RE LAU KAM SING DICKIE

CACV 330/2019

[2021] HKCA 1149

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 330 OF 2019

(ON APPEAL FROM HCB NO 2311 OF 2019)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

Background

1.  This is the debtor’s application made pursuant to Order 59 rule 10(2) of the Rules of the High Court, to adduce further evidence in his appeal against the bankruptcy order made against him by Au-Yeung J on 24 June 2019.  It is necessary to relate the procedural history in some detail.

2.  On 25 March 2019, the creditor served a statutory demand dated 27 February 2019 on the debtor personally in respect of a debt due under a loan agreement dated 14 July 2016 for the principal sum of $8 million plus interest.  The debtor did not apply to set inside the statutory demand^[1].

3.  On 18 April 2019, the creditor issued a bankruptcy petition on the basis of the statutory demand for a debt of $8,704,000, being the loan principal plus interest.  The debtor’s solicitors filed a notice to act in the bankruptcy proceedings on 20 May 2019.  But as the solicitors did not have instructions to accept service of the petition, the creditor had to serve the petition on the debtor personally.  This was done on 4 June 2019^[2].

4.  The petition came before the bankruptcy master on 19 June 2019^[3], about a month after the debtor was legally represented. Just two days before the hearing before the master, on 17 June 2019, the debtor’s solicitors filed a “Notice by Debtor of Intention to Oppose Petition” stating as follows:

“[The debtor] do hereby give you notice that he intends to show cause against the petition and that he intends to contend that the Petitioner is a money lender without a licence of money lender and is therefore not entitled to recover in any event any money lent by him or any interest in respect thereof or to enforce any loan agreement made in respect of any loan made by him to the Debtor by virtue of section 23 of the Money Lenders Ordinance, Cap 163 of the Laws of Hong Kong.”

5.  As the petition was not unopposed^[4], the master transferred it to a bankruptcy judge.  It came before Au-Yeung J on 24 June 2019.  The debtor did not file any affirmation in opposition.  His solicitor Mr Dickson Pang sought an adjournment of one week to file evidence^[5].

6.  Having heard Mr Pang’s submission^[6], the judge formed the view that “Even if [she accepts] all that [Mr Pang] says^[7] as to the facts, there is no arguable issue of law raised” and there is “nothing which can demonstrate a bona fide dispute as regards the debt stated in the petition”^[8]. She declined to grant an adjournment and made a bankruptcy order.

7.  On 19 July 2019, the debtor filed a notice of appeal settled by counsel raising two grounds of appeal:

(1)  The judge erred in law in proceeding on the basis that it was “legally irrelevant” whether the petitioner was a money lender operating without a licence contrary to section 23 of the Money Lenders Ordinance (“MLO”).  If the petitioner was indeed a money lender, the true sum owed by the debtor would not be a pre-ascertained liability and could only be determined after the court exercises its discretion under section 23^[9]. Hence, the debt in the petition would not be a debt of a liquidated sum and the condition in section 6(2)(b) of the BO would not be satisfied.

(2)  The judge further erred in proceeding on the basis that the debtor could not possibly demonstrate (or demonstrate a bona fide dispute on substantial grounds), if he were allowed to file evidence, that the petitioner was such a money lender.

8.  On 10 October 2019, the debtor’s solicitors wrote to the petitioner’s solicitors asking the latter to agree to the draft joint checklist for the application to fix a date for the hearing of the appeal. The relevant parts of the draft joint checklist (Annex 2 to Practice Direction 4.1; “Annex 2”) read as follows:

“3. Have all necessary interlocutory applications been taken out? No

If not, when will it be taken out and what for:

The Defendant/Appellant intends to take out within 28 days an application for leave to adduce new evidence on appeal.

4. Why should the hearing date be fixed whilst the matters under items 2 or 3 above are outstanding?

Since the new evidence sought to be adduced is insubstantial in volume and the application can be heard together with the appeal proper and there will be no impact on the estimated time for the hearing (i.e. 3 hours).

