TADASHI FURUSAWA v. LEUNG KWOK CHAI

1989, No. A3225

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. Dr. Leung Kwok Chai has been examined under 0.49B, Rules of the Supreme Court in his capacity as a judgment debtor in the sum of Japanese Yen 34,941,597.00, amounting to some HK$2,000,000.00. No payment has been made in discharge of the amount due, and the judgment creditor seeks an order for payment of both a lump sum and monthly instalments. Dr. Leung is currently under an interim order for payment of $30,000.00, per month made at the earlier hearing on 13th June 1991.

2. It is not disputed that Dr. Leung was, and apparently still is, a successful dentist with a largely Japanese clientele. It is also agreed that Dr. Leung left Hong Kong shortly after the dismissal of his appeal against the judgment, and spent a few months in America, returning early this year.

3. Mr. Whitehead for the judgment creditor has conveniently divided his submission into three areas in terms of time; firstly, the period before Dr. Leung left Hong Kong; secondly, the period from February 1991 (when he returned) to the date of hearing; and thirdly, the future. For the first two periods Mr. Whitehead seeks separate but cumulative lump sum payment orders on the basis that Dr. Leung must, on the evidence, have concealed substantial assets. For the third period, the future, he seeks an order for instalment payments, based on Dr. Leung's potential earnings less his necessary outgoings. It will be convenient if I deal with these three periods separately.

4. For the period before Dr. Leung left Hong Kong, Mr. Whitehead relies on the debtor's contemporary bank accounts, which show large amounts of money flowing both in and out. Extracts have been made of the total monthly deposits and withdrawals and produced as Exhibit P.1 to this examination. Insofar as the figures are no more than extracts from Dr. Leung's own accounts, Mr. Kwan, who represents him, accepts their correctness.

5. The total inflow and outflow for the 6 months January to June 1990 are shown to be respectively $1,218,889.60 and $1,145,803.30. Mr. Whitehead asks me to conclude from this that most of the latter sum has been concealed by the judgment debtor to avoid payment to the creditor. I stress at this stage that the judgment creditor is not seeking imprisonment of Dr. Leung under the provisions of 0.49B. On the contrary he is interested in receiving the amount owed, a purpose which imprisonment would substantially frustrate.

6. Dr. Leung's explanation for these drawings on his account is unsatisfactory. He says that a large amount went on lawyer's fees and testifies to $50,000.00 in monthly expenditure. Mr. Kwan, with his client's leave, has disclosed that lawyer's fees during that period were around $250,000.00. Mr. Kwan submits moreover that Dr. Leung spent 6 months in America from June to December 1990, during which time he must necessarily have incurred considerable living expenses. It is also undisputed that Dr. Leung has a bad heart and his visit to America was ostensibly in that connection. Mr. Kwan argues that this could have caused further expenditure, but has not called evidence in support.

7. There is no doubt that Dr. Leung's explanations are incomplete. He has moreover lied to the court on at least one occasion and been patently evasive on several others. I rate his credibility as a witness very low in the context of his evident animosity towards the judgment creditor and his anxiety to avoid payment of the judgment debt.

8. If however I make an order for a lump sum payment for moneys said to be accumulated and hidden, I must be prepared for the imprisonment of Dr. Leung in default. The standard of proof in such a case goes beyond the civil burden of mere probability and rests in the criminal area of proof beyond reasonable doubt. I do not speculate in reaching this conclusion as I follow a similar decision of the Court of Appeal in the well known Murjani case in May this year. The reference is civil appeal 12 of 1991 and the learned Vice-President, Sir Derek Cons, said in his judgment at page 6 –

"Although an examination under 0.49B may perhaps not normally be regarded as a proceeding for contempt, the common factor is the possibility of imprisonment as a result. For that reason the same standard should be applied."

9. The Vice-President had earlier found by reference to the English case of In re Bramblevale Ltd. [1970] 1 Ch 128, that the burden of proof in contempt proceedings was that of proof beyond reasonable doubt.

10. The issue in the appeal was the relevance of the higher burden not only to immediate imprisonment (which was conceded), but also to the imposition of payment terms which could lead to imprisonment on breach. The Court of Appeal found the higher burden to apply in the latter situation also and I am bound by their decision. It is otiose but courteous to say that I respectfully agree with it.

11. On this basis I am unable to find it proved that Dr. Leung must have concealed assets during his pre-departure period. I therefore decline to make the order for a lump sum payment sought in this connection.

12. Mr. Whitehead's second period for consideration runs from 1st February 1991 to the date of hearing. During this period Dr. Leung was involved in two successive business relationships with fellow dentists, Dr. Tony Tai and Dr. Robert Tam. The arrangement with Dr. Tai ran from 1st February to 15th May 1991, and that with Dr. Tam from 16th May and continuing.

