NAN FUNG FINANCE LTD v. CHAN SUN

BEWTEEN

3.  On 6 November 2003, the Petitioner, having been unable to locate the Debtor, served a statutory demand on the Debtor by advertisement in a local newspaper.  No payment having been received from the Debtor in response to the statutory demand, the petition was presented on 19 October 2005, an order for substituted service of the petition on the Debtor was obtained, and service of the petition was effected in accordance with that order.

4.  The Debtor eventually became aware of the petition, and appeared at its first hearing, indicating that he opposed it.  He has since filed two affirmations in opposition to the petition, on 6 March 2006 and 19 May 2006 respectively.  He disputes his liability to the Petitioner under the judgment on which the Petitioner relies, alleging that there was an agreement reached between himself and the Petitioner in 1996 that, in consideration of his making a payment of HK$246,650.00 and surrendering possession of the Property and three other properties in the same building (Units 3, 4 and 5 also on the 21^st floor of Well Fung Industrial Centre), the Petitioner would waive all further indebtedness in relation to its mortgage loans in relation to the Property and the three other properties.  In his first affirmation, he put the date of this alleged agreement at 30 August 2006.  However, in his second affirmation, he said that this was not correct, and that the date of the agreement was in fact 21 May 2006.

5.  The Petitioner denies the existence of any such agreement.  Mr Chan, who appears for it, submits that when tested against the objective evidence, the Debtor’s case is not capable of belief, and thus does not disclose the existence of a bona fide dispute of substance as to the debt on which the petition is based, and that, accordingly, a bankruptcy order should be granted against the Debtor.

6.  The factual background to these proceedings can be summarised as follows:-

(1)     The Debtor, together with his then wife, her mother and her sister, acquired the Property on 16 August 1993, mortgaging it on the same day to the Petitioner to secure an instalment loan granted to them by the Petitioner to acquire the Property.

(2)     At about the same time, the other three properties were also acquired, although these were acquired in the name of a limited company called Kai Tak Enterprises Limited, in which the Debtor appeared to have an interest.  These other properties were also mortgaged to the Petitioner, and the Debtor and his then wife provided guarantees to the Petitioner in respect of the debts of Kai Tak Enterprises.

(3)     Shortly after the acquisition of the Property, from October 1993 onwards, there were defaults in relation to monthly instalments payable under the instalment loans granted in relation to each of the four properties that had been acquired.  So far as the Property is concerned, the Petitioner made demands for payment of the outstanding instalments through members of its staff and through its solicitors, Messrs F. Zimmern & Co.  Despite these demands, the outstanding indebtedness was not paid.

(4)     As a result, the Petitioner commenced HCMP No. 2433 of 1995 against the Debtor and his co-owners on 1 September 2005.  This led to an order for possession of the Property and the money judgment dated 6 Debember 2005, which was served by post on the Debtor and the other mortgagors at the address of the Property.  The letter enclosing the judgment by way of service was not returned through the dead letter service.  Although the Debtor initially denied having any knowledge of the 1995 proceedings, in his second affirmation he stated that he or his staff continued to occupy the Property until at least 21 May 1996, and that he continued to check the mailbox at the Property for about one or two months thereafter.  His case as to the agreement between himself and the Petitioner set out in his second affirmation, which I have summarised above, was clearly premised on his being aware of the 1995 proceedings.

(5)     On 15 January 1996, the Petitioner obtained a writ of possession and fi.fa. in respect of the Property.

(6)     On 6 February 1996, the Debtor wrote to the Petitioner enclosing a series of post-dated cheques to clear the outstanding indebtedness in respect of all four properties.  Only the first of these was honoured.  After the second and third cheques were not honoured on presentation, the Petitioner returned them and the remaining cheques to the Debtor.  The Debtor denies having received the returned cheques, but I do not think that much turns on this.

(7)     The Petitioner then instructed its solicitors to proceed to obtain possession of the Property.  The bailiff sought to execute the judgment on 7 May 1996, but was unsuccessful.

(8)     The same day, 7 May 1996, the Debtor wrote to the Petitioner again, proposing to settle the outstanding instalments in accordance with a suggested timetable.  The Petitioner then caused one of its employees, a clerk named Ms Shea, to contact the Debtor, and inform him of the terms on which the Petitioner would consider withholding further steps to take possession of the properties.  These were that two of the outstanding instalments on each of the properties should be paid immediately, and the rest cleared so that the position would be up to date by September 1996.

(9)     On 22 May 1996, the Petitioner received a cashier order from the Debtor for HK$246,650.00.  The letter indicated that the payment was in respect of the Property only.  The Petitioner says that as it appeared that the Debtor was willing to resume payments in respect of the Property, it instructed its solicitors to file a Notice of Discontinuance in respect of the proceedings in relation to it.  This was done on 30 May 1996.