…

10. Where an application for leave to adduce further evidence has been listed for hearing at the same time as the appeal, have you ensured that the further evidence sought to be adduced is kept in a separate bundle?

 No such application has been taken out yet”

9.  The petitioner issued a summons for security for costs of the appeal on 11 October 2019 and further observed by the letter of his solicitors dated 1 November 2019 that “there is simply no basis” for his solicitors to comment on the debtor’s proposals in §§3 and 4 of the draft Annex 2.

10.  On 13 November 2019, the debtor’s solicitors revised the draft Annex 2 by adding to §§3 and 4 this sentence: “(N.B. The Plaintiff/Respondent’s Solicitors allege there is no basis for them to comment.)”

11.  Further correspondence was exchanged between the solicitors in November 2019 before 29 November when the debtor filed a notice to act in person.  In short, the debtor’s solicitors took the stance there was no conflict between the petitioner’s application for security for costs and the intended application by the debtor to adduce new evidence which they claimed to be “insubstantial in volume” and “relatively straightforward”. They did not however provide particulars of the new evidence the debtor intended to seek leave to adduce.  The petitioner’s solicitors complained that the debtor was not applying to adduce new evidence “as early as practicable contrary to proper case management and practice directions” and they were “unable to make specific comment on [the debtor’s] proposal for the substantive appeal and application for adducing new evidence” as the proposal was “undetailed, unparticularised and an abuse of process”. Their stance was that “it is unfair and unlikely to be appropriate” that the application for adducing new evidence should be heard at the same time as the substantive appeal.

12.  On 27 November 2019, the Registrar of Civil Appeals directed that the debtor’s application to fix a date for hearing of the appeal filed on 20 November 2019 and the draft appeal bundles shall not be considered by the court until a joint checklist has been filed, and that the parties should file such a checklist within 14 days either upon the dismissal of the application for security for costs or compliance by the debtor with the order to provide security.

13.  The petitioner’s application for security for costs was dealt with on paper and an order for security was made by the Court of Appeal on 8 June 2020^[10]. A payment into court was made by the debtor on 6 July 2020.

14.  On 11 August 2020, the debtor’s former solicitors filed a notice to act.  On 21 August 2020 (after the expiry of time to file the joint checklist), they wrote to the petitioner’s solicitors asking if the latter would consent to the debtor’s application to adduce new evidence. No details of this intended application were provided to the petitioner’s solicitors.  On 25 August, the Registrar directed that if any party intended to take out further interlocutory application in the appeal, this should be done without delay and before the filing of the joint checklist.  It would appear from the letter of the petitioner’s solicitors dated 4 September 2020 that the debtor had still not provided to them any details of the intended application.

15.  On 8 September 2020, the debtor issued the present summons for leave to adduce his 1^st affirmation dated 8 September 2020 (“Lau 1^st”) with eight documentary exhibits and his affirmation of the same date in support of the application (“Lau 2^nd”).

16.  The petitioner has opposed this application.  The trustees in bankruptcy takes a neutral stance.

The new evidence

17.  In Lau 1^st, the debtor deposed to the circumstances in which the petitioner lent him $8 million in June 2014 to be repaid in June 2016, having been introduced by a mutual friend Mr Tsang, who had refused to provide an affirmation on his behalf.  He stated that as security for the loan in 2014, he provided guarantees executed by his architect firm and two companies which held his office premises.  When he was unable to repay in June 2016, at his request the petitioner agreed to extend the loan for another year, with the personal guarantee of Mr Tsang as security.  He exhibited inter alia the two loan agreements, an unsigned deed of guarantee to be executed by Wealthy Gate Architects and Associates Ltd dated 16 June 2014 and a deed of guarantee dated 14 July 2016 executed by Mr Tsang. These documents were prepared by two solicitors’ firms.

18.  Before I examine whether the conditions for admission of new evidence in Ladd v Marshall [1954] 1 WLR 1489 at 1491 are met, I will first consider the submission of Mr Raymond Chu for the petitioner that this application should be refused on the ground of excessive delay alone.

