LIM POR YEN v. LAM KUEN LEUNG t/a King Harbour Jewelry Co.

1993, No. B470

IN THE SUPREME COURT OF HONG KONG

IN BANKRUPTCY

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JUDGMENT

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1. This is a petition for the bankruptcy of Lam Kuen Leung trading as King Harbour Jewelry Company.

2. On the 31st December 1992, the petitioner issued a Writ of Summons in High Court Action No.9288 of 1992 claiming against the respondent for the repayment of a loan granted to the respondent in the sum of $25m together with interest thereon. On the 28th January 1993, the petitioner obtained a default judgment against the respondent for approximately $26.8m.

3. On the 23rd July 1993, the petitioner issued a Bankruptcy Notice against the respondent for the payment of $4.6 million said to be the outstanding balance of the judgment debt obtained in the said action. When this Bankruptcy Notice had not been complied with, the petitioner presented this petition for the respondent's bankruptcy.

4. In opposing the petition, the respondent filed various affirmations deposing to the circumstances under which various loans were granted by the petitioner to him and his business. He said that some of these loans were secured by guarantees and legal charges in favour of a company controlled by the petitioner on 2 properties registered in the name of certain companies with which the respondent was associated. The first property was in Pak Tai Street and was registered in the name of Boldsglory Enterprises Ltd and the second property was in Jardine's Lookout and was registered in the name of Sheentex Investment Ltd. The gist of the respondent's evidence is that he had repaid the petitioner all the loans including the judgment debt by the payment of certain sums of money including the proceeds of sale of the 2 properties to the company controlled by the petitioner for the sums of $61.1 million and $19 million respectively. He said he had in fact overpaid the petitioner.

5. In his affirmation, the petitioner purported to give an explanation of how the judgment debt was reduced from $26.8 million to $4.6 million as stated in the Bankruptcy Notice. In fact, he said it should have been almost $9 million because he had overlooked a certain amount of interest. In seeking to explain the outstanding balance of the judgment debt, the petitioner gave an account as to various loans given to the respondent and the various re-payments made by him. It seems that there were 5 loans which were relevant to the calculation :

the 1st loan for $15 m made on 1st August 1991 from the petitioner to the respondent;

the 2nd loan for $15 m made on 12th July 1991 from Lai Sun Co. Ltd. to the respondent;

the 3rd loan for $25 m made on 26th September 1991 from the petitioner to the respondent;

the 4th loan for $2.6 m made on 20th December 1991 from the petitioner to the respondent; and

the 5th loan for $2.5 m made on 15th April 1992 from the petitioner to the respondent

6. The respondent admitted the 1st, 2nd, 3rd and 4th loans but denied the 5th loan. However, he said that since the 2nd loan was given to him by Lai Sun Co. Ltd., and not by the petitioner, that should be disregarded. There is also no dispute on most of the repayments made by the respondent and the sale of the 2 properties which were charged to secure some of the loans. However, there appears to be a dispute on some of the detailed facts. Neither the petitioner nor the respondent had previously applied for an order directing the cross-examination on the affirmations filed in court or the calling of further witnesses and there is no such order.

7. Counsel for the respondent submitted that the Bankruptcy Notice was irregular, that the petitioner had failed to substantiate the judgment debt due under the Bankruptcy Notice, and that even on the basis of the evidence adduced by the petitioner, the court should dismiss the petition. Counsel for the petitioner argued that since there were factual disputes, the court should hear oral evidence. He submitted that the petitioner could make use of the repayments made by the respondent including the proceeds of sale of the two properties to cover the loan from Lai Sun Co. Ltd. and to satisfy the other loans. He said there was in fact an outstanding balance of the judgment debt remaining unpaid.

8. The petition is based on non-compliance of a bankruptcy notice. The Bankruptcy Notice here is for the repayment of $4.6 million, alleged to be the outstanding balance of the judgment debt of $26.8 million. The judgment debt arose from a loan of $25 million from the petitioner to the respondent, i.e. the 3rd loan. It is not disputed that there was such a loan. The default judgment was admitted. The respondent had allowed it to go by default. The Bankruptcy Notice stated that the outstanding balance was $4.6 million although in subsequent affirmations, the petitioner said it was almost $9 million. I do not think the Bankruptcy Notice itself can be regarded as ambiguous. It was in the usual or statutory form. It clearly stated the amount which was alleged to be outstanding and no application has been made to set it aside.

9. Since the petition is based on the Bankruptcy Notice, it is for the petitioner to show that the Bankruptcy Notice had not been complied with, i.e. the respondent had not paid the balance of the judgment debt in the sum of $4.6 million. The petitioner has to prove not only that the respondent owes him a debt, but that the debt owed is the balance of the judgment debt referred to in that Bankruptcy Notice. It is, therefore, important for the petitioner to clearly establish that first, there was the judgment debt; second, the respondent had paid a certain amount towards the judgment debt; and third, there is still outstanding an amount as stated in the Bankruptcy Notice.

