RE KOON WING YEE

HCB 3631/2023

[2023] HKCFI 2301

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3631 OF 2023

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REASONS FOR JUDGMENT

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1.  At the hearing of the petition presented by Mr Hui Chi Ming (“Petitioner”)  on 28 June 2023, I made a usual bankruptcy order against Mr Koon Wing Yee (“Debtor”). These are the reasons for my judgment.

2.  The Petitioner is a judgment creditor.  He brought an action in HCA 1479/2009 against the Debtor for damages in the amount of HK$135 million, which represented the value of the 100 million shares in Sino Union Petroleum & Chemical International Ltd (“Sino Union”)  said to have been obtained by the Debtor from the Petitioner through coercion and intimidation in March 2009 (“Shares”), together with interest and costs.

3.  It is not in dispute that the Debtor obtained the Shares without having paid any consideration to the Petitioner.  The Debtor’s defence, raised about 5-6 years after commencement of the action[1], is that there was an oral agreement reached between him and the Petitioner that in consideration of the Debtor’s purchase of Sino Union’s shares up to HK$200 million (including what he had already bought in the market), the Petitioner would gift a further 250 million shares in Sino Union to the Debtor (“Oral Agreement”).  The Debtor counterclaims 99,930,000 shares in Sino Union, being the balance of the shares which the Petitioner was obliged to but did not transfer to him pursuant to the Oral Agreement.  At trial, the Debtor’s counsel accepted that the burden is on the Debtor to establish the existence of the Oral Agreement[2]. 

4.  After a 14-day trial, by Judgment dated 20 January 2023, Recorder William Wong SC found that the Oral Agreement did not exist[3] and ordered the Debtor to pay the Petitioner damages in the amount of HK$135 million together with interest at HSBC prime lending rate plus 1% from 23 June 2009 until the date of Judgment and costs on indemnity basis[4]. 

5.  As at 14 February 2023, the amount due and payable by the Debtor was HK$246,789,748 (“Debt”). 

6.  On 16 February 2023, the Debtor filed a notice of appeal (which runs to 19 pages)  (“NOA”)  against the Judgment (“Appeal”)  essentially on the grounds that the learned Recorder erred in making the findings of facts adverse to the Debtor.  On 20 February 2023, the Debtor filed a notice of setting down an appeal.

7.  On 15 March 2023, the Petitioner served a statutory demand (by way of advertisement)  requiring the Debtor to pay the Debt (“SD”).  The Debtor did not comply with the SD and is deemed insolvent by virtue of s.6A(1)(a)  of the Bankruptcy Ordinance (Cap. 6). 

8.  On 20 March 2023, the Petitioner applied for a garnishee order against the Debtor.

9.  On 24 March 2023, the Petitioner issued a summons in CACV 47/2023 seeking security for costs in the amount of HK$2,026,400.

10.  The petition was filed on 28 June 2023. 

11.  On 12 July 2023, the Debtor filed a supplemental notice of appeal (which runs to 16 pages)  (“SLOA”)  raising additional grounds that the learned Recorder was “fundamentally flawed as a matter of law” in conflating the claim with the counterclaim, reversed the burden of proof and failed to apply the correct principle and standard of proof, and erred in making various findings of facts set out therein. 

12.  On 22 August 2023, the Debtor filed a notice of intention to oppose petition, stating that he disputes the Debt on the grounds that he already lodged a notice of appeal against the Judgment, he will demonstrate that the Appeal has a reasonable prospect of success in setting aside the Debt and he will apply for a stay of execution of the Judgment pending the Appeal.

13.  At the eve of the hearing of the petition before the Master (on 29 August 2023), the Debtor filed a summons on 28 August 2023 seeking a stay of execution of the Judgment (“Stay Application”), returnable before the Recorder on 15 September 2023.  The Debtor filed an affirmation in support of the Stay Application in HCA 1479/2009 on 28 August 2023 (“Debtor 1^st”).

14.  By another summons filed on 31 August 2023 in these proceedings, the Debtor applies for an order that the petition be dismissed, alternatively, all proceedings be stayed pending determination of the Appeal (“Dismissal Summons”).  In support of the Dismissal Summons, the Debtor filed an affirmation made on 31 August 2023 (“Debtor 2^nd”)  seeking to exhibit selected transcripts, pleadings and other evidence adduced at trial and the documents filed in respect of the Stay Application.  The exhibits run to 1,178 pages. 

15.  In my view, it is an abuse of process for the Debtor to file the Dismissal Summons and Debtor 2^nd at the eve of the hearing before this Court:

(1)  The Dismissal Summons and Debtor 2^nd were filed less than 2 clear days before the hearing of the petition and on the same day the Petitioner was required to lodge hearing bundles and submissions.  No explanation has been provided by the Debtor as to why the documents were filed late.  Plainly, this was an ambush designed to ensure that the Petitioner would not be able to deal with the new evidence in its skeleton. 