Delay

19.  The court may exercise its discretion to dismiss an application to adduce new evidence on appeal on the ground of delay alone, even if the conditions in Ladd v Marshall are satisfied (Law Kwok Fai Paul & Ors v Wellmei (HK) Plastics & Electronics Industrial Ltd & Anr, CACV 45/2014, 31 October 2014, §18; PW v PPTW [2015] 1 HKC 450 at §§9 to 12).  As stated by Yuen JA in Law Kwok Fai Paul at §18.1, Order 1A rule 3 of the Rules of the High Court requires parties and their legal representatives to assist the court to further the underlying objectives of the Rules, and one of the underlying objectives is to ensure that cases are dealt with as expeditiously as is reasonably practicable and to ensure that the resources of the court are distributed fairly.

20.  It is provided in §37 of Practice Direction 4.1 that “A party seeking to adduce new evidence on appeal must apply as early as practicable.”  It stands to reason that an application to adduce new evidence on appeal should be made promptly, as one of the conditions of Ladd v Marshall is that the new evidence would probably have an important influence on the result of the case.  The new evidence would impact on the preparation of the appeal in quite a number of ways, amendments may be required to be made to the notice of appeal, the respondent may need to file a respondent’s notice or amend the respondent’s notice, changes (not necessarily confined to adding the new evidence) would need to be made to the appeal bundles, the respondent may need to apply to adduce fresh evidence in the event new evidence from the other side is admitted, the duration of the appeal may need to be revised. Depending on the nature and substance of the new evidence, it may not be appropriate in every instance for the application to be heard at the same time as the substantive appeal.

21.  There is no dogmatic rule that all late applications to adduce new evidence would invariably be refused without regard to the merits (PW v PPTW at §12).  That said, the court has given adequate warning to litigants and lawyers that they cannot expect the court to grant such applications so long as the Ladd v Marshall conditions are satisfied, regardless of delay and without any consideration whether there is proper explanation for the delay.

22.  The total delay from 19 July 2019 (the filing of the notice of appeal raising the contention that the debtor should be allowed to adduce new evidence) to 8 September 2020 is nearly 14 months.  The only explanation given by the debtor in his affirmation in reply filed on 16 October 2020 (“Lau 3^rd”) is one of impecuniosity.  He claimed that because of the bankruptcy order, he has great difficulty raising funds to pay for legal fees and it was after some time that he managed to obtain financial assistance from his friends so as to be able to instruct lawyers to take out the present application.

23.  The debtor had legal representation when the notice of appeal was filed in July 2019 up to 29 November 2019.  It was nearly three months after filing the notice of appeal that his solicitors first gave notice of the intention to apply to adduce new evidence.  They had delayed for four months and did not take out an application to adduce new evidence before they ceased to act in late November.  No explanation was given for this delay.  Their proposal in draft Annex 2 to issue such an application within 28 days (which was not done) and to have the application heard with the appeal proper is unacceptable.  The debtor’s legal advisers were fully aware that their proposal to have the application heard at the same time as the substantive appeal would not be acceptable to the petitioner without providing any details or particulars of the new evidence and they chose not to do so right up to the time the present summons was issued, despite the persistent and valid complaints of the petitioner’s solicitors.

24.  I reject the contention made by Mr Bernard Man, SC^[11]on behalf of the debtor that the debtor’s proposal is “consistent with” the requirement in §37 of Practice Direction 4.1 to issue such an application “as early as practicable”.  His contention that there is no disruption to the hearing or to the parties’ preparation of the appeal since no date has been fixed for the hearing of the appeal must also be rejected.  Changes were made to PD 4.1 in 2017 to provide for a joint checklist in the form of Annex 2 to be filed, before a listing appointment is given to the parties for fixing the hearing date of the appeal.  The object is not to give licence to a party to delay the conduct of an appeal so long as no hearing date is fixed. It is stated in §1 of the new PD 4.1 that “It aims at more proactive and effective case management to ensure that every application and appeal to the Court [of Appeal] are properly presented by the litigants and dealt with by the Court as expeditiously as is reasonably practicable in line with the underlying objectives as provided in Order 1A of the Rules of the High Court.”

