RE WONG KUI SHING DANNY

HCB 7645/2023

[2024] HKCFI 1103

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7645 OF 2023

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REASONS FOR JUDGMENT

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1.  By petition presented on 18 December 2023 the petitioner, Kingston Finance Ltd (“Petitioner”), seeks a bankruptcy order against Mr Wong Kui Shing Danny (“Debtor”) in reliance on his failure to comply with a statutory demand served upon the Debtor on 23 June 2023 requiring him to pay HK$62,854,410 together with interest accrued thereon (“Debt”) within 21 days thereof (“SD”). After hearing the parties’ argument, I made the usual bankruptcy order against the Debtor. These are the reasons for my judgment.

2.  The following facts and matters are not in dispute.

3.  The Debtor is a sophisticated investor, consultant and director[1].

4.  The Loan Agreement and Memorandum dated 22 December 2017 (“Loan Agreement”) is the last loan agreement signed by the parties and was preceded by 3 earlier loan agreements dated 15 July 2015 (“2015 Agreement”), 19 January 2016 (“2016 Agreement”) and 8 June 2017 (“2017 Agreement”), all of which were signed by the Debtor as borrower[2] (collectively “Loan Agreements”). In each of the Loan Agreements, Mr Allan Yap (“Mr Yap”) was named as a guarantor of the loan in question.

5.  In respect of the 2015 Agreement, which was the first of the Loan Agreements made between the Petitioner and the Debtor[3]:

(1) The Agreement provides that (a) the loan to be advanced by the Petitioner was for the Debtor’s “personal use” (cl.17); (b) upon drawing down, the loan would be applied as per the Debtor’s directions (cl.13); and (c) the principal and interest were repayable on 15 January 2016, subject to the Petitioner’s overriding right to demand for immediate payment (cl.7-8).

(2) The Debtor signed a drawdown notice dated 15 July 2015 directing the entire amount of HK$280 million be paid to the bank account of Emperor Finance Ltd at HSBC to the credit of Double Glory Enterprises Limited (“Double Glory”).

(3) As the fund was to be paid to a third party, the Petitioner requested the Debtor to provide supporting documents before effecting the payment. The Debtor provided copies of the register of members and register of directors of Double Glory to show that he was the sole shareholder and director of Double Glory.

(4) The Debtor only made partial repayments of HK$10 million on 16 September 2015 and HK$4 million on 24 September 2015.

(5) As at 15 January 2016, HK$286,845,273 remained outstanding.

6.  The Petitioner and the Debtor entered into the 2016 Agreement whereby[4]:

(1) The Petitioner agreed to grant a term loan for 3 months in the amount of HK$286,845,273, and the entire amount together with interest accrued thereon was repayable by 19 April 2016 (cl.4 & 7).

(2) The purpose of the loan was to repay the amount due under the 2015 Agreement (cl.17).

(3) The drawdown notice dated 19 January 2016 was signed by the Debtor, which directed the proceeds of the loan to be applied to the credit of “Account L1365”, which was a reference to the 2015 Agreement.

(4) The Debtor made 18 partial repayments in the total amount of HK$210,902,241 during the period from 6 April 2016 to 31 May 2017, most of which were drawn from the Debtor’s personal bank account or securities account. The amount which remained due and payable was HK$105,609,777.

7.  Thereafter, the Petitioner and the Debtor entered into the 2017 Agreement[5]:

(1) The Debtor signed a letter acknowledging receipt of the loan under the 2017 Agreement;

(2) The Petitioner requested, and the Debtor signed the Disclosure of the Existence of Third Parties by Intending Borrower(s) and the Lender’s Explanation Record, which confirmed that no third party was involved before entering into any loan agreement (schedules 2-3 to the 2017 Agreement);

(3) The 2017 Agreement provides that (a) the amount of the loan was HK$105,609,777 (which was the amount outstanding under the 2016 Agreement) (cl.4); (b) the principal and interest was repayable on 8 December 2017 (cl.7-8); and (c) the purpose of the loan was to repay the amount due under the 2016 Agreement (cl.17);

(4) The Debtor made partial repayments during the period from August to December 2017, leaving an unpaid balance of HK$76,854,410.

8.  The Petitioner and the Debtor entered into the Loan Agreement whereby[6]:

(1) the Petitioner agreed to advance a loan in the amount of HK$76,854,410, repayable by 22 June 2018 (cl.7-8);

(2) The Debtor signed the drawdown notice directing the Petitioner to apply the proceeds of the loan to the credit of “account L1478”, which was a reference to the account under the 2017 Agreement; and

(3) The Debtor made partial repayments of HK$14 million and HK$7,350,000, leaving an unpaid balance of HK$62,854,410.

9.  After the Debtor defaulted on paying the amount due under the Loan Agreement, between 22 March 2019 and 7 May 2020, the Petitioner issued numerous letters to the Debtor demanding payment of the amount due. The last demand letter dated 7 May 2020 was issued by the Petitioner’s former solicitors. This was followed by a statutory demand dated 15 May 2020 requiring the Debtor to pay HK$79,415,422. In response, the Debtor made 3 partial repayments in July, September and November 2020 in the total amount of HK$700,000.

10.  After the SD had been served on the Debtor, he made a further repayment of HK$50,000.

11.  As the Debtor has failed to comply with the SD, by virtue of s.6A(1)(a) of the Bankruptcy Ordinance (Cap 6), the Debtor is deemed unable to pay his debts.

12.  The burden is on the Debtor to show that there is a bona fide dispute on substantial grounds in respect of the Debt and for this purpose, the Debtor has to adduce sufficiently precise evidence to establish a defence of substance, not just a fair probability of one (Leung Cherng Jiunn [2016] 1 HKLRD 850, §27; Re Soetrisno Farida [2019] HKCFI 2756, §11). It is not enough for the Debtor merely to raise “a cloud of objections on affidavits” (Re Posismo Limited [2018] HKCFI 344, §10(4)).

