RE CHUNG WONG KIT

CACV 219/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

(On appeal from the Court of First Instance in Bankruptcy No. 941 of 1990)

Re. : CHUNG Wong Kit, a bankrupt

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J U D G M E N T

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Rogers, J.A. :

Introduction

1. This is an appeal from a Decision of Madam Justice Yuen given on the 29th June 1998 on an application for Judgment on admissions.

2. There were a number of Orders which were sought on the application and it is unnecessary to set them all out. It suffices to say that the matter arose on the application by the Trustee in bankruptcy who was claiming 4 properties had been transferred into the name of the 7th Respondent ("a company"). The 7th Respondent was a company of which the Directors were all members of the bankrupt's immediate family. Those members had become shareholders and directors and the company had started operation at a time when it is said that the bankrupt was aware that his actions were under investigation which eventually led to his conviction for fraud in respect of a large amount of money.

3. As regards the matter under Appeal, the Judge below did not grant any of the Orders sought which would have amounted to the properties being transferred to the Trustee as being the bankrupt's property or, at the very least, held on trust for him. The Order granted by the Judge was that judgment be entered against the 7th Respondent for a declaration that the Applicant is entitled to a lien over the particular property, namely the 2nd floor flat, 168 Shau Kei Wan Road, in respect of the balance of the purchase money remaining unpaid to the vendor, the Bankrupt, on his sale or assignment of the property. There was a similar order in respect of another property, namely 4th Floor flat, Block D, 9A Seymour Road.

4. Before examining the material relied upon as constituting the relevant admissions, I would emphasise what I consider to be relevant points in relation to Judgments on admissions. Under Order 27 rule 3 it is, of course, provided that:-

"Where admissions of fact or of part of a case are made by a party to a cause or matter either by his pleadings or otherwise, any other party to the cause or matter may apply to the Court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties, and the Court may give such judgment, or make such order, on the application as it thinks just."

5. It is also well-known and not disputed in this case that where admissions of facts are relied upon, such admissions may be express or implied, but they must be clear and unambiguous. In the notes to the White Book at 27/3/1 "Admissions of fact" in considering the identical rule the example is given :

So, the widow of a deceased person who died as a result of an assault which occurred during a criminal affray is not entitled to judgment under this rule on the admission of the defendant that he had pleaded guilty to the manslaughter of the deceased, since the defendant may be able to defeat the claim or mitigate the damages or reduce them by alleging contributory negligence (Murphy v Culhane [1977] Q.B. 94)."

6. It must also be remembered that judgment on admissions is different even from a Summary Judgment application. There, the Court may in the appropriate circumstances, draw inferences from primary facts. In the case of judgment on admissions, the Court must consider the actual admissions, albeit in some cases those made by implication.

7. In the present case, the admissions relied upon are contained in 3rd and 7th Affirmations on behalf of the 7th Respondent and in affirmations filed by other Respondents who were the family members referred to above and who were the directors and shareholders of the 7th Respondent.

8. The admissions are that, first of all, in relation to question 9 that except for certain minor decisions, following the appointment of the directors, namely Vivian Chung, on 1st July 1987 and Joseph Chung and Karen Chung on 24th July 1987, it was the case that from 24th July of that year onwards the 7th Respondent's board of directors acted at all times under the direction of the bankrupt.

9. The next important Admission which is relied upon is that, on or about 25th March 1988, the 7th Respondent was the assignee of a property, namely one of the properties in question. It is also admitted that that assignment was made at the behest of the bankrupt. It is thereafter admitted that following the assignment the property was held by the 7th Respondent at the direction of the bankrupt. Then it is admitted that no consideration ever passed from the company to the bankrupt. There are admissions on the allotment of shares in the 7th Respondent, that no moneys were paid to the 7th Respondent in respect of the moneys due or payable on the allotment by the allotees, namely the various Respondents. Finally, it is admitted that all the Directors were members of the bankrupt's immediate family.

10. These Admissions followed the 3rd Affirmation filed on behalf of the 7th Respondent. In that Affirmation, it was admitted that the two properties in question were sold by the bankrupt at relevant times as set out. It was said that the purchase sums were fully paid by the company and that the properties were now leased out.

11. On the basis of these admissions, Mr Fitzpatrick who appeared on behalf of the Applicant argued that the 7th Respondent should be treated as holding the properties as bare trustee for the Bankrupt and therefore the Applicant. Much reliance in this respect was placed on the answer to the 16th question, namely that the property was held at the direction of the bankrupt. On the basis that the 7th Respondent had purchased the properties in question, the meaning of the expression at the direction of the bankrupt is not clear beyond doubt. The admission is not in terms that the 7th Respondent was holding the property as trustee for the bankrupt. A company, having in the jargon of company lawyers no soul to be damned or body to be kicked, can only act by its directors. The fact that the Board may be dominated by one individual whose influence on the decisions of the Board seems paramount does not amount to the fact that the Company is necessarily the alter ego or sham of that dominant person.