(10)   Also on 30 May 1996, a firm of solicitors, Messrs C.K. Tse & Co., wrote to the Petitioner stating that they acted on behalf of the Debtor, and asked for provision to them of the title deeds for all four properties, and for advice as to the amount required to redeem the mortgages as at 28 June 1996.  A similar letter was sent in respect of Units 3 to 5 on 26 July 1996, this time enclosing provisional sale and purchase agreements in respect of those properties dated 29 May 1996.  There is evidence that the Petitioner took steps to obtain the necessary information, although it does not appear ultimately to have been supplied, as nothing further was heard from Messrs. C.K. Tse & Co.

(11)   Shortly thereafter, the Debtor and his co-owners again defaulted in making the instalment payments in respect of the Property.  This led the Petitioner to instruct Messrs F. Zimmern & Co. to make fresh demands for payment.

(12)   On 10 December 1996, the Petitioner’s solicitors received a letter from solicitors representing a tenant of Unit 5, asking that possession proceedings in relation to Unit 5 be stayed for a brief period to enable the tenant to carry on its operations while it looked for alternative accommodation.  Enclosed with the letter was a tenancy agreement in Chinese dated 12 August 1996, bearing what appeared to be the Debtor’s signature on behalf of the landlord.

(13)   When no further payments were forthcoming, the Petitioner commenced fresh proceedings in respect of the Property on 6 January 1997, under HCMP 49 of 1997.  These led to a fresh money judgment and order for possession dated 21 May 1997, and a fresh writ of possession and fi.fa. dated 19 August 1997, with possession of the Property being obtained on 3 November 1997.

(14)   After obtaining possession of the Property, the Petitioner had it valued and attempted to sell it at public auction on 21 January 1998.  The auction did not result in the sale of the Property.  Thereafter, the Petitioner says that it made many attempts to sell the Property privately, also without success, despite advertising it for sale on a considerable number of occasions.  The Property was finally sold in March 2002 for HK$626,000.00.

7.  As I have indicated, the Debtor’s case is that there was an agreement between himself and the Petitioner that in consideration of his making a one off payment of HK$246,650.00 and surrendering possession of all four properties, all of the outstanding indebtedness in respect of all the properties would be waived.  The Debtor placed considerable reliance on the Notice of Discontinuance as being supposedly cogent evidence in support of his case.

8.  I am unable to accept that the Debtor has raised a bona fide dispute of substance as to his liability to the Petitioner.  There are a considerable number of objective factors that indicate, to my mind, that his case is without any foundation.   

9.  As I have indicated, although the Debtor initially said that the alleged agreement was made on 30 August 1996, he subsequently alleged that it was in fact made on 21 May 2006.  I do not think that it would be right to hold this inconsistency against him, given the lapse of time that has taken place since then.  It is possible that when making his first affirmation, he was genuinely confused as to the relevant dates.  However, even allowing for this, his case remains, in my view, incapable of credit.

10.  First, although the Debtor claims that he left the keys to all four properties with the management office of Well Fung Industrial Centre on 21 May 2006, by arrangement with Ms Shea of the Petitioner, the fact is that the Petitioner did not in fact obtain possession of any of the units until considerably later, and then only with the assistance of the bailiff.  Possession of Units 3 and 4 was not recovered until 12 December 1996.  Possession of Unit 5 was obtained on 8 May 1997.  As I have already stated, possession of the Property was not obtained until 3 November 1997.  If the Debtor had in fact returned the keys as he alleges, there would have been no need at all for the Petitioner to have taken these steps, or to have been delayed in recovering possession for up to a year and a half.  The fact that the Petitioner pressed on with steps to obtain possession through legal process strongly suggests that it did not have the easy means of obtaining possession that would have been available had it had the keys to the properties.  This therefore tells against the Debtor having handed over the keys to the properties on  21 May 2006,  and thus undermines his case as to the alleged agreement.

11.  The fact that the Petitioner continued to press for repayment of the outstanding indebtedness in relation to the Property after the further defaults from June 1996 onwards is also strongly suggestive that there was no such agreement as alleged by the Debtor.  No reason has been put forward as to why the Petitioner should have made such demands if it did not genuinely consider itself entitled to do so.  This too, is a factor that militates against acceptance of the Debtor’s case.

12.  Moreover, the letters of 7 and 26 May 1996 written by the Debtor to the Petitioner do not contain any hint of the alleged agreement.  The letter of 7 May simply proposes a schedule for repayment of the outstanding instalments, without any suggestion of some overall settlement.  More significantly, the letter of 26 May 2006, written as it was after the date of the alleged agreement, makes no reference at all to the alleged agreement, nor even to the fact (as on the Debtors case it would be) that the keys to all of the properties had been returned by leaving them at the management office of the building.  Had the keys been returned, one would have expected this to have been mentioned.  Similarly, had there been an overall settlement reached, one would have expected this to have been stated as well.

