RE GURDAS SABHAGCHAND CHOITHRAMANI

HCB 221/1996

[2018] HKCFI 2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 221 OF 1996

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DECISION

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1.  The debtor (“GSC”) applies to annul the bankruptcy order made against him back in 1996.  For the further conduct of the proceedings in the application, directions were last given on 26 September 2017, including those in respect of the timetable for filing affidavit evidence as well as leave to HSBC to appear in the annulment application as a proving creditor.  By this summons, the debtor seeks leave to file and serve further affidavit evidence in support of his application.  He also seeks an order compelling HSBC to file and serve an affidavit verifying the debt said to be owed by GSC to it.

Background

2.  These proceedings have quite some background.  A summary of that could be found in the two judgments of the Court of Appeal in Gurdas S Choithramani v HSBC CACV 117/2014 (3 December 2014 and 21 July 2017).  To put the present application in context, I would just highlight the following:

 (1) HSBC used to be the main banker of the group of companies founded by GSC.  The financial difficulties of the group led to a restructuring agreement in 1984 between the group and its bankers with HSBC being the lead bank.GSC was a personal guarantor of certain loan facilities extended to the group.

 (2) In 1994, the group initiated legal action against HSBC for, amongst other things, breach of duties in respect of the sale of certain property of the group in furtherance of the restructuring (HCA 11077/1994).

 (3) In 1995, one of the group’s bankers, BNP, commenced proceedings and obtained default judgment against GSC on his personal guarantee in respect of the banking facilities extended by BNP (HCA 7559/1995).

 (4) In 1996, BNP as the judgment creditor in HCA 7559/1995 presented a bankruptcy petition against GSC, and hence these bankruptcy proceedings.  The bankruptcy order was made, which lasted until its discharge in 2003.  This is the bankruptcy order that GSC now seeks to annul.

 (5) GSC’s claim in HCA 11077/1994 was eventually dismissed on appeal with costs to HSBC in 2006 [1].

 (6) GSC took out the application to annul the bankruptcy order on 27 January 2017, nearly 20 years after the making of the order and 14 years after its discharge.

 (7) In 2011, GSC also commenced proceedings against HSBC in HCA 2073/2011 in respect of, amongst other things, alleged breach of duties and the 1984 restructuring agreement on the part of HSBC.  The statement of claim was struck out and the action dismissed at the first instance.  GSC lodged an appeal, which was dismissed on 21 July 2017.  The Court ruled that GSC had no locus standi to pursue the claim in his personal capacity in the absence of valid cause of action in his own name and that the right of action was vested in the Official Receiver as his trustee in bankruptcy.  The judgments of the Court of Appeal mentioned above refer [2].

The application to annul the bankruptcy order

3.  GSC says that the bankruptcy order ought not to have been made against him back in 1996.  The basis for the application to annul the bankruptcy order is essentially this:

 (1) The enforcement of BNP’s rights under the guarantee was conditional upon and subject to strict compliance by HSBC as the agent of all lending banks with the terms of the 1984 restructuring agreement.

 (2) By reason of HSBC’s breach of the 1984 restructuring agreement, BNP (and other lending banks as well) had no right to enforce any security held by them, including the personal guarantee, subject matter of HCA 7559/1995, as the same has become invalid and unenforceable.

 (3) BNP instituted the bankruptcy proceedings against GSC knowing full well that it was not entitled to the judgment and the bankruptcy order in the circumstances.

4.  As mentioned, these proceedings last came before the court on 26 September 2017.  The amendment application taken out by GSC was disposed of uneventfully.  Then there was the application by HSBC for leave to appear and to make submission in the annulment application in the capacity as a proving creditor.  Such application was opposed by GSC.

5.  At the end of the hearing on 26 September 2017, Hon Au-Yeung J gave HSBC leave to appear in the annulment application.  For such purpose, Her Ladyship also gave leave to HSBC to file and serve affidavit in opposition of GSC’s application and leave to GSC to file and serve affirmation in reply.  It was directed that no further affidavit would be allowed without leave of the court.

6.  HSBC eventually took the view that it would make submission without adducing evidence in opposition of GSC’s application.  Such view was communicated to GSC.  It follows that no reply by GSC is called for pursuant to the directions of the court mentioned above.

7.  It was notwithstanding the above that GSC took out the present application for leave to file and serve a further affirmation in support of his application to annul the bankruptcy order.