13.  Mr Paul Lee, counsel for the Debtor, submits that there is a bona fide dispute on substantial grounds in respect of the Debt for the following reasons:

(1) The Loan Agreements were “unconscionable under common law or the Unconscionable Contracts Ordinance (Cap. 458)”;

(2) The “doctrine of promissory estoppel whereby the Petitioner is estopped from claiming against the Debtor for the alleged outstanding sum”;

(3) Waiver; and

(4) The Petition should be dismissed as the Bankruptcy Court is not the proper venue to resolve the dispute.

14.  In support of the above contentions, Mr Lee refers to the Debtor’s affirmation which, he submits, is not disputed by the Petitioner in Chu 1^st:

(1) The Petitioner is controlled by Mrs Chu[7].

(2) Kingston Financial Group Limited (“Kingston Financial”), Kingston Securities Limited and Sunny Top Enterprises Limited (“Sunny Top”) are all related companies of the Petitioner that are controlled by Mrs Chu or her husband[8].

(3) Between 2014-2016 and 2019-2021, the Debtor was employed by or worked for Mrs Chu’s businesses, Kingston Financial and Sunny Top[9].

(4) Apart from Mr Yap acting as surety in the Loan Agreements (who, the Debtor alleges was the “true borrower”), there was no other security held by the Petitioner against the substantial loans advanced[10]. No due diligence or credit search was carried out at that time to determine the Debtor’s financial position or his repayment ability[11].

(5) The loan was renewed under the 2017 Agreement, and the Loan Agreement was made on the “express understanding that the Representation and Oral Agreement would still apply”[12].

(6) After entering into the 2015 Agreement, Mrs Chu repeatedly assured the Debtor that Mr Yap was the “true borrower” and the Debtor would not be chased to repay the loan[13].

(7) Mrs Chu’s companies carried out due diligence on Mr Yap’s businesses in or around July 2018[14].

(8) In or around August 2020, Mr Yap, the sole surety under the Loan Agreement, was adjudged bankrupt.

15.  Mr Lee submits that it is the Debtor’s evidence (Wong 1^st) that the Representation was made by Mrs Chu before the 2015 Agreement was signed, and Mrs Chu made “numerous assurances” after signing the 2015 Agreement that the Petitioner “would not hold the Debtor liable for the debt under the various loans”. Although Mrs Chu denies having made the Representation, she does not dispute that the “repeated assurances” had been made by the Petitioner after signing the Loan Agreements. The last point is not correct. In §3 of Chu 1^st, it is made clear that the Petitioner does not admit any of the allegations made by the Debtor in Wong 1^st.

16.  At the heart of Mr Lee’s submission is that Mr Yap was the “true borrower” of all the loans under the Loan Agreements, and by reason of the Representation and the “repeated assurances” allegedly made by Mrs Chu, the Petitioner is not entitled to enforce the terms of the Loan Agreement. The burden is on the Debtor, who is bound by the Loan Agreements he signed, to establish a recognised legal basis to disown such Agreements (Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334, §§84-87).

17.  There is simply no credible evidence, still less sufficiently precise factual evidence, adduced by the Debtor in support of his allegations that Mr Yap was the “true borrower” or that Mrs Chu had at any time made the alleged Representation or “repeated assurances”, let alone on behalf of the Petitioner.

18.  First, apart from his bare assertions, the Debtor is unable to produce a single document, still less contemporaneous document, to show that Mrs Chu had made the Representation before entering into the 2015 Agreement, or that she made the “repeated assurances” after signing the 2015 Agreement. Had the Representation and “repeated assurances” been made by Mrs Chu on behalf of the Petitioner, one would expect the Debtor to have referred to such Representation and “repeated assurances” in the 2016 Agreement, the 2017 Agreement and the Loan Agreement. No such reference can be found and no explanation has been provided by the Debtor.

19.  At the very least, one would expect the Debtor to have referred to the “true borrower” of the loan, the Representation and “repeated assurances” in correspondence, particularly after the Petitioner had demanded for repayment of the amount due under the Loan Agreement. Again, no such document has been produced and no explanation has been provided by the Debtor as to why he did not raise the allegations until Wong 1^st.

20.  Second, the alleged Representation and “repeated assurances” are inconsistent with the express terms of the Loan Agreements, each of which contains an entire agreement clause whereby the parties agreed that no reliance could be placed on any representation or assurance, waiver or estoppel.

21.  Third, the allegation that Mr Yap was the “true borrower” of the loans under the Loan Agreements is inconsistent with or contradicted by:

(1) the express terms of the Loan Agreements, whereby the Debtor acknowledged and agreed that he obtained the 1^st loan of HK$280 million for his personal use, and the subsequent 3 loans for the purpose of repaying the amount due under the earlier Loan Agreement;

(2) the fact that the entire amount of HK$280 million was applied to the use of Double Glory, a company wholly owned and controlled by the Debtor; and

(3) the fact that the Debtor had been repaying the amounts due under each of the Loan Agreements, and most of the repayments were paid out of his bank or securities accounts.

22.  Lastly, there is nothing unconscionable for the Petitioner to have agreed to enter into the Loan Agreements with the Debtor or to advance any loan to the Debtor. I do not think the Unconscionable Contracts Ordinance applies to the Loan Agreement as it is not a “contract for the sale of goods” or a “contract for the supply of a service”.

23.  As the Debtor has failed to show that there is a bona fide dispute on substantial grounds in respect of the Debt and has not made any offer to repay the Debt, the Petitioner is entitled to seek an immediate bankruptcy order against the Debtor.