RE WILLIAM HENRY WOO

HCB 276/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 276 OF 2002

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REASONS FOR JUDGMENT

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1. This is a petition for bankruptcy brought by Celestial (International) Securities & Investment Limited, a licenced money lender and a wholly-owned subsidiary of a listed company known as Celestial Asia Securities Holdings Limited. The debtor is a solicitor practising in Hong Kong and is the principal of a firm of solicitors. The petition was brought on the basis of a judgment debt in HCA No. 9659 of 2000 in the sum of HK$60,000,000.00 obtained on 27 August 2001. The judgment was given by a Master on an application for summary judgment and it was upheld by Deputy Judge Lam on 4 December 2001. The debtor has sought to appeal from the decision of the Judge to the Court of Appeal. His only ground for opposing the bankruptcy petition is that he has a bona fide appeal. I have ruled against him on this and made a bankruptcy order and these are the reasons for my judgment.

2. I summarize the background as follows.

3. On 24 January 2000, the debtor signed a loan agreement with the petitioner by which the petitioner agreed to lend to the debtor HK$60,000,000.00 which was to be repaid on 24 October 2000. On the same day, the debtor executed a share mortgage agreement whereby he mortgaged 100 shares in a company established by him as security for the loan. Pursuant to the share mortgage agreement, the debtor deposited with the petitioner the share certificates of the shares in question on 25 January 2000 and on 26 January 2000, the sum of HK$60,000,000.00 was advanced to the debtor. In April and July 2000, the debtor paid quarterly interest to the petitioner under the loan agreement in the sum of HK$1,800,000.00 on each occasion. On 23 October 2000, the petitioner's solicitors wrote to the debtor reminding him that the loan was due to be repaid the next day. On 24 October 2000, the debtor denied that a loan was made to him. The petitioner issued a writ against the debtor on 25 October 2000 and this is the High Court Action mentioned earlier.

4. As I have stated, summary judgment was entered by a Master on 27 August 2001. The debtor filed a Notice of Appeal to a judge and issued a summons for stay of execution pending appeal. That application came before Suffiad J on 14 November 2001 and it was dismissed. In his ruling dated 15 November 2001, Suffiad J was of the view that the prospect of success of the debtor in his appeal was not good.

5. The appeal was heard by Deputy Judge Lam on 21 and 22 November 2001. Judgment was given on 4 December 2001. Before judgment was given and on 23 November 2001, the petitioner applied to the Judge for a prohibition order that the debtor be prohibited from leaving Hong Kong. The prohibition order was made on 26 November 2001 but the debtor had already left Hong Kong that day before the prohibition order was served on the Immigration Department. On 7 December 2001, a Master ordered that a warrant of arrest be issued against the debtor to bring him before the court for examination under O.49B of the Rules of the High Court. On 10 December 2001, Yeung J (as he then was) granted a worldwide Mareva injunction against the debtor on the petitioner's application. At the return date of the injunction on 21 December 2001, it was ordered that the injunction was to remain in force with an extension of time for the debtor to provide information as ordered in the injunction granted on 10 December 2001. I understand this order to provide information has not been complied with by the debtor and he has not returned to Hong Kong.

6. After judgment was handed down by Deputy Judge Lam on 4 December 2001, and on 19 December 2001, the solicitors then acting for the debtor served a Notice of Appeal against the decision of the Judge and sought to file the Notice of Appeal in court. The Registry did not allow the filing of the Notice because the order of the Judge had not been sealed at that time. The order was sealed only on 22 January 2002. On 30 January 2002, the solicitors then acting for the debtor obtained an order that they ceased to represent the debtor in the High Court Action and the solicitors had not filed the Notice of Appeal before they ceased to act.

7. On 19 April 2002, the new solicitors acting for the debtor issued a summons to file the Notice of Appeal and set down the appeal out of time. This was heard by Mayo VP on 8 May 2002 and it was dismissed. Mayo VP took the view that the appeal of the debtor was "entirely unmeritorious".

8. On 13 May 2002, the debtor issued a summons for leave to appeal out of time and it was fixed for hearing before a two-member Court of Appeal on 19 July 2002.

9. The petition herein was filed on 5 January 2002 and it was made on the basis of s.6A(1)(b) of the Bankruptcy Ordinance, Cap. 6, that execution on the judgment debt was levied and returned wholly unsatisfied. An order for substituted service of the petition was obtained on 5 March 2002 and that order has been complied with.

10. Two main points were taken by the debtor in the appeal before Deputy Judge Lam. Firstly, it was contended that the loan agreement and the share mortgage agreement executed by the debtor were a sham and there was misrepresentation by the chief executive officer of the petitioner as to the effect of these documents. The Judge considered this defence in paragraphs 5 to 26 of his judgment and came to the view that this line of defence was wholly incredible. The second broad ground of defence was the failure to comply with various provisions in the Money Lenders Ordinance, Cap. 163 as follows: (i) there was contravention of s.22 in that the loan agreement provided for the payment of compound interest; (ii) there was contravention of s.18(1)(a) in that there was no note or memorandum in writing of the agreement given to the debtor; and (iii) there was contravention of s.18(1)(b) in that there was no summary of the provisions of Cap. 163 attached to the note or memorandum of the loan agreement. These points on the Money Lenders Ordinance were dealt with in paragraphs 27 to 37 of the judgment.

