NG KIN SIU v. GENTLE SOAR LTD

CACV 232/2022, [2023] HKCA 944

On Appeal From [2022] HKCFI 1344

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 232 OF 2022

(ON APPEAL FROM HCSD NO. 26 OF 2021)

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REASONS FOR DECISION

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Hon Cheung JA (giving the Reasons for Decision of the Court) :

I. The appeal

1.  Peter Ng J dismissed the applicant’s application to set aside a statutory demand dated 5 May 2021 (‘the statutory demand’) issued by the respondent for the sum of HK$52 million (‘the debt’) and gave permission to the respondent to present a bankruptcy petition against the applicant after seven days. The applicant appealed. We dismissed the appeal at the conclusion of the hearing. There are the reasons for our decision.

II.  The statutory demand

2.  The relevant part of the statutory demand stated that :

‘ The Creditor [i.e. the respondent] claims that you owe the following debt and that it is payable immediately and, to the extent of the sum demanded, is unsecured.

When Incurred	Description of debt	Amount due as at the date of this demand
(1)	(2)	(3)	HK$
5 May 2021	Being the outstanding debt due and owing from you to the Creditor pursuant to the Promissory Note dated 21 October 2019, particularised hereinbelow	Outstanding debt	52,000,000.00
		Amount of Debt:	52,000,000.00

By the Promissory Note dated 21 October 2019, you agree, confirm and undertake to repay the sum of HK$52,000,000.00 to the Creditor upon demand.’

III.  The background

1)  The respondent’s case

3.  The Judge succinctly summarised the respondent’s case. The debt referred to in the statutory demand arose out of a Chinese promissory note dated 21 October 2019 issued to the respondent (‘the Promissory Note’) whereby the applicant agreed, confirmed and undertook to repay HK$52 million to the respondent upon demand. After the issue of the Promissory Note, on 23 October and 24 October 2019, the respondent advanced two sums of HK$50 million and HK$2 million to the bank account of Bonus Rich Limited (‘Bonus Rich’), a company wholly owned by the applicant, as designated by him. It is not in dispute that Bonus Rich received a total of HK$52 million from the respondent. It is also not in dispute that the Promissory Note was personally signed by the applicant and that he did not pay the respondent any part of the HK$52 million pursuant to the Promissory Note.

2)  The Promissory Note

4.  The Promissory Note is in Chinese :

允諾付款的票據

致 ：Gentle Soar Limited，其地址為XXX（下稱「持有人」）

  本人，吳建韶（持有香港身份証號碼XXX，其地址為香港XXX，現同意、確認及承諾將在收到持有人的要求時向持有人償還港幣伍仟貳佰萬元正 ($52,000,000.00)。

  本人進一步委任以下公司為本人之授權代理以收取任何根據本票據應收取的款項：

戶口名稱：Bonus Rich Enterprises Limited

戶口號碼：XXX

銀行名稱：交通銀行有限公司

  本人進一步聲明：本票據應根據香港特別行政區法律闡釋。持有人不可轉讓本票據下的任何權益或任何根據本票據下應付或結欠的任何金額。

  對價收訖。

  本票據由本人於2019年10月21日在香港簽署、蓋章及交付。

由上述吳建韶(持有香港身份証  )

號碼 XXX                                   )

簽署、蓋章及交付                      )

(Translation)

Promissory Note

To : Gentle Soar Limited (Address) (‘the holder’)

  I, Ng Kin Siu (HKID No. XXX) (Address) now agree, confirm and promise that I will repay the holder HK$52,000,000 upon the demand of the holder.

  I further appoint the following company as my authorised agent to receive any payment that I should receive under this note.

Account Name : Bonus Rich Enterprises Ltd

Account No. : XXX

Bank Name : Bank of Communication Company Limited

  I further declare that this note should be interpreted according to the law of HKSAR. The holder cannot transfer any interest or any amount payable or outstanding in respect of this note.

  Consideration received.

  This note was signed, sealed and delivered by me in Hong Kong on 21^st October 2019.

Signed, sealed and delivered by      )

the above mentioned Ng Kin Siu (holder of HKID card no. XXX))

3)  The defence

5.  The applicant denied that he was indebted to the respondent. On the contrary, he had lent HK$52 million to the respondent which was repaid by the respondent. The Judge summarised his defence as follows :

(1)  The applicant lent HK$52 million to the respondent which was remitted to the Mainland in seven tranches (‘GS Loan’) between August and October 2019.

