RE TAM SIU KI

HCB 4035/2018

[2019] HKCFI 83

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 4035 OF 2018

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J U D G M E N T

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1.  This is the hearing of a bankruptcy petition dated 16 July 2018 (“Petition”) presented by the Petitioner (“Orient Securities”) against Mr Tam Siu Ki (“Tam”). The Petition is based on Tam’s non-compliance with a statutory demand dated 15 March 2018 that was served on him on 6 June 2018 (“Statutory Demand”).

2.  Orient Securities is a securities brokerage company and Tam, an experienced investor of Hong Kong listed shares, has a margin account (“Account”) with the former opened in October 2014.  Orient Securities claims that Tam is indebted to it in the aggregate sum of HK$47,943,530.18 (“Debt”) as at 13 March 2018 comprising of the followings :

(1)  A principal amount of HK$11,393,001.82 together with interest thereon in the sum of HK$60,866.78 owed under the Account; and

(2)  A principal amount of HK$36,295,752.80 together with interest thereon in the sum of HK$193,908.78, which were owed under another margin account opened in February 2015 belonging to Tam’s brother (“Brother’s Account”), and for which there is a guarantee dated 28 June 2017 executed by Tam in favour of Orient Securities (“Guarantee”).

3.  Orient Securities holds, as security for the payment of the Debt, the following listed shares :

(1)  12,872,000 shares of Tech Pro Technology Development Ltd (“Tech Pro”) and 3,000,000 shares of Shenzhou Space Park Group Ltd (“Shenzhou Space”) for the outstanding indebtedness under the Account; and

(2)  37,888,000 shares of Tech Pro for the outstanding indebtedness under the Brother’s Account and the Guarantee.

4.  The trading of shares in Tech Pro and Shenzhou Space have been suspended since respectively 9 November 2017 and 17 July 2017, ie, before the date of the Statutory Demand (15 March 2018).

5.  The Debt arose due to the plummeting of the price of Tech Pro Shares from HK$2.27 per share on 22 July 2016 to HK$0.135 per share on 29 July 2016.  At that time, Tech Pro shares comprised the bulk of the portfolio in both the Account and the Brother’s Account.  Margin calls were made to both Tam and his brother by Orient Securities as a result of the dramatic fall in share price, which were not met. 

Issues

6.  There is an Amended Notice by Debtor of Intention to Oppose Petition dated 14 December 2018.  However, appeared on behalf of Tam, Mr Lee has sensibly confined the grounds of opposition to 3, namely :

(1)  Orient Securities had breached the Security Account Client Agreement with Tam (“Agreement”) by not complying with the latter’s instructions to sell his securities, and such compliance would have significantly reduced the Debt.  It is contended that, consequently, the Debt is not one of a liquidated sum.

(2)  Orient Securities had failed to adhere to the industry practice and standards of :

(a) liquidating the securities it held as soon as Tam had failed to meet a margin call, and such action would have significantly reduced the Debt;

(b) “staying within its own credit limits”, and such action would have significantly reduced the Debt or prevented it from incurring in the first place.

(3)  No or past consideration was given for the Guarantee, thereby rendering it unenforceable.

7.  In my respectful view, there is little substance in these grounds, and I am inclined to agree with Mr Oh, who appeared for Orient Securities, that they are little more than “cloud of objections”.

Law

8.  The law is that in order to successfully oppose a bankruptcy petition, an alleged debtor has to show, with sufficiently precise evidence, that there is a bona fide dispute, not a fair probability of one, in relation to the debt on which the petition is based: Re Yuen Mun Wa (debtor) [2012] 5 HKLRD 108, at §§4(a), 6 and 12.

9.  It is well-established that bankruptcy proceedings are summary in nature and are not intended to be used for the purpose of debt collection: Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850 at §20.  The jurisdiction to make a bankruptcy order is only exercised in very clear cases: Re Leung Cherng Jiunn (debtor) at §27(5).

10.  The bankruptcy court is ultimately concerned with whether debtors are unable to pay their debts: Re Mak Kam Ling [2004] 4 HKC 202 at §28.

11.  Where there is a real dispute turning to a substantial extent on disputed questions of fact which require viva voce evidence, such dispute cannot properly be decided on a petition: Re Yuen Mun Wah (debtor) at §4(b).

