RE KWONG KA WAI

HCB 7877/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCYPROCEEDINGS NO. 7877 OF 2009

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D E C I S I O N

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Introduction

1.  The petitioner is as its name indicates an insurance company. On 16 November 2007 the petitioner made a written offer to the debtor to appoint her as an insurance agent with the position of district manager. The agreement included a term that subject to certain criteria being satisfied the petitioner would be granted a loan against her prospective performance bonus. On 19 November 2007 the debtor signed a letter recording her request for a loan of HK$782,024 and agreeing to advance this sum. One of the terms of the loan was that in the event that the debtor, who had not at the time commenced work with the petitioner, failed to join the petitioner by 16 February 2007 the loan and interest on it would become immediately repayable.

2.  The debtor did not join the petitioner. I have not been told why not other than that it was for personal reasons. She accepted that she had to repay the loan. She was not in a position to do so for reasons that have not been explained to me. On 8 July 2008 the debtor’s solicitors wrote to the petitioner making an offer of repayment on her behalf. The debtor provided a cheque for HK$458,061.75 dated 16 August 2008, which she apportioned HK$400,000 to principal and HK$58,061.75 to accrued interest. She offered to pay the balance of HK$382,024 by 31 October 2008. The debtor, however, stopped the cheque and instead paid HK$400,000 into the petitioner’s bank account. On 1 September 2008 the debtor’s solicitor wrote to the petitioner offering to pay the balance of HK$440,300 by 31 December 2008. The petitioner rejected this offer and asked for HK$58,276 to be paid by 12 September 2008 and HK$386,733.70 to be paid by 30 September 2008. No agreement was reached and despite the offer of 1 September 2008 the debtor, who continued to seek the petitioner’s agreement to deferred payment by instalment, made no further payments. In April 2009 the petitioner issued and served a statutory demand for HK$463,953.16. No point is taken concerning the form or service of the statutory demand.

3.  On 21 April 2009 a meeting took place between the debtor and Mr. Sam Kwok. Mr. Kwok is a Regional Manager of the petitioner. It is common ground that at the meeting the debtor handed to Mr. Kwok 12 post dated cheques each for HK$10,000. On 27 April the debtor came to Mr. Kwok’s office and gave him a further 12 postdated cheques for HK$15,000 and 8 cheques for HK$20,000. The debtor alleges that at the meeting on 21 April Mr. Kwok agreed that if the debtor provided 32 post dated cheques the petitioner would not institute legal proceedings or bankruptcy proceedings against her. Mr. Kwok denies this. He says that he told the debtor, who he had originally introduced to the petitioner and whose loan he had guaranteed, that if she provided the cheques he would approach the manager of the Agency Development Department of the petitioner and see whether he would agree to settle the prospective claim against her.

4.  Mr. Kwok was told on 30 April that the offer was not acceptable and he telephoned the debtor to tell her and ask her to collect the cheques. The debtor did not answer her phone and he left a message. Subsequently his secretary spoke to the debtor. The debtor did not collect the cheques.

5.  On 30 April 2009 the petitioner affected personal service of the statutory demand on the debtor. On 4 May the debtor’s solicitors, William Sin & So, wrote alleging that an agreement had been reached between the parties on 21 April an allegation they repeated in a letter of 7 May 2009 in which they also told the petitioner that the debtor would not accept return of the cheques. On 4 June 2009 the petitioner issued the present bankruptcy petition. Before turning to consider the issues to which the petition gives rise I will deal with the appropriate procedure for determining a bankruptcy petition, which gives rise to factual disputes.

Cross-Examination

6.  An order for directions had been made on 7 September 2009 that “All deponents to attend trial for cross-examination, failing which their affirmations may not be admitted as evidence at trial”, which seemed to envisage that the deponents could be cross-examined if a party so wished. I asked the parties how this direction came to be included and was informed that it was at the instigation of the judge who made the order, who thought that the case could not be determined without cross-examination. I disagreed with this view and did not allow any cross-examination, to which neither party objected. It might be useful if I briefly record my reasons.

