YEUNG MAN v. NEW WINNING FINANCE COMPANY LTD, (IN LIQUIDATION), a Creditor

CACV 239/2022

[2023] HKCA 156

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 239 OF 2022

(ON APPEAL FROM HCB NO 5026 OF 2021)

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DECISION

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Hon G Lam JA (giving the Decision of the Court):

1.  On 18 May 2022 Anthony Chan J made a bankruptcy order against the debtor, on the petition of the petitioner. The debtor has lodged an appeal against that order. By summons filed in this court on 15 September 2022, the debtor applies for (1) leave to adduce further evidence in support of her appeal, and (2) leave to amend her Notice of Appeal.

2.  Both parties have lodged written submissions. Despite being given leave to do so, the debtor did not file any reply to the petitioner’s submissions in opposition.  Having considered the written materials, we consider it appropriate for the applications to be determined on paper without an oral hearing.  This is our decision on the debtor’s applications.  For convenience, unless otherwise stated, the abbreviations used by the Judge in his judgment dated 18 May 2022 (“Judgment”)[1] will be adopted below.

Background

3.  The petitioner was a licensed money lender.  It is not in dispute that pursuant to a loan agreement dated 26 April 2017, which was extended by a further agreement dated 26 April 2018 (i.e. the 2018 Agreement), a loan of HK$14,000,000 (i.e. the Loan) was advanced by the petitioner to the debtor.

4.  On 18 March 2021, the petitioner served a statutory demand on the debtor, demanding repayment of the sum of HK$17,126,410.96 (i.e. the Debt), consisting of (1) the entire principal amount of the Loan, and (2) interest accrued on the Loan at 11% p.a. from 25 April 2019 to 5 February 2021 in the sum of HK$3,126,410.96.

5.  On 2 September 2021, the petitioner presented the bankruptcy petition against the debtor.

6.  The debtor filed two affirmations below in opposition to the petition.  In her first affirmation dated 30 November 2021, she claimed that the Loan had already been discharged by what she called the “Repayment Arrangement” and that she was therefore no longer liable.  As succinctly summarised at §§9 to 14 of the Judgment, the debtor’s case is as follows:

“9.  Yeung’s case is that the Debt had already been repaid.  Her evidence is that she is a housewife and the Loan was taken out at the instructions of her partner, Mr Chen Huawei (“Chen”), who is the father of her 4 children.  The Loan was obtained from the Petitioner because Chen knew Mr Wen Jialong (“Wen”).  Wen was a director of Lamtex Holdings Ltd (now in liquidation) (“Lamtex”), a Hong Kong listed company.  The Petitioner was indirectly wholly owned by Lamtex.

10.  The repayment of the Debt was made through a separate business arrangement negotiated between Chen and Wen in around mid-2018 (“Repayment Arrangement”). It is not in dispute that at the time Wen was an executive director and board chairman of Lamtex.  Wen resigned from such positions with effect from 1 June 2018.

11.  Under the Repayment Arrangement, if Chen’s company, Shenzhen Huaxun Weiye Real Estate Development Co Ltd (“Huaxun”), made a loan of RMB 30 million to Wen’s company, Shenzhen Zhiweilong Shiye Co Ltd (“Zhiweilong”), on or before 30 June 2018, then: (i) the Loan together with accrued interest would be “deducted” from the RMB 30 million (see para 39 below) and deemed fully repaid; and (ii) the Petitioner would seek repayment of the Loan from Zhiweilong instead.

12.  Yeung had produced 2 documents as evidence of the Repayment Arrangement, one “告知函” (“Notice”) and a “付清借款證明” (“Proof of Repayment”), both dated 30 May 2018 and addressed to Yeung.  On their face, both documents bore the company chops of the Petitioner and Lamtex, as well as Wen’s signature.  In addition, there are Mainland bank documents and loan receipts confirming the transfer of RMB 30 million by Huazun to Zhiweilong on 19 June 2018.

13.  There is also a loan receipt dated 19 June 2018 (“Receipt”) issued by Zhiweilong, which bore its company chop and Wen’s signature.

