RE CAI SUI XIN

HCB 735/2018

[2019] HKCFI 330

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 735 OF 2018

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J U D G M E N T

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1.  This is the hearing of an Amended Bankruptcy Petition filed on 6 February 2018 (re-filed on 8 May 2018) by the State Bank of India (“Bank”), which is based on a Statutory Demand dated 23 November 2016 demanding Indian Rupees 441,700,000 (about HK$54 million) from the Debtor (“Cai”).

2.  There is no dispute to the petitioned debt the liability for which arose from a personal guarantee provided by Cai for the banking facilities granted by the Bank to a company associated with him.  In any event, Cai’s application to set aside the Statutory Demand was dismissed by Au-Yeung J on 10 January 2018 ([2018] HKCFI 32) and consequently leave was given to issue the Petition.

Issues

3.  Cai opposes the Amended Petition on the basis that the Bankruptcy Court does not have jurisdiction over him as none of the gateways under s.4 of the Bankruptcy Ordinance, Cap 6 (“Ordinance”), was satisfied.

4.  However, the present arguments concern 4 of the gateways, namely, whether at the time of presentation of the Petition, Cai: (a) was domiciled in Hong Kong; (b) at any time in the period of 3 years ending with that day (“Relevant Period”) had been ordinarily resident in Hong Kong; (c) at any time in the Relevant Period had had a place of residence in Hong Kong; or (d) at any time in the Relevant Period had carried on business in Hong Kong.

5.  In addition, there is a preliminary objection raised by Cai concerning the lack of pleading in the Amended Petition about reliance on (a) and (d) above. 

Law

6.  The applicable principles are reasonably well-established.  Ms Cheung, who appeared for the Bank, had referred the court to the summary of the same by Deputy High Court Judge Marlene Ng (as she then was) in Re張承勷, HCB 6679/2015, unrep, 16 May 2017, at §§22-29. 

Preliminary objection

7.  Cai relies on Re Aiyer Vambu Subramaniam [2014] 5 HKC 203, DHCJ Le Pichon at §17, in support of the proposition that any point not raised in the Petition is irrelevant and should not be relied upon.  Whilst the learned Deputy High Court Judge had made a comment to that effect, it is not apparent from the Judgment whether it was an issue raised and argued in that case.  In any case, the learned Judge went on to deal with the unpleaded issue.

8.  In Re Patrick Major Lee, HCB 3448/2008, unrep, 29 July 2009, it was held by Barma J (as he then was) at §24 :

“Strictly speaking, it does not seem to me that it is necessary for the facts on which jurisdiction is based to be mentioned in the petition – it would usually suffice to set out the petitioning debt and the grounds on which the bankruptcy order is sought. It will usually be for the debtor to raise a challenge to the court's jurisdiction under section 4 of the Bankruptcy Ordinance if he has a basis for doing so.”

9.  On 3 April 2018, Cai had filed a Notice of Intention to Oppose Petition putting in issue each of the grounds upon which the jurisdiction of the Bankruptcy Court might be based under s.4 of the Ordinance.  The evidence and submissions received by this court had covered all the issues in this case. 

10.  Whilst it is true that the debtor was absent in Re Patrick Major Lee, the dicta of the court is borne out by the filing of the said Notice.  Whilst I agree with the proposition that it is consonant with fairness and general litigation principles that the parties should set out their cases adequately at the earliest opportunity, I can see no unfairness in these matters.  It should also be said that no rule of pleading has been identity in support of the preliminary objection.

11.  In the premises, and with great respect to the observation of the court in Re Aiyer Vambu Subramaniam, I agree with Re Patrick Major Lee and disagree with the preliminary objection. 

Analysis

12.  The task for the court here is to consider all the relevant circumstances in light of the applicable principles and determine whether any of the 4 requirements was met. 

Domicile

13.  Cai’s evidence is that: “I once resided in Hong Kong before 2007 and I have obtained the Hong Kong permanent resident identity card in 2007.  Since obtaining the Hong Kong Identity Card, in the same year I have moved back to and lived in Tianjin, treated there as my home.”  In his second affirmation, Cai said that: “I would like to clarify that I am all along domiciled in the Mainland”; “I decided to move to Hong Kong to fulfil the requirements for acquiring the Hong Kong Permanent Identity Card.  Even during this period, my business was always in the Mainland and I frequently gone on business trip in the Mainland”; and “in the same year [after obtaining his HKID in 2007], I have moved back to Mainland China and lived in Tianjin, treating it as my place of domicile”.