12. In this context in the Court below the Respondents sought to rely upon an affirmation of the 4th Respondent which contained the following crucial passage:-

"Although the 7th Respondent often listened to the advice of the Bankrupt , as the Bankrupt had many years experience in the garment trading business, the 7th Respondent independently operated its business and finance, and the money for the purchase of the 1st and 2nd properties was borrowed and paid off by instalments by the 7th Respondent."

Mr Fitzpatrick relying upon the authority of Tse Yuk-Tin v Chee Cheung Hing & Co. Ltd. [1984] HKLR 391 argued that the Respondents should not have been allowed to rely upon this affirmation as it constituted a withdrawal of an admission which was being made without proper explanation. This however is not a rule of law in itself but just an example of the proposition that a party should not be permitted to resile from an admission unless it was just to allow it to do so having regard to the interests of both sides.

13. There are 2 answers to the objection, it seems to me. The first is that as is shown in another case to which Mr Fitzpatrick drew our attention (Gale v. Superdrug Stores [1996] 1 W.L.R. 1089) in determining whether it is fair to allow a party to resile from an admission, it is not sufficient for the Court to presume prejudice to the opposing party but it is necessary to balance the prejudice suffered by the admitting party if deprived of his right to resile against any prejudice which the relying party has specifically established he will suffer if the admission is withdrawn.

14. The second point is that I do not consider that this is so much a matter of resiling from an admission made as explaining the meaning of the words used which, in my view, are not beyond equivocation.

15. There can be no question that if the bankrupt has transferred property to a company in circumstances where the company holds the property as bare trustee, the trustee in bankruptcy would be entitled to that property. Nor can there be any doubt that if the company is no more than a sham the property would remain with the bankrupt.

16. But those matters are not, in my view, established by the admissions sought to be relied upon and the Judge came to the correct decision that the orders sought on the application could not be granted.

Admissions by other Respondents

17. Primarily with a view to showing that the 7th Defendant was no more than a sham or alter ego of the bankrupt, the Applicant sought to rely on statements contained in affirmations filed by the other Respondents in their personal capacities. Albeit that those parties were also shareholders and directors of the 7th Respondent, I do not consider that for the purposes of obtaining judgment on admissions, reliance can be placed on those as constituting admissions on the part of the 7th Respondent. The Judge refused to treat these admissions as being admissions against the 7th Respondent and, in my view, rightly so and for the reasons which she gave which I have outlined, I would agree with her.

The Order granting a declaration of a lien

18. There then remains the question of the Order made by the Judge which is the subject of the Appeal. The Judge made orders that the Applicant was entitled to the unpaid balance of the purchase price of the 2 flats in question. No doubt, the Judge was attempting to give the Applicant as much relief as could be given even taking the 7th Respondent's admissions at their most favourable to the 7th Respondent, given the fact, I have no doubt, that 7th Respondent's case looked as shadowy to her as it does to myself. In declaring that the Applicant was entitled to a lien for the outstanding balance of the purchase price, the Judge however, was by a side-wind killing the Applicant's primary case that the properties should be rightfully held for the Trustee for the benefit of the bankrupt's creditors. Whilst agreeing with the Judge below that I do not consider that on the admissions which the Applicant is entitled to rely upon as against the 7th Respondent, he is entitled to the Orders sought in the Court below, I would say that, at the very least, the Applicant's case for relief upon those lines at trial would still appear to be open to him to pursue. In those circumstance, the relief granted would have the effect of depriving the Applicant of being able to pursue that relief.

19. I would therefore allow the appeal to the extent of setting aside the 2 orders referred to.

Cheung, J. :

20. I agree.

Godfrey, J.A. :

21. The case for the Official Receiver is that the properties the subject of these proceedings are held by Easewin Industries Limited ("the company") as trustee for Chung Wong Kit ("the bankrupt"), the company itself being no more than the creature of the bankrupt, "a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity" : see per Russell, J. in Jones v. Lipman [1962] 1 WLR 832, at p.836.

22. The material placed before us does appear to afford a considerable measure of support for the Official Receiver's case. But that is not the question. The question is whether there is to be found in that material such clear admissions on behalf of the company as entitle the Official Receiver to judgment upon those admissions.

23. For the reasons given by Rogers, J.A., I am of the opinion that there is not. Not without some regret, I find myself bound to reject the Official Receiver's main contention that for this purpose it is sufficient for the Official Receiver to prove (as he has done) that the company's directors have admitted that they regard themselves as bound to act under the bankrupt's direction.

24. I would dismiss this appeal, save to the extent indicated by Rogers, J.A., that is to say; the orders made by the judge will have to be set aside for the purpose of discharging the liens which the judge created in favour of the Official Receiver, notwithstanding that the Official Receiver did not in fact ask for that relief, and now objects to the orders going in that form.

25. We will make no order as to the costs of the appeal.