14.  By way of the Repayment Arrangement, the Loan and accrued interest were deemed fully repaid.”

7.  On 18 May 2022, on the hearing of the petition, the Judge held that there was no bona fide dispute on substantial grounds of the Debt, and made the usual bankruptcy order with costs.  The Judge held that there was no bona fide dispute raised by the alleged existence of Repayment Arrangement because he was of the view, inter alia, that:

(1)  The conduct of the debtor was inconsistent with settlement of the Debt.  Specifically, after the Debt was allegedly settled by the Repayment Arrangement, the debtor still paid two instalments of interest to the petitioner in the sum of HK$840,000 on 25 June 2018 and HK$385,000 on 25 January 2019 respectively.  Further, the debtor signed an audit confirmation on about 21 February 2019, confirming that she still owed the petitioner a total sum of HK$14,151,890.41 as of 31 December 2018 (see §29 of the Judgment).

(2)  The existence of the Debt was further acknowledged by the debtor when she signed the 2019 Loan Agreement in April 2019 (see §32 of the Judgment).  Any suggestion that the debtor signed the 2019 Loan Agreement without finding out if the Debt was deemed repaid is not believable (see §33 of the Judgment).

(3)  The debtor did not respond at all to the many demand letters or the statutory demand from the petitioner, until after the petition was filed in early September 2021 (see §34 of the Judgment).

(4)  There was also no credible explanation for the considerable delay on the debtor’s part in asserting that the Debt had been repaid.  Even if the debtor had required time to gather evidence in opposition to the petition, she should have reminded the petitioner about the Repayment Arrangement on the first available opportunity.  The debtor did not do so. Instead, her solicitors only asked for the matter to be referred to arbitration by relying on the 2019 Loan Agreement which contradicted the Repayment Arrangement.  Further, it was not until the debtor filed her first affirmation dated 30 November 2021 that the allegation of the Repayment Arrangement was made for the first time (see §§26 and 35 of the Judgment).

(5)  Finally, the accounting records of the petitioner also showed that the Loan remained in its books with the debtor’s name as the borrower (see §42 of the Judgment).

8.  As for the Notice, the Proof of Repayment and the Receipt, the Judge was of the view that they did not outweigh the evidence and inference that the Debt remained due and owing to the petitioner (see §36 of the Judgment).  The Judge was also of the view that these documents were not reliable evidence on which to infer the existence of the Repayment Arrangement because, inter alia:

(1)  Wen, who negotiated the Repayment Arrangement with Chen, was not a director of the petitioner at the time the Repayment Arrangement was reached.  He was merely a director of the ultimate parent company of the petitioner, i.e. Lamtex (see §37 of the Judgment).

(2)  Further, the Repayment Arrangement was also commercially unusual in that it was an arrangement whereby “a director of a parent company was apparently using an asset of its subsidiary (the Loan) for the purpose of his own company” (see §37 of the Judgment).

(3)  There was no explanation why the Proof of Repayment was issued before the loan was released from Huaxun to Zhiweilong (see §38 of the Judgment).

(4)  There was an inherent conflict between (a) the Notice and the Proof of Payment, which suggested that the repayment obligations to the petitioner would be assumed by Zhiweilong, and (b) the Receipt, which did not mention any repayment obligation to the petitioner (see §40 of the Judgment).

(5)  There was no evidence from Chen or Wen to explain what had taken place.  In particular, the evidence of Chen could have explained if the loan from Huaxun had been repaid in any part by Zhiweilong (see §41 of the Judgment).

9.  On 4 June 2022, the debtor, then acting in person, filed her Notice of Appeal, contending that the Judge had failed to give sufficient weight to her grounds of opposition to the petition, that he failed to appreciate that her opposition was supported by contemporaneous evidence such as the Notice and the Proof of Repayment, and that he ought to have concluded there was a bona fide dispute as to the Debt and should not have made the bankruptcy order against her.

The New Evidence Application

10.  By summons dated 15 September 2022, the debtor applies to adduce the Affirmation of Mr. Ouyang Yayong (“Ouyang Affirmation”), the Affirmation of Mr. Yang Weixiong (“Yang Affirmation”) and the Affirmation of Mr. Wen Jialong (“Wen Affirmation”) (collectively, the “New Affirmations”) as new evidence in support of her appeal against the bankruptcy order.  Counsel for the debtor have confirmed that there is no application to adduce the debtor’s own affirmation dated 15 September 2022 supporting the summons as new evidence for the appeal.

