCSD 31/2011)

Mr Wong Chao–wai, Brian, instructed by Simon Si & Co, for the Debtor (in HCB 4776/2011) and for the Applicant (in HCSD 31/2011)

Official Receiver, attendance excused