(2)  The only purpose of Debtor 2^nd is to exhibit voluminous documents so as to bolster the Debtor’s contention that the petition is not one which can be determined at a Monday hearing. 

(3)  It is unnecessary for the Debtor to file Debtor 2^nd for the purpose of exhibiting the Stay Application and Debtor 1^st as both documents (as well as the NOA and SLOA)  have already been included in the hearing bundles lodged by the Petitioner’s solicitors. 

(4)  The Debtor (who must have been advised by his legal representatives)  knows full well that it is not the function of the Bankruptcy Court to go behind the Judgment which was given by the court after a fully contested trial.   

(5)  It must be well known to all the practitioners that where, as here, a debtor opposes a petition and contends that it should be dismissed or stayed, it is unnecessary to issue a summons for that purpose. 

(6)  The abuse is compounded by the Debtor’s solicitors’ act in  lodging another set of bundles which contain 1,187 pages in breach of PD 3.1, §14.2 and PD 3.8 §6.

16.  Mr Sik Chee Ching, counsel for the Petitioner, submits that the Debtor has failed to show that there is a bona fide dispute on substantial ground in respect of the Debt for the following reasons.

17.  First, the Debtor has not pursued his Appeal with due diligence and no hearing date has been fixed for the Appeal:

(1)  The Petitioner has not even been approached to agree on a checklist for the purpose of fixing a date. 

(2)  The court may allow the petition if the debtor has not pursued the appeal with due diligence (Re Choy Wai Bor, HCB 8565/2001, 28 May 2002, §37, citing In re a Debtor (No. 799 of 1994) [1995] 1 WLR 467).

(3)  In Choy Wai Bor, the court took into account a delay of 9 months in fixing a hearing date of the appeal and the absence of explanation for the delay and refused to adjourn the petition pending determination of the appeal (§§39-40).

18.  Second, there has been unexplained delay and inaction on the part of the Debtor in pursuing the Appeal and the Stay Application:

(1)  The Stay Application was only taken out 7 months after the Judgment was handed down. 

(2)  The Debtor has not filed any affirmation in these proceedings to explain his delay in seeking a stay and in pursuing the Appeal. 

(3)  Even in Debtor 1^st filed in support of the Stay Application, there is no evidence or explanation as to why the Stay Application was taken out at such a late stage.

(4)  The obvious inference is that the Debtor is not serious about the Appeal, and is only seeking to use the Appeal to delay his bankruptcy.

19.  Third, the Debtor fails to show that he has reasonable prospects of success in the Appeal:

(1)  Where a debtor relies on an appeal to resist a bankruptcy petition that is founded on a judgment debt, he must satisfy the court that the appeal has reasonable prospects of success (Re Tam Mei Kam, CACV 87/2012, 8 May 2013, §§25.1-25.2). 

(2)  The Debtor merely adopts a scattergun approach and challenges a wide range of factual findings made by the Judge.  The grounds of appeal disclose no reasonable prospects of success.  The Court of Appeal has repeated time and again that an appellate court should be slow in reversing findings of fact by the trial judge (China Gold Finance Limited v CIL Holdings Limited, CACV 11/2015, 27 November 2015, §§11-30). 

(3)  The NOA and SLOA also fall foul of the requirement that a notice of appeal should be a concise document setting out why the Court of Appeal should intervene.

20.  Ms Queenie Lau, counsel for the Debtor, submits that:

(1)  Although a judgment is prima facie evidence that the debtor is indebted to the creditor, a bankruptcy court is not conclusively bound by a judgment debt.  If the judgment debtor has lodged an appeal and has a reasonable prospect of success in the appeal, the court may stay the hearing of the petition to await the result of the application or appeal (Re Tam Mei Kam, §§22.1-25.2).

(2)  The Debtor has a reasonable prospect of succeeding in his Appeal, and there is a bona fide dispute as to Debt.  The Debtor asks the court to dismiss the petition, or alternatively to stay the petition pending determination of the Appeal. 

(3)  The hearing before this Court is a short one, it would not be appropriate for the court to find that the Debtor does not have a reasonable prospect of succeeding in his Appeal and to grant a bankruptcy order.  Rather, the Debtor should be afforded the opportunity to make full submissions on the merits of his Appeal at the hearing before the learned Recorder. 