Affirmations so far filed by GSC

8.  Whilst GSC puts forward the grounds summarized above for his application to annul the bankruptcy order, he has not sought to set aside the default judgment in HCA 7559/1995. Therefore, the issue of whether the bankruptcy order ought not to have been made, when it was made, is expected to be decided on the basis of the intact judgment debt.  It is GSC’s burden to adduce evidence in support of his application on such basis.

9.  By the time of the last hearing on 26 September 2017, GSC has filed numerous affirmations.  The first and extensive one was filed on 27 January 2017.  The Official Receiver then filed his report stating, amongst other things, his stance.

10.  GSC then filed another affirmation in April 2017 whereby he expanded on the details of his case and commented on the observations made by the Official Receiver in his report. Insofar as HSBC was concerned, GSC mainly questioned its proof of debt and argued that the proof was invalid and filed wrongfully.

11.  The Official Receiver then filed his very brief second report whereby he, amongst other things, clarified his understanding in respect of HSBC’s proof of debt.  As before, the Official Receiver reiterated that all the proofs of debt upon GSC’s bankruptcy have not been adjudicated.

12.  GSC then filed yet another affirmation in July 2017 whereby he,amongst other things, followed up with his previous query about HSBC’s proof of debt after reading the Official Receiver’s second report.

13.  The subsequent affirmations filed in August and September 2017 by the parties, by and large, were related to HSBC’s application for leave to appear as a proving creditor in the annulment application.

The proposed further affirmation

14.  Gathering that HSBC decided not to file any affidavit evidence for the purpose of the hearing of the annulment application, GSC took out the present application, according to his affirmation filed on 4 April 2018 in support, pursuant to legal advice.

15.  HSBC opposes the application on the ground that the proposed further affirmation contains matters that are repetitive, impermissible, scandalous, conjecture and irrelevant.

16.  I can see that the proposed further affirmation indeed contains matters that are repetitive of GSC’s previous affirmations, in particular the 1^staffirmation mentioned above.  The so-called further details of his case in respect of the alleged breach of the 1984 restructuring agreement on the part of HSBC now given in this proposed further affirmation mainly take the form of further references to his assertions pleaded in the statement of claim in HCA 2073/2011.  There are GSC’s expression of his belief and opinion as to what was allegedly behind BNP’s claim and the petition as well as the alleged responsibility of HSBC behind the scene.  Some strictly are submissions by nature.  What was not apparent in his previous affirmationsbut asserted in the proposed further affirmation is the serious criticism againstthe solicitors for HSBC personally for alleged dishonesty and failure of duty to the court.  The resentment of HSBC and those acting for him is therefore understandable.  They are described on behalf of HSBC as wild allegations of GSC.

17.  The court has the power to strike out or disallow the admission of any part of an affidavit for being scandalous, irrelevant or otherwise oppressive (Order 41, rule 6 of the Rules of the High Court), the power shall be exercised only in clear case: see Hong Kong Civil Procedure 2018, Vol 1 at §41/6/1.  However, assertions which on their face are bold and could be scandalous would be struck out only if it can be concluded, even before the substantive argument of the proceedings for which such evidence is adduced, that the assertions are clearly groundless and irrelevant to the determination of the proceedings.  In the present case, the room for GSC to argue that the bankruptcy order ought not to have been made on the day it was made, notwithstanding the intact judgment debt, may be narrow.  Nevertheless, I am not prepared to come to the conclusion necessary for an order disallowing the proposed further affirmation as evidence at this stage.

18.  I should perhaps specifically address the argument on behalf of HSBC that GSC’s references to the assertions pleaded in the statement of claim in HCA 2073/2011 in his affirmations, including the proposed further affirmation, was nothing but an attempt to re-litigate the issues in that case.  As mentioned, the statement of claim in that case was struck out and the action dismissed on the ground that GSC had no locus standi to bring the claim because the matters pleaded do not afford GSC any cause of action in his personal capacity, and any right of action accruing to GSC personally would have become vested in the Official Receiver as his trustee in bankruptcy.  There was no adjudication in respect of the assertions made in respect of those pleaded causes.  Whether or not such adjudication on affidavit, if called for, is possible for the purpose of the annulment application, as HSBC also questioned, per se is not a reason for disallowing the affirmation.

19.  All considered, I would allow GSC to file and serve the proposed further affirmation.  BNP should be given the opportunity to respond to this further affirmation, if it so chooses, notwithstanding its previous indication of no intention to appear.  As indicated on behalf of HSBC during the hearing, 21 days will be given.