13.  The letters from Messrs C.K. Tse & Co., and the provisional sale and purchase agreements enclosed with the second of these letters dated 26 July 1996 are also strong evidence against the existence of the alleged agreement, since they demonstrate that even after the making of the alleged agreement, the Debtor was continuing to deal with at least the other properties, whereas had the alleged agreement in fact been made, he (or his company) would no longer have had any interest in them.  At the hearing on 16 November 2006, the Debtor asserted that the provisional sale and purchase agreements in question were forgeries, although he accepted that what purported to be his signature on those documents appeared to be virtually identical to his signature.  He stated that he has lodged a complaint concerning the alleged forgeries with the police and other authorities.  However, there is no evidence whatsoever to support this bare allegation, and I see no reason to give it any weight.

14.  In any event, the Petitioner’s reaction to these letters, which was to gather together the information requested, suggests that so far as the Petitioner was concerned, there was no agreement along the lines alleged, since had there been such an agreement, the Petitioner would no doubt have queried why the Debtor was still seeking to deal with property which he had surrendered to the Petitioner.

15.  Similarly, the tenancy agreement entered into in respect of Unit 5 on 12 August 1996 is also strong evidence against the existence of the alleged agreement.  Although the Debtor alleged that this document too was forged, I am unable to accept the allegation given the absence of any supporting evidence whatsoever.

16.  Finally, it seems to me that it is also relevant to note that the employee of the Petitioner with whom the agreement was allegedly made was employed as a clerk in its accounts department, and is thus most unlikely to have had the authority to enter into any agreement of the sort proposed.  Given that the Petitioner is a finance company, one would also expect there to have been some written record had any such agreement been made as alleged.

17.  What, then, of the Notice of Discontinuance, on which the Debtor placed heavy reliance?  In my view, the filing of the Notice of Discontinuance is wholly neutral so far as the existence of the alleged agreement is concerned.  Leaving aside the Petitioner’s evidence that it intended and believed that the Notice of Discontinuance related only to the process of execution, and not the proceedings themselves, and leaving aside for the moment also the question of whether the Notice was of any effect, it seems to me that it is not possible to infer from the lodging of the Notice that there was an agreement of the kind alleged by the Debtor.  At the time when the Notice was filed, there had been a payment of HK$246,650.00 which the Debtor had, by his letter of 26 May 1996, requested should be attributed to the loan in respect of the Property.  This would have brought the loan in respect of the Property up to date, or very nearly so.  The Petitioner’s evidence is that it believed, in the light of this, that the Debtor intended to continue to service the loan in respect of the Property.  In these circumstances, it would not have been necessary for it to pursue the attempts to obtain possession of the Property.  This would perhaps provide a reason for the service of the Notice of Discontinuance (although it would not seem necessary for the Petitioner to have done this), but it would not necessarily follow that there had been an overall settlement in relation to the loan in respect of the Property (let alone the other loans for the other properties).  All that it would show would be that the Petitioner did not, at that point, think (rightly or wrongly) that it was necessary to continue with the proceedings it had commenced in 1995.  This says nothing about whether the mortgage loan continued in existence.  Thus, I do not think that the filing of the Notice of Discontinuance supports the Debtor’s case.

18.  However, even if the Debtor’s case as to the alleged settlement is not accepted, it remains necessary to consider whether or not the debt on which the petition is based exists.  In this context, it is necessary to consider whether the Notice of Discontinuance had the effect of bringing the 1995 proceedings to an end, so as to prevent the Petitioner from relying on the judgment obtained in those proceedings.

19.  As to this, I am satisfied that the filing of the Notice of Discontinuance did not in fact effect any valid discontinuance of the 1995 proceedings.  Although an action can be discontinued after judgment has been given, this can only be done with the leave of the court (see the White Book para 21/5/17; Benton v Polkinghome (1846) 1 M&W 8 at 11; and the recent decision of Chu J in proceedings involving the Debtor’s former mother-in-law and sister-in-law – HCB 8046 and 8048 of 2005, unreported, 26 October 2006 at paras 45 and 46 of the judgment (which, although in Chinese, was translated for my benefit at the hearing)).

20.  As the Notice of Discontinuance was ineffective, the 1995 proceedings remained in existence and the judgment obtained in those proceedings remained valid and effective, and capable of enforcement.  That being so, it was open to the Petitioner to serve the statutory demand on the basis of that judgment, and thereafter to issue the petition on the basis of that judgment debt.

21.  At the hearing on 16 November 2006, the Debtor alleged that these proceedings were brought by the solicitors acting for the Petitioner (Messrs F. Zimmern & Co.) in pursuance of some arrangement with a Mr Law Chun Wai, who was said to have been involved in the alleged forgeries of the provisional sale and purchase agreements and tenancy agreements to which I have already referred.  Suffice it to say that there is no foundation whatsoever for this allegation, which I reject.