(2)  The GS Loan was advanced by the applicant at the request of Mr. Gao Yunhong (‘Gao’) on behalf of the respondent which was wholly owned by him. The applicant and Gao’s business dealings with each other were in relation to a company listed on the Main Board of the Stock Exchange of Hong Kong Limited viz Steering Holdings Limited (stock code 1826) (‘Listco’). Both Gao and the applicant were executive directors of Listco at the material time. Both Gao and the applicant were also indirect shareholders of Listco. The applicant is the founder of Listco.

(3)  The respondent later requested the applicant to sign the Promissory Note for its ‘administrative purposes’ only, in order to facilitate the respondent’s repayment of the GS Loan. The GS Loan was repaid on 23 and 24 October 2019. Since then, the respondent never made any demand on the Promissory Note until the issue of the statutory demand.

4)  The respondent’s response

6.  The respondent filed the affirmation of Gao to refute the allegations of the applicant. Gao stated, inter alia, :

‘ Contrary to the Applicant’s allegations that the Promissory Note was not supported by any consideration, the Promissory Note was signed and delivered by the Applicant for the plain reason that the Respondent had agreed to advance a loan in the sum of HK$52 million, and indeed advanced the same, to the Applicant. Pursuant to such agreement between the parties and subsequent to the signing of the Promissory Note, the Respondent transferred a total sum of HK$52 million to Bonus Rich’s bank account (as designated by the Applicant) on 23 and 24 October 2019. This is now produced and shown to me marked “GYH-1” a copy of the Respondent’s payment records of HK$50 million on 23 October 2019 and HK$2 million on 24 October 2019 respectively.’

IV.  The Judge’s decision

7.  The Judge framed the issue as who lent HK$52 million to whom.

8.  The applicant provided two affirmations. The Judge observed that in the first affirmation, the applicant explained his case in just a few paragraphs with minimum particulars as to how the seven sums were transferred. It was only in the applicant’s 2^nd affirmation that he provided particulars of the seven transfers and corrected the amount of the last transfer from HK$2,000,000 to HK$2,100,000. The seven transfers are as follows :

Date	Recipient	Amount
29 August 2019	ICE Trading Co Ltd	HK$10,000,000
29 August 2019	Wei Wah Trading Co Ltd	HK$10,000,000
16 September 2019	Wei Wah Trading Co Ltd	HK$10,000,000
18 September 2019	Wei Wah Trading Co Ltd	HK$10,000,000
30 September 2019	Wei Wah Trading Co Ltd	HK$5,000,000
23 October 2019	Jellybady Trading Co Ltd	HK$5,000,000
31 October 2019	Jellybady Trading Co Ltd	HK$2,100,000
Total:		HK$52,100,000 ============

9.  The applicant explained that the HK$100,000 difference in respect of the seventh transfer of HK$2,000,000 (1^st affirmation) and HK$2,100,000 (2^nd affirmation) was the handling charge of the money exchange.

10.  The Judge held that the applicant’s case is unmeritorious, commercially unrealistic and fraught with insurmountable difficulties for the following reasons :

1)  His case is flatly contradicted by the express terms of the Promissory Note. The Promissory Note provides for him to repay HK$52 million to the respondent upon demand. It also does not expressly provide or even vaguely hint at any ‘administrative purposes’ as the reason for the existence of the Promissory Note. It is inherently improbable that the applicant who is the founder of a listed company and whom the Judge described as a sophisticated and experienced businessman would sign the Promissory Note. The applicant had not even asked what were the ‘administrative purposes’ when he was asked to sign the Promissory Note.

2)  It makes no commercial sense and it is difficult to understand how the Promissory Note was going to enable the respondent to pay the applicant the HK$52 million.

3)  The dates of the last two tranches of GS Loan advanced by the applicant via Bonus Rich and the dates of the two supposed repayments by the respondent are hugely problematic. On the applicant’s case, the last two transfers to Gao’s designated parties pursuant to the GS Loan were made on 23 October 2019 (HK$5 million) and 31 October 2019 (at first HK$2 million, later changed to HK$2.1 million). He also said the respondent’s repayments to the applicant of the entire HK$52 million by transferring to the account of Bonus Rich were made on 23 October 2019 (HK$50 million) and 24 October 2019 (HK$2 million). It is nonsensical to suggest that a debtor would make full repayment of a loan when part of the loan had not yet been advanced to him. The applicant had provided no answer to this point. It is even more inexplicable that while the respondent’s supposed repayment to the applicant of the entire HK$52 million was completed on 24 October 2019, the last tranche of the GS Loan was made on 31 October 2019 by transferring HK$2.1 million to a company called Jellybady Trading Co Ltd, making the total amount of the GS Loan to be HK$52.1 million.

4)  The applicant’s case that Gao had requested the HK$52 million loan from him in August 2019 lacks documentary support. This is unreasonable for a loan of this size. By contrast, the respondent’s case is amply supported by the Promissory Note as evidence of the loan to the applicant and as security for its repayment.