11.  It is well established that there are three conditions as set out in Ladd v Marshall [1954] 1 WLR 1489 at 1491 for determining whether new evidence should be admitted for an appeal, namely: (1) the evidence could not have been obtained with reasonable diligence for use at the hearing below; (2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) the evidence must be such as is presumably to be believed or it must be apparently credible, though it need not be incontrovertible.  All three conditions must be satisfied for new evidence to be admitted on appeal.

12.  We propose to deal with the Ouyang Affirmation and the Yang Affirmation first.

13.  As mentioned above, one of the matters the Judge relied on against the debtor was the fact that she paid interest to the petitioner on 25 January 2019.  That interest payment was recorded in a letter issued by Messr. Peter Cheung & Co to the petitioner (“Letter”) dated 31 January 2019.

14.  Mr. Ouyang’s and Mr. Yang’s evidence is intended to cast doubt upon the accuracy of the contents of the Letter. According to their affirmations:

(1)  Mr. Ouyang and Mr. Yang are friends of the debtor.  They had both previously borrowed from the petitioner.  They did not repay any part of the outstanding loans due to the petitioner.

(2)  In July 2022, Mr. Ouyang found out that the debtor was bankrupted by the petitioner.  As he was apprehensive that the petitioner might take legal action against himself to recover the outstanding loan, he decided to reach out to the debtor to inquire about the situation. Consequently, he was shown the Letter by the debtor.

(3)  According to the Letter, Messr. Peter Cheung & Co had on behalf of the petitioner successfully collected an instalment of interest from Mr. Ouyang in the sum of HK$385,000 which was allegedly due on 25 January 2019.

(4)  However, Mr. Ouyang denied having repaid any part of his loan (including interest) to the petitioner.  He also claimed that he was unable to identify the payment of HK$385,000 to the petitioner in his bank records.

(5)  In August 2022, the debtor reached out to Mr. Yang, whose name also appeared on the Letter.  According to the Letter, Messr. Peter Cheung & Co had also on behalf of the petitioner successfully collected an instalment of interest from Mr. Yang in the sum of HK$560,000 which was allegedly due on 19 January 2019.

(6)  Like Mr. Ouyang, Mr. Yang denied having repaid any part of his loan (including interest) to the petitioner.  He also claimed that he was unable to identify the payment of HK$560,000 to the petitioner in his bank records.

15.  Mr. Tang (together with Mr. Chow) submitted on behalf of the debtor that the Ladd v Marshall criteria are satisfied because:

(1)  It is the debtor’s evidence that but for her exchanges with Mr. Ouyang and Mr. Yang after the hearing of the petition as set out above, she would not have suspected the Letter contained any material inaccuracy as regards the payment of interest by various persons to the petitioner.  This was especially so given that the Letter was issued by a professional firm of solicitors, and the debtor had therefore no reason to doubt the veracity of its contents.  Mr. Ouyang’s and Mr. Yang’s evidence is therefore evidence that could not have been obtained with reasonable diligence for use at the hearing below.

(2)  Further, had it been known that the Letter contained material inaccuracies as regards the payment of interest, this would have cast doubt on the suggestion that the debtor had paid interest to the petitioner in January 2019 as recorded in the Letter; in turn, this would have undermined the Judge’s reasoning.  Accordingly, it was submitted that Mr. Ouyang’s and Mr. Yang’s evidence, if given, would probably have an important influence on the result of the case.

(3)  It was also submitted that the evidence is credible because Mr. Ouyang’s and Mr. Yang’s evidence is first-hand and direct evidence.

16.  We are prepared to proceed on the basis (without deciding) that the Ouyang Affirmation and the Yang Affirmation are evidence that could not have been obtained with reasonable diligence for use at the hearing below.  Even so, we do not agree that they would, if admitted, probably have any important influence on the outcome.

17.  As is evident from the summary above, Mr. Ouyang’s and Mr. Yang’s evidence does not deal with the issue of whether the debtor had made any payment of interest to the petitioner on her Loan. Rather, their evidence is exclusively concerned with whether they themselves made any payment of interest on their loans as recorded in the Letter.  As such, Mr. Ouyang and Mr. Yang’s evidence is unlikely to have any important influence on the outcome of the case.