13. Mr. Whitehead again argues for a lump sum payment based on the earnings generated by the judgment debtor in these two business relationships. He submits that gross earnings of $613,935.00 are disclosed by the debtor's two associates, and seeks a lump sum payment of $250,000.00 on the basis of an inference of concealment of assets.

14. The debtor's earnings for the 3½ months with Dr. Tai are not disputed by Mr. Kwan and amount to a total of $168,005.20. This figure covers the 1st February to 15th May period and emerges from Exhibit 'C' to Dr. Tai's affirmation of 27th August 1991, filed in the garnishee proceedings. Mr. Whitehead argues that this amount is net of living expenses to Dr. Leung, which Dr. Tai agreed to pay pursuant to an agreement at annexure 'A' to the same affirmation. This document is a contract of employment of Dr. Leung by Dr. Tai, and includes a comprehensive list of the expenses covered.

15. The balance of the income said to be received by Dr. Leung during this period from February to the date of hearing relates to the association with Dr. Tam. This relationship has a complex structure which Mr. Whitehead argued to be designed to conceal the debtor's true income. It involves a dental practice together at the same premises, whereby Dr. Tam keeps all his own earnings and pays his own expenses. Dr. Leung however keeps 50% of his gross earnings and undertakes to give the balance 50% to Dr. Tam on the understanding that Dr. Tam will invest it in a company, Twin Income Ltd. The shareholders in this company are Dr. Tam himself and Dr. Leung's wife as to 50% each. Dr. Leung's wife has meanwhile undertaken to pay Dr. Leung's professional running expenditure, estimated at around $40,000.00 a month. Nothing of this is in writing.

16. To complicate matters further, Dr. Tam testified that no clear agreement had been reached as to when he would receive his 50% of Dr. Leung's income for investment in the company. Nothing had been paid so far he said, and it would possibly be paid half-yearly or at even longer intervals.

17. Mr. Kwan's objection to the total of $613,935.00 gross income for the full 7 month period relates to the 50% payable to Dr. Tam out of Dr. Leung's gross earnings for the latter 3½ months. Mr. Kwan argues that only half the earnings with Dr. Tam should be considered, allowing for the liability to Dr. Tam for the balance. This would reduce Dr. Leung's total earnings for the whole 7 month period to approximately $473,000.00. The gross figures for Dr. Leung's earnings with Dr. Tam are contained at Exhibit P.3 in this hearing, which was produced by Dr. Tam and later agreed by Dr. Leung himself. This is an extract of Dr. Leung's daily earnings over the period from 16th May to 4th September 1991, amounting to some $448,000.00. For the three completed months of June, July and August, Dr. Leung's earnings were respectively $97,950.00, $208,900.00 and $123,000.00.

18. Dr. Leung has testified that he does not have any capital and has not accumulated any money during his association with Dr. Tai or Dr. Tam. He claims living and maintenance expenses of around $50,000.00 a month. Since he commenced his arrangement with Dr. Tam, he also has the business expenditure of $40,000.00 a month which his wife has apparently undertaken to discharge.

19. As to the 3½ month period of Dr. Leung's association with Dr. Tai, I am unable to find an inference of accumulation of undisclosed assets. It is certainly possible on the figures, but that is not enough. Although $168,005.00 is a good income for 3½ months, net of all expenses, the month of May, straddling the successive arrangements with Drs. Tai and Tam, produced an aggregate of only $30,000.00. I therefore decline to find it proved that Dr. Leung accumulated undisclosed assets during the period with Dr. Tai.

20. The period with Dr. Tam, from mid-May onwards, yielded much higher gross figures if the 50% said to be due to Dr. Tam is discounted. There has however been expenditure of around $90,000.00 a month, if I include the business expenditure of $40,000.00, which I must if I am to consider Dr. Leung's full takings. Moreover there is a liability to income tax which I must assume at 15% of net earnings. The current month has also yielded only $3,300.00 upto the last day of hearing and Dr. Leung says he will then be a few days in hospital for a check on his heart condition. It is not disputed that he has a heart problem and I accept an immediate check as reasonable after the stress of the hearing. It has also been overlooked in argument that Dr. Leung has since 1st July paid a total of $90,000.00 in three instalments pursuant to the interim order at the hearing of 13th June. Considering all these factors, I do not find it proved beyond reasonable doubt that Dr. Leung has accumulated undisclosed assets during his arrangement with Dr. Tam. A lump sum payment order is also refused in this regard.

21. I turn finally to the question of the level of future instalment payments to be imposed on the judgment debtor. Here, I have to balance the creditor's right to payment with the debtor's ability both to pay and to live at a standard reasonable to his circumstances, including his debts. For the future, justification for proposed expenditure is the criterion, whereas for past accumulation, actual expenditure is accounted whether reasonable or not. Again, proof beyond reasonable doubt is the basis for assessing Dr. Leung's ability to pay.