1^st ground of opposition

12.  Tam alleges that in around early August 2016, the share price of Tech Pro rose slightly to around HK$0.3 per share, and therefore he and his brother[1] tried to send instructions to Orient Securities to sell their Tech Pro stocks via their online accounts.  However, Orient Securities’ staff called them and said that their accounts had been frozen.

13.  Although Mr Lee contended that there is a factual dispute on whether Tam was able to sell his Tech Pro Shares as alleged, such allegation is contradicted by contemporaneous documents which show that Tam was in fact able to sell the shares of another company on 7 September 2016.

14.  Further, Tam’s allegation that he was told by Ms Rosanna Ma of Orient Securities that it was “company policy” that he would not be allowed to sell Tech Pro shares in his account is, apart from Ms Ma’s denial, inherently improbable as it makes no commercial sense.  It would have been in the interest of Orient Securities to allow the liquidation of stock held in the Account because the proceeds of sale would reduce the debts owed by Tam to it. 

15.  Furthermore, as submitted by Mr Oh, there were ample provisions contained in the Agreement under which Orient Securities was entitled, at its absolute discretion and without giving any reason, to refuse to carry out any instructions by Tam without incurring any liability in the absence of fraud or wilful neglect: see clauses 3.7, 13.1, 18.1 and clause 2.11 of Schedule 4 of the Agreement.

16.  Finally, I am unable to understand the argument that the alleged breach of agreement by Orient Securities means that the Debt is not a liquidated sum.  It is trite that a liquidated sum is simply a claim where the process of quantification is already complete and there is an absence of any element of penalty to be imposed over and above the actual loss sustained.  The essential requirement is whether it is possible to arithmetically calculate the amount due and owing.  No issue has been raised regarding how the Debt was calculated: see Bright Islands Corp v Chao [2002] 2 HKLRD 97 at §§38-39 and 60-61. 

2^nd ground

17.  The alleged industry practice and standards are simply not made out by any admissible evidence before the court[2].   

18.  Further, the allegation is contradicted by the express terms of the Agreement that any sale of security held by Orient Securities in the event of default by Tam would be in its absolute discretion: see clauses 3.1 and 5.3 of Schedule 1 of the Agreement. 

19.  These provisions reflect the principle that a secured creditor has no duty to sell the security in his hand.  He is entitled to choose when to liquidate the same.  This is so even if he has been advised to do so, or if the asset is depreciating.  This principle was applied by the Court of Final Appeal in a case of securities trading involving margin finance: Strong Offer Investment Ltd v Nyeu Ting Chuang (2007) 10 HKCFAR 529 at §§46-51.

20.  In Re SNG Allan [2018] HKCFI 2016, also a case involving securities trading, the application by the debtor to adduce expert evidence on alleged industry practice of realising the security upon the client’s default in meeting margin call was held to be “mere wishful thinking”, and that there was no arguable case that the petitioner had breached any duty in not selling shares at an earlier time.

21.  The alleged Credit Limit Practice is factually flawed.  This is because Tam had applied successfully to increase his credit limit to HK$20,000,000 on or about 30 October 2014.  The principal amount owed by him is significantly below such limit.

3^rd ground

22.  There is nothing in this ground.  There is no dispute that Tam signed the Guarantee, which was in the form of a deed.  Under s.19(2)(b) of the Conveyancing and Property Ordinance, Cap 219, a document shall be presumed to have been sealed by an individual if the document signed by him states that it has been sealed.  Delivery does not mean handing over a document, but rather an act done so as to evince an intention to be bound: see Chitty on Contracts, 33^rd edn, vol 1, [1-128].

23.  There is no evidence of any irregularity of formality concerning the Guarantee.  Tam simply made a bare assertion that the document was not signed, sealed and delivered. 

24.  Both of the 2 authorities cited by Mr Lee in support of his case here (Bibby Financial Services Ltd & Anr v Magson & Anr [2011] EWHC 2495 (QB) and Kuit Samuel Y v Kuit Shu Yip Bernard, unrep, DCCJ 2780/2014, 16 Feb 2016) involved a positive case of irregularity supported by evidence.  They do not assist Tam’s case.    

Conclusions

25.  For these reasons, I make the usual bankruptcy order against Tam with an order nisi that costs be to Orient Securities, to be taxed if not agreed.

26.  I am grateful to counsel for their assistance.