18.  The materiality of Mr. Ouyang and Mr. Yang’s evidence must also be viewed in the context of the rest of the evidence before the Court.  Notably:

(1)  The debtor did not seek to file evidence to deny that she had paid interest to the petitioner in January 2019 or to dispute the accuracy of the content of the Letter in so far as it concerned her.

(2)  It is only in the supporting affirmation for the summons that the debtor says for the first time that she “had no recollection of the said interest payment”.  This is a late assertion unsupported by any documentary evidence (e.g. the debtor’s bank records showing the lack of fund flow to the petitioner at the material time).  In any event, she no longer seeks to adduce her own supporting affirmation as new evidence. As such, the position will remain on appeal that there is no evidence from the debtor denying that she had paid interest to the petitioner as recorded in the Letter.

19.  For these reasons, we take the view that Condition 2 is not satisfied.  We decline to grant leave for the Ouyang Affirmation and the Yang Affirmation to be adduced in the debtor’s appeal.

20.  This leaves the Wen Affirmation.  Wen was the former chairman and a director of Lamtex, which indirectly and wholly owned the petitioner.  According to the debtor, Wen was the person who negotiated the Repayment Arrangement with Chen.  The Wen Affirmation deposes to, inter ala, the following matters:

(1)  The surrounding circumstances of the negotiation and conclusion of the Repayment Arrangement.  Relevantly, it is Wen’s evidence that the Repayment Arrangement was reached after obtaining the consent of the director of the petitioner.

(2)  The circumstances in which Wen procured the debtor to sign the 2019 Loan Agreement.  It is Wen’s evidence that after the Repayment Arrangement was reached, he resigned as the chairman of Lamtex, and the petitioner underwent significant personnel changes.  As the new staff of the petitioner was not aware of the Repayment Arrangement, the petitioner at one point told Wen that it would sue the debtor unless documentary proof for the Repayment Arrangement may be furnished.  To buy time for the documentary proof of the Repayment Arrangement to be located, Wen procured the debtor to sign the 2019 Loan Agreement to extend the 2018 Agreement for the time being purely as a formality to avoid the risk of litigation.

(3)  The reason why the debtor paid interest to the petitioner in June 2018, despite the settlement of the Debt by the Repayment Arrangement.  Wen explained that it was the practice of the petitioner to require borrowers to hand over pre‑signed cheques to ensure interest was paid in a timely manner.  In accordance with this practice, at the time when the 2018 Agreement was signed by the debtor, she handed over a pre-signed cheque in the sum of HK$840,000 to the petitioner.  This explained why such sum was paid as interest to the petitioner, despite the final settlement of the Debt.

21.  Counsel submitted that the debtor should be granted leave to adduce the Wen Affirmation because:

(1)  It is the debtor’s evidence that whilst she was initially able to contact Wen, Wen eventually became incommunicado prior to the hearing of the petition.  This was despite the debtor’s efforts to reach Wen through his telephone number and WeChat.  The debtor had also physically travelled to Shenzhen to locate Wen at his various known addresses in March / April 2022, to no avail.  It was only after the bankruptcy order was made against her that she was able to establish contact with Wen and to procure Wen to make the Wen Affirmation. Consistent with the above, it is Wen’s evidence that he thought that the documentary evidence he provided to the debtor should be sufficient to oppose the petition, and therefore, apart the earlier contacts he had with the debtor, he did not pick up any further phone calls from the debtor.  Based on the foregoing, it was submitted that Wen’s evidence is evidence that could not have been obtained with reasonable diligence for use at the hearing below.

(2)  Further, the Judge expressly acknowledged at §41 of the Judgment that Chen’s evidence in relation to the Repayment Arrangement could shed considerable light on its veracity.  As a matter of logic, the same can be said of the evidence of Wen, since Wen had direct knowledge of the Repayment Arrangement and was instrumental in its implementation.  As such, Wen’s evidence is evidence that, if given, would probably have an important influence on the result of the case.