25.  As for the delay from late November 2019 to August 2020 when the debtor was acting in person, the debtor would have known by the grounds of appeal in the notice of appeal what evidence he should have adduced in support of his contentions on appeal.  It was deposed in Lau 3^rd that he is a registered architect in Hong Kong.  The new evidence in Lau 1^st is simple and straightforward.  The matters deposed to in Lau 1^st were all within his own knowledge.  There is no suggestion he was not in possession of the documents exhibited.  There is no valid reason why he was unable to take out a summons to adduce new evidence. 

26.  There is no valid reason for the delay of some 14 months.  I would have exercised my discretion to refuse the application on this ground alone.  For completeness, and out of deference to the arguments made by Mr Man, I will also consider whether the Ladd v Marshall conditions are met.

If the new evidence could have been obtained at the trial with reasonable diligence

27.  All three conditions in Ladd v Marshall must be satisfied for the new evidence to be admitted.  For present purpose, it is necessary to consider only the condition whether the evidence could have been obtained at the trial with reasonable diligence.

28.  Mr Man submitted that this condition should be modified in the context of an appeal from a bankruptcy order, as the threshold test for resisting a bankruptcy order is broadly similar to that of an application for summary judgment. In the context of a summary judgment, Lord Bridge said in Langdale v Danby [1982] 1 WLR 1123 at 1133B to F that the conditions in Ladd v Marshall “will require some modification”.  He went on to say as follows:

“It may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high as that required in preparing for trial. The second and third conditions will no doubt be satisfied if the further evidence tendered is sufficient, according to the ordinary principles applied on applications for summary judgment, to raise a triable issue. But I can see no injustice at all in requiring a defendant to use such diligence as is reasonable in the circumstances to put before the judge on the hearing of the summons, albeit in summary form, all the evidence he relies on in defence, whereas it would be a great injustice to the plaintiff to allow the defendant to introduce for the first time on appeal evidence which was readily available at the hearing of the summons but was not produced.”

29.  This approach has been followed in Hong Kong in appeals from summary judgments and other determinations of a summary nature^[12]. In Bank of New York Mellon v Sun Jiangrong at §§25 and 26, Poon JA (as he then was) had this to say about the modification of the Ladd v Marshall condition in this context:

“25. … For the degree of reasonable diligence which the court expects the defendant to have exercised in his effort to obtain the evidence in question must be assessed against the overall circumstances of the case. The court will take into account all relevant factors, such as the time available to the defendant to gather the evidence, the nature of the evidence, the difficulty encountered in obtaining the evidence, the effort that the defendant had used in gathering the evidence. (The list is of course not exhaustive.)

26.  We do not think that merely because it is an appeal from a summary judgment or proceedings not amounting to a trial, the requirement of reasonable diligence will be automatically relaxed. It is only one of the factors that the court will bear in mind.  If, for example, in an application for summary judgment where the defendant is time-pressed to obtain the evidence in support of his defence and was unable to do so because of the shortage of time, the appellate court might be more inclined to grant him the indulgence to adduce fresh evidence on appeal. (But even then, as Lord Bridge made it explicitly clear, that does not relieve him from his duty to use such diligence as is reasonable in the circumstances to put before the judge below all the evidence that he seeks to rely on, albeit in a summary form.) However, if the defendant has been given ample time to gather all the evidence in opposition but has unreasonably failed to do so, we doubt very much if an appellate court would be prepared to relax the reasonable diligence requirement on his application to adduce fresh evidence on appeal simply because it is an appeal from summary judgment.”

30.  Hence, even if the degree of reasonable diligence which the court expects the debtor to obtain evidence to resist a bankruptcy order may not be as high as that required for a litigant in preparing for a trial, it does not mean that the requirement of reasonable diligence will be automatically relaxed.  In deciding whether to allow the debtor to adduce evidence on appeal, the court will assess whether the requirement is met by taking into account all relevant factors.

