CHAN PING LAM WAYMOND v. NOBLE ART LTD

CACV 270/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 270 OF 2012

(ON APPEAL FROM HCSD NO. 6 OF 2012)

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Hon Fok JA (giving the Reasons for Judgment of the Court):

Introduction

1.  In this appeal, the appellant seeks to overturn the judgment of L. Chan J dated 2 November 2012 refusing to extend time for him to apply to set aside a statutory demand served on him by the respondent, a company now in liquidation.

2.  The statutory demand was dated 1 March 2012 and was for a sum of HK$13,069,275.78 said to be due and owing from the appellant to the respondent.

3.  Following the judgment below, bankruptcy proceedings were commenced against the appellant on the basis of the statutory demand and, on 19 July 2013, a bankruptcy order was made against him.  The appellant has not appealed against the bankruptcy order.

4.  Although he was represented by counsel and solicitors at the hearing below[1] and the notice of appeal was signed by counsel[2], he appeared in person on the hearing of the appeal before us and adopted the grounds of appeal in the notice of appeal but did not have anything further to add.

5.  At the conclusion of the hearing before us, we dismissed the appeal, indicating we would hand down our reasons at a later date, which we now do.

The issue in the appeal

6.  The Judge noted[3] that the appellant did not dispute the debt relied upon by the respondent but sought to rely on claims of his own against the respondent by way of set-off or counterclaim as the basis for setting aside the statutory demand. The appellant relied on Rule 48(5)(a) of the Bankruptcy Rules (Cap. 6A), which provides:

“(5) The court may grant the application [to set aside the statutory demand] if –

(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;”.

7.  It was the appellant’s case below that he had cross claims amounting to HK$50,767,480.31[4], so that after setting off the respondent’s debt of HK$13,069,275.78, this left a balance in his favour of HK$37,698,204.53.[5]

8.  The Judge below held[6] that the same approach to a challenge to a debt under Rule 48(5)(b) applied to a challenge to a statutory demand under Rule 48(5)(a), namely:

“… the debtor must show a bona fide dispute on substantial grounds, by sufficient precise evidence which is believable, and must establish that he actually has a defence of substance, not just a fair probability of one.”

See, Bank of Communications v Au Wai Ming, unrep., HCB 4016/2004 (4 February 2005) at §12.

9.  He also cited and applied the principles concerning the court’s approach where a debt is bona fide disputed on substantial grounds summarised by Kwan J (as she then was) in Re Hong Kong Construction (Works) Ltd, unrep., HCCW 670/2002 (7 January 2003) at §6.

10.  Applying these principles, which are not challenged in the notice of appeal and which we consider to be the correct principles applicable here, the Judge concluded that there was no merit in the appellant’s proposed application to set aside the statutory demand and so he refused the necessary extension of time to enable that application to be made.

11.  The sole issue in this appeal therefore is whether the Judge erred in his assessment of the appellant’s evidence in support of the existence of his various cross claims.

An analysis of the appellant’s contentions on appeal

12.  Since the appellant appeared in person on this appeal and did not file a written skeleton argument in advance of the hearing, the court has considered the grounds of appeal in the notice of appeal.

13.  The main ground of appeal is a rehearsal of the argument below that the appellant had a number of cross claims against the respondent, the value of which eclipsed the amount of the debt asserted in the statutory demand.

14.  We have considered the cross claims in question and the way the Judge dealt with the evidence in respect of each.

15.  The first head of cross claim is based on an alleged agreement between the appellant and Mr Lui Chun Ming (who passed away in June 2010), then a director and shareholder of the respondent, that the appellant would act as a broker for the respondent to look for buyers of various kinds of nuts from the respondent.  It was said that the appellant’s brokerage commission was to be 15% of the sale price.  The amount of the brokerage commission claim was calculated by the appellant as being HK$15,113,628.84.

16.  However, the Judge noted that apart from a statement issued by the appellant to the respondent setting out dates, invoice numbers and prices of goods sold between 1 June 2009 and 16 February 2011, no copies of invoices or other supporting documents were produced.  In particular, there was no document from the respondent to confirm the agreement to pay brokerage to the appellant or the amount of brokerage due to him.

17.  The second head of cross claim arises from an alleged payment of RMB110,000 (equivalent to HK$129,716.98) by the appellant to a third party on behalf of the brother of Mr Lui Chun Ming’s wife.

18.  However, the Judge noted that the receipt produced by the appellant dated 24 March 2011 for RMB110,000 and issued by the respondent for payment on behalf of a Lau Man Chung did not state the name of the person making the payment and the appellant did not produce any documentary evidence of payment made by him.

19.  The third head of cross claim was a claim for reimbursement of the alleged costs of transporting 295 containers of goods from Hong Kong to the Mainland that the appellant had allegedly paid for on behalf of the respondent.  Although said by the appellant to be in the amount of HK$24,897,700, the three payments making up the total in fact add up to HK$23,840,220.71.