22. The arrangement with Dr. Tam, the company Twin Income Ltd., and Dr. Leung's wife falls first for consideration. Mr. Whitehead argues that this is a sham structure designed to minimise Dr. Leung's apparent income and so to reduce the amount available to the judgment creditor. I accept this argument as I find no commercial justification whatsoever for the relationship. Dr. Tam is a young man of 28 who earned, he said, $15,000.00 - $20,000.00 a month when he also was an associate of Dr. Tai. Dr. Leung on the other hand is a man of 60, with an apparently rich and substantial Japanese clientele, capable of generating over $200,000.00 of gross earnings in at least one recent month. The company Twin Income Ltd. was said by Dr. Tam to be a management company, but the only management it is obliged to do is of Dr. Leung's money to be invested into it. That money moreover, representing 50% of Dr. Leung's gross earnings, has not even been paid and Dr. Tam himself was unconcerned that it may be paid only half-yearly or yearly. Dr. Leung, he said, had asked for his indulgence and he had no objection. I therefore conclude that Dr. Leung's full gross earnings, as illustrated in Exhibit P.3, should be considered in assessing the level of monthly instalments.

23. In considering the judgment debtor's expenditure, the contribution of his wife is relevant. She is not of course obliged to work to extinguish her husband's debt, but the past serves as a guideline for the future. Mrs. Leung was examined at the hearing and freely testified to a substantial income in 1990, largely from property speculation. The figure was some $800,000.00, received in three cheques of which copies were shown to the court. That income she said had all gone to her husband to pay off his debts and she now had no money. Mrs. Leung also said she worked as a broker of real estate on commission, but that the market was presently flat and she had averaged only some $10,000.00 a month recently. She was distressed in giving her evidence, but she was particularly frank about her earnings in 1990 and I accept what she said.

24. Mrs. Leung is obviously a clever businesswoman, capable of earning large amounts. She is however elderly and claimed to have no capital left. I am unable to find her capable of contributing a large amount, but I do note that the flat she shares with Dr. Leung is rented in her name. From her expertise in real estate broking and her own evidence, I find it likely that she will make a monthly contribution of at least $10,000.00 towards the household expenses. I bear this figure in mind in assessing her husband's overall expenditure.

25. Dr. Leung gave evidence of monthly expenditure totalling some $50,000.00, of which $10,000.00 was for his daughter's legal studies in England and $8,000.00 was towards payment of a debt to a bank. The total bank repayment was, he said, around $100,000.00 and had only just commenced.

26. In assessing the debtor's monthly instalments, I should not allow the full monthly amount agreed with the bank as an unsecured creditor without a judgment. I should not ignore it, but $8,000.00 a month is too high for a debt of $100,000.00 when placed against the judgment creditor's dues of some $2 million. I will consider the bank debt at around half the level currently paid, which should give Dr. Leung room to re-negotiate it, when faced with his order for instalment payments.

27. The $10,000.00 to Dr. Leung's daughter is also high. Whilst he should have the right to maintain his daughter in education, savings should be made bearing in mind his lack of legal duty to maintain a child of mature years. The item of food at $15,000.00 per month for himself and his wife also betokens a lifestyle incompatible with his current obligations. Around half that sum would be ample.

28. Considering all these factors and the likelihood that his wife will make a contribution to the household, I assess Dr. Leung's justifiable monthly expenditure at $25,000.00 - $30,000.00. That is not ungenerous to a man of his station faced with paying a judgment debt of $2 million.

29. The calculation of Dr. Leung's earning capacity is rather easier. Exhibit P.3 shows he is capable of earning over $200,000.00 a month after a relatively short time in a new practice. Dr. Tai's figures at annexure 'C' to his affirmation, as explained to the Court, also show that Dr. Leung generated nearly $150,000.00 in fees in April this year. I accept that this may not happen every month and I accept that his age and his health would demand an annual holiday, presumably without pay. He does however have an apparently rich and loyal clientele in the Japanese community, based on his knowledge of their language and his degree in dentistry from Tokyo University.

30. Weighing these factors and noting that my finding must be based on proof beyond reasonable doubt, I accept that Dr. Leung would have average monthly gross earnings of not less than $110,000.00.

31. Allowing $40,000.00 for professional expenses, upto $30,000.00 for domestic expenses, and a rough $10,000.00 for income tax liability, there is a balance of $30,000.00 each month. This amount is to be paid as instalments in discharge of the judgment debt in continuation of the current interim instalments in the same sum. The instalments are to continue from 1st October 1991 and are thereafter payable on or before each succeeding first of the month.

32. Costs are awarded to the judgment creditor, with a certificate for counsel. They are to be added to the judgment debt and discharged in the same manner.