7.  The issue to be determined in a case such as the present is whether or not the debtor has demonstrated a bona fide defence on substantial grounds: see the discussion in Butterworth’s Bankruptcy Handbook, 3^rd ed., paragraph [6A.10]. This, rather like an application for summary judgment, is normally assessed on the basis of the affidavit or affirmation evidence. If there is a real dispute turning to a substantial extent on disputed questions of fact, which requires viva voce evidence, the bankruptcy court is not the correct forum for resolving the dispute. This is reflected in Practice Direction 3.4 paragraph 4, which provides that “In the absence of valid reasons, no cross-examination on affidavits will be allowed in petitions for bankruptcy or winding-up presented by a creditor”. Necessarily the existence of factual dispute is highly unlikely to constitute a valid reason. This is particularly so in a case such as the present in which the sum in issue, HK$463,953.16, is well within the District Court’s jurisdiction otherwise the Bankruptcy Court becomes a forum for adjudicating debt claims, which have no place in the High Court.

The Issues

8.  Both parties filed affirmations from a number of witnesses. This evidence revealed the following issues:

(1)  Whether an agreement had been reached on 21 April 2009?

(2)  Did Mr. Kwok have actual or ostensible authority to settle the petitioner’s claim against the debtor?

(3)  If an agreement had been and Mr. Kwok did have actual or ostensible authority to make it was the petitioner estopped (it being accepted such an agreement was not enforceable at common law) from changing its mind?

9.  Early in the hearing I indicated to the parties that I was inclined to proceed on the basis that the debtor had shown a bona fide dispute in respect of the first 2 issues and that the live issue was whether or not the debtor had demonstrated a substantial defence of promissory estoppel and, in particular, whether accepting that an agreement had been reached it was inequitable for the petitioner to change its mind. Neither Mr. Ma, who appeared for the petitioner, or Mr. Wong who appeared for the debtor objected to this course.

Promissory estoppel

10.  Mr. Wong argued that although the agreement that the debtor says she reached lacked consideration because it had to be construed either as a settlement of a greater sum by payment of a lesser sum (the total of the post dated cheques being slightly less than the amount outstanding) or something of less value than the debt by virtue of the proposed payment being by way of instalment, it still gave rise to a promise, which he contended it would be inequitable for the petitioner to be allowed to resile from. At some stages in his argument Mr. Wong seemed to be suggested that the mere fact of the promise and its acceptance was capable of making a change of mind inequitable, but as I understand his final position he accepted that something more than an agreement was required. In this case he suggested that the fact that the debtor had provided post dated cheques, promised to ensure that they would be honoured and had been led to believe that the threat of proceedings against her had been lifted if she honoured her agreement were all factors, which at least made it arguable that it would be inequitable to allow the petitioner to change its mind. Mr. Wong relied on various well know authorities to demonstrate that promissory estoppel could arise in circumstances such as the present: Central London Property Trust Ltd. v High Trees House Ltd. [1947] 1 KB 130; Hughes v Metropolitan Ry. Co. & others [1877] 2 AC 439; Tool Metal Manufacturing Co. Ltd v Tungsten Electric Co. Ltd. [1955] 1 WLR 761; D&C Builders Ltd. v Rees [1966] 2 QB 617; Collier v P&MJ Sright (Holdings) Ltd. [2008] 1 WLR 643; W.J. Alan & Co. Ltd v El Nasr Export and Import Co. [1972] 2 QB 189; Luo Xing Juan Angela v the Estate of Hui Shui See (2009) 12 HKCFAR 1.