14.  It should be added that Cai had also obtained a Hong Kong passport.

15.  In my view, there can be no serious argument that Cai was domiciled in Hong Kong at least from 2000 until 2007 when he acquired his permanent resident identity card.  I am unable to agree with the submission of Mr Wong SC, appeared with Mr Tang and Mr Lai for Cai, that Cai’s move to Hong Kong was brief or temporary.  Such contention is not consistent with the fact that Cai came and lived in Hong Kong for no less than 7 years with the view to becoming a permanent resident.  Nor is it supported by Cai’s evidence, a fair reading of which is that his base was in Hong Kong during at least those 7 years.  This court must also take into consideration that Cai’s stay in Hong Kong had taken root (see below).  In the premises, I have no difficulty finding that Cai’s move to Hong Kong was of a permanent nature and that was his intention.  Hong Kong was his permanent home (see Dicey, Morris and Collins on The Conflict of Laws, 15th edn, Vol 1, [6-004]). 

16.  The issue therefore is whether Cai changed his place of domicile to Tianjin after obtaining his HKID. 

17.  Cai’s evidence must be examined in light of the objective evidence of his immigration records.  According to such records, which cover the period from 1 March 2011 to 1 March 2018 :

(1) During the Relevant Period (26 January 2015 to 25 January 2018), Cai came to Hong Kong regularly until September 2016.  Since 22 September 2016, he had not set foot in Hong Kong.

(2) From 1 February 2015 to 21 September 2016, Cai came to Hong Kong 90 times – about 4.6 times per month on average during those 19.5 months.  34 of those 90 trips involved staying at least 1 night in Hong Kong.

(3) Cai’s evidence is that his overnight stays in Hong Kong were not more than 2 weeks per year, whilst his counsel’s analysis is that such stays were no more than 20 days each year on average.  The records are not 100% legible and it is therefore not possible for the court to verify the figures, but the variation here is not huge.

(4) With the exception of May 2016, Cai was in Hong Kong every month during the period of 19.5 months.

(5) The records strongly suggest that Cai was staying in Shenzhen, where he had 2 landed properties, because he came to Hong Kong using the border crossings in the vast majority of cases.

(6) The records prior to the Relevant Period provide a similar picture. 

18.  First of all, it is difficult to accept that Cai changed his domicile to Tainjin after he obtained his HKID.  That contention is simply contradicted by the immigration records.  More likely than not, Cai had a second home in Shenzhen during the Relevant Period. 

19.  Secondly, quite apart from his regular return to Hong Kong, Cai’s own evidence is that his children were staying at a residence in Hong Kong at Broadwood Road.  There is no explanation why he was not residing at the same place as his children, which is the natural inference. Nor is there any explanation as to where Cai was staying during his frequent visits in Hong Kong. 

20.  Further, Cai was a director of 23 Hong Kong companies, 1 of which was a Hong Kong listed company.  In respect of the latter, Cai alleges that he was only responsible for its business in the Mainland.  Cai was an executive director, chairman of the board and the chairman of the nomination committee of the listed company.  He resigned from such positions with effect from 1 January 2017. 

21.  The evidence of the location of his children and his multiple directorship point clearly to a close tie between Cai and Hong Kong.  Apart from his bare allegation, there is little to support Cai’s case that he had changed his place of domicile to Tianjin since 2007. 

22.  Furthermore, the Broadwood Road address was consistently reported by Cai as his director’s address, which can be seen from the records filed with the Companies Registry for many companies associated with him[1]. I am unable to accept Cai’s explanation that such public records were simply the products of mistakes.

23.  As regards the absence of Cai from Hong Kong since September 2016, it should be noted that the Statutory Demand in this case was issued in November 2016.  In 2016, there was already a Bankruptcy Petition presented against Cai by another creditor.  The evidence before the court is that Cai had done everything he could to delay the progress of the present proceedings, which resulted in a substituted service order for the Petition with indemnity costs against him.  The proper inference from the evidence is that Cai had chosen not to come to Hong Kong since September 2016 to evade his creditors. 

