THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD. v. CHAN TIN CHI

CACV247/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 247 OF 1999

(ON APPEAL FROM HCB 669 OF 1999)

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J U D G M E N T

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Hon Chan CJHC :

1. The Respondent is a bank. It is the mortgagee of certain properties to secure loans granted to Ocean United Limited and Overseas Master Development Limited. The Appellant is the guarantor for these loans. Despite various demands, the Appellant had failed to honour the guarantee. As at 1 November 1998, the debt due and owing to the Respondent amounted to over $20m with interest continuing to accrue. The Respondent petitioned for the bankruptcy of the Appellant on 25 March 1999 relying on a statutory demand. On the 9 August 1999, at the hearing before the Companies Judge, the Appellant appeared in person. According to the judge's Reasons for Decision, the Appellant admitted before him that the debt was outstanding but said that he had reached an agreement with the Respondent for the settlement of the proceedings which must mean the bankruptcy proceedings. He claimed to have sold certain properties and to have paid $1m to the Respondent on an earlier date. This was disputed by the Respondent's lawyers before the court. According to the judge, the only documentary evidence of a settlement was a letter from the Appellant's previous solicitors regarding a provisional sale and purchase agreement of the properties subject to certain conditions. The judge, having heard the parties, made a bankruptcy order. The Appellant now appeals against that order.

2. There are basically two grounds of appeal : first, that the judge should not have found that there was no agreement for settlement of the proceedings, and second, that the judge should have directed for a trial or an enquiry of the issues. Before us, both sides purport to file evidence in the form of affirmations: one from Mr Bonaventure Wong of the Respondent and the other from Mr Chan, the Appellant. We look at the affirmations de bene esse, in the determination of this appeal.

3. According to Mr Wong, there were several proposals made by the Appellant but they were not acceptable. The last occasion was shortly before the hearing before the Companies Judge. On 28 July 1999 or some time prior to the hearing, Mr Wong agreed with the Appellant that should the Respondent receive payment of $1m before the hearing on 4 August 1999, the Respondent would instruct its solicitors to seek the further adjournment of the hearing of the bankruptcy petition or, if the court was not prepared to grant the further adjournment, to agree that the petition be dismissed or withdrawn. Mr Wong said the $1m could come from a deposit in the sale of the properties which were under mortgage. But no payment was made before the hearing. Apparently, the solicitors acting for the Appellant or his companies had received $1m as deposit for the sale and purchase as stakeholder. On the other hand, the Appellant said in his affirmation that the agreement was that once a buyer had been found, the petition would be withdrawn. As it turned out, the transaction was completed on 30 December 1999. About $12m had now been paid to the Respondent.

4. At the hearing, the judge only heard allegations from the Appellant. He made enquiries from the lawyers for the Respondent. According to the Reasons for Decision, counsel, having taken instructions, told the court that there was no agreement and that no payment had been made. That was the basis for the judge granting the bankruptcy order. In the light of Mr Wong's affirmation, that was clearly incorrect. What Mr Wong said in paragraph 13 of his affirmation would have to a large extent supported the Appellant's version given to the judge, except the payment of $1m.

5. There are exhibited in the affirmations before this court two letters from the Appellant's solicitors to the Respondent. The first was dated 3 August 1999 and the second was dated 7 August 1999. Both letters were apparently sent to the Respondent prior to the hearing date. Both referred to the provisional agreement for sale and purchase of the properties and the payment of $1m as initial deposit and that the deposit was then held by the solicitors as stakeholders. Counsel said that the judge had been told that there was an agreement which had lapsed. Speaking personally, I doubt whether this was the case. If this had actually happened before the Companies Judge, he would have made enquiries as to : what were the terms of the agreement, how did the agreement lapse and what happened to the money. Apparently, this did not happen since it did not appear anywhere in his Reasons for Decision. The judge did not hold any enquiries or give any directions as to a trial. I should think that if the judge had not been told that there was an agreement which the Respondent said had lapsed, the letter which the Appellant had produced before the judge would not have made very much sense. But if he had been told that there had been settlement agreement which had elapsed, then whatever that document might say would have thrown some light on the possibility of a settlement agreement having been struck. Further, if there had not been some discussion or even a settlement agreement, there was no reason why the Appellant's solicitors would have written to the Respondent about the transaction. That letter might to some extent support the allegations of the Appellant put before the judge. So, it is most likely that the judge had not been told all the facts.

6. In my view, the judge had not actually made any finding of facts. This was because there was no satisfactory material before him as to raise any issue or to necessitate any enquiry. The judge did not have the full picture. The Appellant had simply failed to show clearly that there was a case to go to trial or that any enquiry should be held. Even if it can be said that the judge had made a finding on the facts, in my view, he was to some extent misled. Whatever the terms of the agreement, whether it had lapsed, whether there was any consideration in support of the agreement and whether there was any estoppel were matters for enquiry.

7. In my view, the basis for the judge making the bankruptcy order was wrong. Counsel suggested that the Court of Appeal has a discretion to grant a bankruptcy order because the Appellant had not been able to pay the balance of the $10m. He may or may not be able to pay the balance of the debt. But if there had indeed been an agreement or at least an estoppel, then the Respondent would not, at this stage, be able to petition for the bankruptcy of the Appellant.

8. In these circumstances, without the fault of the judge, the basis for his order was wrong. For these reasons, I would allow the appeal and set aside the bankruptcy order. I would also direct that the case should go to trial.

Hon Leong JA:

9. I agree that the appeal should be allowed and with the order of the Chief Judge.

Hon Wong JA:

10. I do agree that the appeal should be allowed for the reasons given by the Chief Judge and in the terms he proposes.