20.  However, the Judge noted that, although the appellant produced some records of delivery of containers of different kinds of nuts, some of which were addressed to the appellant, there was no documentary evidence of payment made by the appellant in respect of the first of the three payments, HK$12,395,827.37 to Wong Kee Transportation.  Similarly, although the appellant produced a bundle of invoices addressed to a Mr Chan of the respondent on which were some handwritten notes addressed to the appellant, there was no documentary evidence of payment made by the appellant in respect of the second of the three payments, HK$4,042,035.34 to Yi Ming Trading Company.  Finally, in respect of the third of the three payments, HK$7,402,358 to a Mr Fong, although the appellant produced a bundle of statements of account, some of which were accompanied by acknowledgments of transfers of money from the appellant’s bank account to that of a Ng Chun Kit, none of the statements mentioned the respondent at all and prima facie they did not show that transportation costs were due from the respondent.

21.  The fourth head of cross claim was a claim for alleged processing, transportation and inspection costs and custom levies paid to a Ka Wai Food Company in the total of HK$416,219.55.  However, the Judge noted that the two invoices produced in support were addressed to the respondent and Mr Lui of the respondent respectively and did not mention the appellant at all.  The appellant did not produce any documentary evidence of the payment of this sum by him.

22.  The fifth head of cross claim was a claim for the alleged refund of the price for goods returned by the appellant to two of the respondent’s suppliers at the direction of the respondent.  However, there was no document to prove the sale of these goods by the respondent to the appellant or the appellant’s payment for them.

23.  Finally, the sixth head of cross claim was a claim for US$255,383.55 (equivalent to HK$1,991,991.69) in respect of some East European walnuts allegedly returned to the respondent for quality problems. However, no documents to prove the sale of the walnuts by the respondent to him were produced, nor any documents for his payment for the walnuts or his return of them to the respondent.

24.  The first ground of appeal in the notice of appeal contends that the Judge erred in concluding there was no merit in the appellant’s proposed application to set aside the statutory demand based on these various heads of cross claim.  The criticisms of the Judge are essentially attacks on his assessment of the credibility and sufficiency of the evidence produced by the appellant in support.

25.  In our view, there is no substance in this ground of appeal.  The Judge carefully analysed the evidential position in respect of each of the alleged heads of cross claim.  Standing back, like him, we share his view that the appellant’s story of brokering sales for the respondent is completely unbelievable.  It is inconceivable that such an important agreement or the amount of commissions due would not have been referred to in some document, yet no such document was produced in support of the appellant’s case.  It would be common sense, if the appellant was collecting the purchase price from the buyers for the respondent, for the appellant to deduct any commissions due to him from those purchase prices he was collecting before transmitting the net sum due to the respondent. Furthermore, it is to say the least surprising, if substantial unpaid commissions were accruing between 1 June 2009 to 24 June 2011, that the appellant would at the same time incur the further substantial processing, transportation and other costs which form the basis of some of the other cross claims.  It would mean, as the Judge observed, that the appellant had been financing the respondent’s operation to a significant extent, represented by the sum of over HK$37 million.

26.  The Judge noted that, save for the payment of transportation costs to Mr Fong, there is no evidence of any evidence of payment by the appellant.  The invoices for the transportation costs allegedly paid to Mr Fong were issued to him and not the respondent.

27.  There is no evidence the appellant paid for the goods which are the subject of the claims for repayment of the price of the goods returned to Kong Lee Fung and Kun Lun.  Even if the appellant should be given credit for those goods allegedly returned, their value is less than HK$8.3 million and so would not be sufficient to set-off the whole of the debt in the statutory demand.

28.  We are therefore unable to agree that the Judge was in error in concluding that the appellant’s story did not make commercial sense and was unbelievable.

29.  The second ground of appeal contends that the Judge erred in failing to appreciate the evidential value of the two former employees of the respondent who made affirmations in support of the appellant’s case.

30.  However, the Judge addressed the substance of the evidence given by the two employees in question, Ms Chung Sau Fong, who was Mr Lui’s former assistant, and Ms Leung Oi Yee, who used to be responsible for shipping work and issuing invoices.[7]

31.  We do not consider there is any substance in this ground of appeal either and agree with the Judge’s conclusion that the evidence of Ms Chung and Ms Leung does not affect the conclusion that the appellant’s story does not make commercial sense and is unbelievable.

32.  The remaining grounds of appeal in the notice of appeal, grounds 3 to 7, simply challenge the Judge’s conclusions on factual and evidential matters and do not, with respect, persuade us that the Judge was wrong in concluding that the appellant had not satisfied the burden which lay on him to adduce credible evidence to establish the cross claims relied on. The Judge was right to regard the appellant’s cross claims as being based on unsubstantiated and unparticularised assertions and therefore insufficient to satisfy Rule 48(5)(a) and engage the court’s discretion to set aside the statutory demand.

33.  In the circumstances, the Judge was right to refuse the appellant an extension of time to apply to set aside the statutory demand.

Conclusion

34.  For these reasons, there being no merit in the appeal against the Judgment below, we dismissed the appeal with costs to the respondent to be taxed, if not agreed.