5)  The applicant has provided minimal evidence, let alone documentary evidence linking the recipients of the seven transfers to Gao or the respondent. The computer printouts disclosed by one Mr. Fung, the applicant’s personal assistant do not on their face provide any connection.

11.  The Judge had further considered and rejected the other arguments raised by the applicant such as 1) the statutory demand was issued 19 months after the Promissory Note with no prior demand on it and that in terms of timing, the statutory demand coincided with the breakdown of relationship between the applicant and Gao in April 2021, 2) the so‑called ‘key passage’ in the Promissory Note which he claims supports the applicant’s case and 3) two weeks before the statutory demand was issued, Gao pleaded with the applicant to lend him HK$40 million.

V.  Grounds of appeal

12.  The applicant relies on the following grounds of appeal :

1)  Ground 1. The Judge erred in his view that the respondent’s case was amply supported by the Promissory Note alone.

2)  Ground 2. The Judge failed to give any or any sufficient consideration to certain undisputed matters.

3)  Ground 3. The Judge was wrong to hold that the matters predating the Promissory Note were not relevant to support the applicant’s case.

4)  Ground 4. The Judge failed to give any or any sufficient consideration to the internally inconsistent and suspicious nature of the Promissory Note.

5)  Ground 5. The Judge wrongly rejected the credibility of the applicant’s case as making no commercial sense without giving any or any sufficient weight to the longstanding commercial relationship of trust between the parties and also failed to consider the statutory demand was a tactical manoeuvre by the respondent in the course of shareholder’s disputes between the parties.

6)  Ground 6. The Judge placed too much weight on the final two tranches of the GS Loan.

7)  Ground 7. The Judge erred by excessively penalising the applicant for not being able to produce comprehensive documentary evidence in support of his case.

13.  Mr. Dawes SC (together with Mr. Mak and Mr. Lo) for the applicant grouped these grounds into three areas, namely,

1)  Ground 1. The Judge had ignored the inadequacy of the respondent’s case on the alleged loan to the applicant and was content to accept the circular argument that the respondent’s case was supported by the Promissory Note.

2)  Grounds 2‑5. The Judge had ignored the circumstantial/post contractual conduct in determining the existence of the alleged loan to the applicant without giving any reasons.

3)  Grounds 6‑7. The Judge had placed excessive weight on the applicant’s failure to produce comprehensive documentary evidence.

VI.  Our view

1)  Principles

(1)  Setting aside a statutory demand

14.  The application to set aside the statutory demand is made under section 47 of the Bankruptcy Rules (Cap. 6A). The grounds upon which the statutory demand may be set aside are provided by section 48, amongst which the Court may set aside a statutory demand if the debt is disputed on grounds which appear to the Court to be substantial: rule 48(5)(b).

15.  The relevant principle in respect of the two‑stage process of a statutory demand followed by a bankruptcy petition is that the service of the statutory demand is simply a means of establishing the debtor’s inability to pay. The procedure for application to set aside the statutory demand is intended to be brief. All that the Court is concerned with is whether the creditor is able to pursue bankruptcy proceedings founded on the statutory demand. The creditor must establish a debt. It is for the debtor to establish why he cannot do so, at any rate by the route of a statutory demand: see X v Y [2020] HKCFI 3178 [22‑24] on the extract of the relevant principles established by cases such as Owo‑Samson v. Barclays Bank Plc & Boyden (No. 1) [2003] BPIR 1373 and Budge v. AF Budge (Contractors) Ltd [1997] BPIR 366.

16.  The following principle on the issue of onus as identified by the Judge is not disputed by the parties: In determining whether a debt is bona fide disputed on substantial grounds, the onus is on the debtor to adduce sufficiently precise factual evidence which is believable to satisfy the Court that it has a defence of substance, not just a fair probability of one. It is not sufficient for the debtor to simply make bald assertions or to merely raise a ‘cloud of objections’ on affidavits: Gao Yan Ming v Standard Chartered Bank (Hong Kong) Limited unrep, HCSD 6/2016, 13 June 2017, Ng J; Chan WS & Anor v CC Bank [2021] HKCFI 143 at [30], Linda Chan J.

(2)  Appeal against exercise of discretion and finding of fact

17.  This is an appeal against the exercise of discretion by the Judge who refused to set aside the statutory demand. The well‑established principle is that the appeal court would not lightly interfere with the judge’s discretion unless the judge had erred in law, or was under a misapprehension of material facts, or had failed to take relevant matters into account, or had taken irrelevant matters into account, or that the decision was ‘plainly wrong’: Re Cheung Kwan [2021] HKCA 282.

