Re Tsoi Lai Ha Sandra

HCB 5341/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5341 OF 2013

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Re: TSOI LAI HA SANDRA (蔡麗霞) (Judgment Debtor)

Ex Parte: WING HANG BANK LIMITED (Judgment Creditor)

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HCB 5342/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5342 OF 2013

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Re: CHAN WAI MING RAYMOND (陳偉明) (Judgment Debtor)

Ex Parte: WING HANG BANK LIMITED (Judgment Creditor)

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(Heard Together)

Before: Deputy High Court Judge Lok in Court

Date of Hearing: 19 March 2014

Date of Judgment: 19 March 2014

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J U D G M E N T

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1.These are bankruptcy petitions against 2 individual debtors, and the bankruptcy debt is based on a judgment granted by the court against the 2 debtors in HCMP 1621/2001 on 26 July 2001 (“the Judgment”).

2.The petitioner is a bank.  The petitioner had advanced a mortgage loan to the 2 debtors.  In default of the repayment of the loan, the petitioner obtained the Judgment against the 2 debtors on 26 July 2001. 

3.The mortgage loan was secured by a property owned by the debtors (“the Property”).  As the debtors had failed to repay the judgment sum, the petitioner sold the Property by auction on 28 January 2002.  The petitioner applied the sale proceeds as part of the repayment of the sum due under the Judgment.  As the debtors had failed to repay the balance of the judgment sum, the petitioner caused 2 respective statutory demands to be served on the debtors.  The present petitions are made based on these statutory demands.

4.There is no dispute that the 2 debtors have not made any repayment of the sum claimed in the statutory demands or the balance of the judgment sum.  However, the 2 debtors put forward the following 4 grounds to oppose the petitions.

5.Firstly, section 4(4) of the Limitation Ordinance (Chapter 347) provides that:

“An action shall not be brought upon any judgment after the expiration of 12 years from the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years from the date on which the interest became due.”

6.The debtors submit that as the petitioner has demanded for the repayment of the interests for the whole period after the Judgment which included some of the interests which are time-barred, the statutory demands are defective.  It then follows that the petitions, which are made based on these defective statutory demands, should be dismissed.  In support of such contention, the debtors rely on the case of Re Debtor (21 of 1937) [1938] Ch 694.

7.I see no merit in such argument.  It is trite law that if there is debt which in part above the statutory minimum is indisputable, a petition can validly be presented even if the debt as claimed in the petition is for a larger sum, part of which is bona fide disputed (see: Re Hong Kong Construction (Works) Ltd, unreported, HCCW 670 of 2002, decision of Kwan J (as he then was) on 7 January 2003 at para 6(5)).  If the debtors claim that the petitioner is not entitled to recover the interests due for the whole period, such matter should be dealt with by the Official Receiver when he is adjudicating upon the proof of debt lodged by the petitioner.  The statutory demands are therefore not defective and the over-claiming of the interests in the statutory demands (even if that is the case) is not a ground for dismissing the petitions.

8.Further, the case of Re Debtor cannot assist the debtors’ case.  The claims for the principal and interests in the Judgment are certainly divisible, and there is no logical reason as to why a wrong calculation of the interests or a over-claiming of interests would affect the enforcement of the principal under the judgment sum and the overdue interests which are not time-barred under section 4(4) of the Limitation Ordinance.

9.Secondly, the debtors claim that they have a bona fide cross-claim against the petitioner as the latter had sold the Property at an undervalue.  In support of such contention, the debtors rely on the fact that the purchaser at the auction sale was able to resell the Property at the premium of about 19% over the auction price slightly more than one month after the auction sale of the Property.

10.The principles in determining whether there is a bona fide cross-claim have been summaried by me in Re Wah Hing Stationery Manufactory Ltd, unreported, HCCW 73/2013, decision on 11 February 2014).  In short, the court should examine whether the cross-claim is genuine, serious and of substance.  There must be supporting relevant details and evidence to demonstrate that the cross-claim is based on substantial ground.  The court would caution itself against unsubstantiated and unparticularised assertions, and the court will always approach the evidence adduced by the debtor with a critical eye.

11.In support of the propriety of the auction sale of the Property which was conducted by a professional surveyors’ firm, the petitioner has also provided the court with the following evidence including:

(1) the valuation report of the Property showing that the auction price ($950,000) was higher than the estimated restrictive realisation price of the property ($800,000) at the time of the auction;

(2) the newspaper advertisements relating to the auction sale of the Property; and

(3) letters sent by the petitioner to the debtors informing the latter of the auction sale of the Property.

12.On the other hand, the debtors have not adduced any evidence to substantiate the assertion that the Property had been sold at an undervalue.  At the very least, I would expect the debtors to produce a valuation report to show the value of the Property at the time of the auction. Further, property market is volatile in Hong Kong.  There might be a lot of reasons as to why the purchaser was able to resell the Property at a premium a month after the auction sale, and this fact alone cannot indicates that the auction sale was undervalue.  In particular, the auction sale had to be conducted on a forced-sale basis. 

13.In a desperate attempt to oppose the petition, Ms Poon, counsel for the debtors, submits that the delay on the part of the petitioner in prosecuting the bankruptcy proceedings had deprived the debtors from pursuing the claim for breach of duty or negligence against the petitioner for selling the Property at an undervalue because of the 6 years’ limitation period.

14.Again, this is a non-point.  The debtors do not need to make a positive claim against the petitioner.  They can simply rely on the cross-claim as a ground to set-off the claim of the petitioner.  However, at least there should be proper evidence to support their assertion that the auction sale price was an undervalue.  In the absence of a valuation report showing the value of the Property at the time of the auction, the debtors’ allegation is just one without substance.

15.Thirdly, the debtors submit that the petitioner should have applied the proceeds of the sale of the Property towards the repayment of the principal first.  As the claim for some of the interests may be time-barred under section 4(4) of the Limitation Ordinance, this may reduce the quantum of the sum due under the Judgment.

16.I again have to reject such argument.  First, the debtors cannot refer me to any authorities which supports the contention that the petitioner should have applied the proceeds of sale to settle the principal first.  Second, even if the petitioner were to apply the proceeds to settle the interests in arrears first, this would only reduce the quantum of the petitioner’s claim.  As I have mentioned above, over-statement of the amount claimed in the statutory demands is not a ground for the dismissal of the petitions, and such kind of dispute should be resolved by the Official Receiver when he is asked to adjudicate upon the proof of debt lodged by the petitioner. Hence, there is no merit in such argument.

17.Fourthly, the debtors complain that the delay in instituting the petitions is causing serious prejudice to them.  Whilst I agree that there might be delay in the institution of the bankruptcy proceedings, the debtors cannot provide any particulars to substantiate this complaint about prejudice.  Further, there is a 12 years’ limitation period for the enforcement of a judgment, and the petitioner has certainly presented the petitions within the 12 years’ limitation period.  In such case, the unsubstantiated complaint of prejudice is not a ground to justify the refusal of the granting of the bankruptcy order.

18.As the debtors have failed to repay any of the amount claimed in the statutory demands or the balance of the judgment sum, and there is no merit in any of the grounds put forward by the debtors to oppose the petitions, I make the usual bankruptcy order against both debtors.

Mr Tai Sin Ching, of W K To & Co, for the petitioner

Ms Kate Poon, instructed by Chui & Lau, for the debtors

Attendance of the Official Receiver was excused