11.  Mr. Ma argued that assuming an agreement had been reached as alleged by the debtor this case is no more than an example of a creditor agreeing to accept part payment in settlement of a debt and that it is well established that such a promise is not enforceable at common law: Pinnel’s Case (1602) 5 CoRep 117a; Foakes v Beer (1884) LR 9 App Ca 605 and various subsequent authorities. A recent example in Hong Kong is Bank of China (Hong Kong) Ltd. v Cosan Ltd. (unrep. HCA 1600/2004, Sakhrani J, 18 August 2006) affirmed on appeal (unrep. CACV 331/2006, 11 May 2007).

12.  For the purposes of this petition I am prepared to accept that it is arguable that despite an agreement to accept part payment of a debt not giving rise to an enforceable agreement at common law depending on the circumstances the creditor may be estopped from changing his mind and insisting on full payment. The circumstances in which promissory estoppel may arise was explained by Ribeiro P.J. in Luo Xing Juan Angela v the Estate of Hui Shui See:

“A promissory estoppel may be said to arise where (i) the parties are in a relationship involving enforceable or exercisable rights, duties or powers; (ii) one party (“the promisor”), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (“the promise”) that the promisor will not enforce or exercise some of those rights, duties or powers; and (iii) the promise reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.”

13.  In D&C Builders Ltd. v Rees, Lord Dennning M.R. described at page 625A-C the doctrine as operating:

“Where there has been a true accord, under which the creditor voluntarily agrees to accept a lesser sum in satisfaction, and the debtor acts upon that accord by paying the lesser sum and the creditor accepts it, then it is inequitable for the creditor to insist on the balance.  But he is not bound unless there had been truly an accord between them.”

14.  It is apparent that in order for promissory estoppel to arise the debtor must have made the agreed payment and it must be inequitable for the creditor to resile from his promise. Mr. Wong argued that by providing the post-dated cheques (the first of which I note was dated 10 May 2009) the debtor had made payment and at one stage of his submission argued, quite wrongly, that the cheques constituted cash. In my view the debtor had not made payment by providing post-dated cheques. It is clear from the authorities that the doctrine of promissory estoppel is engaged when part payment has actually been made; in other words the agreement has been implemented and then the creditor changes his mind. It seems to me, however, that even if I am wrong about that there is more fundamental flaw in the debtor’s case. I am unable to see how it is inequitable for the creditor to change his mind within a week of the agreement having been made and 2 weeks before the first of the 32 cheques could be presented for payment. Mr. Wong argued that it was unfair to the debtor because she had gone to the trouble of writing the 32 cheques and had promised to make sure that funds were available in her account at the time they were to be presented in order that they were not dishonoured. In my view this is far short of an alteration in her position that would make it inequitable for the creditor to change its mind.

15.  It also seems to me that whether or not a creditor is behaving inequitably has to be considered in the context of the parties’ relationship as a whole. The debtor’s behaviour has been far from satisfactory:

(i)  The petitioner lent her money in the expectation she would join it.  She did not.  Her only explanation is that she did not do so for personal reasons.

(ii)  She was unable to repay the petitioner immediately.  No explanation has been given by her as to why she was unable to do so.

(iii)  She did not honour the first agreement to repay in stages.

(iv)  Despite offering to repay the balance during subsequent discussions by the end of 2008 she did not do so, suggesting that she would have reneged on her revised offer had it been accepted b y the petitioner.

(v)  The offer to repay the balance over 32 months is unattractive.  Mr. Wong accepted that it was not capable of constituting a reasonable offer for the purposes of section 6D(3)(c) of the Bankruptcy Ordinance, Cap. 6.

16.  I do not find it very surprising that Mr. Kwok’s superior found the debtor’s proposal unattractive and that given her previous failure to honour her commitments and her having previously providing a cheque that was dishonoured he was not prepared to accept the new offer. I do not think that if Mr. Kwok had reached an agreement with the debtor as she alleges it was inequitable for the petitioner to change its mind. I do not think that she has demonstrated a bona fide defence on substantive grounds to the debt.

Conclusion

17.  I will therefore make the normal bankruptcy order.