ISACCO ARONNE NEUMANN v. BANK OF CREDIT AND COMMERCE HONG KONG LTD.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

IN BANKRUPTCY

NO. B275 OF 1995

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J U D G M E N T

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1. This hearing was scheduled to determine a Petition for Bankruptcy brought by the Bank of Credit and Commerce Hong Kong Ltd. (In Liquidation) against Isacco Aronne Neumann, the former director of a company known as Melpowers, in respect of a guarantee given by him to the Bank; Melpowers was also in liquidation.

2. A judgment had been obtained against him by the Bank on the 14th March 1990. This had been amended on the 21 December 1994 to take into account other payments made in satisfaction of the overall sum due. The judgment claimed capital sums and interest up to 14 March 1990. The debtor had applied unsuccessfully to set aside that judgment before Master Britton and, by way of appeal, before Mr. Justice Mayo.

3. Prior to that amendment, the Bank had issued Bankruptcy Notices on two occasions but for certain reasons did not proceed with these. The Bankruptcy Notice leading to this hearing is dated the 13th March 1995. Although out of time for so doing, Mr. Coleman, on behalf of the judgment debtor, sought to set that Notice aside, the Bank taking no point on the question of timing. Accordingly I proceeded to hear Mr. Coleman dealing with that application at the outset.

4. He based his argument on the fact that although the Bank had a statutory right to interest on the judgment, from 14th March 1990, the notice made no mention of any such entitlement of the Bank, or liability of the Debtor.

5. At an early stage, Mr. Liu, on behalf of the Bank, told me that the Bank did not propose to make such claim now or in the future. The amount sought was limited to the figures in the Notice.

6. Mr. Coleman's argument is to the effect that the Bankruptcy Notice does not state the statutory liability for interest on the judgment debt or that the creditor has waived or abandoned such entitlement. He relies upon Section 4 of the Bankruptcy Ordinance (Cap. 6) and cites the decision of the Court of Appeal in re H.B. [1904 1.K.B. p. 94]. The pertinent part of that decision lies in the judgment of Romer L.J. at p. 103.

"- It is clear that ... a bankruptcy notice under the Act must require payment of a sum alleged to be due according to the terms of the judgment - that is to say, it must state the amount that is claimed as remaining unpaid on a judgment debt. Clearly, in a bankruptcy notice, the debtor is entitled to see from the notice exactly what is claimed to be due on the judgment debt. No doubt a sum might be claimed which is less than the real amount due and that would not of course be fatal to the notice so long as the notice made it clear that noticing more was claimed to be due on the judgment beyond the amount specified in the notice. But a notice to pay part of a judgment debt, leaving any balance that may be due to be subsequently claimed, is, to my mind, clearly bad."

This authority was referred to in the 19th Edition of Williams and Muir Hunter on the Law and Practice of Bankruptcy.

7. Indeed, I take the view that it would be wrong for a debtor to have to be at risk of further bankruptcy proceedings because the creditor has failed to or omitted to include in the Notice, the sums to accord with "the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order".

8. However, I am satisfied, that the notice does comply with the requirements of Section 4. What is claimed is the judgment debt. Interest due on a judgment debt is expressed to be such - "interest on the judgment at such rate etc." - whether the entitlement is by way of an order of the court or under a statute or ordinance. If it were to be claimed it should be expressed as such and the sum calculated. It is not. The creditor will not be entitled to it and has indeed waived it. The waiver is implicit in the Notice. I am satisfied that the notice is good. In any event under Section 124(1) of the ordinance "no proceeding in bankruptcy shall be invalidated by any formal defect or by any irregularity unless the court is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by any order of the court".

9. Even if I were to consider that the absence of an express waiver in the notice in respect of the statutory interest amounted to a formal defect or irregularity, (which I do not), I am quite satisfied that it has caused no injustice. This application therefore fails.

10. I now turn to the Creditor's petition. Both parties have filed affidavits and affirmations. The Debtor alleged that after judgment had been obtained there was an agreement, he refers to it as an understanding, between himself and Mr. Charloo on behalf of the bank. Both of them gave oral evidence. I was impressed by the evidence of Mr. Charloo and his manner of giving it. He was careful but at the same time practical in his approach. It is clear that the bank held a different view of Mr. Neumann from that they held toward Mr. Schink. The bank felt that the latter was more cooperative and open in his dealings. On a number of occasions Mr. Neumann wrote to the bank proposing that providing the bank extended banking facilities to him for business which he proposed to establish he would be able to make a higher repayment than $5,000 monthly. Not surprisingly, the bank declined to put further money at risk.

11. Prior to the bank obtaining judgment very few payments had been made by the debtor. It was clear the bank was interested in what assets Mr. Neumann had which might encourage them to think either that he could pay more than $5,000 monthly or that some asset could be realised so as to reduce by a lump sum the judgment debt.

12. Paragraph 6, 7 & 8 of Mr. Neumann's Affidavit deal with his alleged agreement in which he contended that the bank would not look to him for more than one-third of the overall indebtedness (viz. the judgment debt) and that no further proceedings would be taken against him by the bank provided he continued to make periodic payments of $5,000.

13. I will deal with the latter aspect first. The debtor never made regular payments in the past. The receipts from the bank clearly stated that acceptance of the payments made after and including June 1990 was "without prejudice". He was told in a letter dated 16th May 1990 that all such payments would be accepted on a "without prejudice" basis and that the bank reserved its right "to take all such steps necessary to recover the sums due, now or at any time in the future, from you." That letter was uncompromising. Mr. Neumann told me that he did not fully appreciate that it meant, what, in my view, it clearly does say. He said he took it to mean that the bank would only seek to recover a maximum of one third from him. True it was that Mr. Charloo had given him to understand that providing he made periodic and regular payments (i.e. monthly instalments) the Bank probably would not take further steps to enforce the judgment, but in no way was he tying the Bank's hands in that regard, and certainly the history of the matter was such that no sensible bank would commit itself. As the bank feared, the payments were made irregularly and stopped altogether in April 1991. Mr. Neumann said that was because he had no funds but he went on to say that when he learned of the Bank going into liquidation in July 1991 he stopped making any more payments, because, he said, he did not really know how he should go about making such payments. I find such an explanation wholly unconvincing. Mr. Neumann is an experienced businessman whose own company had gone into liquidation. He acknowledged that debtors of his own company would remain liable for their debts even though his company was in liquidation. I do not doubt he sought to take advantage of the bank's difficulties in having to go into liquidation delaying further repayment and avoiding it altogether if at all possible. He never made a payment after April 1991.

14. I found him an unconvincing witness and do not accept his evidence. There was no such agreement as he alleged and I find it wholly unacceptable that the bank would even consider limiting their entitlement in such a way. The debtor had not acted in a manner which would justify their making any concession to him and the tenor of their letters and records are, throughout, inconsistent with such an idea.

15. Accordingly I am satisfied that the petition is well and properly founded and I make the order sought accordingly.

16. I have also heard argument on costs. For the reasons already set out which I need not repeat here, and having reviewed the history of this matter overall, I am satisfied that the debtor has done his best to avoid meeting his liability under the judgment. The spurious agreement he sought to set up was an example of that. I order that the costs of this hearing be borne by the debtor leaving the creditor, to carry the costs of the Notice, Petition, Affidavit etc. Had the debtor taken a straightforward and reasonable approach it is quite possible that the Bank would have stayed its hand. But once the Bank was embarked on its petition the debtor sought by various means to avoid the inevitable.