18.  Further, as the grounds of appeal advanced by the applicant are essentially a challenge to the Judge’s assessment of the credibility and sufficiency of the evidence put forward by the parties, the well‑established principle is that the appeal court should be reluctant to interfere with the lower court’s evaluation of the evidence, unless it is demonstrated that the judge had fallen into palpable errors in the finding of fact. This is so even though the judge’s evaluation of evidence and findings of fact were based on affidavit evidence and contemporaneous documents rather than oral evidence: Ling Wai Hoi v Jetland Global Investments Ltd [2022] 5 HKLRD 156.

2)  Merits of the decision

19.  Bearing in mind that it is for the respondent to establish a debt and the applicant to establish why the respondent cannot do so, the first question to ask is whether the respondent has established a debt. In our view, the Judge was correct to hold that it has. The respondent had produced evidence showing that it had advanced the sum of HK$52 million to the applicant. The terms of the Promissory Note are also very clear. The applicant unequivocally acknowledged that he was to pay HK$52 million upon demand by the respondent. Notwithstanding the restriction on negotiation by the respondent of the Promissory Note, the terms of the document fit into the definition of promissory note as defined by section 89(1) of the Bills of Exchange Ordinance (Cap. 19) :

‘ (1) A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer.’

20.  Byles on Bills of Exchange and Cheques 30^th Edition [24‑001] stated :

‘ In the recent case of Banque Cantonale de Geneve v Sanomi Blair J set out at [31] a helpful summary of the practical significance of promissory notes:

“ An important feature of bills and notes in English law is that the holder is usually entitled to summary judgment on the instrument. This is because in principle a bill of exchange or promissory note is to be treated as cash (Fielding & Platt Ltd v Najjar [1969] 1 WLR 357 at 361)….” ’

21.  Mr. Dawes relied heavily on the part of the Promissory Note which stated that :

「本人進一步委任以下公司為本人志授權代理以收取任何根據本票據應收取的款項：」

(I further appoint the following company as my authorised agent to receive any payment that I should receive under this note:)

22.  He argued that this evinces a far more complex arrangement than a simple promissory note payable on demand. But all that this passage shows is that the loan is to be advanced by the respondent after the Promissory Note is signed with the name of the company which is to receive the money on the applicant’s behalf. This in fact confirms the respondent’s case of a loan of HK$52 million by the respondent to the applicant. Indeed there was no challenge that the respondent advanced the loan by two tranches on 23 and 24 October 2019 a few days after the Promissory Note was signed.

23.  Has the applicant shown that there was no debt? First, the Judge was clearly entitled not to accept the applicant’s contention that the Promissory Note was given by him for ‘administrative purposes’. He held that :

‘ 14. It is trite that persons of full age and capacity who append signatures on documents that purport to have legal effect are generally held to the terms which they have chosen to sign: Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334. In the present case, no vitiating factors such as fraud, mistake, non est factum etc are alleged in Mr Ng’s 2 affirmations.’

24.  He also took into account the business background of the applicant when assessing the issue of credibility. The Judge likewise had carefully considered the so‑called seven loans said to be advanced by the applicant to the respondent. We have set out in detail the Judge’s view on these so‑called loans. In our view, these are proper grounds relied upon by the Judge in assessing the issue of credibility.

25.  The Judge was also clearly entitled to refer to the inadequacy of the documentary evidence on the part of the applicant to support his claim that it was in fact he who had advanced the loan of HK$52 million to the respondent which the respondent repaid by two tranches on 23 and 24 October 2019 and not the other way round.

26.  Mr. Dawes then criticized the Judge for not addressing the points relied upon by the applicant’s former lawyers at the hearing below. Having considered the way the applicant put forward his case, we do not see how the other points relied upon by the applicant would affect the finding by the Judge. They involve separate transactions and the applicant had simply failed to show how they could be linked to and would affect the debt in question.

27.  In our view, the applicant had failed to show that the Judge’s assessment of the evidence and his refusal to set aside the statutory demand was plainly wrong.

3)  Respondent’s notice

28.  Having reached this conclusion, it is unnecessary for us to address the point raised by Mr. Ho SC (and Mr. Lung) for the respondent in the respondent’s notice. The context in which this point was raised is that the application to set aside the statutory demand was made late and the Judge found that as the application was wholly unmeritorious, it was pointless to grant extension of time under rule 204 of the Bankruptcy Rules. Mr. Ho submitted that the applicant must show both ‘special circumstances’ and ‘good cause’ in order to obtain extension of time and special circumstances had not been shown by the applicant.

4)  Conclusion

29.  Accordingly, the appeal was dismissed with costs to the respondent together with a certificate for two counsel.