RE LIU WING TING STEPHEN trading as STEPHEN LIU AND COMPANY

HCB 4968/2024

[2025] HKCFI 1434

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4968 OF 2024

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J U D G M E N T

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1.  The Petition before me is based on loans totaling HK$2 million made by the creditor to the debtor between 6 January 2023 and 2 March 2023.

2.  A statutory demand was serve in respect of the loans dated 8 May 2024. There is no dispute that the HK$2 million was advanced and that it was agreed at the time the last tranche was advanced that the loans would be repaid within a month and repayment was not made.

3.  The debtor, however, disputes liability on the grounds that subsequently he and the creditor made what he describe as a co-operation agreement which is dated 1 March 2023, signed by both the creditor and the debtor. Clause (5) provides that the creditor was to pay the debtor a co-operation fee of HK$2 million. The debtor says that he then issued a receipt purportedly recording the co-operation fee as off-setting the outstanding loans. The creditor says he never saw the receipt which is why he did not return the post-dated cheques he had been given by the debtor as security for the loans.

4.  The creditor says the co-operation agreement was no more than a memorandum of understanding. Nothing came of it and plainly he had not agreed to forgo the loans as subsequent Whatsapp messages in which the debtor acknowledges that he was liable to repay the loans make clear.

5.  The Whatsapp messages, in my view, clearly record the debtor as acknowledging that the loans remain outstanding. Mr Leung for the debtor argued that the creditor could not, however, rely on the Whatsapp messages because they record without prejudice discussions in which the parties attempted to settle the dispute.

6.  I disagree. What the messages record is a clear admission that the debtor owed the creditor HK$2 million and was asking for time to pay. The without prejudice doctrine does not apply to this kind of communication, it applies to genuine attempts to settle a dispute. An admission of liability coupled with a request for an indulgence, is materially different.

7.  This is recognised in various authorities, it will suffice to cite one: The Secretary for Justice v Wong Lai Yin and another[1]. In this decision, the Court of Appeal referred to an earlier decision, drawing the distinction I have made, of Kwan J in Re Jinro (HK) International Ltd[2].

“For a claim of privilege to succeed, the party claiming it must establish that the communication in question was made ‘(1) in a bona fide attempt to settle a dispute between the parties, and (2) with the intention that, if negotiations failed, it could not be disclosed without the consent of the parties’. In establishing that there is a bona fide attempt to settle a dispute, the party seeking to assert privilege must show that ‘at the time the communication was made, a dispute existed between the parties in respect of which legal proceedings had commenced or were contemplated and the communication was made in a genuine attempt to further negotiations to settle that dispute. The fact that a communication concerns a dispute between the parties is not sufficient to confer privilege – it must be made in furtherance of the settlement of the dispute.’ …”

8.  The Court of Appeal also referred to the English House of Lord’s decision in Bradford & Bingley plc v Rashid[3] in which a similar distinction is drawn between attempts to resolve a dispute over the existence or extent of the liability and discussions as to how an admitted liability is to be paid. The former is privileged, the latter is not, because there is no dispute.

9.  It also seems to me quite clear that the co-operation agreement was too vague to constitute a legally enforceable contract. The debtor himself seems to have made no effort to put it into effect. The clear implication of the evidence is that the co-operation agreement was a proposal by the debtor advanced in an effort to create an excuse for delaying repayment of the loans. Clearly, the document did not create a set off which extinguished the obligation to repay the loans.

10.  I am not satisfied that the debtor has demonstrated a bona fide defence on substantial grounds and, but for the matter I am about to address, I would have made the normal bankruptcy order.

11.  Rule 59 of the Bankruptcy Rule (Cap. 6A) provides a bankruptcy petition must be served personally. There is no dispute that the creditor’s solicitors’ first attempt to serve the debtor on 19 July 2024 at the debtor’s business address did not comply with Rule 59 although it did bring the petition to his attention.

12.  The debtor’s solicitors filed and served a notice to oppose the petition dated 11 September 2024. Amongst the grounds of opposition was an objection that the petition had not been served in compliance with Rule 59. The debtor also expressly refers to this in [23] of his affirmation in opposition also made on 11 September 2024.

13.  On 12 September 2024 a clerk from the creditor’s solicitors left at the debtor’s solicitors’ office a copy of the petition, purportedly by way of, to quote his affirmation, “personal service”. At that time, the creditor’s solicitors had no reason to believe that the debtor’s solicitors had authority to accept service of the petition; indeed the clerk’s affirmation was made after the creditor’s solicitors would have received the notice of opposition and the debtor’s affirmation.

14.  Ms Leung for the creditor invited me to infer from the fact that the debtor’s solicitors did not write disputing service that they had authority to accept service, and that service was effected. This proposition only has to be stated, to be seen to be unsustainable.

15.  The importance of a bankruptcy petition being served in compliance with Rule 59 is well-established and known. As the Court of Appeal explained in Ma Wing, Michael v Fong Sze-ming[4], the Bankruptcy Ordinance (Cap. 6) makes it plain that the court can only make a bankruptcy order if satisfied of proof of service (Section 9(2)), and although the court can regulate its own proceedings (see: Rule 203), that power should not be used to override the clear legislative intent that the court must first be satisfied before making a bankruptcy order, that personal service has been effected on the debtor.

16.  I am not so satisfied. It seems to me clear in the circumstances that the creditor’s solicitors should have written to the debtor’s solicitors asking them to confirm that they had the authority to accept service and unless they received written confirmation of this they should have taken additional steps to ensure that Rule 59 had been complied with.

17.  In the circumstances, it seems to me that although having regard to the merits it is unsatisfactory, the court has no alternative but to dismiss the petition with costs be paid be the petitioner to the debtor.