11. It is pertinent to note that these points on money lender were not pleaded in the defence filed on 13 December 2000 or raised by the debtor at the hearing before the Master. As noted by the Judge, they were put forward for the first time by way of a very general allegation in one paragraph of the fourth affidavit of the debtor filed on 9 November 2001, and after some complaint from the petitioner as to the lack of particularisation of the money lender defence, some further grounds were set out in a letter of the debtor's solicitors dated 16 November 2001. The Judge allowed the debtor to argue the point about compound interest and the absence of a note or memorandum in writing of the agreement but not the point about the lack of a summary of the provisions of Cap. 163 for which further evidence would have to be filed, as recognised by the debtor. As specific directions had been given by Suffiad J as to the filing of the evidence for the appeal to ensure that there would be no delay in the disposal of the matter and no or no good reason had been advanced before the Judge why the directions were not complied with, the Judge exercised his discretion against the debtor and did not allow the point about the lack of a summary of the provisions of Cap. 163 to be argued.

12. The Judge ruled against the debtor on all the points taken on the Money Lenders Ordinance. On the contravention of s.22 in that compound interest was provided for in the loan agreement, the petitioner did not include compound interest in the calculation of its claim in the High Court Action and asked the court to exercise its discretion under s.22(2) to allow the petitioner to enforce the loan agreement. The Judge decided that he could properly exercise his discretion to grant relief under s.22(2) even in the context of an Order 14 application, taking into account the debtor's background, qualification and experience as set out in paragraph 1 of the judgment; that he could discern nothing in the case which was against the underlying policy of the Ordinance; that this was just a commercial transaction between two experienced businessmen and there was no reason why the debtor should get any windfall out of this; that the debtor would not suffer any prejudice if the provision as to compound interest was severed from the loan agreement; that there was no complaint of high interest rate; and the terms of the loan agreement were by all account reasonable. The Judge came to the view that this was a clear case that the court could and should exercise its discretion to allow the petitioner to enforce the loan agreement. On the point that no note or memorandum of the agreement was given to the debtor, the Judge held that as a matter of law, the loan agreement itself could also be the memorandum and there was no contravention of s.18.

13. I have considered the Notice of Appeal and the grounds relied on by the debtor. In so doing, I have looked at the main points that would be advanced on appeal to see whether the debtor has raised any ground of appeal worth serious consideration.

14. On the point that the Judge had rejected the debtor's allegation of misrepresentation and that the agreements executed by him were a sham, I am of the view that the debtor has failed to raise any arguable ground of appeal. Indeed, Mr Ling Chun Wai, who appeared for the debtor, did not make this ground the forefront of his argument.

15. The main point taken by Mr Ling was that the Judge had erred in law in failing to follow the decision of the Court of Appeal in Cheung Chow v. Cheung Ng Sheong Steven, Civ. App. No. 119 of 1993, 24 November 1993. It was contended that the Court of Appeal had laid down a principle of law in that where there is a failure by a money lender to comply with s.18(1) and seeks to invoke the discretion of the court under s.18(3), the court must investigate all the facts to get a full picture of all the circumstances, including the activities in general of the money lender in question before it can decide whether it would be inequitable not to enforce the loan agreement. It was submitted that because of this duty to investigate all the facts, and all the circumstances cannot be known until after discovery and a full trial, the discretion under s.18(3) cannot be exercised on an application for summary judgment. Mr Ling contended that there was no material difference between the exercise of the discretions under s.18(3) and s.22(2). The Judge was therefore wrong in exercising his discretion under s.22(2) in a summary manner, as Waung J had done in Orix Asia Ltd v. Grant Forward Industrial Ltd & Ors. HCCL No. 79 of 1999, 15 June 2000.

16. The Judge dealt with the Court of Appeal decision of Cheung Chow and other cases cited to him (which were also cited by Mr Ling to me) in paragraphs 31 to 36 of his judgment. He came to view that the Court of Appeal did not lay down a general principle of law applicable to every case whenever a money lender seeks to invoke the discretion of the court to enforce the loan agreement when some aspect of the Ordinance has not been complied with. He did not consider that the authorities relied on by the debtor had decided that as a matter of law, summary judgment could not be granted whenever such a discretion of the court is invoked. I have considered the relevant parts of the judgment in Cheung Chow that Mr Ling particularly wished to rely on. I am wholly unpersuaded that in those speeches, the Court of Appeal had laid down an immutable principle of law that whenever a money lender seeks to invoke the discretion of the court under s.18(3) or s.22(2), that discretion could only be exercised after a full trial. In my view, the debtor has failed to raise a ground of appeal worth considering by the Court of Appeal.

17. That, in effect, disposes of the other points to be advanced on appeal based on the contravention of the Money Lenders Ordinance. Because even if the Judge were wrong (and I am not persuaded of any arguable basis that the Judge had erred) in ruling that the loan agreement could constitute a memorandum for the purpose of s.18(1)(a) and that he had erred in refusing to allow the debtor to adduce evidence to substantiate the allegation that no summary was provided in contravention of s.18(1)(b), the petitioner could still have invoked the discretion of the court under s.18(3). On the analysis of the Judge, there is no basis for suggesting that any other court would have exercised the discretion against the petitioner and refused to allow the petitioner to enforce the loan agreement to recover HK$60,000,000.00 from the debtor.

18. For the above reasons, I am firmly of the view that the appeal is not a bona fide appeal. I therefore make a bankruptcy order against the debtor with costs to the petitioner.