WONG TAK MAN, STEPHEN AND ANOTHER v. CHEUNG SIU FAI also known as DICKSON CHEUNG AND ANOTHER

HCMP 1431/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1431 OF 2012

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D E C I S I O N

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1. I have before me an application by summons for an order under RHC O 38 r 2(3) that the deponents of certain affirmations be cross-examined. The underlying proceedings are a claim made by way of an OS brought by the trustees in bankruptcy of Mr Cheung Siu Kin against two persons, namely, the 1^st respondent, who is a younger brother of the bankrupt, and the 2^nd respondent, who is the wife of the 1^st respondent, to set aside 43 transfers of money made by the bankrupt to the 1^st respondent and 3 transfers made by the bankrupt to the 2^nd respondent. Affirmations have been filed on behalf of the respondents on 10 July 2013 in opposition to the OS. These affirmations were respectively made by the respondents themselves, the bankrupt and one Mr Cheung Hung who is a friend of the bankrupt’s.

2. The dispute on this morning’s summons falls within a small compass particularly since Mr Manzoni SC, and with him Mr Koo, who appear for the respondents, have realistically not opposed the orders for cross-examination of the 1^st respondent, the bankrupt and Mr Cheung Hung.  They do not consent to the order as such, and they wish to reserve their rights in case the bankrupt and Mr Cheung Hung fail to attend in circumstances beyond the respondents’ control.  I think that problem will be catered for by making the order I propose to make expressly subject to the direction of the trial judge.

3. The issue that Mr Manzoni and Mr Koo have taken is whether the 2^nd respondent should also be required to be cross-examined before her affirmation could be relied upon in the substantive hearing of the trustees’ claim.

4. The principles applicable to an application of this nature are so well established that it is unnecessary to rehearse them.  I had the occasion to apply them in Re Dianoor International Ltd, HCCW 576/2008, 11 July 2013.  There is no dispute between counsel on the legal principles.

5. Nor is it necessary to set out the factual background underlying the trustees’ claim.  It has been set out in the reasons given by Poon J on 10 April 2013 for dismissing the respondents’ application to strike out parts of the trustees’ claim, which I gratefully adopt.  Suffice it to say that there have been transfers of money both ways between the bankrupt on the one hand and the 1^st and 2^nd respondents on the other that took place within 5 years prior to the date of the bankruptcy petition (25 August 2008) on which the adjudication of bankruptcy was made.  By these proceedings the trustees claim a total amount of some HK$38.5 million.  One of the central issues in the OS will be the nature of the payments made to the 1^st and 2^nd respondents.  In dismissing the strike out application last year, Poon J held that “it is reasonably arguable that there were indicators to support the trustees’ case that the transfers between the parties were gifts”.

6. For present purposes the starting point must be the 2^nd respondent’s affirmation itself.  It was filed in opposition not only to the claim against the 2^nd respondent herself but also to the claim against her husband the 1^st respondent.  In the affirmation the 2^nd respondent states that she did not have any monetary dealings with the bankrupt on her own, and that the fund transfers between the bankrupt and her were made pursuant to dealings carried out on the instruction of her husband.  She says that the bankrupt was making investment for the 1^st respondent with the 1^st respondent’s funds.  On this basis she says that:

(i) the three transfers made by the bankrupt to her totalling HK$7,090,000 that form the subject matter of the claim against her were payments by way of return of the 1^st respondent’s “investment moneys”;

(ii) the sum of HK$1,560,000 transferred by her to the bankrupt in September 2004 was money for the bankrupt to invest on behalf of the 1^st respondent; and

(iii) the various sums transferred by her to the bankrupt after mid 2007 were loans to the bankrupt to help him out as he was not doing well with his investments. 

As a conclusion she says that the money in question constitutes “trust money” which had been held by the bankrupt for the 1^st respondent and was simply being returned to the 1^st respondent when it was transferred by the bankrupt to the 2^nd respondent.  She also states that the 1^st respondent had told her that he had given money to the bankrupt to invest for him, and that she had sometimes discussed the investments in very general terms with the 1^st respondent.