(3)  Finally, Wen’s evidence is credible because it is corroborated by the Notice, the Proof of Repayment and the Receipt.

22.  We do not agree with Mr. Tang that Condition 1 of Ladd v Marshall is satisfied.  On the facts before the Court, it is plain that Wen’s evidence could have been obtained by the debtor for use at the hearing below, had she exercised reasonable diligence to obtain it.  In particular:

(1)  Even if Wen became uncontactable as claimed by the debtor, she had had ample opportunity to gather all necessary evidence from him before then.

(2)  The statutory demand was served upon the debtor on 18 March 2021.  The petition was presented against the debtor on 2 September 2021.  It was not until 30 November 2021 that the debtor filed her evidence in opposition.

(3)  The debtor did not reveal exactly when Wen became uncontactable.  However, according to the debtor’s supporting affirmation, she was still able to contact Wen around the time after the Petition was filed on 2 September 2021.

(4)  The debtor had sufficient opportunity to gather all necessary evidence from Wen, had she proceeded with reasonable diligence to do so.  There is no suggestion that even if requested, Wen would have refused to provide the necessary evidence sought by the debtor or to make an affirmation on her behalf.

(5)  Despite the opportunity to gather evidence from Wen, the debtor did not do so.  Instead, she simply chose to rely on Wen to resolve the dispute she had with the petitioner.

23.  We are of the view that the debtor has failed to establish that even had she exercised reasonable diligence, she would not have been able to obtain, for use at the hearing below, the evidence that she now intends to adduce by way of the Wen Affirmation.

24.  In addition, particular aspects of Wen’s evidence also fail to satisfy Condition 1 because they are clearly within the personal knowledge of the debtor but she did not seek to adduce evidence of them below. For example, the debtor should herself have been able to explain why she paid HK$840,000 as interest to the petitioner in June 2018, and to give evidence on the circumstances in which Wen procured her to sign the 2019 Loan Agreement. These matters, which are dealt with in the Wen Affirmation, are matters on which evidence could have been given by the debtor herself.

25.  In this regard, we also observe that the debtor is not at all consistent about when she came to know of the matters raised in the Wen Affirmation.  At various points in her evidence, she claimed that the Wen Affirmation contains matters which are not known to her prior to the hearing of the petition.  However, in her affirmation in reply dated 10 October 2022, at paragraph 6, she said “its contents were known to [her] prior to the hearing of the Petition”.  Thus it would appear that, even on the debtor’s own case, she could have given the same evidence now contained in Wen Affirmation for use at the hearing below.

26.  In any event, we have considerable reservations about the debtor’s suggestion that she had lost contact with Wen after her earlier communications with him.  Notwithstanding that she was legally represented, the debtor had never mentioned in the court below that she had contacted Wen to give evidence on her behalf but was unable to do so.  Further, in her supporting affirmation, the debtor claimed that she had tried contacting Wen through “his telephone number and WeChat”.  But she has, without any explanation, not produced any WeChat records evidencing such allegedly unsuccessful attempts before the hearing of the petition.  This failure is telling because the debtor did produce the records of her communication with Wen by WeChat, when she allegedly re-established contact with him after the hearing of the petition.

27.  Accordingly, it is not necessary for us to address whether Conditions 2 and 3 of Ladd v Marshall are satisfied. But we may observe that Mr Wen’s evidence does not sit comfortably with Receipt dated 19 June 2018 and signed by him on behalf of Zhiweilong (exhibited by the debtor below as “YM-15”) which stated that the entire loan of Rmb 30 million would be repaid by Zhiweilong when the loan matured, without referring to any set off of the HK$14 million which was supposedly to be paid to the petitioner instead of Huaxun.

28.  We decline to grant leave for the Wen Affirmation to be adduced in the debtor’s appeal.

The Amendment Application

29.  The debtor concedes that the application for the amendment of the Notice of Appeal should stand or fall with the application to adduce new evidence in her appeal.  In the light of our conclusions above, the debtor’s application for the amendment of the Notice of Appeal is dismissed.

Disposition

30.  The debtor’s summons is therefore dismissed.

31.  We make an order nisi that the debtor pay the petitioner the costs of these applications, assessed in the gross sum of $200,000.

[1]  [2022] HKCFI 1472.