20.  As confirmed during the hearing on behalf of GSC, the proposed further affirmation must be his last one for the purpose of the annulment application.

Compelling HSBC to verify the proof of debt by affidavit

21.  The gist of GSC’s complaint is that he disputes the alleged indebtedness owed to HSBC, and he has to ventilate his grievance in the annulment application.  On this basis, he argues that HSBC should be compelled to prove such alleged indebtedness in these proceedings.

22.  I do not see how such application could be justified.

23.  The proceedings on foot dictates the purpose for which affidavitevidence is said to be necessary.  In the present case, it is GSC’s applicationto annul the bankruptcy order made upon BNP’s presentation of the petition. Insofar as whether the court ought to give leave to HSBC to appear in the annulment application is concerned, the basis for that, namely the capacity of HSBC as a proving creditor and thus the interest to be heard, had to be established before such leave should be granted.  By granting such leave to HSBC on 26 September 2017, Hon Au-Yeung J was so satisfied. There exists no basis for requiring HSBC now to further justify such leave by proving the alleged indebtedness in the annulment application.

24.  Insofar as the substantive argument of the annulment application is concerned, the burden is on GSC to satisfy the court that the bankruptcy order should be annulled on the ground that it ought not to have been made back in 1996.  Hence his burden to adduce evidence in support of the application.

25.  The petition was presented on the basis of the intact judgment debt owed to BNP.  It is not the norm of the court to entertain an attempt to dispute the judgment debt, let alone the proof of debt filed by HSBC as a proving creditor after his bankruptcy, for the purpose of determining whether the bankruptcy order ought not to have been made at the time when it was made.

26.  Even if the bankrupt suggests that the veracity of the alleged indebtedness to HSBC is somehow relevant to whether the bankruptcy order should be annulled, it will still be for him to raise the issue of its relevance and to adduce evidence in support of such contention to the extent that such could be adduced.  This GSC did by way of the affirmations already filed and the proposed further affirmation sought to be filed.  His opponents have to decide whether and, if yes, what evidence should be adduced in opposition.  At the moment, BNP and HSBC have indicated no intention to do so.

27.  Nothing prevents a bankrupt from contending in an appropriate case that adverse inference should be drawn against his opponents for the lack of any or sufficient evidence in opposition.  What the bankrupt may not do is to seek an order compelling the parties in opposition to adduce evidence in opposition.  This is contrary to the adversarial system.  This will also be effectively reversing the burden of proof in these proceedings by requiring the parties opposing the annulment application to justify why the bankruptcy order ought not to be annulled.

Disposition

28.  In the circumstances, I made the following orders in respect of GSC’s summons:

 (1) leave to GSC to file and serve the affirmation in support of the application to annul the bankruptcy order in the form as the draft affirmation attached to the summons (§1 of the summons) within 2 days;

 (2) leave to BNP and HSBC to file and serve affirmation in response to the above further affirmation of GSC (§3 of the summons) within 21 days thereafter; and

 (3) application under §2 of the summons is dismissed.

Costs

29.  BNP did not object or appear in the present application.

30.  As to GSC’s application to file and serve further affirmation, GSC, to start with, was required to seek leave of the court pursuant to the directions of the court dated 26 September 2017.  Therefore, whilst HSBC should pay GSC’s costs of the hearing of this application, it should have the costs of this application.

31.  As to GSC’s application to compel HSBC to file and serve affidavit to verify the alleged indebtedness owed by him, GSC should bear the costs of and occasioned by such application to HSBC.  HSBC seeks costs to be taxed on an indemnity basis.  I agree.  I find that such an application for the purpose of the annulment application was totally unjustified and ought not to have been made.  However, I would not order that such costs should be borne by GSC’s solicitors personally, contrary to the suggestion on behalf of HSBC.

32.  So for clarity, the order as to the costs of and occasioned by GSC’s summons will be this:

 (1) Costs of GSC’s application for leave to file and serve further affirmation be to HSBC, whereas he shall have against HSBC half of the costs of this hearing, in any event and shall be taxed, if not agreed.

 (2) Costs of and occasioned by GSC’s application for order compelling HSBC to verify its proof of debt by affidavit, including half of the costs of this hearing, be to HSBC in any event and shall be taxed on an indemnity basis, if not agreed.

 (3) There shall be no order as to costs between GSC and BNP.

 (4) The costs order is nisi, and shall become absolute in the absence of application in 14 days to vary.