7. This account stands in contrast to what the 2^nd respondent is recorded to have said at an interview with the trustees’ representatives on 14 January 2012.  According to the note of interview prepared by a solicitor in the employ of the trustees’ firm, the 2^nd respondent had said that she had paid money to the bankrupt for investments although she did not keep records of the investments, that she did not know what investments she had made with the bankrupt together as she had never asked, and that the bankrupt had also in return paid her money although she did not know whether and if so, how much of it was for return of joint investment or repayment of a loan.

8. In her affirmation, the 2^nd respondent says that the note of interview is not an entirely accurate record of what she said.  In response, Miss Tang, the solicitor who jointly prepared the note with a colleague of hers, has made an affirmation stating that the note accurately and correctly reflects the conversation that had taken place at the interview.

9. In my view an order for cross-examination of the 2^nd respondent is necessary for the issues to be properly tried.  The proceedings will result in the final determination of the nature of the monetary transfers and the obligations of the respondents under ss 49 and 50 of the Bankruptcy Ordinance (Cap 6).  There are, at least possibly, discrepancies in the two accounts given by the 2^nd respondent which may have an impact on the credibility of her defence.  The version she has put forward in her affirmation may or may not be true – that is a question for the trial judge – but in my view it is not so self-evidently true and unassailable, or so well supported by contemporaneous documentary evidence, that one can say cross-examination will serve no useful purpose.  The trustees who have taken charge of the bankrupt’s estate after the adjudication of bankruptcy, and the creditors for whose benefit the claim is brought, are outsiders with no personal knowledge of the transfers in question.  The nature of the transfers is a matter privy to the bankrupt and the respondents.  The 2^nd respondent has chosen to put forward a positive case based on her own evidence of what the transfers were about.  It is not her case that she has absolutely no knowledge at all.  In these circumstances, it would not be right, in my judgment, to allow her evidence to be admitted wholly untested by cross-examination.

10. Mr Manzoni SC submits that it is unnecessary for the 2^nd respondent to be cross-examined.  He says the inconsistency alleged in the 2^nd respondent’s evidence is that she did not explain in her interview what she now says in her affirmation, namely, that the money transferred was family funds and not money owned solely by herself absolutely.  He submits it was understandable why the 2^nd respondent did not mention that at the interview, because she did not realise the distinction, or the importance of the distinction, between her own personal funds and family assets.  He submits that in any event the inconsistency does not concern whether the payments made by the bankrupt to the respondents were gifts.

11. I am unable to accept this submission.  The justification for cross-examination of the 2^nd respondent is not merely the inconsistency between her affirmation and the note of her interview.  Even if she had only given one account in the form of her affirmation, it might well be appropriate to order cross-examination for the reasons I have given.

12. Mr Manzoni also submits that given that the 1^st respondent is to be cross-examined, it is unnecessary for the 2^nd respondent to be put under cross-examination on the same issues.  Again I cannot accept this submission.  The evidence of the respondents does not entirely overlap, nor is it suggested that their knowledge is in every relevant respect co-extensive.  Ultimately, the choice is the respondents’.  If it is considered that the 1^st respondent’s evidence is sufficient for the purpose of the defence, they may decide not to rely on the 2^nd respondent’s affirmation at trial, in which case she does not have to be cross-examined.  If they think her affirmation is a necessary part of their evidential case, then for the reasons I have given she ought to be cross-examined. 

13. There will therefore be an order that, subject to the direction of the trial judge, unless the 1^st respondent, the 2^nd respondent, the bankrupt and Mr Cheung Hung be tendered for cross-examination at the hearing of the OS herein, their respective affirmations dated 10 July 2013 herein may not be relied upon by the respondents in the determination of the OS.

14. Mr Manzoni submits that if the 2^nd respondent is to be cross-examined, so should Miss Tang.  Mr Maurellet accepts that Miss Tang should be tendered for cross-examination in relation to the interview of the 2^nd respondent.  That in my view sufficiently meets the point raised by Mr Manzoni.  I am not prepared to say now that Mr Arab, one of the trustees, should also be cross-examined.  There is no application for that purpose before me and it is not apparent what personal knowledge he has of any fact relevant to the issues in question.

15. I shall now hear counsel on costs.