31.  Mr Man submitted that the requirement of reasonable diligence is clearly met.  There is no statutory requirement for a debtor to file any evidence at the first hearing of the petition before a judge, to whom the petition is transferred by a master.  All that the debtor is required to do is to file and serve a notice pursuant to rule 68 of the Bankruptcy Rules, Cap 6A^[13] specifying the grounds on which he intends to show cause against the petition three days before the hearing of the petition.  In this instance, the debtor’s solicitors filed a notice of intention to oppose the petition on 17 June 2019, two days before the petition was heard by a master, who transferred it to be heard by the judge on 24 June 2019.

32.  Mr Man contended that the hearing before Au-Yeung J was “the first hearing”.  It was fixed for 15 minutes.  As there is no automatic timetable imposed by any statutory provision for the filing of evidence in opposition, the debtor was not required to do so until directions were given by the judge at “the first hearing” for evidence to be filed.  He was “entitled” to ask for a short adjournment to file evidence.

33.  In support of his contention, Mr Man contrasted the absence of statutory provisions in bankruptcy petitions with the provision in winding-up petitions.  Rule 32(1) of the Companies (Winding-up) Rules, Cap 32H provides that affidavits in opposition to a winding-up petition shall be filed within seven days, or such longer time as the court may direct, of the date on which the affidavit verifying the petition is filed and notice of every affidavit in opposition to such a petition shall be given to the petitioner.

34.  Heavy reliance was placed by Mr Man on the “settled practice” of the bankruptcy court in England described in Siddiqi v Taparis Ltd [2019] BPIR 1025 at §§11, 18 to 21, the relevant parts of which read as follows:

“[11] … the settled practice is that unless any such ground of opposition is shown to the courts at that stage to be fanciful the court will adjourn the matter, with directions for further evidence and a substantive hearing at which the grounds can be addressed. He points out that the requirement on the debtor to file the notice of opposition requires him to identify the grounds of his opposition but not to provide any evidence in support of it or even any verification by a statement of truth of the matters that are asserted in it. Accordingly, it may very well be the position that at the first hearing, the court has only the barest outline of the proposed grounds of opposition and it is going to be necessary, unless the court can immediately dismiss the proposed opposition as fanciful, to give directions for evidence to be provided and a hearing convened to assess the merits.”

“[19] … it is common for a debtor to advance grounds of opposition either later than required by the rules or even at the hearing itself, and no authority has been cited to the effect that the time required by the rules is critical. … that practice developed in circumstances where there was not before the courts the question of transfer on the grounds of opposition but it is a practice relating to dealing with opposition to petitions and it is relevant, in my view, to interpretation of what the practice direction now means by defining a category of opposed petitions.”

“[20] Furthermore, in accordance with that practice, any deeper analysis of the merits of the grounds of opposition is not conducted at the stage of the first hearing. …”

35.  In Siddiqi v Taparis Ltd, the debtor belatedly filed a notice of opposition with a supporting witness statement before his bankruptcy petition was to be heard by a county court judge.  Under the relevant Practice Direction, the petition was required to be transferred to a London court unless the matter was designated as “local business” and a bankruptcy petition would be local business if it was “unopposed”.  The debtor sought the transfer of the petition to a London court and/or an adjournment for the submission of evidence of the issues he raised in his notice of opposition. The county court judge determined that the petition was not opposed because the notice of opposition was not filed in time and refused an adjournment as the material before him was insufficient to conclude that the debtor had reasonable prospects of payment if given time to do so.  The bankruptcy order was set aside by the High Court on appeal. 

36.  The “first hearing” referred to in the extracts set out above was the hearing before the county court judge, whose concern as required under the relevant Practice Direction was to ascertain whether the petition was opposed or not.  This is akin to the situation in Hong Kong when the bankruptcy petition first comes before a master for hearing.  Under section 99(3)(a) of BO, the master sitting in open court has power to make a bankruptcy order on an unopposed petition^[14].