10. The first issue, i.e. the existence of the judgment debt, is not disputed. As to the second and third issues, the petitioner sought to show that there were the aforesaid 5 loans including the judgment debt, that the respondent had made several repayments but that there was still $9 million unpaid. However, accepting what was said in the petitioner's affirmation, he was owed only 4 loans one of which became the judgment debt. The other loan was admittedly due to Lai Sun Co. Ltd. which is a public company. It is accepted by the petitioner that the respondent had indeed made some repayments, had sold the two charged properties at $61.1 million and $19 million and had paid over the net proceeds of sale after deducting the expenses to the petitioner. In other words, the petitioner had indeed received certain repayments. But he claimed that some parts of these repayments, amounting to $15 million and interest thereon, had been used to repay the Lai Sun loan and the remaining parts were not enough to repay the judgment debt and the other 3 loans due to him personally leaving an outstanding balance, be it $4.6 million or $9 million.

11. It was suggested by the petitioner that there was an agreement between the respondent and himself that he could utilise the repayments made by the respondent including the proceeds of sale to satisfy the Lai Sun loan. If there was such an agreement, I should think it may be arguable that if one accepts the petitioner's evidence, there may still be an outstanding amount remaining unpaid in respect of the judgment debt. But the only evidence on this appears in paragraph 6 of the petitioner's affirmation, where he very briefly referred to the fact that the two properties were used to secure three of his own loans and the Lai Sun loan. But when one looks at the two legal charges, one finds no reference to the Lai Sun loan at all. There is nothing in his affirmation, or in any of the documents before me, regarding an agreement of that sort. The only other evidence comes from the affidavit of Ho Wing-ting, which has yet to be filed, saying that the petitioner as Chairman of Lai Sun Co. Ltd. had the power of that company to accept repayment or alternatively it was an implied term of the agreement that the loan from Lai Sun Co. Ltd. could or should be repaid to either the petitioner himself or to Lai Sun Co. Ltd. or to be paid off from the sale proceeds of the two properties. This is far from clearly establishing that the Lai Sun loan was secured by the legal charges on the 2 properties or that there was any agreement to the effect that after having received the repayments from the respondent, the petitioner could use them for some other purpose than satisfying the judgment debt and/or the three personal loans.

12. Even accepting the petitioner's evidence, the position is this. He was personally owed 4 loans including the judgment debt. Some of these loans were secured by the charges on the 2 properties. The respondent repaid him certain sums and sold the 2 properties to the petitioner's associated company to satisfy these loans. The charges on the properties did not refer to the Lai Sun loan. The evidence does not show any agreement that the proceeds of sale of these properties would be used to repay this particular loan. In the absence of such agreement, I do not think the petitioner can say that part of what he had admittedly received was used towards repayment of the Lai Sun loan leaving part of the judgment debt still outstanding. The repayments were made to him and not to Lai Sun Co. Ltd. which is a public company and an entirely separate entity.

13. Counsel for the petitioner relied on the Minutes of the Board of Directors (appearing on p.262) of a company with which the respondent was associated regarding the sale of the Pak Tai Property and using the proceeds to settle the bank loan as well as some other creditors. This record shows only an intention among the board members as to how to make use of the proceeds after sale, i.e. to pay off some of the company's debts. This is far from saying that the petitioner was authorised to use the repayments for the Lai Sun loan or indeed any particular loan. I do not think that supports the petitioner's contention.

14. The Lai Sun loan together with interest amounted to $15 - 16 million which far exceeded the alleged $4.6 million alleged to be outstanding from the judgment debt or even the $9 million alleged in the subsequent affirmation. That company had already taken separate proceedings against the respondent for that loan. If the Lai Sun loan is to be disregarded and that part of the money received by the petitioner i.e. $15-16 million was used to satisfy the personal loans due to the petitioner, the total amount which the petitioner had admittedly received from the respondent would be able to cover all of the judgment debt of $26.8 million, and also the other three loans.

15. As far as I am concerned, in this hearing, it is for the petitioner to show that the judgment debt has been reduced and there is still at least $4.6 million outstanding on this judgment debt and not any other debt due to another party. But from the evidence before me, the petitioner has admitted having received at least $61.1 million and $19 million and other sums as repayment. Even if I accept his affirmation, I do not think the petitioner has satisfied me or discharged the burden of showing, that this judgment debt has not been fully paid. No useful purpose can be served by hearing oral or further evidence. I would, in these circumstances, dismiss the petition. I shall hear the parties on the question of costs.