(4)  The Appeal is not one that is only on the facts, nor is it one where the legal errors complained of are only very limited.  In particular, Ground 1 in SLOA concerns an important error of law which relates to the burden of proof and also the standard of proof.  The other grounds are mixed questions of law and fact which contribute to the Judge’s failure to apply the Lee Ming Tee standard with respect to the Petitioner’s claim based on duress, coercion and intimidation.  In any event, it is not the case that appeals on fact can never succeed, it is simply that the threshold is different and it needs to be shown that the factual errors were “plainly wrong”. 

(5)  There has been no delay in pursing the Appeal.  The Debtor has had to deal with his Appeal and various applications relating to a charging order (which was later set aside), garnishee orders, and the Petitioner’s application for security for costs.  The Debtor has changed legal teams and 2 eminent leading counsel have been instructed. 

(6)  For present purposes, it is not necessary to focus on the Stay Application and the alleged delay relating thereto.  The focus should be on the merits of the Appeal. 

21.  At the hearing, this Court indicates to counsel that unless the Debtor undertakes to pay or secure the Debt within a short period, it does not appear that there is any valid ground for the court to adjourn the petition.  After taking instructions from the Debtor, Ms Lau invites the court to make an unless order requiring the Debtor to pay the Debt within 28 days failing which a bankruptcy order will be made against him.  It does not appear that it is appropriate for the court to make such an order in the context of bankruptcy petition.

22.  This Court invites the Debtor to give an undertaking that he will not oppose the petition if he fails to pay the Debt within the stated period, Ms Lau confirms that the Debtor is unable to give such undertaking primarily because he has in Debtor 1^st stated on oath that he does not have sufficient cash or other means to pay the Debt.  His family members, who have been funding the Appeal, are not willing to give or lend him the amount for settling the Debt.  This reinforces the fact that the Debtor is unable to pay his debts. 

23.  I do not think that the Debtor has discharged the burden of demonstrating that there is a bona fide dispute on substantial grounds in respect of the Debt. 

24.  First, as stated in §4 above, unlike a judgment entered into by consent or in default which the Bankruptcy Court may in the exercise of its discretion to re-open the matter, the Judgment was entered against the Debtor after a fully contested trial which lasted for 14 days.  Ms Lau has not cited any case where the Bankruptcy Court considered it appropriate to re-open a judgment entered against a debtor after a full trial. 

25.  Second, the Petitioner, being the successful party in HCA 1479/2009, is entitled to receive the fruit of the Judgment.  The burden is on the Debtor to satisfy the court that there are cogent grounds for the court to deprive the Petitioner of the fruit of the Judgment.  It is not enough for the Debtor to say that he has lodged the Appeal as such Appeal does not operate as a stay and the Petitioner is entitled to demand the Debtor to pay the Debt forthwith.   

26.  Third, the Debtor’s delay in prosecuting the Appeal and the Stay Application, coupled with a complete absence of explanation for the delay is sufficient for the court to hold that the Appeal should not affect the Petitioner’s right to seek a bankruptcy order against the Debtor.  This accords with the approach of the Bankruptcy Court, as stated by Harman J In re a Debtor (No.799 of 1994), 470H-471A:

“... even if there be a point of substance on appeal, if the debtor seeking the adjournment of the bankruptcy hearing because of the appeal is not prosecuting his appeal with proper diligence, that is, taking it seriously, it can be said that he does not seem to think much of his appeal, and whatever the court may think of it, if the debtor is not prosecuting it seriously, the court should not allow the bankruptcy petition to be affected by it.”

27.  Although Ms Lau points to other enforcement actions taken by the Petitioner and the change of legal team in support of her contention that there was no delay on the part of the Debtor in pursuing the Appeal, I am unable to accept her contention as it is not supported by the Debtor’s evidence.  In any event, those matters do not explain why the Debtor failed to prosecute the Appeal diligently or why the Debtor did not take out the Stay Application at a much earlier stage (such that the court would have the benefit of the view of the learned Recorder on the Stay Application).  The delay in pursuing the Appeal and making the Stay Application show that the Debtor does not consider that there is a reasonable prospect of succeeding in his Appeal. 

28.  Fourth, the Debtor’s admission that he does not have the means to pay or to provide any security for the Debt is significant.  As stated in §3 above, it is not in dispute that the Debtor had obtained the Shares from the Petitioner without paying any consideration to the Petitioner.  Once the court rejected the Debtor’s case on the Oral Agreement, which is the only substantive defence raised by the Debtor as to why he was entitled to retain the Shares, the Debtor comes under an obligation to return the Shares.  The Debtor is unable to put forward any justification as to why he should be allowed to retain the proceeds of the Shares[5] pending determination of the Appeal.

29.  Although this Court has not made a wasted costs order against the Debtor’s solicitors in this instance, the practitioners are reminded that the court may penalise them with costs should they fail to comply with the Practice Directions.