37.  In Re Heater Industrial Ltd (reported sub nom Hendrarsin & Ors v Chong Lai Fee & Anr [1993] 2 HKC 243), it was held by the Court of Appeal that notwithstanding rule 32(1) of the Companies (Winding-up) Rules, the failure to file evidence in opposition did not mean that the petition was unopposed, in light of the unequivocal statement of intention to oppose the petition in the notices of intention to appear entered by the opposing contributories, reinforced by what the master was told by their solicitors of the reason for not filing evidence so as not to prejudice their application for a stay of the proceedings.  The Court of Appeal did not read rule 32(1) as “laying down a requirement for affidavits in opposition before a petition can be opposed but rather that, if it is desired to file an affidavit in opposition, this must be done within the seven days prescribed.” (at 247I to 248A)

38.  In the absence of a provision equivalent to rule 32(1), the position in a bankruptcy petition must be clearer.  To satisfy the master that the bankruptcy petition is opposed, a debtor is only required to file a notice of intention to oppose the petition specifying the grounds on which he intends to show cause, pursuant to rule 68 of the Bankruptcy Rules.  As the debtor had done so prior to the hearing before the master on 19 June 2019 (even though the notice was given two days before the hearing instead of three days as required), the petition before the master was not unopposed and he rightly transferred it to be heard by the judge.

39.  The hearing before Au-Yeung J was not equivalent to the first hearing before the county court judge in Siddiqi v Taparis Ltd. The quotations from that judgment relied on by counsel must be read in the proper context.  The hearing on 24 June 2019 was not a call-over hearing, albeit fixed for 15 minutes. That there is no provision equivalent to rule 32(1) of the Companies (Winding-up) Rules prescribing the time within which evidence in opposition should be filed is beside the point.  The judge hearing the petition has a discretion whether to make a bankruptcy order immediately or to adjourn it to a hearing allowing for more time to assess the merits and giving directions for the filing of evidence and submissions for the further conduct of the proceedings.  If a debtor does not come forward with evidence in support of his grounds of opposition, he runs the risk of not being permitted to do so. Whether the exercise of discretion of Au-Yeung J in refusing to grant a one-week adjournment for the debtor to file evidence may be rightly impugned in all the circumstances of this case is a matter to be canvassed in the appeal, but there is no entitlement on the part of the debtor that he should be granted an adjournment to file evidence.

40.  Mr Man further submitted that the requirement of reasonable diligence was satisfied in that the debtor deposed in Lau 2^nd he “only discovered that the Petitioner did not have a money lender’s licence on 17 June 2019, whereupon [he] immediately instructed [his] solicitors to file a Notice of Intention to Oppose Petition.”  Hence, he was under pressure of time.

41.  As pointed out by Mr Chu, the debtor did not elaborate or provide any context of his discovery on 17 June 2019.  Although the bankruptcy petition was served on him in early June, he had been served with the statutory demand in March, he was aware of the presentation of the petition and had instructed solicitors to act for him in the proceedings since 20 May.  There was ample opportunity for the debtor and his solicitors to take such action as may be necessary to find out whether the petitioner held a money lender’s licence at the material time.  As mentioned earlier, the evidence sought to be adduced was within the debtor’s knowledge and acknowledged by his solicitors as “insubstantial in volume” and “relatively straightforward”, contrary to the latest contention of his counsel that he had exhibited “numerous contemporaneous documents … which would obviously take time to locate and assemble”.  That there is no statutory provision prescribing the time within which evidence in opposition is to be filed is irrelevant.

42.  In all the circumstances of this case, I am not satisfied that the debtor had used such diligence as is reasonable to put before Au-Yeung J at the hearing on 24 June the evidence he intended to rely on in support of his grounds of opposition.

43.  The condition of reasonable diligence is not met in this instance. It is not necessary to consider the other two conditions in Ladd v Marshall.

44.  For all the above reasons, I refuse to grant leave to adduce the new evidence on appeal.  I order the debtor to pay the petitioner the costs of this application.  Having considered the petitioner’s statement of costs for summary assessment, I will allow the amount in full at $122,780.

45.  The costs order and summary assessment are orders nisi.  Any application for variation must be made within 14 days of the handing down of this judgment.