24.  I am in agreement with Ms Cheung that there is a presumption that a person continues to be domiciled in the place where he is domiciled and the onus is on Cai to prove that after acquiring his Hong Kong permanent resident status, he changed his domicile to Tianjin (see Dicey, Morris and Collins on The Conflict of Laws, 15th edn, Vol 1, [6-018]). As I have analysed above, there is no acceptable evidence in support of Cai’s case.  Instead, the evidence suggests that he had not changed his domicile. 

Ordinarily resident

25.  It must follow from the above analysis that Cai was ordinarily resident in Hong Kong during the Relevant Period until at least September 2016.  I have borne in mind the principles summarised by Cheung J (as he then was) in Lau San Ching v Apollonia Liu, HCMP 3215/1994, unrep, 19 January 1995, pp 8-10.  In particular, a person can be ordinarily resident in more than 1 place at the same time.  Like many Hong Kong people who work across the border, the evidence suggests that Cai was ordinarily resident in both Hong Kong and Shenzhen.

Place of residence

26.  I am satisfied that the Broadwood Road property was a place of residence of Cai during the Relevant Period until at least September 2016.  There is no credible explanation why the Broadwood Road address should have appear in many of the company records if Cai did not reside there.  In assessing his evidence, this court must bear in mind that Cai was a sophisticated person.  

27.  Ms Cheung relies on Re Patrick Major Lee,supra, where it was held at §§22-23 :

“22. As I have noted in paragraph 13 above, the Tai Hang Road property was stated to be the residential address of the debtor in the annual return of Capital Investment (HK) Limited filed on 15 July 2005. This is clear evidence that the debtor had (on his own admission) a place of residence in Hong Kong after 20 April 2005, and thus within the relevant three year period. When I pointed this out to Mr Lee in the course of argument, he indicated that, if necessary, he would seek to contend that jurisdiction was established under section 4(1)(b) of the Ordinance also.

23. In my view, jurisdiction to entertain this petition is clearly established under section 4(1)(b) of the Ordinance, having regard to the debtors identification of the Tai Hang Road property as his place of residence in the annual return dated 15 July 2005.”

28.  Whilst the present finding must depend on the facts of this case, the above dicta is plain common sense with which I see no serious argument. 

Carried on business in Hong Kong

29.  In order to go pass this gateway, it must be established that Cai was conducting a business of his own, separate and distinct from his companies’ businesses: see Re Kok Hiu Pan [2002] 3 HKLRD 20 at §37, per Kwan J (as she then was) and Re Aiyer Vambu Subramaniam, supra, at §§9, 15-16.

30.  The Bank relies in particular on the fact that Cai had through General Nice Resources (HK) Ltd acquired 30 landed properties in Hong Kong from 2007 to 2011 and had been renting out some of these for rental income.  In the context of property investment, there is a distinction between the initial acquisition of property, which may form the business of the debtor, and its future management, development and realization, which can only be the business of the relevant company in which the property was subsequently vested: see Re Brauch (A Debtor) [1978] 1 Ch 316, per Goff LJ at 328H-329C :

“In my view, the evidence of Mr. Cadot, which the registrar accepted, and the evidence of the debtor himself in the light of all the circumstances compels one to find that the debtor was carrying on personally the business of promoting companies, or acquiring shell companies, to speculate in land, or alternatively that of finding suitable sites for development or investment, negotiating a price, including of course obtaining all necessary valuations, and financing the purchase.  He then caused the properties to be vested in companies, which the “one company per project” scheme shows that he must have promoted or acquired for the purpose.  Once the property came to the company, its future management, development and realisation was, of course, the business of the company, and any liabilities which it incurred, for example for breach of covenant as landlords or for defective work or anything of that sort, would be the company’s liability, not the debtor’s; but all the preliminary stages I have described were, in my judgment, his business.”

31.  I do not believe that there is evidence that Cai had carried on business of his own during the Relevant Period.

Conclusions

32.  For these reasons, I make the usual bankruptcy order against Cai.  The costs of the Bank and those of the Official Receiver are to be borne by him.